[Senate Hearing 108-779]
[From the U.S. Government Publishing Office]
S. Hrg. 108-779
Senate Hearings
Before the Committee on Appropriations
_______________________________________________________________________
Departments of Transportation,
Treasury and General Government,
and Related Agencies
Appropriations
Fiscal Year
2005
108th CONGRESS, SECOND SESSION
H.R. 5025/S. 2806
DEPARTMENT OF THE TREASURY
DEPARTMENT OF TRANSPORTATION
NONDEPARTMENTAL WITNESSES
UNITED STATES POSTAL SERVICE
Departments of Transportation, Treasury and General Government, and
Related Agencies Appropriations, 2005 (H.R. 5025/S. 2806)
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S. Hrg. 108-779
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
=======================================================================
HEARINGS
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
on
H.R. 5025/S. 2806
AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND
TREASURY, THE EXECUTIVE OFFICE OF THE PRESIDENT, AND CERTAIN
INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2005, AND
FOR OTHER PURPOSES
__________
Department of the Treasury
Department of Transportation
Nondepartmental witnesses
United States Postal Service
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
__________
COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana
James W. Morhard, Staff Director
Lisa Sutherland, Deputy Staff Director
Terence E. Sauvain, Minority Staff Director
------
Subcommittee on Transportation, Treasury and General Government, and
Related Agencies
RICHARD C. SHELBY, Alabama, Chairman
ARLEN SPECTER, Pennsylvania PATTY MURRAY, Washington
CHRISTOPHER S. BOND, Missouri ROBERT C. BYRD, West Virginia
ROBERT F. BENNETT, Utah BARBARA A. MIKULSKI, Maryland
BEN NIGHTHORSE CAMPBELL, Colorado HARRY REID, Nevada
KAY BAILEY HUTCHISON, Texas HERB KOHL, Wisconsin
MIKE DeWINE, Ohio RICHARD J. DURBIN, Illinois
SAM BROWNBACK, Kansas BYRON L. DORGAN, North Dakota
TED STEVENS, Alaska (ex officio)
Professional Staff
Paul Doerrer
Lula Edwards
Alan Hanson
Peter Rogoff (Minority)
Kate Hallahan (Minority)
Diana Gourlay Hamilton (Minority)
Administrative Support
Matthew McCardle
Meaghan L. McCarthy (Minority)
C O N T E N T S
----------
Tuesday, March 9, 2004
Page
Department of Transportation: Office of the Secretary............ 1
Thursday, April 1, 2004
United States Postal Service..................................... 115
Wednesday, April 7, 2004
Department of the Treasury: Internal Revenue Service............. 155
Tuesday, April 20, 2004
Department of the Treasury: Office of the Secretary.............. 277
Thursday, April 22, 2004
Department of Transportation:
Federal Aviation Administration.............................. 397
Office of the Inspector General.............................. 411
Material Submitted by Agencies Not Appearing for Formal Hearings. 477
Saint Lawrence Seaway Development Corporation................ 477
Merit Systems Protection Board............................... 483
U.S. Access Board............................................ 487
Office of Personnel Management............................... 495
Office of the Inspector General.......................... 498
General Services Administration:
Public Buildings Service................................. 500
General Services Administration.......................... 501
Department of Transportation:
Federal Motor Carrier Safety Administration.............. 505
Bureau of Transportation Statistics...................... 509
Research and Special Programs Administration............. 511
Department of the Treasury:
Financial Crimes Enforcement Network..................... 513
Alcohol and Tobacco Tax and Trade Bureau................. 520
U.S. Office of Special Counsel............................... 524
Federal Election Commission.................................. 527
Office of National Drug Control Policy....................... 530
Surface Transportation Board................................. 534
Office of Government Ethics.................................. 539
Nondepartmental Witnesses........................................ 543
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
TUESDAY, MARCH 9, 2004
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:01 a.m., in room SD-138, Dirksen
Senate Office Building, Hon. Richard C. Shelby (chairman)
presiding.
Present: Senators Shelby, Bennett, Stevens, and Murray.
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
STATEMENT OF HON. NORMAN Y. MINETA, SECRETARY
opening statement of senator richard c. shelby
Senator Shelby. Good morning. The committee will come to
order.
This is the first hearing of the Transportation, Treasury
Subcommittee for the year, fiscal year 2005. Today we welcome a
familiar face, Secretary Norman Mineta, back to this
subcommittee. Mr. Secretary, welcome. We are pleased to have
you with us today to discuss the Department's budget for the
upcoming fiscal year and to hear your report on progress
towards your goals for the Department of Transportation (DOT).
I believe it is only fitting that we begin our hearings
with an overview of the budgetary and management challenges
facing the Department of Transportation. Clearly the budget
pressures faced by the administration and the Congress are
reflected in this budget. Secretary Mineta, I looked through
the budget submission for good news and I found myself at the
end of the story with little to cheer about, as I am sure you
have.
I want to applaud you though for not proposing any new user
fees in this year's request that affect the budget. With our
economy struggling to recover, I believe that now would be the
worst time to increase the burden on transportation users or on
the economy through the imposition of new transportation taxes.
Our goal should be to do more with less and to relieve
unnecessary impediments to efficiency in the transportation
system. This budget provides the opportunity to explore how to
do more with less.
I also want to commend you, Mr. Secretary, for the request
for highway spending. While it is not as high as I hoped for, I
am pleased that the budget abandons the RABA mechanism that
would have generated a much lower amount of highway investment
number for fiscal years 2004 and 2005. While the highway
request is relatively flat, I want my colleagues to realize
that it could have been much, much worse if the administration
had blindly followed the previous authorization's flawed budget
mechanism. Mr. Secretary, you are to be applauded for not
embracing that folly.
As important as any of the shortcomings in this request, I
am concerned with the National Highway Traffic Safety
Administration's (NHTSA) request as it relates to anti-impaired
driving efforts. I am saddened to note that alcohol-related
deaths were up in 2002. NHTSA has made great strides over the
last couple of years to improve seatbelt usage rates but this
is something that I think we must do better.
I am also concerned about the lack of progress on the
Amtrak fair bid concept for State-supported trains included in
the fiscal year 2004 appropriations measure. I have been told
that several States have contacted the Federal Railroad
Administration for guidance on implementation of the language
and nothing has been forthcoming.
Mr. Secretary, given the request for Amtrak for this coming
year and its abysmal performance over the past 20 years, I
would think this language would be an opportunity for the
Department to take a positive step for people who want to ride
trains and for the American taxpayer. I would also like to hear
your thoughts on when the Department will move forward on this
important initiative and would welcome your thoughts on what we
should be doing to stop the financial bleeding at Amtrak.
As predictable as the request for Amtrak may have been, Mr.
Secretary, no area of the Department's request was more
unexpected than the Federal Aviation Administration (FAA)
budget. Just a couple of months ago, shortly before the
submission of your 2005 request to OMB, the administration made
an all-out push for passage of the Vision 100 aviation
reauthorization legislation. Now I look at this budget request
and I am surprised to see that the FAA's capital account does
not reflect the investment levels anticipated in that
legislation. Your budget, Mr. Secretary, calls for a 13.6
percent reduction, roughly $400 million, to the Federal
Aviation Administration's capital account to update air traffic
control facilities and equipment.
I am concerned not only about the timing of the cut, but
also about its effect. The administration's budget proposal
puts this committee in the untenable position of having to find
an additional $400 million or being subject to points of order
in the Senate. It is difficult and unseemly to support
budgetary protections and points of order protecting capital
investment levels and, at the same time, to also support the
kinds of cuts your budget proposes for the FAA capital account.
Within the reduced account, I am disappointed that the FAA
has protected troubled acquisition programs and has shelved
others that show real promise. Tighter budgets do not translate
to greater discipline at the FAA. I do not know how the
Department expects to develop the Next Generation Air Traffic
Control System if the FAA continues to spare from critical
evaluation or from the budget axe the programs that have
unbridled cost growth, schedule delays, and deferred
capabilities.
Mr. Secretary, if the calculus in the F&E submission was to
try to protect the most bloated of programs with the
expectation that Congress would restore funding for the needed
new technologies for efficiency and safety, there may be a few
surprised faces at the FAA's procurement shop.
Before recognizing Senator Murray, I would like to raise
one more issue. Although only briefly mentioned in budget
documents, your staff has begun briefing the Hill on a major
Department reorganization proposal affecting several modes.
Clearly, the Department needs to improve the coordination of
the enforcement of hazardous materials regulations and
inspection of hazmat shipments. In fact, the Inspector General
has identified this issue as one of the top 10 management
challenges at the Department.
While improvement is warranted, I think we must be mindful
that previous reorganization efforts have failed. And, I want
to register my strong reservation about centralizing HAZMAT
inspection and enforcement activities within the Office of the
Secretary. The Office of the Secretary does some things well,
such as policy development, but the modal administrations are
better staffed and structured to execute operational functions
like the HAZMAT program. It is highly unusual, and I would
argue risky, to establish an operations function in the
Secretary's office.
Senator Murray.
STATEMENT OF SENATOR PATTY MURRAY
Senator Murray. Thank you, Mr. Chairman. Mr. Chairman, I am
pleased that Secretary Mineta can be with our subcommittee this
morning. I understand he testified before the House
Transportation Appropriations Subcommittee just a few days ago
and I understand during that hearing the Secretary explained
this budget reflects the President's top priorities. If this is
true, then it is true that the President places an extremely
low priority on the needs of our Nation's transportation
system. At a time when congestion on our Nation's highways is
getting worse and when our road, rail, airport and air traffic
control infrastructure is deteriorating, the President's budget
for the Transportation Department is effectively frozen. While
there are increases in some select programs, these increases
are offset by deep cuts to our efforts to modernize our air
traffic control system and to provide air service to rural
America.
Once again the administration is proposing a cut to
Amtrak's budget that is so deep it will throw the railroad into
bankruptcy if it is enacted. I cannot and will not agree with
these priorities and I hope that my colleagues on this
subcommittee will also reject them. For me this is about our
jobs, our economy and our productivity. If we make the right
investments in transportation we will create millions of jobs
here at home, we will make our businesses and workers more
productive, and we will lay the foundation for our future
economic growth.
The Senate has also recognized the importance of
transportation for our economy. Less than a month ago more than
three-quarters of the United States Senate voted in favor of a
surface transportation authorization bill that placed an
appropriate priority on investment in America's mobility,
America's productivity, and the creation of American jobs. That
bill called for substantial growth in our Federal highway,
transit, and safety programs. It financed those increases by
closing tax loopholes. The bill not only addressed America's
broader needs to relieve congestion and improve aging
infrastructure, it also addressed the unique needs of different
regions of the country.
For example, I was successful in including an amendment to
triple the amount of funding available for our Nation's ferry
systems. Ferries are not just a tourist attraction in my State.
They are the way thousands of my constituents get to work each
and every day. The Bush Administration greeted that entire
surface transportation bill with a promise to veto it. Yet when
an amendment was offered on the Senate floor to reduce the size
of the bill to a level that the President said he could accept,
that amendment received only 20 votes.
That vote was less than 4 weeks ago but, boy, things have
changed. Today the Senate is debating a budget resolution that
was reported by the Budget Committee just last week that
actually cuts funding for highways and transit back to the
level assumed in the President's budget. This budget resolution
will allow for $45 billion less in funding over the next 6
years for highways and transit than the levels the Senate
endorsed just last month. That $45 billion reduction translates
into more than 2.1 million jobs that will not be created as a
result of the President's budget policy and this budget
resolution. To my home State of Washington that is a cut of
roughly $807.8 million. That corresponds to a loss of more than
38,000 jobs in Washington State over 6 years.
The President's cut will have a significant impact on every
State. I hope my colleagues will reflect on that fact before
they vote to pass this budget resolution. This budget negates
every statement that we made a month ago about the importance
of highway construction, new transit systems, congestion
mitigation, and job creation. Mr. Chairman, this is hardly the
first time that an administration has threatened to veto a
highway bill because it is too large. In fact veto threats have
been issued against each of the last three highway bills over
last 18 years. But this may be the first time that a Congress
has started to show signs of giving in to objections from the
executive branch.
We need to pass a 6-year surface transportation bill that
invests in America and America's workers in a meaningful way.
We should not succumb to the view that investment in a mission
to Mars is more important than investments in our country and
in our own people. No one made this point better than Norman
Mineta when he implored his colleagues to ignore the veto
threat of the administration of George Herbert Walker Bush and
pass the Intermodal Surface Transportation Efficiency Act.
Mr. Mineta said, and I will quote you, ``this legislation
comes at the time when it is desperately needed, both in terms
of our infrastructure and for Nation's economic health. At a
time when the White House continues to deny the effects of the
economic recession we have before us legislation that will
create 2 million jobs over the next 6 years. While the people
of 1600 Pennsylvania Avenue have not seen or felt the effects
of the recession, Mr. Speaker, you have only to ask the people
of Bethlehem, Pennsylvania if there is a recession, or the
people of Chicago, or the people of Lafayette, or the people of
San Jose. They will tell you that our economy is hurting. They
will tell you that America needs this legislation and we need
it now.''
``Mr. Speaker, this legislation will improve how Americans
get from here to there as well as the air we breathe, our
quality of life, and the future of our economy. Mr. Speaker,
America's deserves nothing less.''
Secretary Mineta, those words are as pertinent and on
target today as they were when you delivered them on the floor
of the House on November 26, 1991. America does deserve nothing
less. We should send the highway and transit bill that the
Senate passed last month to the President's desk, and I believe
that if he listens to his Transportation Secretary he will sign
it.
Thank you, Mr. Chairman.
Before I yield I do want to mention a couple of happy and
surprising developments that have taken place within the past
week on this subcommittee family. As you know, our majority
clerk sitting to your left, Paul Doerrer, got engaged over the
weekend to Leigha Shaw. We congratulate him. Leigha is a friend
to all of us. She serves on the staff of the companion
subcommittee in the House and I want to congratulate both of
them and wish them well.
PREPARED STATEMENT
And to my right, Peter Rogoff, who has been with the
Appropriations Committee for 17 years, I believe 15 years on
transportation, is celebrating his birthday today. I will not
share with you which one, but I do want to say happy birthday
to him as well and we wish both of you the very best.
Thank you, Mr. Chairman.
[The statement follows:]
Prepared Statement of Senator Patty Murray
I'm pleased that Secretary Mineta can be with the subcommittee this
morning. He testified before the House Transportation Appropriations
Subcommittee just a few days ago. I understand that during that
hearing, the Secretary explained this budget reflects the President's
top priorities.
If this is true, then it's clear that the President places an
extremely low priority on the needs of our Nation's transportation
system. At a time when congestion on our Nation's highways is getting
worse, and when our road, rail, airport and air traffic control
infrastructure is deteriorating, the President's budget for the
transportation department is effectively frozen.
While there are increases in some select programs, these increases
are offset by deep cuts to our efforts to modernize our air traffic
control system and to provide air service to rural America. And once
again, the administration is proposing a cut to Amtrak's budget that is
so deep it will throw the railroad into bankruptcy if it is enacted.
I cannot and will not agree with these priorities, and I hope that
my colleagues on this subcommittee will also reject them. For me, this
is about jobs, our economy and our productivity. If we make the right
investments in transportation we will create millions of jobs here at
home, we'll make our businesses and workers more productive, and we'll
lay the foundation for our future economic growth.
The Senate has also recognized the importance of transportation for
our economy. Less than 1 month ago, more than three-quarters of the
United States Senate voted in favor of a surface transportation
authorization bill that placed an appropriate priority on investment in
America's mobility, America's productivity, and the creation of
American jobs. That bill called for substantial growth in our Federal
highway, transit and safety programs. It financed these increases by
closing tax loopholes.
The bill not only addressed America's broader needs to relieve
congestion and improve aging infrastructure, it also addressed the
unique needs of different regions of the country. For example, I was
successful in including an amendment to triple the amount of funding
available for our Nation's ferry systems. Ferries are not a tourist
attraction in my State. They are the way thousands of my constituents
get to work each day. The Bush Administration greeted that surface
transportation bill with a promise to veto it.
Yet, when an amendment was offered on the Senate Floor to reduce
the size of the bill to a level that the President said he could
accept--that amendment received only 20 votes. That vote was less than
4 weeks ago, but my, how things have changed.
Today, the Senate is debating a Budget Resolution that was reported
by the Budget Committee just last week and that actually cuts funding
for highways and transit back to the level assumed in the President's
budget. This Budget Resolution will allow for $45 billion less in
funding over the next 6 years for highways and transit than the levels
the Senate endorsed just last month. That $45 billion reduction
translates into more than 2.1 million jobs that will not be created as
a result of the President's budget policy and this Budget Resolution.
For Washington State, that is a cut of roughly $807.8 million. That
corresponds to a loss of more than 38,000 jobs in Washington State over
6 years.
The President's cut will have a significant impact on every State.
I hope my colleagues will reflect on that fact before they vote to pass
this Budget Resolution. This budget negates every statement that we
made a month ago about the importance of highway construction, new
transit systems, congestion mitigation and job creation.
Mr. Chairman, this is hardly the first time that an administration
has threatened to veto a highway bill because it is too large. In fact,
veto threats have been issued against each of the last 3 highway bills
over the last 18 years. But this may be the first time that a Congress
has started to show signs of giving in to objections from the Executive
Branch. We need to pass a 6-year surface transportation bill that
invests in America and America's workers in a meaningful way. We should
not succumb to the view that investment in a mission to Mars is more
important than investments in our own country and our own people.
No one made this point better than Norman Y. Mineta when he
implored his colleagues to ignore the veto threat of the administration
of George Herbert Walker Bush and pass the Intermodal Surface
Transportation Efficiency Act. Chairman Mineta said:
``[t]his legislation comes at a time when it is desperately
needed--both in terms of our infrastructure, and for our Nation's
economic health. At a time when the White House continues to deny the
effects of the economic recession, we have before us legislation that
will create two million jobs over the next 6 years. And while the
people of 1600 Pennsylvania Avenue haven't seen or felt the effects of
the recession, Mr. Speaker, you have only to ask the people of
Bethlehem, PA, if there is a recession. Or the people of Chicago. Or
the people of Lafayette, LA. Or the people of San Jose, CA. They will
tell you that our economy is hurting. They will tell you that America
needs this legislation, and we need it now. Mr. Speaker, this
legislation will improve how Americans get from here to there, as well
as the air we breathe, our quality of life, and the future of our
economy. Mr. Speaker, America deserves nothing less.''
Secretary Mineta, these words are as pertinent and on target today
as they were when you delivered them on the Floor of the House on
November 26, 1991.
America does deserve nothing less. We should send the highway and
transit bill that the Senate passed last month to the President's desk.
I believe that, if he listens to his Transportation Secretary, he will
sign it. Thank you, Mr. Chairman.
Senator Shelby. Thank you, Senator Murray.
Senator Bennett.
STATEMENT OF SENATOR ROBERT F. BENNETT
Senator Bennett. Thank you very much, Mr. Chairman. With
that announcement I think we can expect some late night
conferences between the House and the Senate.
Mr. Secretary, let me welcome you here and publicly thank
you for the continued support that has come from the Department
of Transportation for transportation concerns in Utah. We are
particularly pleased with the support and assistance we
received from the Federal Transit Administration. Administrator
Jenna Dorn and her staff have always been responsive and I
would be remiss if I did not publicly acknowledge that here and
in a forum directly with you. We think we have a model program
going in the transit system along the Wasatch Front has proven
to be very successful, exceeded all expectations and
projections as to ridership and we are enormously proud of it.
But we recognize that if we had not had the kind of support and
responsive reaction that has come from Administrator Dorn we
would not be where we are. So in a time when people are beating
other people up on all kinds of issues, I want to have the
record show how grateful we are for the work that you have
done.
We do have an issue which I will deal with in some detail
perhaps during the question period. In the wide open spaces of
the West, particularly following 9/11, we have had a shift in
air transportation away from what people call the main line
carriers into the regional carriers, and a regional carrier
that is very successful in Utah, SkyWest in particular, has
added some new jets and some new routes. The economics of what
happened after 9/11 has dictated this.
But it has created a problem in that DOT and FAA
regulations regarding the transportation of medical specimens
for diagnosis has hit us because the regional carrier is not
designated to handle these specimens as much as the trunk
carriers are, and with the University of Utah Medical Center
serving the entire region, not just the State of Utah, we have
to get some of those diagnostic specimens to the University of
Utah. They would be transferred to regional carrier flights
rather than the trunk line flights before. This is an issue
that we have just found out about. I am not sure that you are
aware of it either but I wanted to raise it here and we might
get into it at some point.
With that, Mr. Chairman, I will be happy to hear the
witness.
Senator Shelby. Thank you.
Mr. Secretary, your written testimony will be made part of
the record in its entirety. You may proceed as you wish.
Welcome again to the committee.
STATEMENT OF NORMAN Y. MINETA
Secretary Mineta. Thank you very much, Mr. Chairman, and
members of the subcommittee. Thank you for this opportunity to
appear before you today to discuss the administration's fiscal
year 2005 budget request for the Department of Transportation.
I might say parenthetically in response to Senator Murray, then
is then and now is now.
As we begin our discussion, I want to thank the members of
the subcommittee for your support of the work of the Department
of Transportation. I am confident that together we will
continue to build a strong economy by providing a safer,
simpler, and smarter transportation system for our great
Nation. Let us turn now to the budget specifics.
President Bush is requesting $58.7 billion in total
budgetary resources for the Department of Transportation. As
you are very well aware, last year we sent the President's
proposal for reauthorizing our surface transportation programs
for the next year to the Congress. This legislation, the Safe,
Accountable, Flexible and Efficient Transportation Equity Act,
or SAFETEA, is a responsible plan. It supports the economy
through record investments in our highway and transit and
safety programs without raising gasoline taxes, without
increasing the Federal deficit, and without taking money from
other important programs. So I look forward to working with the
Congress on enactment of the President's 2005 budget for
highway, safety, and transit programs. While it does not fall
under the jurisdiction of this committee, I do want to
underscore the need for swift action on this pending SAFETEA
proposal by the Congress.
FUNDING FOR SURFACE TRANSPORTATION
The 2005 budget reaffirms the President's commitment to
SAFETEA by providing a total of $256 billion over the 6-year
life of the bill up from the $247 billion in the original
proposal. For highway and transit programs, the budget would
continue the recently enacted 2004 funding level, and within
this level we are increasing funding for transit new starts.
These new start projects will carry over 243 million passengers
annually and they will save over 121 million hours in travel
time and significantly improve air quality and mobility in
America.
The budget specifically designates more than $14 billion
for transportation safety with increases in annual funding for
safety initiatives in both the National Highway Traffic Safety
Administration, NHTSA, and the Federal Motor Carrier Safety
Administration, FMCSA. Today, travel on America's highway is
safer than in recent memory. Statistics show that 75 percent of
all Americans are using their safety belts, the highest level
in our Nation's history. We are proud of this progress and will
continue the Department's aggressive efforts to save lives and
to reduce the more than $230 billion that the economy loses
each year because of traffic crashes.
FUNDING FOR RAILROADS AND AMTRAK
For railroads, the President's 2005 budget includes $188
million for the Federal Railroad Administration to support
enhanced track inspection and research activities. The
President's Amtrak reform legislation, the Passenger Rail
Investment Reform Act, is also pending before the Congress. The
2005 budget requests $900 million for Amtrak in 2005 with the
potential for an increase to $1.4 billion in the years 2006
through 2009 if the Administration's management and financial
reforms are enacted. Now these reforms are critical if we are
to justify further spending of taxpayer dollars on Amtrak
service.
FUNDING FOR THE FEDERAL AVIATION ADMINISTRATION
The President's 2005 budget for the Federal Aviation
Administration provides $14 billion in overall funding. We
recognize that air travel has become a cornerstone of our
transportation system in the more than 100 years since the
Wright brothers' first flight. While holding the line on
Federal spending, the President's budget makes a modern and
efficient air transportation system a key priority. Let me
assure you that we are making the necessary investments to keep
America flying safely and smoothly.
Our plans include continued near-term investments in
aviation systems and technology to avoid gridlock in the skies
and to improve air safety. At the same time we support the
design of the next generation air transportation system to
secure America's place as a global leader in aviation's second
century. We are constantly considering new and better ways to
make sure that transportation supports the Nation's growing
economy. One option that we are exploring would enable the
Maritime Administration and the Lawrence Seaway Development
Corporation to expand capacity to use our ports and waterways
to move commercial freight. Giving businesses reliable and
affordable options for moving commercial goods has the
potential to lessen truck traffic on our highways.
Transportation research plays a vital role in developing
transportation solutions. That is why I have asked our staff to
study reorganizing the research programs, hazardous materials
oversight, and pipeline safety within the Department. I believe
that there are ways to strengthen and improve our work in all
of these important areas and you will be hearing more from us
on these plans.
Finally, I want to close by underscoring my continued
commitment to the President's management agenda initiative. The
Department of Transportation has made significant improvements
in all management areas. Consequently, we are delivering
results for the American people, helping the President build a
strong economy through a strong transportation system. There is
still much to be done, but I am confident that we are on the
right path.
PREPARED STATEMENT
I have touched on only a few key highlights and you will
find additional details within my full written statement
submitted to the committee as well in our Budget in Brief,
which all of you have received. It is this multicolored
pamphlet. At this time, Mr. Chairman, I would be more than
happy to answer your questions.
[The statement follows:]
Prepared Statement of Norman Y. Mineta
Mr. Chairman, Members of the subcommittee, thank you for the
opportunity to appear before you today to discuss the administration's
fiscal year 2005 budget request for the Department of Transportation.
President Bush is requesting $58.7 billion in total budgetary resources
for transportation programs--nearly the same as the fiscal year 2004
enacted level. I am particularly pleased that within this total funding
level more than $14 billion will support transportation safety
projects--my top priority.
Today, travel on America's highways is safer than in recent memory.
Statistics show that 79 percent of all Americans are using their safety
belts--the highest level in the Nation's history. We are proud of this
progress and of the Department of Transportation's role in encouraging
safety belt use. Yet sadly, more than 40,000 people still die in
traffic crashes each year. Many die needlessly just because they failed
to ``buckle-up''. This is a tragic statistic that affects all of us and
one that both the President and I have pledged to address. We are
committed to reducing traffic fatalities. The President's fiscal year
2005 budget request acknowledges this priority and includes annual
funding increases for our important safety programs.
Over the past year, the Department of Transportation provided to
the Congress legislative proposals to reauthorize our Nation's surface,
aviation, and intercity-passenger rail programs. As a result, the
``Vision 100--Century of Aviation Reauthorization Act'' was passed
providing the Federal Aviation Administration with a blue-print from
which to guide its work over the next 4 years.
The fiscal year 2005 President's budget reflects the
administration's commitment to aviation and the key role it plays in
keeping America moving. On December 17, 2003, we celebrated the 100-
year anniversary of the Wright Brothers' first flight. Today, air
travel has become a cornerstone of our transportation system. Continued
investment in aviation systems and technology is critical to ensuring
the reliability of air travel. The recent passage of the ``Vision 100''
which authorizes aviation programs for the next 4 years, includes more
than $60 billion in Federal resources--a 31 percent increase above
previous authorization levels for aviation.
The fiscal year 2005 President's budget request is $14 billion for
the Federal Aviation Administration (FAA). The fiscal year 2005 request
will enable the agency to continue to fund the level of service it
provides today, while ensuring that critical capital investments stay
on track. In addition, ``Vision 100'' will result in hundreds of
thousands of additional jobs in the aviation industry over the 4-year
life of the bill while at the same time providing a plan for guiding
FAA's programs in the future.
Although we have new aviation reauthorization, work continues to
provide reauthorization legislation for our surface programs, and long-
term legislative solutions have not been completed to date. The
recently enacted surface transportation extension bill is an interim
step that falls short of addressing the long-term needs of these
programs. We welcome the opportunity to work with the Congress to
complete a 6-year reauthorization bill that meets the administration's
principles recently outlined in a letter Treasury Secretary Snow and I
sent to the Senate Majority Leader and that will provide the resources
and planning horizon to keep our surface transportation programs moving
forward.
Enactment of the administration's surface transportation
reauthorization proposal--the ``Safe, Accountable, Flexible, and
Efficient Transportation Equity Act'', or ``SAFETEA'' would accomplish
this goal. Last May, the President proposed ``SAFETEA''--the largest
investment in history for America's surface transportation programs.
The President's fiscal year 2005 budget reaffirms the principles
outlined in ``SAFETEA'' while amending our proposal to include a total
of $256 billion over the 6-year life of the bill--an additional $8.6
billion more than the $247 billion in our original ``SAFETEA'' funding
request--and a 21 percent increase over the funding included in the
Transportation Equity Act for the 21st Century (TEA21). Much of this
investment will be used to provide improvements on our roads and
highways which will reduce traffic congestion.
Our revised proposal would continue the funding levels for the
Federal Highway Administration and the Federal Transit Administration
enacted in fiscal year 2004 for each year 2005 through 2009. Moreover,
the fiscal year 2005 President's budget request includes annual
increases beginning in 2005 through 2009 for both the National Highway
Traffic Safety Administration (NHTSA) and the Federal Motor Carrier
Safety Administration (FMCSA) to ensure that improvements in safety are
enhanced.
Our fiscal year 2005 budget proposal accomplishes the
administration's safety, mobility, and congestion relief goals by
providing a historic level of surface transportation spending without
raising taxes. Instead, the administration's request relies on spending
resources available in the Highway Trust Fund while ensuring that a
cash balance of approximately $5 billion is maintained throughout the
authorization period. Further, the President's request would redirect
the resources from the 2\1/2\ cents per gallon levied on gasohol, and
currently deposited in the General Fund, to the Highway Trust fund.
This redirection will increase annual receipts to the Highway Trust
Fund by over $700 million per year--a change that, if enacted, will
provide the resources needed to support the proposed annual funding
increases for our safety programs.
``SAFETEA'' provides a plan that will enable us to reach our goals,
while providing the vision necessary to guide our surface
transportation programs in a fiscally responsible manner. I urge the
Congress to act quickly to pass ``SAFETEA'' and the fiscal year 2005
President's budget request for our surface transportation programs.
Every day we delay is a missed opportunity to benefit America.
Although highway, transit and highway safety programs play a major
role in surface transportation, we also rely on railroads to move
people and goods across our country. Intercity passenger rail is an
essential element of the Nation's multi-modal transportation system.
Accordingly, last year, in addition to our SAFETEA proposal, the
administration sent to Congress the President's Passenger Rail
Investment Reform Act. This proposal would align passenger rail
programs with other transportation modes, under which States work in
partnership with the Federal Government, in owning, operating, and
maintaining transportation facilities, infrastructure and services.
Putting passenger rail on a solid foundation of planning and investment
will give this important mode of transportation the support it needs to
grow. The President's fiscal year 2005 budget requests $900 million for
Amtrak and includes the potential for an increase to $1.4 billion in
each of fiscal years 2006 through 2009--if the administration's
management and financial reforms are enacted.
The fiscal year 2005 President's budget also includes a proposal
for funding the Essential Air Service (EAS) program that would include
a limited cost-sharing arrangement with selected communities
participating in the program. Currently, the EAS program subsidizes
scheduled air service to communities that received scheduled service at
the time of deregulation in 1978. Although there have been tremendous
changes in the industry since then, the program has remained static.
The administration believes that requiring a modest contribution from
communities benefiting from this program may energize civic officials
and business leaders at the local and State levels to think more
creatively about the potential of the program and about different means
to meet the transportation needs of the community.
The President's fiscal year 2005 budget request will continue to
guarantee air service to the most isolated communities by restructuring
the program to require communities to contribute either 10 or 25
percent of the total subsidy, depending on their degree of isolation,
and to expand service provided to include ground transportation,
single-engine, single-pilot operations, air taxi, charter service or
regional service. With these reforms, the Department would keep the
most isolated communities connected to the national air transportation
system with a $50 million budget funded entirely from overflight fees.
We look forward to working with you on this plan.
Although transportation continues to improve, we still have many
challenges before us. Highway congestion and expected increases in air
travel are issues we must be prepared to address. At the Department of
Transportation, we are looking for new ways to address growing
commercial freight transportation needs, consistent with our freight
action plan. The President's budget includes programs to reduce
bottlenecks in and around seaports and land borders with Canada and
Mexico and to introduce technological innovations for improved freight
efficiency and security. In addition, the Maritime Administration and
the Saint Lawrence Seaway Development Corporation are advancing
programs to expand our capacity to use ports and waterways to move
freight and transport goods efficiently, thereby reducing dependence on
our highways to meet growing freight needs.
Over the past year, I have considered the important role that
transportation research plays in developing transportation solutions.
That is why I have asked our staff to study reorganizing the research
programs, hazardous materials, and pipeline oversight within the
Department. I believe there are ways to strengthen and improve our work
in all of these important areas. As we continue to study alternative
approaches, we will work closely with you and our colleagues within the
administration to ensure that any potential reorganization will
continue to serve the Nation's needs.
I also want to highlight the fiscal year 2005 President's budget
request for the new Department of Transportation headquarters building
project. In fiscal year 2004, the Congress included $42 million for our
new headquarters building in the General Services Administration's
budget. Our request of $160 million in fiscal year 2005 would fund the
next construction phase and the information technology infrastructure
in the building. This would keep the project on track making it
possible for the Department to begin taking occupancy as planned. Your
support for this endeavor will ensure that the Department of
Transportation will have an alternative site available when our current
lease expires in 2006.
In closing, I would like to share with you my continued commitment
to the President's Management Agenda. President Bush has asked all
Federal agencies to work towards improvements in the following five key
areas:
--enhanced budget requests that focus on results and performance;
--improved financial management and strengthened financial controls;
--targeted human capital initiatives that ensure our human resources
are used as effectively as possible;
--use of competitive sourcing as a resource solution; and
--government-wide use of electronic government tools to improve
efficiency.
My team at the Department of Transportation is working hard to
implement these initiatives and I am proud to note that we have already
made significant progress towards these goals. I believe we are on the
path to success and we are committed to continuing these improvements
as stewards of the American public's resources.
Thank you again for the opportunity to testify today. I look
forward to working closely with all of you, and with the entire
Congress, as you consider the fiscal year 2005 President's budget
request and I look forward to responding to any questions you may have.
FUNDING FOR AIR TRAFFIC CONTROLLERS
Senator Shelby. Thank you, Mr. Secretary.
The budget proposes a $370 million increase for FAA
operations, $141 million more than the authorized amount. FAA
is taking modest steps to control costs, but it cannot afford
continued increases in the operations account of 5 percent to 8
percent annually. FAA salaries continue to increase sharply. We
raised this issue last year when the average controller's
salary was more than $106,000, and I am told that in the
calendar year 2003 some controllers made more than $200,000.
Controllers' salaries will further increase when the full 2004
pay increase is implemented.
Mr. Secretary, what steps is the Department taking to get
the FAA's payroll under control, or how can you do it?
Secretary Mineta. There are two ways that we are doing
that. The first is through the contract negotiations that we
have going on with the separate labor units. The one
specifically for NATCA is one in which we have arrived at an
impasse. We have submitted our letter of impasse to the
Congress relating to the contract negotiations that we have
going on. Much of that has to do with pay, because under the
program that Congress passed for the FAA, we have pay and
procurement practices that are different from the regular civil
service. One of the things that are incorporated is pay-for-
performance.
One of the things that is involved in the impasse is the
whole issue of multi-units and whether or not--and NATCA's
proposal is that they want the full pay increase that everyone
is getting, plus 1 percent. What we are looking at is not only
individual performance but also whether the units themselves
are meeting their performance goals. So we were not able to
come to an agreement on that issue, and that has now been
submitted for impasse.
The other method of controlling costs, of course, is the
typical budgetary restraint. After our initial submission to
OMB and the passback, when we get our final amount, we then
have to reprioritize and allocate those financial resources. So
to the extent that we can look at what our pay will be, or what
our financial resources will be, we can match those to what we
anticipate in pay increases in the outyears.
FEDERAL TRANSIT ADMINISTRATION ADMINISTRATIVE EXPENSES
Senator Shelby. Mr. Secretary, I would like to discuss the
budget request for FTA administrative expenses. People have
been concerned about the annual increases for FAA operations
for some time. As we review your budget submission, I note that
the Federal Transit Administration's administrative expenses
are growing at a faster rate than FAA's operations. This would
catch anybody's attention. Why are FTA's administrative
expenses growing so sharply?
Secretary Mineta. I think one of the areas in which the FTA
program is growing is transit services, both in urban areas as
well as the increasing amount that is going to rural areas.
These services require thorough reviews, and with the growth of
the urban, rural, and the new starts programs, we are just
spending a lot more time on going through the applications that
are submitted to us. Even though most of these are earmarked
programs, we still have to make sure that the ridership and
financial capability of the system support what they are asking
for. It takes a great deal of effort to go through those
applications.
STATE SUPPORT FOR PASSENGER RAIL SERVICE
Senator Shelby. Mr. Secretary, I mentioned in my opening
statement that FRA has not issued guidance to implement the
fair bid procedure for State-supported rail service. The funds
that were set aside in the 2004 appropriations act expire at
the end of the year and I would be disappointed if we let this
opportunity to infuse competition into passenger rail slip
away, especially given the interest of several States. When can
we expect FRA to move forward on this initiative?
Secretary Mineta. FRA has been moving forward, Mr.
Chairman, with Missouri, St. Louis to Kansas City, and they got
no outside bidders other than Amtrak on that route. There are
other States that have submitted requests or inquiries about
the fair bid, and I am not sure--I am not up to date on where
we are on those States. But we will be utilizing the fair bid
process because we think that that is the right approach.
MOTOR FUEL TAX EVASION
Senator Shelby. Mr. Secretary, fuel tax evasion is a
subject we get into from time to time. According to the Federal
Highway Administration, the highway trust fund forgoes
approximately $1 billion annually due to non-payment or
fraudulent evasion of motor fuel taxes. Are you satisfied as
the Secretary with the steps taken by the Internal Revenue
Service to identify the scope of the diversion and stop this
from happening in the future? In other words, that is a lot of
money that we are missing.
Secretary Mineta. It is a lot of money, and I am not happy
with the level of enforcement on this issue. That is why our
SAFETEA proposal has specific amounts for the Department of
Treasury to enforce the Federal fuel tax, including the
coloring of the fuel and tracing where it is going.
Senator Shelby. This might be a subject that we can bring
up with the IRS. Senator Murray and I have worked in that area
before and we will take this up with the Internal Revenue
Service too. You would not mind, I am sure.
Secretary Mineta. Not at all. I would be pleased to join in
the conversation.
IMPAIRED DRIVING
Senator Shelby. Impaired driving. We are concerned about
the increase in the number of alcohol-related traffic
fatalities which have risen steadily since 1999. To what
factors do you attribute this disturbing trend and how do you
assess the Department's current efforts at curbing impaired
driving? In other words, how are you going to reverse the
trend?
One last thing. I have a related point. I heard a report on
a news program a couple days ago that said that if a drunk
pedestrian walked in front of an automobile operated by a sober
driver and was killed, the death would be treated as a drunk
driving fatality. I do not understand the logic of that. Could
you find out how the statistics are collected here and explain
what has changed? In other words, how reliable are the
statistics? If you are counting a drunk pedestrian that is
killed by a sober driver, something is wrong. I do not know if
that is right, but it would be worth looking into.
Secretary Mineta. Let me take a look at that and find out,
but it just does not make common sense.
[The information follows:]
Crashes involving a sober driver and a drunk pedestrian are not
considered by NHTSA as DWI (Driving while Intoxicated). Rather, NHTSA
considers them ``Alcohol-Related'' crashes. NHTSA's definition of an
Alcohol-Related Crash, in particular a fatal crash, is a motor vehicle
traffic crash in which any of the actively involved persons (drivers,
pedestrians or pedalcyclists) had a Blood Alcohol Concentration (BAC)
of 0.01 g/dl or more (a positive BAC).
Most alcohol-related crashes involve at least one driver with a
positive BAC. Some of these crashes also may involve a pedestrian or
bicyclist with a positive BAC. However, there are also some crashes in
each year in which no driver had a positive BAC but an involved
pedestrian or bicyclist had a positive BAC. The data in NHTSA's
Fatality Analysis Reporting System allows us to distinguish between
these two categories, when analyzing alcohol-related crashes, as
depicted in the following chart:
SAFETY BELT LAWS
Secretary Mineta. In terms of the alcohol-related deaths,
the 18-to-34 age group is the largest cause of fatal accidents.
That combined with the issue of the seatbelt usage is why we
are working very hard to get States to enact a primary safety
belt law. In the SAFETEA legislation, there are incentives for
States that have a primary safety belt law or a secondary
safety belt law and attain 90 percent safety belt use.
There are, frankly, no States that get anywhere close to
that level of safety belt use with a secondary safety belt law.
But the two, alcohol-related deaths and safety belt usage, work
hand-in-hand. Those are two programs that we work at very hard.
OVERSIGHT OF HIGHWAY CONSTRUCTION PROJECTS
Senator Shelby. Mr. Secretary, ineffective management and
oversight have led to significant cost increases, financing
problems, schedule delays and technical or construction
difficulties on highway construction projects. For example, the
cost for the Springfield interchange in Virginia has increased
more than 180 percent from $241 million to $677 million, in
part because State officials initially excluded basic cost
items such as construction management, inflation, preliminary
engineering, and even the design.
What can you do or have you done to establish minimum
standards for cost estimates so that basic cost items such as
inflation, construction management, and design will not be
excluded from estimates of what a highway project will cost? In
other words, this seems to be lowballing the original cost. How
do you analyze this and project costs to ensure that they are
close to what they claim they will be?
Secretary Mineta. Lowballing, of course, is always a
problem and you try to catch this when you see change orders
coming in. But what has happened more recently is the volatile
steel prices. As I understand it, this has impacted on highway
projects. But on large, what we call mega-projects, we have now
assigned project managers to make sure that from a financial
standpoint as well as scheduling and quality, if it is a 10-
sack concrete job then we are in fact getting 10 sacks of
concrete and not getting shortchanged in terms of the quality
that goes into that work. Quality also impacts on the lifespan
of that infrastructure. So we now have a specific project
manager on those so-called megaprojects.
Senator Shelby. Senator Murray, thanks for your indulgence.
FUNDING FOR AIR TRAFFIC CONTROL MODERNIZATION
Senator Murray. Mr. Secretary, the only proposed cut in
your budget that is larger than your proposed cut in Amtrak is
the $400 million you are proposing in the FAA to modernize our
air traffic control equipment. In your formal opening
statement, you take the time to point out that the President
signed the Vision 100 bill which authorizes more than $60
billion in Federal resources, which is a 31 percent increase
above previous authorizations for the FAA, yet your actual
budget request, rather than honoring the increased
authorizations in that Vision 100 bill, actually cuts
investments for air traffic control modernization by 14 percent
next year. When you look at the Bush Administration's multi-
year budget it says that you want to cut modernization even
lower in 2006. In total for the 4-year life of the Vision 100
bill the Administration plans to underfund the authorized level
of air traffic control modernization by more than $2 billion.
What has changed since the date that the President signed
the Vision 100 bill and today that has caused you to do such a
sudden reversal when it comes to modernizing our air traffic
control equipment?
Secretary Mineta. First of all, we are not doing anything
to impact on the modernization. There are programs that we
feel, as we reevaluated the program, needed to, frankly, be
shelved and not move forward at this time. But in terms of the
overall next generation air transportation system, we are not
shortchanging improvements in capacity, safety, delays, or
better information for air traffic controllers. Whether it be
the STARS program or ASDX, the programs that will improve the
system are funded by the 2005 budget and in the outyears as
well.
What we are doing is reevaluating, from a priority
perspective, what we have done in the past and asking ourselves
whether we need to do those in the future. Many of those lower
priority programs have been set aside. But important programs
like WAAS and others are moving forward under the air traffic
control modernization program, and we have funded it.
Senator Murray. A lot of the equipment out there is dozens
of years old and was scheduled to be replaced many years ago.
We have systems operating in our air traffic control system
that are no longer supported by their vendors and are still
years away from being replaced. So how can we believe that a
funding cut of this size will not have any impact on the pace
at which we replace that aging equipment and the overall safety
of our air traffic control system?
Secretary Mineta. I will submit that for the record. I do
not have it with me right now. All of the equipment at the air
traffic control towers and en route centers is still being
shoehorned into the budget that we proposed.
Senator Murray. You will submit that to us for the record?
Secretary Mineta. I will submit that for the record.
Senator Murray. I will look at that.
[The information follows:]
The reductions in FAA's Facilities and Equipment (F&E) in the
fiscal year 2005 budget were concentrated in new technologies that do
not replace existing equipment, such as Data Link, the Local Area
Augmentation System (LAAS), and Nexcom 1B (next generation
communications). These new technologies were going to be expensive for
both the agency and the industry. While there was support for these
items by the users, it was not clear it made sense to move forward with
them at this time given the economics of both the airline industry and
Federal budget.
The FAA did not make any significant reductions to any programs
that are currently necessary to modernize the airspace system. Funding
levels for major modernization efforts like En Route Automation
Modernization, the Standard Terminal Automation Replacement System
(STARS), airport surveillance radars (ASR-9 and ASR-11), NEXCOM 1A,
Advanced Technologies and Oceanic Procedures (ATOP), and the Voice
Switching and Control System (VSCS) will continue to move forward in
fiscal year 2005. The reduction in the size of the F&E budget will not
affect the success of these modernization efforts.
SAFETEA FUNDING LEVELS
Senator Murray. Mr. Secretary, in my opening statement I
voiced concern, as you heard, over the President's insistence
that he will not support or sign a highway bill that exceeds
$256 billion. One concern I have since we're talking about a 6-
year authorization bill is that the President might support a
bill authorizing funding at a certain level and then not live
up to that commitment in his budgets.
For example, when the Bush Administration sent up its own
aviation reauthorization bill it requested a total of $12
billion for air traffic control modernization over a 4-year
period. Now when we look at the President's budget request for
2005 and beyond we see that he plans to request $2 billion less
than the amount that he himself asked to be authorized. He only
wants to fund 83 percent of the level he himself asked to be
authorized.
Now when it comes to the surface transportation
authorization bill, President Bush has said that he will not
support a highway and transit bill that exceeds $256 billion
over 6 years. Is the President committed to actually requesting
that $256 billion in future budgets or is this merely a
statement on what he will allow to be authorized?
Secretary Mineta. First of all, when we were putting
SAFETEA together over a year ago, we talked to the President
and he laid out certain principles such as no new taxes, no
bonding mechanisms, and no increase in the deficit. So taking
those directions, we then fashioned our SAFETEA proposal. The
original proposal was for $247 billion. Then within the last 3
or 4 months, it was raised to $256 billion.
But that action was based on the principles he laid out,
principles that he still stands by. In fact, prior to the
Senate consideration of the SAFETEA legislation, Treasury
Secretary Snow and I submitted a letter reflecting the
administration's position, saying that any bill that violated
these principles and that went above $256 billion would be
considered for veto.
Senator Murray. What I am actually asking is, when the
President sent up his aviation reauthorization bill he
requested $12 billion. We are now seeing his request come in
much lower than that; in fact $2 billion less. What assures us
that the President will actually fund the $256 billion if that
is what we authorize? Even though I disagree with that, I am
just asking you, what is the assurance that a year from now we
are not going to see less requested than even that $256
billion?
Secretary Mineta. We took the enacted 2004 levels and have
reflected those in the budget proposal and in SAFETEA as well.
Senator Murray. What I am asking is, will the President
commit to asking for the budgets every year that meet that
authorization, whatever it is, that he signs into law?
Secretary Mineta. Based on our submitted SAFETEA proposal,
we do that.
HIGHWAY SAFETY
Senator Murray. Mr. Secretary, we have not always agreed on
budget matters when it comes to your department. One area where
we have always agreed has been the overarching importance of
improving safety in all transportation modes. I want to really
commend you, Mr. Secretary, for including funding in this
year's budget for paid TV advertising to enhance seatbelt use
and reduce drunk driving. The Committee has added funding for
the last 2 years and the administration has finally requested
funding in its 2005 budget request. This has been a very
successful effort, as you know.
This year the administration gave its surface
transportation authorization the title of SAFETEA, as you
mentioned, to highlight the importance of safety provisions in
the bill. Could you just take a minute to share with this
committee what you consider to be the most critical safety
enhancements that were included in the administration's bill?
Secretary Mineta. There is probably no single silver bullet
that addresses the whole issue of safety. Safety can be
engineering. Safety can be education. Safety can be a number of
things. All of these are reflected in the SAFETEA proposal.
But also in the 2005 budget, we are putting a great deal of
emphasis--in fact I am doing a lot of traveling on the issue of
both safety belt use and driving while under the influence,
DUI. I am traveling to different States right now to try to get
primary safety belt laws, and have found this to be a
responsive chord with many States. But we only have, I believe,
20 States with primary safety belt laws, so we have a long way
to go. But we think that this is a good effort and we are
enlisting a lot of new players into the program. I am going
down to the NASCAR races in Richmond, in May I believe, and
they will be endorsing the whole safety belt program and
initiating their program of promoting safety belt usage.
We are doing this with a number of different new
constituent groups to increase safety belt use in our country.
Senator Murray. I commend you on that and want to keep
working with you on that.
CONTRACTING OUT FAA FUNCTIONS
Mr. Secretary, as you know, the only reason that the FAA
bill was allowed to pass the Senate was because FAA
Administrator Blakey provided a letter to the Senate Commerce
Committee promising that she would not contract out any
additional FAA functions to the private sector during fiscal
year 2004. I suspect this could become a very serious issue for
the fiscal year 2005 appropriations bill because we do not have
a commitment from you or Administrator Blakey for fiscal year
2005 or beyond.
As of now, are you aware of any areas where the FAA is
considering contracting government work in fiscal year 2005 or
beyond?
Secretary Mineta. Nothing additional that I anticipate. I
think the letter that Administrator Blakely submitted for
fiscal year 2004 still stands. There was consideration at one
point about additional contract towers, but after the letter
was sent----
Senator Murray. What areas are under consideration?
Secretary Mineta. The ones that we had under consideration
prior to that letter relating to fiscal year 2004 were general
aviation towers for VFR, visual flight rule towers. We do not
have any further plans beyond the 2004 letter that she
submitted.
Senator Murray. Can we get an identical letter for fiscal
year 2005?
Secretary Mineta. Let me consult with Administrator Blakey
on that and get back to you on that.
[The information follows:]
The Federal Aviation Administration is engaged in completing the
public/private competition of the Flight Service Station (FSS)
Services. The competition's results are expected in March 2005.
Senator Murray. Mr. Chairman, I will wait for the remainder
of my questions. Thank you.
Senator Shelby. Senator Bennett.
HIGHWAY FUNDING
Senator Bennett. Thank you very much, Mr. Chairman.
Mr. Secretary, I have searched for things to question you
about, areas to probe and prod, and things are going so well I
do not have anything to complain about.
Secretary Mineta. You did such a great job as Assistant
Secretary of Transportation that----
Senator Bennett. It is the legacy of my service there.
Secretary Mineta. That is right.
Senator Bennett. Last night we were alerted to this issue
that I mentioned in my opening statement. I know that it
catches you completely by surprise, as it did us. So I raise it
now just so that we can be in correspondence with you on this
issue and see if we cannot get it resolved.
For the record, I support the President's effort to get a
SAFETEA program in place, but I think at some point we are
going to have to spend more money. And if after he is safely
reelected he were to come back to the Congress and suggest that
for the first time since Ronald Reagan's presidency it is time
to raise the gas tax, he would find a fairly sympathetic ear,
at least with this Senator. I know I am taking my own political
career in my hands when I say that because I am up for election
this year too.
But the needs of our highway system, compound with the
increasing population and the age of the interstate highway
system--and one of the things that has happened that was not
foreseen by any means when the interstate highway system was
conceived is that interstates have now become the Main Streets
of our major metropolitan areas. The interstate system was
supposed to bypass downtowns so that people could go quickly
across the whole country and never run into a traffic jam. Now
the metropolitan centers have relocated themselves around the
interstate and the interstate has become the main urban artery
and therefore jam up now at rush hour. The whole purpose of
getting the interstate system in place as conceived during the
Eisenhower administration has been frustrated by that.
There is a solution to it, and it is financial. We are
going to have to face up to that at some point in the future.
So if you are back here next year and I am back here next year,
and both of those depend on two separate elections, I will be
happy to talk to you about increased funding through that
particular source.
Secretary Mineta. Thank you, Senator. We will respond.
Senator Bennett. Thank you.
Senator Shelby. Mr. Secretary, we will get into another
round, with your patience.
Secretary Mineta. Surely.
FULL FUNDING GRANT AGREEMENTS
Senator Shelby. The Senate passed a 6-year reauthorization
on the surface transportation legislation, as you well know.
The House has not yet acted and the House Transportation and
Infrastructure Committee chairman has floated a proposal to
pass a 2-year authorization bill. If a 2-year extension of
TEA21 is enacted into law, is enough additional commitment
authority created to execute a full funding agreement for all
of the projects listed as pending and proposed in your 2005
budget request?
Do you want to get back with us for the record on that?
Secretary Mineta. We will get back to you on that for the
record.
[The information follows:]
The 6-year surface transportation bill, the Safe, Accountable,
Flexible, and Efficient Transportation Equity Act, (SAFETEA) passed by
the Senate on February 12, 2004, provides over $9.6 billion in budget
authority over the fiscal year 2004-2009 period. Within this amount,
$3.6 billion is needed to fully fund all approved or pending full
funding grant agreements (FFGAs). This includes all projects with
previous commitments or reserved authority under TEA21.
Under the Senate-passed bill, $2.1 billion will cover anticipated
FFGAs for the following projects: the first increment of New York East
Side Access; Central Phoenix East Valley Corridor; Charlotte-South
Corridor LRT; Raleigh-Regional Rail; and, Pittsburgh-North Shore
Corridor. An additional $3.9 billion would be available for future
commitments and funding of projects anticipated after fiscal year 2005.
Senator Shelby. If there is not enough commitment authority
to cover all of the proposed funding agreements in the request,
how would FTA choose the projects that it would enter into a
full funding agreement? You would have to make some decisions.
We would be very interested in that. What would your
methodology be?
SHIP DISPOSAL
Ship disposal. MARAD has made progress in contracting for
the disposal of obsolete ships from the National Defense
Reserve Fleet. Recently, environmental concerns and legal
proceedings have hindered these efforts. What steps are being
taken to address the environmental issues, and what assurances
is the Department providing to the countries receiving these
ships that there is no environmental danger to them? Do you
want to do that for the record?
Secretary Mineta. Let me do that for the record. We have 13
ships under contract to a United Kingdom firm, of which four
have already been delivered and are sitting in the shipyard in
Teaside, England. With our 2005 budget request we hope to
increase that to 21 ships.
We have a very strict environmental process to go through
in certifying those ships for movement to an overseas location.
We used to sell the ships to Bangladesh or India just to get
rid of them. But that is no longer possible. We have strict
environmental requirements that have to be met. We do need the
additional funding in fiscal year 2005 to dispose of these
additional ships.
[The information follows:]
MARAD is pursuing all disposal alternatives in order to find the
most cost-effective, environmentally sound disposal capacity available.
Disposal alternatives include domestic recycling, foreign recycling,
artificial reefing, deep sinking, vessel donation and vessel sales. The
export of ships for recycling is a promising alternative that has
provided an increase in competition and capacity, which allows more
ships to be disposed of with available disposal funding. The ability to
export ships for recycling will expedite the elimination of high-
priority ships, significantly mitigate the environmental threat of oil
discharge at the fleets and reduce the total number of obsolete vessels
significantly. Although foreign facilities are not subject to the same
worker and environmental laws as domestic facilities, MARAD's current
process requires foreign companies to demonstrate to MARAD and the EPA
that they can accomplish responsible vessel recycling in a manner that
protects worker safety and health.
MARAD's actions to ensure that the ship disposal process does not
harm the environment include activities while the vessels are at our
fleet anchorages, during tow preparations and while at the contractor's
facility. Programmatic ship disposal priorities and decisions are also
made in order to mitigate any threat to the environment.
AT THE FLEET ANCHORAGE
MARAD has three reserve fleets sites where its non-retention,
obsolete vessels are moored--the James River Reserve Fleet in Virginia,
the Beaumont Reserve Fleet in Texas and the Suisun Bay Reserve Fleet in
California. While the obsolete vessels are at the fleet anchorages
awaiting disposal, four activities take place that are important to
ensuring the environment is protected:
--Condition assessments--the material condition of each vessel is
assessed, rated and ranked. Information from this assessment is
factored into programmatic disposal decisions.
--Vessel condition monitoring--vessels are monitored for trim,
stability, hull and fuel tank integrity, overall deterioration
and adequate mooring.
--Vessel protective measures--cathodic hull protection systems are
utilized to inhibit underwater hull deterioration and advanced
mooring systems are used to secure the ships and protect them
against damage from high winds and storms.
--Corrective repairs/maintenance--as required repairs and maintenance
activities include pumping, patching, securing watertight
closures, etc.
DURING TOW PREPARATIONS & TOW EVOLUTIONS
MARAD's contracts require the prime contractor to accomplish tow
preparations and the safe towing of the vessel to the contractor's
facility. Proper tow preparations are ensured through the requirement
for a U.S. Coast Guard inspection and issuance of a loadline
certificate prior to the commencement of the tow. The contractor is
also required to have in place an approved Emergency Spill Management
Plan and a Spill Management Company to be on call to respond if needed
throughout the duration of the tow. The contractor and tow company are
also required to carry the appropriate level of insurance to cover
response and cleanup costs in the event of a discharge incident.
AT THE CONTRACTOR'S FACILITY
During the solicitation process prior to contract award,
prospective contractors are assessed for their working knowledge of
applicable environmental regulations. Technical Compliance Plans,
required from the contractors, must provide comprehensive information
related to environmental compliance measures to be followed during the
course of the work. The contractor's documentation related to
environmental activities is closely reviewed during the evaluation
process, and a pre-award survey of the contractor's facility is
accomplished if the contractor is new to MARAD.
MARAD's ship disposal contracts require the contractor and sub-
contractors to comply with all municipal, State and Federal regulations
related to the removal, handling, storage, transport and disposal of
hazardous materials. This includes prime and subcontractor compliance
with regulations associated with permits and licenses associated with
hazardous material remediation activities. MARAD's Office of
Environmental Activities provides on-site oversight over all project
environmental activities either directly or through the use of third-
party commercial environmental monitoring companies. MARAD's oversight
at disposal facilities is in addition to on-site inspections and
oversight provided by regional EPA and OSHA offices.
PROGRAMMATIC PRIORITIES
MARAD's ship disposal program priority remains focused on disposal
of MARAD's worse condition, non-retention vessels. The material
condition of the ship and the amount of residual fuels/oils contained
onboard our vessels are factors that are considered in all vessel
disposal decisions. Disposal of the ``worse ships first'' that contain
the most residual oils/fuels mitigates the environmental threat at
MARAD's fleet sites. MARAD's solicitations for disposal services
include the higher priority vessels, and negotiations involving
proposals that do not specify vessels will target the inclusion of
higher priority vessels.
FUNDING FOR FAA CAPITAL PROGRAMS
Senator Shelby. The FAA is requesting $2.5 billion for its
capital account which is $400 million less than the authorized
level and more than $300 million less than last year's enacted
level. Hard decisions will have to be made there, Mr.
Secretary. How will this impact the overall effort to modernize
the air traffic control system? How are you going to do more
with less? I would like to hear it. I would like to see you do
it, but I do not know if you can.
Secretary Mineta. There are a lot of things that were once
part of the capital program that we had to reevaluate with a
smaller pool of resources. Some of the programs that were in
prior facilities and equipment budgets are not as high priority
today as they might have been when we had more money available.
We are setting those aside and the more high-priority items
where we get more value for the dollars expended are the ones
we are moving foreword.
Safety, capacity and delay are our mantra. Those three
criteria are what we use to look at what is in F&E and say, not
as much is needed today as when we were more flush with funds.
So we are doing a lot of reprioritizing to make sure that we
can get more with less. It is not that we are adding more on
top of what is already there, but we are taking some of the
lower priority items and setting those aside, admittedly.
AMTRAK
Senator Shelby. Mr. Secretary, the administration has
requested a subsidy of $900 million for Amtrak in 2005. Amtrak
has once again asked Congress for $1.8 billion and continues to
express a need for similar amounts over the next several years.
Funding an increase above the current year level of $1.2
billion will be extremely difficult. What is your long-term
plan for Amtrak if the current reauthorization proposal is not
enacted?
Secretary Mineta. Mr. Chairman, the President's reform
proposal that is before Congress is very important. We have
requested $900 million for Amtrak, but we have also indicated
that we would support $1.4 billion in the outyears, in fiscal
years 2006 to 2009, conditional on Congress adopting the
management and financial reforms that are in the President's
reform proposal.
We have already expended over $35 billion on Amtrak since
1973, and we cannot continue down that path. The President is
very supportive of intercity passenger rail, but not on the
present path that we are on. We feel very strongly that there
has to be reform of Amtrak. So if the Congress were to adopt
the President's reform legislation, then we would support $1.4
billion in the outyears.
Another thing that has helped Amtrak is the action taken by
the Appropriations Committees to direct that Federal grants for
Amtrak be approved by DOT before going to Amtrak.
Amtrak has to submit an annual operating and capital
financial plan. We reviewed Amtrak's plan in fiscal year 2003,
and we are now doing that for fiscal year 2004. We have just
approved the operating grant agreement with Amtrak, and FRA is
now renewing the capital grant agreement. I think that has been
a very effective tool in making sure that the financial
management of Amtrak is kept under control.
COMMERCIAL DRIVER'S LICENSE PROGRAM
Senator Shelby. In spite of the greater attention that it
has drawn in recent years, the practice of fraudulently
obtaining a commercial driver's license continues to pose a
significant national risk, both in terms of highway safety and
terrorism prevention. While the Department is to be commended,
and I think we should do this, for the efforts it has taken
thus far to curb commercial driver's license abuse, I think a
lot of work needs to be completed in order to properly address
the problem.
Mr. Secretary, what measures are being implemented and what
do you plan to undertake during the next year in order to end,
as much as you can, commercial driver's license fraud? How does
the Department plan to oversee and coordinate with the States
in order to assure that commercial driver's license fraud
issuance is being conducted in accordance with Federal
guidelines?
Secretary Mineta. Mr. Chairman, let me properly respond to
you in writing, but one of the things that we are doing is to
complete 17 Federal compliance reviews of State commercial
driver's license programs. The end result is to increase
oversight of the commercial driver's license program.
As you know, this has been the subject of some FBI fraud
investigations, and we are making sure that we plug that hole.
We are requesting $22 million for fiscal year 2005 for the
State improvement of driver's license programs.
[The information follows:]
FMCSA has taken numerous actions to help prevent fraud in the
Commercial Driver's License (CDL) Program. FMCSA's CDL State Compliance
Review requirement is in the fourth year of implementation. These
compliance reviews are a necessary part of the CDL program to ensure
States have the statutes, administrative procedures, and equipment to
administer their CDL programs in compliance with Federal requirements.
Field personnel are receiving training on conducting compliance reviews
and identifying testing and licensing procedures that may be
susceptible to fraudulent activities. In continuation of supporting
fraud prevention, FMCSA is funding the updating of the CDL
Identification Manual. The manual contains color photographs of all
U.S., Canadian, and Mexican commercial licenses for use by State
licensing and enforcement officials to help identify fraudulent CDLs.
FMCSA is addressing the 22 recommendations made by the Office of
the Inspector General (OIG) in the May 8, 2002, audit report on
``Improving Testing and Licensing of Commercial Drivers,'' including
ones related directly to fraud. Also in response to an OIG
recommendation, FMCSA issued a policy memo on July 1, 2002,
specifically recommending States use covert monitoring of CDL examiners
as the preferred method of driver licensing oversight and control.
Eighteen States have set up covert monitoring programs with CDL grant
funds.
The CDL grant program has six priority areas. Two of them include
detection and prevention of fraudulent activities including covert
monitoring and implementation of the social security number (SSN)
verification for CDL drivers. FMCSA received a $5.1 million fiscal year
2002 supplemental appropriation from Congress to verify all existing
and new CDL driver's names, dates of birth and SSN with Social Security
Administration (SSA) records to help prevent fraudulent identities from
being created. To date, 40 States are verifying the CDL driver's
identify through the SSA. The remaining States are being encouraged to
establish SSN verification programs.
Finally, FMCSA, in cooperation with the American Association of
Motor Vehicle Administrators (AAMVA), identified 14 tasks to detect and
reduce fraudulent activities related to driver licensing. FMCSA
received an $8 million fiscal year 2002 supplemental appropriation to
help fund these tasks through a cooperative agreement. In addition,
through the cooperative agreement FMCSA and AAMVA have funded revisions
and upgrades to the CDL Knowledge Tests and software that can generate
multiple versions of the tests. To further the fraud prevention
initiative AAMVA has formed a Special Task Force on Identification
Security to identify strategies to achieve intended outcomes. FMCSA is
working closely with AAMVA through participation on the Task Force
working groups and is providing funding for these efforts.
Senator Shelby. Senator Murray.
MOTOR CARRIER SAFETY COMPLIANCE REVIEWS
Senator Murray. Thank you, Mr. Chairman.
Just following up on that, the number of compliance
reviews, as I understand, have dropped significantly. Are you
aware of that? In December 2002, FMCSA did 817 compliance
reviews but only completed 472 as of December 2003. Since that
is one of the most reliable ways to identify unsafe motor
carriers why has there been such a precipitous drop in the
number of reviews?
Secretary Mineta. I am not sure of those figures. I know
that 17 compliance reviews are going on right now. Let me check
on that State compliance number.
Senator Murray. Can you get the historical numbers for us?
Secretary Mineta. I will.
[The information follows:]
In fiscal year 2003, FMCSA began implementation of Section 210 of
the Motor Carrier Safety Improvement Act of 1999 (MCSIA). MCSIA
required FMCSA to establish regulations specifying minimum requirements
for new entrant motor carriers seeking Federal interstate operating
authority. There are approximately 40,000 to 50,000 new entrant
carriers seeking operating authority each year.
During December 2002, 280 compliance reviews (CRs) were completed,
which was significantly lower than the normal average of 800 compliance
reviews per month. This was a result of an increased emphasis on
conducting Security Sensitivity Visits (SSVs) in response to the events
surrounding the terrorist attacks on September 11, 2001. In December
2003, 817 compliance reviews were completed, an increase of 537 (192
percent) from the previous December. This shows that FMCSA returned to
its normal CR production level. Overall, 7,584 compliance reviews were
completed in fiscal year 2002 and 9,060 were completed in fiscal year
2003, an increase of 1,476 (19 percent) for the year.
During the first 5 months of fiscal year 2004, FMCSA completed
3,348 compliance reviews, which is on target to meet FMCSA's projected
goal of completing 8,000 compliance reviews for fiscal year 2004. While
the fiscal year 2004 target is lower than the actual number of
compliance reviews that were completed in fiscal year 2003, this is
attributed to an increased emphasis on conducting New Entrant Safety
Audits, as mandated by Congress.
AMTRAK
Senator Murray. Thank you. Also following up on the
Chairman's comments on Amtrak--I know he is surprised that I
am--as you know, the reforms that you are requiring have to be
considered by the Commerce Committee. This committee has to set
the number for fiscal year 2005. So I know that you are asking
for the Commerce Committee to follow up on that, and then if
they do it then you will go to the $1.4 billion in 2006 and
beyond. But we are looking at 2005.
A 26 percent reduction in the dollars to Amtrak is said by
Amtrak's president to take it into bankruptcy. Your own
Department of Transportation Inspector General has testified in
the past that a precipitous cut of size would mean bankruptcy
for Amtrak. So that does not get us to 2006, if the Commerce
Committee even moves forward on this. I know you are a member
of Amtrak's board of directors. Do you know something that we
do not know that will allow them to somehow manage to make it
on a huge cut like this until reforms are enacted, if they are
enacted?
Secretary Mineta. The operating financial management
reviews that are going on right now, separate from the capital
reviews, provide for some modicum of operational support. We
cannot fund the full amount because that would require--I think
you folks appropriated $1.3 billion in----
Senator Murray. One-point-two billion dollars.
Secretary Mineta [continuing]. And that was on a request of
$1.8 billion from Amtrak. They are able to survive on $1.2
billion. Again they're requesting $1.8 billion and again we are
taking a very hard look at----
Senator Murray. But your budget request is for $900
million.
Secretary Mineta. Nine hundred million dollars.
Senator Murray. That is significantly below this year's
level, and both the Amtrak president and your own IG have said
that Amtrak cannot survive at that level.
Secretary Mineta. Again, unless management and financial
reforms are adopted----
Senator Murray. So you are basically saying that if your
reforms are not adopted that go into effect by 2006, Amtrak is
not going to survive?
Secretary Mineta. We are still holding by the need for
reform.
Senator Murray. I hope the President takes a really active
approach with the Commerce Committee.
Secretary Mineta. As I understand it, Senator McCain is
about to introduce an Amtrak reform bill.
Senator Murray. We have been down this road before. I would
just warn all of us that if this is the bar that we have to be
held to, we are going to be again looking at a shutdown in
Amtrak I do not think any of us wants to see.
CONTRACTING OUT FEDERAL JOBS
Mr. Secretary, earlier today you talked about your efforts
in advancing the President's management agenda. Last year this
subcommittee, as you will remember, was very involved in the
issue of establishing standards for contracting out Federal
jobs. One of the provisions that was included in last year's
bill was a prohibition against using fiscal year 2004 funds to
contract out any Federal job overseas. I was really surprised
to see that the President's budget specifically requests that
that provision be deleted for 2005.
Could you cite for us some of the instances the Department
of Transportation might look at to take work that is currently
being conducted by Federal employees and send that work
overseas?
Secretary Mineta. I do not have any knowledge of that. I
will have to take a look at that.
Senator Murray. I can see all of your staff shaking their
heads. Then can you tell us why the President wants flexibility
if you have no place that you actually want to send jobs
overseas why he is asking to eliminate that provision?
Secretary Mineta. The President's request is a generic,
government-wide request. But I am not familiar with any plan
within our Department right now. Generally, we do not like to
see these types of prohibitions in legislative language. In any
event, I am not aware of any plans right now to send any jobs--
--
Senator Murray. I assume you would not object to that
language staying in for fiscal year 2005?
Secretary Mineta. On behalf of the administration, of
course. But in terms of any plans for, other than normal FAA
employees that are in foreign positions, I have got people in
Iraq, Afghanistan--not Afghanistan, but Iraq right now. We have
got air traffic controllers in overseas spots. We have other
positions. But we are not--I do not see, other than----
Senator Murray. But you do not see any problem with putting
the provision in again that does not allow any contracting out
of new jobs?
Secretary Mineta. Again, I do not like to see those kinds
of prohibitions placed in legislative language.
Senator Murray. But you have no plans to contract anything
out?
Secretary Mineta. I do not believe so.
[The information follows:]
The general provision in the President's budget to delete the
restriction on contracting out Federal jobs overseas would apply
government-wide, not just to the Department of Transportation. The
administration believes the restriction against contracting out Federal
jobs overseas is generally unnecessary because the government wins a
vast majority of the work and many activities that are the subject of
competitive sourcing must be performed domestically, for example
facilities maintenance, repair, and construction. In addition, the
restriction could violate international agreements that accord our
trading partners non-discriminatory treatment in government
procurement. These agreements generally provide for non-discriminatory
treatment to suppliers of foreign entities--i.e., they provide
flexibility for both foreign and domestic contractors to perform work
where performance will make the contractor most competitive.
AIR TRAFFIC CONTROL MAINTENANCE STAFFING LEVELS
Senator Murray. Mr. Secretary, last Monday a Federal
arbitrator ruled that the FAA has not met the minimum staffing
levels needed for the agency's air traffic control maintenance
functions based on the agreement that was reached in fiscal
year 2000 between the FAA and the union that represents the
maintenance technicians. The arbitrator ruled that the FAA must
immediately take action to raise the total number of technical
employees to a minimum staffing of 6,100. How was the FAA
allowed to drop below the agreed upon minimum staffing level?
Secretary Mineta. I will have to get back to you for the
record on that.
[The information follows:]
The Federal Aviation Administration believes that employees in
operational control centers should be included in the air traffic
control maintenance staffing level of 6,100.
NEED FOR FULL COMPLEMENT OF TECHNICIANS
Senator Murray. Given the funding cuts you are requesting
for modernizing air traffic control equipment, would you not
agree that it would be prudent to have a full complement of
technicians on board to maintain and repair the FAA's aging air
traffic control system?
Secretary Mineta. I will have to check on the labor
negotiation with the technicians group, the Professional Airway
System Specialist (PASS) union, and the budgetary amount.
[The information follows:]
The Professional Airways Systems Specialists (PASS) union disagrees
with the Federal Aviation Administration's (FAA) position that
employees in operational control centers should be included in the air
traffic control maintenance staffing level. A Federal arbitrator ruled
in favor of PASS, and the FAA has appealed the decision to the Federal
Labor Relations Authority.
DECISION OF THE FEDERAL ARBITRATOR
Senator Murray. If you could do that, and if you could let
us know how quickly you expect the FAA to comply with the
decision of the Federal arbitrator as well.
Secretary Mineta. Right. I am not sure whether they are
binding agreements or if there are any appeal provisions to
that arbitrator. I will have to check on that as well.
[The information follows:]
The Federal Aviation Administration (FAA) had 30 days from the date
of the Federal arbitrator's award (March 1, 2004) to file exceptions
with the Federal Labor Relations Authority (FLRA). After reviewing the
award, the FAA felt that the arbitrator exceeded his authority and
abrogated management of its right to determine where employees would be
assigned, a right that management chose not to waive according to the
managers who were present in negotiations. The FAA's exceptions were
filed on March 25, 2004, and we do not know how long the FLRA will take
before rendering a decision. The FLRA will allow the Professional
Airways Systems Specialists (PASS) union time to submit a response to
the Agency exceptions and will then issue a decision. There is no
statutory time frame in which the FLRA must issue a decision.
THIRD RUNWAY AT SEATAC INTERNATIONAL AIRPORT
Senator Murray. One last question. Mr. Secretary, a lot has
been said about the need to streamline the environmental review
process for highways, runways, and rail systems. Unfortunately,
the poster child project for long delays that impact many
projects is the third runway project at Seattle Tacoma
International Airport.
As you know, we have been trying to complete construction
of that third runway for more than 16 years. The added costs
for complying with the environmental rules for the construction
of that runway as well as the associated cost for delays have
grown by over $200 million just in the last 4 years. As you can
imagine, this has put an incredible amount of pressure on the
ability of the airport authority to finance the completion of
that project. Are you aware of that situation at Seattle Tacoma
International Airport?
Secretary Mineta. I was just made aware of this $198.1
million request that SeaTac is making of FAA 2 days ago. This
is the third request on the part of SeaTac. The original
agreement for a letter of intent was in 1997 for, I believe,
$198 million, or $190 million or so then. Then that was revised
several years ago by an additional $55 million, $57 million.
This is the third request for an increase in the letter of
intent for the SeaTac Airport. We will have to take a look at
what we are doing with that whole program.
[The information follows:]
In 1997, the FAA issued a Letter of Intent (LOI) to Seattle Tacoma
International Airport (SeaTac) for construction of a third runway,
committing $161.5 million in AIP funds over the period of fiscal year
1998-2010 towards the then estimated $587 million total project cost.
This represented a 28 percent Federal share of the total cost; higher
than recent projects of a similar scope (e.g., Atlanta and St. Louis
were around 18-20 percent). The LOI was amended in 2000 to add $55
million in funds over the period fiscal year 2001-2010 to help offset
unanticipated increases to the project cost, then estimated at $773
million. This raised the total LOI amount to $216.5 million, but kept
the Federal share around 28 percent.
SeaTac has recently submitted an application for a second amendment
to the LOI, this time for an additional $198.1 million over the period
fiscal year 2005-2014. This would raise the LOI total to $414.6 million
and the Federal share to 37 percent of the total project cost, now
estimated at $1.1 billion.
The Federal Aviation Administration is still reviewing SeaTac's
application. There is some concern about the high level of Federal
funding--the precedent-setting Federal share of 37 percent that would
result from this amendment, which is significantly higher than similar
recent projects. While we support the SeaTac third runway project, and
are sensitive to the environmental burdens which have caused some of
the cost increase, we need to examine the application in detail before
committing to a funding decision. As part of that examination the FAA
is retaining the services of an outside financial consultant to review
SeaTac's financial condition.
Senator Murray. I appreciate that. I am currently pursuing
an amendment to the airport's existing Federal commitment to
ensure that there is adequate financing to meet all of those
new environmental costs. As you know, a lot of it has been
because of Federal environmental laws and I want to pursue that
with you, and I would like to ask----
Secretary Mineta. I think that it is not only Federal
environmental laws, but also local lawsuits that have been
brought against----
Senator Murray. Under Federal environmental laws. That is
why the lawsuits have been brought.
I just want to know from you, is DOT still committed to the
completion of the third runway project and the economic
benefits that it will bring to the Northwest region?
Secretary Mineta. I assume so. I assume that it still is.
Senator Murray. Would you be willing to sit down with
myself, Marion Blakey and the appropriate airport officials to
talk about this issue?
Secretary Mineta. Absolutely.
Senator Murray. I would appreciate that very much.
Secretary Mineta. Absolutely.
Senator Murray. Thank you.
Thank you, Mr. Chairman, and thank you for your indulgence.
ENVIRONMENTAL REVIEWS FOR ALASKAN HIGHWAY PROJECTS
Senator Shelby. Senator Stevens, thank you for joining us.
STATEMENT OF SENATOR TED STEVENS
Senator Stevens. Thank you very much. I am pleased to be
here to be with young men who have brand new ideas. That is an
in-house story up here, Mr. Secretary. I am pleased to have a
chance to come before you because there are some significant
transportation problems in Alaska in which the process seems to
be changed, and it becomes significant because the increased
reviews are burdensome and sometimes unwarranted as far as our
State is concerned. I am sure you know, we have a fairly small
allowance for highway construction in Alaska, and to take more
of it for the environmental review is becoming burdensome.
Let me just state this to you. The Federal Highway
Administrator brought a training team to Alaska to assist in
management and planning of environmental steps required in
Title 23 of the Federal aid program. In addition, it relocated
a third environmental review person in Juneau to help review
the environmental documents prepared under the National
Environmental Protection Act.
Apparently, this work has become rather than an assistance
to get the job done quicker, it has added additional thresholds
for the transportation projects. We previously used some
categorical exclusions versus an environmental assessment (EA)
and now we are getting into the environmental impact statement
(EIS) on very small items.
For instance, an erosion control project on the Dalton
Highway, that is the highway that goes north from Fairbanks to
the North Slope, was slated for an EA. Last year it was
processed as a categorical exclusion. It is a dirt highway. It
has been there for years and it was an erosion control item
that should have been handled just as routine maintenance as a
matter of fact.
A bridge replacement of an existing bridge on the Alaska
Highway--that is our only highway that goes out to the south
48--now requires a full EIS. This is a bridge that is critical
to the gas pipeline that we are planning now, and I understand
that the EIS on this bridge replacement will delay the project
by 1 to 2 years. It could well add another year to two to the
building of the pipeline.
There is a brush cutting project that was performed by
Saga, that is an AmeriCorps nonprofit, who was told to seek an
EA. That is the environmental assessment. These always have
been the categorical exclusion type things, just brush cutting.
We are entirely in favor of strict environmental protection,
but when it comes to have an increase in the level of
requirements that have to be achieved, the heightened review is
causing delays, increasing costs, moving projects from one year
to another because of the short construction season that we
have in Alaska.
This is not associated only with the interior of Alaska.
The Knik Arm Bridge project, the Juneau Access Road, the
Gravina Road, all priority projects that are in the TEA21
reauthorization have now been indicated to have the highest
level of environmental review to proceed.
I would like to see if you could explain why at this time
we have--by the way, I think we have the highest level of
unemployment per capita in the country. We have a declining
economy because of the loss of our oil industry, our mining
industry, our timber industry, the basic industries associated
with the harvesting of timber. I cannot tell you--we have now
got a series of projects that would have provided employment
during this coming work season, hopefully, provide a slight
bridge for many people over into the next year when some of
these other things might be started up again.
But why can we not go back to the simple processes that
were used for years in connection with these highway projects
and not go up the ladder in terms of environmental protection
unless there is a significant new perspective involved. All the
things I am talking about are facilities in place that require
improvement or maintenance.
Secretary Mineta. Mr. Chairman, I am not familiar enough
with these projects to be able to respond, but let me get back
to you in writing after talking to our Federal highway folks. I
would think that if a new person has been dispatched to Juneau
to deal with environmental reviews, it was done in the hope of
speeding up the process. Let me find out why categorical
exclusion for a maintenance project now requires an
environmental assessment. I just do not know these projects or
the process well enough to be able to respond.
[The information follows:]
The U.S. Department of Transportation is actively working to
facilitate the environmental review processes in Alaska. For example,
the Federal Highway Administration (FHWA) entered into an agreement
with the Alaska Department of Transportation and Public Facilities
(DOTPF) that allows many projects with minor environmental impacts to
be processed as categorical exclusions without project-specific review
by FHWA. Other projects do involve a FHWA review, but are determined to
qualify as categorical exclusions. The net result is that the vast
majority of Alaska DOTPF's projects are advanced as categorical
exclusions. In a small number of cases, where the project facts do not
support a categorical exclusion, FHWA will work with the Alaska DOTPF
to prepare an environmental assessment (EA). In those situations where
environmental impacts are found to be significant, a full environmental
impact statement is required by law.
With respect to the specific projects mentioned, the FHWA has
reached an understanding with Alaska DOTPF that allows the projects to
advance with the appropriate level of environmental review. For
example, the brush cutting projects mentioned all qualify for a
categorical exclusion under FHWA's agreement with the Alaska DOTPF. The
Tanana River Bridge is being advanced with an environmental assessment
because of potential impacts involving historic resources, native
lands, hazardous wastes, and recreational lands. The Dalton Highway
erosion control project was done with an environmental assessment,
because the project involved extensive channelization of an
environmentally important stream. The Alaska Division approved the EA
for the Dalton project on April 7, 2004, and the Division expects to
issue a Finding of No Significant Impact (FONSI) in the near future.
FHWA is fully committed to efficient environmental review processes
in Alaska. To position itself for success, FHWA has recently worked
with Alaska DOTPF to host a number of training and process improvement
efforts. FHWA is confident that these efforts will lead to timely
project approvals and environmental outcomes that fully respect
Alaska's unique environmental resources.
Senator Stevens. I would hope personally you would take the
time to come up this summer and go see some of these.
Secretary Mineta. I will, yes, sir.
Senator Stevens. In the last decade we have only had one
court review of any environmental matter related to highways.
We have been perfectly operating with total cooperation. Now it
seems that because of the elevated requirement in each
instance, we are building towards more and more court review.
Since these are routine projects, brush cutting, bridge
replacement, erosion control, I just do not quite understand
it. So I would hope that you would take the time this summer
sometime and come up and we will get a small plane and go out
and look at some of these.
Secretary Mineta. I would be more than happy to accept that
invitation.
Senator Stevens. Thank you. I shall give you some
appropriate dates.
Secretary Mineta. Great.
SHORT SEA SHIPPING
Senator Shelby. Thank you, Chairman Stevens.
Mr. Secretary, the Maritime Administration is considering
exploring the potential for short sea freight shipping to
assist in reducing highway congestion. Can you tell us more
about this proposal?
Secretary Mineta. The goal of short sea shipping is to
utilize our ports and inland waterways. There are two factors
that are driving this. One is that ships are getting larger
with more containers onboard, and our own ports are unable to
handle these larger container ships. When the larger ships come
in, you can take the containers, put them on barges and
lighters and then move the containers from Boston to New York
to Baltimore to Savannah, or wherever their transshipment
points might be. This can provide some relief to the traffic
that is already on the highways, especially along the Eastern
I-95 seaboard.
Senator Shelby. What about the Tennessee-Tombigbee down in
the southeast?
Secretary Mineta. That is an inland waterway. We would look
at inland waterways as part of this whole effort.
FEDERAL TRANSIT ADMINISTRATION REORGANIZATION
Senator Shelby. Although FTA's senior management contends
that its reorganization proposal is preliminary, the
subcommittee has evidence that could lead a reasonable person
to conclude that the plans have been finalized, Mr. Secretary,
without your approval or Congressional approval. For example,
we have information regarding staffing decisions,
implementation schedules, and even office farewell parties. Not
for you, of course.
I would like to work with you, I think the committee would,
to ensure that FTA follows internal Departmental guidelines and
the requirements expressed in the appropriations act. Are you
willing to do that?
Secretary Mineta. Absolutely. There are situations where we
have to ask what comes first? We have to abide by OPM
regulations and by OMB regulations. The first body we have to
look at related to reorganization is OPM.
There are a lot of things that need to be started in a
preliminary way. None of these are set in concrete because we
have to come to you for reprogramming requests. The requests
have to clear our own internal channels within the Department
and with OMB as well. In terms of my own reorganization of the
Department, there are a number of things going on related to
hazmat and to other parts of our Department.
So, yes, word gets out about intended organizational
changes, but they are not carved in stone yet. We have to make
sure that we are in compliance with what OPM says and OMB says.
But we will definitely work with you, and we know that we have
to do that. It is not a question of having to do it, we want to
do it.
ADDITIONAL COMMITTEE QUESTIONS
Senator Shelby. Thank you.
Senator Murray, do you have any other questions?
Senator Murray. No.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
Questions Submitted by Senator Richard C. Shelby
NATCA: PAY FOR PERFORMANCE
Question. Secretary Mineta, you stated earlier in testimony before
the subcommittee that there are problems with NATCA units in delivering
pay for performance. Please provide the Department's assessment of the
problems that you alluded to in your testimony.
Answer. As we stated, the impasse was submitted to Congress. The
statutory 60-day timeframe for Congress to act on the impasse has
passed, so the FAA is now proceeding to implement its pay plan in the
remaining NATCA bargaining units. The FAA is currently considering what
its next steps are in this regard.
FTA ADMINISTRATIVE EXPENSES
Question. Please break out in detail the reasons for the
administrative cost increases at the FTA.
Answer. The $4.8 million dollar increase in FTA's administrative
expenses is necessary to carry out its mission. Funds will be used to
strategically manage human resources, competitively outsource
commercial functions, expand electronic government, improve financial
management, and integrate budget and performance, as outlined in the
President's Management Agenda. In doing so, FTA will enable the long-
term management of its workforce and fosters a citizen-centered,
results-based government that is well organized, flexible, and will
improve in performance.
Additional administrative expenses are needed as follows:
--An increase of $1.5 million is necessary to cover the annualized
fiscal year 2004 pay raise and the annualized January 2005 pay
raise, health benefits increase, and mandatory within grade
increases.
--An increase of $1.02 million is needed to support ten additional
FTEs. These resources are needed to comply with the expanded
technical assistance requirements of projects in the planning
process, implement statutory requirements for New Starts
projects, meet the requirements of major program initiatives,
and coordinate projects and reviews with other agencies, States
and local project sponsors.
--An increase of $0.2 million is required due to the inability of the
General Services Administration and the owner of the
Headquarters' Nassif building to negotiate a new lease
agreement at fair market value.
--An increase of $0.5 million is needed to cover inflation and
increased service costs, which increases are in line with the
OMB deflator for non-pay activities. Failure to fund inflation
results in the agency's inability to pay the full cost of
essential non-pay activities.
--An increase of $1.1 million is needed to continue improving our
information technology infrastructure, which includes:
application security and accreditation of information
technology systems; an increase in the Transportation Award and
Management System to facilitate grant processing and contract
approval; and ensuring that the Information Technology
infrastructure works with emerging technologies to support cost
accounting and core accountabilities.
--An additional $0.5 million is needed to support workforce planning
and training to ensure that there is available staff of the
appropriate skill mix to carryout program development and
oversight responsibilities.
MOTOR FUEL TAX EVASION
Question. Mr. Secretary, what suggestions do you have for getting
the IRS to improve its efforts to reduce the estimated $1 billion in
fuel tax evasion that occurs each year? Please provide for the record
any correspondence from DOT to the Department of the Treasury about the
importance of this issue.
Answer. The Department has proposed the authorization of $54.5
million for fiscal year 2005 to address motor fuel tax evasion. Of this
amount, State enforcement agencies would share $4.5 million to enhance
programs at the State level including but not limited to motor fuel tax
audits and examinations, dyed fuel sampling, and training. Two million
dollars would be set aside for intergovernmental enforcement efforts
including specific projects coordinated with Federal and State agencies
that are not traditionally involved in motor fuel tax enforcement as
well as those that have been involved in the past, but currently may
not be working on the issue.
The Internal Revenue Service (IRS) would receive the remaining $48
million. Of that amount, $4.5 million would be provided for the
operation and maintenance of the automated fuel tracking system
mandated by the Transportation Equity Act for the 21st Century. Forty-
four million dollars would be used by the IRS to begin development,
operation, and maintenance of a registration system for pipelines,
vessels, and barges and their operators, that make bulk transfers of
taxable fuels, including developing a decal/transponder to be used to
display proof of payment. It would also be used to establish, operate
and maintain an electronic database of heavy vehicle highway use tax
payments; and for additional enforcement efforts including audits,
examinations and criminal investigations.
The automated fuel tracking system provides an important tool to
the IRS and the States for monitoring fuel tax compliance. The
additional requirement of electronic reporting will allow the IRS to
have more complete information on the movement of fuel into and out of
terminals thus assisting IRS and State enforcement efforts.
The proposal to give the IRS significantly more funding than in the
past comes with additional accountability. The IRS would be required to
submit reports on progress made in the development of any new automated
systems, criminal investigations, audits and examinations. Also, the
Federal Highway Administration (FHWA) will be more involved in the
development of any work plans related to new program requirements and
in the oversight of such projects.
The expanded resources that will be available to the IRS for
improved database systems and greater enforcement efforts will allow
the agency more flexibility in its role as enforcer. The combined
efforts of the IRS and the States resulting from the significant
increase in funding will provide an opportunity to reduce motor fuel
tax evasion.
Interaction between the FHWA and the IRS most often takes place
over the telephone or through face-to-face meetings. A memorandum of
understanding between the FHWA and the IRS was signed to provide for
the development of the automated fuel tracking system mandated in the
TEA21. A scanned copy is provided.
OVERSIGHT OF MEGA-PROJECTS
Question. In your earlier testimony you indicated that project
managers will provide improved oversight of mega-projects. What
estimated cost savings can the committee expect to see in these types
of projects? What type of review occurs prior to awarding a contract to
determine if the contractor has actually underbid the true costs?
Should more oversight occur in this area? What results could we expect
to see?
Answer. The Federal Highway Administration (FHWA) is assigning a
designated Project Oversight Manager to each active major project,
dedicated full-time to that specific major project. The Oversight
Manager may draw upon resources from within his/her Division Office in
order to form an integrated project team that is responsible for
providing proper Federal stewardship and oversight of the major
project. The Project Oversight Manager is responsible for the overall
administration and operation of the Project from a Federal stewardship/
oversight perspective. He/she maintains an ongoing review process to
ensure that proper oversight and controls are in place and functioning
including cost containment and financial management. While the cost
savings are difficult to quantify, having an FHWA official on-site has
resulted in efficiencies in project management. In addition, the FHWA's
independent review of the costs and schedules via finance plans and
annual updates have contributed to efficiencies in cost and schedule
control.
Title 23, Code of Federal Regulations (CFR), part 635, section
114(a) requires design-bid-build Federal-aid contracts to be awarded
only on the basis of the lowest responsive bid submitted by a bidder
meeting the criteria of responsibility. This requirement applies to all
Federal-aid projects, including major projects. For Federal-aid
projects that are determined to be ``State-approved projects'', the
State Transportation Agency (STA) may act for the FHWA in the bid
analysis and award process, but must follow the justification and
documentation procedures of 23 CFR 635.114(b-j) by documenting the
project files. STAs may follow their own justification and
documentation procedures for non-NHS projects.
Bid analysis is the basis for justifying contract award or
rejection of the bids. The bid analysis process, pursuant to 23 CFR
635.114(c), is an examination of the unit bid prices for reasonable
conformance with the engineer's estimated prices and other factors
beyond the comparison of prices. A proper bid analysis helps to ensure
that funds are being used in the most effective manner. The FHWA's
review of the bids should parallel the STA's review. Together, both
agencies should be assured that good competition and the lowest
possible price were received. The FHWA's concurrence in award is a step
in the obligation and expenditure of Federal funds and is the
authorization to proceed with construction.
The current oversight of the bidding process is adequate. Division
Offices are actively involved with the processes of the State DOTs to
assure that 23 CFR requirements are met. In addition, the concurrence
in award process serves as an additional check and is only provided
after receipt and review of the tabulation of bids. This applies to all
Federal-aid oversight projects, including major projects. Division
Offices also conduct process reviews of the bidding process when
appropriate.
The oversight provided by the Major Project Oversight Manager model
has been successful and has provided for adequate oversight. However,
the Agency is constantly striving to provide the employees in these
positions the tools to enhance their abilities to improve their
oversight. For instance, in the upcoming year, the Agency will be
providing multidisciplinary training in several core competency areas:
project management, financial management, cost estimating,
communications, and leadership. In addition, the FHWA Contract
Administration Course contains modules which address the bidding
process.
By continuing to improve the core competencies of the Major Project
Oversight Managers, the Agency can expect to see a cadre of FHWA
managers who are able to provide more of a collaborative leadership
role to major projects. In this role, the Managers will work together
with the entire project delivery team to deliver major projects that
maintain the public's trust and confidence in our ability to deliver
the Federal-aid Highway Program. The additional training provided about
the bidding process to both Federal and State employees via the
Contract Administration Course results in an awareness of the bidding
process requirements and sound procedures that optimize process
efficiencies and limits opportunities for legal challenges and fraud.
For the Federal Transit Administration (FTA) and the oversight of
mega-projects, future projects will be tightly managed to ensure the
project cost will not exceed 5 percent of the baseline project cost. A
project recovery plan will be required when the projected baseline cost
is going to exceed more than 5 percent. To determine whether a
contractor may have underbid the cost, a bid analysis will continue to
be performed prior to awarding the contract. FTA will continue to
review the grantee's bid analysis to ensure project cost control.
Increased oversight reviews will result in more successful projects
such as the New Orleans Canal Streetcar Line, Dallas North Central LRT
and Interstate Max LRT in Portland.
As for the Federal Aviation Administration (FAA), they too have a
process to review the costs of major airport improvement projects and
continue to perform significant oversight functions. All Airport
Improvement Program grantees must perform an analysis of cost or price
for all procurement actions, including contract modifications.
FULL FUNDING GRANT AGREEMENT COMMITMENT AUTHORITY
Question. Earlier in the hearing, Mr. Secretary, you were asked how
FTA would chose from among projects that it has proposed to enter into
full funding contracts during fiscal year 2005 without sufficient
commitment authority to cover all of the projects. Please explain this
for the record. What methodology would be used?
Answer. There is sufficient commitment authority to cover all of
the projects recommended for Section 5309 New Starts funding in the
President's Budget for fiscal year 2005 and the Annual Report on New
Starts: Proposed Allocations of Funds for fiscal year 2005 (the current
``Annual New Starts Report''). Year by year, in each Presidential
Budget and Annual New Starts Report for the coming fiscal year, the
Department and FTA make recommendations for New Starts funding only
insofar as there is sufficient commitment authority available to cover
those recommendations--the Department and FTA never exceed the amount
of available commitment authority.
In any given year, the selection of projects for proposed Full
Funding Grant Agreements is based on: (1) the relative merits of the
projects under consideration, and (2) the ``readiness'' of each project
under consideration to begin construction. Specifically, the relative
merits of each project are determined through FTA's application of both
the project justification and local financial commitment criteria
established by 49 U.S.C. 5309(e) and fleshed out by the regulations
at 49 C.F.R. Part 611. The ``readiness'' of each project is a judgment
of the reliability of the cost, budget, and schedule for that project,
in light of a number of factors, including the grantee's demonstration
of its technical capacity to build and operate the project, its
execution of all principal third-party agreements relevant to the
project, an assessment of the risks inherent in the project that could
affect cost and schedule, and the level of engineering and final design
that has been completed.
MOTOR CARRIER SAFETY AUDITS
Question. Given the high passage rate of FMCSA safety audits, some
critics charge that the FMCSA safety audit procedure has become more of
an outreach and education campaign than a safety assurance mechanism.
Please explain why the administration of the Safety Audit process of
the New Entrant program by FMCSA is an optimal use of the resources
allocated to ensuring that unqualified carriers are kept off the roads.
Answer. Data shows that new entrants are identified as at-risk
carriers. The program was originally designed as an outreach and
education effort. FMCSA is retooling the program to give it a greater
enforcement focus. The concept is to engage carriers at the beginning
of operations so there is not as a great a need to perform compliance
reviews, a more optimal use of Agency resources. FMCSA will work to tie
new entrant audits and compliance reviews together as the programs
advance.
FMCSA is developing a rulemaking proposal that would strengthen the
pass/fail criteria for the new entrant program. The rulemaking
enhancements will identify carriers without basic safety management
controls. As a result of our proposed changes, FMCSA anticipates a
significant increase in the number of enforcement actions taken against
new entrant carriers.
MOTOR CARRIER COMPLIANCE REVIEWS
Question. As FMCSA has increased the number of new entrant safety
audits, the number of compliance reviews it undertakes has dropped
significantly. Why has the number of compliance reviews dropped so
sharply in recent months? Is the level of funding that is requested in
fiscal year 2005 sufficient to meet the goals of the agency? Do you
believe that a safety audit can substitute for a compliance review? Do
you intend to increase the number of compliance reviews in the
remainder of fiscal year 2004 and fiscal year 2005?
Answer. The number of compliance reviews has dropped significantly
due primarily to the focus on Safety Security Visits as a result of
September 11, 2001, and the implementation of the new entrant program.
Prior to the program's implementation, FMCSA conducted approximately
12,000 compliance reviews per year. Currently, the Agency conducts
approximately 8,000 per calendar year. In fiscal year 2004, more States
will begin to conduct safety audits. However, FMCSA does not expect to
realize fully the benefit of State participation until fiscal year
2005.
The new entrant audit was originally designed as an educational
tool for carriers beginning interstate operations rather than a
substitute for the compliance review program. A compliance review may
be conducted on new entrants during the safety monitoring period if
their performance warrants such a review. To meet the Motor Carrier
Safety Improvement Act's statutory requirement to conduct these new
entrant safety audits, FMCSA diverted resources from the conduct of
compliance reviews to the conduct of 40,000-50,000 new entrant audits
annually. As a result, FMCSA expects to conduct approximately 7,500
compliance reviews in fiscal year 2004, which is 500 lower than FMCSA's
goal of completing 8,000 compliance reviews in fiscal year 2004.
However, FMCSA expects to meet its target of 8,000 compliance reviews
in fiscal year 2005.
INTELLIGENT TRANSPORTATION SYSTEMS ADVISORY COMMITTEE
Question. The Department disbanded the Intelligent Transportation
Systems (ITS) Advisory Committee more than a year ago. Do you plan to
appoint new members to the ITS Advisory Board or is this body no longer
necessary?
Answer. Two years ago, the Department of Transportation's (DOT)
leadership undertook an internal review of the future direction of the
ITS program. A key decision resulting from that examination was to
establish a Federal Advisory Committee to the DOT for ITS. From the ITS
program's inception a dozen years ago until June 2003, ITS America had
served in this advisory capacity and was well positioned to bring
government and industry together in development of the ITS program. As
the ITS industry and the DOT's ITS program matured, DOT leadership
concluded that the time was right to consider a new Advisory Committee.
This tested method of consultation with the public serves the
Department well across other modes of transportation, and the ITS
Advisory Committee would give the Department a new and valuable
consultative asset. A new DOT Advisory Committee is being considered
under the Federal Advisory Committee Act. Organizations and individuals
with resources and expertise to offer meaningful advice would be
invited to serve.
SHIP DISPOSAL
Question. How many obsolete vessels from the National Defense
Reserve Fleet will be disposed of with the funds provided in fiscal
year 2004?
Answer. The Maritime Administration (MARAD) has removed 13 ships so
far in fiscal year 2004, resulting from contracts awarded with fiscal
year 2003 funding. MARAD anticipates awards, utilizing funds provided
in fiscal year 2004, to result in the disposal of an additional 12
obsolete ships from the NDRF.
Question. How many ships does MARAD plan to dispose of in fiscal
year 2005 if the requested amount is provided?
Answer. MARAD plans to dispose of approximately 15 vessels from the
National Defense Reserve Fleet.
Question. What is MARAD's plan for meeting the 2006 deadline to
dispose of all of the obsolete fleet?
Answer. While the Congressionally mandated September 30, 2006
deadline was for the removal of all vessels, a more achievable goal is
to remove all vessels that have a high or moderate risk by 2006. To
reach that goal, MARAD plans to eliminate the backlog of vessels that
accumulated in the 1990's; remove all ``high'' and ``moderate''
priority ships (approximately 65 ships) at a rate of 20-24 ships per
year; and maintain only ``low'' priority ships at the fleet sites.
MARAD's annual target is to maintain no more than 40-60 low priority
vessels at all three fleet sites. With the projected designation of 45
ships as obsolete over the next 3-5 years, an annual disposal rate of
20-24 ships will have to be maintained for 3-4 years beyond 2006, to
achieve and maintain an obsolete vessel fleet size at a maximum range
of 40-60 ships.
In addition to maintaining only ``low'' priority obsolete ships at
the fleets, further mitigation of environmental risks will be achieved
by continuing to use the established protocol for the acceptance of
vessels into the National Defense Reserve Fleet and the practices used
when downgrading vessels to non-retention status. This includes
accomplishment of material condition and liquid load surveys, removal
of readily removable hazardous materials, preliminary residual
hazardous material characterization, and defueling of vessels to the
maximum extent. In addition, as newer vessels (built after 1980) are
downgraded to non-retention status and enter the fleets, a decline in
the quantities of hazmats, such as, PCBs will be evident.
While MARAD will continue to pursue all disposal options to ensure
the best value disposal decisions, having foreign recycling as a viable
disposal option in 2004-2006 and beyond will help MARAD achieve the
annual goal of reducing the inventory by 20-24 vessels.
MARITIME GUARANTEED LOANS (TITLE XI)
Question. Public Law 108-11 prohibited the obligation of funds
under the Title XI program until the Inspector General (IG) certifies
that MARAD has adopted and implemented the recommendations of No. CR-
2003-031 to his satisfaction. What is the status of the implementation
of these recommendations?
Answer. MARAD and the Office of the Inspector General have been
working closely to adopt and implement the recommendations contained in
the report. A formal IG report providing the certification is expected
in June 2004.
PRESIDENTIAL AND POLITICAL APPOINTEES
Question. Please provide the number of presidential and political
appointees currently on board at the Department and break out by
operating administration and office of the Office of the Secretary as
well as by title and grade.
Answer. The information follows.
PRESIDENTIAL, SENIOR EXECUTIVE SERVICE NON-CAREER, AND SCHEDULE C
APPOINTEES AS OF MAY 4, 2004
------------------------------------------------------------------------
Title Grade
------------------------------------------------------------------------
OFFICE OF THE SECRETARY
Presidential Appointee--Immediate Office
of the Secretary:
Secretary............................. EX-I
Non-career SES--Immediate Office of the
Secretary:
Chief of Staff........................ ES-00
Assistant to the Secretary for Policy. ES-00
Assistant to the Secretary for Policy. ES-00
Deputy Chief of Staff................. ES-00
Schedule C--Immediate Office of the
Secretary:
White House Liaison................... GS-15
Assistant to the Secretary for Policy. GS-15
Assistant to the Secretary for Policy. GS-14
Special Assistant to the Secretary and GS-14
Deputy Director for Scheduling and
Advance.
Director for Scheduling and Advance... GS-15
Special Assistant for Scheduling and GS-13
Advance.
Scheduling and Advance Assistant...... GS-7
Limited Term SES--Office of the Deputy
Secretary:
Acting Deputy Secretary/Counselor to ES-00
the Secretary.
Schedule C--Office of the Deputy
Secretary:
Counselor to the Deputy Secretary..... GS-15
Presidential Appointee--Office of the
Under Secretary of Transportation for
Policy:
Under Secretary....................... EX-II
Non-career SES--Office of the Under
Secretary of Transportation for Policy:
Counselor to the Under Secretary...... ES-00
Schedule C--Office of the Under Secretary
of Transportation for Policy:
Executive Assistant to the Under GS-12
Secretary.
Non-career SES--Executive Secretariat:
Director.............................. ES-00
Non-career SES--Office of Civil Rights:
Director.............................. ES-00
Non-career SES--Office of Small &
Disadvantaged Business Utilization:
Director.............................. ES-00
Non-career SES--Office of the Chief
Information Officer:
Chief Information Officer............. ES-00
Non-career SES--Office of Public Affairs:
Assistant to the Secretary and ES-00
Director of Public Affairs.
Schedule C--Office of Public Affairs:
Deputy Director of Public Affairs..... GS-15
Deputy Director of Communications..... GS-15
Associate Director for Speechwriting.. GS-15
Speechwriter.......................... GS-15
Speechwriter.......................... GS-14
Special Assistant to the Director..... GS-14
Special Assistant for Public Affairs.. GS-10
Presidential Appointee--Assistant
Secretary for Budget and Programs:
Assistant Secretary & CFO............. EX-IV
Non-career SES--Office of the Assistant
Secretary for Budget and Programs:
Deputy Assistant Secretary for ES-00
Management and Budget.
Presidential Appointee--Office of the
General Counsel:
General Counsel....................... EX-IV
Presidential Appointee--Office of the
Assistant Secretary for Transportation
Policy:
Assistant Secretary................... EX-IV
Non-career SES--Office of the Assistant
Secretary for Transportation Policy:
Deputy Assistant Secretary............ ES-00
Schedule C--Office of the Assistant
Secretary for Transportation Policy:
Special Assistant to the Assistant GS-12
Secretary.
Presidential Appointee--Office of the
Assistant Secretary for Aviation and
International Affairs:
Assistant Secretary................... EX-IV
Non-career SES--Office of the Assistant
Secretary for Aviation and International
Affairs:
Deputy Assistant Secretary............ ES-00
Schedule C--Office of the Assistant
Secretary for Aviation and International
Affairs:
Special Assistant..................... GS-15
Presidential Appointee--Office of the
Assistant Secretary for Governmental
Affairs:
Assistant Secretary................... EX-IV
Non-career SES--Office of the Assistant
Secretary for Governmental Affairs:
Deputy Assistant Secretary............ ES-00
Schedule C--Office of the Assistant
Secretary for Governmental Affairs:
Special Assistant to the Assistant GS-15
Secretary.
Associate Director for Governmental GS-14
Affairs.
Associate Director for Governmental GS-13
Affairs.
Associate Director for Governmental GS-13
Affairs.
Associate Director for Governmental GS-13
Affairs.
Associate Director for GS-14
Intergovernmental Affairs.
OFFICE OF INSPECTOR GENERAL
Presidential Appointee:
Inspector General..................... EX-IV
FEDERAL AVIATION ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-II
Deputy Administrator.................. EX-IV
Non-career SES:
Chief Counsel......................... FJ-4
Associate Administrator for Airports.. FJ-4
Assistant Administrator for FJ-4
International Aviation.
Assistant Administrator for Aviation FJ-4
Policy, Planning & Environment.
Assistant Administrator for Government FJ-4
& Industry Affairs.
Assistant Administrator for Public FJ-4
Affairs.
Schedule C:
Special Assistant to the Deputy GG-15
Administrator.
FEDERAL HIGHWAY ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-II
Non-career SES:
Deputy Administrator.................. ES-00
Chief Counsel......................... ES-00
Associate Administrator for Public ES-00
Affairs.
Associate Administrator for Policy.... ES-00
Schedule C:
Special Assistant to the Administrator GS-15
Special Assistant..................... GS-14
Special Assistant to the Policy GS-14
Director.
Special Assistant to the Chief Counsel GS-13
FEDERAL RAILROAD ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-III
Non-career SES:
Deputy Administrator.................. ES-00
Schedule C:
Director of Public Affairs............ GS-13
NATIONAL HIGHWAY TRAFFIC SAFETY
ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-III
Non-career SES:
Deputy Administrator.................. ES-00
Chief Counsel......................... ES-00
Associate Administrator for External ES-00
Affairs.
Schedule C:
Special Assistant..................... GS-15
FEDERAL MOTOR CARRIER SAFETY
ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-III
Non-career SES:
Deputy Administrator.................. ES-00
Chief Counsel......................... ES-00
Schedule C:
Director, Office of Communications & GS-15
Senior Policy Advisor.
Special Assistant to the Administrator GS-14
for Intergovernmental Affairs.
FEDERAL TRANSIT ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-III
Non-career SES:
Deputy Administrator.................. ES-00
Chief Counsel......................... ES-00
Schedule C:
Staff Assistant....................... GS-10
RESEARCH AND SPECIAL PROGRAMS
ADMINISTRATION
Non-career SES:
Deputy Administrator.................. ES-00
Schedule C:
Director of Policy and Program Support GS-15
SAINT LAWRENCE SEAWAY DEVELOPMENT
CORPORATION
Presidential Appointee:
Administrator......................... EX-IV
SURFACE TRANSPORTATION BOARD
Presidential Appointee:
Chairman.............................. EX-III
MARITIME ADMINISTRATION
Presidential Appointee:
Administrator......................... EX-III
Non-career SES:
Deputy Administrator.................. ES-00
Chief Counsel......................... ES-00
Schedule C:
Director, Office of Congressional and GS-15
Public Affairs.
Special Assistant to the Administrator GS-14
------------------------------------------------------------------------
Question. Please provide by operating administration or office of
the Office of the Secretary the number of vacant presidential and
political positions and the grade and 2005 salary for each position.
Answer. The information follows.
VACANT PRESIDENTIAL AND POLITICAL POSITIONS--AS OF MAY 04, 2004
------------------------------------------------------------------------
Title Grade Salary
------------------------------------------------------------------------
Office of the Secretary:
Deputy Secretary.............. EX-II............... $158,100
Special Assistant for GS-7................ 34,184
Scheduling and Advance.
Director of Drug Enforcement GS-15............... 100,231
and Program Compliance.
Deputy Assistant Secretary for ES-0................ 125,264
Governmental Affairs.
Associate Director for GS-14............... 96,572
Governmental Affairs.
Federal Aviation Administration:
Deputy Assistant Administrator GS-15............... 110,256
for Government and Industry
Affairs.
Maritime Administration:
Senior Policy Advisor......... GS-15............... 113,597
National Highway Traffic Safety
Administration:
Director, Office of Public and GS-15............... 113,597
Consumer Affairs.
Director of Intergovernmental GS-15............... 113,597
and Congressional Affairs.
Federal Transit Administration:
Associate Administrator for ES-0................ 137,000
Communications and
Legislative Affairs.
Research and Special Programs
Administration:
Administrator................. EX-III.............. 145,600
Special Assistant............. GS-12............... 68,722
Director of Public Affairs.... GS-15............... 113,597
Bureau of Transportation
Statistics:
Director...................... EX-V................ 128,200
Surface Transportation Board:
Board Member.................. EX-IV............... 136,900
Board Member.................. EX-IV............... 136,900
------------------------------------------------------------------------
NOTES.--The PAS salaries are based on the statutory pay level. The SES
salaries are based on the middle of the new senior executive pay
range, or a salary determined for the proposed incumbent. The GS
salaries are based on the middle of the range (step 5) for each grade
(as previously encumbered), or as proposed.
Question. How many new political positions are requested for fiscal
year 2005?
Answer. There are 10 new political positions being requested for
fiscal year 2005.
Question. Please display by office of the Office of the Secretary
or operating administration, each new political position and its grade
and salary.
Answer. The information follows.
------------------------------------------------------------------------
Title Grade Salary
------------------------------------------------------------------------
Office of the Secretary:
Special Counsel............... GS-15............... $113,597
Special Assistant (to the A/S GS-15............... 113,597
for Trans. Policy).
Special Assistant (to the A/S GS-14............... 96,572
for Aviation & International
Affairs.
Security Liaison.............. GS-15............... 113,597
Special Assistant for GS-15............... 113,597
Information Technology
Security.
Federal Railroad Administration:
Deputy Administrator.......... ES-0................ 125,264
Special Assistant............. GS-15............... 113,597
Federal Transit Administration:
Special Assistant for GS-15............... 113,597
Intergovernmental Affairs.
Federal Motor Carrier Safety
Administration
Special Assistant............. GS-12............... 68,722
Research and Special Programs
Administration:
Special Assistant............. GS-12............... 68,722
------------------------------------------------------------------------
The SES position salaries are estimated at the middle of the new
senior executive pay range, or based on a salary determined for the
proposed incumbent.
The GS salaries are estimated at the middle of the range (step 5)
for each grade proposed.
Question. Please provide a timetable for filling vacant political
positions up to the statutory cap.
Answer. The information follows.
VACANT POLITICAL POSITIONS--AS OF MAY 04, 2004
------------------------------------------------------------------------
Title Grade Salary Incumbent Status
------------------------------------------------------------------------
Office of the Secretary:
Deputy Secretary.......... EX-II $158,100 Pending Senate
Confirmation
Candidate to
come aboard--6/
13/04
Special Assistant for GS-15 100,231 Candidate to
Scheduling and Advance. come aboard--6/
13/04
Director of Drug ES-00 125,264 Interviewing--ca
Enforcement and Program ndidate to come
Compliance. aboard
Associate Director for GS-14 96,572 Interviewing
Governmental Affairs.
Federal Aviation
Administration:
Deputy Assistant GS-15 110,256 Candidate to
Administrator for come on Board--
Government and Industry 6/13/04
Affairs.
Maritime Administration:
Senior Policy Advisor..... GS-15 113,597 Interviewing
National Highway Traffic
Safety Administration:
Director, Office of Public GS-15 113,597 Interviewing
and Consumer Affairs.
Director of .......... .......... ................
Intergovernmental and
Congressional Affairs.
Federal Transit
Administration:
Associate Administrator ES-0 137,000 Candidate to
for Communications and come aboard--6/
Legislative Affairs. 1/04
Research and Special Programs
Administration:
Administration............ EX-III 145,600 Interviewing
Special Assistant......... GS-12 68,722 Interviewing
Director of Public Affairs GS-15 113,597 Interviewing
Bureau of Transportation
Statistics:
Director.................. EX-V 128,200 Interviewing
Surface Transportation Board:
Board Member.............. EX-IV 136,900 Pending Senate
Confirmation
Board Member.............. EX-IV 136,900 Pending Senate
Confirmation
------------------------------------------------------------------------
Question. Please provide a table that compares the number of
political appointees by agency or by office of the Office of the
Secretary over the last 5 years.
Answer. The information follows.
----------------------------------------------------------------------------------------------------------------
Fiscal Year
--------------------------------------------
Operating Administration 2004
2000 2001 2002 2003 As of
5/4/04
----------------------------------------------------------------------------------------------------------------
Secretarial Offices................................................ 25 20 29 25 25
Budget and Programs................................................ 3 1 1 0 2
General Counsel.................................................... 0 1 1 1 1
Governmental Affairs............................................... 9 7 9 8 8
Administration..................................................... 1 0 0 0 0
Transportation Policy.............................................. 6 1 3 3 3
Federal Aviation Administration.................................... 5 4 7 9 9
Federal Highway Administration..................................... 5 1 9 7 9
National Highway Traffic Safety Administration..................... 7 2 7 5 5
Federal Railroad Administration.................................... 4 2 3 2 3
Federal Transit Administration..................................... 3 2 5 5 4
Saint Lawrence Seaway Development Corp............................. 1 1 1 1 1
Research and Special Programs Administration....................... 4 2 3 3 2
Office of the Inspector General.................................... 1 1 1 1 1
Bureau of Transportation Statistics................................ 1 1 1 0 0
Surface Transportation Board....................................... 3 3 2 1 1
Maritime Administration............................................ 5 1 5 5 5
--------------------------------------------
TOTAL........................................................ 85 51 90 82 87
----------------------------------------------------------------------------------------------------------------
OST STAFFING
Question. Please provide a table that compares the estimated
average grade for each office of the Office of the Secretary for fiscal
year 2005 with the past 5 fiscal years.
Answer. The information follows.
FISCAL YEAR 2001-2005 AVERAGE GRADES
------------------------------------------------------------------------
Fiscal
Fiscal Fiscal Fiscal Year
Office Year Year Year 2004
2001 2002 2003 (Est.)
------------------------------------------------------------------------
Secretarial Offices............. 10.9 10.9 11.1 11.1
Budget & Programs............... 11.6 11.8 11.8 11.3
General Counsel................. 11.8 11.7 11.9 12.0
Governmental Affairs............ 10.1 11.0 11.6 11.2
Administration.................. 11.8 11.4 11.1 11.2
Aviation & Int'l Affairs........ 11.0 11.1 11.1 11.1
Transportation Policy........... 10.6 10.0 10.0 10.3
------------------------------------------------------------------------
NOTE.--Fiscal year 2005 data not available.
Question. Please provide a table listing by office of the Office of
the Secretary, onboard staffing and FTE for fiscal year 2000, through
2004 and the fiscal year 2005 requested full-time positions and FTE.
Answer. The information follows.
OST STAFFING SALARIES AND EXPENSES--POSITIONS AND FTE
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2003 Fiscal Year Fiscal Year
2000 Actual 2001 Actual 2002 Actual Request 2004 Request 2005 Request
Office -------------------------------------------------------------------------------------------------
FTP FTE FTP FTE FTP FTE FTP FTE FTP FTE FTP FTE
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Counsel....................................... 87 81 92 81 112 92 112 106 106 100 106 100
Under Sec Transportation Policy....................... 34 30 33 29 33 29 133 129 132 128 132 128
Aviation/International Affairs \1\.................... 94 94 92 87 92 92 ....... ....... ...... ...... ...... ......
Budget and Programs................................... 56 56 56 51 56 44 56 56 55 55 55 55
Governmental Affairs.................................. 24 24 24 18 24 21 24 24 24 24 24 24
Administration \2\.................................... 81 61 81 67 82 99 83 79 86 84 86 84
Public Affairs........................................ 21 20 21 18 21 19 21 21 21 21 21 21
Office of the Secretary............................... 23 22 22 22 22 21 22 22 22 22 22 22
Office of the Deputy Secretary........................ 7 6 7 4 7 6 7 7 7 7 7 7
Office of Intermodalism \3\........................... 10 10 ...... ...... ...... ...... ....... ....... ...... ...... ...... ......
Office of the Executive Secretariat................... 15 15 15 14 15 15 15 15 15 15 15 15
Board of Contract Appeals............................. 6 5 6 5 5 5 6 6 6 6 6 6
Small and Disadvantaged Business...................... 12 12 12 9 12 10 12 12 11 11 11 11
Intelligence and Security \4\......................... 12 11 12 11 12 8 [15] [14] 15 15 15 15
Ofc of the Chief Information Officer.................. 21 21 21 21 21 22 25 23 25 25 25 25
-------------------------------------------------------------------------------------------------
Total staffing, Salaries & Expenses............. 503 468 494 437 514 483 516 500 525 513 525 513
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Beginning in fiscal year 2003, the Office of Aviation/International Affairs is consolidated in the Office of the Under Secretary of Transportation
for Policy.
\2\ For fiscal year 2002, the Office of Administration includes FTE associated with the standup of the Transportation Security Administration.
\3\ For fiscal years 2001 and 2002, the Office of Intermodalism is funded within FHWA. The fiscal year 2003 budget transfers the Office of Intermodalism
from FHWA to OST Under Secretary of Transportation for Policy.
\4\ For fiscal year 2003, the Office of Intelligence and Security is funded under reimbursable agreement.
FUNDING LEVELS FOR OST OFFICES
Question. Please provide a table displaying the enacted level for
fiscal years 2002, 2003, 2004 for each office of the Office of the
Secretary and the amount of any transfers of funds between offices (or
to date for fiscal year 2004).
Answer. The table below provides the enacted level for fiscal years
2002, 2003, 2004 for each office of the Office of the Secretary. There
were no enacted transfers of funds between OST offices for fiscal years
2002, 2003, or 2004 (as of May 31, 2004).
OFFICE OF THE SECRETARY ENACTED LEVELS FOR FISCAL YEAR 2002 THRU FISCAL YEAR 2004
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Accounts 2002 Enacted 2003 Enacted 2004 Enacted
----------------------------------------------------------------------------------------------------------------
SALARIES & EXPENSES:
Office of the Secretary.................................... 1,929 2,197 2,179
Office of the Deputy Secretary............................. 619 804 690
Office of the Under Secretary of Transportation for Policy. .............. 12,300 12,141
Aviation/International Affairs \1\......................... 10,479 .............. ...............
Office of Intermodalism \2\................................ .............. .............. ...............
Board of Contract Appeals.................................. 507 607 690
Office of Small & Disadvantaged Business Utilization....... 540 1,259 1,251
Office of Intelligence & Security \3\...................... 1,321 [1,631] 1,972
Office of the Chief Information Officer.................... 6,141 13,026 7,396
Office of General Counsel.................................. 13,355 15,466 14,985
Office of Governmental Affairs............................. 2,282 2,423 2,267.6
Office of the Assistant Secretary for Budget............... 7,728 8,273 8,418
Office of the Assistant Secretary of Administration........ 19,250 28,717 22,984
Office of Public Affairs................................... 1,723 1,903 1,889
------------------------------------------------
TOTAL: SALARIES & EXPENSES............................... 67,078 88,357 78,290
TRANSPORTATION PLANNING RESEARCH & DEVELOPMENT (TPR&D)......... 11,580 23,463 20,426
OFFICE OF CIVIL RIGHTS......................................... 8,362 8,514 8,365
MINORITY BUSINESS OUTREACH..................................... 3,000 2,949 2,958
MINORITY BUSINESS RESOURCE CENTER PROGRAM (MBRC)............... 900 894 895
ESSENTIAL AIR SERVICE/PAYMENTS TO AIR CARRIERS................. 62,952 51,761 51,662
NEW HEADQUARTERS BUILDING...................................... 0 0 0
------------------------------------------------
TOTALS................................................... 153,872 175,938 162,596
----------------------------------------------------------------------------------------------------------------
\1\ Beginning in fiscal year 2003, the Office of Aviation/International Affairs is consolidated in the Office of
the Under Secretary of Transportation for Policy.
\2\ For fiscal year 2002, the Office of Intermodalism was funded within FHWA. Beginning in fiscal year 2003 the
Office of Intermodalism transfers from FHWA to OST Office of the Under Secretary of Transportation for Policy.
\3\ In fiscal year 2003, the Office of Intelligence and Security was funded through a reimbursable agreement.
DETAILS TO THE OFFICE OF THE SECRETARY
Question. Are any staff of the operating administrations detailed
to the Office of the Secretary?
Answer. Three employees from the Federal Highway Administration are
detailed to the Office of the Secretary.
OST TRAVEL COSTS
Question. Are any travel costs for the Office of the Secretary
expected to be paid by the modes?
Answer. In certain circumstances, travel costs for the Secretary
are paid for by the operating administrations. For example, if the
Secretary attends an event related to airports, the Federal Aviation
Administration may pay for the Secretary's travel expenses. The
Secretary's attendance at these events helps to enhance the missions of
the operating administrations.
Question. Please provide a table indicating the amount of travel
costs for the Office of the Secretary that operating administrations
paid for in part or in total. Please breakdown by operating
administrations for the past 5 years.
Answer. The information follows.
IMMEDIATE OFFICE OF THE SECRETARY
----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal
Direct Year 2000 Year 2001 Year 2002 Year 2003 Year 2004
----------------------------------------------------------------------------------------------------------------
MARAD.................................................... ......... ......... ......... $1,400 .........
FAA...................................................... ......... ......... ......... ......... $2,826
NHTSA.................................................... ......... ......... ......... ......... 12,633
FTA...................................................... $1,638 ......... $3,804 541 122
FRA...................................................... 156 $703 ......... ......... .........
FHWA..................................................... 1,865 1,891 1,339 730 988
FMCSA.................................................... ......... ......... ......... 724 584
RSPA..................................................... ......... ......... ......... ......... 654
USCG..................................................... 462 ......... ......... ......... .........
------------------------------------------------------
Total.............................................. 4,121 2,594 5,143 3,395 17,807
----------------------------------------------------------------------------------------------------------------
Question. Are there guidelines from the Office of the Secretary to
the operating administrations that define the circumstances under which
the Secretarial travel is paid by the modes? If so, please provide for
the record.
Answer. There are no formal written guidelines, but in practice,
the modes may be asked to cover the cost of the Secretary's advance
staff if an administrator requests the Secretary's presence at an event
or conference that deals specifically with the mission of that
particular mode. The Secretary's own travel and per diem costs are paid
by his immediate office.
Question. Has the DOT General Counsel ever looked at the practice
of operating administrations paying for OST travel costs to be in
compliance with the general provision carried annually in
appropriations Acts prohibiting assessments? Please provide the legal
opinion, if there is one, for the record.
Answer. Staff attorneys in the Office of the General Counsel have
periodically provided oral advice to agency officials and staff
concerning applicable restrictions on making assessments to help fund
OST travel costs that are contained in our annual appropriations acts.
The General Counsel and his staff have not issued any legal opinions
that address this subject.
CHARGES TO THE MODES BY OST
Question. Please provide a list of all accounts that are financed
by charges to the modes from OST.
Answer. There are no OST accounts that are financed by charges to
the modes. However, for services provided by OST to the modes, charges
are collected through reimbursable agreements. For fiscal year 2004,
Salaries and Expense and Office of Civil Rights accounts have
reimbursable agreements with the modes.
PROPOSALS TO REORGANIZE OST OFFICES
Question. Is there any proposal to consolidate or reorganize any
office of the Office of the Secretary assumed in the fiscal year 2005
budget request?
Answer. No, there was no proposal to consolidate or reorganize any
office of the Office of the Secretary assumed in the fiscal year 2005
request; however, on June 25, 2004, President Bush transmitted a fiscal
year 2005 budget amendment to Congress that would place the operational
responsibility for the Office of Emergency Transportation and Crisis
Management Center from the Research and Special Programs Administration
to the Office of the Secretary.
PROPOSALS TO CONSOLIDATE OST BUDGET ACTIVITIES
Question. Does the fiscal year 2005 budget request reflect any
proposals to consolidate budget activities of the Office of the
Secretary?
Answer. The fiscal year 2005 request reflects a consolidated budget
activity for the Office of the Secretary, the Office of the Deputy
Secretary and the Executive Secretariat. This will provide greater
flexibility in the day-to-day management of the Offices.
PROPOSALS TO REORGANIZE MODAL OFFICES
Question. Are there any proposals or plans to consolidate,
reorganize, or restructure any offices of the operating administrations
in fiscal year 2005?
Answer. In fiscal year 2005, the Department plans to consolidate,
reorganize, or restructure the following offices:
Federal Aviation Administration (FAA)
The FAA continues to reorganize lines of business and services
within the newly created Air Traffic Organization. Also, the Flight
Service Stations are currently undergoing an A-76 study which will
result in the contracting out or a restructuring of this operation
within FAA. Results of this will not be finalized until March 2005.
Research and Special Programs Administration (RSPA)/Office of the
Secretary of Transportation (OST)
On June 25, 2004, President Bush transmitted a fiscal year 2005
budget amendment to Congress that would place the operational
responsibility for the Office of Emergency Transportation and Crisis
Management Center from RSPA to OST.
IMMEDIATE OFFICE OF THE SECRETARY
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Immediate Office of the Secretary by object
class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,522
Other than full-time permanent.......................... 364
Other personnel compensation............................ 29
---------------
Total personnel compensation...................... 1,915
Civilian personnel benefits............................. 507
Travel & transportation of things....................... 209
Other services.......................................... 14
Supplies and materials.................................. 12
---------------
Total............................................. 2,738
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Immediate Office of the Secretary.
Answer. The assumptions used to develop the Immediate Office of the
Secretary's budget request for personnel compensation and benefits are
computed as follows: (1) Salary and related benefits from the previous
year (fiscal year 2004) are computed based on enacted levels; (2) The
fiscal year 2004 enacted level is annualized to fund the full year cost
of the fiscal year 2004 pay raise (4.1 percent for an additional one-
fourth of a year) and to fully fund the cost of any other personnel
actions that occurred in fiscal year 2004; (3) The fiscal year 2005
base is inflated by the proposed fiscal year 2005 pay raise estimated
at 1.5 percent (for three-fourths of a year). No new staff increases
are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Immediate Office
of the Secretary.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 15 15
Reimbursable............................ 7 7
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Immediate Office of the Secretary compared to levels at the end of each
quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 22
FISCAL YEAR 2002 ACTUAL................................. 21
FISCAL YEAR 2003 ACTUAL................................. 20
FISCAL YEAR 2004 ENACTED................................ 22
FISCAL YEAR 2004 ON-BOARD............................... \1\ 23
FISCAL YEAR 2005 REQUEST................................ 22
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Immediate Office of the Secretary.
Answer. Anticipated contract expenses in the Immediate Office of
the Secretary consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Subscriptions........................................... $10,300
Other small contracts................................... 4,000
------------------------------------------------------------------------
IMMEDIATE OFFICE OF THE DEPUTY SECRETARY
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Deputy Secretary by object
class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 534
Other than full-time permanent.......................... 214
Other personnel compensation............................ 40
---------------
Total personnel compensation...................... 788
Civilian personnel benefits............................. 200
Travel & transportation of things....................... 67
Other services.......................................... 11
Supplies and materials.................................. 4
---------------
Total............................................. 1,070
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Deputy Secretary.
Answer. The assumptions used to develop the Office of the Deputy
Secretary's budget request for personnel compensation and benefits are
computed as follows: (1) Salary and related benefits from the previous
year (fiscal year 2004) are computed based on enacted levels; (2) The
fiscal year 2004 enacted level is annualized to fund the full year cost
of the fiscal year 2004 pay raise (4.1 percent for an additional one-
fourth of a year) and to fully fund the cost of any other personnel
actions that occurred in fiscal year 2004; (3) The fiscal year 2005
base is inflated by the proposed fiscal year 2005 pay raise estimated
at 1.5 percent (for three-fourths of a year). No new staff increases
are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Deputy Secretary.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 7 7
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Deputy Secretary compared to levels at the end of each
quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 4
FISCAL YEAR 2002 ACTUAL................................. 6
FISCAL YEAR 2003 ACTUAL................................. 5
FISCAL YEAR 2004 ENACTED................................ 7
FISCAL YEAR 2004 ON-BOARD............................... \1\ 6
FISCAL YEAR 2005 REQUEST................................ 7
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the Deputy Secretary.
Answer. Anticipated contract expenses in the Office of the Deputy
Secretary consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Subscriptions........................................... $7,000
------------------------------------------------------------------------
OFFICE OF THE EXECUTIVE SECRETARIAT
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Executive Secretariat by
object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,159
Other than full-time permanent.......................... 35
Other personnel compensation............................ 10
---------------
Total personnel compensation...................... 1,204
Civilian personnel benefits............................. 255
Other services.......................................... 39
Supplies and materials.................................. 2
---------------
Total............................................. 1,500
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Executive Secretariat.
Answer. The assumptions used to develop the Office of the Executive
Secretariat's budget request for personnel compensation and benefits
are computed as follows: (1) Salary and related benefits from the
previous year (fiscal year 2004) are computed based on enacted levels;
(2) The fiscal year 2004 enacted level is annualized to fund the full
year cost of the fiscal year 2004 pay raise (4.1 percent for an
additional one-fourth of a year) and to fully fund the cost of any
other personnel actions that occurred in fiscal year 2004; (3) The
fiscal year 2005 base is inflated by the proposed fiscal year 2005 pay
raise estimated at 1.5 percent (for three-fourths of a year). No new
staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Executive Secretariat.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 15 15
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Executive Secretariat compared to levels at the end of
each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 14
FISCAL YEAR 2002 ACTUAL................................. 15
FISCAL YEAR 2003 ACTUAL................................. 14
FISCAL YEAR 2004 ENACTED................................ 15
FISCAL YEAR 2004 ON-BOARD............................... \1\ 12
FISCAL YEAR 2005 REQUEST................................ 15
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the Executive Secretariat.
Answer. Anticipated contract expenses in the Office of the
Executive Secretariat consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Enhancements & maintenance of scheduling system......... $38,600
------------------------------------------------------------------------
OFFICE OF THE UNDER SECRETARY FOR TRANSPORTATION POLICY
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Under Secretary for
Transportation Policy by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 9,779
Other than full-time permanent.......................... 666
Other personnel compensation............................ 56
---------------
Total personnel compensation...................... 10,501
Civilian personnel benefits............................. 2,102
Travel & transportation of things....................... 207
Other services.......................................... 101
Supplies and materials.................................. 7
---------------
Total............................................. 12,918
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Under Secretary for Transportation
Policy.
Answer. The assumptions used to develop the Office of the Under
Secretary for Transportation Policy's budget request for personnel
compensation and benefits are computed as follows: (1) Salary and
related benefits from the previous year (fiscal year 2004) are computed
based on enacted levels; (2) The fiscal year 2004 enacted level is
annualized to fund the full year cost of the fiscal year 2004 pay raise
(4.1 percent for an additional one-fourth of a year) and to fully fund
the cost of any other personnel actions that occurred in fiscal year
2004; (3) The fiscal year 2005 base is inflated by the proposed fiscal
year 2005 pay raise estimated at 1.5 percent (for three-fourths of a
year). No new staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Under Secretary for Transportation Policy.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 128 124
Reimbursable............................ 4 4
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Under Secretary for Transportation Policy compared to
levels at the end of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 116
FISCAL YEAR 2002 ACTUAL................................. 121
FISCAL YEAR 2003 ACTUAL................................. 105
FISCAL YEAR 2004 ENACTED................................ 128
FISCAL YEAR 2004 ON-BOARD............................... \1\ 115
FISCAL YEAR 2005 REQUEST................................ 128
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the Under Secretary for Transportation Policy.
Answer. Anticipated contract expenses in the Office of the Under
Secretary for Transportation Policy consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Translation services.................................... $19,200
Interpreters............................................ 41,000
Embassy charges......................................... 41,000
------------------------------------------------------------------------
BOARD OF CONTRACT APPEALS
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Board of Contract Appeals by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 660
Other personnel compensation............................ 1
---------------
Total personnel compensation...................... 661
Civilian personnel benefits............................. 112
Travel & transportation of things....................... 6
Other services.......................................... 22
---------------
Total............................................. 801
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Board of Contract Appeals.
Answer. The assumptions used to develop the Board of Contract
Appeals' budget request for personnel compensation and benefits are
computed as follows: (1) Salary and related benefits from the previous
year (fiscal year 2004) are computed based on enacted levels; (2) The
fiscal year 2004 enacted level is annualized to fund the full year cost
of the fiscal year 2004 pay raise (4.1 percent for an additional one-
fourth of a year) and to fully fund the cost of any other personnel
actions that occurred in fiscal year 2004; (3) The fiscal year 2005
base is inflated by the proposed fiscal year 2005 pay raise estimated
at 1.5 percent (for three-fourths of a year). No new staff increases
are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Board of
Contract Appeals.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 6 6
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Board of Contract Appeals compared to levels at the end of each quarter
of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 5
FISCAL YEAR 2002 ACTUAL................................. 5
FISCAL YEAR 2003 ACTUAL................................. 4
FISCAL YEAR 2004 ENACTED................................ 6
FISCAL YEAR 2004 ON-BOARD............................... \1\ 5
FISCAL YEAR 2005 REQUEST................................ 6
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Board of Contract Appeals.
Answer. Anticipated contract expenses in the Board of Contract
Appeals consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Court reporting services for trials..................... $8,000
Subscriptions to publications........................... 13,000
Other small contracts................................... 1,000
------------------------------------------------------------------------
OFFICE OF SMALL AND DISADVANTAGED BUSINESS UTILIZATION
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of Small & Disadvantaged Business
Utilization by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,087
Civilian personnel benefits............................. 199
Other services.......................................... 4
Supplies and materials.................................. 5
---------------
Total............................................. 1,295
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of Small & Disadvantaged Business Utilization.
Answer. The assumptions used to develop the Office of Small &
Disadvantaged Business Utilization's budget request for personnel
compensation and benefits are computed as follows: (1) Salary and
related benefits from the previous year (fiscal year 2004) are computed
based on enacted levels; (2) The fiscal year 2004 enacted level is
annualized to fund the full year cost of the fiscal year 2004 pay raise
(4.1 percent for an additional one-fourth of a year) and to fully fund
the cost of any other personnel actions that occurred in fiscal year
2004; (3) The fiscal year 2005 base is inflated by the proposed fiscal
year 2005 pay raise estimated at 1.5 percent (for three-fourths of a
year). No new staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of Small
& Disadvantaged Business Utilization.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 11 11
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of Small & Disadvantaged Business Utilization compared to levels
at the end of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 9
FISCAL YEAR 2002 ACTUAL................................. 10
FISCAL YEAR 2003 ACTUAL................................. 10
FISCAL YEAR 2004 ENACTED................................ 11
FISCAL YEAR 2004 ON-BOARD............................... \1\ 9
FISCAL YEAR 2005 REQUEST................................ 11
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of Small & Disadvantaged Business Utilization.
Answer. Anticipated contract expenses in the Office of Small &
Disadvantaged Business Utilization are as follows:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Working Capital Fund Service Agreements................. $3,000
------------------------------------------------------------------------
OFFICE OF INTELLIGENCE AND SECURITY
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of Intelligence and Security by
object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,402
Other than full-time permanent.......................... 5
Total personnel compensation...................... 1,407
Civilian personnel benefits............................. 394
Travel & transportation of things....................... 72
Other services.......................................... 367
Supplies and materials.................................. 10
Equipment............................................... 10
---------------
Total............................................. 2,260
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of Intelligence and Security.
Answer. The assumptions used to develop the Office of Intelligence
and Security's budget request for personnel compensation and benefits
are computed as follows: (1) Salary and related benefits from the
previous year (fiscal year 2004) are computed based on enacted levels;
(2) The fiscal year 2004 enacted level is annualized to fund the full
year cost of the fiscal year 2004 pay raise (4.1 percent for an
additional one-fourth of a year) and to fully fund the cost of any
other personnel actions that occurred in fiscal year 2004; (3) The
fiscal year 2005 base is inflated by the proposed fiscal year 2005 pay
raise estimated at 1.5 percent (for three-fourths of a year). No new
staff increases are proposed for fiscal year 2005.
Question. How many officials besides the Secretary does the Office
of Intelligence and Security serve?
Answer. S-60 provides day-to-day support to the Office of the
Secretary and to the Operating Administrations by providing
intelligence, security policy guidance and information. The office
assures that security issues are identified and properly coordinated
between the modes and the DHS, TSA and the HSC. The following
individuals and their senior staffs are served by S-60:
--Under Secretary of Transportation for Policy
--General Counsel
--Assistant Secretary for Transportation Policy
--Assistant Secretary for Aviation and International Affairs
--Assistant Secretary for Budget and Programs
--Assistant Secretary for Administration
--Assistant Secretary for Governmental Affairs
--Assistant Secretary for Public Affairs
--Inspector General
--Federal Highway Administrator
--Federal Railroad Administrator
--Federal Transit Administrator
--National Highway Traffic Safety Administrator
--St. Lawrence Seaway Development Corporation Administrator
--Maritime Administrator
--Research and Special Programs Administrator
--Federal Motor Carrier Safety Administrator.
Question. Please provide a list of all performance measures related
to the Office of Intelligence and Security.
Answer. Department's Performance Goals:
--Ensure the security of people and goods and advance our national
security interests in support of the National Security
Strategy; and
--Rapid Recovery of Transportation in all modes from intentional harm
and natural disasters.
In support of these goals, S-60 provides timely intelligence
briefings and products to senior DOT officials, prepares the Secretary
and Deputy Secretary for Principals and Deputies meetings on Homeland
Security, is responsible for all aspects of the Transportation Security
Policy and is the DOT liaison to the Department of Homeland Security,
as well as law enforcement and intelligence agencies.
Question. Does DOT produce intelligence or is the Department only a
consumer of intelligence?
Answer. DOT is predominately an Intelligence consumer. However, our
Intelligence Analysts have produced limited intelligence analytical
produces directly related to transportation and hazardous materials
issues. They also work with the Intelligence Community to assure that
intelligence concerning threats to transportation are identified and
communicated to those in DOT with a need to know.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of
Intelligence and Security.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 15 15
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of Intelligence and Security compared to levels at the end of
each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 11
FISCAL YEAR 2002 ACTUAL................................. 8
FISCAL YEAR 2003 ACTUAL................................. 7
FISCAL YEAR 2004 ENACTED................................ 15
FISCAL YEAR 2004 ON-BOARD............................... \1\ 11
FISCAL YEAR 2005 REQUEST................................ 15
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of Intelligence and Security.
Answer. Anticipated contract expenses in the Office of Intelligence
and Security consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Security Liaison........................................ $140,000
Renovation of Secure Information Facility............... 200,000
Secure communication at DOT alternate COOP site......... 26,600
------------------------------------------------------------------------
OFFICE OF THE CHIEF INFORMATION OFFICER
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Chief Information Officer by
object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 2,691
Other than full-time permanent.......................... 146
Other personnel compensation............................ 22
---------------
Total personnel compensation...................... 2,859
Civilian personnel benefits............................. 551
Travel & transportation of things....................... 34
Other services.......................................... 13,278
Supplies and materials.................................. 10
Equipment............................................... 10
---------------
Total............................................. 16,742
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Chief Information Officer.
Answer. The assumptions used to develop the Office of the Chief
Information Officer's budget request for personnel compensation and
benefits are computed as follows: (1) Salary and related benefits from
the previous year (fiscal year 2004) are computed based on enacted
levels; (2) The fiscal year 2004 enacted level is annualized to fund
the full year cost of the fiscal year 2004 pay raise (4.1 percent for
an additional one-fourth of a year) and to fully fund the cost of any
other personnel actions that occurred in fiscal year 2004; (3) The
fiscal year 2005 base is inflated by the proposed fiscal year 2005 pay
raise estimated at 1.5 percent (for three-fourths of a year). No new
staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Chief Information Officer.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 25 25
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Chief Information Officer compared to levels at the end
of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 21
FISCAL YEAR 2002 ACTUAL................................. 22
FISCAL YEAR 2003 ACTUAL................................. 21
FISCAL YEAR 2004 ENACTED................................ 25
FISCAL YEAR 2004 ON-BOARD............................... \1\ 20
FISCAL YEAR 2005 REQUEST................................ 25
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the Chief Information Officer.
Answer. Anticipated contract expenses in the Office of the Chief
Information Officer consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Capital Planning Investment Control (CPIC) and $1,900,000
Enterprise Architecture (EA)...........................
Local Area Network (LAN) support for the Office of the 1,700,000
Secretary (OST)........................................
IT services and user support designed to meet the IT 4,500,000
requirements of the DOT................................
Working Capital Fund service agreements................. 3,300,000
E-gov Initiatives....................................... 1,500,000
Other small contracts................................... 378,000
------------------------------------------------------------------------
OFFICE OF THE ASSISTANT SECRETARY FOR GOVERNMENTAL AFFAIRS
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Assistant Secretary for
Governmental Affairs by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,156
Other than full-time permanent.......................... 860
Other personnel compensation............................ 7
---------------
Total personnel compensation...................... 2,023
Civilian personnel benefits............................. 502
Travel & transportation of things....................... 36
Other services.......................................... 22
Supplies and materials.................................. 2
Equipment............................................... 2
---------------
Total............................................. 2,587
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Assistant Secretary for Governmental
Affairs.
Answer. The assumptions used to develop the Office of the Assistant
Secretary for Governmental Affairs' budget request for personnel
compensation and benefits are computed as follows: (1) Salary and
related benefits from the previous year (fiscal year 2004) are computed
based on enacted levels; (2) The fiscal year 2004 enacted level is
annualized to fund the full year cost of the fiscal year 2004 pay raise
(4.1 percent for an additional one-fourth of a year) and to fully fund
the cost of any other personnel actions that occurred in fiscal year
2004; (3) The fiscal year 2005 base is inflated by the proposed fiscal
year 2005 pay raise estimated at 1.5 percent (for three-fourths of a
year). No new staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Assistant Secretary for Governmental Affairs.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 24 24
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Assistant Secretary for Governmental Affairs compared to
levels at the end of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 18
FISCAL YEAR 2002 ACTUAL................................. 21
FISCAL YEAR 2003 ACTUAL................................. 21
FISCAL YEAR 2004 ENACTED................................ 24
FISCAL YEAR 2004 ON-BOARD............................... \1\ 16
FISCAL YEAR 2005 REQUEST................................ 24
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the Assistant Secretary for Governmental Affairs.
Answer. Anticipated contract expenses in the Office of the
Assistant Secretary for Governmental Affairs consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Gallery Watch Legislative Monitoring.................... $11,000
Subscriptions........................................... 5,000
Other small contracts................................... 6,000
------------------------------------------------------------------------
OFFICE OF THE GENERAL COUNSEL
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the General Counsel by object
class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 9,417
Other than full-time permanent.......................... 596
Other personnel compensation............................ 105
---------------
Total personnel compensation...................... 10,118
Civilian personnel benefits............................. 2,123
Travel & transportation of things....................... 246
Printing and reproduction............................... 269
Other services.......................................... 4,143
Supplies and materials.................................. 21
---------------
Total............................................. 16,920
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the General Counsel.
Answer. The assumptions used to develop the Office of the General
Counsel's budget request for personnel compensation and benefits are
computed as follows: (1) Salary and related benefits from the previous
year (fiscal year 2004) are computed based on enacted levels; (2) The
fiscal year 2004 enacted level is annualized to fund the full year cost
of the fiscal year 2004 pay raise (4.1 percent for an additional one-
fourth of a year) and to fully fund the cost of any other personnel
actions that occurred in fiscal year 2004; (3) The fiscal year 2005
base is inflated by the proposed fiscal year 2005 pay raise estimated
at 1.5 percent (for three-fourths of a year). No new staff increases
are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
General Counsel.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 106 100
Reimbursable............................ 0 0
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the General Counsel compared to levels at the end of each
quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 81
FISCAL YEAR 2002 ACTUAL................................. 92
FISCAL YEAR 2003 ACTUAL................................. 100
FISCAL YEAR 2004 ENACTED................................ 100
FISCAL YEAR 2004 ON-BOARD............................... \1\ 102
FISCAL YEAR 2005 REQUEST................................ 100
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract expenses
in the Office of the General Counsel.
Answer. Anticipated contract expenses in the Office of the General
Counsel consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Dockets Management System............................... $1,035,000
Integrated Disabilities Hotline Maintenance and 1,235,000
Operations.............................................
Technical Assistance Manual and Modal Training Program & 655,000
Public & Industry Outreach to Assist in Ensuring the
Air Travel Environment is Free of Discrimination.......
Administrative Litigation Costs for Enforcement Aviation 50,000
Economic and Civil Rights Matters......................
Rulemaking Management System Support.................... 97,000
Regulatory Management System, List Serve & Automated 115,000
Coordination Maintenance...............................
E-gov Rulemaking Assessment............................. 800,000
Other small contracts................................... 156,000
------------------------------------------------------------------------
OFFICE OF THE ASSISTANT SECRETARY FOR BUDGET AND PROGRAMS
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Assistant Secretary for
Budget and Programs by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 5,039
Other than full-time permanent.......................... 285
Other personnel compensation............................ 44
---------------
Total personnel compensation...................... 5,368
Civilian personnel benefits............................. 1,539
Travel & transportation of things....................... 14
Other services.......................................... 1,952
Supplies and materials.................................. 6
Equipment............................................... 10
---------------
Total............................................. 8,889
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Assistant Secretary for Budget and
Programs.
Answer. The assumptions used to develop the Office of the Assistant
Secretary for Budget and Programs' budget request for personnel
compensation and benefits are computed as follows: (1) Salary and
related benefits from the previous year (fiscal year 2004) are computed
based on enacted levels; (2) The fiscal year 2004 enacted level is
annualized to fund the full year cost of the fiscal year 2004 pay raise
(4.1 percent for an additional one-fourth of a year) and to fully fund
the cost of any other personnel actions that occurred in fiscal year
2004; (3) The fiscal year 2005 base is inflated by the proposed fiscal
year 2005 pay raise estimated at 1.5 percent (for three-fourths of a
year). No new staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Assistant Secretary for Budget and Programs.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 54 54
Reimbursable............................ 1 1
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Assistant Secretary for Budget and Programs compared to
levels at the end of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 51
FISCAL YEAR 2002 ACTUAL................................. 44
FISCAL YEAR 2003 ACTUAL................................. 46
FISCAL YEAR 2004 ENACTED................................ 55
FISCAL YEAR 2004 ON-BOARD............................... \1\ 51
FISCAL YEAR 2005 REQUEST................................ 55
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract costs in
the Office of the Assistant Secretary for Budget and Programs.
Answer. Anticipated contract expenses in the Office of the
Assistant Secretary for Budget and Programs consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Departmental Accounting and Financial Information System $145,000
Travel Management System................................ 20,000
Accounting Services..................................... 818,000
CIO IT Support.......................................... 365,000
Payroll Reimbursement to FAA............................ 147,000
FTA Web Support for OST Payroll Reports................. 50,000
CFO Web Support......................................... 50,000
CRTS Database Support................................... 20,000
Bearing Point........................................... 321,000
Other small contracts................................... 16,000
------------------------------------------------------------------------
OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of the Assistant Secretary for
Administration by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 5,825
Other than full-time permanent.......................... 102
Other personnel compensation............................ 67
---------------
Total personnel compensation...................... 5,994
Civilian personnel benefits............................. 1,438
Travel & transportation of things....................... 35
Rental payments to GSA.................................. 9,147
Other services.......................................... 16,291
Supplies and materials.................................. 30
---------------
Total............................................. 32,935
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the fiscal year 2005 budget request for personnel compensation and
benefits of the Office of the Assistant Secretary for Administration.
Answer. The assumptions used to develop the Office of the Assistant
Secretary for Administration's budget request for personnel
compensation and benefits are computed as follows: (1) Salary and
related benefits from the previous year (fiscal year 2004) are computed
based on enacted levels; (2) The fiscal year 2004 enacted level is
annualized to fund the full year cost of the fiscal year 2004 pay raise
(4.1 percent for an additional one-fourth of a year) and to fully fund
the cost of any other personnel actions that occurred in fiscal year
2004; (3) The fiscal year 2005 base is inflated by the proposed fiscal
year 2005 pay raise estimated at 1.5 percent (for three-fourths of a
year). No new staff increases are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of the
Assistant Secretary for Administration.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 66 65
Reimbursable............................ 20 19
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of the Assistant Secretary for Administration compared to levels
at the end of each quarter of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 67
FISCAL YEAR 2002 ACTUAL................................. 99
FISCAL YEAR 2003 ACTUAL................................. 77
FISCAL YEAR 2004 ENACTED................................ 84
FISCAL YEAR 2004 ON-BOARD............................... \1\ 69
FISCAL YEAR 2005 REQUEST................................ 84
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract costs in
the Office of the Assistant Secretary for Administration.
Answer. Anticipated contract expenses in the Office of the
Assistant Secretary for Administration consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
MSI Program............................................. $130,000
E-Grants................................................ 350,000
Electronic Business Process............................. 943,000
Online Internet Research................................ 110,000
Security Investigations................................. 85,000
New Headquarters Building Security...................... 130,000
Training................................................ 183,000
Corporate Recruitment................................... 500,000
Consolidated Benefits Assistance........................ 400,000
Federal Personnel & Payroll System...................... 846,800
OST Cost to WCF......................................... 10,030,000
Reimbursements to USCG Clinic........................... 37,000
Workforce Improvements Initiative....................... 208,000
DOT-wide Admin and Management Services.................. 143,000
Subscriptions........................................... 28,300
Procurement Strategy Council............................ 45,000
Electronic Official Personnel Folders................... 1,000,000
Centralized Workers' Compensation....................... 250,000
E-training Initiative................................... 750,000
CPMIS Charges........................................... 85,000
Federal Employments Information Services................ 36,700
------------------------------------------------------------------------
OFFICE OF PUBLIC AFFAIRS
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of Public Affairs by object class.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Object Class Amount
------------------------------------------------------------------------
Full-time permanent..................................... 1,120
Other than full-time permanent.......................... 385
Other personnel compensation............................ 9
---------------
Total personnel compensation...................... 1,514
Civilian personnel benefits............................. 387
Travel & transportation of things....................... 51
Other services.......................................... 69
Supplies and materials.................................. 11
Equipment............................................... 2
---------------
Total............................................. 2,034
------------------------------------------------------------------------
Question. Please explain in detail the assumptions used to develop
the request for personnel compensation and benefits of the Office of
Public Affairs.
Answer. The assumptions used to develop the Office of Public
Affairs' budget request for personnel compensation and benefits are
computed as follows: (1) Salary and related benefits from the previous
year (fiscal year 2004) are computed based on enacted levels; (2) The
fiscal year 2004 enacted level is annualized to fund the full year cost
of the fiscal year 2004 pay raise (4.1 percent for an additional one-
fourth of a year) and to fully fund the cost of any other personnel
actions that occurred in fiscal year 2004; (3) The fiscal year 2005
base is inflated by the proposed fiscal year 2005 pay raise estimated
at 1.5 percent (for three-fourths of a year). No new staff increases
are proposed for fiscal year 2005.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of Public
Affairs.
Answer. The information follows.
------------------------------------------------------------------------
Positions FTE
------------------------------------------------------------------------
Direct.................................. 19 19
Reimbursable............................ 2 2
------------------------------------------------------------------------
Question. Please provide a table listing current staffing for the
Office of Public Affairs compared to levels at the end of each quarter
of past 5 fiscal years.
Answer. The 5-year FTE history is as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
FISCAL YEAR 2001 ACTUAL................................. 18
FISCAL YEAR 2002 ACTUAL................................. 19
FISCAL YEAR 2003 ACTUAL................................. 16
FISCAL YEAR 2004 ENACTED................................ 21
FISCAL YEAR 2004 ON-BOARD............................... \1\ 16
FISCAL YEAR 2005 REQUEST................................ 21
------------------------------------------------------------------------
\1\ As of March 30, 2004.
Question. Please provide details on anticipated contract costs in
the Office of Public Affairs.
Answer. Anticipated contract expenses in the Office of the Public
Affairs consist of:
------------------------------------------------------------------------
Description of Services Amount
------------------------------------------------------------------------
Associated Press Service................................ $16,000
News Wire Service....................................... 12,500
Subscriptions........................................... 10,000
Transcription Service................................... 5,000
Bacon's Media Service and Publications.................. 6,000
Video Monitoring Service................................ 8,000
Other small contracts................................... 11,200
------------------------------------------------------------------------
OST SAFETY PERFORMANCE GOALS
Question. Why is reducing train accidents and highway-rail
incidents the only safety area that OST is requesting funds under the
safety performance goal?
Answer. The Office of the Secretary addresses all aspects of
transportation safety through its management of the DOT Operating
Administrations. The funds requested in the OST budget are for cross-
cutting programs or specific issues led by OST program offices. DOT's
ten Operating Administrations address mode-specific safety issues in
their individual budgets.
The programs attributed to this objective support the Department's
overall goal to ``enhance public health and safety by working toward
the elimination of transportation-related deaths and injuries.'' The
programs planned for fiscal year 2006 and included in OST's submission
address two areas of concern. The first is the issue of safe pedestrian
right-of-way access at rail crossings and the second is improved GPS
performance for improved transportation safety across all modes,
including rail. Breaking down this second study across all safety
performance measures may have diminished its importance and provided a
presentation that was difficult to follow; therefore, these two areas
were both attributed to rail safety targets.
TRANSPORTATION PLANNING, RESEARCH AND DEVELOPMENT
Question. How much is the Department requesting for PC&B and other
administrative costs of the Transportation Planning, Research, and
Development appropriation? Please explain in detail. How does this
compare to fiscal years 2002, 2003, and 2004?
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
Object Class Year 2002 Year 2003 Year 2004 Year 2005
Actual Actual Enacted Request
------------------------------------------------------------------------
Full-time permanent......... 1,640 1,814 3,202 3,267
Other than full-time 497 593 147 150
permanent..................
Other personnel compensation 29 27 9 9
-------------------------------------------
Total personnel 2,167 2,434 3,358 3,426
compensation.........
Civilian personnel benefits. 388 498 456 499
Travel & transportation of 219 234 53 54
things.....................
Other services.............. 8,704 13,158 16,824 6,802
Supplies and materials/ 191 164 19 20
Equipment..................
-------------------------------------------
Total................. 11,669 16,489 20,709 10,800
------------------------------------------------------------------------
Question. Administrative costs for studies funded with the
Transportation Planning, Research, and Development appropriation
generally account for 35 to 39 percent of the requested amount. Why is
this much necessary for administration? How does this compare to the
past 3 fiscal years?
Answer. The administrative costs in the TPR&D budget consist of
Personnel Costs and Benefits for 31 FTE. These individuals monitor the
contract studies and actually do the studies as in-house expertise
allows. In addition, it provides for payment to the Working Capital
Fund for TPR&D support services such as the printing and distribution
of reports and studies and other research related activities. Lastly,
it provides for other administrative such as travel, office supplies,
subscriptions, and equipment.
Question. Please indicate which office of the Office of the
Secretary will be charged with administration and development of each
study that is funded by the Transportation Planning, Research, and
Development (TPR&D) appropriation.
Answer. The information follows.
Office of the Assistant Secretary for Transportation Policy
--Safe and Accessible Transportation for Older and Disabled Americans
--Safety and Human Factors
--Navigation Systems (GPS) Protection, Coordination and Policy
Development
--Spectrum Protection, Coordination and Policy Development
--Examination of Policy Instruments to Encourage Sustainability
--DOT National Freight Action Plan
--Non-Work Trips and Congestion
--DOT-HUD Joint Research on Transportation and Regional Development
--Alternatives for Financing Surface Transportation Improvements
--Passenger Rail Demand
--Value Pricing
--Implementing Successful Intermodal Passenger Terminal Projects
--Energy, Environment and Climate
--DOT Long Range Policy Analysis--Phase III
Assistant Secretary for Aviation and International Affairs
--Modernization of Aviation Data Systems
--Study to Determine the Demand for Scheduled Air Transportation
Carrier Impact of the North American Free Trade Agreement
--Aviation Economic Model
--Analysis of Changes in Airline Cost Structures
--Comprehensive Study on the Role of International Airline Alliance
in a Potential U.S.-European Union Aviation Area
--Longer-term Implications of Large-scale Implementation of Regional
Jet Service
--Analysis of Small Community Air Service
--Impact of Taxes and Fees on Demand for Air Services and the
Financial Condition of the Airline Industry
Question. Please provide administrative costs of TPR&D in detail.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
Object Class Year 2002 Year 2003 Year 2004 Year 2005
Actual Actual Enacted Request
------------------------------------------------------------------------
Full-time permanent......... 1,640 1,814 3,202 3,267
Other than full-time 497 593 147 150
permanent..................
Other personnel compensation 29 27 9 9
-------------------------------------------
Total personnel 2,167 2,434 3,358 3,426
compensation.........
Civilian personnel benefits. 388 498 456 499
Travel & transportation of 219 234 53 54
things.....................
Other services.............. 8,704 13,158 16,824 6,802
Supplies and materials/ 191 164 19 20
Equipment..................
-------------------------------------------
Total................. 11,669 16,489 20,709 10,800
------------------------------------------------------------------------
Question. Please indicate which TPR&D studies are new initiatives
for fiscal year 2005 and which have received previous funding. Also,
please provide a schedule and cost profile for each study that is
proposed to be conducted and funded for more than 1 year.
Answer. The information follows.
------------------------------------------------------------------------
TPR&D Studies New Previous
------------------------------------------------------------------------
Safe and Accessible Transportation X
for Older and Disabled Americans.
Safety and Human Factors............. X
Navigation Systems (GPS) Protection, X
Coordination and Policy Development.
Spectrum Protection, Coordination and X
Policy Development.
Examination of Policy Instruments to X
Encourage Sustainability.
DOT National Freight Action Plan..... X
Non-Work Trips and Congestion........ X
DOT-HUD Joint Research on X
Transportation and Regional
Development.
Alternatives for Financing Surface X
Transportation Improvements.
Passenger Rail Demand................ X
Value Pricing........................ X
Implementing Successful Intermodal X
Passenger Terminal Projects.
Energy, Environment and Climate...... X
DOT Long Range Policy Analysis--Phase X
III.
Modernization of Aviation Data X
Systems.
Study to Determine the Demand for X
Scheduled Air Transportation.
Carrier Impact of the North American X
Free Trade Agreement.
Aviation Economic Model.............. X
Analysis of Changes In Airline Cost X
Structures.
Comprehensive Study on the Role of X
International Airline Alliance in a
Potential U.S.-European Union
Aviation Area.
Longer-term Implications of Large- X
scale Implementation of Regional Jet
Service.
Analysis of Small Community Air X
Service.
Impact of Taxes and Fees on Demand X
for Air Services and the Financial
Condition of the Airline Industry.
------------------------------------------------------------------------
Each proposed study is to be conducted and funded in 1 year. Only
factors beyond our control would force a multiyear contract. However,
as is the nature of research, unexpected or unusual result may suggest
a follow up contract.
Question. Please list all TPR&D studies that are included in the
fiscal year 2005 congressional justification in order of priority or
importance to OST.
Answer. This account includes funding for a variety of program
areas and strategic goals, each of which is a priority for the
Department. Studies and activities funded by this account provide the
basis for policy and program decisions that are vital to the mobility
and security of our Nation.
OVERFLIGHT FEES
Question. Please provide a history of administrative or regulatory
actions and litigation involving overflight fees since authorized by
Congress in 1996.
Answer. The Federal Aviation Reauthorization Act of 1996 directed
the FAA to establish a fee schedule to recover the costs it incurs in
providing air traffic control and related services to overflights, that
is, flights that pass through United States-controlled airspace without
taking off or landing. See 49 U.S.C. 45301(b)(1). Overflight fees are
imposed by other countries and are generally collected at higher rates
than those rates imposed under the FAA's rule, that is, $33.72 per 100
nautical miles for flights conducted within the Enroute air traffic
environment and $15.94 per 100 nautical miles for flights conducted
within the Oceanic air traffic environment. At the direction of
Congress, revenue secured from overflight fees is to be used to fund
the Department's Essential Air Service program which, pursuant to
statutory provisions set forth at 49 U.S.C. 41734(a), subsidizes
commercial air service to communities in the United States in
circumstances where without such subsidies no commercial air service
would exist.
The FAA's Final Rule, and each of its previous Interim Final Rules,
has been challenged in judicial proceedings brought by a number of
foreign air carriers. The D.C. Circuit's April 8, 2003 decision was the
third time that the Court has reviewed FAA's attempt to implement
Congress' direction to establish an overflight rule and the third time
that the Court has found FAA's efforts wanting. See Asiana Airlines v.
FAA, 134 F.3d 393 (D.C. Cir. 1998) (vacating FAA's original rule
because it depended, in part, on the use of a Ramsey Pricing model);
Air Transport Ass'n of Canada v. FAA, 254 F.3d 271 (D.C. Cir.),
rehearing granted and amended 276 F.3d 599 (D.C. Cir. 2001) (remanding
FAA's second interim rule for further analysis of whether the FAA's
costs of providing air traffic control and related services in Enroute
and Oceanic airspace were the same for overflights and for aircraft
that take off and land within the United States).
In response to these judicial decisions, Congress amended section
45301(b)(1) in 2001 to provide that overflight fees had only to be
``reasonably related,'' not ``directly related,'' to the FAA's cost of
providing air traffic control and related services, that the
determination of actual costs was committed to the discretion of the
FAA Administrator, and that the Administrator's cost determination
could not be subject to judicial review. See Aviation and
Transportation Security Act, Public Law 107-71, 115 Stat. 597 (November
19, 2001) (``ATSA'').
While we believe that Congress intended these provisions to apply
to the then-current rule, it nevertheless also adopted a general
savings provision in the ATSA, section 141(d), which provides as
follows:
``This Act shall not affect suits commenced before the date of the
enactment of this Act . . . In all such suits, proceedings shall be
had, appeals taken, and judgments rendered in the same manner and with
the same effect as if this Act had not been enacted.''
The focus of the savings provision was intended to be ongoing suits
involving activities that were transferred from the FAA to the
Transportation Security Administration, and the provision was never
intended to ``save'' ongoing overflight challenges from application of
the new standards. But having said this, the plain language of the
section had, in the Court's view, precisely that effect, and the most
recent challenge to the overflight rule was ``commenced before the date
of the enactment'' of ATSA. On that basis the Court found the amendment
to section 45301 and ATSA, section 141(d) to be inapplicable to the
current litigation.
Finding that the more lenient provisions of section 45301(b)(1) as
amended by ATSA were inapplicable as a result of the savings provision,
the D.C. Circuit applied the stricter ``directly related'' standard of
the prior version of the statute and determined that under that
standard the FAA had not fully supported certain of its conclusions
concerning the labor costs it incurred in providing air traffic control
services to overflights. Noting that this was ``the third time . . . we
find that the FAA disregarded its statutory mandate,'' Slip op. at 2,
the Court vacated the rule and remanded the matter to the FAA.
FAA sought panel rehearing in order to clarify the scope of the
Court's mandate that had set aside the entire rule. After that request
was summarily rejected, FAA later obtained a 30-day extension of the
time within which to file a certiorari request. A second 30-day request
was denied by Chief Justice Rehnquist, thereby rendering the Court of
Appeals' April 8, 2003 decision final for all purposes, including the
application of Plaut v. Spendthrift Farms, Inc., 514 U.S. 211 (1995),
which in certain circumstances bars retroactive application of statutes
affecting prior judicial decisions.
In November, 2003 Congress passed the Vision 100--Century of
Aviation Reauthorization Act, Public Law 108-176, Section 229 of which
directly addresses the issue of Overflight Fees. The Act was signed
into law by the President on December 12, 2003. Section 229
accomplished a number of things.
First, it provides in subparagraph (a)(1) that Congress
specifically intended that the more flexible ``reasonably related''
standard imposed by the Aviation and Transportation Security Act, 49
U.S.C. 44901, did apply to pending litigation and that that test
should have been used by the D.C. Circuit in evaluating whether the
Overflight Fees imposed under the Interim Rule and the Final Rule were
properly based upon the FAA's costs in providing air traffic control
services to overflights. Subparagraph (a)(1) also clarifies that
Congress intended that even in pending litigation the Administrator's
determination of the FAA's costs for purposes of computing Overflight
Fees is conclusive and not subject to judicial review. The D.C.
Circuit's April 8 decision had held these standards to be inapplicable
to the Interim Final Rule and the Final Rule, which were pending when
the new standards were enacted.
Second, subsection (a)(2) specifically provides that ``[t]he
interim and final rule [adopted by the FAA], including the fees issued
pursuant to those rules, are adopted, legalized, and confirmed as fully
to all intents and purposes as if the same had, by prior Act of
Congress, been specifically adopted, authorized, and directed as of the
date those rules were originally issued.'' Thus, section 229
establishes legislatively imposed Overflight Rules and fees that, in
effect, retroactively and prospectively mirror the rules and fees
vacated by the D.C. Circuit in its April 8 decision. However,
notwithstanding the fact that subsection (a)(2) adopts the FAA's
Interim Rule and Final Rule ``as of the date those rules were
originally issued, [i.e., May 30, 2000 and August 13, 2001,
respectively]'' subsection (a)(3) states that all of subsection (a)
``applies to fees assessed after November 19, 2001 [i.e. the date on
which the Aviation and Transportation Security Act was enacted] and
before April 8, 2003 [i.e. the date of the D.C. Circuit's most recent
decision on this matter] . . .''.
The United States is still evaluating the effect of section 229 of
Vision 100 on the D.C. Circuit's April 8, 2003 decision. Section 229
also requires that FAA hold consultations with overflight operators
concerning international aspects of the overflight rule and report to
Congress on issues raised by the D.C. Circuit's April 8, 2003 decision.
FAA is pursuing these matters.
Question. What is the current status of litigation related to
overflight fees?
Answer. Section 45301 of title 49, United States Code (as amended
by section 273 of the Federal Aviation Reauthorization Act of 1996
(Public Law 104-264)) authorizes the collection of user fees for
services provided by the FAA to aircraft that neither take off nor land
in the United States, known as overflight fees. The FAA's regulations
implementing 49 U.S.C. 45301 have been in litigation since 1997.
Following the court's decision in Air Transport Association of
Canada v. Federal Aviation Administration, 323 F.3d 1093, (April 8,
2003), Congress, in Section 229 of the Vision 100--Century of Aviation
Reauthorization Act, (Public Law 108-176), legislatively adopted the
FAA's final rule relating to overflight fees as of the date on which
each rule was initially issued. Congress directed the FAA's
Administrator to defer collecting new overflight fees until the
Administrator has reported to Congress responding to the issues raised
by the court in Air Transport Association of Canada v. Federal Aviation
Administration, and consults with users and other interested parties
regarding the consistency of the overflight fees with the international
obligations of the United States. Vision 100 was signed into law by the
President on December 12, 2003.
While negotiations and consultations concerning the FAA's
overflight fees regulations are ongoing, it is reasonable for the
Department to rely on such funds for the Essential Air Service program
in fiscal year 2005 because the Department will have addressed the
requirements in Sec. 229(b) before the start of fiscal year 2005. With
such requirements met, the Department will be authorized to collect
overflight fees, and funding for the EAS program will be available.
Question. Have the overflight fees that were collected but were
tied up in litigation been spent?
Answer. No. Because of the litigation these fees have been held in
a special account by the FAA in case they need to be refunded.
Question. Are there any legal or other restrictions to prevent the
funds that were collected previously from overflight fees from being
spent?
Answer. Yes. Although at present there is no legal prohibition
precluding the use of these funds, the Administrator's Order, which
releases these funds, will not be final until October 4, 2004, assuming
no appeal is filed.
Question. Are there any legal or other restrictions to prevent the
funds that were collected previously from overflight fees from being
spent?
Answer. Yes. There is a significant degree of uncertainty at the
present time as to how much of the currently collected overflight fees
will ultimately remain available for spending.
ESSENTIAL AIR SERVICE
Question. How much funding in the EAS program was carried over at
the end of fiscal years 2002 and 2003?
Answer. The total funds carried over for fiscal year 2002 and
fiscal year 2003 were $12.4 million and $7.5 million, respectively.
Question. Based on current obligation rate for the Essential Air
Service program, what will the unobligated balance of funds be at the
end of fiscal year 2004?
Answer. We anticipate that we will have obligated all funding
available by the end of fiscal year 2004, leaving no unobligated
balance.
Question. Please explain in detail the proposal to restructure the
Essential Air Service program.
Answer. We are proposing a fundamental change in the way that the
government supports transportation services to rural America. As you
may know, the EAS program subsidizes scheduled air services to
communities that received scheduled service at the time of
deregulation--25 years ago. Although there have been tremendous changes
in the industry since then, the program has remained static. For too
long, many communities--there are a few exceptions--have taken air
service for granted as an entitlement and done little or nothing to
help make the service successful. Requiring a modest contribution
should energize civic officials and business leaders at the local and
State levels to encourage use of the service, and, as stakeholders in
their service, the communities will become key architects in designing
their specific transportation package.
Accordingly, the President's Budget proposes some reforms. For the
most isolated communities, we would continue to subsidize air service
to the extent of 90 percent of the total subsidy required. Communities
that are within a close drive of major airports would qualify for
subsidies constituting 50 percent of the total costs for providing
surface transportation. Specifically, communities within: (a) 100
driving miles of a large or medium hub airport, (b) 75 miles of a small
hub, or (c) 50 miles of a non-hub with jet service would not qualify
for subsidy for air service. (Some EAS communities are very close to
small hubs but maintain their standing in the program because the
nearby airport does not meet the medium-hub threshold.)
At all other subsidized EAS communities, we would offer an array of
options, including paying for 75 percent of the cost of the traditional
EAS-type scheduled service. In addition, we would work with the
communities and State DOT's to procure charter service, single-engine,
single-pilot service, regionalized service or ground transportation in
cases where they seem to be more responsive to communities' needs.
All service would be subject to budget limitations ($50 million).
Question. If any communities would no longer be eligible for
Essential Air Service funding if the Department's proposal is enacted
into law, please identify those communities for the record.
Answer. There is no way of knowing if, and if so how many,
communities would not be eligible for EAS funding. The reason is that
we do not know how many communities will be unwilling to contribute to
the costs of providing their air service. While we believe that $50
million would be sufficient to provide air service to all communities
that are willing to contribute, in the highly unlikely event that all
communities were willing to contribute, some of the lesser-isolated
communities would not receive funding. Table I attached shows all of
the communities and their required contribution levels assuming that
every community contributes its required share.
Question. The Congressional Justification indicates that $1,300,000
will be used to pay salaries and administrative costs for staff to
administer the Essential Air Service program. Please breakdown in
greater detail and compare to the past 3 fiscal years.
Answer. The information follows.
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Object Class Fiscal Year Fiscal Year 2004 2005
2002 Actual 2003 Actual Enacted Request
----------------------------------------------------------------------------------------------------------------
Full-time permanent......................................... 871 920 947 958
Other personnel compensation................................ 4 5 0 0
---------------------------------------------------
Total personnel compensation.......................... 876 925 947 958
Civilian personnel benefits................................. 169 173 180 183
Travel & transportation of things........................... 1 0 15 16
Other services.............................................. 240 121 121 124
Supplies and materials/Equipment............................ 10 4 20 21
Grants, subsidies, & contributions.......................... 99,470 105,726 100,717 48,699
---------------------------------------------------
Total................................................. 100,765 106,949 102,000 50,000
----------------------------------------------------------------------------------------------------------------
Question. Please provide the number of on-board staff and FTE
requested, indicating direct and reimbursable, for staff who administer
the EAS program compared to fiscal years 2003 and 2004.
Answer. The information follows.
------------------------------------------------------------------------
Fiscal
Year 2005 Fiscal Fiscal
Year 2004 Year 2003
Requested Enacted Actual
------------------------------------------------------------------------
Direct................................. 10 ......... .........
Reimbursable........................... ......... 10 10
------------------------------------------------------------------------
Question. What office or operating administration is responsible
for writing and implementing and collecting the overflight fees?
Answer. The Federal Aviation Administration.
Question. Are any of the legislative changes proposed to the EAS
program in the budget request authorized by Public Law 108-176?
Answer. The legislative changes proposed in the fiscal year 2005
Budget Request for the Essential Air Service (EAS) program do not rely
on the EAS amendments made to chapter 417 of title 49, United States
Code (Transportation), by Public Law 108-176 (December 12, 2003).
Question. If Congress does not enact the legislative changes to the
EAS program, what is the full cost to continue the program to all
current communities in fiscal year 2005?
Answer. The EAS budget is driven by a number of exogenous factors,
such as fuel prices, the health and structure of the major carriers,
and aircraft fleet decisions made by regional carriers generally to
upsize to larger aircraft. The single biggest uncertainty is how many
last carriers serving an EAS community will file a notice to suspend
service, thus triggering a hold-in and first-time subsidy. Our best
estimate is that $120 million would be required for fiscal year 2005 if
no changes are made.
AVIATION DATA SYSTEMS
Question. Does the request for $800,000 complete the third phase of
the modernization of Aviation Data Systems?
Answer. The $800,000 will be used to begin the process of designing
and building the new data system which will collect, validate, and
disseminate the re-designed airline traffic data to reduce the
reporting burden on the airlines and increase the timeliness, accuracy,
and utility of the data which is mission-critical for government
agencies, airlines, airports, and other commercial aviation
stakeholders. The construction and implementation of this system will
complete the modernization of the airline traffic data.
Question. What specific aviation data is being updated? What new
data will be collected? Will any data that had been collected no longer
be collected?
Answer. The traffic data modernization changes the reporting
carrier, reporting frequency, and a number of reported data elements
for the Origin-Destination Survey of Airline Passenger Traffic (14 CFR
Part 241 Section 19-7). It also changes some reported data elements for
the Schedule T-100 Air Carrier Traffic and Capacity Data by Nonstop
Segment and On-Flight Market Segment (14 CFR Part 217 and 14 CFR Part
241) to ensure greater statistical correlation between the revised
Origin-Destination Survey and the revised Schedule T-100. Current
traffic statistics no longer adequately measure the size, scope, and
operating and competitive structures of the scheduled passenger airline
industry. The changes will eliminate ambiguity, reduce manual data
collection by reporting carriers, minimize reporting exemptions, expand
the breadth and scope of information collected, and modernize the
methods of data submission and dissemination to capture fundamental
industry changes.
Question. Who will have access to the Aviation Data Systems?
Answer. All aviation stakeholders inside and outside the government
will have access to the data. These data are particularly important to
airlines who use it in planning their businesses and to all government
agencies responsible for making policy decisions which affect this
critical industry.
Question. Do any non-governmental entities have to pay for access
to the aviation data systems?
Answer. Currently, some data is made available free over the
Internet, while more granular data is sold on tapes for a very nominal
fee to cover the costs of production. The new system will make the data
much more accessible to a broad range of non-governmental users using
web-based technologies. In its Notice of Proposed Rulemaking, the
Department will solicit comments from all stakeholders on the data
products they would like to see produced from the raw data collected
under the new system.
Question. What are the benefits of the new system?
Answer. The traffic data modernization will support the Secretary's
obligation to be responsive to the needs of the public and disseminate
information to make it easier to adapt the air transportation system to
the present and future needs of the commerce of the United States.
These data are fundamentally important for both public policy and
airline business planning. The proposed changes to the Origin-
Destination Survey will eliminate ambiguity, reduce manual data
collection by reporting carriers, minimize reporting exemptions, expand
the breadth and scope of information collected, and modernize the
methods of data submission and dissemination to capture fundamental
industry changes. Data enhancements will enable the Department and
other stakeholders to better assess changes in traffic flows due to
seasonality, carrier route changes, and carrier preference as well as
aid the Department in international negotiations. Flight-stage data
assists carriers in business planning, demand forecasting, and new
service impact analyses.
OFFICE OF THE ASSISTANT GENERAL COUNSEL FOR AVIATION ENFORCEMENT AND
PROCEEDINGS
Question. Please breakdown the request for the Office of the
Assistant General Counsel for Aviation Enforcement and Proceedings in
greater detail.
Answer. Our fiscal year 2005 request can be found in Organizational
Excellence and Global Connectivity goals. See page 1 of Organizational
Excellence and pp. 12 and 21 of Global Connectivity goals of the
submission.
In addition to personnel cost and benefits needed, funding in
fiscal year 2005 is requested to operate and maintain the
Congressionally-mandated disabilities hotline ($1,235,000), to continue
a cell phone contract to ensure the appropriate individuals can be
reached to assist hotline operators address time-sensitive disability
related air travel complaints ($15,000), to complete the technical
assistance manual and model training program and to conduct outreach to
assist in ensuring the air travel environment is free of discrimination
($655,000), and to protect air travelers through enforcement of
aviation economic and civil rights matters in administrative hearings
($50,000).
Question. Please describe any new initiatives and the corresponding
costs that are requested for the Office of the Assistant General
Counsel for Aviation Enforcement.
Answer. The Office of the Assistant General Counsel for Aviation
Enforcement (Aviation Enforcement Office) is not requesting any funds
for new initiatives. All of the funds being requested for fiscal year
2005 will be used to continue work that began in prior years.
EMPLOYEE TRAINING AND DEVELOPMENT
Question. Please compare the request for employee training and
development for OST and each operating administration to the past 4
fiscal years.
Answer. The information follows.
EMPLOYEE TRAINING AND DEVELOPMENT
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2002 Actual 2003 Actual 2004 Estimate 2005 Estimate
----------------------------------------------------------------------------------------------------------------
Office of the Secretary......................... .............. 1,892 256 198
Federal Aviation Administration................. 144,806 157,477 153,929 158,398
Federal Highway Administration.................. 3,898 3,985 4,579 4,579
Federal Motor Carrier Safety Administration..... 5,518 3,903 5,486 4,223
National Highway Traffic Safety Admininistration 223 227 227 275
Federal Railroad Administration................. 909 1,086 1,513 2,216
Federal Transit Administration.................. 460 475 485 505
St. Lawrence Seaway Development Corp............ 51 55 56 90
Research and Special Programs Admin............. 173 190 190 237
Office of the Inspector General................. 425 389 447 447
Surface Transportation Board.................... 41 41 28 28
Bureau of Transportation Statistics............. 237 148 341 200
Maritime Administration......................... 373 238 350 350
---------------------------------------------------------------
Total..................................... 157,114 170,106 167,887 171,746
----------------------------------------------------------------------------------------------------------------
NOTE.--Excludes Working Capital Fund.
ATTORNEYS IN DOT
Question. Please provide a table displaying the number of attorneys
in the Office of General Counsel and in each modal administration
compared to the last 3 fiscal years.
Answer. The information follows.
------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Year 2004 Year 2003 Year 2002
------------------------------------------------------------------------
Federal Aviation Administration........ 184 195 188
General Counsel, Office of the 64 68 69
Secretary.............................
Federal Highway Administration......... 45 47 46
Federal Railroad Administration........ 31 30 30
Federal Transit Administration......... 25 25 27
Maritime Administration................ 25 23 22
National Highway Traffic Safety Admin.. 22 26 24
Federal Motor Carrier Safety Admin..... 33 25 29
Research & Special Programs Admin...... 19 17 18
Inspector General...................... 5 4 4
St. Lawrence Seaway Development Corp... 1 1 1
Bureau of Transportation Statistics.... 1 1 1
------------------------------------------------------------------------
Question. How many attorneys in the Office of General Counsel work
primarily on aviation-related issues?
Answer. There are 34 attorneys who work primarily on aviation-
related issues.
Question. Do the all the attorneys in the operating administrations
report to the modal administrator or to the Department's General
Counsel?
Answer. The attorneys in the operating administrations do not
report to the Department's General Counsel. However, the General
Counsel exercises professional supervision, including coordination and
review, over the legal work of the legal offices of the Department.
Question. Who approves the performance appraisals for attorneys
paid by the operating administrations?
Answer. The performance appraisals are approved by each operating
administration.
Question. Please provide the number of attorneys on staff for each
operating administration and Office of the Secretary.
Answer. The information follows.
------------------------------------------------------------------------
------------------------------------------------------------------------
Federal Aviation Administration......................... 184
Federal Highway Administration.......................... 45
Federal Railroad Administration......................... 31
Federal Transit Administration.......................... 25
Maritime Administration................................. 25
National Highway Traffic Safety Admin................... 22
Federal Motor Carrier Safety Admin...................... 33
Research & Special Programs Admin....................... 19
Inspector General....................................... 5
St. Lawrence Seaway Development Corp.................... 1
Bureau of Transportation Statistics..................... 1
General Counsel, Office of the Secretary................ 64
------------------------------------------------------------------------
Question. For the attorneys involved in aviation issues, how is
their workload related to the Office of the Assistant Secretary for
Aviation and International Affairs?
Answer. Attorneys in the Office of the Assistant General Counsel
for Environmental, Civil Rights, and General Law (``General Law'')
provide services on aviation-related issues generally do so for clients
in the Office of the Assistant Secretary for Aviation and International
Affairs. Primary clients are those in the immediate Office of the
Assistant Secretary, and the Offices of Aviation Analysis and Planning
and Special Projects. The advice and services provided by these
attorneys related most routinely to the Essential Air Service Program;
to Small Community air Service grants; on competition plans, congestion
management, and other aviation policy matters; and on slot exemption
and air carrier compensation issues. However, there can be a myriad of
other circumstances on which an ``aviation-related'' issue may arise in
the Office of the Assistant Secretary for Aviation and International
Affairs on which assistance is sought from the attorneys in General
Law. These include matters involving appropriations, finance, national
security, Freedom on Information matters, statutory interpretation,
bankruptcy, intellectual property, and environmental law.
Under a long-standing understanding with the Department of Justice,
litigation attorneys defend, with little or no DOJ assistance, aviation
decisions of the Department when they are challenged in judicial
proceedings. We also work with the Office of the Assistant Secretary
for Aviation and International Affairs by providing policy guidance on
legal matters and drafting assistance, particularly in areas of
antitrust issues and computer reservation system and travel agent
matters.
The attorneys in the Office of the Assistant General Counsel for
Regulation and Enforcement coordinate the Office of the Secretary's
review of modal proposed and final regulations, including aviation
regulations. Accordingly, they work closely with the Office of the
Assistant Secretary for Aviation and International Affairs to ensure
full review of aviation regulatory documents. Frequently, the attorneys
in this office will meet with personnel from Aviation and International
Affairs about any regulatory questions or issues that arise, and it is
their job to try to resolve outstanding issues before a document is
submitted for Secretarial review. In addition, the Office of the
Assistant Secretary for Aviation and International Affairs generates
its own rules, on matters such as computer reservations systems and
access for disabled travelers. When it does so, our office provides
drafting assistance as well as coordination and review. More broadly,
the attorneys in this office provide legal advice as necessary on
regulatory matters to the Office of the Assistant Secretary for
Aviation and International Affairs.
The Legislative Office provides support for the Assistant Secretary
for Aviation and International Affairs through the preparation and
clearance through DOT and OMB of all Departmental legislative proposals
intended to carry out the Department's initiatives and programs related
to aviation activities. It also administers DOT/OMB clearance of the
Assistant Secretary's testimony before Congress on aviation issues.
Finally, they provide DOT/OMB clearance of comments or revisions
originating with the Assistant Secretary's office on all draft
legislation, draft testimony and draft reports to Congress that may
originate within other Departments but are related to aviation issues.
Attorneys in the Aviation Enforcement Office work in close
consultation with staff in the Office of the Assistant Secretary for
Aviation and International Affairs to develop policies to improve air
service and/or access to the commercial aviation system as well as
policies on anticompetitive practices in the airline industry. The
Aviation Enforcement Office also assists the Office of the Assistant
Secretary for Aviation and International Affairs in its review of U.S.
air carrier requests for economic authority, and provides assistance on
public charter and fitness issues.
Attorneys provide legal support and facilitation of the
Department's international aviation program goals implemented by the
Assistant Secretary for Aviation and International Affairs, including
transportation negotiations with foreign countries, international
aviation trade matters, international transportation safety and
security, international trade, international aviation pricing, Alaska
and international mail rates, aviation licensing and regulatory matters
involving international transportation, aviation war risk insurance
issues, international aviation sanctions, and interdiction of illegal
drugs and other contraband. At international transportation
negotiations, the Office provides legal support as a member of the U.S.
Delegation, legal advisor and chief drafter of all documents.
ACCESSIBILITY FOR ALL AMERICA PROGRAM
Question. Please compare the request for the Accessibility for All
America program to the past 3 fiscal years.
Answer. The Department's request for Accessibility for All America
the past 3 fiscal years is as follows:
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Accessibility for All America................................... $2,494,000 $2,101,000 $2,533,000
----------------------------------------------------------------------------------------------------------------
Question. Please breakdown the request for the Accessibility for
All America program in greater detail.
Answer. The information follows.
------------------------------------------------------------------------
Fiscal Year
2005 Request
------------------------------------------------------------------------
Disabilities Hotline including cell phone contract...... $1,250,000
Tech Assist. Manual, Outreach & Translations............ 655,000
---------------
TOTAL............................................. 1,905,000
------------------------------------------------------------------------
In fiscal year 2005, the office is requesting funding to continue
operating and maintaining the congressionally mandated toll-free
hotline to educate and assist individuals in resolving disability-
related air travel problems. Funding is also requested to complete work
on the statutorily-required ACAA technical assistance manual (including
a model training program), to continue ensuring that a wider audience
can use the materials DOT's Aviation Enforcement Office issues (e.g.,
translating documents into Braille and Spanish) and to encourage
collaborative policymaking and enhanced cooperation between carriers,
airport, and civil rights organizations by convening air travel civil
rights forums.
Question. Please identify which initiatives under the accessibility
program are new, which continue efforts started in previous years, and
what the base funding is for each on-going effort.
Answer. The Office of the General Counsel is not requesting any
funds for new initiatives related to the accessibility program. All of
the funds being requested for fiscal year 2005 are necessary to
continue the ongoing work set out below.
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2002 2003 2004 2005 (Request)
----------------------------------------------------------------------------------------------------------------
Integrated Disabilities Hotline................. $870,000 $870,015 $1,239,807 $1,250,000
Technical Assistance Outreach and Translations.. .............. 669,366 .............. 655,000
----------------------------------------------------------------------------------------------------------------
Base funding of $870,000 was provided in fiscal year 2002 to
develop and implement a congressionally-mandated toll-free hotline,
staffed 7 days per week from 7 a.m. until 11 p.m. to answer questions
from disabled air travelers and assist such persons in resolving
disability-related air travel problems in ``real time.'' Implementation
occurred in December 2003 which allowed the program to remain funded at
the same level through the remaining three quarters of fiscal year
2003. The $1,239,807 enacted for fiscal year 2004 and the $1,235,000
requested for fiscal year 2005 are necessary to maintain the hotline
for each full fiscal year.
Base funding of $669,366 was provided in fiscal year 2003 to: (1)
begin work on a comprehensive technical assistance manual as well as a
model training program to guide airlines in assisting air travelers
with disabilities and to educate airlines about the proscription
against discrimination based on race, national origin, ethnicity, or
religion in air travel; (2) translate civil rights-related publications
into different languages; and (3) encourage collaborative policymaking
between carriers and civil rights organizations by convening air travel
civil rights forums. These developmental efforts continued in fiscal
year 2004 but a reduced funding level for the office forced a
redirection of base funds elsewhere. Now implemented, the program needs
base funding of $655,000 in fiscal year 2005 to maintain these
essential elements of the program.
BOARD OF CONTRACT APPEALS
Question. In fiscal year 2004, the Board of Contract Appeals
continued to hear Coast Guard appeals pursuant to a Memorandum of
Understanding between DOT and the Department of Homeland Security. Will
the board continue to hear Coast Guard appeals in fiscal year 2005?
Answer. Yes, the Board of Contract Appeals will continue to hear
Coast Guard appeals in fiscal year 2005 pursuant to a Memorandum of
Understanding between DOT and the Department of Homeland Security, in
addition to other new appeals from the Department of Homeland Security.
Question. Has DHS established its own board of contract appeals?
Answer. No, the Department of Homeland Security has not established
its own board of contract appeals. The Memorandum of Understanding
between the Department of Transportation and the Department of Homeland
Security provides for the DOT Board of Contract Appeals to hear and
decide all appeals arising out of DHS contracts.
Question. Does DHS reimburse DOT for hearing DHS appeals?
Answer. Yes, DHS reimburses DOT for hearing DHS appeals.
Question. Please breakdown in greater detail the Board's workload
that is projected for fiscal year 2005 compared to the past 4 fiscal
years.
Answer. The information follows.
STATISTICAL BREAKDOWN OF BOARD'S WORKLOAD--FISCAL YEAR 2001-FISCAL YEAR 2004
----------------------------------------------------------------------------------------------------------------
Appeals On Docket End
Fiscal Year Received Appeals Closed of Fiscal Year
----------------------------------------------------------------------------------------------------------------
2001............................................................ 29 50 66
2002............................................................ 21 32 55
2003............................................................ 29 36 48
2004............................................................ \1\ 277 \2\ 120 ..............
----------------------------------------------------------------------------------------------------------------
\1\ Total appeals received in fiscal year 2004 to 6/18/04.
\2\ Total appeals closed in fiscal year 2004 to 6/18/04.
The Board anticipates approximately 25 percent more appeals in
fiscal year 2005 as a result of hearing and deciding Department of
Homeland Security appeals.
OFFICE OF INTELLIGENCE AND SECURITY
Question. Please compare the budget request for the Office of
Intelligence and Security with the past 5 fiscal years.
Answer. The information follows.
[In thousands of dollars]
------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
Fiscal Year 2000....................................... $1,574
Fiscal Year 2001....................................... 3,494
Fiscal Year 2002....................................... 1,321
Fiscal Year 2003....................................... \1\ [2,100]
Fiscal Year 2004....................................... 2,225
Fiscal Year 2005....................................... 2,260
------------------------------------------------------------------------
\1\ The Office was funded through a reimbursable agreement with DHS/TSA.
Question. Are any of the funds requested for the Office of
Intelligence and Security to provide for the physical security of the
Secretary or DOT building?
Answer. No, both the physical security of the Secretary and the
security of the DOT buildings are budgeted under the Office of the
Assistant Secretary for Administration.
Question. Please list the positions that are vacant in the Office
of Intelligence and Security and provide the grade, title, and PC&B
cost for each position.
Answer. The SES position of Director of the Office and Intelligence
and Security has been filled with a temporary assignment of a Senior
Executive within the department.
There are currently two specialist vacancies in the Office (see
below). The duties of these positions are currently being discharged by
details of employees from the Operating Administrations while
recruitment actions are underway.
------------------------------------------------------------------------
Position Title Grade PC&B Cost
------------------------------------------------------------------------
National Security Specialist...... GS-14............... $132,000
Border Security Specialist........ GS-14............... 132,000
------------------------------------------------------------------------
Question. The Congressional Justification states that DOT was the
lead Federal agency for 7 of 17 transportation security tasks outlined
by DHS and HSC for Operation Liberty Shield. What tasks did DOT lead?
What were the other tasks and what agency was directed to lead them?
Did DOT have a role on the tasks that it did not lead?
Answer. Operation Liberty Shield and the specific agency tasks were
classified at the Secret level. The seven transportation security tasks
that DOT was the lead Federal agency on related to rail security,
hazardous materials (3 tasks), pipeline security, trucking and highway
security and aviation.
DOT's support role in the other tasks was limited primarily to
information dissemination and communications. However, the Homeland
Security Advisory System (HSAS) was raised to ``Orange'' in conjunction
with Liberty Shield. This required DOT to complete dozens of additional
tasks to implement the heightened posture.
Question. The report to the Committee regarding the Office of
Intelligence and Security states that DOT has explicit statutory
security responsibilities in the areas of HAZMAT, national airspace,
and rail transportation. What specific statutory security
responsibilities in aviation were not transferred to the Transportation
Security Administration?
Answer. FAA has responsibility under 49 U.S.C., Transportation,
Subtitle VII, Aviation Programs, for the security of its own
operations, including the National Airspace System; briefly, FAA is
responsible for ensuring that its personnel, its air navigation
facilities, and other parts of its integrated system of air traffic
control are protected from unlawful interference.
Question. Does DOT have any explicit statutory security
responsibilities in the area of transit?
Answer. No.
Question. What was the Department's role in the TOPOFF exercises?
Answer. Since transportation has been identified as a key target
for terrorists, DOT has played a key role in the TOPOFF exercises, all
of which had transportation events as part of their transportation
scenarios. The Department's authority to restrict or close airspace,
redirect rail, vehicle and motor carrier traffic and coordinate with
mass transit authorities, have been exercised in all TOPOFF scenarios.
In addition, the DOT is a permanent member of the Homeland Security
Interagency Incident Management Group (IIMG). The IIMG is the body
which is responsible for providing recommendations to the Secretary of
DHS for: the threat countermeasure needed, response to an attack, and
recovery measures in the event of an attack or natural disaster.
FEDERAL PERSONNEL PAYROLL SYSTEM
Question. Has the Department completed the migration to the Federal
Personnel Payroll System (FPPS)?
Answer. No. The non-FAA components of DOT are scheduled to migrate
to FPPS in April 2005 and the FAA is scheduled to migrate in October
2005.
Question. Are any funds requested in the fiscal year 2005 budget
request for development, implementation, integration, or other costs
associated with FPPS?
Answer. No funds are currently in the fiscal year 2005 budget
request because the migration to FPPS was originally scheduled to be
completed in fiscal year 2004. Due to greater than anticipated FPPS
system changes to meet DOT requirements, the schedule, with OMB
approval, was adjusted to implement the non-FAA components of DOT in
April 2005 and the FAA in October 2005. The system changes and schedule
shift resulted in an unfunded requirement of $9.4 million for fiscal
year 2005.
Question. Can any savings be identified with the deployment of
FPPS?
Answer. No specific savings have been identified at this time.
OFFICE OF THE ASSISTANT SECRETARY FOR AVIATION AND INTERNATIONAL
AFFAIRS
Question. What percentage of the workforce and budget request for
the Assistant Secretary for Aviation and International Affairs is
related to international aviation activities? How much of the workload
is related to aviation economic issues and regulations? What work in
each area is expected in fiscal year 2005? How does this compare to
fiscal year 2003 and fiscal year 2004?
Answer. Approximately 15 percent of the work of the Office of
Aviation Analysis is devoted to international aviation activities, with
all of the work performed in the Economic and Policy Analysis Division.
The international aviation activities performed by this Division are
all related to aviation economic issues and regulations. Work expected
in fiscal year 2005 depends largely on changes and developments in the
airline industry which is undergoing its most fundamental restructuring
since airline deregulation. Similar to work completed in fiscal year
2003 and fiscal year 2004, it will likely include a variety of in-depth
analysis of emerging industry issues to ensure that DOT policy remains
consistent with commercial developments in such areas as congestion,
competition policy, airport access and business practices, mergers,
international alliances, and applications for antitrust immunity for
joint ventures between United States and foreign carriers. As the
United States moves toward a multilateral approach to air service
agreements, an understanding of long-term trends in the airline
industry's operating and competitive structures will be required to
formulate effective negotiating strategies to ensure pro-competitive
liberalization. The Office of Aviation Analysis within the Office of
Aviation and International Affairs performs all domestic and
international aviation analysis for the Department's aviation economic
policies.
Under the Emergency Support Function No. 1 (ESF-1) of the National
Response Plan, the Department is the lead agency in mobilizing
transportation in order to respond to and/or assist in recovery from a
terrorist attack or natural disaster.
OFFICE OF THE CHIEF INFORMATION OFFICER
Question. Please provide a table to breakout projects funded under
the object class ``other costs'' in the Office of the CIO and compare
to the fiscal year 2004 enacted level after the across the board
rescission. Also, please include the amount that was rescinded pursuant
to Division H, sec. 168(b) of Public Law 108-199.
Answer. The information follows.
------------------------------------------------------------------------
Fiscal Year Fiscal Year
Other 2004 2005
------------------------------------------------------------------------
Office of the Chief Information Officer $500,728 $1,000,360
(OCIO) pay, benefits, unfilled
positions..............................
Gartner Group memberships............... 56,525 200,000
Information Technology (IT) Services 400,000 50,000
Assessment.............................
Travel/Training/Supplies................ 90,000 90,000
------------------------------------------------------------------------
The OCIO Fiscal Year 2004 rescission was 0.59 percent=$44,250.
Question. Please provide a table of all charge backs to the modes
to supplement the CIO budget.
Answer. The Chief Information Officer's (CIO's) budget is not
supplemented through charge backs to the modes. In fiscal year 2004,
reprogramming authority was requested to cover a funding shortfall in
the enterprise IT security program area that affected security coverage
across DOT Operating Administrations. The table below reflects that
reprogramming allocation.
IT SECURITY FISCAL YEAR 2004 CHARGES FOR TCI RESPONSE CENTER AND C&A
----------------------------------------------------------------------------------------------------------------
TCI
Email Percent Response No. of Percent C&A OA TOTAL
Count Center Systems
----------------------------------------------------------------------------------------------------------------
Reprogram Summary:
BTS............................ 286 0.49 $6,281 ....... 0.00 ........... $6,281
FAA............................ 45,046 77.47 $989,247 69 55.65 $556,452 $1,545,699
FHWA........................... 4,826 8.30 $105,983 3 2.42 $24,194 $130,176
FMCSA.......................... 1,465 2.52 $32,173 1 0.81 $8,065 $40,237
FRA............................ 1,041 1.79 $22,861 ....... 0.00 ........... $22,861
FTA............................ 691 1.19 $15,175 18 14.52 $145,161 $160,336
MARAD.......................... 648 1.11 $14,231 7 5.65 $56,452 $70,682
NHTSA.......................... 1,524 2.62 $33,468 3 2.42 $24,194 $57,662
OIG............................ 471 0.81 $10,344 ....... 0.00 ........... $10,344
RSPA........................... 654 1.12 $14,362 1 0.81 $8,065 $22,427
SLSDC.......................... 88 0.15 $1,933 ....... 0.00 ........... $1,933
VOLPE.......................... 1,409 2.42 $30,943 22 17.74 $177,419 $208,362
----------------------------------------------------------------------------
Reprogram Subtotal........... 58,149 100.00 $1,277,000 124 100.00 $1,000,000 $2,277,000
OST Additional Contribution........ ....... ........ ........... ....... ........ ........... $200,000
Total Reprogramming and OST ....... ........ ........... ....... ........ ........... $2,477,000
Contribution................
----------------------------------------------------------------------------------------------------------------
IT SECURITY
Question. The Office of the Chief Information Officer is requesting
funds to implement a proactive cyber threat intelligence capability.
Will this be accomplished by contracting for such services?
Answer. The Transportation Cyber Incident Response Center (TCIRC),
which serves as DOT's proactive cyber threat intelligence capability,
is staffed by contractor personnel and managed by a Federal security
specialist. The TCIRC is a 24/7/365 capability required by OMB Circular
A-130, Appendix III and is designed to detect, react and respond to
cyber security incidents that may occur throughout the Department's
critical IT infrastructure and systems.
Question. How much of the $5,227,000 that has been requested for
information technology security is for program administration?
Answer. For fiscal year 2005, $428,556 has been budgeted for IT
Security program administration.
Question. Please provide a detailed breakdown of the scope of work
and budget for each program that the CIO has planned or executed for
fiscal year 2003, 2004, and 2005 in the area of IT security.
Answer. The following table presents the fiscal year 2003, fiscal
year 2004, and fiscal year 2005 IT Security Budget by program, scope
and funding.
FISCAL YEAR 2003-FISCAL YEAR 2005 IT SECURITY BUDGET & FUNDING REQUEST
----------------------------------------------------------------------------------------------------------------
Fiscal Year
Program Scope Fiscal Year Fiscal Year 2005
2003 Budget 2004 Budget Request
----------------------------------------------------------------------------------------------------------------
Federal Information Management Security Information Technology (IT) $1,131,266 ........... ...........
Act (FISMA). security reviews, reporting
and remediation planning as
required by the 2002
Electronic Government Act,
Title Ill.
Transportation Cyber Incident Response Provides 24-7-365 cyber $793,360 $1,630,675 $3,727,000
Center (TCIRC). security incident response
to prevent, detect, and
respond to incident within
the DOT IT infrastructure as
required by OMB Circular A-
130, Appendix III.
Certification and Accreditation (C&A)..... C&A provides an acceptable $1,213,905 $1,391,325 ...........
level of assurance that
security controls are
implemented and functioning
properly to ensure that IT
systems and infrastructure
operate appropriately. The
authorization (accreditation
is required by OMB Circular
A-130,.
Common Access Architecture (CAA).......... To define DOT requirements $549,832 $25,000 $1,000,000
for an enterprise-wide CAA
that includes physical and
logical access, smart cards,
public key infrastructure
(PKI)--digital signature and
e-Authentication in order to
meet Federal standards and
to ensure a more secure DOT.
Enterprise Security Project (ESP)........ Contractor support for ........... ........... $500,000
security compliance reviews,
training and awareness,
security assessments.
--------------------------------------
Total............................... ............................. $3,688,363 $3,047,000 $5,227,000
----------------------------------------------------------------------------------------------------------------
Question. What is the projected out-year funding requirement by
fiscal year for IT security?
Answer. Out-year security funding requirements are: fiscal year
2006--$5,354,000; fiscal year 2007--$17,344,000; fiscal year 2008--
$9,942,000; and fiscal year 2009--$12,348,000.
The spike in fiscal year 2007 funding requirements is due to the
full implementation of the Common Access Architecture in the new DOT
headquarters building.
Question. Please provide a list of major contractors supporting the
CIO's IT security program, including consulting services, the project
they are supporting, and the value of each contract.
Answer. The following is a list of the current major contractors
supporting the CIO's IT security program.
MAJOR CONTRACTOR SUPPORTING OCIO IT SECURITY
------------------------------------------------------------------------
Contractor Program Value
------------------------------------------------------------------------
SAIC.............................. Certification & $958,322
Accreditation (C&A).
Mainstay.......................... C&A................. $347,000
Breakwater........................ Transportation Cyber $190,000
Incident Response
Center (TCIRC).
Indus............................. TCIRC............... $164,000
Foundstone........................ TCIRC............... $85,000
Working Capital Fund.............. TCIRC............... $1,302,678
---------------
Total....................... .................... $3,047,000
------------------------------------------------------------------------
Question. The Congressional Justifications state that the IT
security program will result in savings of more than $5 million per
year. When will the savings materialize and are the savings recurring?
Will the savings occur at the Departmental level or will they be spread
among the operating administrations? If these cost-avoidance measures
are realized by the modes, how much will each one save?
Answer. DOT will recognize savings through cost avoidance in
several areas, through: (1) centralized purchasing and implementation
of enterprise-wide hardware/software; and (2) the provision of
scaleable security services. In terms of hardware/software, the DOT
OCIO has already made a one-time purchase of a security tool that has
resulted in a savings of $140,768 in software licensing costs for the
Department's modes. These types of cost avoidance are expected to
continue and grow as more enterprise-wide license agreements are
initiated for security software and tools. The DOT OCIO is also
implementing DOT-wide TCIRC operations. If these TCIRC functions were
to be performed centrally, it is estimated that each mode would avoid
approximately $774,076 per year in recurring software and contract
labor costs beginning with full implementation of a centralized IT
security program.
Question. What is the CIO doing to protect critical IT systems from
attack and what contingency planning is occurring to ensure business
continuity in an emergency?
Answer. The CIO protects critical systems through a multi-faceted
security program. DOT OCIO has implemented an enterprise wide
vulnerability remediation program to ensure that all critical systems
are protected from cyber attack. Weekly vulnerability scans are
performed using an automated vulnerability scanner. The results of
these scans are reviewed monthly by the Chief Information Security
Officer. Currently, staff provides follow-up on patch installation as
well as other remediation efforts. Follow-up consists of assisting
modal IT staff with the patch installations and remediation steps. The
OCIO has established a compliance review program to ensure that
implementation of security controls, including business continuity
plans, for mission critical systems is in accordance with Federal and
departmental regulations. The OCIO has established a disaster recovery
site to support communications capabilities for all modes in the event
of emergency situations.
COMMON ACCESS ARCHITECTURE
Question. Is the $1,000,000 that the CIO is requesting for the
Common Access Architecture being augmented by funding requests in the
operating administrations for fiscal year 2005? If so, please provide a
table indicating how much each operating administration is requesting?
Answer. The CIO is not requesting augmentation of funding for the
Common Access Architecture from the Operating Administrations.
Question. Please provide a detailed profile, including past and
current efforts, of the scope of work, milestone schedule, and
anticipated costs for the Common Access Architecture project.
Answer. The scope of the Common Access Architecture (CAA) project
is to define Department of Transportation (DOT) requirements for an
enterprise-wide CAA that includes physical and logical access, smart
cards, public key infrastructure (PKI)-digital signature and e-
Authentication in order to meet Federal standards and to ensure a more
secure DOT environment. With $574,832 funding to date, DOT has
completed a CAA requirements analysis, a detailed business case, a
communication plan, architecture, an implementation approach document,
and is implementing two proof of concept projects for the CAA. The
fiscal year 2005 budget request of $1 million will integrate several
applications into CAA authentication in order to provide proof of
concept for application authentication and to refine integration
support procedures so that other DOT applications encounter as smooth a
transition as possible as the application owners begin to migrate their
applications to CAA authentication. Once the proof of concept is
established from the controlled pilots, the project will result in a
common access architecture that: (1) improves physical access control;
(2) improves logical access control; and (3) interoperates with the
federated identify authentication services. DOT's strategy for this
program is to fund the program from the DOT OCIO budget through fiscal
year 2009, and then to collaborate with operating administrations to
establish fiscal year 2010 and beyond requirements. The following
project plan highlights CAA milestones and schedule.
Question. What is the projected out-year funding requirement by
fiscal year for the Common Access Architecture project?
Answer. The information follows.
------------------------------------------------------------------------
------------------------------------------------------------------------
Fiscal year 2006........................................ $2,530,000
Fiscal year 2007........................................ 11,590,000
Fiscal year 2008........................................ 2,980,000
Fiscal year 2009........................................ 4,690,000
------------------------------------------------------------------------
Fiscal year 2007 includes costs for full implementation of CAA
infrastructure within the Department.
Question. How much of the requested amount will be allocated to
studies of biometrics and other technologies?
Answer. In fiscal year 2005, $25,000 is allocated for studies of
biometrics and other technologies. DOT expects to minimize the cost of
studies based on the previous work that has been accomplished in these
areas by government and industry and to adopt existing Federal
standards where practical.
Question. How much of the request for Common Access Architecture is
for program administration?
Answer. The fiscal year 2005 Common Access Architecture request for
program administration is $400,000.
ENTERPRISE ARCHITECTURE
Question. Please provide a list of major contractors and consulting
services supporting the CIO's Enterprise Architecture Implementation
project and the value of each contract.
Answer. The information follows:
--Contractor.--Bowhead Transportation Company, Inc.
--Services.--Enterprise Architecture Sustainment and Expert Support.
--Contract Value (Fiscal Year 2004 Funds).--$544,552.
DOT's current EA support task order with Bowhead Transportation
Company concludes on September 30, 2004. A new contract has not been
awarded. The fiscal year 2004 contract value was $544,552 for
Enterprise Architecture sustainment and expert support. And while
fiscal year 2005 work will be similar, the proposed contract dollar
value will be for full effort funding at $1,933,918, rather than the
significantly reduced amount required by the fiscal year 2004 funding
level.
Question. How much of the request for Enterprise Architecture
Implementation is for program administration?
Answer. In fiscal year 2004, $306,082 has been requested for
Enterprise Architecture (EA) Implementation program administration.
Question. Please provide a schedule and funding profile for each
project identified under Enterprise Architecture Implementation.
Answer. The Enterprise Architecture implementation activities are
all interrelated and do not lend themselves to being broken out as
discrete projects. The DOT Enterprise Architecture Program Management
Office (EAPMO), supported by contracted expert consultants, will be
evaluating numerous business needs/requirements of the Department in
support of the IT infrastructure consolidation efforts for the move to
the new DOT Headquarters Building, as well as the attainment of the
goals set forth in our EA Modernization Blueprint. These project
activities are scheduled to run throughout fiscal year 2005. Estimated
funding to provide support for these activities in fiscal year 2005 is
$2,515,000. For individual project and scheduling details for the
Enterprise Architecture Implementation for fiscal year 2005, please see
the proposed DOT fiscal year 2004 IT Roadmap v.8 below.
------------------------------------------------------------------------
Activity Start Finish
------------------------------------------------------------------------
IT GOVERNANCE.................... 10/1/04........... 9/1/05
Develop Fiscal Year 2006 10/1/04........... 11/11/04
Implementation Plan.
Departmental IRB--Investments.... 10/15/04.......... 10/15/04
Conduct Fiscal Year 2004 10/20/04.......... 11/26/04
Implementation Plan Outreach
Mtgs with OA's.
Departmental IRB--Control........ 11/12/04.......... 11/12/04
Departmental IRB--Investments.... 1/14/05........... 1/14/05
ARB.............................. 1/11/05........... 1/11/05
Departmental IRB--Control Review. 2/11/05........... 2/11/05
ARB.............................. 2/8/05............ 2/8/05
CIO Council...................... 2/3/05............ 2/3/05
Initial Fiscal Year 2006 IT 3/1/05............ 3/31/05
Budget Guidance.
ARB.............................. 3/8/05............ 3/8/05
CIO Council...................... 3/10/05........... 3/10/05
ARB.............................. 4/12/05........... 4/12/05
CIO Council...................... 4/7/05............ 4/7/05
Departmental IRB--Investments.... 4/15/05........... 4/15/05
Revised Fiscal Year 2006 IT 5/3/05............ 5/3/05
Budget Guidance.
ARB.............................. 5/10/05........... 5/10/05
CIO Council...................... 5/5/05............ 5/5/05
Departmental IRB--Control........ 5/13/05........... 5/13/05
ARB.............................. 6/14/05........... 6/14/05
CIO Council...................... 6/2/05............ 6/2/05
Departmental IRB--Control........ 7/15/05........... 7/15/05
ARB.............................. 7/12/05........... 7/12/05
CIO Council...................... 7/7/05............ 7/7/05
ARB.............................. 8/9/05............ 8/9/05
CIO Council...................... 8/4/05............ 8/4/05
Departmental IRB--Investments.... 8/26/05........... 8/26/05
CIO Council...................... 9/1/05............ 9/1/05
IT CPIC--SELECT.................. 10/27/04.......... 9/6/05
Update Screening and Scoring 10/27/04.......... 11/30/04
Criteria.
Update Prioritization Process.... 11/3/04........... 12/3/04
Update IT Portfolio Management 11/3/04........... 12/31/04
Process and Analysis.
Conduct Fiscal Year 2006 Passback 11/26/04.......... 2/1/05
and Revised Exhibit 53 Support.
Provide Preliminary Fiscal Year 4/5/05............ 5/30/05
2007 Portfolio Support.
Present Proposed Fiscal Year 2007 5/16/05........... 5/20/05
Portfolio to OA IRB.
OA's Submit Exhibit 300s to OST/ 6/1/05............ 6/1/05
OCIO.
Present Proposed Fiscal Year 2006 6/13/05........... 6/17/05
Portfolio Development &
Prioritization to ARB/CIO
Council.
Conduct Capital Planning Working 6/1/05............ 6/30/05
Group (CPWG) Internal Reviews of
Fiscal Year 2007 Exhibit 300s.
OA's Submit Exhibit 53's to OST/ 7/29/05........... 7/29/05
OCIO.
Submit Final Exhibit 300's to OST/ 8/12/05........... 8/12/05
OCIO.
Present Final Fiscal Year 2007 8/26/05........... 8/26/05
Portfolio to Departmental IRB
for Approval Prior to OMB
Submission.
Submit Final Exhibit 300's and 9/6/05............ 9/6/05
53's to OMB.
IT CPIC--CONTROL................. 10/18/04.......... 7/15/05
OA Initiative Owners Submit 10/18/04.......... 10/22/04
Control Data.
Departmental IRB/Control Review.. 11/12/04.......... 11/12/04
Quarterly Portfolio Assessment... 12/31/04.......... 1/13/05
OA Initiative Owners Submit 1/24/05........... 1/28/05
Control Data.
Departmental IRB/Control Review.. 2/11/05........... 2/11/05
Quarterly Portfolio Assessment... 3/31/05........... 4/13/05
OA Initiative Owners Submit 4/25/05........... 4/29/05
Control Data.
Departmental IRB/Control Review.. 5/13/05........... 5/13/05
Quarterly Portfolio Assessment... 7/1/05............ 7/7/05
OA Initiative Owners Submit 7/1/05............ 7/7/05
Control Data.
Departmental IRB/Control Review.. 7/15/05........... 7/15/05
IT CPIC--EVALUATE................ 2/1/05............ 7/6/05
Revise PIR Methodology Based on 2/1/05............ 2/28/05
Pilot Results.
Conduct PIR for Major System..... 4/4/05............ 5/17/05
Conduct PIR for Major System..... 6/2/05............ 7/6/05
eCPIC............................ 4/4/05............ 4/15/05
Conduct Refresher User Training.. 4/4/05............ 4/15/05
OST/OCIO TRAINING................ 11/26/04.......... 7/11/05
Supplemental OA Budget Support 11/26/04.......... 1/31/05
for OMB Passback Issues, as
needed.
Enterprise Architecture (BRM, 2/25/05........... 2/25/05
PRM, TRM, DRM, SRM).
Earned Value Analysis............ 2/21/05........... 2/23/05
Risk Management.................. 4/4/05............ 4/4/05
IT Security, Cost Estimating 4/18/05........... 4/18/05
Tool, Privacy Impact Assessments.
Lifecycle Costs/Alternative 2/14/05........... 2/14/05
Analysis.
Performance Measurement.......... 3/7/05............ 3/11/05
OMB Update Training--Revisions to 7/11/05........... 7/11/05
A-11.
ENTERPRISE ARCHITECTURE (EA)..... 10/1/04........... 9/30/05
Update 2005 Communications Plan.. 10/1/04........... 11/1/04
Update Technical Reference Model. 10/1/04........... 11/18/04
Update DOT EA Methodology........ 10/1/04........... 11/16/04
Provide Guidance to OA's on EA 12/2/04........... 2/1/05
Baseline, Target, and
Implementation Plan Development.
Update EA Repository............. 1/3/05............ 1/31/05
Identify Fiscal Year 2007 1/3/05............ 1/31/05
Enterprise Initiatives.
Provide Input for OMB Exhibit 2/1/05............ 6/16/05
300s.
Develop Baseline/Target for all 3/1/05............ 6/29/05
Cross Cutting LOB Identified as
Priority.
Provide Guidance to OA's to 3/1/05............ 6/29/05
Develop Their Baseline/All
Mission LOBs.
OA's Deliver Mission Baselines & 6/30/05........... 6/30/05
Targets.
Develop High Level Implementation 4/4/05............ 9/2/05
Timelines for Cross-Cutting LOBs.
OA's Deliver High Level 6/1/05............ 9/2/05
Implementation Timelines.
Executive Briefing Highlighting 8/1/05............ 9/30/05
EA Plans Developed.
------------------------------------------------------------------------
DOT INVESTMENT REVIEW BOARD
Question. How does the Department Investment Review Board (IRB)
decide which topics or issues to focus on?
Answer. The DOT Office of the CIO (OCIO) maintains a system
inventory database containing current performance, schedule, cost,
measurement, risk and other information for all major IT projects.
Also, basic information on non-major IT projects for which the
Operating Administrations (OA) have primary responsibility is
maintained in the database. The investment system information is the
same as required by Federal Information Security Management Act
(FISMA). The Departmental IRB conducts control reviews on at risk IT
projects at least on a quarterly basis throughout the year. Projects
are selected for review based upon one or more of the following
factors:
--Criticality to achieving Presidential Management Agenda goals.
--Criticality to achieving DOT strategic goals and objectives.
--High dollar value.
--High risks.
--Significant performance variances, and schedule or cost variances
exceeding 10 percent.
--Overall need for executive level management attention to ensure
project success.
--Need for information to support planned project funding requests.
On an annual basis, the Departmental IRB and its staff performs a
comprehensive select review of all IT projects in support of the budget
process. This ensures that the DOT-wide portfolio of IT projects meet
modernization goals and contains an appropriate and affordable mix of
projects that will assure accomplishment of DOT missions. The DOT CIO
makes recommendations to the IRB to consolidate redundant IT spending
amongst the Operating Administrations and to establish cross-cutting
initiatives that will benefit multiple agencies.
Question. Please provide a list of projects that the IRB reviewed
during fiscal year 2003 and to date in fiscal year 2004.
Answer. The DOT IRB reviewed the following projects in fiscal year
2003:
--Artemis (Tread Act Implementation)--NHTSA
--Delphi (Departmental Financial System)--OST
--Federal Personnel and Payroll System (FPPS)--OST
--Geospatial--BTS
--Safety Monitoring and Reporting Tool (SMART)--RSPA
--Intermodal Transportation Data Base (ITD)--BTS
--National Transit Database (NTD)--FTA
The DOT IRB reviewed the following projects as of the second
quarter of fiscal year 2004:
--Artemis (Tread Act Implementation)--NHTSA
--Financial Management Information System (FMIS)--FHWA
--Motor Carrier Management Information System (MCMIS)--FMCSA
--ASDE-X (Surface Surveillance)--FAA
--Operational and Supportability Implementation System (OASIS)--FAA
--Wide Area Augmentation System (WAAS)--FAA
Question. In the last fiscal year, what percentage of the overall
IT projects did the IRB actively review?
Answer. In fiscal year 2003, the Departmental IRB reviewed 2
percent ($34.2 million) of the Department's Major IT Projects ($1,715.5
million). In fiscal year 2004 to date, the Departmental IRB reviewed
6.4 percent ($105.2 million) of the Department's Major IT Projects
($1,642.1 million).
Question. What are the costs of the IT projects that the IRB
reviewed? What are the total costs by operating administration of all
IT modernization occurring in the department?
Answer. In fiscal year 2003, the Departmental IRB reviewed 2
percent ($34.2 million) of the Department's Major IT Projects ($1,715.5
million). In fiscal year 2004 to date, the Departmental IRB reviewed
6.4 percent ($105.2 million) of the Department's Major IT Projects
($1,642.1 million). The following table identifies the total cost by
Operating Administration (OA) for all IT modernization occurring in the
Department for fiscal year 2004 and fiscal year 2005 as reported by the
OAs in their OMB exhibit 53 submissions.
DEVELOPMENT/MODERNIZATION/ENHANCEMENT (DME) BY OA FROM EXHIBIT 53 IT PORTFOLIO
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Organization 2004 IT DME 2004 2005 IT DME 2005
----------------------------------------------------------------------------------------------------------------
BTS..................................................... 5.6 0.8 7.1 2
FAA..................................................... 2,459.70 1,512.20 2,298.70 1,315.50
FHWA.................................................... 42.3 3.7 63.5 2.2
FMCSA................................................... 24.3 15 25.9 13.3
FRA..................................................... 19.1 3.5 12.3 1.9
FTA..................................................... 12.9 ............ 15.6 ............
MARAD................................................... 9.8 6.5 11.3 7.5
NHTSA................................................... 23 3.3 20.4 3
OIG..................................................... 1 ............ 0.9 ............
OST..................................................... 216.8 80.5 300.8 136.7
RSPA.................................................... 19.1 1.7 18.8 1.2
SLSDC................................................... 0.1 ............ 0.1 ............
STB..................................................... 1.5 ............ 1.6 ............
WCF..................................................... 2 ............ 2 ............
-------------------------------------------------------
TOTAL............................................. 2,837.2 1,627.2 2,779 1,483.3
----------------------------------------------------------------------------------------------------------------
Question. How many IT investment projects did the IRB terminate or
seriously modify through a corrective action plan?
Answer. To date, the Departmental IRB has not terminated any
projects. However, in fiscal year 2003 seven investments (total value
$37.5 million) were required to take corrective actions based on the
IRB review. In fiscal year 2004 five (total value $96.8 million) were
required to take corrective actions. All of these projects have
accomplished, or are on schedule, with regard to required corrective
actions.
Question. In the past, operating administrations have contracted
with the Volpe Center to develop and define requirements for IT
systems. What is the assessment of the CIO of Volpe's capability in
this regard?
Answer. Volpe performance has been varied. Volpe has had both
successful and marginal engagements and is changing its contracting and
management practices to achieve better consistency.
Question. What guidance, support, or oversight does the CIO provide
to FAA for facility and equipment acquisition?
Answer. The CIO performs Exhibit 300 (business Case) review and
training.
Question. Do the CIO or the IRB review all of the IT requests
throughout the Department before the budget is submitted to OMB?
Answer. Yes. The CIO office conducts reviews of IT requests
delineated in the budget process. The IRB reviews the final DOT IT
portfolio and the recommendations made by the CIO each August prior to
budget submission.
Question. Does the CIO oversee the IT acquisitions made in the
Office of Intelligence and Security?
Answer. No. The CIO's office does not oversee the IT acquisitions
made in the Office of Intelligence and Security.
IT CAPITAL PLANNING
Question. Are contractors or consulting services used to support
the CIO's capital planning and investment control (CPIC) process? If
they are, please provide a list of major contractors, the services
provided, and the value of each contract.
Answer. The CIO employs one contractor performing two tasks in
support of the Departmental CPIC process.
--Contractor.--Booz-Allen & Hamilton
--Services Provided.--IT CPIC Process Development and Implementation
--Contract Value (Fiscal year 2004 funds).--$358,000
--Contract Value (Fiscal year 2005 planned).--$539,689 (Contract Face
Amount)
--Contractor.--Booz-Allen & Hamilton
--Services Provided.--e-CPIC Software and Database Support
--Contract Value (Fiscal year 2004 funds).--$63,938
--Contract Value (Fiscal year 2005 planned).--$75,000 (Planned
Contract Amount)
SECTION 508 COMPLIANCE
Question. What percentage of DOT websites comply with section 508
of the Rehabilitation Act?
Answer. DOT has more than a thousand websites hosting over 2
million web pages. In 2004, DOT conducted an evaluation on whether its
most frequently accessed web pages were accessible to people with
disabilities. Across the Department, the OCIO evaluated the 259 web
pages most visited by DOT stakeholders. Of the pages tested, 79 percent
were in compliance. The remaining 21 percent are being remediated by
webmasters/page owners. DOT plans to expand its Section 508 website
evaluation program over the next 2 years to determine DOT-wide 508
compliance as part of the CIO's fiscal year 2005 budget request.
IT SECURITY
Question. Is the DOT computer system a secure system?
Answer. DOT has a complex array of integrated and independent
computer systems in its inventory, many shared within individual
agencies, and some shared across Operating Administrations. DOT also
has a complex IT infrastructure supporting the communications
requirements of its headquarters campus and support for remote
locations. The DOT computer system and infrastructure environment is
secure.
Question. If it is secure, who certifies that it is secure?
Answer. DOT computer systems go through a formal certification and
accreditation (C&A) process. Numerous qualified C&A vendors conduct C&A
review and documentation processes using recognized and approved
criteria, standards and processes. C&A results are reviewed and signed
off on by the Government's system owners. The DOT CIO, in compliance
with Clinger-Cohen, reviews and signs off on the systems' security for
FISMA.
Question. What is the annual cost to maintain the system?
Answer. DOT computer systems maintenance costs vary by system, type
of maintenance, service provider, software and other attributes,
including discounts. The fiscal year 2005 budget proposes $1,298.4
million for the maintenance of all DOT computer systems, with $166.1
million of that for maintenance of IT Infrastructure. A key benefit of
the OCIO driven consolidation is to reduce the number of systems,
components, and thus their maintenance overhead, as well as reduce the
annual cost to maintain the Departments vast inventory of computer
systems.
Question. How many users have access to the system?
Answer. Nearly 60,000 users have access to DOT systems. Users have
access based on need and privilege, and include Government and contract
employees. Some portions of the DOT network are accessed by several
tens of thousands of users daily, typically for email and data entry
and retrieval. OCIO security and common access architecture initiatives
are key components in maintaining the integrity of DOT systems through
standardized user access and security requirements and access
monitoring.
Question. Please describe in detail any contract or consulting
expenses anticipated under the CIO's strategic management effort.
Answer. The following table describes detail concerning the CIO's
fiscal year 2005 strategic management effort spend plan estimates
regarding contractor support:
DEVELOPMENT/MODERNIZATION/ENHANCEMENT (DME) BY OA FROM EXHIBIT 53 IT PORTFOLIO
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Organization 2004 IT DME 2004 2005 IT DME 2005
----------------------------------------------------------------------------------------------------------------
BTS..................................................... 5.6 0.8 7.1 2
FAA..................................................... 2,459.70 1,512.20 2,298.70 1,315.50
FHWA.................................................... 42.3 3.7 63.5 2.2
FMCSA................................................... 24.3 15 25.9 13.3
FRA..................................................... 19.1 3.5 12.3 1.9
FTA..................................................... 12.9 ............ 15.6 ............
MARAD................................................... 9.8 6.5 11.3 7.5
NHTSA................................................... 23 3.3 20.4 3
OIG..................................................... 1 ............ 0.9 ............
OST..................................................... 216.8 80.5 300.8 136.7
RSPA.................................................... 19.1 1.7 18.8 1.2
SLSDC................................................... 0.1 ............ 0.1 ............
STB..................................................... 1.5 ............ 1.6 ............
WCF..................................................... 2 ............ 2 ............
-------------------------------------------------------
TOTAL............................................. 2,837.2 1,627.2 2,779 1,483.3
----------------------------------------------------------------------------------------------------------------
In fiscal year 2003, the Departmental IRB reviewed 2 percent ($34.2
million) of the Department's Major IT Projects ($1,715.5 million). In
fiscal year 2004 to date, the Departmental IRB reviewed 6.4 percent
($105.2 million) of the Department's Major IT Projects ($1,642.1
million). The following table identifies the total cost by Operating
Administration (OA) for all IT modernization occurring in the
Department for fiscal year 2004 and fiscal year 2005 as reported by the
OAs in their OMB exhibit 53 submissions.
IT CONSOLIDATION
Question. Please breakdown in greater detail the request for the
CIO's IT consolidation and operations support.
Answer. The following provides a work breakdown structure (WBS) for
the $4,200,000 budget request.
------------------------------------------------------------------------
Funds
WBS Item Requested
------------------------------------------------------------------------
Network/Server Co-Location.............................. $1,500,000
Storage Consolidation................................... 1,000,000
Digital Document Management............................. 500,000
Contract/Support Consolidation.......................... 300,000
Centralized Call Center/Full Remedy Implementation...... 300,000
Standard Desktop Image Implementation................... 300,000
Centralized Help Desk................................... 300,000
------------------------------------------------------------------------
Question. There appears to be a considerable amount of duplication
in the justifications for IT consolidation and operations support with
other projects in the CIO's request--for example, ``updated and new IT
Security Policies,'' ``user identification and password
administration,'' and IT improvements related to the planned move to
the new DOT headquarters building. Are these examples and others in the
justification distinct from similar projects in IT security, Enterprise
Architecture Implementation, and other activities?
Answer. The Office of the CIO (OCIO) performs two distinct
missions. One is policy and compliance and the other is operational.
The specific missions are: (1) providing department-wide IT program
strategy, policy, direction and compliance/oversight; and (2)
delivering IT services to DOT customers that conform to departmental
policies (i.e. IT security policies). Both missions are complementary
but have different scopes and investment requirements. Both require
funding as included in our fiscal year 2005 request.
In the OCIO fiscal year 2005 justification, any apparent
duplication of efforts between these two missions results when
performance outputs are defined for: (1) the development of strategies
and policies for a particular activity (e.g., update IT security
policies, IT consolidation), and (2) for the operational implementation
of the same activity. Each phase of the activity is categorized and
managed separately within the OCIO's office depending on if it is in
the development stage or the implementation/operational stage. None of
these activities are duplicative; rather, they are distinct phases of
the same activity. The OCIO's office recognizes the importance of
managing these phases separately to ensure the most efficient use of
its resources.
In providing IT program leadership, the OCIO oversees the
development of an enterprise architecture or blueprint for future IT
investments and ensures compliance department-wide. It also provides
departmental policies and guidance for securing IT systems, monitors
departmental and operating administration compliance and leads
strategic projects to improve enterprise security (e.g. the Common
Access Architecture). Specifically, to ensure compliance with statutory
requirements for the security of critical networks and systems across
DOT, the OCIO manages the Transportation Cyber Incident Response Center
(TCIRC) and department-wide testing of systems. In this enterprise
security role, the DOT OCIO monitors approximately 500 operational
networks and systems throughout DOT, to include those within the FAA
and the CIO-operated infrastructure. Funding has been requested for
this policy/compliance mission in areas of Enterprise Architecture and
Enterprise Security.
In its role as an IT service provider to customers within DOT, the
OCIO is directly responsible for running approximately 50 systems and
one backbone network, and makes investments that improve service
delivery and comply with the enterprise architecture. It also ensures
that specific OST infrastructure and operational systems are secure
based on departmental guidelines. Day-to-day operations include such
diverse activities as implementing network controls, implementing
software patches, the administration of passwords, installing virus
software on servers and maintaining disaster recovery capabilities.
The operational role of the CIO is expanding through the
consolidation of multiple infrastructures within the DOT headquarters
building. This effort offers a significant opportunity to improve
infrastructure security, reduce service costs and facilitate the move
to a new headquarters building. The Department's Enterprise
Architecture is providing a basis for building a common operating
environment (COE) of desktops, servers, and telecommunications. The COE
will become a one of over 25 components of the Department's enterprise
architecture. Additionally, the common operating environment will
improve security through investments in hardware and software to
centralized security management of the entire infrastructure. Funding
has be requested for IT operations and consolidation that includes
investments to improve security of the infrastructure and to align with
the DOT enterprise architecture.
E-GOVERNMENT
Question. How much of the funding requested for e-government will
be transferred to the President's Management Council, Federal CIO, CFO
and Procurement Executive Councils? How does this compare to fiscal
year 2002 and fiscal year 2003?
Answer. In fiscal year 2004, DOT transferred $492,020 to the GSA
Interagency Council ``Pass-the-Hat'' initiative which supports
Government-wide financial, information technology, procurement and
other management innovations, initiatives, and activities as approved
by the Director of OMB. The councils covered under this initiative for
fiscal year 2004 are: the CFO Council, the CIO Council, the Federal
Acquisition Council (FAC) and the Chief Human Capital Officers Council.
In 2003, DOT paid $690,265 to GSA for this Pass-the-Hat initiative.
In 2002, DOT also paid $690,265 to GSA for this initiative.
STRATEGIC MANAGEMENT FISCAL YEAR 2005 CONTRACT SUPPORT ESTIMATES
------------------------------------------------------------------------
------------------------------------------------------------------------
GPEA/Forms/Digital Signatures/Records Management........ $115,000
Privacy Program Contract Services....................... 100,000
Section 508 Software maintenance/program implementation. 82,000
Information Collection Burden program support........... 80,000
Performance Measurement/IT Workforce Planning........... 60,000
---------------
Total............................................. 437,000
------------------------------------------------------------------------
Question. Please breakdown the request for e-government by planned
activity.
Answer. DOT continues to use technology to save taxpayer dollars
and to improve how the Department provides services and information to
citizens, business and other government agencies. The fiscal year 2005
funding request is for FTE and contractor staff to improve project
management skills within DOT and to lead e-government initiatives to
improve service delivery, manage risks and keep projects on schedule
and within budget.
The specific planned activities include:
--Creating processes, standards, guidelines and a project life cycle
framework to guide all DOT project managers;
--Ensuring that 100 percent of all major new IT investments are
managed by a qualified project manager;
--Improving access to and quality of information internally and to
citizens and business through enterprise content management
capabilities;
--Migrating DOT to a governmental personnel and payroll system;
--Improving mission performance through web portals like Geospatial
One-Stop, Grants.gov and Business Gateway; and
--Improving the quality and consistency of human resource data by
integrating multiple data bases and sharing information among
multiple systems and processes.
Question. Is funding requested for development of the Department's
internet home page?
Answer. Yes. In fiscal year 2005 the CIO will invest $175,000 in
improvements to the Department's internet home page, including content
management.
Question. What is the funding request for development of an
intranet? Would the modes have access to the intranet? Have any of the
modes already developed intranets? If they do, how does the CIO plan to
make them interoperable or compatible with a department-wide intranet?
What capability does an intranet provided that does not exist
currently?
Answer. The CIO's fiscal year 2005 funding request includes $50,000
for the DOT intranet. Modes have access to the current DOT intranet,
and will have access to future DOT sponsored intranet services. The
Federal Highway Administration, the Federal Aviation Administration,
Federal Motor Carrier Safety Administration, National Highway Traffic
Safety Administration, and the Federal Transit Administration have
developed certain intranet capabilities accessible internally by their
employees. Through the commonality of format and best practices content
management and portal implementations, the CIO will drive intranet
consistency across a department-wide intranet environment, improving
such aspects as ease of use, information availability, and remote
access.
Question. What is your plan to get from ``red'' to ``green'' in the
President's management agenda? What progress does the Department expect
to make in fiscal year 2004? Since the fiscal year 2005 budget request
was transmitted in February, what specific steps has CIO taken to work
with OMB to get to ``green''?
Answer. Through the Office of the Chief Information Officer, DOT
has instituted three department-wide processes to get from red to green
in the President's Management Agenda. First, DOT has established a
Department Wide Capital Planning and Investment Control Process, led by
a Departmental Investment Review Board (IRB). This group, chaired by
the DOT Deputy Secretary and comprised of the DOT Assistant Secretary
for Budget and Programs, the Assistant Secretary for Administration,
the General Counsel, four Operating Administrations executives; and the
Chief Information Officer, meet quarterly, with reviews and approval
oversight for all initiatives and business cases in DOT's IT Portfolio.
The IRB also provides control reviews of DOT IT programs to ensure they
stay within 10 percent of cost, schedule, and performance goals.
Second, the DOT has established an enterprise architecture and
modernization blueprint that identifies DOT's cross-cutting business
processes, the IT initiatives supporting these processes, and outlines
an implementation plan to eliminate redundant systems while
strategically investing in programs that better support safety,
mobility, and organizational excellence goals.
Third, the DOT has implemented an Enterprise IT Security Program
which has completed certification/accreditation of more than 90 percent
of all DOT systems, and has implemented an Inspector General-verified
Plan of Action and Milestone (POA&M) Remediation Process to resolve any
remaining system weaknesses identified in the certification/
accreditation process.
Fourth, the DOT is currently supporting e-government initiatives
that improve how DOT provides information and services to American
citizens, businesses, other government entities and internally, and a
Program Management Office to oversee these initiatives.
In fiscal year 2004, DOT instituted the processes outlined above,
resulting in the following accomplishments as of June 30, 2004:
--All business cases have received a passing score from OMB;
--All major IT initiatives programs are within 10 percent cost,
schedule, performance variance or have a corrective action plan
that will be tracked by the Departmental IRB on a quarterly
basis;
--A Modernization Blueprint that outlines DOT's IT investment
priorities and strategies has been completed;
--Over 90 percent of all DOT systems have had certification/
accreditation or have implemented an IG-verified POA&M process;
and,
--Active participation in e-government initiatives has been positive.
IT MODERNIZATION
Question. What are the Department's goals for modernization in
fiscal year 2005?
Answer. The DOT CIO's mission is to support the Secretary's vision
of a safer, simpler, smarter transportation system. DOT has published
the DOT Modernization Blueprint V.2. that outlines DOT's specific
modernization goals to accomplish this vision. DOT began implementing
this modernization strategy in fiscal year 2004 and will continue
implementing the strategy in fiscal year 2005 and beyond through the
accomplishment of three primary goals: modernize cross-cutting systems
as a means of eliminating redundant IT systems and services and
reinvest those savings into mission support initiatives; consolidate
redundant infrastructure operations into a common operating
environment; and improve the security of critical DOT networks and
systems.
In terms of cross-cutting systems, as a first goal the DOT
Investment Review Board (IRB) has established ten system modernization
priorities:
--Financial Management;
--Grants Management;
--Recruitment;
--Personal/Payroll Systems;
--Internal Rulemaking Tracking;
--Procurement Management;
--Enterprise Document Management;
--Training;
--Intermodal Transportation Data System (ITDS); and
--Hazmat Data Sharing.
Inter-modal teams have been established to create business cases
and associated timeframes and to execute agreed upon strategies. In
several cases, planning is being done with Federal e-government
programs, such as the ITDS and Personal/Payroll initiatives. In
conjunction with this goal, the DOT is establishing a Program
Management Office (PMO) to oversee these initiatives, and to ensure
that Project Managers are qualified.
The second modernization goal is to consolidate redundant IT
infrastructure operations. DOT's consolidation strategy consists of
three major phases:
Phase 1 (fiscal year 2004-fiscal year 2005).--Establish common
network, server, and desktop standards and consolidate redundant
infrastructures for all organizations (OST staff offices and Operating
Administrations) moving to the new DOT Headquarters building into a
Common Operating Environment (COE) based on these standards.
Phase 2 (fiscal year 2006-fiscal year 2008).--Expand the COE to
include DOT field offices and components of FAA where practical.
Phase 3 (fiscal year 2008 and beyond).--Continue to modernize the
DOT infrastructure to improve service and provide enhanced services to
DOT stakeholders through the use of technology.
The third modernization goal is to improve the security of DOT's
networks and systems. This goal will be accomplished through the CIO's
requested funding for the Enterprise IT Security Program, and will
include: contractor staffing to operate a 24/7 monitoring and incident
detection/response center; improved and updated enterprise-wide
policies, procedures, hardware and software to monitor and protect all
systems within the Common Operating Environment; and through the
execution of the Common Access Architecture Project, described later in
this document.
IT PROCUREMENT
Question. Does all centralized IT purchasing come through the CIO's
office? For all modes or just OST? What centralized purchases are made
now that were not made in fiscal year 2003?
Answer. The DOT does not have centralized IT purchasing. Each mode
and OST has its own acquisition office to make IT purchases. However,
to ensure that the department is making the right investments, the
department uses its Enterprise Architecture processes to establish
standards and establish enterprise licenses and the Capital Planning
and Investment Control process to review proposed IT investments as a
part of the budget process. Starting in fiscal year 2005, the
department's efforts to reduce redundant IT investments through the
consolidation of IT infrastructures will lead to more centralized
purchasing as the Department moves to a shared infrastructure among the
modes. Also in fiscal year 2005 the DOT CIO will concur with all
significant DOT IT procurement requests to ensure consistency with IT
budget plans.
Question. Breakout the FTEs by function in the CIO's office.
Answer. The following table shows the FTEs in the CIO's office by
function.
OFFICE OF THE CHIEF INFORMATION OFFICER--STAFFING BY FUNCTION
------------------------------------------------------------------------
Function Title
------------------------------------------------------------------------
Executive Management................. CIO
Executive Management................. Deputy CIO
Executive Administration............. Prog Anal
Executive Administration............. Staff Asst
Staff Administrative Support......... Admin Asst
Budget and Administration............ Sup Prog Anal
S&E Budget........................... Prog Anal
S&E Projects......................... Prog Anal
Internet/DOT Web..................... Prog Anal
Enterprise Architecture/Capital Assoc CIO IT Prog
Planning; Strategic Integration; IT
Security.
IT Security.......................... Comp Spec.
IT Security.......................... Prog Anal
Personnel/Systems Security........... Prog Anal
Enterprise Architecture/Capital Comp Spec.
Planning.
Enterprise Architecture/Capital Comp Spec.
Planning.
Enterprise Architecture/Capital Comp Spec.
Planning.
Enterprise Architecture/Capital Prog Anal
Planning.
Enterprise Architecture/Capital Sup Prog Anal
Planning.
Strategic Integration................ Prog Anal
Strategic Integration................ Prog Anal
Strategic Integration................ Prog Anal
IT Consolidation Program Office...... Doc Sys Prog Mgr
IT Implementations................... Comp Spec.
Enterprise Projects.................. Sup Prog Anal
Enterprise Projects.................. Comp Spec.
------------------------------------------------------------------------
DELPHI
Question. Please provide the cost and justification data for
Delphi. Is this system complete? If not, what is the estimated cost to
complete? If it is complete, what is the cost to maintain the system?
Answer. Delphi, DOT's new financial management system, is a state-
of-the-art, single-instance, non-customized, commercial off-the-shelf
(COTS) accounting and financial management system. Delphi offers
flexibility and maintainability at the functional user level; modular,
tight integration of functional components; single source data capture;
electronic routing and approval; web-enabled processes and report
accessibility; electronic commerce capabilities; and, FFMIA compliance.
Delphi uses release 11.5.9 of Oracle Federal Financials, which is
COTS software from Oracle Corporation that has been certified by the
Joint Financial Management Improvement Program as meeting all Federal
accounting requirements. Delphi has replaced DOT's outdated, non-
compliant legacy accounting system, which was sunset in March 2004 and
is no longer in production.
Benefits of Delphi include:
--Complies with Standard General Ledger.
--Provides a single Accounting Classification Structure throughout
DOT.
--Provides Financial Statements from its core system, not external
spreadsheets.
--Enables DOT to meet OMB's accelerated schedule for year-end closing
and Financial Statements.
--Provides the basis for Managerial Cost Accounting through the
Project Accounting module.
--Incorporates best business accounting practices.
--Provides advanced security through audit trails and Roles and
Responsibilities.
--Offers simplified upgrading to take advantage of evolving
capabilities.
--Eliminates paper, makes documents immediately available to all, and
provides sophisticated tracking through the integrated Invoice
Imaging & Workflow System.
Delphi is considered fully implemented and is a steady-state
system. No funds are needed to complete Delphi. Delphi implementation
costs from fiscal year 1998 through fiscal year 2003 totaled $125
million. The cost to maintain Delphi in fiscal year 2004 is $22.05
million.
TCI RESPONSE CENTER
Question. Please breakout the response center costs.
Answer. The following table breaks out the ``TCI Response Center
Budget--Fiscal Year 2005.''
TCI RESPONSE CENTER BUDGET--FISCAL YEAR 2005
------------------------------------------------------------------------
Enterprise
TCIRC/IT
Cost Category Security
Advice &
Assistance
------------------------------------------------------------------------
Personnel & Benefits:
Manager............................................. $114,505
Vacant assistant position........................... 114,505
---------------
Subtotal.......................................... 229,010
===============
Travel.................................................. 0
Contract Services:
Senior Analyst...................................... 163,637
Senior Analyst...................................... 195,000
Mid-level analyst................................... 120,000
Mid-level analyst................................... 115,000
Senior level analyst................................ 190,000
TCIRC Staff Training................................ 100,000
---------------
Subtotal Labor.................................... 883,637
===============
Supplies................................................ 15,000
Equipment, Non-Capital (software, scanning, patch mgmt, 1,632,144
Security portal development, etc.).....................
---------------
Subtotal Other Costs.............................. 1,647,144
===============
WCF Intrafund:
Rent Intrafund...................................... 77,427
Other (computers, supplies)......................... 215,055
Contract costs...................................... 61,136
---------------
Subtotal.......................................... 353,618
===============
Overhead:
IT Admin & Special Projects......................... 36,902
Financial Mgt Group................................. 44,302
WCF Overhead........................................ 10,388
Enterprise Network Operations Center (7/24 522,000
monitoring)........................................
---------------
Subtotal.......................................... 613,591
===============
Grand Total TCIRC................................. 3,727,000
------------------------------------------------------------------------
CRITICAL IT SYSTEMS
Question. What progress has the Department made in protecting
critical IT systems at OST and the modes?
Answer. In fiscal year 2003, the DOT OCIO initiated two major
programs to protect OST and Operating Administration critical IT
systems: (1) a program to certify and accredit all of the Department's
IT systems; and (2) implementation of the Transportation Cyber Incident
Response Center (TCIRC).
In terms of certification/accreditation, the DOT OCIO established a
specialized team and standard methodology, worked with OST and the OAs
to establish a schedule, and executed a plan completing certification/
accreditation for over 90 percent of the DOT computer systems by June
2004. As of September 30, 2003, approximately 40 percent of DOT's IT
systems were certified and accredited in accordance with statutory,
OMB, and NIST guidance. As of June 15, 2004, DOT has certified and
accredited 95.6 percent of all IT systems. Efforts to now correct
weaknesses identified through this process, and to test contingency
planning efforts, will continue under this program in fiscal year 2005
and the DOT OCIO will also perform compliance reviews of modal IT
systems to ensure that the certification and accreditations remain
valid and all security controls are being implemented properly.
In terms of the TCIRC, DOT implemented this capability in fiscal
year 2003. Today, the TCIRC monitors all DOT network access points, web
sites, and other critical systems on a 24/7 basis, operates a
vulnerability remediation management program that includes weekly
vulnerability scanning and analysis, installs and configures intrusion
detection at key network entry points, and provides critical system
patch installation assistance to protect DOT IT systems from hackers
and other threats. Based on the successful performance of the TCIRC,
DOT has had no downtime of mission critical system networks or systems
over the past year.
Additionally, the TCIRC monitors all DOT IT systems across the
country to determine if illegal software is installed on DOT computer
systems, such as peer-to-peer software, which places networks at risk
to intrusions or other illegal file sharing activities (such as sharing
illegal music). Based on the successful efforts of the TCIRC to
identify and eliminate the use of this software, DOT has decreased
instances of this software from an average of 25 a month to 1 a month.
By providing the TCIRC at the Department-level, DOT is able to
capitalize on economies of scale in terms of contracting for
specialized contract support, and purchasing hardware and software once
to service the entire Department, and is also able to quarantine any
potential problems found in one OA immediately so other OAs are not
impacted.
CIO CHARGES TO THE MODES
Question. Please provide a detailed break out of all CIO costs
charged to the operating administrations, including what these costs
are and how the cost was determined for fiscal years 2002, 2003, and
2004 to date.
Answer. There are no CIO costs charged to the Operating
Administrations in fiscal years 2002 or 2003. In fiscal year 2004,
reprogramming authority was requested to cover a funding shortfall in
the enterprise IT security program area that affected security coverage
across DOT Operating Administrations. The table below reflects that
reprogramming allocation.
IT SECURITY FISCAL YEAR 2004 CHARGES FOR TCI RESPONSE CENTER AND C&A
----------------------------------------------------------------------------------------------------------------
TCI
Email Percent Response No. of Percent C&A OA TOTAL
Count Center Systems
----------------------------------------------------------------------------------------------------------------
Reprogram Summary:
BTS............................ 286 0.49 $6,281 ....... 0.00 ........... $6,281
FAA............................ 45,046 77.47 $989,247 69 55.65 $556,452 $1,545,699
FHWA........................... 4,826 8.30 $105,983 3 2.42 $24,194 $130,176
FMCSA.......................... 1,465 2.52 $32,173 1 0.81 $8,065 $40,237
FRA............................ 1,041 1.79 $22,861 ....... 0.00 ........... $22,861
FTA............................ 691 1.19 $15,175 18 14.52 $145,161 $160,336
MARAD.......................... 648 1.11 $14,231 7 5.65 $56,452 $70,682
NHTSA.......................... 1,524 2.62 $33,468 3 2.42 $24,194 $57,662
OIG............................ 471 0.81 $10,344 ....... 0.00 ........... $10,344
RSPA........................... 654 1.12 $14,362 1 0.81 $8,065 $22,427
SLSDC.......................... 88 0.15 $1,933 ....... 0.00 ........... $1,933
VOLPE.......................... 1,409 2.42 $30,943 22 17.74 $177,419 $208,362
----------------------------------------------------------------------------
Reprogram Subtotal........... 58,149 100.00 $1,277,000 124 100.00 $1,000,000 $2,277,000
OST Additional Contribution........ ....... ........ ........... ....... ........ ........... $200,000
----------------------------------------------------------------------------
Total Reprogramming and OST ....... ........ ........... ....... ........ ........... $2,477,000
Contribution................
----------------------------------------------------------------------------------------------------------------
DISADVANTAGED BUSINESS ENTERPRISE
Question. Please provide an update on the work of the Secretary's
senior level task force on Disadvantaged Business Enterprise fraud. How
often has this task force met? What recommendations, if any, have the
task force produced? Have they met with the staff of the DOT IG to
build on that office's recommendations?
Answer. The Task Force was established to examine the DBE Program
and to develop recommendations on improving the ability of the program
to meet its objectives. The Task Force was charged with reviewing the
findings of the OIG on a number of fraud incidents as well as reviewing
the findings of the report initiated at the request of the House
Appropriations Committee. The DBE Task Force meets once bi-monthly and
has regular meetings with the Department's IG Office to discuss that
office's ongoing DBE recommendations.
We expect to be able to implement a series of reforms which will
have the effect of improving the management of the program, clarify its
purpose, simplify its procedures and insure those who would misuse the
DBE program are held to account. The Secretary charged the Task Force
with developing recommendations on ways that the DOT can most
efficiently and cost effectively increase oversight of the DBE Program,
in order to reduce incidents of fraud.
Additionally, the administration's SAFETEA proposal contained a
provision in Section 1802(d) which would mandate debarment of
contractors who have been convicted of fraud related to Federal-aid
highway or transit programs, and mandate the suspension of contractors
who have been indicted for offenses relating to fraud. This would
codify the debarment of convicted contractors, which under current DOT
regulations is a discretionary measure. Under this provision, the
Secretary would have the authority to waive suspension and debarment
actions to address circumstances relating to non-affiliated
subsidiaries of an indicted contractor, and national security concerns.
WORKFORCE RECRUITMENT
Question. Please provide an update on what the Department is doing
to recruit and retain the best talent available. The IG has identified
that the Department of Homeland Security and the Department of Defense
have personnel rules and pay flexibility to assist with retention and
recruitment. What is the Department doing to ensure the same benefits
for its workforce?
Answer. In our quest to recruit and retain the best talent, DOT has
obtained a synergy of effort through intermodal cooperation in
implementing a corporate recruitment approach. In particular, during
the last year, DOT convened an intermodal Corporate Recruitment
Workgroup, consisting of 16 representatives from the different
components and offices within DOT. It meets on a bi-monthly basis to
collaboratively address ongoing DOT recruitment initiatives in support
of closing the DOT skills gaps identified by our ONE DOT Workforce
Plan; to identify those strategies that can assist Departmental efforts
to develop the next generation of DOT employees; and to look for ways
to present a corporate DOT image to the applicants we are trying to
attract.
One key activity of the Corporate Recruitment Workgroup is to
identify redundancies in recruitment efforts across the Department. As
a result, the modes saved money by sharing costs, and DOT jobs have
greater visibility by reaching and attracting a wider diverse audience.
We outreach to specific groups to recruit a high quality, diverse
applicant pool, in cooperation with Selective Placement Coordinators.
We continue to evaluate and refine our efforts through quarterly hiring
reports (fiscal year 2004 will be our baseline for future outyear
comparisons).
We strongly encourage our components to use all of the
flexibilities available to them whenever possible, including pay and
bonus-related flexibilities (e.g., superior qualifications appointments
and recruitment, retention, and relocation bonuses), scheduling
flexibilities (e.g., telework and alternative work schedules), and the
various special appointing authorities (e.g., the Federal Career Intern
Program). Our largest component, the Federal Aviation Administration
(FAA), has a number of unique statutory flexibilities that FAA uses to
attract and retain a quality workforce. Once the results of the
implementation of the Departments of Homeland Security and Defense
flexibilities are apparent, we will be in a better position to know how
we compete with them for a high quality, diverse workforce and whether
similar statutory changes for DOT will be necessary to ensure
successful recruitment and retention of the best talent available.
DELPHI
Question. What is the status of the implementation of Delphi by the
modal administrations?
Answer. All DOT modal operating administrations (OAs) have
implemented Delphi and are using it for accounting operations and
financial management. The first OA to covert was the Federal Railroad
Administration in April 2000 and the last was the Federal Aviation
Administration on November 10, 2003.
DOT is the first cabinet level agency to completely convert all its
operating units to a single instance, state-of-the-art, fully compliant
COTS financial software package.
The Transportation Security Administration (TSA) was also set up on
Delphi when TSA was created in DOT in February 2002. TSA has continued
to use Delphi as its accounting system since being transferred to the
new Department of Homeland Security (DHS) in March 2003.
Question. Are any of the development costs or operating costs of
Delphi expected to be paid by the modal administrations?
Answer. Through fiscal year 2004, all of the development and
operating costs for Delphi and for the legacy accounting system that it
replaced have been shared by the DOT modal administrations and TSA
under an annual reimbursable agreement with the Federal Aviation
Administration's Mike Monroney Aeronautical Center in Oklahoma City,
where Delphi is hosted, operated and maintained.
The distribution of Delphi development and operating costs is
reviewed annually and agreed to by the Delphi Management Committee
(DMC). The DMC is composed of representatives from all Delphi
customers, currently all DOT modal administrations and the
Transportation Security Administration (TSA). TSA has informed DOT that
they plan to convert from Delphi to the U.S. Coast Guard's Oracle
Federal Financials system in fiscal year 2005.
COMPETITIVE SOURCING
Question. Please describe in greater detail the training proposal
related to competitive sourcing. How many employees are expected to
receive such training?
Answer. OMB Circular A-76 requires the use of the Win.COMPARE
software tool to accomplish competitions. The $15,000 training estimate
was based on a contractor providing two Win.COMPARE courses that will
allow us up to 20 students per class on site. The training is required
to provide instruction for multiple study participants across the
Department in the use of this mandated tool to accomplish both Standard
and Streamlined competitions during the execution of the Department's
Competitive Sourcing ``Green'' Plan for the upcoming year and beyond.
The Department will identify the exact number of employees that will
benefit from this training once OMB has approved DOT's ``Green'' Plan.
ELECTRONIC GRANTS
Question. Which DOT grant making agencies are currently capable of
processing grant applications and grant awards through electronic
means?
Answer. DOT's E-Grant Task Group is currently in the process of
conducting a comprehensive inventory of all electronic methods used in
each one of the Department's 59 grant programs. In conjunction with the
inventory, they are also performing an analysis of the various system
functionalities and the technologies used. This effort is expected to
be completed within the next 90 days (September 2004) in concert with
the Department's initial e-grant plan.
For purposes of clarification, the Department generally associates
the terminology, ``. . . grant applications and grant awards . . .'',
with competitive discretionary type programs. Approximately 99 percent
of DOT programs are Mandatory type programs where funds are
congressionally apportioned for each State, or based on Formula. DOT
Mandatory/Formula programs require States to submit comprehensive State
plans versus an ``application'', inasmuch as recipients are already
determined along with funding apportionments, unlike discretionary
programs that must undergo a ``competitive'' application process.
However, for both mandatory and discretionary programs within the
Department we expect the results of our inventory to show that several
programs, use electronic methods to perform some function of their
grants life cycle process.
Question. What are the out-year cost estimates for the DOT
contribution to the e-grant portal/system?
Answer. The out-year cost estimates are as follows: fiscal year
2005--$754,467; fiscal year 2006--$754,467 to maintain, support and
enhance the Grants.gov ``find'' and ``apply'' functionality that
currently exists. In addition, OMB is sponsoring the Grants Line of
Business initiative which is attempting to identify common internal
grant processes. This initiative, for which a business case has not yet
been developed (and for which agency contributions have not yet been
determined), will be the follow-on to the Grants.gov initiative,
enabling certain internal functions to be performed using shared
technology services/tools.
Question. How much has DOT obligated to date, by year, in support
of this effort?
Answer. DOT has obligated a total of $2,735,410 (fiscal year 2002--
$88,590; fiscal year 2003--$1,411,410; fiscal year 2004--$1,235,410).
There is also one DOT employee detailed for a period of 6 months to
work in the Grants.gov Program Management Office.
Question. Are the other partnering agencies making the same
contribution?
Answer. There are 26 grant making agencies in total. Currently 11
Partner agencies, including DOT, serve as part of the Grants.gov
Executive Board and contribute both fiscal and personnel resources. In
August 2002, a funding algorithm and payment schedule was approved by
the Executive Board to allocate the funding requirements across the 11
Partner agencies. The specific amount of the contribution is determined
by the agency's designation as a ``large'', ``medium'' or ``small''
agency, based on the total grant dollars awarded. DOT is categorized as
a ``large'' grant making agency; and is contributing the same amount as
HHS, HUD and others in the same category. OMB has directed the
Grants.gov PMO to move to a usage-based model in fiscal year 2005 that
will require contributions by all grant making agencies.
ELECTRONIC RULEMAKING
Question. What is the schedule and funding profile for the DOT
contribution to the E-Rulemaking initiative?
Answer. As the managing partner for this initiative, EPA
established the following plan for implementing the Federal Dockets
Management System (FDMS), the second phase of the E-Rulemaking
initiative:
--Develop agency implementation plans and dates.--July-August 2004;
--Test the FDMS.--October-December 2004;
--Migrate agencies to the FDMS.--January-October 2005.
The DOT funding profile for this effort is: fiscal year 2004--
$775,000; fiscal year 2005--$885,000; fiscal year 2006--$955,000
(estimated).
All rulemaking documents published in the Federal Register by any
DOT agency since the site was established are/were accessible via
Regulations.gov, an internet portal (the first phase of the
initiative). To date DOT has received 74 comments submitted from the
site. Sixty-five were docketed and nine were rejected because they were
either test entries, irrelevant, or blank.
Question. How much has DOT obligated to date, by year in support of
this effort?
Answer. To date, DOT has obligated the following:
--Fiscal year 2003.--$4,547,500;
--Fiscal year 2004.--$544,208; \1\
---------------------------------------------------------------------------
\1\ Funding for the remaining $230,792 to meet the fiscal year 2004
DOT commitment of $775,000 has been requested from the U.S. Coast Guard
and the Transportation Security Administration, who are users of the
DOT dockets system.
---------------------------------------------------------------------------
Question. Please list the other partnering agencies in the E-
Rulemaking initiative and provide the contribution each is expected to
make.
Answer. EPA is the managing partner for this initiative and led the
effort to define required contribution levels. Expected contributions
for fiscal year 2005 for their partner agencies are:
------------------------------------------------------------------------
------------------------------------------------------------------------
Department of Transportation............................ $885,000
Department of Labor..................................... 885,000
Department of Agriculture............................... 885,000
Health and Human Services............................... 885,000
Federal Communications Commission....................... 355,000
Department of Justice................................... 355,000
Housing and Urban Development........................... 355,000
General Services Administration......................... 180,000
National Archives and Records Administration............ 100,000
------------------------------------------------------------------------
Question. Are any other funds requested for E-Rulemaking besides
the $800,000 in the Office of General Counsel?
Answer. No, this is the only amount being requested in the
Department's budget.
ELECTRONIC BUSINESS PRACTICES
Question. Please compare the fiscal year 2005 budget request for
electronic business practices with fiscal years 2003 and 2004.
Answer. DOT's funding requests for ``Electronic Business
Practices'' for fiscal year 2003 through fiscal year 2005 include
different initiatives. In fiscal year 2003 ($125,000) and fiscal year
2004 ($176,000), for example, this request was primarily to cover the
cost of DOT's contribution to participate in government-wide electronic
acquisition initiatives. In fiscal year 2005 ($875,000), however, the
request significantly increased to reflect the estimated cost of
procuring software licenses for a department-wide acquisition business
system (i.e., a contract writing and management system), as mandated by
the DOT Investment Review Board.
Question. Please breakdown the request for consolidated HR benefits
assistance by specific efforts and also provide a projection of the
future developmental requirements under this program.
Answer. The information follows.
------------------------------------------------------------------------
------------------------------------------------------------------------
ESI integrated solution procurement...... $250,000
ESI payroll data download................ $25,000
Estimated DOI/FPPS programming start-up $30,000-$50,000
costs.
Retirement and related benefits training $75,000
(10-12 sessions including contractor
time & travel) \1\.
------------------------------------------------------------------------
\1\ With the increasing number of employees who are becoming eligible
for retirement, the demand for retirement and benefit counseling and
information is increasing substantially. Contractor resources are
necessary in order to deliver this service nationwide to DOT
employees.
The future developmental requirement under this program is the
development and implementation of an electronic record keeping system
that will replace the current official personnel file (OPF).
HUMAN RESOURCES INFORMATION SYSTEM
Question. Please provide a schedule and funding history and plan of
the Enterprise Human Resources Information System (EHRIS). Please
include a breakdown of each modal administration's anticipated share of
the costs of development.
Answer. The Enterprise Human Resources Information System (EHRIS)
project was intended to implement an ORACLE enterprise application to
meet the human resources, training administration, and time collection
requirements of the Department of Transportation (DOT), excluding the
Federal Aviation Administration (FAA). A companion project, the
Corporate Human Resource Information System (CHRIS) was underway in the
FAA, with the same goal. The projects were merged with the ORACLE
Financial Management implementation within DOT in July, 2002, but never
got beyond the planning stage when the project was superseded by the e-
Payroll initiative in December of 2002. EHRIS was projected to have
been implemented by the end of fiscal year 2004. Approximately $10
million was included in the budget requests between fiscal year 2003
and 2004, of the total projected cost of $14.175 million. The cost
distribution to the modal administrations is reflected below:
------------------------------------------------------------------------
As of 9/
Administration 30/01 Percent Dollar Amount
------------------------------------------------------------------------
OST.............................. 539 3.59 $509,253
USCG............................. 6,121 40.80 $5,783,188
FHWA............................. 2,934 19.56 $2,772,076
FMCSA............................ 787 5.25 $743,566
FRA.............................. 776 5.17 $733,173
SLSDC............................ 152 1.01 $143,611
FTA.............................. 500 3.33 $472,406
NHTSA............................ 660 4.40 $623,575
RSPA............................. 964 6.43 $910,798
OIG.............................. 455 3.03 $429,889
MARAD............................ 869 5.79 $821,041
STB.............................. 142 0.95 $134,163
BTS.............................. 104 0.69 $98,260
--------------------------------------
Total...................... 15,003 100.00 $14,175,000
------------------------------------------------------------------------
The funds requested for EHRIS for fiscal year 2003 and fiscal year
2004 were redirected to fund the Departmental migration to the e-
Payroll initiative and no funds were requested in fiscal year 2005.
Question. What is the status of the EHRIS contracts?
Answer. The EHRIS contracts were for program management and systems
integration support; the work orders issued on behalf of EHRIS have
expired.
Question. Please compare the projected requirements or capabilities
of the Enterprise Human Resources Information System (EHRIS) to the
Federal Personnel and Payroll System (FPPS).
Answer. At a high level, EHRIS was projected to use Commercial Off
the Shelf (COTS) software in an enterprise model to support human
resources, training administration, and time collection requirements.
EHRIS was not slated to replace the legacy DOT payroll system. The
Federal Personnel and Payroll System, implemented in 1997, is an
integrated human resources and payroll system. It does not support
training administration or meet DOT requirements for time collection.
Question. The justification states FPPS does not address training.
Would EHRIS have addressed this? If this is a necessary requirement
primarily because of FAA's needs, then should FAA cover those costs?
Answer. EHRIS was slated to address the DOT requirements for
training administration, through the use of the ORACLE application
software.
With the discontinuation of the EHRIS project in fiscal year 2002,
the eLMS system, implemented under the auspices of the e-Training
initiative as part of--and funded by--the DOT FPPS migration project,
is intended to meet the training administration requirements of all of
DOT. Although the training needs of the FAA are highly visible, other
modal administrations, such as the Federal Highways Administration,
have vigorous training programs which require automated support. The
operating costs of the training system will be shared proportionately,
in relation to the size of workforce, among DOT's Operating
Administrations.
Question. What are the out-year funding requirements for converting
to FPPS?
Answer. The funding for FPPS was based on the EHRIS budget which
did not include the FAA requirements. There were no funds requested in
the fiscal year 2005 budget for EHRIS, subsequently there are none
identified for FPPS. There currently is an estimated shortfall of $9.4
million in fiscal year 2005. It is currently anticipated that
approximately $858,000 will be requested in fiscal year 2006 to support
costs incurred in that year.
OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION
Question. Please provide a table to breakdown the object class
``other costs'' in the Office of Administration and compare the request
to the fiscal year 2004 enacted level after the across the board
rescission. Also, please include the amount that was rescinded pursuant
to Division H, sec. 168(b) of Public Law 108-199.
Answer. The information follows.
------------------------------------------------------------------------
Object Fiscal Year Fiscal Year
Class 2004 Enacted 2005 Estimate
------------------------------------------------------------------------
Recission pursuant to Division $145.0 ...............
H, Sec 168(b) Public Law 108-
199
Across the board reduction per 1,482.0 ...............
Title 5, Sec 517 of Public Law
108-199
1XXXPC&B 6,265.0 $7,535.2
21Travel 53.0 70.0
23Rental payments to GSA 7,836.0 9,014.0
25 OTHER COSTS
MSI Program 0.0 130.0
E-Grants 4.0 350.0
Electronic Business Process 126.0 943.0
Online Internet Research Svcs 68.0 110.0
Security Investigations 80.0 85.0
New Hqs Building Security 0.0 130.0
Training 25.0 183.0
Corporate Recruitment 0.0 500.0
Consolidated Benefits 0.0 400.0
Assistance
Federal Personnel and Payroll 153.0 846.8
System
OST Cost to WCF 7,856.0 10,030.0
Reimbursement to USCG Clinic 42.0 37.0
Workforce Improvements 66.0 208.0
Initiative
DOT-wide Admin and Mgmt 277.0 143.2
Services
Subscriptions 19.0 28.3
Procurement Strategy Council 0.0 45.0
Electronic Official Personnel 0.0 1,000.0
Folders
Centralized Workers' 0.0 250.0
Compensation
E-Training Initiative 0.0 750.0
CPMIS Charges 65.0 85.0
Federal Employment Information 23.0 36.7
Svcs
26Supplies & Materials 27.0 24.8
-----------------------------------
Total 24,612.0 32,935.0
------------------------------------------------------------------------
OFFICE OF CIVIL RIGHTS
Question. Please provide detailed justification for the fiscal year
2005 budget request for the Office of Civil Rights by object class.
Answer. 11 and 12.1 PC&B (Includes Transit Benefits and Workmen's
Comp).--DOCR's PC&B request in fiscal year 2005, $9,382, is based on
the assumption that DOCR will maintain current fiscal year 2004
staffing levels. This relatively small increase is due to mandatory
increases such as pay raises, within-grade-raises and inflation.
21.1 Travel and Transportation of Things ($210).--DOCR staff
travels to conduct EEO compliance reviews, participate in panels at
conferences and workshops giving presentations and speeches, and to
obtain training associated with carrying out the organization's
mission. DOCR's IT Division provides IT infrastructure,
telecommunication, application and database services to Departmental
Office of Civil Rights (DOCR) employees located in Cambridge, MA,
Atlanta, GA, Chicago, IL, Dallas, TX, and San Francisco, CA. Periodic
inspections and routine modifications must be performed at each
location to ensure adequacy, accuracy and timeliness of the delivery of
many of the Departmental Office of Civil Rights (DOCR) mission products
and services.
25.2 Other Services ($2,686).--Other Services include:
--Alternative Dispute Resolution.--DOCR has administrative
responsibility for providing mediation services to DOT's 10
operating administrations (OAs). DOCR ensures the program has
skilled mediators and coordinates annual training to meet
programmatic and EEOC requirements. DOCR also coordinates
assignment of mediators and schedules mediation sessions,
ensures that evaluations are completed, and tracks data
relating to mediated cases. Finally, DOCR is available to
assist OAs with training of EEO Counselors relative to the ADR
program. While each OA has responsibility for training its
managers and overall workforce, DOCR has increased its
assistance for ADR training in order to promote and market the
ADR program.
--EEO Training and Other Training.--DOCR will conduct program
reviews; and direct, administer, and manage DOT's EEO and
affirmative employment programs for managers, employees and
applicants for employment.
--Automated Case Tracking Systems (COS).--DOCR's automated tracking
systems--Web Case Management System (WebCMS), Disadvantage
Business Enterprise (DBE) Appeals System, and the External Case
Tracking System (XTRAK)--serve as the official Departmental
repository for maintaining accurate complaint and appeals
information. These critical systems ensure that DOCR meets
Secretarial, statutory, regulatory and other reporting
requirements.
--Section 504 Studies & Evaluations.--Funding will be used to
implement recommendations derived from the Department's ongoing
Section 504 Self Evaluation and Transition Plan for the
accessibility of its facilities and programs to people with
disabilities.
--Final Agency Decision (FADs) Writing.--Funds will be used to fund
preparation of FADs associated with equal employment
opportunity (EEO) complaints filed against DOT, including
decisions on the merits, compensatory damages assessments,
sexual orientation complaint requests for reconsideration, and
attorney's fees.
--Contractual Support.--DOCR utilizes contractual services to augment
in-house EEO investigations. In addition, contractual EEO
services are required for situations where a regional office
may temporarily be short-staffed, or an urgent timeframe is
ordered by EEOC or a Court Judge. DOCR also requires funding
for contractual administrative and clerical support functions
in order for organizational components to meet its critical
mission needs in the most efficient manner possible.
--Working Capital Fund.--Pays for administrative support services.
These services include building security, copy centers,
Departmental programs, the Disability Resource Center, DOT's
Worklife initiatives, and other proportional charges that are
expended for common services.
--Reimbursable Service Agreements (Regional Offices).--Provide for
telecommunication resources, information technology support,
administrative support, including mail service and employee
transit benefits.
--Relocation Expenses (San Francisco Regional Office).--DOCR prepared
an Occupancy Agreement managed by General Services
Administration (GSA) to relocate from San Francisco to Los
Angeles, CA. DOCR expects to occupy new office space by
December 2004.
--Continuity of Operations.--The Federal Preparedness Circular,
Number 65, dated July 6, 1999, issued by the Federal Emergency
Management Agency, requires all agencies to have a facility
from which continued essential agency functions remain
operational should the primary facility be rendered unusable
during an emergency. DOCR has met this requirement and must
provide oversight, which requires site visits, for
organizations contracted to provide these services on its
behalf.
--Program Evaluation.--Funds will be used to assess the manner and
extent to which DOT civil rights programs achieve intended
objectives. In addition, the President's Management Agenda
(2002) further identifies the need for devising aggressive
strategies for improving the management of the Federal
Government.
--Telecommuting/Telework Program.--Funds are required to provide
technological support for DOCR's participation in DOT's
telecommuting/telework program. Information resources include
hardware, software, data and records, and telecommunications
connectivity.
--Information Technology Services.--Funding will support one of the
strategic goals outlined in the President's Management Agenda--
reducing the barriers of information and communication within
DOT by implementing a new Civil Rights Case Management System.
26.0 Supplies and Materials.--Supplies and materials are required
to support daily operations, i.e. paper, writing utensils, ink
cartridges, research manuals, periodicals, and subscription services.
Supplies and materials are also needed to support staff participation
at conferences and workshops. Funds are also used to support
Presidential interagency efforts and other efforts such as the
interagency Holocaust Remembrance event.
31.0 Equipment.--The funding will be used to replace obsolete
equipment and computers in DOCR. The Office of Information Technology
(IT) and Program Evaluation division integrates equipment that can
enhance DOT's Civil Right's business processes. The equipment supports
testing and implementation of telecommuting, backup and recovery,
presentations, document production and other functions. DOCR's IT
Division is responsible for procuring and maintaining all information
technology equipment and hardware purchased with Federal funding in
support of DOCR's mission. Within the infrastructure, approximately 70
workstations, desktop and network printers, fax machines, digital
senders, and scanners are used to provide an effective and efficient
business environment to employees. This hardware requires periodic
maintenance, upgrades or replacement. During fiscal year 2004 and
fiscal year 2005, DOCR's infrastructure must be prepared to support DOT
security, telecommuting, human capital, and electronic initiatives.
Question. Please explain in detail the assumptions used to develop
the request for personnel compensation and benefits of the Office of
Civil Rights.
Answer. DOCR's PC&B request in fiscal year 2005, $9,382, is based
on the assumption that DOCR will maintain current fiscal year 2004
staffing levels. This relatively small increase is due to mandatory
increases such as pay raises, within-grade-raises and inflation.
Question. Please provide the number of staffing positions and FTE
requested, indicating direct and reimbursable, for the Office of Civil
Rights.
Answer. In its fiscal year 2005 budget, DOCR requested 64 direct
staffing positions and FTE. There are no reimbursable FTE.
Question. Please provide a table listing current staffing for the
Office of Civil Rights compared to levels at the end of each quarter of
past 5 fiscal years.
Answer. The information follows.
DEPARTMENT OF TRANSPORTATION DEPARTMENTAL OFFICE OF CIVIL RIGHTS STAFFING
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
12/31/ 3/31/ 6/18/ 12/31/ 3/31/ 6/30/ 9/30/ 12/31/ 3/31/ 6/30/ 9/30/ 12/31/ 3/31/ 6/30/ 9/30/ 12/31/ 3/31/ 6/30/ 9/30/
2003 2004 2004 2002 2003 2003 2003 2001 2002 2002 2002 2000 2001 2001 2001 1999 2000 2000 2000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 2004:
1st Quarter......................... 55 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
2nd Quarter......................... ...... 58 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
3rd Quarter......................... ...... ...... 57 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
Fiscal Year 2003:
1st Quarter......................... ...... ...... ...... 52 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
2nd Quarter......................... ...... ...... ...... ...... 52 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
3rd Quarter......................... ...... ...... ...... ...... ...... 52 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
4th Quarter......................... ...... ...... ...... ...... ...... ...... 53 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
Fiscal Year 2002:
1st Quarter......................... ...... ...... ...... ...... ...... ...... ...... 47 ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
2nd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... 48 ...... ...... ...... ...... ...... ...... ...... ...... ...... ......
3rd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... 51 ...... ...... ...... ...... ...... ...... ...... ...... ......
4th Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 52 ...... ...... ...... ...... ...... ...... ...... ......
Fiscal Year 2001:
1st Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 44 ...... ...... ...... ...... ...... ...... ......
2nd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 45 ...... ...... ...... ...... ...... ......
3rd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 44 ...... ...... ...... ...... ......
4th Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 44 ...... ...... ...... ......
Fiscal Year 2000:
1st Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 38 ...... ...... ......
2nd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 39 ...... ......
3rd Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 43 ......
4th Quarter......................... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... 43
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Question. Please provide details on anticipated contract expenses
in the Office of Civil Rights.
Answer. Final Agency Decisions (FADs).--Transfer of U.S. Coast
Guard to the Department of Homeland Security on September 30, 2003,
decreased the workload, but the projected increase in cost per FAD
estimated at 5 percent resulted in no change in the total contract
amount requested, $250,000.
Administrative and Clerical Support.--DOCR provides administrative
and clerical support functions to organizational components to meet
critical mission needs in the most efficient and effective manner
possible. Clerical support is critical to accomplishing the workload in
several of DOCR's divisional offices, $225,000.
EEO Investigations.--DOCR utilizes contractual services to augment
in-house EEO investigations. During fiscal year 2004, many internal
complaints of employment discrimination were outsourced for
investigation to eliminate DOCR's backlog of overage cases. While the
goal of a zero-backlog was realized by September 30, 2000, it is
necessary to maintain funding for contractual services to prevent
future backlogs. In addition, contractual EEO services are required for
situations where a regional office may temporarily be short-staffed, or
an urgent timeframe is ordered by EEOC or a district court judge,
$250,000.
Reimbursable Services.--In addition, DOCR obtains contractual
support from DOT's OAs for its regional offices that are located in
DOT-owned facilities. The services provided include telecommunication
resources, information technology, email, and lease charges, $220,000.
Information Technology Support and Tracking Systems.--DOCR employs
the services of IMSG Inc., Actionet, Inc., and Micropact, Inc., to
support the products and services required by DOT's internal and
external customers. The services supplied by these contractors support
the DOCR mission through software development, website and database
hosting, software upgrades, and commercial off the shelf license
renewal. In addition, DOCR utilizes IT contracts to support
requirements outlined in the President's Management Agenda, which
include enterprise architecture administration, capital planning
support, and security requirements. Finally, DOCR utilizes IT contract
support to supply information to complex civil rights queries
supporting the Equal Employment Opportunity Commission (EEOC), the
Department of Justice, and many freedom of information requests,
$300,000.
Question. What is the current backlog of complaints at the Office
of Civil Rights? Please compare to last 5 years.
Answer. Currently, and over the past 5 years, DOCR has experienced
no backlog of complaints.
Question. What is the status of the relocation of the San Francisco
Regional Office?
Answer. DOCR conducted a site search in the Los Angeles area,
identified a location, and prepared an occupancy agreement. The new
leased site will be managed by the General Services Administration
(GSA). DOCR expects to occupy the new location by December 2004. Thus,
DOCR plans to close the San Francisco office and relocate to the new
site in the Los Angeles area. GSA will assist in all aspects of the
move. All employees in the San Francisco office have been notified of
the pending move to the new location. DOT's Human Resources office will
issue a final letter to all employees. Following receipt of the letter,
each employee will designate his or her intention to relocate to the
new location or separate from Federal service.
Question. Are the costs requested for the San Francisco Regional
Office relocation one-time expenses?
Answer. In fiscal year 2004, the cost of the initial relocation of
SFRO employees to Los Angeles, CA, is estimated to cost $370,000. In
order to obtain new office space (2,000 sq. ft.) and effect a
reimbursable agreement with the Federal Aviation Administration's
Western Region located in Los Angeles, CA, DOCR requested start-up
funds of approximately $100,000. Other costs associated with the
relocation include shipping furniture and equipment and the cost of
relocating current employees. Miscellaneous costs, i.e., printing of
stationery, is an example of a one-time expense. DOCR's fiscal year
2005 budget request reflects an additional $250,000. This estimate is
based on the more generous relocation allowance for real estate costs
authorized in 2005 by the General Services Administration. As actual
moves occur, some of these funds may be reallocated to personal
services to support relocation costs properly reflected as benefits. It
also reflects a small budget for shipping charges for supplies,
subscriptions and equipment.
MINORITY BUSINESS OUTREACH
Question. How much of the $3,000,000 fiscal year 2005 budget
request for Minority Business Outreach funds PC&B?
Answer. The $3,000,000 request for the Minority Business Outreach
fund does not include PC&B cost. The Office of the Secretary's Office
of Small and Disadvantaged Business Utilization (OSDBU) provides
oversight for this program; PC&B are included in the S&E fund.
The Minority Business Outreach fund is used to support partnership
agreements with chambers of commerce and trade associations which offer
a comprehensive delivery system that targets services towards small
Disadvantaged Business Enterprises (DBEs) by: (1) Increasing the number
of disadvantaged businesses that enter into transportation-related
contracts; (2) Increasing the number of DBE firms that receive surety
bonds and working capital through DOT's financial assistance Short Term
Lending program and the Bonding Assistance Program; (3) Increasing the
number of DBE businesses participating in hands-on-training that is
related to specific disciplines required for obtaining transportation
related contracts; and, (4) Operating the National Information
Clearinghouse (NIC) which provides outreach and contract information to
DBE firms.
The Minority Business Outreach fund also supports the
Entrepreneurial Training and Technical Assistance Program (ETTAP)
through Partnership Agreements with Minority Educational Institutions
(MEIs) including Historically Black Colleges and Universities, Hispanic
Serving Institutions and Tribal Colleges. This program combines the
efforts of MEIs, government, and the private sector to focus on
providing transportation-related assistance and procurement information
to women-owned and disadvantaged business enterprises (DBEs).
Question. Please provide the number of requested staffing positions
and FTE, indicating direct and reimbursable, under the Minority
Business Outreach appropriation.
Answer. FTE were not requested under the Minority Business Outreach
appropriation.
Question. Please provide a table listing current staffing under
Minority Business Outreach compared to levels at the end of each
quarter of past 5 fiscal years.
Answer. There are no current or past staffing levels under the
Minority Business Outreach fund.
Question. Please describe efforts of the Minority Business Outreach
program to encourage and assist Alaska Native Corporations to
participate in DOT contracts and grants.
Answer. The U.S. Department of Transportation (DOT) Short Term
Lending Program (STLP) provides revolving lines of credit to finance
accounts receivable arising from transportation-related contracts. The
primary collateral consists of the proceeds of the contracts. One of
our Bank Lenders is the Native American Bank, National Association
(``NAB'') which is a federally-chartered bank that is owned by Native
American Bank Corporation, a bank holding company that has been
organized by a group of Tribal Nations and Alaska Native Corporations.
Through this resource partner, we have established a significant
Indian presence for our outreach efforts. We will continue to seek out
opportunities to increase DOT contracting with Native Corporations and
to increase the number of DBE Alaska Native Corporations who
participate in transportation related contracts. Most of our DOT funds
are administered by our contract and grant recipients, through the
Federal Highway Administration (FHWA), the Federal Transit
Administration (FTA), and the Federal Aviation Administration (FAA).
All recipients are required to have a DBE program. Under the provisions
of 49 CFR parts 23 and 26, Alaska Native Corporations are presumed to
be qualified eligible for DBE program participation.
Additionally, we assist Alaska Native Corporations in participating
in DOT contracts. Bowhead, a Native Alaskan Corporation currently
provides Information Technology services to the DOT Chief Information
office under contract.
During fiscal year 2004, the USDOT Northwest TEAM and the DOT Bond
Agent from Seattle, Washington traveled to Anchorage, Alaska to
participate in an outreach event, hosted by the Port of Anchorage to
support the efforts of the Port of Anchorage International Expansion
Project. The event was entitled ``Industry Day''. The Maritime
Administration (MARAD) made a request of the OSDBU Minority Resource
Center to send representatives to seek out Alaska firms who could bid
on contracts with the Intermodal Expansion Project. This is a $260
million project funded through the Maritime Administration. Our TEAM
service provider, accompanied by a staff member from HCDI, the Minority
Resource Center/OSDBU's contractor for the Marketplace Conferences
project participated in this outreach event.
The purpose of the ``Industry Day'' outreach event was to help
inform local ANC and DBE firms about potential opportunities from the
Port Expansion Project. Topics ranged from the specifics of the
project, the project schedule and contract and subcontracting upcoming
opportunities.
Koniag Services, Inc. (KSI) a Native American 8(a) firm, was
awarded the contract for project management for the ``Industry Day''
event and was responsible for hosting the meeting.
NEW DOT HEADQUARTERS BUILDING
Question. What is the unobligated balance of funds made available
for the DOT headquarters building?
Answer. The $42 million was apportioned by March 2004, and we are
working with GSA to ensure obligation of the full amount by the end of
the fiscal year. One-third of the funds are being obligated by the end
of June with the balance by the end of September 2004.
Question. Please compare the projected lease rates of the new
headquarters building with the terms of the lease of the Nassif
building?
Answer. The following chart compares the projected lease rates of
the new headquarters building with the lease terms of Nassif building
for the period of fiscal year 2004 through fiscal year 2007. The
current Nassif lease expires March 2006, and DOT's projected move to
the new facility will be completed in November 2006. It is anticipated
DOT and GSA will request authority to exercise a short-term lease
extension for approximately 10 months.
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Rent 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
New HQ Bldg..................................... .............. .............. $32,928,750 $40,435,470
Nassif Building................................. $37,000,000 $37,740,000 43,500,000 48,500,000
----------------------------------------------------------------------------------------------------------------
Question. Please provide a comprehensive list of projects and
associated funding amounts for improvements to the Nassif building?
Answer. The Nassif building has been occupied for almost 30 years.
There are no comprehensive records going back that far to draw upon to
provide the requested information. However, through anecdotal
information, the following projects and funding for the Nassif building
capital improvements was compiled.
------------------------------------------------------------------------
Project Dates Cost
------------------------------------------------------------------------
Replacement of auxiliary cooling 1995-1996........... $452,335
equipment.
Conversion of below ground space 1995-1996........... 700,000
from parking space to office
space.
Fitness Center Renovation......... 1997................ 482,000
500 KW Emergency Generator (This 1999................ 500,000
item will be relocated to new
headquarters building.).
Emergency Command Center Expansion/ 2001-2002........... 804,938
Renovation.
Installation of Loading Dock Doors 2001-2002........... 34,464
------------------------------------------------------------------------
Question. Please breakdown in greater detail the fiscal year 2005
request for the new headquarters building.
Answer. The information follows.
------------------------------------------------------------------------
Fiscal Year
Description Soft Costs 2005 Funds
------------------------------------------------------------------------
GSA Managed Contracts:
Ai:
Acoustical/Audio Visual Engineer................ ..............
Engineering (MEP) DIDs.......................... ..............
Structural Engineering.......................... ..............
Architectural/Construction Admin................ ..............
Disaster Planning............................... $101,115
Fitness Center Consultant....................... ..............
Food Service Consultant......................... ..............
Health Unit Consultant.......................... ..............
Signage Consultant.............................. ..............
Commissioning................................... 200,000
LEEDS Certification............................. 450,000
Building Automation System...................... 40,000
Financial Consultant............................ ..............
GSA advanced funds.............................. ..............
ARA: Security DIDs.................................. 50,000
CQM Awardee:
Project Administration for Estimating, 400,000
Scheduling & Inspections for Customization
Compo- nents).................................
Other........................................... 19,847
IT/Telecom Design............................... ..............
Guard Service (Site Access/Dock/Floor).......... 1,300,000
Move Consultant................................. ..............
Moves (Box, Telecommunications, Furn.).......... 1,350,000
Occupant Emergency Plan (OEP) Consultant........ 135,000
Systems Furniture Consultant.................... 125,000
Interior Design Consultant...................... 100,000
MEP Consultant.................................. ..............
Document Repository............................. 100,000
Employee Handbook............................... 325,000
JBG: CDs--Developer's A/E (26 Design Action Item)....... ..............
---------------
Subtotal.......................................... 4,895,962
---------------
GSA (WCF): Telecommunications Design.................... 0
DOT Contracts: Security Consultant...................... 100,000
---------------
TOTAL............................................. 4,995,962
===============
Hard Costs:
GSA:
Furniture....................................... 21,100,000
Security Equipment.............................. 8,265,000
JBG:
Base Building Enhancements...................... 7,973,000
Interior Fitout................................. 30,000,000
Building Automation System...................... 2,500,000
---------------
Subtotal...................................... 69,838,000
---------------
GSA (WCF): Telecommunications Hardware.................. 81,639,600
DOT..................................................... ..............
---------------
TOTAL............................................. 151,477,600
===============
Other Costs:
GSA FEE (PBS PM Fee)................................ 526,438
GSA FEE (FSS Fee)................................... 3,000,000
---------------
TOTAL............................................. 3,526,438
===============
TOTAL............................................. 160,000,000
------------------------------------------------------------------------
Question. How much is the new building expected to cost?
Answer. As identified in the lease agreement negotiated by the
General Services Administration, the new facility direct base building
construction cost is estimated to be $206 million. In addition, the
land and tenant improvement allowance costs are $40.5 million and $23.8
million respectively. DOT's estimated multi-year appropriated funding
request for personal property, tenant fit-out and relocation expenses
is estimated at $314.2 million.
Question. Please define in detail what customization will be
necessary and what the costs of each project are projected to be.
Answer. Customization (tenant fit-out) costs are estimated at $40
million and are comprised of the following specific items:
Interior Tenant Fit Out.--$40,000,000.00:
--Carpet (150,000 SF@$35/SF=$5.25 million)
--Raised Flooring (49,000 SF@$20/SF=$0.980 million)
--Millwork (40,000 SF@$5/SF=$0.2 million)
--Window Treatment (75,000 SF@$1.50/SF=$0.075 million)
--Signage (1.35 million SF@$1/SF=$1.35 million)
--Finishes (1.35 million SF@$35/SF=$5.25 million)
--Pantries (1,280 SF@$30/SF=$.0384 million)
--Upgrade to Building Standard: Lighting, HVAC (General office),
Plumbing, Electrical, Telephone Infrastructure, Acoustical
Ceiling Tiles and Grid, Hardware (Doors, hardware) (1.35
million SF@$19.90/SF=$26.865 million).
DOT RENT
Question. Please compare what has been appropriated for rental of
leased space to actual expenses over the past 5 years.
Answer. Over the past 5 years, the Government's annual appropriated
rent payment has been approximately $37 million per year to cover
actual rent expenditures for the DOT Nassif building.
WORKING CAPITAL FUND
Question. Please provide a break out of what is included in the
request of each modal administration for the Working Capital Fund and
identify which account includes such funding.
Answer. The information follows.
OPERATING ADMINISTRATIONS WORKING CAPITAL FUND REQUEST BY ACCOUNT
[In thousands of dollars]
------------------------------------------------------------------------
Fiscal Year
2005 Request
------------------------------------------------------------------------
Federal Aviation Administration: Operations............. 24,626
Federal Highway Administration: LAE..................... 8,299
Federal Motor Carrier Safety Administration: Motor 3,586
Carrier Safety Operations & Programs...................
National Highway Traffic Safety Administration:
General Fund........................................ 7,660
Trust Fund.......................................... 7,660
Federal Railroad Administration: Safety and Operations.. 2,928
Federal Transit Administration: Administrative Expense.. 3,152
St. Lawrence Seaway Development Corp: Saint Lawrence 376
Seaway Development Corp................................
Research and Special Programs Admin:
Research and Special Programs....................... 2,518
Pipeline Safety..................................... 847
Office of the Inspector General: Salaries and Expenses.. 2,218
Surface Transportation Board: Salaries and Expenses..... 90
Bureau of Transportation Statistics: Federal aid to 4,093
Highways allocation....................................
Maritime Administration: Operations and Training........ 5,926
Office of the Secretary: Salaries & Expenses, Office of 19,062
Civil Rights...........................................
---------------
Total............................................. 93,040
------------------------------------------------------------------------
Estimates are provided to the operating administrations to assist
them in their budget formulation process. These estimates are used as a
building block for the WCF budget request but do not represent the
total WCF budget estimate. The WCF obligation request is built upon the
customer estimates and additional obligation authority that is used to
cover the potential to compete for business which results in higher
demand levels for WCF services. For example, increases to demand come
about during times of heightened security levels. The WCF budget
estimate is developed based on the potential for the WCF to provide
business services. Additionally, obligations for capital assets are
required in 1 year but are provided to the operating administrations
over multiple years based on the depreciation schedule.
Question. Please breakout according to the fiscal year 2005 budget
request, the obligations in the Working Capital Fund by line of
business and compare to obligations over the past 3 fiscal years.
Answer. The information follows.
WORKING CAPITAL FUND
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2002 Actual 2003 Actual 2004 Enacted 2005 Estimate
----------------------------------------------------------------------------------------------------------------
Office of the Deputy Assistant Secretary for 374 96 323 394
Administration.................................
Office of Strategic Initiatives................. 426 512 722 717
Office of Financial Management.................. 5,935 5,749 16,095 13,980
Office of Human Resource Management............. 10,254 10,686 9,923 11,481
Office of Transportation and Facilities Services 135,237 184,793 212,793 225,222
Office of Information Services.................. 24,087 18,421 20,007 21,966
Office of Headquarters Building and Space 5,585 5,372 5,112 6,050
Management.....................................
Office of Security.............................. 10,689 9,993 14,767 17,271
Office of the Senior Procurement Executive...... 152,465 225,236 126,269 118,439
---------------------------------------------------------------
Total Office of the Assistant Secretary 345,052 460,858 406,011 415,520
for Administration.......................
Total Office of the Chief Information 26,199 28,990 53,216 73,378
Officer..................................
===============================================================
Total Working Capital Fund................ 371,251 489,848 459,227 488,898
----------------------------------------------------------------------------------------------------------------
AUTHORIZATION OF DOT PROGRAMS AND FEES
Question. Please list by agency of the Department of Transportation
all appropriations or obligation limitations that are currently
unauthorized. Also please provide the year in which the authorization
expired.
Answer. The information follows.
The DOT accounts which require authorization/reauthorization in
fiscal year 2005 include the following:
APPROPRIATIONS NOT AUTHORIZED BY LAW
[Dollars in thousands]
----------------------------------------------------------------------------------------------------------------
Appropriations
Amount of Last Year of Authorization in Last Year
Agency and Account Program or New Authorization Level of
Fees Authorization
----------------------------------------------------------------------------------------------------------------
Federal Transit Administration:
Administrative Expenses..................... $79,931 2004 \2\ $56,290 ..............
Formula Grants.............................. .............. 2004 \2\ 2,862,262 ..............
University Transportation Research.......... .............. 2004 \2\ 4,473 ..............
Transit Planning and Research............... .............. 2004 \2\ 93,942 ..............
Job Access and Reverse Commute.............. .............. 2004 \2\ 93,196 ..............
Capital Investment Grants................... .............. 2004 \2\ 2,339,241 ..............
Major Capital Investment Grants............. \1\ 1,563,198 .............. .............. ..............
Formula Grants and Research................. \1\ 5,622,871 .............. .............. ..............
Research and Special Programs:
Research and Special Programs (Hazardous 25,486 1997 19,670 $15,268
Materials Safety)..........................
Emergency Preparedness Grants............... 14,300 1998 21,250 7,970
Federal Motor Carrier Safety Administration: \3\
Motor Carrier Safety Operations and Programs 228,000 N/A N/A N/A
Motor Carrier Safety Grants................. 227,000 N/A N/A N/A
National Highway Traffic Safety Administration:
Operations & Research--General Fund......... 139,300 .............. .............. ..............
Operations & Research--Trust Fund........... 90,000 2003 72,000 \4\ 71,532
National Driver Register.................... 4,000 2003 2,000 \4\ 1,987
Highway Traffic Safety Grants............... 456,000 2003 225,000 \4\ 223,537
Federal Railroad Administration:
Safety and Operations \5\................... 142,396 1998 .............. ..............
Railroad Safety............................. N/A 1998 90,739 57,050
Grants to the National Passenger Railroad 900,000 2002 955,000 826,476
Corp.......................................
Surface Transportation Board.................... 20,621 1998 12,000 13,850
Federal Highway Administration: Federal-aid \6\ 34,282,000 2004 \7\ 26,433,750 \8\ 33,643,326
Highway Program................................
----------------------------------------------------------------------------------------------------------------
\1\ Major Capital Investment Grants and Formula Grants and Research reflect a proposed restructuring of
accounts.
\2\ Reflects amounts authorized in Public Law 108-224 for the period October 1, 2003, to June 30, 2004.
\3\ New Account Structure Proposed in Fiscal Year 2004 and Submitted Again in Fiscal Year 2005--Pending
Enactment of SAFETEA.
\4\ Fiscal year 2003 Appropriation reflects 0.65 percent across-the-board reduction pursuant to Public Law 108-
7.
\5\ Was formerly the Office of the Administrator and Railroad Safety Accounts. The Office of the Administrator
had general authority under 49 U.S.C. Section 103, however, no specific amount was authorized.
\6\ Includes all elements except the Emergency Relief program.
\7\ Reflects amounts authorized in Public Law 108-224 for the period October 1, 2003, to June 30, 2004.
\8\ Represents the limitation on obligations enacted for fiscal year 2004 in Public Law 108-199, net of 0.59
percent rescission. Does not includes exempt obligations for Minimum Guarantee.
Question. Please provide a list of all new programs or fees that
require authorization.
Answer. The information follows.
APPROPRIATIONS NOT AUTHORIZED BY LAW
[Dollars in thousands]
----------------------------------------------------------------------------------------------------------------
Appropriations
Amount of Last Year of Authorization in Last Year
Agency and Account Program or New Authorization Level of
Fees Authorization
----------------------------------------------------------------------------------------------------------------
Federal Transit Administration:
Major Capital Investment Grants............. \1\ $1,563,198 .............. .............. ..............
Formula Grants and Research................. \1\ 5,622,871 .............. .............. ..............
Federal Motor Carrier Safety Administration: \2\
Motor Carrier Safety Operations and Programs 228,000 N/A N/A N/A
Motor Carrier Safety Grants................. 227,000 N/A N/A N/A
National Highway Traffic Safety Administration:
Operations & Research--General Fund......... 139,300 .............. .............. ..............
Operations & Research--Trust Fund........... 90,000 2004 \3\ $53,681 \4\ $71,575
National Driver Register.................... 4,000 2004 \3\ 2,684 \4\ 3,579
Highway Traffic Safety Grants............... 456,000 2004 \3\ 167,754 \4\ 223,673
Federal Highway Administration: Federal-aid \5\ 34,282,000 2004 \6\ 26,433,750 \7\ 33,643,326
Highway Program................................
----------------------------------------------------------------------------------------------------------------
\1\ Major Capital Investment Grants and Formula Grants and Research reflect a proposed restructuring of
accounts.
\2\ New Account Structure Proposed in Fiscal Year 2004 and Submitted Again in Fiscal Year 2005--Pending
Enactment of SAFETEA.
\3\ Reflects amounts authorized in Public Law 108-224 for the period October 1, 2003, to June 30, 2004.
\4\ Represents the limitation on obligations enacted for fiscal year 2004 in Public Law 108-199, net of 0.59
percent rescission.
\5\ Includes all elements except the Emergency Relief program.
\6\ Reflects amounts authorized in Public Law 108-224 for the period October 1, 2003, to June 30, 2004.
\7\ Represents the limitation on obligations enacted for fiscal year 2004 in Public Law 108-199, net of 0.59
percent rescission. Does not include exempt obligations for Minimum Guarantee.
AIRLINE STABILIZATION ACT
Question. What is the unobligated balance of funds made available
by the Airline Stabilization Act?
Answer. As of June 1, 2004, the program maintained a balance of
approximately $270 million for remaining obligations, including the
litigation reserve.
Question. What is the amount of funds made available by the Airline
Stabilization Act that is under consideration for payment or still
being disputed or litigated?
Answer. Two hundred seventy million dollars, including a
``litigation reserve.'' Were the Department not to prevail in its
litigation with Federal Express and two other smaller carriers, it is
possible that the Court of Appeals, in framing its decision, could be
sufficiently broad in its language so as to permit some other carriers
to attempt to revise their applications and seek supplemental payments.
Thus, the full balance has been maintained so as to include this
litigation reserve. We expect the Court to act very soon in issuing its
decision, and are hopeful that this figure can be revised downward
thereafter to reflect a favorable outcome in the case.
______
Questions Submitted by Senator Robert F. Bennett
TRANSPORTATION OF DIAGNOSTIC AND INFECTIOUS MEDICAL SPECIMENS
Question. The following Medical Specimen Transport White Paper was
sent to me by ARUP Laboratories, a medical laboratory affiliated with
the University of Utah's Medical Center. I am submitting it for the
record so that Secretary Mineta can comment on the concerns raised and
the questions I will supply at the end of this document.
``Introduction
``As a result of recent interpretations provided to ARUP
Laboratories by the Department of Transportation (DOT) and the Federal
Aviation Administration (FAA), an atmosphere of uncertainty now exists
within the air transportation system. Medical specimen shipments from
hospitals and laboratories in a number of locations within the United
States are being rejected for air transport, creating the potential to
cause patient harm through delayed testing and result availability.
``Background
``Prior to February 14, 2003, the United States Department of
Transportation (DOT) did not regulate the transportation of medical
specimens sent for diagnostic purposes within the United States. Prior
to January 1, 2003, the International Air Transport Association (IATA),
a trade association of the airlines, instructed that medical specimens
transported by air were to be divided into two categories: Diagnostic
Specimens and Infectious Substances. This requirement was based on
regulations put forth by the United Nations International Civil
Aviation Organization (UN (ICAO)). Under UN (ICAO) and IATA, Infectious
Substances were, and still are, regulated as hazardous materials. The
Federal Aviation Administration (FAA), the enforcement agent for DOT,
recognizes ICAO regulations, but does not reference IATA rules in their
enforcement actions.
``Prior to January 1, 2003, medical specimens that were identified
as Diagnostic Specimens could not contain any known or suspected
infectious agent. Any specimen that was identified as having an
infectious agent required shipment as an Infectious Substance.
Infectious Substance shipments could only be transported by airlines
that were considered as `Will Carry' airlines, meaning that they
provide formal training and handling information to cargo personnel on
Hazardous Materials. Diagnostic Specimens could be shipped by any
airline at that time.
``On February 14, 2003, revised DOT regulations went into effect
that incorporated a definition for Diagnostic Specimens into the
hazardous materials regulations. As a result of this revision, the DOT
and FAA are now instructing any airline that is considered a `Will Not
Carry' airline to avoid carrying ALL Diagnostic Specimens.
``Airline routing changes and service discontinuation, partly due
to the terrorist attacks of September 11, 2001, have resulted in an
increasing number of areas now served almost exclusively by `Will Not
Carry' regional airlines. Under the new regulations, these airlines can
no longer carry shipments they had previously been allowed to carry.
Delays in diagnostic testing for patients in those areas have the
potential to prolong patient management and hospital stays. This will
increase medical costs, and could affect as many as 6,000 patients per
day receiving results from ARUP Laboratories alone. Other laboratories
may have similar issues.
``The DOT offers an exemption for specimens that are not considered
infectious in DOT 49 CFR 173.134(b)(2). This exemption is not clearly
defined, nor are there any specific instructions for the shipping of
these specimens. If we assume, as we have been told, that this
exemption creates a new unregulated category, i.e. medical specimen,
there is no assurance airlines will recognize such an unregulated term.
Because personnel training is a requirement of the regulations, it is,
at present, unclear what terminology will be recognized for this
category of unregulated specimens. Efforts to quickly and effectively
revise existing medical specimen training programs will be further
impeded until these concerns are resolved.
``In excess of 80 percent of clinical data is represented by
laboratory results. The specimens from which 5 to 10 percent of this
clinical data is derived are shipped between requesting and testing
locations within the United States that may be affected by these
regulatory changes. Lack of consistency between regulatory agencies,
the transportation industry, and health care entities (as shippers)
potentially create unnecessary liability and may compromise patient
care.
``In conclusion, it is noteworthy that the laboratory industry for
many years has been a leader in developing safe handling practices to
deal with the fact that every single medical specimen is a potentially
hazardous material. The industry as a whole has a remarkable and
enviable safety record in the transportation of medical specimens.''
Is it the intent of DOT regulations to limit the transport of
diagnostic specimens by ``will-not-carry'' airlines?
Answer. No, the Department of Transportation's (DOT) Hazardous
Materials Regulations (HMR; 49 CFR Parts 171-180) establish safety and
security requirements for the commercial transportation of hazardous
materials by all modes. The regulations are not intended to limit the
transportation of hazardous materials by certain types of carriers;
rather the regulations set forth the safety and security requirements
that must be met by shippers and carriers who choose to transport
hazardous materials.
The decision not to carry one or more types of hazardous materials
rests with individual carriers, not DOT. Since economic deregulation,
air carriers have been able to accept or reject hazardous materials.
Air carriers making a business decision to accept hazardous materials
are called ``will-carry'' air carriers and those deciding not to accept
hazardous materials are called ``will-not-carry'' air carriers. These
business decisions are influenced by factors such as insurance rates
and anticipated hazmat package volumes. Once an air carrier makes this
decision, the Federal Aviation Administration (FAA) reviews its hazmat
training program. Employees of will-carry air carriers are trained to
recognize and accept hazardous materials while employees of will-not-
carry air carriers are trained to recognize and reject hazmat. Although
air carriers can change their will/will-not-carry status, the initial
acceptance procedures applied by their employees is crucial and affects
subsequent operational decisions.
Under the Hazardous Materials Regulations (HMR), infectious
substances are classed as Division 6.2 materials. An infectious
substance is a material known to contain or suspected of containing a
pathogen, which is a virus or microorganism that has the potential to
cause disease in humans or animals. Infectious substances must be
packaged, marked, and labeled in accordance with applicable regulatory
requirements; further, shipments of infectious substances must be
accompanied by a shipping paper and by appropriate emergency response
information. Employees of shippers or carriers who handle infectious
substances must be trained in the regulatory requirements that apply to
these materials.
Under the HMR, a diagnostic specimen is defined as human or animal
material that is being transported for diagnostic or investigational
purposes. A diagnostic specimen that, in the judgment of a medical
professional, is known to contain or suspected to contain an infectious
substance is regulated as a hazardous material under the HMR. However,
the requirements applicable to the transportation of diagnostic
specimens are less stringent than those for other types of infectious
substances. For example, shipments of diagnostic specimens need not be
accompanied by shipping papers or emergency response information, and
the required training for hazmat employees is less rigorous than for
other types of infectious substances.
Under the HMR, a diagnostic specimen that, in the judgment of a
medical professional, is not likely to contain an infectious substance
is not regulated as a hazardous material and may be transported by a
``will-not-carry'' air carrier without limitation. Thus, no packaging,
shipping documentation, marking or labeling, or training requirements
would apply.
Because the HMR exempts diagnostic specimens that do not contain
infectious substances from all regulatory requirements, many packages
identified as containing diagnostic specimens may not actually contain
infectious substances and, thus, could be transported by will-not-carry
air carriers. DOT is working with the Centers for Disease Control and
Prevention and the International Civil Aviation Organization to
consider whether a unique shipping name is necessary to distinguish
infectious diagnostic specimens from non-infectious diagnostic
specimens.
Question. Has DOT done any analysis with regard to the impact of
this regulation on States such as Utah and the Intermountain West that
rely on regional air carriers to transport diagnostic specimens?
Answer. No, DOT has not analyzed the impact of the regulations on
States that rely on regional air carriers to transport diagnostic
specimens. The decision to provide or not provide hazardous materials
transportation service on a particular air route is a business decision
of the air carrier. The regulations governing the transportation of
infectious substances, including diagnostic specimens, were most
recently revised and updated in a final rule that became effective on
February 14, 2003. The regulatory evaluation developed in support of
that rulemaking examined the costs of several regulatory alternatives
on shippers and carriers of diagnostic specimens and the benefits that
would be expected to accrue from each regulatory alternative on the
Nation as a whole.
Representatives from the FAA have met with the Regional Airline
Association and the Air Transport Association of America concerning the
transport of diagnostic specimens to discuss various alternatives. One
alternative would be for the will-not-carry air carrier to contact
their diagnostic specimen shipping firms to determine if the packages
being offered actually contain infectious substance. If the packages do
not contain infectious substances, will-not-carry airlines would be
able to accept and transport them.
Question. What is the typical cost for a regional airline to
provide training to its employees to qualify to handle ``infectious
substances''?
Answer. DOT does not collect nor require regional airlines to
provide data on costs to qualify employees to handle infectious
substances.
The training requirements in the Hazardous Materials Regulations
(HMR) are flexible performance standards that permit employers that
assign employees to perform functions regulated by the HMR to meet the
training requirements using a variety of methods, such as by utilizing
classroom training, computer- or web-based training, on-the-job
training, or some combination of these and other training methods. The
training must include general awareness training that provides
familiarity with the requirements of the HMR; function-specific
training that provides an understanding of the requirements of the HMR
applicable to the specific job each employee performs; safety training
that provides information on responding to emergency, personal
protection, and methods for avoiding accidents; and security awareness
training that familiarizes the employee with the security risks
associated with hazardous materials transportation. Training costs for
an individual carrier will vary based on the number of people it
employs whose job responsibilities directly affect the safety of
hazardous materials in transportation and the training methods it
elects to utilize.
In addition, in accordance with FAA airworthiness requirements, all
air carriers must provide hazmat training. Will-not-carry air carriers
must provide some hazmat training to their employees on such topics as
labeling, marking and general awareness so they can recognize hazmat. A
rough estimate for a will-not-carry air carrier to provide initial
training would be $320 per applicable employee. In addition, annual
recurrent hazmat training for will-not-carry air carriers would be
approximately $160 per applicable employee. These estimates include the
cost of the employee's salary while in training. A rough estimate for
will-carry air carrier initial training would be an additional $880
(for a total of $1,200) per applicable employee. Annual recurrent
hazmat training for will-carry air carriers would be an additional $160
(for a total of $320) per applicable employee.
Question. What can DOT do to provide these regional/national
clinical laboratories with regulatory relief so that they can move
their specimens more efficiently?
Answer. The Hazardous Materials Regulations (HMR) provide
significant regulatory exceptions applicable to the transportation of
diagnostic specimens. A diagnostic specimen that, in the judgment of a
medical professional, is not likely to contain an infectious substance
is not regulated as a hazardous material and, therefore, is not subject
to any regulatory requirements. A diagnostic specimen that, in the
judgment of a medical professional, contains or is suspected to contain
an infectious substance is subject to minimal packaging and hazard
communication requirements, but is not regulated as stringently as
other types of infectious substances.
For example, an infectious substance generally must be transported
in a packaging that has been tested and certified to meet specific
performance standards. A diagnostic specimen may be transported in a
less stringent, and therefore less expensive, type of packaging. A
package containing an infectious substance generally must be marked
with the United Nations identification number and proper shipping name
of the material and must be labeled with a Division 6.2 label and must
be accompanied by a shipping paper and emergency response information.
A package containing a diagnostic specimen must be marked only with the
words ``Diagnostic Specimen'' and need not be accompanied by a shipping
paper or emergency response information. Further, persons who ship or
transport diagnostic specimen are exempt from the training requirements
of the HMR; instead employees of such shippers and carriers must be
informed about the requirements applicable to the transportation of
diagnostic specimens.
In addition, in December, 2003, the FAA corresponded with the Air
Transport Association and the Regional Airline Association suggesting
that will-not carriers may wish to contact shippers individually. As a
result, one regional will-not-carry air carrier serving Utah and the
Intermountain West, SkyWest, has developed a ``shipper's confirmation
of non-infectious substance form'' that is acceptable to the FAA. The
form is available on the SkyWest website. In addition, it would be
acceptable for those offering non-infectious diagnostic specimens to
simply mark their packages as NOT containing hazardous material. In
fact the ARUP Laboratories, a large shipper of medical specimens in
Utah, indicates on their website that it will mark its packages
``Medical Specimens, non HMR.'' This would also be sufficient to allow
will-not-carry air carriers to transport the ARUP non-infectious
packages and is acceptable to the FAA.
Question. What was the impetus for DOT's revision of the
regulations on February 14, 2003, incorporating a definition for
Diagnostic Specimens into hazardous material regulations?
Answer. DOT's adoption of the regulations for transporting
infectious substances, including diagnostic specimens, that became
effective February 14, 2003, was primarily intended to harmonize the
Hazardous Materials Regulations (HMR) with international standards
applicable to such transportation.
Generally, to facilitate the safe and efficient transportation of
infectious substances, the HMR permit shipments to be transported under
provisions of the Technical Instructions for the Safe Transportation of
Dangerous Goods by Air (Technical Instructions) issued by the
International Civil Aviation Organization (ICAO), the International
Maritime Dangerous Goods Code (IMDG Code) issued by the International
Maritime Organization (IMO), and the Transportation of Dangerous Goods
Regulations (TDG) issued by Transport Canada, as appropriate. Prior to
our adoption of the new requirements, however, the HMR did not provide
for the level of safety achieved by the ICAO Technical Instructions or
the IMDG Code. Moreover, the HMR at that time included a complete
exception from all requirements for shipments of diagnostic specimens,
even those that contained extremely hazardous infectious substances.
Harmonization of the HMR with the international standards has
several important benefits. Carriers are able to train their hazmat
employees in a single set of requirements for the classification,
packaging, communication of hazards, handling, stowage, and the like,
thereby minimizing the possibility for improperly transporting a
shipment of infectious substances because of differences in national
regulations. Similarly, many shippers find that consistency in
regulations for the transportation of infectious substances aids their
understanding of what is required, thereby permitting them to more
easily comply with these safety regulations when shipping hazardous
materials to many different countries. Uniformity of national and
international hazardous materials transportation regulations is
critical to safety and trade facilitation of hazardous materials
transportation. Consistency between United States and international
regulations enhances the safety of international hazardous materials
transportation through better understanding of the regulations, an
increased level of industry compliance, the smooth flow of hazardous
materials from their points of origin to their points of destination,
and consistent emergency response in the event of a hazardous materials
incident.
Question. How would DOT respond to the suggestion of a moratorium
on the enforcement of the regulations regarding the classification of
Diagnostic Specimens until such time as a study can be made to assess
the impact of the regulations on patients, health care, and medical
practice within the United States and the risks of allowing ``Will-Not-
Carry'' airlines to carry Diagnostic Specimens?
Answer. DOT strongly opposes an enforcement moratorium applicable
to the transportation of diagnostic specimens. Surveillance and
enforcement must reflect the underlying safety requirements.
A diagnostic specimen known or suspected to contain an infectious
substance poses a safety, health, and security risk in transportation
that must be addressed. Diagnostic specimens that contain infectious
agents such as the HIV or SARS viruses are routinely transported by air
both domestically and internationally. The regulations governing such
transportation in the HMR and in international standards protect
transport workers and the general public from possible exposure to such
infectious agents. The regulations applicable to the transportation of
diagnostic specimens were developed through a process that balances
their potential costs and other impacts with their benefits. The
packaging and hazard communication requirements minimize the
possibility that a transport worker or other individual will be exposed
to an infectious agent and enhance the ability of carriers and
emergency response personnel to effectively respond to an accident
involving an infectious agent.
Question. Would DOT consider the addition of laboratory health care
professionals to groups studying and promulgating new regulations
affecting the transport of laboratory specimens?
Answer. DOT welcomes the participation of laboratory health care or
other medical professionals as we consider proposals for revising the
current regulatory requirements applicable to the transportation of
diagnostic specimens and other types of infectious substances.
Prior to the adoption of the February 14, 2003 regulations, the
Federal Aviation Administration (FAA) met with laboratory professionals
and carefully considered their comments and concerns as we developed
the final regulations. In addition, the American Clinical Laboratory
Association, the American Society of Clinical Pathologists, and the
American Biological Safety Association were among dozens of
organizations and individuals who offered comments to the rulemaking
docket on this issue. The international standards applicable to the
transportation of infectious substances were recently revised. DOT is
currently considering revisions to the HMR to harmonize our domestic
requirements with the most recent international revisions. FAA is
working with the Centers for Disease Control and Prevention, the Food
and Drug Administration, the U.S. Department of Agriculture, and other
national agencies responsible for public health issues.
In October 2003, FAA hosted a public meeting specifically to
discuss issues related to the air transportation of diagnostic
specimens and other infectious substances. In June 2004, the FAA is
hosting a second meeting to discuss revisions to the international
transportation standards, including revisions that should help make it
easier for air carriers to distinguish between diagnostic specimens
that are regulated for purposes of transportation and diagnostic
specimens that are exempt from such regulation.
______
Questions Submitted by Senator Richard J. Durbin
AMTRAK
Question. Why did the administration only include $900 million for
Amtrak in the fiscal year 2005 budget when this level of funding will
send the company into insolvency?
Answer. The administration believes that the Federal role in
intercity passenger rail service needs significant change. While the
administration supports intercity passenger rail service as a component
of this Nation's system of passenger mobility, we are not willing to
commit increasing amounts of limited discretionary funds available for
transportation investment on a business model that does not work.
However, the administration is prepared to support higher levels of
funding for a reformed system of intercity passenger rail service. The
administration expects that if Amtrak were to receive $900 million, the
corporation could remain solvent through fiscal year 2005 while
Congress enacted intercity passenger rail reform legislation, through
deferral of capital investments, reductions in overhead and, perhaps,
some cuts in services.
Question. Does the administration support reauthorization of
Amtrak? Or would the administration rather break the intercity
passenger railroad up and privatize operations?
Answer. The administration's legislative proposal, the Passenger
Rail Investment Reform Act, outlines a third course of action. The
administration believes that intercity passenger rail service should
exist where the States, as the driving force behind surface
transportation planning, determine that service is an important
component of an intermodal plan for passenger mobility and thus worthy
of investment. The States would competitively select operators for
those services the States deem are important enough to warrant public
support from among qualified firms, perhaps including a restructured
Amtrak. While these operators would be private sector companies, they
would receive operating support from the State(s) and capital
investment from the States and Federal Government.
AVIATION DELAYS
Question. How do you expect to proceed on addressing aviation
congestion and flight delays at Chicago O'Hare International Airport in
addition to the temporary, voluntary flight reductions during peak
hours? When will data on the flight reductions be available?
Answer. This administration is committed to addressing aviation
congestion in both the short- and long-term by working with the
carriers and local authorities. In Vision 100 (Public Law 108-176),
Congress gave the Federal Aviation Administration (FAA) a number of new
tools to use when demand exceeds capacity at an airport. Under Section
422, the FAA can schedule Delay Reduction Meetings; under Section 423,
the FAA can engage in Collaborative Decision Making. In addition, the
Administrator retains her authority to issue orders that concern the
safety or efficiency of the airspace. While these are all short-term
methods, FAA's long-term goal to address congestion nationwide will be
accomplished by gaining additional capacity at the Nation's airports.
FAA will continue to monitor delays and will adjust approaches to air
traffic delays as needed during the busy summer flying season. Complete
data on the effectiveness of the actions taken so far at O'Hare and
possible future actions to reduce delays will not be available until
after the busy summer flying season.
LEVERAGED LEASE TRANSACTIONS
Question. As you know Mr. Secretary, at the request of the U.S.
Treasury Department, the Federal Transportation Administration (FTA)
formally suspended its practice of reviewing and approving proposals
for leveraged lease transactions involving public transit assets. FTA's
decision to immediately comply with Treasury's request and suspend
consideration of the 15 pending transactions could have sizable budget
implications for the entities that submitted those transactions and
who, up until that time, had every reason to believe that FTA would
proceed to review and approve those transactions in the same manner it
has done for years. Each of these entities likely incurred significant
costs in negotiating the leases, and had a reasonable expectation of
realizing substantial revenue from them following FTA approval. What is
the FTA's plan to reconsider its decision to suspend pending leveraged
lease transactions absent further action by Congress on this issue?
Answer. The Department was informed by the Chairman of the Senate
Finance Committee in November 2003, that his committee was conducting
an investigation of abusive tax shelters involving subway systems and
other assets funded with taxpayer dollars and asked for our cooperation
in the investigation. Also in November 2003, the Department received a
direct request from the Treasury Department that the Federal Transit
Administration suspend its review and approval of tax-advantaged lease
transactions because of concerns about whether the asserted tax
benefits are allowable.
FTA notified the transit agencies whose assets would be involved in
the leasing transactions that reviews would be suspended until the
Department of Treasury completed its review of these and similar
transactions. Should the Treasury Department complete its review and
any rulemaking regarding these leasing transactions, FTA would then act
in accordance with the resulting instructions from the Treasury
Department.
______
Questions Submitted by Senator Byron L. Dorgan
ESSENTIAL AIR SERVICE FUNDING
Question. I am very upset that the administration continually tries
to cut back this program which is so important for rural America. Last
year, for fiscal year 2004, President Bush proposed only $50 million
for EAS, but we in Congress fought hard to maintain funding, and funded
EAS at $102 million. This year, even though the FAA reauthorization
bill allows up to $115 million for the basic program, plus another $12
million for pilot projects, the administration once again only funds
EAS at $50 million. Could you tell me why the administration is not
following Congress' mandate in the FAA reauthorization bill?
Answer. The administration believes that the EAS program must be
reformed or the costs will escalate out of control. As more and more
regional carriers upsize their fleets to larger turboprops or even
regional jets, it will leave more communities reliant upon subsidized
EAS. In addition, as the spread of low-fare carriers continues, more
local communities will be unable to support their local airport's
service as passengers are willing to drive for a larger part of their
journeys in order to take advantage of nearby, low-fare jet service.
EAS service of two or three round trips a day cannot compete with low-
fare jet service, and more and more communities are falling into this
situation. For example, just a few years ago, Utica, New York generated
about 24,000 passengers a year, and was served profitably without EAS
subsidy. Shortly after Southwest inaugurated service at Albany and
JetBlue at Syracuse (less than 50 miles away), annual, passenger levels
fell to 3,500 and we were paying well over $1,000,000 in EAS subsidy in
an attempt to compete with the low-fare, jet service nearby. This
example illustrates why we need EAS reforms.
ESSENTIAL AIR SERVICE COST-SHARING
Question. I was also disappointed that the President seeks to
require all communities receiving EAS funds to provide non-Federal
matching funds. Communities fewer than 100 highway miles from a large
or medium hub airport, 75 miles from a small hub airport, or 50 highway
miles from a non-hub airport with jet service would have to contribute
not less than 50 percent and would only be eligible for surface
transportation subsidies. Communities in North Dakota that participate
in EAS, such as Devils Lake, Jamestown and Dickinson-Williston, are
more than 210 highway miles from a medium or large hub airport, and
will have to provide 10 percent, and all others will have to provide
not less than 25 percent. This is patently unfair and goes against the
purpose of the EAS program to promote and protect air service to rural
areas, and I will fight hard to prevent the President's plan from
taking effect. Given that Congress explicitly rejected such a harsh
cost-sharing requirement in the FAA reauthorization process last year,
why would the administration propose it now after the reauthorization
bill has passed? Isn't this patently unfair to rural America?
Answer. Requiring a modest contribution would encourage civic
officials and business leaders at the local and State levels to
evaluate the need for the EAS program, given other local funding
priorities, and, as stakeholders in their service, the communities will
become key architects in designing their specific transportation
package based on their need and requirements.
AIR TRAFFIC CONTROL TRAINING
Question. According to the GAO, the FAA will likely need to hire
thousands of air traffic controllers in the next decade to meet
increasing traffic demands and to address the anticipated attrition of
experienced controllers, predominately because of retirement. The GAO
raised the point that ``the FAA's process of hiring replacements only
after a current controller leaves does not adequately take into
consideration the time it takes to train a replacement to become a
fully certified controller--up to 5 years, which might result in gaps
of coverage or increased overtime.'' To address this problem, I
attached an amendment to expressly authorize the FAA to spend such sums
as may be necessary to carry out and expand the Collegiate Training
Initiative. As you may know, one of those schools participating is the
John D. Odegard School of Aerospace Sciences at UND. Knowing this, what
efforts are being taken at the FAA to address this problem? Would you
support efforts to add funding for this initiative?
Answer. Currently, the FAA has no plans to expand the Air Traffic
Collegiate Training Initiative (AT-CTI) beyond the 13 colleges and
universities. The AT-CTI candidate pool is fairly large and growing
(about 361 waiting to be hired). The number of controllers to be hired
in fiscal year 2004 and beyond is being evaluated. There has been no
controller hiring since October 2003. We are reluctant to add
additional colleges until the hiring picture is clearer and the need
for additional training resources is better quantified.
If the AT-CTI pool grows too large, FAA runs the risk of not being
able to hire a significant enough percentage of graduates to make the
program worthwhile to the colleges. Colleges market this program to
their students and we maintain a balance between having enough
candidates and not overstating our ability to hire them. Colleges can
withdraw at any time; they are not obligated to the FAA.
The FAA reauthorization bill Vision 100--Century of Aviation
Reauthorization Act, Public Law 108-176, allows for AT-CTI expansion if
necessary. However, the Departments of Transportation and Treasury and
Independent Agencies fiscal year 2004 House Appropriations Report 108-
243 specifically directs FAA not to expand the AT-CTI program. It
states, ``While the Committee does not oppose continuation of the Air
Traffic Control Collegiate Training Initiative, the Committee does not
believe it should be expanded, and directs the FAA not to expand these
programs.''
AMTRAK
Question. I was disappointed that the administration has again
proposed only $900 million for Amtrak this year. I am particularly
concerned about the impact of any cuts to Amtrak on long distance
trains, such as the Empire Builder. If enacted, what impact do you
think your budget request would have on long distance train service?
Answer. The administration believes that the Federal role in
intercity passenger rail service needs significant change. While the
administration supports intercity passenger rail service as a component
of this Nation's system of passenger mobility, we are not willing to
commit increasing amounts of limited discretionary funds available for
transportation investment on a business model that does not work.
However, the administration is prepared to support higher levels of
funding for a reformed system of intercity passenger rail service. The
administration expects that if Amtrak were to receive $900 million, the
corporation could remain solvent through fiscal year 2005 while
Congress enacted intercity passenger rail reform legislation, through
deferral of capital investments, reductions in overhead and, perhaps,
some cuts in services. Amtrak would determine how to best operate with
available resources. Therefore, I would prefer not to speculate which,
if any, route or service type would be impacted in the short-term by
the administration's budget request of $900 million for Amtrak.
SUBCOMMITTEE RECESS
Senator Shelby. Mr. Secretary, I thank you for your
appearance. As usual, you bring a lot to the table and a past
friendship too.
Secretary Mineta. Thank you very much.
Senator Shelby. This concludes our hearing.
[Whereupon, at 11:30 a.m., Tuesday, March 9, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
THURSDAY, APRIL 1, 2004
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. Richard C. Shelby (chairman)
presiding.
Present: Senators Shelby, Stevens, and Murray.
UNITED STATES POSTAL SERVICE
STATEMENT OF JOHN POTTER, POSTMASTER GENERAL AND CEO
OPENING STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Good morning. The committee will come to
order.
Today the subcommittee will hear from the United States
Postmaster General, John Potter. Mr. Potter has testified at a
number of hearings in the last few months on postal reform,
terror attacks using mail, and other issues facing the Postal
Service. It has been several years, however, since the
subcommittee has had the privilege of receiving testimony from
the Postmaster General. We are pleased to welcome you here
today.
As a vital component of our Nation's economy, it is
absolutely crucial that the Postal Service maintain its role as
a Federal Post and maintain the solemn obligation of universal
service. In doing so, it is undeniable that the Postal Service
must change and adapt in order to provide an affordable service
that continues to tie our Nation together.
Without question, the United States Postal Service has
confronted some significant changes over the last few years.
The current business model of the Postal Service is outdated
and is not economically viable in the 21st century. The
financial problems have been further complicated since the
terrorist attacks that used the mail system to deliver
biological weapons.
Even as the number of customers and addresses that the
Postal Service serves has increased, the volume of first class
mail has dropped steadily since 2001. The Postal Service now
faces stiff competition from a variety of electronic
communications options that did not widely exist a few years
ago, as well as from private sector delivery services.
Furthermore, postage rate hikes have only caused consumers to
further rely on alternative means of communications. All of
these factors have become a self-fulfilling prophecy of future
postage rate increases to offset the decline in volumes of
first class mail.
And as one who believes that a comprehensive Postal Service
for all Americans, rural and urban, is one of the central
elements of keeping the country connected, the first class
revenue and volume dilemma is one we have to address and solve.
As difficult as these challenges are, the Postal Service is
also charged with ensuring the safety of the mail. The anthrax
attacks in 2001 and the more recent attacks using the deadly
toxin ricin create a daunting overlay on every aspect and
element of the Postal Service's operation.
I need not elaborate today any further on the challenge
this presents to the Postal Service and look forward to hearing
what steps are being taken to prevent these attacks from
happening in the future.
I would also appreciate learning about your plan for
screening the mail to provide for the safety of Postal
customers and Postal employees while also ensuring timely
delivery.
In the wake of anthrax attacks, Congress provided the
Postal Service with emergency funding to decontaminate sorting
facilities and to procure biohazard detection equipment. The
Postal Service has used this funding to install sensors that
detect anthrax at several facilities. I have been told,
however, by the General Accounting Office and others, that the
system cannot adequately detect other agents.
I am concerned that the prior investment may be too focused
on reacting to the last threat and not focused enough on
detecting other threats.
The Postal Service submitted a budget request to Congress
that includes $779 million for emergency preparedness
activities. This funding, however, was not included in the
President's budget. I hope you will discuss the next steps for
the Postal Service and what sort of investment we can expect in
future years.
Today, I would also like to discuss the reform plans that
you have put in place and those legislative reforms that the
Postal Service is pursuing in order to properly transform
itself into a self-sustaining enterprise.
The Postal Service has several advantages that are relevant
in the 21st century. It is the only delivery service capable of
reaching every household in America, by providing direct access
to each and every mailbox. It connects communities,
particularly those in rural areas. It also presents tremendous
potential for those mailers who desire to reach 100 percent of
the population in a given community or area.
I look forward to hearing your thoughts, Mr. Potter, on how
best to leverage these and other of the Postal Service's unique
attributes into increase revenues and market growth.
The Postal Service has been granted significant relief from
its retirement obligations through the recently enacted Postal
Service Retirement System Funding Reform Act. I would
appreciate hearing your perspective on how the Postal Service
expects to utilize these newly available resources.
As part of any serious reform effort, the Postal Service
must improve its focus on its core services. It has not been an
effective competitor in commercial activities that are
unrelated to its traditional responsibilities, and these forays
have diverted funds from other necessary expenses.
In addition, the post office must not lose sight of its
efforts to control its costs. I commend the Postmaster General
for streamlining the workforce by 10 percent over the last 5
years without layoffs. This is a good start, but more cost-
cutting measures will be needed to reshape the Postal Service
into a self-sustaining, commercially viable enterprise.
We have basically two tracks that we can take. We can
either do things better or do things differently. We hear time
and again about processes that private businesses have put in
place to become more competitive. Perhaps now we should find
ways to challenge the Postal Service to bring their costs in
line with what is offered in the domestic marketplace.
And, perhaps now is the time to pursue reforms and
performance measures that focus the Postal Service on those
things that no one else can do and encourage American
businesses to provide those services that they can do better.
The Revenue Foregone Reform Act of 1993 retains free
postage for visually impaired customers and for overseas
absentee balloting materials. To pay for these services, the
Act provides for an annual $29 million appropriation to
continue through 2035. Since 1994, the Postal Service has used
this annual appropriation to pay off debt accumulated in the
early 1990s. In reviewing the administration's budget request,
I found that no funds were provided.
In recent years, some have suggested that the Postal
Service should reduce its days of operation, as well as the
scope of its service to rural areas of the country, in order to
cut costs. I am heartened that you and the Service have
steadfastly resisted such short-sighted so-called reforms. In
the course of your testimony today, I hope that you will renew
your commitment to maintaining universal 6-day-a-week service.
Mr. Postmaster General, as encouraged as I am by your
defense of affordable universal service, I am concerned that
the current moratorium on new construction has left many
communities without adequate facilities for the dispatch and
delivery of U.S. mail. For universal service to be meaningful,
it must be reasonably accessible and convenient for customers.
PREPARED STATEMENT
It is my express hope that you will, today, outline the
Postal Service's plan for again investing in the communities to
which its service and presence are so vital and for innovative
arrangements to keep the rural communities connected to the
post office.
Again, I want to welcome you to the subcommittee and look
forward to discussing the important matters during the question
and answer period.
Senator Murray.
[The statement follows:]
Prepared Statement of Senator Richard C. Shelby
Good morning. Today the subcommittee will hear from the United
States Postmaster General John Potter.
Mr. Potter has testified at a number of hearings in the last few
months on postal reform, terror attacks using mail, and other issues
facing the Postal Service. It has been several years, however, since
the subcommittee has had the privilege of receiving testimony from the
Postmaster General, and we are pleased to welcome you.
As a vital component of our Nation's economy, it is absolutely
crucial that the Postal Service maintain its role as the Federal Post
and maintain the solemn obligation of universal service. In doing so,
it is undeniable that the Postal Service must change and adapt in order
to provide an affordable service that continues to tie our Nation
together.
Without question, the United States Postal Service has confronted
some significant challenges over the last few years. The current
business model of the postal service is outdated and is not
economically viable in the 21st century. The financial problems have
been further complicated since the terrorist attacks that used the mail
system to deliver biological weapons.
Even as the number of customers and addresses that the Postal
Service serves has increased, the volume of first class mail has
dropped steadily since 2001.
The Postal Service now faces stiff competition from a variety of
electronic communications options that did not widely exist a few years
ago as well as from private sector delivery services.
Furthermore, postage rate hikes have only caused consumers to
further rely on alternative means of communications.
All of these factors have become a self-fulfilling prophecy of
future postage rate increases to offset the declining volume of first
class mail. And, as one who believes that a comprehensive postal
service for all Americans--rural and urban--is one of the central
elements of keeping the country connected, this first class revenue and
volume dilemma is one we have to address and solve.
As difficult as these challenges are, the Postal Service is also
charged with ensuring the safety of the mail. The anthrax attacks in
2001 and the more recent attacks using the deadly toxin ricin create a
daunting overlay on every aspect and element of the Postal Service's
operation.
I need not elaborate any further on the challenge this presents to
the Postal Service and look forward to hearing what steps are being
taken to try to prevent these attacks from happening in the future. I
would also appreciate learning about your plan for screening the mail
to provide for the safety of Postal customers and Postal employees
while also ensuring timely delivery.
In the wake of the anthrax attacks, Congress provided the Postal
Service with emergency funding to decontaminate sorting facilities and
to procure biohazard detection equipment. The Postal Service has used
this funding to install sensors that detect anthrax at several
facilities.
I have been told, however, by the General Accounting Office and
others that the system cannot adequately detect for other agents. I am
concerned that the prior investment may be too focused on reacting to
the last threat and not focused enough on detecting other threats.
The Postal Service submitted a budget request to Congress that
includes $779 million for emergency preparedness activities. This
funding, however, was not included in the President's budget. I hope
you will discuss the next steps for the Postal Service and what sort of
investment we can expect in future years.
I would also like to discuss the reform plans that you have put in
place and those legislative reforms that the Postal Service is pursuing
in order to properly transform itself into a self-sustaining
enterprise.
The Postal Service has several advantages that are relevant in the
21st century. It is the only delivery service capable of reaching every
household in America, by providing direct access to each and every
mailbox.
It connects communities, particularly those in rural areas. It also
presents tremendous potential for those mailers who desire to reach 100
percent of the population in a given community or area.
I look forward to hearing your thoughts, Mr. Potter, on how best to
leverage these and other of the Postal Services' unique attributes into
increased revenues and market growth.
The Postal Service has been granted significant relief from its
retirement obligations through the recently-enacted Postal Civil
Service Retirement System Funding Reform Act. I would appreciate
hearing your perspective on how the Postal Service expects to utilize
these newly available resources.
As part of any serious reform effort, the Postal Service must
improve its focus on its core services. It has not been an effective
competitor in commercial activities that are unrelated to its
traditional responsibilities, and these forays have diverted funds from
other necessary expenses.
In addition, the post office must not lose sight of its efforts to
control its costs. I commend the Postmaster General for streamlining
the workforce by 10 percent over the last 5 years, without layoffs.
This is a good start, but more cost-cutting measures will be needed to
reshape the Postal Service into a self-sustaining, commercially viable
enterprise.
We have basically two tacts we can take. We can either do things
better or do things differently. We hear time and time again about
processes that private businesses have put in place to become more
competitive.
Perhaps now we should find ways to challenge the postal service to
bring their costs into line with what is offered in the domestic
marketplace. And, perhaps now is the time to pursue reforms and
performance measures that focus the Postal Service on those things that
no one else can do and encourage American businesses to provide those
services that they can do better.
The Revenue Forgone Reform Act of 1993 retains free postage for the
visually impaired customers and for overseas absentee balloting
materials. To pay for these services, the Act provides for an annual
$29 million appropriation to continue through 2035. Since 1994, the
Postal Service has used this annual appropriation to pay off debt it
accumulated in the early 1990's. In reviewing the administration's
budget request, I found that no funds were provided.
In recent years, some have suggested that the postal service should
reduce its days of operation as well as the scope of its service to
rural areas of the country in order to cut costs. I am heartened that
you and the Service have steadfastly resisted such short-sighted so-
called reforms.
In the course of your testimony today, I hope that you will renew
your commitment to maintaining universal, 6-day-a-week service.
Mr. Postmaster General, as encouraged as I am by your defense of
affordable universal service, I am concerned that the current
moratorium on new construction has left many communities without
adequate facilities for the dispatch and delivery of U.S. mail. For
universal service to be meaningful, it must be reasonably accessible
and convenient for customers.
It is my express hope that you will, today, outline the Postal
Service's plan for again investing in the communities to which its
service and presence are so vital and for innovative arrangements to
keep the rural communities connected through the Post Office.
Again, I welcome you before the subcommittee today and look forward
to discussing these important matters during the question-and-answer
period.
With that, I yield to Senator Murray for her opening statement.
STATEMENT OF SENATOR PATTY MURRAY
Senator Murray. Thank you, Mr. Chairman.
This is our subcommittee's first hearing with the Postal
Service since we took over appropriations jurisdiction for this
critical Federal agency.
I want to welcome the Postmaster General, John Potter, to
the subcommittee. Mr. Potter is a true American hero. He worked
his way up from the most junior ranks at the Postal Service to
become the Postmaster General.
Today the Postal Service faces unprecedented challenges as
it seeks to cover its expenses through the postal revenues paid
by the public. The same technologies that helped make our
country more productive have undermined the financial
foundation of the United States Postal Service.
Today first class mail represents less than half of the
volume of mail delivered by the post office. At the same time,
mail service revenues continue to decline year after year.
Many of the technological advances that have allowed our
citizens to avoid first class mail were developed in my home
State of Washington. Even so, I am concerned that we be
attentive to the critical role that the Postal Service plays in
all of our communities. The Postal Service's existing business
model is now viewed as unsustainable.
Some of the alternatives being considered are ending mail
service to all rural addresses and ending mail delivery on
Saturdays. For high tech households in urban areas like Seattle
that may be fine. They can pay their bills online and
communicate through PDA's, e-mails and cell phones. But that
alternative is certainly not acceptable to retirees living on
fixed incomes in Pend Orielle County or Klickitat County in
Washington. They may be waiting on their Saturday mail delivery
to get their Social Security check or their prescription drugs.
We have got to be attentive to the ways that these proposed
changes would affect all of our citizens in all of our
communities.
In his formal opening statement, Postmaster Potter will
discuss the fact that the Department of Homeland Security and
the Department of Health and Human Services are developing a
plan through which our Nation's letter carriers can be called
on to deliver antibiotics to Americans in the event of a
catastrophic incident involving a biological agent.
This plan highlights the fact that our Postal Service is a
critical standing army that touches all American households in
all Congressional districts 6 days a week, no matter how rural,
how isolated or how poor those households may be. We should
take great care before we sacrifice this ready and able Federal
force. We cannot envision today every reason why we may need
them in the future. After all, before September 11th, 2001 we
never envisioned the need for our Postal Service to perhaps
deliver emergency vaccines in the event of a biological
emergency.
PREPARED STATEMENT
So I hope our subcommittee will be attentive to the very
real appropriations needs that will be articulated by the
Postmaster this morning. In many cases, the needs of the Postal
Service have been ignored by the Bush Administration's fiscal
year 2005 budget request. For the first time ever, the Bush
Administration is not even requesting funds to honor the
Federal commitment to the Revenue Foregone Act of 1993. In 11
years no president has zeroed out funding for this activity. So
here, as in many areas, the subcommittee may need to chart its
own path to ensure that all Americans in all regions of the
country are joined together through a vibrant and effective
postal system.
Thank you, Mr. Chairman.
[The statement follows:]
Prepared Statement of Senator Patty Murray
Thank you, Mr. Chairman. This is our subcommittee's first hearing
with the Postal Service since we took over appropriations jurisdiction
for this critical Federal agency.
I want to welcome the Postmaster General, John Potter, to the
subcommittee. Mr. Potter represents a true American hero. He worked his
way up from the most junior ranks of the Postal Service to become the
Postmaster General.
Today the Postal Service faces unprecedented challenges as it seeks
to cover its expenses through the postal revenues paid by the public.
The same technologies that have helped make our country more
productive have undermined the financial foundation of the United
States Postal Service.
Today, first class mail represents less than half of the volume of
mail delivered by the Postal Service. At the same time, mail service
revenues continue to decline year after year.
Many of the technological advances that have allowed our citizens
to avoid first class mail were developed in my home State of
Washington. Even so, I am concerned that we be attentive to the
critical role that the Postal Service plays in all of our communities.
The Postal Service's existing business model is now viewed as
unsustainable. Some of the alternatives being considered are ending
mail service to all rural addresses and ending mail delivery on
Saturdays.
For high tech households in urban areas like Seattle, that may be
fine. They can pay their bills online and communicate through PDA's,
email, and cell phones.
But that alternative is certainly not acceptable to retirees living
on fixed incomes in Pend Oreille County or Klickitat County in
Washington.
They may be waiting on their Saturday mail delivery to get their
Social Security check or their prescription drugs. We've got to be
attentive to the ways that these proposed changes would affect all of
our citizens in all communities.
In his formal opening statement, Postmaster Potter will discuss the
fact that the Department of Homeland Security and the Department of
Health and Human Services are developing a plan through which our
Nation's letter carriers can be called on to deliver antibiotics to
Americans in the event of a catastrophic incident involving a
biological agent.
This plan highlights the fact that our Postal Service is a critical
standing army that touches all American households in all congressional
districts 6 days a week, no matter how rural, how isolated or how poor
those households may be.
We should take great care before we sacrifice this ready and able
Federal force. Today, we can't envision every reason why we may need
them in the future.
After all, before September 11, 2001, we never envisioned the need
for our Postal Service to perhaps deliver emergency vaccines in the
event of a biological emergency.
So I hope our subcommittee will be attentive to the very real
appropriations needs that will be articulated by the Postmaster this
morning.
In many cases, the needs of the Postal Service have been ignored by
the Bush Administration's fiscal year 2005 budget request.
Indeed for the first time ever, the Bush Administration is not even
requesting funds to honor the Federal commitment to the Revenue
Foregone Act of 1993. In 11 years, no president, including the current
president's father, has zeroed out funding for this activity.
So, here as in so many areas, the subcommittee may need to chart
its own path to ensure that all Americans in all regions of the country
are joined together through a vibrant and effective postal system.
Thank you, Mr. Chairman.
Senator Shelby. Mr. Postmaster General, your written
statement will be made part of the record in its entirety. We
have reviewed that. You proceed as you wish. Welcome again to
the committee.
STATEMENT OF JOHN E. POTTER
Mr. Potter. Thank you, Mr. Chairman.
Good morning to you and to Senator Murray.
I appreciate this opportunity to speak with you today about
the Postal Service, its accomplishments over the past years and
our appropriations request for the next fiscal year. You have
my detailed testimony, as the Chairman said, so I will keep my
remarks brief.
My thanks to the subcommittee for its support of the Civil
Service Retirement System legislation that was enacted last
year. We continue to work with the Congress on two open issues:
the escrow account and military retirement provisions. We hope
they will both be resolved as soon as possible.
The legislation has helped our customers by providing for
stable rates until 2006. Stable rates and strong service
performance are key elements to enable the mailing industry to
stabilize and grow again. I remain committed to a strong
customer focus. I remain committed to a Postal Service that is
financially strong. We continue to aggressively manage the
business. We are doing more and doing it better with less.
Last year we added more than 1.7 million new addresses to
our delivery network. Service performance and customer
satisfaction reached their highest levels ever. Total factor
productivity grew for an unprecedented fourth straight year. We
remain on schedule to remove at least $5 billion from our
annual operating costs over the 5-year period ending in 2006.
Internally, key indicators point to an improving work place
environment.
Yet these successes mask a marketplace that continues to
show signs of long-term erosions. In 2003 First Class volume
fell by more than 3 billion pieces of mail. We have seen First
Class continue its decline this year as well.
It is clear that the Postal Service can no longer rely on a
limited monopoly that assumed rising mail volumes would offset
the costs of an ever-expanding delivery network. At the end of
the day that means the level of universal service that America
enjoys is in jeopardy unless we all act now.
I encourage the Congress to continue to explore new models
that will lead to modern day management flexibility in how we
operate.
As the reform process continues to unfold we are here today
to address more immediate needs and to submit our appropriation
request for fiscal year 2005.
Our first request is for $29 million for revenue foregone
reimbursements to cover the cost of services we provided from
1991 through 1998. This will be the 12th of 42 interest-free
payments. The administration's budget submission for 2005 does
not include provision for this statutory reimbursement. Failure
to receive these funds may require us to treat the remaining
payments of nearly $900 million as bad debt. That would put
upward pressure on our rate structure.
The second part of our request is for $75.9 million. This
request provides funding for the free mailing of materials used
by the blind and other handicapped persons. It also includes
funding for absentee balloting materials that can be mailed
free by members of the armed forces and other U.S. citizens
residing outside the United States.
The administration proposes $61.7 million and continues the
practice where reimbursement is not made until the fiscal year
after the mailings have been handled and delivered.
The third part of our appropriation request is for homeland
security preparedness costs of $779 million. We gratefully
acknowledge the funding previously given to us for this
purpose. Those funds enabled us to accelerate implementation of
our emergency preparedness plan which was submitted to Congress
in 2002, and which we updated last spring.
The previous appropriation of $587 million enabled us to
provide personal protective equipment for our employees, to
provide equipment and facilities to treat mail for the
legislative, executive and judicial branches of government to
neutralize any biohazards that may exist in that mail, to
undertake decontamination of major mail processing facilities
in Washington, DC and Trenton, New Jersey, and the development,
testing and purchase of state-of-the-art biohazard detection
and ventilation and filtration systems for deployment to 282
mail processing facilities in every State in the union.
The task ahead of us is both costly and critical to the
safety of our employees and the millions of Americans who rely
on the mail day in and day out to build their businesses and
stay connected with families and loved ones. I believe it is
imperative that we continue the work we have already begun on
homeland security.
The funds we request will enable us to complete that work.
Specifically, the funding will support the full deployment of
the biohazard detection system, the ventilation and filtration
system and the construction of a Washington-based mail
irradiation facility.
Our request covers only the capital expenses of obtaining
this equipment. After initial deployment, operation and
maintenance will become part of the Postal Service's normal
operating expenses.
At the same time, we recognize that the threat of
bioterrorism is pervasive, that the threats we face today may
be far different than in the future. With that knowledge, we
continue to evaluate technologies that offer protection from
other hazards.
I wish these funds were not necessary. But as we learned
from the anthrax attacks and the recent ricin incidents, the
threats remain real.
In a democratic society marked by free and open
communications, there will always be the possibility that some
person or group will use the mail's unequaled tradition of
privacy to mask an agenda of hate and destruction. As a Nation,
we must be prepared to do what is necessary to neutralize the
threat to the extent possible.
We are more than willing to do our part on this war on
terrorism. We are working with first responders as we deploy
bioterrorism systems. In community after community we are
acting as a catalyst to create dialogue and establish protocols
consistent with standardized Federal response procedures. This
is an important role that can save lives in the event of any
future real attacks.
In addition, the Postal Service's efforts to contribute to
homeland security were advanced by a joint agreement with the
Department of Health and Human Services and the Department of
Homeland Security. In the event of a catastrophic biological
incident, our letter carriers would voluntarily deliver
antibiotics to affected Americans. The procedures we develop
will augment and not replace those of local communities.
PREPARED STATEMENT
Finally Mr. Chairman, I want to add that although we are
authorized by statute to request an annual public service
appropriation of up to $460 million, we have not made that
request since 1982 and I am pleased to say we are not
requesting that appropriation for fiscal year 2005.
Thank you, Mr. Chairman. I will be pleased to respond to
any questions you may have.
[The statement follows:]
Prepared Statement of John E. Potter
Good morning, Mr. Chairman and Members of the subcommittee.
I appreciate this opportunity to speak with you today about the
Postal Service, its accomplishments over the past years and our
appropriations request for the next fiscal year. You have my detailed
testimony, so I will keep these remarks brief.
My thanks to the subcommittee for its support of the Civil Service
Retirement System legislation that was enacted last year. We continue
to work with Congress on two open issues--the escrow account and
military retirement provisions. We hope they will both be resolved as
soon as possible.
The legislation has helped our customers by providing for stable
rates until 2006.
Stable rates and strong service performance are key elements to
enable the mailing industry to stabilize and grow again.
I remain committed to a strong customer focus, and I remain
committed to a Postal Service that is financially strong. We continue
to aggressively manage the business.
We are doing more--and doing it better--with less. Last year, we
added more than 1.7 million new addresses to our delivery network.
Service performance and customer satisfaction reached their highest
levels.
Total factor productivity grew for an unprecedented fourth straight
year. We remain on schedule to remove at least $5 billion from our
annual operating costs over the 5-year period ending in 2006.
Internally, key indicators point to an improving workplace
environment.
Yet these successes mask a marketplace that continues to show signs
of long-term erosion. In 2003, First-Class volume fell by more than 3
billion pieces. We've seen First-Class continue its decline this year
as well.
It is clear that the Postal Service can no longer rely on a limited
monopoly that assumed rising mail volumes would offset the costs of an
ever-expanding delivery network. At the end of the day, that means the
level of universal service that America enjoys is in jeopardy unless we
all act now.
I encourage the Congress to continue to explore new models that
will lead to modern-day management flexibility in how we operate.
As the reform process continues to unfold, we are here today to
address more immediate needs and to submit our appropriations request
for fiscal year 2005.
Our first request is for $29 million for revenue foregone
reimbursements to cover the cost of services we provided from 1991
through 1998.
This would be the twelfth of 42 interest-free payments. The
administration's budget submission for 2005 does not include provision
for this statutory reimbursement.
Failure to receive these funds may require us to treat the
remaining payments of nearly $900 million as a bad debt. That would put
upward pressure on our rate structure.
The second part of our request is for $75.9 million. This request
provides funding for the free mailing of materials used by the blind.
It also includes funding for absentee balloting materials that can be
mailed free by members of the Armed Forces and other U.S. citizens
residing outside the overseas.
The administration proposes $61.7 million, and continues the
practice where reimbursement is not made until the fiscal year after
the mailings have been handled and delivered.
The third part of our appropriations request is for homeland
security preparedness costs of $779 million.
We gratefully acknowledge the funding previously given to us for
this purpose. Those funds enabled us to accelerate implementation of
our Emergency Preparedness Plan which was submitted to Congress in 2002
and which we updated last spring. The previous appropriation of $587
million enabled us to:
--Provide personal protective equipment for our employees;
--To provide equipment and facilities to treat mail for the
legislative, executive and judicial branches of government to
neutralize any biohazards that may exist;
--To undertake decontamination of major mail processing facilities in
Washington DC, and Trenton, New Jersey and,
--The development, testing, and purchase of state-of-the-art
biohazard detection and ventilation, filtration equipment for
deployment to 282 mail processing facilities in every State of
the union.
The task ahead of us is both costly and critical to the safety of
our employees and the millions of Americans who rely on the mail day in
and day out to build their businesses and to stay connected with
families and loved ones.
I believe it is imperative that we continue the work we've already
begun to support homeland security. The funds we request will enable us
to complete that work.
Specifically, the funding will support the full deployment of the
Biohazard Detection System, the Ventilation and Filtration System, and
the construction of a Washington-based mail-irradiation facility.
Our request covers only the capital expense of obtaining this
equipment. After initial deployment, operation and maintenance would
become part of the Postal Service's normal operating expenses.
At the same time, we recognize that the threat of bioterrorism is
pervasive--that the threats we face today may be far different in the
future. With that knowledge, we continue to evaluate technologies that
offer protection from other hazards.
I wish these funds were not necessary, but as we learned from the
anthrax attacks and the three recent ricin incidents, the threats
remain real.
In a democratic society marked by free and open communications,
there will always be the possibility that some person or group will use
the mail's unequalled tradition of privacy to mask an agenda of hate
and destruction. As a Nation, we must be prepared to do what is
necessary to neutralize the threat to the extent possible.
We are more than willing to do our part on this war on terrorism.
We are working with first responders as we deploy bioterrorism systems.
In community after community, we are acting as a catalyst to create
dialogue and establish protocols consistent with standardized Federal
response procedures.
This is an important role that can save lives in the event of any
future real attacks.
In addition, the Postal Service's efforts to contribute to homeland
security were advanced by a joint agreement with the Department of
Health and Human Services and the Department of Homeland Security.
In the event of a catastrophic biological incident, our letter
carriers would voluntarily deliver antibiotics to affected Americans.
The procedures we develop will augment--not replace--those of local
communities.
Finally, Mr. Chairman, I want to add that although we are
authorized by statute to request an annual public service appropriation
of up to $460 million, we have not made that request since fiscal year
1982. And I am pleased to say that we are not requesting that
appropriation for fiscal year 2005.
Thank you, Mr. Chairman. I will be pleased to respond to any
questions.
EMERGENCY PREPAREDNESS
Senator Shelby. I want to discuss emergency preparedness
expenses if I could.
Since 2002, Congress has provided emergency appropriations
to support the Postal Service's anthrax emergency preparedness
activities. After the attacks, the Congress appropriated $762
million to decontaminate postal buildings and to buy and
install biohazard detection equipment. The Postal Service
reportedly has spent a total of $971 million on emergency
preparation, which includes $209 million from its revenue.
Provide us an overview, briefly, of what this funding has
been spent on to date. In other words, give us an accounting.
Mr. Potter. The funding has been spent on--$268 million of
it has been spent for building restoration; $402 million has
been spent for biodetection systems; $271 million has been
spent on ventilation and filtration systems; $9 million will be
spent on a D.C. area irradiation facility. We have not
committed to that. We are doing some environmental assessments
but our intent is to spend it on that.
Senator Shelby. How much will that cost, roughly?
Mr. Potter. It will cost roughly $16 million. But we have
bought the equipment to irradiate the mail and that is the $9
million of expense that we have. Our intent is to do it on the
campus of the Brentwood facility, on the grounds of the
Brentwood facility.
Senator Shelby. Since your emergency preparedness plan was
submitted last spring, what additional steps have you taken to
prepare for another attack if there is one? We hope there is
never another one.
Mr. Potter. One of the things that we are constantly doing,
Mr. Chairman, is looking at other technologies that might be
out there. Today we have a test underway for chemi-
luminescence. That is a test that will not only detect
biohazards as the polymer rays----
Senator Shelby. Will that detect chemicals?
Mr. Potter. It will detect chemical. It will be able to
detect ricin, biological and chemical, as well.
And we have designed our system----
Senator Shelby. How is the technology coming along? Are you
testing it?
Mr. Potter. We are testing that as we speak. We are using
the Department of Defense to help us with those tests. We have
designed our biodetection system to be flexible enough to add
new technologies to that system.
So our base system is there. We are excited about the new
technologies that are coming down, that appear to be on the
horizon, and we are actively testing those that show promise.
And we are doing that with the appropriate Federal agencies.
Senator Shelby. You submitted a request for $779 million to
install biodetection equipment and to improve ventilation and
filtration systems at postal facilities. Why is the Postal
Service having difficulty with OMB getting that approved?
Mr. Potter. I believe that they understand the need for it.
Obviously there are--given the fact that the country is at war,
there are a number of priorities. And I believe that, in terms
of their priorities and their immediate needs, they have made a
decision about where that stands for fiscal year 2005.
We wrote a letter of appeal to OMB when we heard about
their decision because we believe that there is a need to
provide these systems throughout the country to protect all
communities.
Senator Shelby. You have been quoted as saying that funding
for biohazard detection equipment is either going to come
through an appropriation or rate increase. Is that the only
choice you have? Or do you have money that you could get out of
your escrow fund?
Mr. Potter. The only ways that the Postal Service can
obtain money is through appropriations or through the rates
process. So any cost, whatever it is, for the Postal Service,
if it is not appropriated by Congress--and there are very
limited amounts of funds that are appropriated by Congress, $29
million and the monies for the blind--the only way we have to
raise money is through rates.
Now I am not saying that this would mean that we have to
raise rates tomorrow, but the funds would have to come through
the rates process at some point in time in the future.
Senator Shelby. Detecting biohazards in the mail is the
next subject I want to raise. We have been told by the GAO and
others that the detecting systems that the Postal Service has
acquired may not have the capability to detect other hazardous
agents such as chemical or a radiological weapon. Would you
explain the capabilities of these systems that you are getting?
Mr. Potter. The current system that we are----
Senator Shelby. But you want to spend money wisely, and I
know you do.
Mr. Potter. We are spending it wisely. But we also
recognize there is an immediate need to move.
Senator Shelby. You have got to be thinking of the future.
What else is out there, right?
Mr. Potter. Exactly. So we believe our system can be
augmented. And we have designed a system that is flexible
enough to add new technologies to it.
So today we can detect DNA. Our systems are designed to
detect DNA or measure DNA or look at DNA. Our system today can
do that.
We are working with the appropriate authorities to
determine what other threats are out there that might be of a
bio-nature. And we can add up to 10 agents being detected with
the current system.
In addition to that, we are looking at electro-
chemiluminescence as an opportunity down the road to be able to
now detect chemical or toxins. And it appears to be promising
but we have to await the tests before we move on it.
PERFORMANCE GOALS
Senator Shelby. Performance measures. The European Union
has agreed to a standard of 85 percent of cross-border letter
mail must be delivered in 3 days and 97 percent must be
delivered in 5 days. Has the Postal Service established similar
performance goals? And if you have not, do you contemplate it?
And what are the standards used by the Postal Service to
determine if the performance goals are being met?
Mr. Potter. The goals of the European Community have been
shared and are measuring themselves against what was formed as
part of the International Postal Corporation. The Postal
Service is a member of that group. We do measure performance
within a small community of nations, European, Canada and the
Postal Service. The UPU, the United Nations Universal Postal
Union is having a big meeting this year where they are going to
discuss the notion of expanding what has been done within the
IPC to the rest of the world. We certainly will embrace the
notion of putting standards amongst the countries of the world.
Obviously there are some Third World countries that would
have problems meeting such a standard. But the Postal Service,
the United States Postal Service, is engaged through the UPU in
discussions on increasing the standards for delivery of mail
throughout the world.
Senator Shelby. Are you going to those same standards? And
if so, when do you think you will be doing that for the
delivery of mail?
Mr. Potter. Right now within the IPC we are, for those
communities. But it is not measured--beyond that small group of
nations--mail is not measured.
Senator Shelby. Let us talk about the United States of
America. Let us say from Seattle, Washington to Portland,
Maine. What is the average first class delivery on that?
Mr. Potter. The standard is 3 days and we are achieving
that, about a 90 percent on-time delivery.
If you look at the United States, our overnight area which
is generally within about 100 to 150 miles of an origin, our
goal is overnight service. Right now we are achieving 95
percent.
Within 500 or 600 miles is our 2-day standard. We are
achieving a little over 90 percent. Three-day nationwide, our
goal for areas beyond 600 miles, our goal is 3 days. Last
quarter we achieved a 90 percent. This quarter we are at about
an 88 percent. The reason for the decline is the weather that
we have experienced and the shutdown of airports around the
country.
Senator Shelby. What would be the average mail performance
of first class mail from Atlanta, Georgia to Birmingham,
Alabama? It is about 150 miles.
Mr. Potter. It would probably be a 2-day standard and I can
give you specifically in a follow-up what the actual
achievement was. I would be guessing at best if I attempted to
tell you. I hope it is very high, though.
[The information follows:]
A First-Class letter mailed from Birmingham, AL, to Atlanta, GA, is
delivered in 2 days. During the first quarter of fiscal year 2004,
First-Class Mail destined for overnight delivery in Alabama was
delivered on time 93 percent of the time.
Senator Shelby. I was going to use Spokane, Washington to
Seattle. What is the delivery time there from Spokane to
Seattle? I hope about half a day.
COST REDUCTIONS
Cost reductions. Would you touch on cost reduction measures
for just a minute? And also, how do you intend to implement the
process of streamlining the Postal Service's operations?
Mr. Potter. The first thing that we have done nationwide is
to standardize our operations.
Senator Shelby. What do you mean by standardize?
Mr. Potter. By standardize I mean what we have done is we
have benchmarked internally against ourselves and we have
identified the top quartile of performers in the country in any
operation, whether it is sorting mail, canceling mail. And what
we have done is we have looked at the best practice--and we
have done this about 3 years ago.
We looked at what the best practices were that enabled them
to be in the top quartile. We then, in turn, shared that
throughout the country and said these are the practices that
work, here is an expectation of how you should perform. And we
set targets for improvement year by year.
What you have seen is a continuous improvement in
productivity throughout the country. You have seen us be able
to not replace work force that we had habitually just replaced,
as people leave, we replaced them. For every three people that
leave the Postal Service we replace one. And largely it is
because of the opportunity to improve productivity.
We have also gone back and looked at all of our carrier
routes to determine whether or not the 8-hour job that this
route was based upon is still 8 hours. With the decline in mail
volume over the years, what has happened is the average
delivery in America which as recently as the year 2000 was
reaching 1,870 pieces of mail per year, that has declined to
1,700 pieces of mail per year.
Senator Shelby. What percentage of those 1,700 is first
class mail?
Mr. Potter. Just slightly less than half.
And so as a result of the decline in volume per delivery,
that has reduced the workload for a carrier and has enabled us
to go back in and reconfigure those routes so they have more
deliveries.
So it is those kind of just basic practices that have
enabled us to streamline and lower our costs.
In addition to that, we have been very careful about the
purchase of goods and services. Over the last 3 years we have
reduced our annual spending on goods and services by $1
billion. So any time a truck route comes up for rebid, we
review it. A lease for a facility, we review it and look at our
needs and determine whether or not it is the most economical
way to go.
Senator Shelby. Have you saved a lot of money that way?
Mr. Potter. We have saved over $1 billion in our base per
year.
Senator Shelby. How many years have you been associated
with the postal system?
Mr. Potter. Me, personally? Twenty-five.
Senator Shelby. So you have done just about every job?
Mr. Potter. Pretty much, yes.
Senator Shelby. Thank you.
Senator Murray.
APPROPRIATIONS REQUEST
Senator Murray. Thank you, Mr. Chairman.
As the Chairman referred to, on security and emergency
preparedness efforts, it is a big undertaking and one that is
necessary so that our mail workers can be protected and the
mail processing and deliveries will be as safe as possible.
Congress was able to provide some initial funding in the
amount of $762 million. Last year you requested $350 million,
not even a dollar of which this subcommittee was able to
provide.
This year you are requesting $779 million, which includes
the 2005 request of $429 million plus the 2004 request that was
not funded.
If we are to do anything in support of this request it must
be exempt from the spending cap set forth in the budget
resolution. In other words, the only way to provide this
funding would be if it were declared an emergency.
You did not receive any appropriations last year for
emergency preparedness and you were still able to proceed with
anthrax decontamination and are now proceeding with plans to
put in place biodetection devices in all of your plants. If
that is the case, why are you asking for funding?
Mr. Potter. Because when the initial funding was provided,
it was noted that it was an extraordinary circumstance that
surrounded this whole biohazardous-material-in-the-mail issue.
And at the time, the Congress said that it was providing
funding because of these specific security concerns and the
Congress's notion that they wanted to help protect the mail
system from biohazards.
So consistent with that sentiment that was expressed a
couple of years ago, we feel that we have continued down that
path and asked for the funds again simply for the capital
portion of these systems, with the Postal Service picking up
the operating expenses. So again, we are responding to the
sentiment of the Congress in the past and we would hope that it
would continue on into the future.
BIOHAZARD DETECTION SYSTEMS
Senator Murray. The biodetection systems that you referred
to a few minutes ago that you are planning to install to detect
anthrax, do you have an estimate yet on how much it would cost
to retrofit the machines to detect ricin or other toxins?
Mr. Potter. We believe that they can be retrofitted. Our
estimates are, if we move to the new technology, we could do it
within the $779 million because of the fact that we have not
fully deployed these systems and we can reduce the amount of
the systems that we would have to deploy. So right now it looks
like we could do it within the requested funding.
Senator Murray. How can we be sure that those machines will
be effective against anthrax or other toxins? And is there a
chance it is going to be outdated before we get it installed?
Is nanotechnology coming?
Mr. Potter. We were very concerned about a couple of
things. One was, and very important, was the reliability of the
system. Because a false-positive, as we have learned over the
last several years, creates a lot of panic not only within the
postal community and our workers but also within the
communities that surround our facilities.
And so we were very, very diligent in making sure that
these systems were effective. And our requirement was that we
have no more than one in every 500,000 tests be a false-
positive. And that was a high hurdle for us to achieve and for
our suppliers to achieve. And that is why it has taken quite a
long time for us to do that.
One of the things that we have done is we have tested in a
lab environment a thing we call an anthrax simulant. So
basically it is a non-virulent form of anthrax. And we have
tested the system such that every time we put this non-virulent
form of anthrax in, it has a 100 percent hit. We did not want
to err on the side of lack of false-positives and in the
process compromise the notion that if something was in the
system it would be found.
So we have again spent a lot of time, a lot of diligence
coming up with a system that right now is state-of-the-art,
that again we do not know and we cannot forecast what the
equipment will be 3 and 5 years down the road. But the need for
us is immediate.
We have had over 20,000 incidents where buildings have been
closed, postal facilities have been closed because of anthrax
hoaxes or just accidental spills. And we believe we need, again
for the safety of our employees and the people in facilities,
we do not want to get to the point where we become so callous
to the fact that these incidents occur that when the real one
does happen we are not ready to react. So we have to step up
and move this equipment out.
And I wish I knew what the best would be 10 years from now
and I could buy it today but that is simply not the case. We
have to move on the best we know. And we have used a whole army
of folks in every agency that we could think of that could help
us to determine what the best technology is today and to move
out on it.
Again, safety of our employees and safety of the
communities is paramount. I wish we could wait but I do not
think we have the time to.
Senator Murray. Fair enough.
POST OFFICE CONSOLIDATION
Mr. Potter, an issue that has always been a concern to this
subcommittee is the consolidation or closure of small or rural
post offices. In fact, every year we carry bill and report
language prohibiting any of the funds provided from being used
in the consolidation of or closing of rural and other small
post offices.
In addition, Title 39 of the U.S. Code stipulates that ``no
small post office shall be closed solely for operating a
deficit, . . .''. It is not altogether clear that consolidation
or closures undertaken by the Postal Service are consistent
with the law.
Is the Postal Service planning to consolidate any
operations or close any post offices this year?
Mr. Potter. The post office does suspend post office
operations and has done so for years and will continue to do
so. We have, just to describe it to you, we have over 2,500
post offices that serve less than 200 people. We have over
4,500 post offices that serve less than 200 deliveries. Now I
am not here to tell you that any one of those post offices
should or can be closed.
But I also will tell you that we do have post offices that
are in people's living rooms. We have post offices that are in
stores. And as these smaller communities, and I just described
a profile of some of them, as these communities in some cases
wither and die, we cannot get people to volunteer their living
rooms to be post offices when somebody retires.
Or if we are the last storefront in town and a flood wipes
it out, we are not about to rebuild the post office.
And we have had emergency closures and we have followed the
procedures as laid out by the Postal Rate Commission. We
followed those procedures for closures. But we have no
wholesale plan.
I think there is some assumption that someone in the Postal
Service has a plan to close 20,000 facilities. There is no such
plan.
However, we do have these small units that by act of God or
somebody retiring, you know, we have to make decisions about
how we best serve those communities and we do. In many cases,
what we do is we provide delivery to the door or delivery to
the end of a person's property versus them having to travel
down to the post office.
So we are committed to universal service. We will provide
service to every American wherever they are and we have no game
plan to close post offices en masse. There is nobody sitting
with a secret list of 20,000 post offices to close, although
people would have you believe that. But every time that there
is an act of God or retirement we do consider okay, how do we
best serve the community?
VERTICAL IMPROVED MAIL
Senator Murray. In downtown Spokane, in my State, recently
six of the satellite post offices were closed. Those six post
offices served as kind of a collection point of mail for the
majority of businesses that are in downtown Spokane. They have
now been replaced with unstaffed mailrooms and locked
mailboxes. And as a result there has been a lot of disruption
of service to the buildings. My office has received a lot of
phone calls and letters regarding that.
Can you tell me if that type of consolidation is occurring
in other parts of the country?
Mr. Potter. We call it a VIM room.
Senator Murray. You call it what?
Mr. Potter. VIM, which stands for ``Vertical Improved
Mail''. Years ago the Postal Service decided that as large
buildings were constructed, we provide centralized delivery.
And in many cases, the building owner provided us a room in
which our employees could come and work and sort mail so that
the people in the building could pick it up from the equivalent
of a post office box. And they could pick up their packages by
knocking on the door.
What has happened over the course of time is the volume of
mail for those vertical buildings, those big tall buildings,
has gone away. Business-to-business delivery or business-to-
business white communication letter and flat communication has
dropped dramatically. Because the first group to move to
electronic communication were businesses who were equipped to
do that.
And so what we have done is we have undertaken an
evaluation of those delivery units that are only located in
large buildings. They are not post offices. They were built to
provide delivery. If our person can go in there and sort the
mail for the building in 2 hours, it makes no sense to leave
the person there for 8 hours.
And so we have gone throughout the country, and again the
action is a result of a reduction in mail. In some of those
cases what we have done is we have had two and three people
working in those units and we have reduced the number of
people. They may still get 8 hour coverage. But 40 percent of
those units throughout the country have eliminated full-time
staffing in those units.
Again, it is a result of demand. If the customer is not
using the mail, we are not going to leave that open.
Senator Murray. I think one of the problems and the reason
people were so upset is that the Spokane business community was
not officially informed or told that any of this consolidation
was happening. A lot of them learned about the service
reduction from signs that the post office posted after the
service reductions were made. And in some cases, the
information on the signs was inaccurate and postal customers
were really left in the lurch, which is why we are hearing from
them.
I would just encourage you to, if you have to do these
kinds of things, really work with the business community
especially in those areas to make sure they understand and are
working with you.
Mr. Potter. You have my assurance, we will look at the
whole communications effort. Because I think if people
understood the background that I just described to you, they
would know that we are making a good business decision. And our
intent is not to reduce the level of service to those buildings
but to maintain it, if not improve it.
Senator Murray. Thank you. I really appreciate that.
Thank you, Mr. Chairman.
Senator Shelby. Senator Stevens, thank you for joining us.
STATEMENT OF SENATOR TED STEVENS
Senator Stevens. Thanks very much, Mr. Chairman.
We have several subcommittees meeting this morning at 9:30
and 10 o'clock. So I am sorry I was not here at the beginning
of it. Would you place my opening statement in the record?
Senator Shelby. Without objection, it will be made part of
the record.
[The statement follows:]
Prepared Statement of Senator Ted Stevens
Thank you Chairman Shelby for holding this hearing.
I commend Postmaster General Jack Potter for his efforts which have
guided the Postal Service since June 1, 2001. Under his leadership, the
Postal Service has increased productivity and has improved customer
satisfaction.
In the early 1970's, I along with other senators, joined together
to create the Postal Service out of the Old Post Office Department. In
1971, President Nixon signed into law the Postal Reorganization Act.
Since the Postal Reorganization Act was originally adopted,
technological advances coupled with the financial state of the Postal
Service have demonstrated the need for postal modernization.
Reducing the Post Office's debt is a priority. I am committed to
working with Senator Collins, Senator Carper, and other members of the
Government Affairs committee to draft postal reform legislation to
ensure the vitality of the Postal Service.
For my State of Alaska, the Postal Service and the concept of
universal service are essential. Alaska does not have access to the
infrastructure found in the lower 48. For many Alaskans the mail
service is a lifeline. Each day the Postal Service delivers 2 million
pieces of mail to Alaskan homes and businesses, including vital
products that would not otherwise be available in bush Alaska.
The services provided by the United States Postal Service reach
every home and business in America and are essential to American
commerce and society.
I know the Postal Service is requesting funds for emergency
preparedness and I believe it is important to ensure the Postal Service
has adequate funds to safeguard this country from a hazardous substance
attack. The Postal Service is a possible conduit for terrorist
activity, therefore it is necessary for the Postal Service to have
detection systems to not only protect postal employees, but to
intercept mail carrying hazardous substances.
I believe we should do what we can to help the Postal Service
ensure this Nation's safety.
Senator Stevens. I do commend the Postmaster General for
his handling of systems right now, particularly during this
period of terrorism. And I want the subcommittee to know that I
have personally visited with him concerning the emergency
preparedness funding that is so essential. And after that,
personally visited with the director of OMB.
We are still trying to work out how we can handle this
because the budget, as you know, has not handled it in the
budget session. We will have to work with the Governmental
Affairs Committee and members of our committee to see if we can
get support for an emergency declaration for the money that
they need.
I believe that the Senate, in particular, should push this
because after all we were the target of both the attacks. The
terrorists' use of the mails to come to the Senate, I think is
something the Senate must respond to.
And I do believe that if we declare that emergency that the
House will accept it.
So I cannot tell you we have got an agreement yet, Mr.
Postmaster General, but we are still working on it.
I do thank you for the new post office that is going to be
brought to that little town I live in in Alaska, which is a
very welcome development from our point of view. And I hope
that you will be able to come up this summer and dedicate it.
Maybe the Chairman would come, also.
Senator Shelby. I would like to do that.
Senator Stevens. And we will have a little event there.
There are only 1,900 people living there, Mr. Chairman.
Senator Shelby. Do you have fish around there, Mr.
Chairman?
Senator Stevens. Not right there but we might be able to
travel to a place where they fish.
I just pointed out to another subcommittee that when I was
in Iraq and Afghanistan I pointed out that both of those
nations would fit within my State with some space leftover.
Actually, they are only each about the size of Texas.
I just really came by to give my support to you, my friend,
and to urge the committee to work with me and with Chairman
Collins and see if we can find the support that what we have to
have for this emergency declaration for the money that you
seek.
Mr. Potter. Thank you, Senator.
Senator Stevens. Thank you.
Senator Shelby. Thank you, Chairman Stevens.
Do you want to respond to any of that?
Mr. Potter. I would just like to thank Senator Stevens for
his comments and to apologize to him. I did not realize how bad
things were in Girdwood until I got there and found out that we
had taken your post office box away and made you begin to get
general delivery.
So I am sorry that you had to get in line to get your mail,
but we will rectify that situation and certainly there other
safety issues there. So I appreciate your bringing them to my
attention.
Senator Stevens. I may have failed to pay the rent, I am
not sure.
Senator Shelby. Mr. Potter, what would be the time sequence
on mailing a first class letter from Fairbanks to Anchorage?
When would it get there?
Mr. Potter. Overnight.
Senator Shelby. Thank you.
Senator Stevens. That is called Alaska delivery.
Senator Shelby. We like that Alaska delivery.
COMPETITION: E-COMMERCE
Competition. Why should the Postal Service, a $68 billion
enterprise with a government monopoly, be allowed to compete
with the private sector in areas other than its original
mission?
In other words, after reviewing the dismal financial
results of virtually all the Postal Services' commercial
initiatives, would it not make more sense to concentrate your
focus on the Postal Service's core mission instead of risking
new ventures? In other words, what steps have been taken by
management to ensure that financial mistakes will not continue
to happen?
Mr. Potter. I think you will be happy to know, Mr.
Chairman, that I have eliminated practically all of those
ventures that were beyond our core mission. We still have a
mailing online electronic presence. We believe that people
should be able to, through the Internet, access a printer and
send cards and letters and we believe that is part of our core
business.
But for all intents and purposes, everything else has
either been eliminated or the only thing that we lend to any of
these ventures is our brand identity. We have pulled back from
any expenditures that are beyond what we consider to be our
core business.
REVENUE FOREGONE
Senator Shelby. The Revenue Foregone Reform Act, to which
Senator Murray alluded, required an annual reimbursement to the
Postal Service of $29 million to subsidize certain nonprofit
mail. The total payment the Postal Service is expected to
receive is $1.2 billion.
You have received payments for the past 11 years but this
budget submission does not request funding this year for this
reimbursement.
What impact will this have on the Postal Service and its
customers if this appropriation is not funded in 2005?
Mr. Potter. One might say what is $29 million to a $68
billion organization? The real concern for us is that there is
still some $899 million owed and it is part of the statute that
required a $29 million-a-year payment.
Our auditor has told us that if that revenue stream is not
a real revenue stream, according to GAAP rules, we may have to
declare that entire revenue stream as being lost to us. And so
that is the immediate concern that we have, that we would have
to write off that revenue stream as a bad debt owed to us.
CIVIL SERVICE RETIREMENT SYSTEM
Senator Shelby. Mr. Potter, the Postal Civil Service
Retirement System Funding Reform Act, that is a mouthful, of
2003 reduced the Postal Service's funding requirement for Civil
Service Retirement System pensions after it was discovered that
the Postal Service was overfunding its--that is unusual--its
Civil Service Retirement System obligation. The Postal Service
used the savings from the Act to reduce its debt by $3.8
billion. After 2004, the savings are to be held in escrow until
otherwise provided by law.
How do you plan to expend the escrow savings if allowed to
use them?
Mr. Potter. The law required us to pay down debt last year
with the savings, which we did. In fact, we paid down more debt
than the savings were. This year it requires us also to take
the ``savings'' and pay down debt.
In 2005, the law assumes that we will use those funds for
operating expenses. And our goal next year is to break even or
do better than break even.
In 2006 is when those monies would go into an escrow
account. Now the escrow account, as we understood it, was
created because there was concern on the part of some in
Congress of how we would use those monies.
And we have provided a plan to the Congress, to the House,
a very specific plan, a very thick plan, on how those funds
would be used. It includes, in particular, a concern about how
we would handle and deal with capital investments because there
was some concern that we were not going to capitalize future
equipment requirements that would help make the Postal Service
more efficient.
So we have gone into great detail about what our capital
investment plan is and we have talked about and addressed an
issue of concern that was employee retiree health benefit
funding.
So I have had a hearing at the House since and the
indications have been that that plan has at least met the needs
of most of the Congressmen. We have a similar request from the
Senate and we are to provide that, I believe, by the end of
this week, a similar plan. We have done some minor
modifications but it is essentially the same plan.
So we believe we have addressed the concerns that caused
folks to create the escrow account.
We need the escrow account to be eliminated now that people
understand how we spend the money because there are no--if we
are in a break even mode in 2005, there are no funds to create
a $3 billion plus escrow account. And so we would like that to
be eliminated.
And the funds in 2006 would be used similar to the way they
were used in 2005. Basically, they would be used for operating
expenses and to fund the capital requirements.
FACILITY ISSUES
Senator Shelby. Regarding facilities repair and new
construction, I would like to get back to this for a minute.
In the last 3 years, the Postal Service has reduced capital
expenditures by more than 50 percent by limiting capital
commitments to levels that could be funded solely from cash
flow. The infrastructure continues to age, as we all know.
In addition, many facilities can no longer meet the needs
of customers as the delivery network continues to expand, while
other customers lack convenient access to the postal system
altogether.
What priority, Mr. Potter, has the Postal Service given to
address new construction and expansion needs? And during the
freeze on capital commitments, what has the Postal Service done
to adequately maintain its existing infrastructure and preserve
buildings in an economically effective manner? And, how will
the Postal Service address infrastructure needs that have been
deferred since the freeze on capital commitments commenced in
2001?
Mr. Potter. Life safety is our No. 1 issue and throughout
this process we have not taken any funds out of life safety. If
buildings have been destroyed by acts of God, we have spent the
money to repair those facilities. We have a robust repair and
alteration budget. We have not eliminated capital funds for
repair and alteration. We have slowed the building of new
buildings. We have 38,000 buildings in the Postal Service. We
only own 8,000 of those buildings.
Senator Shelby. Say that again?
Mr. Potter. There are 38,000 buildings in the Postal
Service that we have. We only own 8,000 facilities.
So we have continued with leased facilities, a concept that
has gone on. But the capital side, the building of postal
facilities was slowed.
Now the rationales for slowing that down were a couple. One
was cash flow. But another real important issue was what are
our facility requirements going forward, particularly in light
of the fact that we are seeing volumes decline, we are seeing a
change in mailer behavior?
Mailers have taken advantage of rates that allow them to
deposit mail close to delivery. So where in 1990, if you were
to mail an advertising piece of mail from Washington, DC to
anywhere in the country it would be the same rate for you to
mail it from Washington, DC to Spokane, Washington or to
Chicago.
Today we have rates that allow you to bring that mail well
into the system, right down to the processing center. So I can
bring the mail to the Seattle plant for mail in Washington and
I pay a lower fee in order to do that.
Mailers have taken advantage of that in a significant way
over the last decade. And in the process of doing that, they
have reduced the infrastructure that we are required to have.
So we are constantly analyzing that infrastructure.
Right now I believe we have more space in plants than we
need.
In addition to that, delivery units, if you go back
historically in delivery units----
Senator Shelby. You have more space in plants now?
Mr. Potter. That is the 282 processing centers.
Now in delivery units, we have also stepped back to take a
look at what our requirements are. Today, about 80 percent of
the mail for a letter carrier, letter size mail, is walk-
sequenced. It is presented to the carrier off of a machine that
is in a plant, where a decade ago they would have to sort all
of those letters into a case to take out on the street. It is
now presented to them in a tray. So that case does not have to
be as big as it was before.
In addition to that, oversized letter mail, flat mail we
call it, which is a catalog, a magazine or a large manila
envelope. In the past all of that mail had to be sorted to the
carrier route. So it would go to the post office, sort it to
the carrier route in that unit by clerks at cases. Today, the
bulk of that, over 90 percent of that sorting, has moved from
that post office to the plant because we have automated
equipment that sorts this mail at a very high productivity
level.
In fact, we have doubled the level of productivity on flat
mail in the last couple of years because we have automated it.
So where a post office used to have to have cases to sort
mail, flat mail, to carriers and they would have to have
carrier cases to sort mail for the walks along the way, the
requirements of that unit have shrunk dramatically.
In addition to that, the number of packages that we have in
the system has declined. Priority Mail, Express Mail and
package mail is down. So we are looking at the demands for
space within that unit and what we are finding out is that we
have enough space, we just have to change the methods that
people are using.
Now, that is not to say that we do not have growth areas
like a Las Vegas, where we have whole new communities sprouting
up. And in those cases we are building post offices.
Senator Shelby. Let me ask you another question. Could you
save money, for example, in a lot of areas, like smaller
communities, by following the business practice of UPS and
Federal Express where they have bought businesses like the
copying company, where they will pick up parcels.
And it looks to me like in some of the smaller communities
you might not need a new postal building. But if you could rent
from a store there or if you could rent a little space in that
store--and I know you do in certain instances--it looks like
that would be economical.
Mr. Potter. It would, Senator, and we have over 5,000----
Senator Shelby. That is what I want to hear.
Mr. Potter [continuing]. Contract post office units
throughout the country. We also sell stamps at over 40,000
locations other than post offices. So we sell stamps in grocery
stores, people can buy postage stamps through ATM's.
Senator Shelby. You do not necessarily need a huge
facility, do you?
Mr. Potter. We do not, to have a retail operation, we do
not.
Also, every one of our 60,000 rural routes are post offices
on wheels. So they are designed to bring services to the
customer.
People now can access, through the Internet they can now
access a system--we call it Click and Ship--to print a priority
label and pay for postage online.
So we are trying to bring as many services as we can to the
doors of all Americans. We do not think that a traditional post
office is the only way of doing it.
Now that said, we are still going to need post offices
throughout the country for post office box operations. Our
carriers are going to have to be housed, they have to come and
collect their mail.
Senator Shelby. But, you could have a facility without
spending all of the money?
Mr. Potter. Exactly and we are doing that, sir.
Senator Shelby. Especially in smaller areas?
Mr. Potter. Exactly.
CIVIL SERVICE RETIREMENT SYSTEM
Senator Shelby. Let us go back a minute to the Civil
Service Retirement System correction, you elaborated on that.
Would you submit this plan to the committee when you get it?
Mr. Potter. Yes.
Senator Shelby. We would like that.
Mr. Potter. We would be happy to do that.
CONSUMER ACCESS
Senator Shelby. Expanded points of service. We were talking
about this.
The President's Commission of the U.S. Postal Service
proposed to revolutionize retail access by bringing a wider
range of postal services and products to consumers in grocery
stores, pharmacies, and other convenient locations. What is the
current status of your efforts--I know I alluded to it a minute
ago--to expand access to retail Postal Services at venues other
than post offices? In other words, where people are.
Mr. Potter. We are actively engaged and talking with a
number of national retail outlets.
Senator Shelby. I am not trying to promote Wal-Mart or
Target.
Mr. Potter. You are pretty close there.
Senator Shelby. But look at the traffic that is going
through these or Home Depot or Lowe's. You go there and you see
that there are thousands of people going through those stores
all over America every day.
Mr. Potter. Right, and we are working closely with several
of them. There are issues that we are dealing with, with some
legal requirements but we are actively engaged in that.
We recently had a deal with Hallmark Crown Stores. Seventy
percent of all greeting cards end up in the mail, which I
thought was a much higher number than I expected it to be. So
we have worked out an arrangement with them where they will
sell stamps, they will sell Priority Mail. And we are looking
at all our options to do that. But we want to do it in an
economical way.
FINANCIAL TRANSPARENCY
Senator Shelby. Mr. Potter, the President's Commission has
also proposed to try to enhance the transparency of the Postal
Service's financial reporting. What steps have you done,
working with the Board of Governors, to enhance annual
financial reporting? Is the Postal Service committed to report
financial information in accordance with the SEC reporting
requirements and disclosure statements?
Mr. Potter. The Postal Service has begun doing quarterly
reports, that we believe are comparable to SEC. Obviously we
are not a private corporation with stockholders but we have
begun enhanced quarterly reporting. We have posted it on our
web site. We have begun to report the equivalent of the 8-Q
where basically if there is a major incident that might affect
our finances, we are reporting that.
We have changed our annual statement to become what we
believe is more transparent.
In addition to that, we are in contact and having
discussions with the SEC and they are taking a look at our
reports and we are looking forward to their recommendations on
what we can do.
Right now we believe we are probably more transparent than
most, in terms of the level of information that we provide
through the rates process and through all of the oversight that
we have.
Senator Shelby. But first of all, you need to know your
financial condition, the real financial condition. Otherwise,
you really cannot run the place if you do not know what is
going on.
Mr. Potter. One of the outcomes of doing that was the Civil
Service Retirement legislation change. At the time people were
saying, there were some saying we were underfunding our
retirement benefits.
Senator Shelby. You certainly do not want to do that,
either.
Mr. Potter. But we were of the opinion that we might have
been overfunding. So there was the exploration and thanks to
GAO and the administration, who took it upon themselves to help
us with that, we were able to find out, thankfully, that we
were in an overfunding condition.
SPONSORSHIPS
Senator Shelby. What return on investment has the Postal
Service realized from sponsorship deals such as those with the
New York Yankees, Tampa Bay Devil Rays, and Lance Armstrong?
Mr. Potter. The sponsorships, I do not have a specific
return.
Senator Shelby. Would you furnish that for the record?
Mr. Potter. I can furnish a response. I do not know if we
have a specific return.
Senator Shelby. You need some kind of way to measure that.
Mr. Potter. It is very subjective and we will provide you
what our analysis is for the record.
Senator Shelby. But if you were advertising in private
business, you would measure that advertising to see if you are
selling cars or you are moving certain goods and services.
Otherwise, you stop that advertising or you change it.
Mr. Potter. Exactly. We will provide it for the record.
Some of the numbers are I believe, for example, some you will
look at with a skeptical eye and say I do not think it is worth
that much. I have that same skeptical eye when it comes to a
few of these.
Senator Shelby. I am not in a position to say.
Mr. Potter. I am not either, so we will share with you what
others' analyses of it are.
[The information follows:]
Sponsorships increase brand awareness, build positive corporate
image, promote employees' corporate pride and accrue positive public
relations. While some of those attributes may be difficult to measure,
the Postal Service did commission its advertising agency, Campbell-
Ewald, to track and measure the level of media exposure for the Postal
Service for the July-August 2003 timeframe, including the 2003 Tour de
France. The value of domestic exposure for the Postal Service for this
2-month time frame represented in excess of $31 million.
Regarding the other sponsorships, the Devil Rays sponsorship should
be regarded more as an advertising purchase; it solely comprises a
billboard in the outfield promoting Priority Mail. Most of what we pay
for in our Yankees sponsorship is also about advertising exposure in
the stadium. However, in the case of the Yankees relationship we also
received permission to produce philatelic merchandise that includes
Yankee images. From the sale of this merchandise we gross several
million dollars annually.
DELIVERY GROWTH
Senator Shelby. The postal mail volume has continually
dropped since fiscal year 2000, while the number of new
addresses has increased by 5.4 million annually. The volume of
first class mail and the number of delivery points are moving
in opposite directions it seems.
How do you plan to address, Mr. Potter, the delivery
requirements for communities with the rapid growth of homes and
businesses? And once the determination has been made that a new
postal facility is needed, what is the approval process? Is it
too protracted or can you have a fast track?
You know, you have got communities growing by leaps and
bounds and you have got some that are shrinking.
Mr. Potter. We have got advance site acquisition where we
actually go out and buy land in anticipation of growth.
Senator Shelby. Save you some money, will it not?
Mr. Potter. For example, out in Las Vegas we worked with
the Bureau of Land Management, which has control over expansion
beyond the city. And there are different actions that are
taken----
Senator Shelby. Did they give you the land? They should.
Mr. Potter. We have been able to do that. I do not want to
publicize it. We have been able to work certain arrangements,
but in other parts of the country we cannot do that. But that
is an example of what we do. We have different strategies in
different areas around the country.
But advance site acquisition is one of the methods that we
use where we anticipate growth.
Senator Shelby. You do that by demographic trends, among
other things, do you not?
Mr. Potter. Exactly, and you just look at, for example, the
midsection of the country, you look at Montana, South Dakota,
Iowa, down to Oklahoma. We have seen 30 percent of the
population has been reduced. And obviously, the growth is in
other sections.
We do look to build facilities in those areas of the
country. And we have provided funds to do that and we are
expanding the amount of money that we have spent on that.
UNIVERSAL SERVICE
Senator Shelby. As you look at the demographics of rural
America, rural America is shrinking in population. How do you
anticipate that to reduce the facilities and your costs? What
about the political overtones there?
Mr. Potter. Well, reducing the facilities is a major issue
and one that by law we cannot do for economic reasons. So we
live within the law. It is one thing that we would hope that,
if we were to get reform legislation, would be considered by
the Congress.
Senator Shelby. It is universal mail service.
Mr. Potter. We are not going to back away from universal
mail service. If we do, I do not think you need a Postal
Service in this country. That is the reason that we were
formed. There are communities in America that would not get
service if it were not for the Postal Service. We recognize
that and we believe that.
And I think that based on everything that I have read about
the creation of the Postal Service, that that is why we were
formed, to assure that. Some people have suggested that we get
out of the package business, for example. So I said, how did we
get into it?
It turns out in 1912 there was a law passed by Congress,
prior to which the Postal Service was not able to carry
anything that weighed more than 4 pounds. But what happened and
what was happening throughout the country was that there were
rural communities that were either getting no service or
whatever service they were getting, was an infrequent service,
they were paying exorbitant rates to get.
There were inner-city communities, the less affluent inner-
cities communities that were not getting regular package
services. And when they were getting it they were paying
exorbitant fees to receive it.
So when I look back historically I think wow, think about
it today. If we were not in certain areas, I am not sure that
the private sector could step in or would step in and deliver
without surcharges.
And today, many of our competitors surcharge rural
Americans for delivery of mail or companies that want to reach
rural Americans. And certainly others do not have daily
delivery to certain communities that are less affluent.
So I think the role of the Postal Service still is relevant
today in light of what we were founded to do and the notion
that everybody has equal access to a system to conduct business
and send messages.
Senator Shelby. At one time, you were in the banking
business, too.
Mr. Potter. We were and I wish we could get back into it.
If you look at foreign post, many of them are getting into the
banking business because they have retail outlets in these
small communities.
Senator Shelby. As chairman of the Banking Committee, I am
not recommending that.
Mr. Potter. I can always try, right.
ADDITIONAL COMMITTEE QUESTIONS
Senator Shelby. Mr. Potter, we appreciate your appearance.
We appreciate your candor and we have a number of requests you
said you would get back with the record to us.
[The following questions were not asked at the hearing, but
were submitted to the Service for response subsequent to the
hearing:]
Questions Submitted by Senator Richard C. Shelby
DETECTING BIOHAZARDS IN THE MAIL
Question. I am told by GAO and others that the detecting systems
that the Postal Service has acquired may not have the capability to
detect other hazardous agents, such as a chemical or radiological
weapon. Given that there are many other toxic agents that can be sent
through the mail without being detected by your system, is the Postal
Service still planning to deploy such detecting systems?
Answer. Yes. We currently plan to install 1,708 Biohazard Detection
Systems (BDS) at 282 facilities nationwide. National deployment of the
BDS began in early April 2004. The 282 sites were selected because they
represent our major processing facilities and cover our collection mail
entry points for the entire postal network. Today, we have a total of
32 BDS systems in operation.
Nationwide installation of the BDS will resume on June 5. The
program experienced a slight delay for testing to determine why some
systems were producing ``inconclusive'' test results. Inconclusive or
non-determinant results do not mean that a threat was in the mail. It
simply means that tests had to be rerun to get a valid result.
Our goal through the testing, implementation and everyday use of
the BDS has been to ensure the safety of every employee and the
customers we serve. That is why it was critical that the system
operated properly before installation continued. Postal Service
Engineering, working along with the equipment contractors, conducted
tests to determine the cause of the problem. The cause has been
determined and changes to basic processes and procedures have been
instituted to return BDS to normal performance levels.
Our methodology has been to develop a threat assessment that
outlines known threats to our resources. Based on that assessment, we
have identified and developed technologies to mitigate those known
threats. These technologies include the BDS, capable of detecting
biohazards, the Ventilation and Filtration System, capable of
containing biohazards, and an irradiation process that neutralizes
biohazards.
BDS was developed as a scaleable system. In its current state, the
system can detect only for the presence of Anthrax. However, BDS can be
expanded in the future to detect for other biological agents, as well
as toxins such as Ricin. Working in conjunction with our primary
contractor for the BDS program, Northrup Grumman, we are integrating a
prototype device in the BDS equipment that is capable of detecting
Ricin. Testing of the device is planned for the spring of 2004.
Question. How many systems have been installed? Where have they
been installed and at what cost?
Answer. We currently have 31 production systems and 1 pre-
production system operating. The pre-production system will be replaced
with a production unit as part of the national deployment effort.
------------------------------------------------------------------------
Unit Location Number of Units Costs (Approx)
------------------------------------------------------------------------
Cleveland, OH..................... 9 Production Units.. $2,250,000
Baltimore, MD..................... 11 Production Units. 2,750,000
Pittsburgh, PA.................... 1 Pre-Production 250,000
Unit.
Lancaster, PA..................... 5 Production Units.. 1,250,000
Queens, NY........................ 6 Production Units.. 1,500,000
------------------------------------------------------------------------
We estimate the manufacturing and installation costs for one BDS
system to be approximately $250,000 to $180,000 for the hardware and
$70,000 for logistical support and installation efforts. To date, we
have awarded a contract for the first production phase that consists of
the manufacture and installation of 742 BDS systems. Total funding
committed to date is $212.1 million.
Question. Will additional detection capabilities be added in the
future? If so, how cost effective is it to address one threat at a
time?
Answer. We have developed a threat assessment that outlines known
threats to our resources. Based on this assessment, we have identified
and developed the Biohazard Detection System (BDS) capable of detecting
biohazards. BDS was developed as a scaleable system. In its current
state the system can detect only for the presence of Anthrax. However,
BDS can be expanded in the future to detect for other biological
agents, as well as toxins such as Ricin. Working in conjunction with
the primary contractor (Northrop Grumman) for the BDS, we are
integrating a prototype device within the BDS equipment that is capable
of detecting Ricin. Testing of the device is planned for the spring of
2004.
As threats are identified and required to be detected by BDS, we
will aggressively pursue adding the capabilities to our detection
systems. However, in order to add additional threats to BDS, specific
reagent sets and processes must be developed and scientifically
validated with respect to each individual threat.
Question. Are there any analyses of how the Postal Service's
efforts compare to the steps that private sector mail companies have
taken to detect hazardous agents?
Answer. Yes. After the anthrax attacks of October 2001, the Postal
Service consulted with the Joint Program Office (JPO) for Biological
Defense as well as other military and Federal agencies. After these
consultations, it was determined that a system did not exist that met
the needs of the Postal Service. From October 2001 to September 2002
more than 20 systems were tested. BDS was the only system that
successfully passed all test protocols jointly established by the
Postal Service and Bio-Defense experts.
COST REDUCTIONS
Question. Please outline the cost-cutting measures planned for the
Postal Service for fiscal year 2005.
Answer. We are in the process of finalizing cost reduction plans
for fiscal year 2005, which will become a part of the fiscal year 2005
Integrated Financial Plan, scheduled for Board of Governors review in
September. It is our expectation that we will plan for a sixth straight
year of positive productivity gains as a result of continuing cost
reduction efforts that has been successful in the past 5 years.
We have achieved savings through a variety of measures, which we
will build upon for fiscal year 2005. Postal management will continue
to identify best practices and achieve savings through breakthrough
productivity initiatives. We will continue to deploy automation that
will save mail processing costs, and that also will have a positive
effect on delivery productivity through higher levels of sequenced mail
for the letter carrier. We will also continue to achieve additional
savings and cost avoidances through streamlined transportation
networks, refreshed communications/computer networks, centralized
support functions and opportunities presented by supply chain
management initiatives.
Through stringent cost management, we have delivered $5 billion in
cost savings since 2000. This includes $2.7 billon in savings resulting
from Transformation Plan initiatives over the last 2 years. We are on
track to surpass the $5 billion in savings called for by the Plan over
the 5-year period ending in 2006.
Question. What actions does the Postal Service intend to implement
to continue the process of streamlining its operations?
Answer. In its July 31, 2003 report, the President's Commission on
the United States Postal Service made a total of 35 recommendations
derived from the findings of its four subcommittees that reviewed all
aspects of Postal Service operations. Of those 35 recommendations, 17,
or approximately 50 percent, aligned closely with the strategies that
the Postal Service adopted as ``near-term'' strategies in its April
2002 Transformation Plan. The ``near-term'' strategies are those the
Postal Service can accomplish without statutory change. For example,
the President's Commission recommended that the Postal Service expand
retail access to postal products and services. This was a key
Transformation Plan strategy that is being implemented currently
through such programs as retail access to postal services through
partnerships with commercial retail stores, such as Safeway, and
continuing expansion of product and service offerings over the
Internet.
For a complete review of the progress of Transformation Plan
strategies please see the attached November 2003 Transformation Plan
Progress Report. Please note that the Transformation Plan made two key
commitments: to hold rates steady and to remove $5 billion in costs by
the end of 2006. The Postal Service is well on its way to meeting these
commitments. Rates will be held steady until 2006, and $2.7 billion of
the $5 billion commitment was achieved by the end of fiscal year 2003.
Of the 18 remaining President's Commission recommendations, most
deal with issues that require statutory change, such as changes in the
governing structure of the Postal Service. In the Transformation Plan
the Postal Service associated such topics with structural change, and
while it made some recommendations, it recognized that many of the
policy issues are within the purview of the Congress, not the Postal
Service. There were a small number of President's Commission
recommendations that the Postal Service did not address in its
Transformation Plan in any form, such as personalized postage stamps
and an independent advisory body for the evaluation, acquisition and
deployment of technology. The Postal Service has been studying the
feasibility of such recommendations. Early in 2004 the Citizens' Stamp
Advisory Committee, which reviews and approves subjects for printed
postage stamps, recommended against implementation of personalized
postage stamps by a vote of eight to three. The Committee cited nine
reasons, including concerns about counterfeiting and negation of the
social value of stamps as a unifying symbol of culture and community.
E-COMMERCE INITIATIVES
Question. The 2003 Comprehensive Statement on Postal Operations
states that the Postal Service is evaluating and modifying non-postal
business plans. It is my understanding that e-commerce was an area of
special concern. As a result of the e-commerce evaluation, what changes
has the Postal Service made regarding commercial ventures, including e-
commerce activities?
Answer. We have aggressively reevaluated e-commerce initiatives and
we have eliminated those that didn't meet expectations. We are focusing
on repositioned core-product initiatives to satisfy customer needs. Our
Postal Service website, www.usps.com, is a logical extension of our
core mission. Our customers may access this site to buy stamps, look up
ZIP Codes, and even ship parcels through our new Click-N-Ship service,
a convenient online shipping solution that allows customers to send
mail without leaving their home or office.
And we are moving toward greater reliance on private sector
providers to eliminate postal expenses. For example, we repositioned
Electronic Postmark and Mailing OnLine to private sector agreements.
We will continue to support initiatives that align with our core
mission. As we gain experience, we will assess performance and make
determinations on a product-by-product basis.
Question. How do initiatives, such as the partnership with Hallmark
Gold Crown, differ from prior e-commerce ventures?
Answer. Our latest initiative is building upon previous initiatives
designed to expand customer access without creating additional,
permanent network costs.
Recently, we have identified potential partnerships with
sophisticated multi-location retailers, such as Hallmark, through
standardized contract terms and conditions that are individually
awarded. These limited-service contract postal at units will provide
only the most desired postal products and services and times and in
locations that are convenient to consumers. This relationship between
two partners with an interest in ``keeping customers in the mail'' was
not intended to replace post offices that offer a full line of
services.
These multi-location retailers are easily recognized and well
respected brands that complement the USPS brand. These providers also
have the marketing expertise and advertising funds to support the
promotion of these units. These partners will provide retail services
below the cost of the traditional post office.
Hallmark was the first limited service CPU provider and the first
to use Postal Service-provided postage evidencing devices to affix
postage. By using this device, we reduce administrative costs in the
field by eliminating stamp orders (stamps are provided under the
consignment program) and eliminating daily financial reporting as well
as auditing and bonding requirements. Because Hallmark stores pre-pay
for the postage loaded onto the provided meters, the consumer benefits
from conducting their store purchase with their postal purchase in one
transaction and they can use their credit cards (credit card postal
purchases are not allowed in traditional contract postal units.)
By providing expanded access to Postal Service customers, contract
postal units (CPUs) provide the Postal Service with a flexible and
adjustable retail network that is a lower-cost alternative to Postal
owned facilities.
As customer behavior changes and they begin to access postal
services through the Internet or through other means, and as they move
to new communities, we will have the ability to adjust our retail
network to meet the demand. CPU partners typically offer customers the
convenience of providing postal services in the evenings and on
weekends where customers live, work and shop.
Customers can also purchase stamps ``at post office prices'' at
participating Stamps-on-Consignment locations such as grocery stores,
convenience stores, drug stores, banks and ATMs. Approximately 40,000
locations and ATMs are part of this network. These stamp channels also
provide expanded hours and days of access. These stamps are provided to
our consignees through our vendor. The Postal Service cost to sell
stamps through consignment is one of our least expensive methods of
selling postage.
REVENUE FORECAST
Question. Is it possible to offset the revenue loss without
additional rate increases?
Answer. We continuously assess our products and services to
identify ways to stabilize costs to offset any revenue losses
independent of our rate increases. As mentioned earlier, we are on
track to take $5 billion in cost out of the system by 2006.
Concurrently, we are working to enhance our products to keep pace with
customer needs and grow revenue.
Question. What is the Postal Service doing to reverse the revenue
losses it has experienced with Express Mail since 2000 and Priority
Mail since 2001?
Answer. In terms of Express Mail and Priority Mail, customers have
told us that the four most important factors in choosing a shipping
company are service/reliability, price, ease of use/access, and
information.
In late 2001, we entered into a transportation agreement with FedEx
to fly a significant portion of our Express Mail and Priority Mail. As
a result, costs were reduced and service levels are at an all time
high. We are also regularly reviewing our Express Mail network for
opportunities to expand our overnight reach.
Some of the cost-reduction initiatives we are working on include
processing and barcode standardization to increase automation of the
parcel mail-stream. We recently awarded a contract for 75 Automated
Package Processing Systems (APPS) that will provide high-speed parcel
and bundle processing, reduce labor costs, and provide en route
tracking information for customers.
Another initiative to help generate revenue was our recent launch
of a pre-paid Priority Mail Flat Rate envelope to make it easier for
customers to use Priority Mail service. We are also evaluating a Flat
Rate Priority Mail box. These products will make it easier for
customers to mail documents and merchandise anywhere in the country for
one flat rate without the need for weighing and rating to determine how
much postage needs to be placed on their package. We also enhanced our
parcel pickup capabilities by allowing customers to notify their local
post office when they have prepaid Priority Mail and Express Mail
packages to be shipped. The notification alerts their carrier to pickup
the packages at the same time they deliver their mail. Since we are
already at the address, there is no charge for the pickup.
PUBLIC-PRIVATE PARTNERSHIP
Question. The President's Commission stated that the Postal Service
should continue to look for opportunities to offer discounts for
additional work-shared products and to expand opportunities for small
mailers to participate in them, particularly as new technologies are
developed, that reflect the lowest combined public-private sector
costs.
Does the current rate-setting environment prevent the
implementation and acceptance of work-sharing discounts with large
mailers and cost the USPS potential sources of revenue?
Does the Postal Service believe the work-share discounts are
appropriate?
What opportunities does the Postal Service foresee regarding
additional work-sharing and what impact will it have on the budget?
Answer. The current rate setting environment has not prevented the
implementation or acceptance of generic worksharing discounts. Generic
discounts are available to all postal customers and are used by
thousands of customers; they are applied in a standard manner for use
at thousands of postal facilities. We note that these thousands of
customers are not only large mailers, but also small, local businesses
and nonprofit organizations.
Many customers or groups of customers have different mail
preparation capabilities. At the same time, the operations of different
postal facilities can be enhanced by variations in mail preparations
designed to accommodate unique mailing needs. This creates potential
opportunities to design worksharing arrangements for small groups of
customers (niche classifications) or individual customers (negotiated
service agreements or NSAs.) The current rate setting process often
involves protracted and expensive litigation for these relatively
simple cases. For instance, a current small filing for Periodicals,
which affects primarily one mail preparer and roughly a tenth of 1
percent of total mail volume, is 3 months into what is an
``accelerated'' schedule. Realistically, this process cannot be
repeated for thousands of customers or customer niches.
The Postal Service is a strong supporter of workshare discounts. In
testimony before the President's Commission on the U.S. Postal Service,
Chief Marketing Officer Anita Bizzotto stated:
``Partnering with customers through worksharing has been one of the
major success stories of the U.S. Postal Service over the past 30
years. These partnerships, now valued at $15 billion a year, have
provided affordable mailing alternatives for customers; reduced Postal
Service costs; and; have been a primary source of mail volume growth.
These partnerships and worksharing discounts have helped usher in the
age of automation by encouraging customers to prepare machine-readable
mail and have remained an important tool for aligning the mail with the
operating environment.''
Some opportunities for additional worksharing will come in the form
of more customized arrangements. At the same time, there is still
opportunity for new generic arrangements. For instance, we believe more
incentives are needed to encourage the transporting of magazines and
newspapers downstream closer to their points of delivery. Such
destination entry incentives have been successful in holding down rate
increases for parcel and advertising mail customers but current policy
has limited the applicability of these incentives. We have not
succeeded in extending worksharing opportunities to Priority Mail but
we are looking for opportunities that would serve the needs of Priority
Mail customers.
Lastly, we are concerned that the language in some of the
legislative proposals may have a harmful effect on workshare in the
future. In general, the more rigid standards which are applicable only
to worksharing rates run counter to attaining one of the enunciated
goals of postal reform: a more flexible rate structure. Rigid standards
for worksharing rates would limit the Postal Service's ability to
implement and maintain workable worksharing rates in a dynamic
operating environment.
RETAIL STORES REVENUE
Question. Has the Retail Network Optimization Plan been
implemented?
Answer. Since the initial development of the Transformation Plan,
the Postal Service has established a retail direction that is focused
on access, convenience, and ease of use for the customer. Building upon
these goals, we have implemented a program that allows customers to
purchase postage on-line, enabling letter carriers to pick up their
postage materials when the carrier is delivering to the area. This is
accomplished via the USPS Web site and eliminates the need for a
special trip to the Post Office, which is a real convenience to small
businesses and consumers who cannot always make a visit to the post
office during normal businesses hours.
Our retail network of access is evolving on a continuing basis and
does not easily fit into an absolute optimization plan. For example,
since the development of the Transformation Plan was announced, we have
implemented a much more robust Web access channel. We do know that in
order to serve the customer we must be where they work, shop, and live.
Our focus is to provide that access and to adjust the network to meet
those needs.
In the Transformation Plan we talked about technology and the role
it plays for retail. We have begun the roll-out of 2500 Automated
Postal Centers (APCs), that enables our customers to perform 80 percent
of the most common transactions that take place at our counters. They
are located in our busiest offices and provide access to our products
and services up to 24 hours a day, 7 days a week. Implementation will
be completed by December of this year.
The retail network continues to evolve, and like most businesses it
is more than ``brick and mortar''--all of the access points are
critical in order to provide universal service. The Postal Service will
continue to review, monitor, and adjust this network (expansion and
consolidation) to ensure that it is operating as efficiently as
possible and providing needed services to our communities.
Question. How were threshold values (proximity to other postal
facilities, retail productivity indicators, number of households,
deliveries, walk-in revenue, and small business accounts) determined?
Answer. We do not have established thresholds for the Postal
Service. We have a database that contains this type of information that
we provide to the field to help them determine how to adjust their
retail operations to meet the needs of customers.
EMERGENCY PREPAREDNESS EXPENSES
Question. Since 2002, Congress has provided emergency
appropriations to support the Postal Service's anthrax emergency
preparedness activities. After the attacks, Congress appropriated $762
million to decontaminate postal buildings and to buy and install
biohazard detection equipment. The Postal Service reportedly has spent
a total of $971 million on emergency preparation, which include $209
million from its revenue.
Please provide an overview of what this funding has been spent on
to date.
Answer. Following this paragraph, please find excerpts from the
Postal Service's fiscal year 2005 Budget Congressional Submission,
which addresses emergency preparedness costs to date, as well as our
appropriations request. The following is information quoted directly
from this document.
U.S. Postal Service Fiscal Year 2005 Budget Congressional Submission,
page 12:
``Pursuant to Public Law No. 107-117, the Postal Service submitted
on March 6, 2002, an Emergency Preparedness Plan that outlined and
discussed in detail the activities considered necessary to provide for
the safety of our employees and customers. The Plan covered a span of
several years and the activities are categorized as Near-Term,
Intermediate-Term and Long-Term in describing the time frames during
which these activities are planned. At the request of the
Appropriations Committee, an update to the Plan was submitted April 30,
2003.
``In the Plan, obligations for the Near-Term activities identified
for fiscal year 2002 were projected to total $587 million. Of this
total, $500 million was funded by Public Law 107-117, and $87,000,000
was funded by Public Law 107-206.
``No funding for emergency preparedness was included in the initial
Postal Service Fiscal Year 2003 Budget Request pending completion of
the Emergency Preparedness Plan, however, a fiscal year 2003 budget
amendment request was subsequently forwarded to the Office of
Management and Budget to fund activities totaling $799.8 million
relating to fiscal year 2003.
``The Postal Service 2004 Budget requested $350 million to continue
emergency preparedness activities.
``No additional funding beyond the $587 million, received in 2002,
has been received.
``The Plan and related requests are dynamic and, as such, some
modifications are necessary as our field-testing proceeds, our
knowledge of biohazard detection increases, and as technology
matures.''
U.S. Postal Service Fiscal Year 2005 Budget Congressional Submission,
page 13:
``Significantly more funds than originally anticipated were
required to clean and restore two mail processing centers that had been
closed due to anthrax contamination. Safety was the paramount concern
in performing this task and actions were coordinated with several
scientific, medical, and government agencies. Delays were experienced
due to questions regarding indemnification of contractors performing
the process and the sheer scale of the task for which EPA required
additional testing and verification. Reimbursement is now requested for
the additional costs required in the refurbishment of these facilities.
``A major portion of the $779 million Emergency Response funds
requested for fiscal year 2005 and prior years will be used to continue
acquisition and deployment of ventilation and filtration (VFS)
equipment that was initiated with the funds provided previously. A
portion of the $587 million provided during fiscal year 2002 is being
used to develop, acquire and install VFS on our culling and canceling
equipment. Our Emergency Preparedness Plan discussed further deployment
of VFS equipment to be installed on our delivery barcode sorters (DBCS)
and automated flat sorting machines (AFSM) 100 and loose mail systems.
The $779 million includes funding for the DBCS and AFSM 100 VFS
acquisition and deployment.''
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year
Item Prior Years 2005 Total
----------------------------------------------------------------------------------------------------------------
Building Restoration............................................ 268,800 .............. 268,800
Biohazard Detection System...................................... 402,700 24,000 426,700
Ventilation and Filtration...................................... 271,700 364,000 635,700
DC Area Mail Irradiation Facility............................... 9,000 7,000 16,000
Other........................................................... 18,800 .............. 18,800
-----------------------------------------------
Subtotal.................................................. 971,000 395,000 1,366,000
Appropriation Received.......................................... -587,000 .............. -587,000
-----------------------------------------------
Total..................................................... 384,000 395,000 779,000
----------------------------------------------------------------------------------------------------------------
______
Questions Submitted by Senator Patty Murray
CONSOLIDATION OF RURAL POST OFFICES AND CLOSURE OF SMALL POST OFFICE
Question. There have been instances when the Postal Service does
not consult with or officially inform the customers and community prior
to closures or consolidation. Why not? What is the process employed by
the Postal Service when it closes a facility or consolidates
facilities?
Answer. The Postal Service follows post office closing and
community notification procedures outlined in Title 39. There are
occasions, however, due to emergency situations such as loss of lease
with no suitable alternate quarters, a natural disaster or flood where
there are no suitable alternate quarters or other similar emergencies.
The Postal Service considers a suspension a temporary situation until a
decision is made to either re-open the facility or propose
discontinuance. If discontinuance is proposed, then a community meeting
along with customer questionnaires are sent out to gather input from
the community.
Attached are the Postal Service regulations governing the
discontinuance and emergency suspension of postal facilities.
POSTAL FACILITY CONSTRUCTION
Question. The fiscal year 2004 Omnibus Appropriations bill directed
the Postal Service to report on localities that require a new postal
facility, the current conditions of post offices in need of renovation,
and when a new facility or replacement will be built. The report is
required within 90 days of the enactment or by my count, April 22,
2004. Can you give me a preview of what the report will say? What is
the status of postal facilities in Washington State and is there a need
for any new construction or renovation in my State?
Answer. In fiscal years 2001 and 2002 and part of 2003 due to
financial constraints, the Postal Service implemented a freeze on
capital and expense investments related to facilities. Exceptions to
the freeze were allowed for ongoing construction and, on a case-by-case
basis, projects were submitted to Headquarters for review and approval
to address health and safety, emergency, legal, and lease pre-emption
issues. Exceptions were also allowed for repair and alteration of
facilities due to legal, health and safety, emergency, and maintenance
of our infrastructure.
During fiscal year 2003, the freeze was lifted. Annual budgets were
established for repairs and alterations. Repair and alterations
continue to be limited to projects addressing legal, health and safety,
emergency, and infrastructure maintenance issues, within the budget
provided. At the same time, a new national prioritization system was
established for new or replacement customer service projects. This
process focused on space deficiency and growth, and continued to allow
exceptions to be submitted as part of the prioritization process and
throughout the year for health and safety, emergency, legal, and lease
preemptions issues, as well as those projects which generated favorable
returns on investment. The projects included on the list depend on the
funds available in the budget and the priority scores of the projects
submitted. These do not include numerous other projects which are
approved on an ongoing basis as exceptions.
As a result of the actions above, we believe we are addressing our
most critical facility needs and prioritizing projects within the
funding available.
Regarding Washington State facilities, the following is a list of
projects being pursued as part of approved plans:
New Facility Projects
--Bickleton Main Post Office
--Clarkston Main Post Office
--Ford Main Post Office
--Lake Stevens Carrier Annex
--Lilliwaup Main Post Office
--Seattle--Wedgewood Carrier Annex
--Southworth Main Post Office
--Spokane Vehicle Maintenance Facility
--Union Main Post Office
Repair and Alteration Projects
--Auburn Main Post Office--lobby remodel
--Colfax Main Post Office--life safety systems upgrade
--Newport Main Post Office--heating/air conditioning replacement
--Pasco--Processing & Distribution Facility--heating/air conditioning
controls
--Pullman Main Post Office--security upgrade
--Spokane--Hillyard Station--enlarge collection box drop-off lane
--Spokane Processing & Distribution Center--install concrete pad
enclose dock
--Tacoma Processing & Distribution Center--security upgrade
--Vancouver--Downtown Station--window replacement
--Veradale Main Post Office--enclose dock
POSTAL REFORM/REGULATORY BOARD ISSUES
Question. Legislation enacted last year shifted the responsibility
of funding civil service retirement benefits earned by postal employees
while they served in the military from the Treasury Department to the
Postal Service. I understand that most of the financial obligation is
due to military service performed before the modern-day Postal Service
was even created in 1970. The President's Commission recommends that
military service costs not be borne by the Postal Service. What would
be the financial impact on the Postal Service if the Postal Service is
to be responsible for this $27 billion cost?
Answer. The Postal Service has submitted two proposals concerning
the disposition of these funds. Our first proposal requests that the
United States Treasury again be required to fund all CSRS costs
associated with the military service of Postal Service employees and
retirees. Our second proposal assumes that responsibility for funding
military service costs is transferred to the Postal Service.
Under the first proposal, in fiscal year 2006, the Postal Service
will contribute $5 billion to fund and pre-fund retiree health benefits
for all career employees; under the second proposal it will contribute
$1.9 billion to fund retiree health benefits and to pre-fund retiree
health benefits for career employees hired after fiscal year 2002. The
difference in the amounts reflects the fact that returning the funding
of CSRS costs of military service to the Treasury increases the
``savings'' under the Act, and makes available additional funds that
can be used to pre-fund retiree health benefits for career employees.
Both proposals address the funding retiree health benefits, which
we estimate to be valued at between $40 billion and $50 billion,
depending on the long-term medical inflation assumption used, at the
end of fiscal year 2002. At the end of fiscal year 2003, post-
retirement health benefit obligations were estimated to be valued
between $47 billion and $57 billion.
Each proposal stands on its own merits. Neither was designed around
its impact on rates. The first proposal returns to the U.S. Treasury
the responsibility for funding CSRS pension costs earned by military
service of Postal Service employees and uses funds made available from
this adjustment to pre-fund retiree health benefits cost for current
Postal Service employees. However, to provide the required level of
funding, an additional $1.2 billion in funds would be necessary,
causing a 2 percent increase in rates.
In our second proposal, it is assumed that the transfer of CSRS
military service costs to the Postal Service is not reversed and that
retiree health benefits are pre-funded only for new employees hired
after fiscal year 2002, when the pension funding reform legislation was
enacted. This would require approximately $200 million more in
additional funds, causing a 0.3 percent increase in rates. It would be
possible to select arbitrarily a different hire date for funding
employee retiree health benefits for new employees to match the
additional funding requirement of $1.2 billion, but it would be just
that, arbitrary.
Question. I also want to let you know that I have heard concerns
from constituents about the recommendation to establish a new Postal
Regulatory Board. This entity would replace the current Postal Rate
Commission and significantly expand its authority. What are your views
on this proposal?
Answer. We understand the rationale the President's Commission has
defined for the Postal Regulatory Board. Yet regulators are normally
required to operate within limits and guidelines. Regulated private
companies and their shareholders have legal protections against
arbitrary action by the regulator that the Postal Service cannot have
as a government institution.
At the least, there should be standards drawing a clear line
between what is appropriately a managerial function within the
oversight of the Governors or Directors, what is a regulatory function
committed to the regulator, and what is a public policy function
reserved to the Nation's lawmakers.
For instance, the Postal Regulatory Board can revisit the vital
national issues of the postal monopoly and universal service. These are
clearly issues of broad public policy that should be resolved as part
of our management responsibilities, as determined by Congress.
They are not regulatory issues. Without defined limits or
guidelines, the regulator could conceivably limit the monopoly in such
a way as to jeopardize universal service or even redefine the scope of
the Nation's mail service itself.
The powers of the proposed Postal Regulatory Board could also
affect the outcome of the collective-bargaining process. The Postal
Service has been, and continues to be, a strong supporter of collective
bargaining. This process of give and take assures that the interests of
our employees--and the unions that represent them--are considered
within the larger picture of the Postal Service's financial situation
and the needs of our customers.
By determining the range within which wages may be negotiated, the
Postal Regulatory Board could impede the ability of the parties to
successfully negotiate agreements.
REVENUE FOREGONE REIMBURSEMENT
Question. Mr. Potter, I understand that for the first time ever,
the fiscal year 2005 President's Budget does not include the $29
million reimbursement to the Postal Service for the revenue foregone
debt. Do you know why this has occurred? Do you consider this a
violation of the agreement that has been in operation since the early
1990's when legislation was enacted that promised the Postal Service
$29 million annually from 1994 through 2035?
Answer. The Office of Management and Budget (OMB) did not provide
us with their rationale for not including our request for payment of
earned but unpaid Revenue Foregone appropriations in the President's
fiscal year 2005 budget request.
In a December 3, 2003 letter to OMB Director Bolton, the Postal
Service formally requested that OMB reconsider the funding reductions
of the Postal Service, including reductions in revenue foregone
payments, which OMB had proposed to include in the President's budget
request. An OMB official verbally informed us on December 17 that our
requested changes had been denied.
In accordance with the Revenue Foregone Act of 1993, the Postal
Service is to receive $29 million annually through 2035. These
payments, totaling $1.2 billion, cover the cost of services we provided
in fiscal years 1991 through 1993, but for which there were
insufficient amounts appropriated. They also cover payment for services
provided from fiscal year 1994 through 1998. The payment requested for
fiscal year 2005 would be the twelfth in the series of scheduled 42
annual payments.
In an unusual departure from past Presidential budget submissions,
the 2005 budget is silent on this statutory reimbursement. The Postal
Service is required under generally accepted accounting principles to
reduce the value of an amount receivable to reflect any uncertainty as
to full payment. As a result, the failure to receive these funds may
require the Postal Service to treat these remaining payments, which
amount to nearly $900 million, as a bad debt, significantly increasing
our costs. As we work to address our long-term obligations in a
responsible manner, it is counterproductive to increase costs by
writing off a debt deferred by interest-free installment payments
spread over a period of 42 years.
The second part of our request is for $75.9 million for free mail
for the blind and for overseas voting materials, as defined by statute.
This provides funding for the free mailing of materials used by the
blind and others who cannot use or read conventionally printed
materials. It also includes absentee balloting materials that can be
mailed free by members of the armed forces and other United States
citizens residing outside of the United States, and balloting materials
that can be mailed in bulk between State and local elections officials.
Our appropriations request for free mail differs from the
President's budget proposal of $61.7 million. The President's budget
proposes to continue the practice of ``advance'' funding the amount
requested for free mail. This means that funding is ``advanced'' until
the fiscal year following the actual mailings and not made available to
the Postal Service until after these mailings have been handled and
delivered. The Postal Service is not authorized to control or limit
these mailings to reduce the funding needed. And while that is not a
role we seek, the simple fact is that we have no way to mitigate the
shortfall in funding. Providing less than the requested amount will
only compound the financial burden caused by the current ``advance''
funding.
The amounts due under this Act are for the absolute nominal costs
incurred related to services previously performed. The Act's
requirements to reimburse the Postal Service over an extended time
period with no payment of interest places additional cost burdens on
other postal rate payers. For this reason, the Postal Service in the
past has requested an accelerated repayment program.
POSTMASTER VACANCIES
Question. According the Postal Service, there are more than 1,600
post offices with postmaster vacancies. Please explain what steps are
being taken to fill these postmaster slots.
Answer. Six hundred of the current 1,600 vacancies consist of
emergency closings and/or other non-vacancy, leaving about 1,000 valid
vacant postmaster positions. The attrition rate in the Postal Service
is about 5 percent, which equates to approximately 1,380 (5 percent of
the total post office count of 27,620). With about 1,000 currently, we
are below the number of postmaster vacancies that would be expected.
The entire hiring and promotion process takes, at the very least, 90
days and includes the following: vacancy announcement posting, review
of applications, interview of the most eligible applicants, and
generating the selection and non-selection communication.
Vacant post offices are often used to develop employees who have
identified the position of postmaster as a career goal, with the
average developmental assignment lasting about 90 days. As positions
are filled, others become vacant, which creates a constant vacancy rate
of about 3 to 5 percent or 830 to 1,380 positions. The Postal Service
is currently within that range.
______
Questions Submitted by Senator Robert C. Byrd
Question. The administration has proposed to permanently repeal the
annual appropriation for foregone revenue. What effect do you
anticipate the permanent repeal of this appropriation would have on
postal rates?
Answer. The receipt of these funds for past services performed is
used to pay for current-period expenses. Accordingly, if the funds are
not received, the price of stamps will increase directly related to
these costs.
If the entire sum were written off as bad debt, postal rates could
increase by approximately 0.5 percent in the year of the write-off. In
each of the remaining years of the payment period, lesser, but direct,
rate increases would result.
On average we would expect the rate increase to be similar for all
mailers. However, since commercial mail comprises more than 70 percent
of all mail, we would expect that in terms of absolute dollars,
commercial mailers would shoulder the greatest burden.
If any of the payments due as specified in the Revenue Foregone
Reform Act of 1993 are not received, the loss in reimbursement for
services performed will increase postal rates directly. Accordingly,
postal rate payers will fund the hundreds of millions in debt
authorized to be paid through appropriation.
Question. Under postal pension reform legislation (Public Law 108-
18) enacted last year, the U.S. Postal Service will be required to
assume all pension costs associated with Postal employees with military
experience. What effect do you anticipate that this provision will have
on postal rates?
Answer. The Postal Service has submitted two proposals concerning
the disposition of these funds. Our first proposes that the United
States Treasury again be required to fund all CSRS costs associated
with the military service of Postal employees and retirees. Our second
proposal assumes that responsibility for funding military service costs
is transferred to the Postal Service.
Under the first proposal, in fiscal year 2006, the Postal Service
will contribute $5 billion to fund and pre-fund retiree health benefits
for all career employees; under the second proposal it will contribute
$1.9 billion to fund retiree health benefits and to pre-fund retiree
health benefits for career employees hired after fiscal year 2002. The
difference in the amounts reflects the fact that returning the funding
of CSRS costs of military service to the Treasury increases the
``savings'' under the Act, and makes available additional funds that
can be used to pre-fund retiree health benefits for career employees.
Both proposals address funding retiree health benefits, which we
estimate to be valued at between $40 and $50 billion, depending on the
long-term medical inflation assumption used, at the end of fiscal year
2002. At the end of fiscal year 2003, post-retirement health benefit
obligations were estimated to be valued between $47 billion and $57
billion.
Each proposal stands on its own merits. Neither was designed around
its impact on rates.
The first proposal returns to the U.S. Treasury the responsibility
for funding CSRS pension costs earned by military service of Postal
Service employees and uses funds made available from this adjustment to
pre-fund retiree health benefits cost for current Postal Service
employees. However, to provide the required level of funding, an
additional $1.2 billion in funds would be necessary, causing a 2
percent increase in rates.
In our second proposal, it is assumed that the transfer of CSRS
military service costs to the Postal Service is not reversed and that
retiree health benefits is pre-funded only for new employees hired
after fiscal year 2002, when the pension funding reform legislation was
enacted. This would require approximately $200 million more in
additional funds, causing a 0.3 percent increase in rates. It would be
possible to select arbitrarily a different hire date for funding
employee retiree health benefits for new employees to match the
additional funding requirement of $1.2 billion, but it would be just
that, arbitrary.
Question. What are the likely financial ramifications of the
sequestration of the U.S. Postal Service's Civil Service Retirement
System (CSRS) contribution savings as a result of Public Law 108-18?
Answer. Under this reform legislation, it will be necessary to
include the ``savings'' as an expense in the revenue requirement of
future rate filings. Therefore, in order to obtain funds to place in an
escrow account in fiscal year 2006, a 5.4 percent increase in postage
rates will be required unless the law is amended. Additionally, bi-
annual postage rate increases between 1.0 percent and 1.5 percent would
be necessary just to cover the escrow requirements over the next 15
years. These escrow-driven rate increases will cause further declines
in mail volume, contributing to the need for higher additional rate
increases in order to fund the ever expanding delivery network.
Question. How will the repeal of the foregone revenue
appropriation, the assumption of military pension costs, and the
sequestration of CSRS pension savings affect the Postal Service's long-
term transformation?
Answer. These actions, all of which require the Postal Service to
subsidize the Federal Government, are nothing more than a transfer of
its obligations from taxpayers to postal ratepayers. These transfers,
totaling billions of dollars, will jeopardize the financial viability
of the Postal Service and its long-term transformation efforts. It
makes no sense in any circumstance to retroactively transfer such costs
to the Postal Service, a self-sustaining public organization. But, in
order to defray the financial obligations of the Federal Government,
these actions would: transfer to the Postal Service the Federal
Government's obligations of over $27 billion for military service
pension costs; deny the Postal Service nearly $900 million in revenue
foregone funds due for services it provided between 1991 and 1998; and
deprive the Postal Service of an estimated almost $70 billion of its
own pension over-funding. Further, in 2006, the Postal Service will be
required to place the ``savings'' resulting from the Act in an escrow
fund that, over time, would require postal rate payers to pay higher
rates in order to fund the additional $70 billion escrow requirement.
Taxing the Postal Service with these transfers at this time ignores the
organization's critical business needs and the significant financial
challenges resulting from declining mail volumes and the requirement to
fund an ever expanding delivery network necessary to provide universal
service.
Further, implementing these cost transfers to the Postal Service
would ignore the stated concerns of the President's Commission on the
United States Postal Service regarding the fiscal health of the Postal
Service and would run counter to the Commission's recommendations for
actions necessary to institute a transformative business model for the
Postal Service.
Question. What is the status of the implementation of the Postal
Service's Emergency Preparedness Plan?
Answer. The Emergency Preparedness Plan covers four major areas:
health-risk reduction, detection, intervention, and decontamination.
First and foremost, we have been working swiftly over the past 2 years
to ensure the safety and security of our employees and customers. While
many efforts are underway, we are accomplishing this monumental task
primarily through the development of leading-edge technologies and
changes to our standard operating procedures.
Health-Risk Reduction
We have introduced improved standard operating procedures,
including the use of High Efficiency Particulate Air (HEPA) vacuums to
clean our mail processing equipment. Additionally, the Postal Service,
in conjunction with the National Institute of Occupational Safety and
Health (NIOSH), developed Ventilation and Filtration Systems (VFS).
These systems are installed on key mail processing machines and
function to collect and contain airborne particulates from the machines
during mail processing operations. We have purchased over 1,300 systems
to be deployed at our 282 major mail processing centers nationwide.
National deployment of the systems began in April 2004.
Detection
The Postal Service has developed the Biohazard Detection System
(BDS) to act as an early warning system against the threat of
biohazards that may enter our mail network. We currently plan to
install 1,708 detection systems at 282 facilities nationwide. National
deployment of the BDS began in April 2004 and we currently have a total
of 32 BDS systems in operation.
In accordance with our threat assessment, we are also reviewing
upgrades to the BDS that will allow for the detection of additional
threats including toxins such as Ricin.
Intervention
We continue to irradiate government mail prior to its delivery.
This process neutralizes hazardous substances that may be contained in
the mail. We are meeting this commitment by contracting with IBA in
Bridgeport, NJ to irradiate and sanitize the government mail.
Additionally, we are considering plans to build and operate our own
irradiation facility specifically designed to meet our needs. The
facility will significantly reduce our annual operating expenses and
improve our service with respect to government mail.
Decontamination
We have successfully decontaminated both Postal Service facilities
that where closed due to the anthrax attacks of 2001. The Curseen/
Morris facility (formerly known as the Brentwood facility) in
Washington, DC resumed operations in December of 2003 and continues to
operate today. The Trenton, NJ facility was successfully decontaminated
in February 2004. Efforts are underway to refurbish this building and
it is expected to begin operations in early 2005.
SUBCOMMITTEE RECESS
Senator Shelby. We wish you well and thank you for
appearing with us.
Mr. Potter. Thank you, Mr. Chairman.
Senator Shelby. The subcommittee is recessed.
[Whereupon, at 11:14 a.m., Thursday, April 1, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
WEDNESDAY, APRIL 7, 2004
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 10:17 a.m., in room SD-138, Dirksen
Senate Office Building, Hon. Richard C. Shelby (chairman)
presiding.
Present: Senators Shelby and Reid.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
STATEMENTS OF:
MARK O. EVERSON, COMMISSIONER
PAMELA J. GARDINER, ACTING TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION, DEPARTMENT OF THE TREASURY
Senator Shelby. The subcommittee will come to order.
Good morning. I would like to welcome Internal Revenue
Service (IRS) Commissioner Mark Everson and Pamela Gardiner,
the Acting Treasury Inspector General for Tax Administration
(TIGTA) to this morning's hearing. I look forward to hearing
each of your views on the IRS's administration and enforcement
of our Nation's tax code.
As we all know, the April 15th tax filing season deadline
is rapidly approaching. Each year the subcommittee requests
that the IRS Commissioner appear before it in order to provide
an update on how the Service is responding to the influx of
questions and assistance that taxpayers need to correctly file
their tax returns. This year we have also asked TIGTA to
participate in order to provide a different perspective on the
IRS's performance.
I have taken note of the IRS's stated mission to provide
America's taxpayers with top quality service by helping them to
understand and meet their tax responsibilities, and by applying
the tax law with integrity and fairness to all. This mission
statement is appropriate, but some might question whether we
are making progress toward achieving that goal.
The IRS continues to face numerous challenges in tax law
enforcement, customer service, and the modernization of its
computer systems. While some strides have been made in some
areas, much work remains to be completed. Each one of these
tasks would prove difficult to undertake individually and to
tackle all three at once is daunting indeed.
I look forward to discussing each of these areas with both
of you. The strength and weakness of our Nation's Federal
income tax system is its reliance on the voluntary compliance
of American taxpayers. Most Americans make every effort to
comply with the law and pay their taxes. But as with any law,
some intentionally seek to avoid compliance or engage in
outright fraud. That is why effective enforcement of our tax
laws is so important. If enforcement is lax, ineffective, or
uneven, it encourages more people to commit fraud.
IRS ENFORCEMENT FUNDING
While it is uncertain whether tax fraud is on the rise, I
am certain that funding for the IRS tax enforcement has been
and will continue to be an important priority for the
administration and for the Congress. Over the past several
years Congress has consistently increased funding for tax law
enforcement, including a $265 million increase this past year.
In each fiscal year since 2000, Congress provided the IRS
with additional funding to increase its enforcement staff.
Inexplicably, these staffing needs were not filled and the
funds were instead used for other budgeted expenses. The use of
these additional dollars to cover other funding shortfalls
rather than increase staffing belies the priority the Service
claims to place on enforcement. This diversion of funds is in
direct contravention to your own statements, Mr. Commissioner,
and is simply unacceptable.
The first and foremost mission of the IRS must be to ensure
the full and fair compliance of all U.S. taxpayers with their
tax obligations. Yet, how can we ensure that the IRS is taking
its enforcement responsibilities seriously if we continue to
allow the Service to spend its funding for purposes other than
that for which they have been requested and for which Congress
has provided them?
If there are administrative shortfalls caused by absorbing
pay increases or diverting funds to other priorities and other
unbudgeted items, then the IRS should ask for funding for these
expenses and not hide behind claims of underfunding of
initiatives such as customer service and enforcement. With
100,000 employees and an annual budget that exceeds $10
billion, I find it hard to believe that the IRS lacks the
resources it needs to get the job done.
I look forward to hearing both your comments and any update
on how the IRS is utilizing the additional $265 million in
enforcement and compliance funding appropriated recently. In
the long term, a strong enforcement capability supported by
necessary funding will continue to be a key part of combating
tax non-compliance. But enforcement alone will never be enough.
The IRS must provide high-quality customer service to assist
taxpayers. I believe that many people who fail to comply with
the code do so unintentionally because of its difficulty and
complexity. Accurate and timely guidance from the Service is
imperative to ensuring taxpayer compliance.
The IRS is to be commended for the improvements it has made
in customer service over the past few years. Helpful guidance
is now much more accessible by way of the Internet, telephone,
and in-person assistance. The accessibility of e-file options
has eased the burden of filing tax returns for both the
Government and the taxpayer.
While the IRS has improved its responsiveness to taxpayer
questions, the troubling fact remains that nearly one in four
callers to its toll-free helpline receive inaccurate guidance.
The numbers are only slightly better for online questioners and
considerably worse for those taxpayers who seek in-person
assistance in an IRS-operated taxpayer assistance center.
I was even more alarmed, Mr. Commissioner, after learning
of TIGTA spot audit visits to 26 different assistance centers
throughout the country that uncovered, ``IRS employees
incorrectly prepared 19 of 23 tax returns that they prepared,''
during the audits. How can we expect taxpayers to understand
and comply with the complexities of the tax code when IRS's
employees themselves have so much trouble understanding and
explaining it?
Our Federal tax code is a large part of the problem. The
code and accompanying regulations are more than 54,000 pages
long, and are too complex, too confusing and costly to comply
with. Comprehensive reform of the tax code itself would go a
long way towards reducing tax fraud by making the process
simpler and the system fairer for all taxpayers. Additionally,
a less complex tax code would provide fewer opportunities for
cheaters and reduce the paperwork burden for all taxpaying
Americans.
I continue to believe that a simple and transparent tax
structure would promote taxpayer compliance and lead to
increased collections for the Treasury, while also markedly
reducing the huge cost of administration and enforcement of our
current tax system.
BUSINESS SYSTEMS MODERNIZATION
Now I would like to focus for just a few minutes on an area
of particular concern to me, the ongoing effort to modernize
the IRS computer systems, known as Business Systems
Modernization (BSM). This effort has been ongoing for a number
of years, and it has consistently run over schedule and over
budget while also failing to achieve meaningful milestones for
its development.
Mr. Commissioner, your budget request wisely seeks a
decrease of $102 million for BSM. I agree that now is an
appropriate time to focus on reengineering efforts to achieve
the goals set for the BSM initiative. This initiative was
supposed to be completed in 10 years. However, I do not believe
that anyone expects this schedule to be achievable as schedule
delays continue to be the rule, not the exception, to this
ongoing effort.
By way of example, the Customer Account Data Engine (CADE),
the centerpiece of the entire BSM effort, was originally
scheduled to roll-out in January of 2002, 2 years ago. Former
Acting Commissioner Wenzel last year testified that CADE would
be ready in August of 2003. It is now April 2004, and there is
still no sign of CADE. True to form, CADE is not only late but
significantly over budget. These schedule slippages and cost
overruns have been epidemic. In fact, the IRS is running late
and is over budget on all seven core projects related to BSM.
I am very concerned that BSM is becoming the 21st-century
version of the Tax Systems Modernization (TSM) program which
was abandoned after consuming $4 billion of Federal tax
dollars. That prior modernization effort was a complete loss.
The current BSM effort began in 1998 and has already cost $1.7
billion. This program, like TSM before it, raises more
questions than it answers. As you noted, Commissioner Everson,
in February of 2002, ``good intentions and good beginnings are
not the measure of success. What matters in the end is
completion, performance, and results.'' Applying your own
standard, Commissioner Everson, I think you will agree that the
BSM effort has woefully under-performed.
I look forward to hearing the thoughts of both witnesses as
to the best approach to take to keep this all-important
modernization program on track. Again, I welcome you to the
committee. Your written testimony will be made part of the
record in its entirety, and Mr. Commissioner, we will start
with you.
STATEMENT OF SENATOR HARRY REID
Senator Reid. Excuse me, can I make a statement?
Senator Shelby. Senator Reid. Excuse me.
Senator Reid. I also feel at somewhat of a disadvantage.
You are 6 foot 4 and I am just a small guy, and you have got a
pad under your chair and I am here in this hole. It does not
seem fair to me, Mr. Chairman.
Senator Shelby. I do not think you would be at a
disadvantage to anybody, Senator Reid.
Senator Reid. I briefly want to just say this. I have a
statement that is prepared and I do not want to take the time
of the committee, but I would ask your permission that it be
made part of the record.
Senator Shelby. It will be made part of the record in its
entirety and you may proceed as you wish.
Senator Reid. Mr. Chairman, let me just say this. I hope
that we can give the Commissioner of the Internal Revenue
Service (IRS) the money that has been requested. I hope we do
not have to cut that. I say that because we in Nevada have been
faced with someone who has been indicted, and I think that is
good, but he has promulgated falsehoods around the country
saying you do not have to pay your taxes, and thousands of
people have followed his lead. As a result of that, it is just
one indication of why we have to have an Internal Revenue
Service that has the manpower to collect the money that is due
the government, because it places an unfair burden on those of
us who pay their taxes fairly, if others are not.
PREPARED STATEMENT
Nobody likes to pay their taxes, but I would hope that we
would give the Internal Revenue Service the tools they need to
collect the taxes, and especially the tools to go after those
people who are, like the person in Nevada, openly cheating.
They do not have the manpower to do this adequately and I hope
we can help them in that regard.
[The statement follows:]
Prepared Statement of Senator Harry Reid
Mr. Chairman, I want to thank you for calling this important
meeting to talk about one of the most serious challenges facing the
Internal Revenue Service today--the mismatch between the resources
devoted to the Service's enforcement activities and the results that we
in Congress and the public at large expect of it.
Back in his 1996 State of the Union address, President Clinton
declared that the ``era of big government is over.'' Generally
speaking, with the exception of homeland security and defense, that has
continued to be the case. It's a positive step to demand a more
efficient, effective, and accountable government. Bloated and wasteful
government is dangerous.
But there is also danger in not having enough government to perform
critical services in a responsible fashion. Take the S&L Crisis as an
example. Back in the 1980s and early 1990s, the pool of Federal bank
regulators shrank dramatically in size, training, and experience. That
was a material contributing factor in the savings and loan crisis that
saw over a thousand S&Ls with over $500 billion in assets fail. The
Federal bailout of S&Ls eventually cost us $124 billion. If we had
employed a better-trained, more experienced, and larger team of
examiners, we could have prevented that crisis at a miniscule fraction
of what it eventually cost us.
I view the IRS's enforcement budget in much the same way. It's not
that we're attempting to avert a crisis here--it's just that we have to
make sure that the IRS has the tools it needs to conduct its important
work effectively.
Nobody likes to pay their taxes, but taxes are necessary for our
society to function. And the collection of those taxes should be
efficient, accurate, and fair. Without an adequate staff and budget,
the IRS can't collect taxes efficiently, it can't collect them
accurately, and it can't collect them fairly.
Since 1996, the number of IRS agents has fallen from just under
23,000 to 16,750, which is a decline of nearly a third. The number of
taxpayers audited fell from 1.9 million to 849,000. Criminal cases
against alleged tax offenders have fallen by about half, and civil
cases have fallen by more than 60 percent.
Those numbers indicate that the IRS is experiencing difficulty
carrying out its mission--collecting revenue. Last year, the IRS chose
not to pursue $16.5 billion of taxes owed on 2 million tax returns,
mainly because of short-staffing. That represents 1.8 percent of the
total individual and corporate income taxes expected for 2003.
According to officials of the Service, many of these taxpayers would
pay their bills if an agent simply called them.
The problem extends beyond the delinquent accounts. As was noted in
yesterday's USA Today, the Service estimates that it loses $250 billion
every year from taxpayers who cheat, fail to file, or abuse tax
shelters. The lost revenue constitutes 10 percent of the Federal
budget. That amounts to almost as much as we spend on Medicare!
When the IRS has a limited organizational capacity to go after this
money--which is fairly owed--it means that the tax burden just got a
little bit heavier on everyone who pays their taxes honestly. That's
not right.
Furthermore, especially at a time when the Federal budget deficit
is $500 billion, we should be ensuring that everyone pays in full.
Sometimes in our haste to create a smaller government, we settle
for a considerably less efficient and productive government. That is
unacceptable when it comes to the enforcement activities of the IRS,
and I look forward to working with Commissioner Everson and his
talented associates to ensure that they are equipped with the resources
necessary to do their vital enforcement work.
Senator Shelby. Thank you.
Senator Reid. I am sorry to be here late.
PREPARED STATEMENT OF SENATOR PATTY MURRAY
Senator Shelby. That is okay, Senator Reid.
Senator Murray has submitted a prepared statement which
will also be included in the record.
[The statement follows:]
Prepared Statement of Senator Patty Murray
Thank you, Mr. Chairman. Over the past 3 years, our country has
pursued a destructive and inequitable economic policy centered on
providing tax cuts to the wealthiest Americans while restricting
spending on programs that help all Americans. As a result, our Federal
budget has gone from one of the greatest surpluses in its history to
the highest deficit ever known in the history of our country--$478
billion--close to half a trillion dollars in the current fiscal year.
But if that sea of red ink is not bad enough, it is even more
disturbing when you consider that a growing percentage of Americans
believe that it is okay to avoid the taxes that they do owe the Federal
Government.
Our IRS Commissioner, Mark Everson, is before the subcommittee
today to report that the estimated tax gap, the difference between what
the Nation's taxpayers actually owe versus the amount of actual tax
receipts paid has grown to the level of $255 billion.
In about 1 week from today, millions of American families who work
hard every day and play by the rules will struggle to write a check to
the Internal Revenue Service to cover their Federal tax liability while
the rich and the super-rich in this country will pay an increasingly
smaller percent of their income in taxes. If that isn't galling enough,
the situation is made worse when you recognize that the Internal
Revenue Service is very ill-equipped to catch and penalize those
crooked Americans that do cheat on their taxes, especially the most
wealthy and sophisticated of tax cheats.
Indeed, the IRS's own methods of prosecuting tax cheats and
collecting old debts is so troubled that the Treasury Inspector General
for Tax Administration recently reported that the IRS has failed to
collect the taxes due even from dozens of individuals who have been
convicted in court for tax evasion. This is an appalling situation
where the government goes through the effort and expense of dragging
these individuals into court and convicting them of cheating on their
taxes. Even then, the IRS fails to collect the debts owed by these
convicted criminals. This situation is unacceptable and it has got to
change. The IRS must turn a corner and cease to be the laughing stock
of the wealthy and super-wealthy tax cheaters in this country.
I am pleased to say that, today, the IRS Commissioner Mark Everson
is here to testify on behalf of a budget that seeks to do something
about the problem. He is asking for a 9.4 percent boost in funding for
tax law enforcement, including funding for 2,942 additional enforcement
agents. However, there are several questions that surround the
Commissioner's request in this area that must be addressed in today's
hearing.
The first question is: are the resources that the Commissioner is
seeking enough to do the job? Recently, an oversight board appointed by
the President said that the answer is ``no.'' That oversight board
pointed out that, absent even more resources beyond the level requested
by the administration, the IRS will actually have to curtail some of
its most critical enforcement and collection efforts.
A second question of equal importance is ``will this subcommittee
be in a position to fund the increased resources sought by the IRS?''
Here, I believe that the Republican budget resolution adopted by the
thinnest majority in the U.S. Senate indicates that the answer is
``no.''
At a time when the IRS is seeking a budget increase for tax law
enforcement of 9.4 percent, the budget resolution adopted by the
Senate, which I voted against, allows for an overall funding increase
in discretionary spending of less than 1 percent. This is precisely one
of the reasons that I voted against the budget resolution. That budget
calls for continuing tax cuts to the wealthiest Americans while forcing
difficult and illogical choices when it comes to Federal spending.
We know that when we provide for increased spending for the
education of our young, we avoid even greater expenses down the road in
job training, welfare payments, even the construction of new prisons.
Similarly, if we can't fund enhanced enforcement in the Internal
Revenue Service, our Federal budget will not gain the tax revenue that
it is due and our deficit will be far worse. It is estimated that an
increase in IRS enforcement efforts of several hundred million of
dollars could yield billions in additional revenue that is owed to the
government.
A third question that must be asked is whether the IRS can really
do the job when it comes to hunting down and prosecuting tax cheats.
The agency is working with very antiquated computer systems, and its
efforts to modernize those computer systems have failed to produce
promised results. Moreover, the President's Budget singles out these
modernization efforts for a 26.5 percent funding cut for the coming
fiscal year.
We have to recognize that it takes upwards of half a dozen years or
longer for the IRS to finally pursue and prosecute individuals cheating
on their taxes. We regularly have underpaid and overworked government
lawyers going to court against handsomely paid private lawyers. Often
times, those private lawyers are the very same lawyers that concocted
the very complicated tax avoidance schemes that landed their client in
court.
So, I hope our hearing will, at a minimum, pursue these three
central questions that surround the Commissioner's request. I am glad
that he is here to testify before us. I should say that I believe his
commitment to reversing the growing trend in tax avoidance and tax
cheating is a sincere one and I look forward to hearing his testimony
this morning.
Thank you, Mr. Chairman.
Senator Shelby. Mr. Commissioner.
STATEMENT OF MARK W. EVERSON
Mr. Everson. Thank you, Mr. Chairman, Senator Reid. Nice to
see you again. Thank you very much for your opening remarks. I
am pleased to be here before the subcommittee today to speak
about the President's 2005 budget request for the IRS. I would
also like to welcome the future taxpayers behind me to this
hearing.
Our working equation for the IRS is service plus
enforcement equals compliance, not service or enforcement. The
IRS must do both. We must run a balanced system of tax
administration based on a foundation of taxpayer rights.
Last month we released our enforcement statistics for
fiscal year 2003. They demonstrate that we have arrested the
enforcement decline which began in the 1990s and worsened with
the implementation of RRA 1998. Audits, criminal investigations
and monies collected were all up. In particular, when compared
with the fiscal year which started October 1, 2000, audits of
taxpayers with incomes over $100,000 were up by over 50
percent. That is taxpayer's income over $100,000. You can see
how badly over a period of years this declined, as did a lot of
our audit rates. But you can see we have turned that around and
we have given great prominence to this category in particular.
IRS ENFORCEMENT ACTIVITIES
The President's 2005 budget request for the IRS will
continue to rebuild our enforcement activities. I would note
that two-thirds of the new monies requested will be devoted to
enforcing our compliance efforts in the areas of high income
individuals, corporations, and criminal activities. The extra
$300 million in new monies that we seek will carry out our four
objectives in enforcement. They are, discourage cheating and
non-compliance, particularly by corporations, high income
individuals and tax-exempt groups; help attorneys, accountants,
and other professionals adhere to professional standards and
obey the law; detect and deter domestic and offshore tax and
financial criminal activity; and discourage and deter non-
compliance within tax-exempt and government entities, and
misuse of such entities by third parties for tax avoidance and
other purposes.
ADDRESSING NON-COMPLIANCE
These incremental resources will help us address the tax
gap, the difference between what is owed and what is paid due
to non-filing, underreporting and underpayment, and secure
billions of dollars for the Treasury. Furthermore, over a 4-
year period we have seen an increase in the percentage of
Americans who think it is okay to cheat on their taxes; an
increase from 11 percent to 17 percent. I find this alarming,
as I am sure do you. I believe, however, that enhanced
enforcement efforts will improve attitudes concerning
compliance by reassuring the average American who pays his or
her taxes that when he or she pays neighbors and competitors
will do the same.
Once we have hired and trained the new enforcement
personnel as requested in the President's budget, this direct
return on investment would be 6 to 1. That is the dollars we
would get back directly. Beyond the incremental revenues
associated with the increased audits, investigations, and
collection activities there will also be a favorable spillover
effect. Other taxpayers will be discouraged from cheating when
they observe that those who play fast and loose with the tax
code are being held accountable. Behaviors at the margin will
change.
I am convinced we can augment our enforcement activities
without diminishing our commitment to service. Our filing
season results thus far in 2004 show that we can. Through last
Friday, total returns filed have increased more than 1 percent.
Our electronically filed returns are up 12 percent from last
year. Electronic filing is more reliable both for the taxpayer
and Service, and it is faster, allowing the IRS to issue
refunds in half the time. Also noteworthy is that the Free File
initiative, which helps low and middle-income taxpayers, has
grown in volume by 23 percent from last year.
Our other service indicators for the most part also show
improvement. We have handled increased call volumes with stable
resources and bettered our level of service. There is increased
usage of automated services both on the phone and the Internet.
While we made some changes to improve tax law accuracy and had
some startup problems earlier in the season, in recent weeks
our results in this area have recovered.
I want to assure you that should the Congress approve our
budget request we will spend these resources wisely. I am aware
of the problems in the past, particularly in the efforts to
modernize information technology at the IRS. We are addressing
our challenges in IT modernization and our plans in the 2005
budget take into account the necessity to improve as you
indicated.
PREPARED STATEMENT
In conclusion, let me note with gratitude the strong
bipartisan support the President's IRS budget request is
getting here in the Senate. I was pleased by the letters of
support from the leaders of the Governmental Affairs Committee
to the Appropriations Committee as well as the letter from the
Finance Committee to the Budget Committee. I think the tax
administration can and should be a matter of broad bipartisan
agreement.
Thank you.
[The statement follows:]
Prepared Statement of Mark W. Everson
INTRODUCTION
Chairman Shelby, Ranking Member Murray, and Members of the
subcommittee, thank you for the opportunity to testify today on the
fiscal year 2005 budget request for the Internal Revenue Service.
Our working equation at the IRS is service plus enforcement equals
compliance. The better we serve the taxpayer, and the better we enforce
the law, the more likely the taxpayer will pay the taxes he or she
owes.
This is not an issue of service OR enforcement, but service AND
enforcement. As you know, IRS service lagged in the 1990's. In
response, we took important and necessary steps to upgrade service--we
significantly improved the answering of taxpayer telephone inquiries
and electronic filing to name just a couple areas.
Unfortunately, improvement in service coincided with a drop in
enforcement of the tax law. After 1996, the number of IRS revenue
agents, officers, and criminal investigators dropped by over 25
percent.
We currently have a serious tax gap--the difference between what
taxpayers are supposed to pay and what is actually paid--in this
country. By our best estimates, we lose a quarter trillion dollars each
year due to non-filing, under-reporting, and underpayment. (This is a
rough estimate based largely upon data from our old Taxpayer Compliance
Measurement Program, most of which was collected in the 1980's. Our
estimates have been updated to reflect changes in the economy during
the intervening years, but a key assumption is that compliance behavior
has remained largely unchanged. If taxpayer compliance has changed in
the last 15 years, the tax gap could well be much different than our
estimate suggests.)
In addition, over the last 4 years, the number of Americans saying
it is OK to cheat on taxes rose from 11 to 17 percent. Sixty percent of
Americans believe that people are more likely to cheat on taxes and
take a chance on being audited.
We must restore the balance between service and enforcement, but
that will not come at the expense of continued improvements to taxpayer
service. In recent years, we have begun to attack these declines by
revitalizing our investigations, audits and prosecutions against those
who do not pay their taxes. The President's fiscal year 2005 budget--if
approved by Congress--will help with our efforts to boost enforcement
while maintaining our levels of service. The submission requests an
additional $300 million for enforcement activities over the fiscal year
2004 consolidated appropriations level.
president's fiscal year 2005 budget seeks increase in enforcement
The President has asked for an IRS fiscal year 2005 budget of
$10.674 billion, a 4.8 percent increase over the fiscal year 2004
consolidated appropriations level for the IRS.
This budget includes the goals of customer service, infrastructure/
modernization and enforcement. After a period of declining enforcement
resources, the IRS has stabilized and increased the amount of resources
dedicated to enforcement.
This budget has an increase of $300 million for a more vigorous
enforcement of the tax laws. This strong commitment to tax
administration will provide a significant augmentation of our
enforcement resources.
The additional $300 million will increase enforcement in several
key ways:
--Discourage and deter non-compliance, with emphasis on corrosive
activity by corporations, high-income individual taxpayers and
other contributors to the tax gap;
--Assure that attorneys, accountants and other tax practitioners
adhere to professional standards and follow the law;
--Detect and deter domestic and off-shored based tax and financial
criminal activity;
--Discourage and deter non-compliance within tax-exempt and
government entities and misuse of such entities by third
parties for tax avoidance or other unintended purposes.
Let me now provide more details on the broad categories of the
budget request for the IRS.
PROCESSING, ASSISTANCE, AND MANAGEMENT
We are seeking $4,148,403,000 for processing, assistance and
management. This includes necessary expenses for pre-filing taxpayer
assistance and education, filing and account services, shared services
support, and general management and administration. Up to $4.1 million
of the $4.1 billion total will be for the Tax Counseling for the
Elderly Program and $7.5 million of the total will be available for
low-income taxpayer clinic grants.
The Processing, Assistance, and Management (PAM) appropriation
handles all functions related to processing tax returns, including both
manual and electronic submissions, and provides assistance and
education to taxpayers to enable them to file accurate returns. The PAM
appropriation issues refunds, maintains taxpayer accounts, and provides
tax law assistance that includes tax law interpretation and rulings and
agreements related to tax law issues. This appropriation is responsible
for IRS personnel, facilities, and procurement services.
The IRS will continue to focus on pre-filing services and is
requesting funding for taxpayer communication and education to help all
taxpayers comply with tax laws and assume their fair share of the tax
burden. Funding is being requested for resources to warn taxpayers of
abusive tax schemes and improve compliance by preventing fraud and
abuse. The IRS is redirecting funding to enhance customer service by
reengineering processes to complement new technology and to develop an
outreach strategy for the Child Tax Credit.
The IRS is reinvesting resources for filing and account services by
providing funding for field assistance to reduce filing season details
of compliance staff, funding the Business Master File workload
increase, improving the level of telephone service to taxpayers, and
updating processes to complement technology.
As part of the shared services program, the IRS will reinvest
resources in new training and training delivery methods to develop and
to improve expert consultative skills. This effort will significantly
improve administrative and resource management decisions that will
enhance delivery of compliance initiatives. Additional resource
reinvestments will be used to defer rent annualization costs (based on
partial year costs extrapolated annually for approved fiscal year 2003
space expansion projects) to fulfill the IRS's operational mission
objectives. Shared services will implement HR Connect, the integrated
Human Resources Management System over the next 2 years. This system
will seamlessly link multiple Human Resource applications that should
result in significant program efficiencies.
The OMB Program Assessment Rating Tool (PART) review of Submissions
Processing recommends that IRS successfully implement the Modernized E-
File IT projects. IRS is enabling e-file growth by increasing the
numbers of returns eligible to be electronically filed. In fiscal year
2005, the IRS plans to complete the architecture and engineering
analysis required to develop and deploy functionality, allowing
taxpayers to electronically file Forms 1065, 990T, and 1041.
TAX LAW ENFORCEMENT
For enforcement, we are requesting $4,564,350,000. This
appropriation ensures IRS's ability to: provide equitable and
appropriate enforcement of the tax laws, identify possible non-filers
for examination, investigate violations of criminal statutes, support
the Statistics of Income program, conduct research to identify
compliance issues and support the national effort to combat domestic
and international terrorism.
The resources in the Tax Law Enforcement (TLE) Appropriation
provide service to taxpayers after a return is filed and support
activities such as research to identify compliance and tax
administration problems, as well as tabulation and publication of
statistics related to tax filing. In fiscal year 2001, Tax Law
Enforcement was realigned and redefined as mandated by the Internal
Revenue Restructuring and Reform Act of 1998 (RRA 98) to better serve
the needs of taxpayers. The modernized IRS structure is similar to
those widely used in the private sector: organized around customers'
needs, in this case taxpayers. The IRS has set up four operating
divisions to service the four major categories of taxpayers; Wage and
Investment Income (W&I), Small Business and Self-Employed (SBSE), Tax
Exempt and Government Entities (TEGE) and Large and Mid-Sized Business
(LMSB). Each of these business units has substantial operations within
the Tax Law Enforcement appropriation. The Criminal Investigation (CI)
business unit investigates criminal violations of the Internal Revenue
Code and also supports the national effort to combat terrorist
financing by integrating CI special agents into the Joint Terrorism
Task Forces and other anti-terrorism task forces. CI has the largest
part of its operation within the Tax Law Enforcement appropriation.
The TLE appropriation is the primary source of funding for the
compliance functions of the IRS, including: (1) automated, in-person
and correspondence collection of delinquent taxpayer liabilities, (2)
the matching of reporting documents with taxpayer returns, to insure
reporting compliance, (3) face-to-face examination to determine
taxpayers' correct income levels and corresponding tax liabilities, (4)
service center support of the field examination function and
correspondence with taxpayers regarding tax issues, (5) investigation
of criminal violations of the tax laws, (6) processing of currency
transaction reports over $10,000, (7) tax litigation, (8) acting as an
advocate to provide prompt resolution of taxpayer problems and (9) a
general counsel function to offer legal advice and guidance to all
components of the IRS.
I would specifically like to emphasize our continuing commitment to
the administration's efforts to combat terrorism. The funding provided
in the President's budget request will allow us to continue to make a
significant contribution to this effort.
The functions in TLE are essential to accomplishing the primary
goals of the Fiscal Year 2005 Budget Request. To accomplish this goal,
the IRS must restore the strength of the compliance function. Staffing
devoted to compliance and enforcement operations has declined in recent
years. Annual growth in return filings and additional work related to
RRA 98 have contributed to a steady decline in enforcement presence,
audit coverage and case closures in front-line compliance programs.
The Fiscal Year 2004 Appropriations Act merged the Earned Income
Tax Credit (EITC) Appropriation with the TLE Appropriation. The merge
of EITC into the TLE appropriation will provide for customer service
and public outreach programs, strengthened enforcement activities and
enhanced research efforts to reduce over claims and erroneous filings
associated with the Earned Income Tax Credit (EITC) compliance
initiative.
Customer service for the EITC initiative includes dedicated toll-
free telephone assistance, community-based tax preparation sites and a
coordinated marketing and educational effort (including paid
advertising and direct mailings) to assist low-income taxpayers in
determining their eligibility for EITC. Improved compliance activities
include increased staff and systemic improvements in submission
processing, examination, and criminal investigation programs. Increased
examination coverage, prior to issuance of refunds, reduces
overpayments and encourages compliance in subsequent filing periods; in
addition, post-refund correspondence audits by service center staff aid
in the recovery of erroneous refunds. Criminal investigation activities
target individuals and practitioners involved in fraudulent refund
schemes and generate referrals of suspicious returns for follow-up
examination. Examination staff assigned to district offices audit
return preparers and may apply penalties for non-compliance with ``due
diligence requirements.''
OMB Program Assessment Rating Tool (PART) observations concluded
that the IRS does not work enough collection cases with its current
resources, work processes and technology to ensure fair tax
enforcement. Each year IRS fails to work billions of dollars worth of
collection cases. Consequently, the Budget includes a legislative
proposal to allow IRS to hire private collection contractors to assist
the IRS in addressing a significant number of cases. In addition to the
increased resources requested, the IRS is making internal process
improvements, including: developing models to better identify high
priority work, better use of the predictive dialer, realigning the
workforce to core hours and creating a performance support tool to
provide employees with technical guidance while handling calls. The
PART review also determined that IRS financial management systems
remain weak. In response, the IRS plans to modernize its collection
technology to improve effectiveness. New technology tools will be
developed for collection employees (e.g., electronic Automated
Collection System, contact recording, and desktop integration), which
will improve program efficiency.
HEALTH INSURANCE TAX CREDIT ADMINISTRATION
We are requesting $34,841,000 for expenses necessary to implement
the health insurance tax credit included in the Trade Act of 2002. This
appropriation provides operating funding to administer the advance
payment feature of the Trade Adjustment Assistance health insurance tax
credit program to assist dislocated workers with their health insurance
premiums. The Trade Act of 2002 created the tax credit program and it
became effective in August of 2003.
INFORMATION SYSTEMS
We are requesting $1,641,768,000 for information systems. This
appropriation is for necessary expenses of the Internal Revenue Service
for information systems and telecommunications support, including
developmental information systems and operational information systems.
It provides for IRS information systems operations and maintenance,
investments to enhance or develop business applications for the IRS
Business Units and staff support for the Service's Modernization
program.
The appropriation includes staffing, telecommunications, hardware
and software (including commercial-off-the-shelf), and contractual
services. It also provides for Servicewide Information Systems (IS)
operations, IRS staff costs for support and management of the Business
Systems Modernization effort, and investments to support the
information systems requirements of the IRS business units. It includes
staffing, telecommunications, hardware and software (including
commercial-off-the-shelf software), and contractual services.
Staffing in this activity develops and maintains the millions of
lines of programming code supporting all aspects of the tax-processing
pipeline as well as operating and administering the Service's hardware
infrastructure mainframes, minicomputers, personal computers, networks,
and a variety of management information systems.
In addition, the Information Systems ``Tier B'' modernization
initiatives fund projects that modify or enhance existing IRS systems
or processes, provide changes in systemic functionality, and establish
bridges between current production systems and the new modernization
architecture being developed as part of the Servicewide Business
Systems Modernization efforts. Investment activities also include
improvements or enhancements to business applications that support
requirements unique to one of the IRS business units. These Tier B
projects yield increased efficiency and allow the Service to
progressively improve the quality of its interactions with the
taxpaying public and its many other internal and external customers.
BUSINESS SYSTEMS MODERNIZATION
We are seeking $285,000,000, for our Business Systems Modernization
(BSM) efforts. This request is based upon the resizing efforts we began
following the various internal and external reviews of BSM.
This appropriation provides for the planning and capital asset
acquisition of information technology systems, including related
contractual costs of such acquisition and contractual costs associated
with operations authorized by 5 U.S.C. 3109, to modernize IRS's
antiquated business systems.
The IRS collects $1.7 trillion in revenues annually through an
assortment of computer systems developed over a 40-year period. The IRS
developed the most important systems that maintain all taxpayer records
in the 1960's and 1970's. These outdated systems do not allow the IRS
to meet today's taxpayer and business needs. Failure to modernize IRS's
tax administration business systems will result in a significant
increase in resources required to maintain legacy systems--systems that
no longer efficiently or effectively serve America's taxpayers.
The BSM Appropriation provides for revamping business practices and
acquiring new technology. The IRS is using a formal methodology to
prioritize, approve, fund and evaluate its portfolio of BSM investments
across the IRS Business Units and Modernization and Information
Technology Services (MITS). This methodology enforces a documented,
repeatable and measurable process for managing investments throughout
their life cycle. The MITS Enterprise Governance (MEG) Committee, which
includes the Chief Information Officer and other senior MITS
executives, the Chief Financial Officer, and the heads of the Business
Operating Divisions, approves investment decisions. This executive-
level oversight ensures that products and projects delivered under the
Business Systems Modernization program are fully integrated into IRS
Business Units. The Department of the Treasury Investment Review Board
also reviews the BSM expenditure Plan once the IRS executive-level
oversight board approves the investment decisions. The plan is then
cleared through OMB and submitted through the Appropriations
Committees.
The IRS has undergone an intensive servicewide portfolio
prioritization effort, leading to a long-term modernization plan
identifying selected modernization projects, a release sequence for
each project, and estimated costs for each project. The effort is based
on vision and strategy initiatives that created an enterprise-wide
view, which unified the needs of the IRS Business Units. Fiscal year
2005 resources will fund the infrastructure, program management, and
releases of business applications to support the successful delivery of
a modernized tax administration system. More complete details are
provided in the BSM Expenditure Plan.
A partial Fiscal Year 2004 BSM Expenditure Plan was submitted by
the Department of Treasury for Congressional approval in January 2004,
and the full-year revision incorporating current project information
should be completed by this spring.
PROGRAM PERFORMANCE
The IRS expects to achieve the following levels of performance
after attaining full performance of the requested fiscal year 2005
initiatives:
--Examine an additional 30,000 investor returns in the Small Business
and Self-Employed (SB/SE) business unit and increase coverage
of high-income taxpayers, generating an additional $170 million
in fiscal year 2006. SB/SE also anticipates closing an
additional 50,000 taxpayer delinquent accounts, resulting in an
estimated $215 million in additional revenue.
--Hire and train over 2,000 new staff in the Examination, Collection
and Document Matching programs. These increases will generate
some $2.8 billion in direct enforcement revenue through fiscal
year 2007. Additional audits of investor returns and high-
income taxpayers, together with 55,000 correspondence
examinations, will yield more than $1.0 billion during that
same period. Collection closures will increase by 240,000 and
taxpayer contacts through the Automated Underreporter Program
by some 300,000 through fiscal year 2007--generating an
additional $1.8 billion.
--Increase the overall audit coverage rate in the Large and Mid-Sized
(LMSB) business unit from 5.1 percent in fiscal year 2004 to
9.6 percent in fiscal year 2007 and increase projected return
closures by 63 percent from 16,067 returns in fiscal year 2004
to 26,193 returns in fiscal year 2007. Enforcement revenue
recommended for the 3 years fiscal year 2005 through fiscal
year 2007 should increase by over $3 billion.
--Complete 229 significant Corporate Fraud investigations through
fiscal year 2007. Tax-related completed investigations will
increase by approximately 20 percent over the fiscal year 2003
level by fiscal year 2007. In addition, CI is striving to
reduce elapsed time on completed investigations by 30 percent
from fiscal year 2002 levels.
IMPROVING SERVICE
We are improving service to the taxpayer. Let me give a broader
picture of service and compliance, and how the President's budget will
lead to more effective and fair collection of taxes.
It was not long ago that IRS service was not all that it should
be--some would even say it was poor. In many areas the service level we
provided, or more accurately stated, failed to provide, frustrated
taxpayers in their effort to understand and comply with the tax law.
Regardless of the merits of some of the allegations directed
against the IRS in the mid-1990's, there was a significant gap between
the quality of service that the IRS was providing taxpayers and the
quality of service that the public had a right to expect. This
shortfall in services clearly warranted the fundamental improvements
and reorganization established under RRA 98.
The reorganization of the IRS along customer lines of business and
the other changes brought about by RRA 98 were, taken as a whole, sound
reforms. The twin themes of the legislation were improvement of service
and protection of taxpayer rights.
Through an almost single-minded focus on RRA 98 implementation, the
IRS has demonstrated unmistakable progress in improving customer
service and increasing its recognition of, and respect for, taxpayer
rights. While we still aim to reach a higher level of customer service,
our improvement and commitment with respect to these core goals is
measurable.
Last year 53 million individuals filed their returns
electronically. Thus far this year, nearly 1 week away from ``tax
day'', electronic filing is up again, by about 12 percent. Electronic
filing is more reliable, both for the taxpayer and the IRS. And it is
faster. Over three-quarters of Americans get refunds, and we issue the
refund in about half the time when a taxpayer files electronically.
Another challenge in the 1990's was getting through to the IRS at
all. We now have a world-class telephone call routing system. A call is
directed to the right person, someone who knows something about
charitable contributions or IRA's--whatever the subject may be--and the
system balances workforce planning against predictable workload
patterns to reduce waiting time. By 2003, overflows to the telephone
system, such as busy signals--the crudest indication of service
failure--decreased 99 percent from its worst performance of 400
million. We also reduced taxpayer call-waiting time by half since 2001,
reduced the number of abandoned calls by half since 2002, and doubled
the number of refund inquiries from our Spanish-speaking taxpayers.
Meanwhile, we have delivered other applications that provide
tangible benefits to taxpayers and improve the efficiency and
effectiveness of our tax administration system. They include:
--Where's My Refund?/Where's My Advance Child Tax Credit?, which
gives taxpayers instant updates on the status of their tax
refunds and advance child tax credits. Where's My Refund? has
provided almost 11 millions services and Where's My Advance
Child Tax Credit? has provided another 20 million services. By
shifting a significant volume of customer demand to the
Internet and automated telephone services, we have seen a
measurable improvement in service for taxpayers who still need
to talk with an IRS assistor.
--e-Services, which includes preparer tax identification number (TIN)
applications with instant delivery, individual TIN matching for
third party payers, on-line registration for electronic e-
Services, and on-line initiation of the electronic originator
application (currently released to a controlled segment of
external users). I am pleased to announce that we recently made
the first part of e-Services available on our public website.
The remaining parts will come out over the next several months.
--Internet EIN, which permits small businesses to apply for, and
receive, an Employer Identification Number on-line.
--HR Connect, which allows IRS users to perform many personnel
actions on-line. This technological advance will enable the
Service to redirect hundreds of positions to enforcement
activities by the time it is fully deployed, which we have
planned for October 2005.
Are we where we need to be on service? Not yet. As you know, I have
been emphasizing enforcement, but I do not want this subcommittee or
anyone to think the IRS will walk away from service. We still continue
to maintain and improve service.
Our objectives for improved taxpayer service are three-fold:
--First, to improve and increase service options for the tax-paying
public;
--Second, to facilitate participation in the tax system by all
sectors of the public; and
--Third, to simplify the tax process.
These are service objectives that recognize the dynamics of a
rapidly changing world, one in which the Internet will be the dominant
communications tool. Yet we realize there will remain a wide range of
computer and technological literacy among individual taxpayers, and we
must not fail to provide the same level of service to all taxpayers
regardless of their technological sophistication. Our objectives also
recognize an America with an increasingly diverse population, and that
diversity will create challenges for us as tax administrators.
Nevertheless, we are confident that we can and will serve all American
effectively.
Continued changes in traditional media will make it harder to cover
the waterfront as we seek to educate taxpayers. Moreover, the
complexity of our tax laws, along with the frequency of changes to
these laws, is not only a challenge to taxpayers trying to comply with
the tax laws, but a basis of cynicism about complying with the tax
laws. The administration is committed to addressing this complexity.
While it remains, we have an obligation to help taxpayers navigate
these laws and make it as easy as possible for them to comply.
In a world increasingly impatient for prompt and reliable
information and transaction processing, all of these factors pose
significant challenges to the IRS as it strives to improve the level of
service provided to the American taxpayer.
A good example of the challenges we will face is reconciling our
desire to standardize our processes through electronic filing with the
reality that some groups, such as immigrants and the elderly, will need
different, targeted services. Electronic filing is important to the IRS
and to taxpayers, but we cannot overemphasize it to the detriment of
services to taxpayer groups who will not utilize it. Addressing
competing priorities on the service side of the IRS will not be easy,
but we will work diligently to provide a balanced, effective program.
EFFECTIVE ENFORCEMENT
Our focus on the strong mandate of RRA 98 to improve IRS services
to the taxpaying public made it difficult for us to balance both the
service and enforcement elements that are so necessary to the success
of our tax system. Improved taxpayer service enhances compliance and
respect for our laws among the vast majority of Americans who do their
best to pay their fair share. Improved taxpayer service also may help
discourage those who might not otherwise do what is necessary to comply
with our tax laws. Taxpayer service, however, does not address those
who actively seek to avoid paying their fair share. I believe most
people would agree that we achieved improvement of IRS taxpayer
services in large part at the expense of needed enforcement activities.
Over a 5-year period beginning in 1997, the IRS refocused its
enforcement resources significantly. The number of revenue agents
(those who conduct audits), the number of revenue officers (those who
collect monies due), and the number of criminal investigators (those
who prepare cases for possible prosecution by the Justice Department)
each declined by over a quarter.
In essence, we did not observe the wise admonition of President
John F. Kennedy that ``Large continued avoidance of tax on the part of
some has a steadily demoralizing effect on the compliance of others.''
We are correcting our course and re-centering the agency. We are
strengthening the IRS enforcement of the tax laws in a balanced,
responsible fashion. And we will do so without compromising taxpayer
rights. As the IRS enhances enforcement, we have four priorities:
First, we are working to discourage and deter non-compliance, with
emphasis on corrosive activity by corporations and high-income
individuals. Attacking abusive tax shelters is the centerpiece of this
effort. What is at stake is greater than many billions of dollars of
lost tax revenues. Our surveys indicate that 80 percent of Americans
believe it is very important for the IRS to enforce the law as applied
to corporations and high-income individuals. Enforcing compliance in
these sectors is critical to maintaining Americans' faith that our
system is fair. The abuses of recent years have to a very real degree
strained the credibility of our tax administration system.
The IRS is moving aggressively to attack these transactions.
Working with our partners in the Treasury Department, we have
accelerated the issuance of guidance identifying abusive and
potentially abusive transactions and improved disclosure requirements
to provide greater transparency--sorely needed in today's complex
world. And we have over 100 promoter audits underway, not to mention
thousands of audits of high-income individuals and corporations who
have entered into potentially abusive transactions. Where necessary,
the Treasury Department, on behalf of the administration, has proposed
legislation that would stop abusive transactions that we may not be
able to fully or quickly address under existing law.
However, we need to do better. We need to do more, and we
particularly need to do it faster. The length of time it takes us to
complete the audit of a large, complex corporation is 5 years from the
date the return is filed, which in most cases is already 8\1/2\ months
after year end. And these figures don't include the appeals process,
which runs another 2 years before the matter is settled or goes to
court. That means that half of our current inventory of large cases is
from the mid 1990's or the early 1990's. In today's rapidly changing
world, we might as well be looking at transactions from the Civil War.
Simply stated, the IRS did not detect and deter the abusive
transactions that spread during the 1990's on an adequate or timely
basis because we did not have an informed view of current taxpayer
behavior, only an historical understanding of events long past. And the
challenge is becoming greater every day, as promoters of abusive tax
transactions operate globally, without regard to national boundaries.
The lessons we have learned make it imperative to get current in
our audits, to identify transactions and shorten the feedback loop so
that abusive transactions can be shut down promptly. I am convinced we
can do it. Technology will help. Right now it takes 2 years on average
before complicated corporate returns find their way into the hands of
the assigned examiner. We are addressing this issue. Electronic filing
by corporations will facilitate our analysis of data and help us
calibrate risk. Through speedier audits we will provide better service
to the compliant taxpayer by resolving ambiguity earlier, and hold
accountable those who seek to game the system. And we are creating a
web of disclosure, registration and maintenance of investor lists that
will provide information about abusive transactions.
Second, we are working to ensure that attorneys, accountants and
other tax practitioners adhere to professional standards and follow the
law. In recent decades, with an accelerated slide in the 1990's, the
model for accountants and attorneys changed. The focus shifted from
independent audit and tax functions, premised on keeping the client out
of trouble, to value creation and risk management. The tax shelter
industry had a corrupting influence. It got so bad that in some
instances blue-chip professionals actually treated compliance with the
law--in this case IRS registration and list maintenance requirements--
as a business decision. They weighed potential fees for promoting
shelters but not following the law against the risk of IRS detection
and the size of our penalties.
Our system of tax administration depends upon the integrity of
practitioners. The vast majority of practitioners are honest and
scrupulous, but even they suffered from the erosion of ethics by being
subjected to untoward competitive pressures. The IRS is acting. We have
augmented our Office of Professional Responsibility by doubling its
size and appointing as its director a tough, no-nonsense, former
prosecutor; we are tightening the regulatory scheme; and we are
receiving excellent support from the Justice Department in our promoter
and associated investigations. But we need the Congress to enact the
tougher penalties proposed by the administration for those promoters
who have not yet gotten the message.
Third, we must detect and deter domestic and offshore-based
criminal tax activity, our traditional area of emphasis, and financial
criminal activity. Our Criminal Investigation Division is a storied and
proud law enforcement agency. Their expertise comprises not just
criminal tax matters but other financial crimes. Our investigators are
the best in law enforcement at tracking and documenting the flow of
funds. In addition to our tax investigations, the IRS has over 100
agents assigned on an ongoing basis to support the President's
Corporate Fraud Task Force. We will continue and intensify these
important efforts.
Two factors account in significant part for America's great
economic vigor and success. They are our pervasive culture of
entrepreneurship, on the one hand, and the stability and transparency
of our markets on the other. The reputation and attractiveness of our
markets have been compromised by the scandals of recent years. The
President's Corporate Fraud Task Force and the President and Congress
with Sarbanes-Oxley have taken important steps to restore confidence.
Through these three enforcement initiatives, the IRS will do its part
so that sound tax administration contributes to public confidence in
our economic system.
We have one more enforcement priority. The stakes for America in
this area are also important. We will discourage and deter non-
compliance within tax exempt and government entities, and the misuse of
such entities by third parties for tax avoidance or other unintended
purposes. Non-compliance involving tax-exempt entities is especially
disturbing because it involves organizations that are supposed to be
carrying out some special or beneficial public purpose. Enforcement in
this area has suffered as IRS staffing in the exempt organizations area
fell from 1996 through 2003. Enactment of the President's budget would
allow us to gradually build up staffing in this important area and step
up enforcement.
If we do not act to guarantee the integrity of our charities, there
is a risk that Americans will lose faith in and reduce their support
more broadly for charitable organizations, damaging a unique and vital
part of our Nation's social fabric.
A case in point is credit-counseling agencies. These organizations
have been granted tax-exempt status because they are supposed to be
educating and assisting people who are experiencing credit or cash flow
problems. Based on the information we have reviewed, we believe that a
troubling number of these organizations, however, instead are operating
for the benefit of insiders or in league with profit-making companies,
such as loan companies, to generate income from lending to these
distressed individuals and families. We are taking a close look at
these organizations to ensure that they are operating within the bounds
of the law.
It is, of course, imperative as we reinvigorate the enforcement
program that IRS employees maintain their respect for and diligence to
all taxpayer due process rights and protections.
We are making progress in our effort to reduce the annual tax gap.
Our enforcement statistics for Fiscal 2003, released in early March,
demonstrate that we have arrested the enforcement decline that began in
the 1990's and worsened with the implementation of RRA 98. Audits,
criminal investigations and monies collected were all up. In
particular, the number of high-income taxpayer audits again increased
by 24 percent. Moreover, audits of taxpayers with income over $100,000
were up over 50 percent from 2 years ago. Overall audits of all
taxpayers increased to 849,296, an increase of 14 percent from 2002.
BUSINESS SYSTEMS MODERNIZATION AT THE IRS
While not as publicly visible as service or enforcement,
modernization of IRS information technology is also a high priority.
This effort is often referred to as Business Systems Modernization or
BSM. Most of our tax administration systems are very old and difficult
to keep current with today's fast paced environment--they must be
modernized.
We are committed to resizing our modernization efforts to allow
greater management capacity and to focus on the most critical projects
and initiatives. Last summer, we used comprehensive studies to help us
identify opportunities to improve management, re-engineer business
processes and implement some new systems and technology.
As I have noted, the IRS has made progress on applications such as
improved telephone service, electronic filing, and a suite of e-
services to tax practitioners. But we have failed thus far to deliver
several important projects with which taxpayers are not directly
involved.
The projects include replacing our master file system, implementing
the on-line security features, and building the modernized
technological infrastructure on which all of our future modernization
applications will depend.
Four studies completed last year consistently identified the
following problems in delivering the large information technology
efforts:
--Insufficient participation in the technology program by IRS
business units;
--An overly ambitious portfolio;
--Inadequate performance by the contractor.
The IRS is responding by to this challenge by:
--Increasing business unit ownership of projects;
--Resizing the project portfolio and reducing the modernization
program from $388 million this year to $285 million in the
President's fiscal year 2005 request;
--And revising our relationships with the contractor and ensuring
joint accountability.
While we have much work to do on modernization, I can assure you
that it is one of my top priorities as Commissioner. We need to put in
place the foundation upon which the tax system will build and rely for
decades to come.
Before I conclude my testimony, let me give you an update on the
2004 filing season and what we are doing to make the tax season easier
and more convenient for the American taxpayer.
2004 FILING SEASON
Mr. Chairman, I have been on the job for not quite a year so I am
still going through my first filing season. Each year at the IRS, we
process billions of tax-related documents. We process well over 100
million taxpayer returns. We send out about 100 million refunds. And we
do a lot of other things as well.
It all peaks, of course, on April 15, a little more than 1 week
away.
Here are some highlights as of March 26th (unless otherwise
indicated):
Return Receipts
The IRS has received 74 million total individual returns. Twenty-
nine million returns (39 percent) are paper and 45 million (61 percent)
are e-file.
--The number of online returns is at 10.5 million, a 22.9 percent
increase from last year.
--Through March 24th, 2.6 million Free File returns have been
accepted, an increase of 24 percent from last year (2.1
million).
Refunds
Refund measures continue to show an increase over 2003. Total
refunds are up from 2003 by 3.9 percent. Total dollars paid are 9.26
percent higher than last year, with an average refund of $2,113 paid.
Telephone Measures
As of March 28, assistor level of service, at 84.9 percent, is up
1.9 percent compared to last year. Assistors have answered
approximately 729,000 more calls than they did during the same period
in 2003.
Automated calls completed are 183,000 more than the same period in
2003. A major contributor to this increase is Advanced Child Tax Credit
(ACTC) related calls.
We created automated ACTC applications for use in providing
taxpayers the correct amount of ACTC to report on their 2003 tax
return. These applications are available through telephone automation
and interactive web applications.
Telephone Quality Rates
We measure telephone quality two ways: (1) customer account
accuracy and (2) tax law accuracy. While our customer account accuracy
estimates, as of February 29th are 89.76 percent, up 1.32 percent over
the past year, our tax law accuracy has declined to 75.79 percent thus
far in 2004 (down 6.69 percent from last year.)
Fiscal Year 2004 Quality Review results indicate that two of our
most frequent tax law defects are: incomplete research and applying tax
law incorrectly.
We are undertaking the following efforts to improve performance:
--Identifying root cause of performance deficiencies and implementing
corrective initiatives through analysis;
--Establishing Quality Review Improvement Teams to determine the
drivers of Customer Accuracy rates and to establish resolution
priorities as needed; and
--Strengthening accountability to the frontline managerial level to
facilitate improvement in services provided.
Taxpayer Assistance Centers (TAC's)
The number of taxpayers walking into a TAC for assistance has
decreased as a result of streamlined services in the TAC's and
initiatives to educate taxpayers on alternate methods of obtaining
services generally requiring a face-to-face contact. The advent of
technological advances in irs.gov services such as ``Free File'' and
``Where's My Refund'', and the accessibility of forms online have all
contributed to the decline in the number of customers walking into a
TAC.
CONCLUSION
The IRS has lagged behind, for reasons that are understandable, in
tax enforcement. But that is changing. We will continue to improve
service and respect taxpayer rights. But we will also enforce the law.
We won't relax until taxpayers who are unwilling to pay their fair
share see that that is not a worthwhile course to follow.
Mr. Chairman, the great majority of Americans honestly and
accurately pay their taxes. Average Americans deserve to feel confident
that, when they pay their taxes, their neighbors and competitors are
doing the same.
The President's budget request will help us enforce the tax law
more fairly and efficiently. I am most grateful for your support of
increased enforcement, and I look forward to working with you on this
important budget request.
Thank you very much. I'd be happy to take your questions.
Senator Shelby. Ms. Gardiner.
STATEMENT OF PAMELA J. GARDINER
Ms. Gardiner. Chairman Shelby, I appreciate the opportunity
to appear before you today to discuss the Internal Revenue
Service's budget and the related tax administration challenges.
The IRS is critical to the functioning of our government.
Each year the IRS collects over $2 trillion, processes over 200
million tax returns, and issues nearly 100 million tax refunds.
It provides service to millions of taxpayers by telephone,
Internet and in person. Since the enactment of the IRS
Restructuring and Reform Act of 1998, the IRS has made
significant progress in identifying opportunities to improve
its operations.
For example, this filing season the IRS indicated it had
received 43 million e-filed returns as of March 19, 2004, an
increase of over 11 percent. The IRS has also made progress in
providing information to taxpayers via its website, IRS.gov.
Taxpayers have visited this website billions of times to obtain
information. Just this tax season, the IRS stated taxpayers had
made nearly 10 million visits by the end of February to obtain
refund information from the ``Where's My Refund?'' section on
this site.
Even with this progress, the IRS faces significant
challenges to meeting its mission. I will focus my remarks on
two of these key challenges: systems modernization and customer
service.
The IRS's systems modernization program is in the sixth
year of its effort to upgrade and modernize IRS information
technology and business systems. This is an extremely complex
effort and is expected to take up to 15 years at a cost of at
least $7 billion. This program must be successful for IRS to
reach its goals in customer service and tax compliance.
Since 1999 about $1.5 billion has been appropriated and
released for modernization. The Treasury Inspector General for
Tax Administration (TIGTA) agrees with the IRS's recent moves
to scale back its systems modernization efforts to focus on
ensuring that the most critical systems are implemented. In
fact TIGTA has recommended such reductions in the modernization
projects in the past. Our concerns are based on the cost and
schedule overruns in the modernization program, including
significant delays in the most critical project, the Customer
Account Data Engine (CADE). CADE will eventually replace the
existing Master File of taxpayer accounts and will enable the
implementation of other modernized systems.
We believe the IRS and the PRIME contractor must address
the following modernization challenges to be successful:
implement planned improvements in key management processes;
manage the increasing complexity and risks of the modernization
program; maintain continuity with experienced leadership; and
ensure PRIME contractor performance and accountability.
Improving customer service has been a key focus at the IRS
for the last few years. Taxpayers have several options from
which to choose when they need assistance from the IRS. These
options include toll-free telephone assistance, walk-in service
at the taxpayer assistance centers, or TACs, and the IRS
Internet website. Each of these systems potentially effects the
taxpayer's ability and desire to voluntarily comply with the
tax laws.
The IRS's toll-free telephone system is the contact method
most taxpayers choose when seeking answers to tax law questions
or trying to resolve tax account issues. Taxpayers called the
IRS toll-free telephone system over 50 million times during the
2003 filing season. Access to the IRS's toll-free telephone
system has significantly improved. In comparison to the prior
filing season, for example, the level of service increased,
more calls were answered, and fewer taxpayers abandoned their
calls. We evaluated the toll-free system and found that 78
percent of taxpayers received accurate answers to their account
questions, and 73 percent of taxpayers received accurate
answers to their tax law questions.
The next most popular contact method is the taxpayer
assistance centers which provide face-to-face assistance to
taxpayers in meeting their filing and payment responsibilities.
Significant improvements have occurred in the percentage of
accurate answers to tax law questions that TAC employees
provided to TIGTA auditors anonymously conducting visits during
the past 2 years. IRS employees correctly answered 69 percent
of the questions asked from July through December 2003,
compared to only 57 percent during the same period in 2002.
Although the IRS website has received billions of visits
from taxpayers, most do not submit questions. Early statistics
indicated approximately 75,000 questions had been received this
year. Our past audit work indicated that over 80 percent of
Internet questions were answered correctly.
PREPARED STATEMENT
In conclusion, I believe the improvements in the levels of
service the IRS has provided to taxpayers are impressive.
However, challenges continue in the modernization effort. It
must succeed if IRS is going to operate at a level that
taxpayers expect and are entitled to receive from their
government.
I would be happy to answer any questions.
[The statement follows:]
Prepared Statement of Pamela J. Gardiner
Chairman Shelby, Ranking Member Murray, and distinguished Members
of the subcommittee, I appreciate the opportunity to appear before you
today to discuss the Internal Revenue Service's (IRS) budget, and the
challenges the IRS continues to face in using its funds to improve the
economy, efficiency, and effectiveness of tax administration.
The mission of the IRS is critical to the functioning of our
government. Each year, the IRS processes over 200 million tax returns
and collects over $2 trillion. The IRS also issues nearly 100 million
tax refunds, provides service to millions of taxpayers in person and
via telephone calls and the internet, and applies complex tax laws to
help ensure taxpayers meet their tax obligations.
E-filing provides significant benefits to both taxpayers and the
IRS including quick acknowledgement to taxpayers that the IRS received
their tax returns, more accurately processed tax returns, and faster
refunds. In addition, the IRS estimates that the processing of an e-
filed tax return compared to that of a paper tax return results in cost
savings of approximately $2.30 \1\ per tax return. Since the enactment
of the IRS Restructuring and Reform Act of 1998 (RRA 98), the IRS has
made significant progress in attracting taxpayers to e-file and
continues to identify opportunities and create incentives for taxpayers
to e-file. These efforts have resulted in individual taxpayers being
able to electronically sign their tax returns, e-file their State tax
returns with their Federal tax returns, pay their taxes using a credit
card, e-file 99 percent of all tax forms, and e-file at no cost.\2\
Furthermore, in an attempt to encourage paid preparers to submit tax
returns electronically, the IRS offers specific support services and is
in the process of providing incentives exclusive to e-file
providers.\3\ These incentives include the ability to apply to become
an e-file provider online, interact with the IRS by email, and obtain
client transcripts online. This filing season, the IRS indicated it had
received 43 million e-filed returns as of March 19--an increase of over
11 percent.
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\1\ Cost savings relate to the costs saved to process a tax return
and do not include Information Technology and Customer Service costs as
the IRS is still in the process of computing these costs.
\2\ This no cost e-filing option is the result of the IRS entering
into an agreement with tax preparation software companies and is
available for taxpayers that meet certain requirements.
\3\ E-file providers may be electronic return originators,
transmitters, software developers, tax practitioners, and States.
---------------------------------------------------------------------------
The IRS has also made progress in providing information to
taxpayers via its internet website IRS.gov. Taxpayers have visited this
website billions of times to obtain information. Just this tax season,
the IRS stated taxpayers had made nearly 10 million visits by the end
of February to obtain refund information from the ``Where's My
Refund?'' application which is featured on this site. This is almost
double the number received last year at this time.
Even with much progress, the IRS still faces significant challenges
to meeting its mission. TIGTA has identified major management
challenges in the following areas that could affect the IRS's ability
to help taxpayers address their tax responsibilities:
--Systems Modernization.
--Tax Compliance Initiatives.
--Security of Employees, Facilities, and Information Systems.
--Integrating Performance and Financial Management.
--Complexity of the Tax Law.
--Providing Quality Customer Service Operations.
--Erroneous and Improper Payments.
--Processing Returns and Implementing Tax Law Changes During the Tax
Filing Season.
--Taxpayer Protection and Rights.
--Human Capital.
Although each of these areas presents its own unique challenges, I
have chosen to focus the remainder of my remarks on two of these key
areas, Systems Modernization and Providing Quality Customer Service
Operations.
SYSTEMS MODERNIZATION
The IRS's systems modernization program is in the sixth year of its
effort to upgrade and modernize IRS information technology and business
systems. It is expected that this program will take up to 15 years and
cost at least $7 billion to complete. The modernization program is an
extremely complex effort, since many of the IRS's current business
systems are a mixture of technologies that date back to the 1960's.
While difficult, the program must nevertheless be successful if the IRS
is to meet its goals and commitments of improving its customer service
and tax compliance activities. To facilitate the success of its
modernization efforts, the IRS hired the Computer Sciences Corporation
as the PRIME contractor and integrator for the modernization program,
and created the Business Systems Modernization Office to guide and
oversee the work of the PRIME contractor. Through March 2004, the IRS
has received approximately $1.59 billion to support the systems
modernization program, and the IRS plans to request an additional $142
million for fiscal year 2004. Approximately $285 million has been
included in the fiscal year 2005 budget to further fund systems
modernization efforts.
The Treasury Inspector General for Tax Administration (TIGTA)
agrees with the IRS's recent moves to resize and scale back its systems
modernization efforts to place additional focus on ensuring the most
critical systems are implemented. In fact, TIGTA has been recommending
such a reduction in the modernization projects based on the concerns we
have raised with cost and schedule overruns in the modernization
program. The IRS Commissioner recently launched a comprehensive review
of the modernization program resulting in 21 recommendations for
improvement. Many of those recommendations were similar to those made
in TIGTA reports issued during the past 4 years.
Over the last 2 fiscal years,\4\ TIGTA cited four challenges that
the IRS and the PRIME contractor must overcome to be successful:
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\4\ Annual Assessment of the Business Systems Modernization Program
(Reference Number 2003-20-208, dated September 2003). Annual Assessment
of the Internal Revenue Service's Business Systems Modernization
Program (Reference Number 2002-20-189, dated September 2002).
---------------------------------------------------------------------------
--Implement planned improvements in key management processes and
commit necessary resources to enable success.
--Manage the increasing complexity and risks of the modernization
program.
--Maintain the continuity of strategic direction with experienced
leadership.
--Ensure PRIME contractor performance and accountability are
effectively managed.
The fourth challenge has recently become critical as oversight
groups are starting to lose confidence in the PRIME contractor's
ability to meet its commitments in modernizing the IRS's business
systems and have raised concerns about future funding. In light of this
concern, effective contract management, always difficult on a project
of this magnitude, is becoming an increasingly important challenge that
needs to be overcome.
The IRS has made progress in defining the management processes and
capabilities needed to effectively acquire and implement information
technology systems. For example, it has deployed the infrastructure
system on which future modernized applications will run. Establishing
this infrastructure is a necessary prerequisite to introducing the
business applications that are intended to provide benefits to
taxpayers and the IRS. The IRS also deployed several applications that
have immediately produced taxpayer benefits. The ``Where's My Refund''
application, as described earlier, has assisted taxpayers with millions
of online inquiries to obtain refund information. Other applications
that have been implemented allow businesses and taxpayers to obtain
employer identification numbers online, tax preparers to apply to
become an electronic filer and obtain an identification number for use
in filing clients' returns, and businesses to electronically file
certain tax returns.
In response to concerns of TIGTA and others, the revised fiscal
year 2003 modernization spending plan submitted in March 2003 focused
the program on a smaller portfolio of existing key projects. Although
the IRS expressed high confidence in the practicality of the revised
plan and assured the Congress that it could timely deliver the revised
fiscal year 2003 project portfolio, all of the projects experienced
schedule delays and most incurred significant cost increases from
fiscal year 2002 estimates. Also, management decisions were made to
delay some of the functionality that was originally planned for these
systems until sometime in the future.
These schedule delays, cost increases, and delayed functionality
occurred, in part, because modernization project teams did not always
follow defined management and project development processes. The IRS
and the PRIME contractor have particularly struggled to develop
adequate cost and schedule estimation techniques. As a result, delivery
schedules and cost estimates were very aggressive and overly
optimistic.
Additionally, the IRS and the PRIME contractor had not fully
implemented disciplined project testing processes and procedures.
Testing processes have been substantially revised and refined based on
lessons learned during the early testing efforts for modernization
projects. However, TIGTA analyzed several key projects and found the
project teams were not consistently following the established testing
processes. We believe the inadequate implementation of the testing
processes was the result of the modernization project teams attempting
to meet overly optimistic project schedules.
While progress has been made in the IRS's modernization efforts, it
did not achieve its goals for fiscal year 2003. This underachievement
is disappointing considering that the expectations for the year were
scaled back in hopes of being able to successfully deliver several key
modernization projects.
The delays in implementing projects can clearly be seen in the most
critical modernization project, the Customer Account Data Engine
(CADE). CADE will eventually replace the existing Master File \5\ of
taxpayer accounts, and will enable the implementation of other
modernized systems that will improve customer service and compliance
and allow the on-line posting and updating of taxpayer account and
return data. Therefore, CADE will be the foundation for managing
taxpayer accounts in the modernized IRS. The portion of CADE related to
individual tax accounts will be incrementally deployed in five
releases, each related to a specific taxpayer segment, over several
years, as shown in the revised CADE release schedule below.
---------------------------------------------------------------------------
\5\ The Master File is the IRS's database that stores various types
of taxpayer account information and includes individual, business, and
employee plans and exempt organizations data.
CADE RELEASE SCHEDULE
--------------------------------------------------------------------------------------------------------------------------------------------------------
Release One Release Two Release Three Release Four Release Five
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tax Return Types................... 1040EZ, Refund or Even 1040EZ, 1040 Sch A, B, All 1040 Family and All 1040 Family and All remaining
balance. D, 1040A Sch 1, 3, supporting forms, supporting forms, individual tax
with Refund or Even Refund or Full Paid. Refund, Full Paid, returns.
Balance. 1040A Sch 2, Refund and Balance Due.
1040, 1040A 1040EZ, or Balance Due. 941, 940, 720 Forms--
Full Paid. 1040ES Pmts.......... Payroll,
unemployment, and
Excise returns for
1040 taxpayers.
Filing Status...................... Single................ (Single, Married-- All (including Head All.................. All.
Married once and no of Household).
dependents).
Account Characteristics............ No account issues No open account issues No open account No open account All accounts not
(Open or Closed). issues EITC. issues. included in previous
releases.
Est. Returns :\1\
Original estimate.............. 6 Million............. 29 Million............ 41 Million........... 34 Million........... 12 Million.
Revised June 2003.............. 5 Million............. 33 Million............ 57 Million........... 20 Million........... 15 Million.
Est. Delivery:
As of April 2000............... January 2002.......... August 2002........... July 2003............ July 2004............ July 2005.
As of March 2001............... January 2002.......... January 2003.......... January 2004......... January 2005......... January 2006.
As of April 2003............... August 2003........... January 2005.......... TBD.................. TBD.................. TBD.
As of Jan. 2004................ Rel 1.1 \2\.--August TBD................... TBD.................. TBD.................. TBD.
2004.
Rel 1.2/1.3.--January
2005/January 2006.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated tax returns (electronic and paper) are based on 1999 statistics.
\2\ Release 1 has been divided up into three separate releases--1.1, 1.2, and 1.3.
CUSTOMER SERVICE
One of the Congress' principal objectives in enacting the RRA 98
was to mandate that the IRS do a better job of meeting the needs of its
customers. In the RRA 98, the Congress directed the IRS to achieve a
better balance between its post-filing enforcement efforts and pre-
filing taxpayer assistance through education and service. To comply
with this Congressional mandate, the IRS revised its mission statement
to refocus its emphasis on helping taxpayers understand and meet their
tax responsibilities. Additionally, the IRS has enhanced its focus on
increasing the levels of electronic filing.
Taxpayers have several options from which to choose when they need
assistance from the IRS. These options include toll-free telephone
assistance, walk-in service at the Taxpayer Assistance Centers (TAC),
and the IRS internet website IRS.gov. The effectiveness of each of
these services potentially affects a taxpayer's ability and desire to
voluntarily comply with the tax laws.
Toll-Free Telephone Assistance
The IRS's toll-free telephone system is the contact method most
taxpayers choose when seeking answers to tax law questions or trying to
resolve tax account-related issues. Taxpayers called the IRS toll-free
telephone system over 50 million times during the 2003 Filing Season.
The IRS's strategy for handling this significant customer demand is to
direct those taxpayers with less complicated issues to its automated
services (i.e., recorded information and interactive applications) and
allow its Customer Service Representatives (CSR) to assist taxpayers
with more difficult issues. However, during fiscal year 2003, over 26
million of the calls were from taxpayers who had questions about their
accounts and who chose to speak with a CSR.
The TIGTA and others have raised continuing concerns about the
IRS's ability to effectively meet the significant annual taxpayer
demand for access to its toll-free telephone system. Over the past
several years, the IRS has made many technological changes, as well as
organizational and process changes, to its toll-free telephone system
in an effort to provide taxpayers with better access and improve the
quality of its service.
Many aspects of the taxpayer experience in accessing the IRS toll-
free telephone system were significantly improved during the 2003
Filing Season. This improvement was reflected in the measures the IRS
uses to gauge the performance of its toll-free telephone system. In
comparison to the prior filing season, for example, the level of
service increased, more calls were answered, and fewer taxpayers
abandoned (i.e., hung up) their calls before receiving assistance.
Further, taxpayers that called with account- or refund-related
questions had shorter wait times to receive service, and taxpayers that
called with account-related questions were more likely to receive
assistance when they reached a CSR assigned to an account application.
Although taxpayer access to its toll-free telephone services
improved, the IRS has opportunities to further enhance the taxpayer
experience and reduce the costs of providing toll-free telephone
services. A major improvement opportunity involves implementing
enhancements to automated call routing solutions so that much of the
need for call screeners can be reduced or eliminated. For the 2003
Filing Season, using screeners to manually route calls cost the IRS
almost $3.6 million in salaries and benefits that would not have been
needed if the previously developed call routing solution had worked as
planned. Another improvement opportunity involves reducing the high
Assistor Availability levels \6\ that have existed for at least the
past two filing seasons. The IRS had planned for a level of 5.5 percent
in fiscal year 2003, but during the 2003 Filing Season, the rate was
11.2 percent, and had further increased to 12.15 percent through the
end of June. We estimate that this cost the IRS nearly $6.4 million in
CSR salaries and benefits. Finally, the IRS needs a financial system
that will accurately track its cost-per-call for various toll-free
telephone services to provide management and key stakeholders
sufficient information to make critical decisions.
---------------------------------------------------------------------------
\6\ Assistor Availability is the measure the IRS uses to calculate
how long its CSR's are available to take calls when none are coming in
for their specific applications. Achieving the optimum Assistor
Availability level is critical for effective and efficient call site
operations.
---------------------------------------------------------------------------
The IRS receives calls from taxpayers with account issues and
questions about various aspects of the tax law. During the 2003 Filing
Season, we reviewed both account assistance and tax law assistance
calls for professionalism, accuracy, and timeliness.
Account Assistance.--TIGTA evaluated the professionalism, accuracy,
and timeliness of account assistance obtained through the Toll-Free
program. From a judgmental sample of 191 calls monitored between April
21 and May 16, 2003, we determined that CSR's treated taxpayers
professionally for 99 percent of the calls and provided timely service
for 83 percent of the calls. In addition, 78 percent of taxpayers
received accurate answers to their account questions. Using a
statistical sample during the same period we reviewed, the IRS reported
rates of 100 and 97 percent, respectively, for professionalism and
timeliness, and 88 percent for customer accuracy.
Tax Law Assistance.--TIGTA monitored a judgmental sample of 294
toll-free tax law calls between January 27 and March 13, 2003, and
compared the results to records from an IRS statistically valid sample
of 6,011 calls monitored during the same period. The 2 samples showed
that CSR performance was professional and timely in 98 percent or more
of the total number of calls monitored. Although our sample showed a
customer accuracy rate of 73 percent as compared to the IRS' measured
rate of 81 percent, the need for CSR's to fully probe the taxpayer for
information was clearly evident as an ongoing issue requiring
improvement in both of the samples taken. The primary reason incorrect
responses were given was because CSR's were not effectively using the
appropriate guidance. Without effective use of this guidance, CSR's are
unable to fully understand the taxpayer's situation and may provide
information that is incorrect or incomplete.
Taxpayer Assistance Centers
The primary emphasis of the TAC's is to provide face-to-face
assistance to taxpayers in meeting their filing and payment
responsibilities, including educating taxpayers, providing self-help,
interpreting tax laws and regulations, securing forms, resolving
notices, and providing needs-based complimentary tax return
preparation. The IRS has over 400 TAC's that served over 8.5 million
taxpayers in fiscal year 2003.
Significant improvements have occurred in the percentage of
accurate answers to tax law questions TIGTA auditors asked when
anonymously conducting site visits to TAC's during the past 2 years.
IRS employees correctly answered 69 percent of the questions asked and
incorrectly referred only 2 percent to publications from July through
December 2003, compared to correctly answering only 57 percent of the
questions asked and incorrectly referring 12 percent to publications
from July through December 2002. TIGTA commends the IRS for the
improvements it has made in this level of accuracy.
Auditors also had positive experiences when they visited the TAC's.
IRS employees were professional and courteous in 97 percent of the 194
TIGTA site visits to 105 TAC's. Wait time for service was 1 hour or
less for 99 percent of the visits. In addition, 85 (81 percent) of the
TAC's visited by our auditors had office hours listed on the IRS
internet website IRS.gov, which matched the hours posted at the TAC's.
Although improvements have occurred in accuracy of responses to
taxpayer questions, the accuracy of tax return preparation at the TAC's
needs improvement. Complimentary tax return preparation and electronic
filing is provided to those taxpayers whose returns meet certain
requirements and limitations. For Tax Year 2002, IRS employees at the
TAC's prepared 293,242 tax returns that involved refunds and tax
liabilities totaling approximately $330 million and $6 million,
respectively.
Returns prepared at the TAC sites, however, are often inaccurate.
From February through April 2003, TIGTA auditors made 34 anonymous
visits to 26 TAC's nationwide in an attempt to have a tax return
prepared. IRS employees incorrectly prepared 19 of the 23 tax returns
prepared during our visits. If these returns had been filed, the IRS
would have inappropriately refunded $32,000 and inappropriately
withheld $2,400 in tax refunds. IRS management has taken action to
improve the accuracy of the tax returns prepared, and TIGTA has
recommended additional actions to ensure taxpayers receive proper and
accurate customer service when requesting assistance with tax return
preparation.
Service to Taxpayers via the Internet
The use of the internet has increased dramatically. The latest
statistics indicate that nearly 70 percent of the United States
population are internet users. Since 1995, the IRS has administered a
program to answer taxpayer questions submitted through its internet
website IRS.gov. This program offers individual and business taxpayers
an accessible and convenient alternative to using the telephone or
visiting an IRS office to obtain answers to tax law questions.
Taxpayers have the ability to submit tax law questions 24 hours a day,
7 days a week. The IRS provides responses to taxpayer questions via an
e-mail message.
Past TIGTA testing indicated that the accuracy rate for the answers
to the submitted questions was over 80 percent, which is higher than
that received in TAC's or via the toll-free assistance telephone
program. However, the IRS did not respond to several of the questions
TIGTA submitted anonymously to the program. Additionally, the number of
questions submitted dropped from over 200,000 questions in the 2000
Filing Season to about 120,000 in the 2002 Filing Season. TIGTA
encouraged management to provide clear instructions to taxpayers to
help them locate the area to input tax questions on the internet
website.
Statistics obtained from the IRS indicated that for the 2003 Filing
Season, 146,369 questions were received from taxpayers (a 23 percent
increase over the prior year). However, the average response time for
each question increased from 2.4 days to 4.2 days. Thus far, for the
2004 Filing Season (through March 15, 2004), statistics indicate a
reduction in the number of questions received--76,156 questions have
been received (76 percent of the number received in the prior year
during the same period) with an average response time of 3.6 days.
In closing, I would like to reiterate that the improvements in the
levels of service the IRS has provided to taxpayers are impressive. The
IRS has made great strides in enhancing the level of electronic filing,
providing information via its internet website, and improving the
accuracy and availability of toll-free telephone service. The early IRS
filing season statistics indicate a rise in electronic filing and an
increase in the use of some of the services available via the internet.
However, significant challenges remain to be addressed as the IRS
strives to modernize its systems and provide world-class customer
service to America's taxpayers.
ACCURACY OF TAX RETURN PREPARATION
Senator Shelby. I have a number of questions. The Treasury
Inspector General for Tax Administration (TIGTA) reported that
the IRS employees incorrectly prepared 19 of 23 tax returns
during a spot check of 26 taxpayer assistance centers around
the country. Ms. Gardiner, what recommendations do you have to
ensure taxpayers receive proper and accurate customer service
when requesting assistance in the preparation of a tax return?
Ms. Gardiner. The biggest problem that we see when mistakes
are made, whether it is preparing tax returns or answering
questions on the toll-free line or walk-in assistance, is that
the IRS employees do not ask appropriate probing questions. For
example, the earned income tax credit is a complicated law and
there are so many different little pieces that make a
difference in whether you qualify or not.
Senator Shelby. I certainly would not be qualified----
Ms. Gardiner. A common problem is just simply the number of
months that a child resides with the taxpayer that would
determine whether they do or do not get the credit, and that is
a common mistake.
Senator Shelby. There is a problem of verification, too, is
it not?
Ms. Gardiner. It is verification as well, but what we find
is simply that they are not asking enough questions to get to
the right answer.
IMPROVING THE ACCURACY OF RETURN PREPARATION
Senator Shelby. Mr. Commissioner, what actions have you
taken to improve the accuracy of tax returns prepared by the
IRS personnel?
Mr. Everson. I think that as Ms. Gardiner has suggested,
this is an area that needs our concern, and that is a
relatively recent set of findings. We have had recent
discussions--in fact, I think the issues here, Senator, extend
beyond returns we prepare. As you may be aware, there are up to
about 2 million returns that are prepared through volunteer
organizations that work closely with the Service, to which
people are referred and they may go visit one of these
volunteer sites.
Senator Shelby. How accurate are those returns?
Mr. Everson. I think we are seeing that there are some of
the same issues. This comes back to what you spoke about, it
comes back to the complexity of the code. That is a root cause
here. I would just expand upon Ms. Gardiner's remarks, which I
think hit it correctly. There are a couple things that are
difficult here. One is the true desire of our employers or
others to help. If they are sitting there with you and they
think they understand the situation, they may fail to ask that
next probing question. It is on a script that they are supposed
to be using, but they have made an assumption, and they
probably should not have made that assumption.
The way the scoring that TIGTA uses works and that we use
works, sometimes it holds against them the fact they just have
not asked that next question. Now, they may actually have been
right but they did not fully follow the procedure, so there is
a real risk that they have got the wrong answer. We need to
keep working on our training. We are doing that. I think that
this area----
Senator Shelby. Does a lot of it go to training?
Mr. Everson. Training is it, and getting good scripts. The
same thing applies to the tax law accuracy question where we
made some changes earlier this filing season. Overall, our
filing season results are excellent, but we did have a dip in
tax law accuracy, and that was because we were making changes
to actually get better. We were changing some of these scripts.
They proved a little more difficult to use. And we were also
having some people who worked in the account area, which Ms.
Gardiner talked about, that is the area where you call in and
you say, ``I cannot remember what my payment ought to be,'' if
you are on an installment plan, or ``I got a notice from you,''
or a question like that. We were taking some of those folks and
having them work in the tax law area. Getting them properly
trained and up to speed took a little more time than we
thought.
So this is an ongoing challenge. Whatever you can do to
simplify the code, though, would really help us.
Ms. Gardiner. Yes.
Senator Shelby. I have tried.
Mr. Everson. I know you have.
CORPORATE TAX SHELTERS
Senator Shelby. Mr. Commissioner, I think we all know there
have been a lot of abuse of tax shelters. We often hear of
large corporations or high income taxpayers creating shelters
that are obviously designed to avoid paying taxes. They do not
have a real purpose, a business purpose, other than that. On
top of that, these shelters are designed by a handful of
attorneys, accountants, and tax practitioners whose standards
and ethics are very, very questionable. You know this yourself.
We have talked about it a little.
Does the budget request reflect your plan for attacking
these corporate shelters and the few unprofessional individuals
who created them? I think you have got to go to the heart of
this.
Mr. Everson. Absolutely. If we could show the four
enforcement priorities. We have very carefully constructed,
through our planning process, four mutually reinforcing
enforcement priorities. This issue is really at the heart of
all four of these priorities.
ENFORCEMENT PRIORITIES
Senator Shelby. Go over them.
Mr. Everson. The first is to discourage and deter non-
compliance, with emphasis on the corrosive activities of
corporations and high income individuals. That is the meat of
the shelter question.
The second is to assure that----
Senator Shelby. A lot of these people just exist to think
of creative ways to beat the tax code, do they not?
Mr. Everson. That is the second point here: assure that
attorneys and accountants and other tax practitioners adhere to
professional standards and follow the law. If you could indulge
me for just a minute. I started out my career at Arthur
Andersen in the mid-1970s. The firm had one of the best
reputations, and the standard of any Big Eight accounting firm
was clear, any good law firm: you make sure that your clients
follow the law. This all changed over a period of decades to
become about value creation and risk management, and now you
have interlocking networks of investment banks, accounting
firms, law firms, commercial brokerages.
Senator Shelby. Trying to beat the tax code?
Mr. Everson. They are working to do this. So this element
of it is terribly important.
The third priority, augmenting our criminal investigations,
gets to it too. Some of this gets to a criminal level. We have
active criminal investigations, including against
professionals, that will hold people to account.
Senator Shelby. You have to do this, do you not?
Mr. Everson. We have to. We are getting excellent support
from the Department of Justice. They have litigated for the
first time, as you may have seen, against law firms who have
acted as promoters. They are not providing traditional advice
to clients. They are acting as promoters of generic tax
products that have had a corrupting influence on the practice
of law and accounting.
IRS ENFORCEMENT PRIORITIES
Senator Shelby. A lot of this advice has no real business
purpose, does it?
Mr. Everson. That is exactly right. And it gets even to the
fourth point here, which is about the abuse of tax-exempt
entities. This is a very serious one, where we have seen some
of these charities are being used. We just prohibited a
transaction last week where people would take advantage of
charitable organizations in order to actually promote a tax
avoidance scheme. If I could just show you one chart as to the
problem we have got ourselves into over a period of years, and
then I want to address one thing you said in your statement.
Senator Shelby. You go ahead.
IRS STAFFING
Mr. Everson. This green line, this is the growth over 6
years starting in 1995 in total assets of 501(c)(3) entities.
This is the number of returns filed, together with some
projections. This is what happened to the staffing at the IRS.
What happened, basically, was we maintained--as you said, we
kept working on service, and that was good. We needed to do
that. But the fallout in this was a dramatic decline across-
the-board--but this is just the people working on tax-exempt
groups. And if you adjust for this volume increase in terms of
number of charitable entities, this shows you how far we are
down.
This is bringing it back up. We brought it back up in 2004.
What I wanted to say here, the only correction I would have,
and I agree with your statement, is that in 2004 after I got
here, the first thing I did was direct my two deputies to make
sure that as we dealt with funding shortfalls we did not just
take it out of enforcement. We stopped that last year, so that
the fiscal year we are in now, we do have the enforcement
increment the President and you want us to follow.
But this just shows, we are bringing this back. This is a
terribly important area because of what you just said. It is
also terribly important because of abuses, the credit
counseling industry----
Senator Shelby. How much money are we talking about in
abuses, in your judgment?
Mr. Everson. In this area, in tax-exempt entities I would
not have a precise figure but what I would tell you, let me
give you----
Senator Shelby. Could you furnish something for the record?
[The information follows:]
We do not have data with which to provide a precise answer. Lost
revenues would generally result from tax-exempt organizations that are
not operating in accordance with their exempt status, and therefore
should be subject to tax. The market segment studies we are currently
undertaking will enable us to better estimate revenue losses in
particular segments or industries, but will not provide data that can
be extended to exempt organizations generally.
Mr. Everson. Let me tell you one statistic on this. There
is a $1 billion credit counseling industry that is operating as
not-for-profit, calling around to people, taking advantage of
the fact that they are exempted from the do-not-call list
because they are a charity, taking advantage of the fact that
they are not regulated by your State or others for consumer
protection laws. They are preying, many of these entities are
preying on good average Americans who have found themselves in
trouble with debts, and they are no longer providing counseling
and educational services, which is their mission under tax-
exempt status.
So we are going after them. We may very well lift some of
the tax exemptions, and I believe there may very well be
criminal referrals on some of these entities.
Senator Shelby. That is what you ought to do.
Mr. Everson. This is all what needs to be done. To get back
to your statement, I want to give you my personal commitment
that as we go forward--I am obviously asking for the
President's full request. I am not asking for a penny more, but
I am asking for the full request. I want to be crystal clear
with you and your colleagues that we will protect that
enforcement build and be very responsible at addressing
shortfalls, should there be across-the-board rescissions and
things like there have been in the past, or other gaps.
Senator Shelby. You have got to have the money to do your
job. What percentage, and you might want to furnish this for
the record, of 501(c)(3) tax-exempt groups are abusing their
status?
Mr. Everson. That is a very difficult question, and I would
tell you, we have fallen so far behind----
Senator Shelby. A lot of them are very clean, very
straight-up.
Mr. Everson. Yes. Most of them are. What is really at stake
here, Senator, is that Americans could lose faith in the
integrity of charities and stop supporting our charitable
institutions, which are so important to our way of life.
[The information follows:]
Currently, we do not have data that would yield a meaningful
statistic. The 501(c) exempt organization community is made up of many
different kinds of charities and other exempt organizations, with
diverse activities and needs and correspondingly diverse compliance
challenges. To address this diversity, we have divided the exempt
organization community into several dozen market segments, and in
fiscal year 2002 we began to conduct market segment studies. To date,
we have begun studies looking at labor unions, business leagues, social
clubs, community trusts, hospitals, colleges and universities, social
services organizations, religious organizations (other than churches),
private foundations, 509(a)(3) supporting organizations, fraternal
organizations, elder housing organizations, arts & humanities
organizations, as well as others. Although the results of these studies
will allow us to make generalizations about compliance levels in
particular segments or industries, we do not expect that they will
allow us to make generalizations about the percentage of organizations
that are not operating in accordance with their tax-exempt status.
Recently, we have devoted more of our limited resources to
enforcement areas with known or suspected compliance problems, such as
donor advised funds, credit counseling organizations, excessive
compensation issues, and others. Although we will continue with market
segment studies, we anticipate that fewer resources will be devoted to
new studies as we increasingly concentrate on existing areas of
noncompliance.
EARNED INCOME TAX CREDIT
Senator Shelby. Absolutely.
Let us now focus on the earned income tax credit. As we all
know, there is an estimated $8 billion to $10 billion of annual
fraud. This is a lot of money. We were talking about $1 billion
a minute ago, or $260 million, which is still a lot of money.
But there is an estimated $8 billion to $10 billion dollars of
annual fraud that occurs in the earned income tax credit
program. What is the IRS doing currently to crack down on this?
What is the status of your five-point initiative to improve the
administration of the earned income tax credit (EITC)? And how
and when does the IRS plan to determine whether the earned
income tax credit pilot initiative, including the qualifying
child certification filing status and income report, will be a
success? Because we know a lot of people who receive the
benefit do not abuse it. But we also know that there is a high
rate of erroneous payments to people who should not receive it.
It looks like it is a question of correlating information
before you pay out, if you are double paying in areas. Do you
want to respond?
Mr. Everson. Certainly, Senator.
Senator Shelby. This is important.
Mr. Everson. It is very important. We want to make sure
that everybody who qualifies for this program takes advantage
of this program. That is our first objective. But the second
one is, we want to, obviously, make sure that we are not paying
out monies to people who legitimately do not qualify. As was
indicated before, Ms. Gardiner indicated, there is some
complexity in the program, so I would not want anybody to draw
the impression that it is all fraud in there.
Senator Shelby. No, it is not all fraud, but there is a lot
of fraud.
Mr. Everson. There is a legitimate error rate that accounts
for a good chunk of what you talked about. Our studies have
indicated an error rate somewhere between 25 and 30 percent,
which is the highest in government.
Let me draw the distinction, because your statement made
reference to some things I said in my prior life over at OMB
and this is something I looked at when we were there. The
difference between this program and food stamps, or housing
subsidies, is there is no front-end application process. In a
lot of benefits programs, the government, either the Federal
Government or a State entity, or somebody is going through an
application process to determine whether you or I qualify for a
benefit. That does not exist in the EITC. It is treated like it
is embedded in the tax code. It is the largest means-tested
program we have, so it is an odd animal.
Senator Shelby. How much money, overall, is involved in the
Earned Income Tax Credit?
Mr. Everson. Last year I believe it was about $36 billion
with about 21 million filers who took advantage of the program.
Senator Shelby. A $36 billion program and, say, 25 percent
of it's more or less questionable?
Mr. Everson. Yes, 25 percent of it. So let me come back
directly to your question. We do have the five-point program
which is geared to hit those objectives, to help people
participate, simplify forms. We are working on all that. We are
bringing in a backlog of the old audits. The core of this
though is this certification pilot. Right now we have got a
certification--
EARNED INCOME TAX CREDIT CERTIFICATION PILOT
Senator Shelby. How does that work?
Mr. Everson. We are asking people to demonstrate their
eligibility this year at the time that they are filing for the
credit, rather than getting--if they were in a high-risk
category, rather than automatically getting their----
Senator Shelby. Preapproval, in a sense?
Mr. Everson. It is not quite preapproval, but in lieu of
getting their refund held. What would happen in the past is,
they might go down a corridor where if their return looked
suspect--I will give you an example where you typically might
see a problem. You see the same address for a husband and wife,
but they are filing as head of household and splitting their
kids. That is not the right thing to do, obviously, because the
presumption would be that since they are living together that
it is one family. That would be something--and there are other
indicators where you might end up holding the refund.
What we are doing here with this pilot group is we are
looking, in a real-time basis, and asking them to complete the
paperwork so that then their refund does not get held. I do not
have the results for that yet. That is underway right now. My
impression, and it is just an impression, is that so far, so
good. But we are going to have an independent evaluation of
this pilot done. We will not know until, I would tell you later
in the summer, later in the year, how it has gone.
Senator Shelby. Will you let us know how it is going?
Mr. Everson. Of course we will. We want to ramp this up,
but only if we prove that it works and that it gets us a good
answer, that it does not dampen the participation of those who
qualify, and that it does the job that it is supposed to do,
which is reduce the error rate.
ADDRESSING FRAUD AT ALL INCOME LEVELS
Senator Shelby. But you can have fraud at the highest
level, the richest people, and you can have big fraud, as you
pointed out, in the Earned Income Tax Credit. It is our job to
root it out in both places, is it not?
Mr. Everson. Absolutely correct. It is our job to run a
balanced program. That is what I am seeking to do with this
budget increase. But I do emphasize that where we start is at
the high income and the corporate in the criminal area, because
the basic sense of fairness of Americans is that the big guy
should not get away with something here.
Senator Shelby. Absolutely. And the little guy should not
get away with it either.
Mr. Everson. We want everybody to be compliant.
Senator Shelby. Both of them. Because you cannot have fraud
by anybody, can you?
Mr. Everson. You cannot.
Senator Shelby. Ms. Gardiner, what are your thoughts about
the pilot and other initiatives in this area?
Ms. Gardiner. We have been looking at the pilot concept,
the design of the original test, and it looked pretty good. We
made some suggestions that in the early stages of planning for
it, because they did not seem to have good measures on how they
would determine whether the pilot was a success or not. They
have improved that.
Senator Shelby. Does the pilot relate to a software program
that can correlate all this information?
Ms. Gardiner. No, it really is examining a sample of
returns and related documentation, that would support the
eligibility. So it is manual. The results could go into a
database, of course.
Senator Shelby. But this is a lot of money involved, as the
Commissioner has pointed out, over time. There is a lot of
money involved here in cheating. There is a lot of money
involved in these fraudulent tax shelters, too.
Mr. Everson. Yes, sir.
Senator Shelby. If you could cut down on both tremendously
it would mean a lot of savings to the IRS. It would mean a lot
more revenue, legitimate revenue coming in, would it not, sir?
TAX GAP
Mr. Everson. Senator, what you are getting to here is of
great concern. It is what we call this tax gap. Our estimates
are that this combination of non-filing, underreporting and
underpayment is north of $250 billion a year. Now that number
is not very precise and that is because it is based on a model
that was last updated in the late 1980s, and adjusted for
changes in demographics and economics. We are just now doing
the research, through a new series of more in-depth audits,
that will give us a basis for updating that number.
My fear is that it might well be greater than the $250
billion a year because of these shelters, the changes in
behavior, and this change in compliance attitudes. So this is a
serious problem, but anything that we do--and this is why I am
so anxious to get the money--we help out on the deficit, we
help out States, because when we get a dollar for the Federal
Government, on average the blended rates across the country is
that the States get 20 cents. So it is important everywhere.
Senator Shelby. What are the current spending plans and
changes the IRS has made to the Earned Income Tax Credit
initiative as a result of the merger of appropriations with Tax
Law Enforcement?
Mr. Everson. Last year we had an increase from the previous
year in the EITC, and if you look at 2004 versus 2005, the
spending actually goes down. It is not going to affect this
program that we are talking about or our ability to do more
audits, because we were making some one-time investments as we
got ready to do these pilots and some of the other educational
data requirements. So that number has gone down from about $201
million in 2004, to, I believe, it is $176 million. But it will
not hurt our ability to move forward and do just what we were
talking about.
FUEL TAX EVASION
Senator Shelby. Mr. Commissioner, part of my duties as an
appropriator of this subcommittee is transportation, as you
know. Fuel tax fraud creates a drain on the Highway Trust Fund
revenues which the Federal Highway Administration estimates
could cost at least $1 billion a year. In testimony before this
subcommittee, the Secretary of the Department of
Transportation, Secretary Mineta, stated that he was not
satisfied with the IRS's effort to combat evasion of Federal
motor fuel taxes.
Mr. Commissioner, does the IRS agree with the Federal
Highway Administration's estimate of the loss; in other words,
a loss of $1 billion or more, from the fuel tax?
Mr. Everson. I have not looked at that specific number.
Senator Shelby. Can you furnish that information?
Mr. Everson. I have no reason to challenge it. I understand
that there is a legislative fix pending that would actually
provide the Service more resources to go after this important
area. When I was recently traveling, I went to a fuel depot, a
tank farm, and saw the testing procedures we have. This is a
big issue, and it comes down to fairness again. If the fellow
who is running a gas station sees the guy across the corner
mixing his fuels, he has got a competitive advantage that is
not fair. So we need to do more. I am hopeful that the fix that
I have talked about will get the extra agents to keep on this
issue.
Senator Shelby. Will that be a collaborative effort with
the States?
Mr. Everson. I think that is more our own area. I could be
wrong about that, but I believe--these are our folks that do
the work themselves, and the fellows I met were just Service
employees.
Senator Shelby. It is still a lot of money involved.
Mr. Everson. It is a lot of money and it goes into, again,
business fraud. We need to be attentive, not just to
individuals, but to the businesses here.
WORKFORCE REALIGNMENT
Senator Shelby. Mr. Commissioner, following the IRS's
reform legislation of 1998, the IRS realigned significant
levels of resources out of tax enforcement and compliance
activities to customer service, telephone assistance, and
submission processing activities. How do your fiscal 2005
realignment proposals and new funding initiatives compare to
the pre-reform legislation levels for the tax enforcement and
compliance programs?
Mr. Everson. Maybe I could show a chart on that.
This just shows you what happens. I am not quibbling with
RRA 1998. I want to be clear about that. The reforms that were
contemplated were necessary to improve services. We were not
doing everything we needed to do on service. I want to be clear
about that. But as the IRS worked in a single-minded fashion to
improve services--these are our service and infrastructure
personnel--it kept those resources stable and invested in phone
services, restructured the agency, did a lot of things to get
things better.
But what fell out was a decline in enforcement. This red
dotted line represents FTEs as dollars turned into bodies for
revenue agents, people who do audits, revenue officers, people
who collect monies due, and criminal investigators. Over a
period of time they fell by over a quarter.
Now we have turned that back in 2004, as I indicated to
you, by absorbing some of the shortfalls in congressional
spending. Last year, you know we ended up $250 million short at
the end of the day, plus the pay raise, plus the child credit;
a series of factors. But for the first time what we did was,
for this year, forced an allocation of these cuts in a way that
protected enforcement, the enforcement initiative.
We will bring this back further. There will be another
several thousand FTEs that we will get through the 2005
increment and about 4,000 positions. So this will make a
difference in 2005. It does not bring us all the way back.
Senator Shelby. It is progress, though.
Mr. Everson. My commitment to the Secretary and to Josh
Bolten at OMB is we will look at this on an ongoing basis to
see that we run a balanced system. We are also improving our
processes so that we get more leverage. You do not always have
to have more money, but in this case we felt that we needed the
money to improve our processes.
IRS SERVICE AND STAFFING LEVELS
Senator Shelby. Mr. Commissioner, does your fiscal year
2005 request reflect a belief on your part that sufficient
service and staffing levels have been achieved for the customer
service and processing program areas?
Mr. Everson. As a general rule, I would suggest that I
would like to continue to maintain and improve services with a
relatively stable resource commitment on the service. We are
near inflation, if you look at what we have got in the 2005
request. I think that is appropriate.
We need to challenge our people to get the same kind of
productivity gains that you get in the private sector. That
sometimes results in some painful adjustments in the workforce.
You probably read of some of the actions we are taking. But I
believe that it is difficult for me to come and ask you for
money in this resource-starved environment, and time of
deficits, if I have not done everything I can to run the agency
efficiently. So we are asking our people to look at that
productivity, and I think that we can continue to run our
services and improve them at a relatively stable investment
level.
TAX LAW ENFORCEMENT FUNDING
Senator Shelby. Has the IRS invested all the resources
appropriated by the Congress in recent years for tax law
enforcement or have some of the new resources been reallocated
to other areas?
Mr. Everson. No, this is what we were just saying. The
standing rule until I got here was that when there was a
shortfall you took it out of enforcement to protect services. I
have reversed that.
Senator Shelby. That would be a mistake.
Mr. Everson. I am not in the business of challenging the
past. I am not sure there was a great deal of choice, given the
overall environment and the absolute imperative to improve
services. But, clearly, now we need to rebuild the enforcement
side and that is what I have started to do in the last year and
I am asking your support for going down the road.
Senator Shelby. Mr. Commissioner, why has the IRS been
unable, if this is true, to hire the revenue agents and revenue
officers requested and funded in prior fiscal years? Is this
about not competing in the market? Is there not enough money to
hire people? Are the salaries too low or what?
Mr. Everson. It has been, I would tell you, primarily a
funding question. It is dependent, obviously, on the overall
economy and the desirability of Federal employment. Right now
we are doing very well, as we look at this enforcement build.
We are very pleased with the caliber and the interest we are
getting. We are doing some creative things.
Senator Shelby. But you cannot do it overnight, can you?
Mr. Everson. You cannot. This is why it is so important to
get strong, continued support from you and your colleagues
because what the IRS did, it stopped and started on its hiring.
You do not develop a relationship with a good university to
draw in accountants if you are there once and then you do not
come back for 7 years. You have got to be there every year,
develop a reputation as a good employer and then you get good
people.
Senator Shelby. Continuity is important.
Mr. Everson. Continuity is important, and I think that we
will be able to address demographics. The only other thing I
would say on this is: in the group that works with our large
and mid-size businesses, corporations over $10 million in
assets, for the first time we are hiring outside the IRS from
mid-career people; folks who have been 10, 15 years at
companies or accounting firms. This is a good, helpful thing
too, because as you know, people in America, they do not tend
to stay with the same employer for their whole career any more.
Why shouldn't we in the government be able to take advantage of
that a little bit too?
Senator Shelby. I think you can and you are.
RETURN ON ENFORCEMENT INVESTMENT
What benefits does the IRS expect to derive from the
additional $300 million that you have requested for 2005 in tax
law enforcement?
Mr. Everson. As we have looked at this, we think will get
about a 6 to 1 return. That is a blended return in terms of the
dollars that we are asking for. It will increase audit rates.
Let me just give you one example.
We will increase the penetration on corporations, largely
mid-size corporations where we are not very active, from 7
percent up to 13 percent. That is one area where we do not have
adequate coverage, in my opinion, right now. This will get us
more dollars, and it will also then have a derivative effect on
behaviors.
Same thing, we are going to be adding 350 special agents,
plus support staff, to go after the crooks. Across the board
there will--the chart that I showed before, for the first time
in many years we will be adding to our agents in the tax-exempt
area so they can look at these charities that have problems.
Senator Shelby. Ms. Gardiner, is the IRS headed in the
right direction, and can the Service execute the plan to
improve the tax law enforcement without jeopardizing advances
in taxpayer service? In other words, how do you balance that?
Ms. Gardiner. I believe they are, because the areas in
customer service where we find deficiencies rarely have
anything to do with resources anymore. I would say several
years ago that that was a problem. But now the phones are being
answered, there are people available, the wait times are less
than an hour. So there are people available to provide the
customer service, so I would agree with the Commissioner's
conclusion that keeping a steady resource level there is
appropriate.
On the flip side, with enforcement, clearly, the volume and
complexity of returns is growing. Those resources have
declined. I share the Commissioner's concern that the average
American's perception has grown that you can cheat on your tax
returns. That needs to be addressed, so I think it is the
appropriate thing to increase enforcement.
RESOURCES FOR TAX ADMINISTRATION
Senator Shelby. Mr. Commissioner, in recent testimony on
Capitol Hill, you indicated that Congress has not provided you
with the resources you need to meet your tax administration
responsibilities. A review of your request by the subcommittee
and independently confirmed by the General Accounting Office
(GAO) shows that at least 98 percent, not all, but 98 percent,
of the request has been funded. The GAO has estimated that even
if this Subcommittee on Appropriations gives you every dime of
your enforcement request, the IRS would have already spent at
least one-third of any increase on unbudgeted expenses. Is this
correct, or is the GAO wrong?
Mr. Everson. The figure that we have overall is that--you
know this. We are not the kind of agency that gets topped up in
the appropriations process. If you look back over a 10-year
period, the average shortfall to the President's request, that
could be President Bush or President Clinton, is about 3
percent. Now last year's shortfall was $250 million. Now that
has got a bunch of things in it. It has got things that you do
here in the subcommittee or the full committee, and then it has
got the overall, end-of-the-day rescissions that go across-the-
board.
That gets compounded further by a gap. Seventy percent of
our costs are in the pay area. So that if the administration
proposes a civilian pay raise at one level and the Congress
funds it more generously, then of course we do have an
additional handicap.
What I would suggest to you, Senator, is I very much want
100 percent of the President's request. If we end up in a
situation where there are issues like that I think it is
reasonable for me to challenge my organization to find those
levels.
What happens is, if you work to absorb 1 percent or 2
percent and then you get further whacked by another 2 percent
or 3 percent, then it gets a lot harder to redress some of the
problems you have got.
Senator Shelby. To do your job.
Mr. Everson. To do the job, yes, sir.
COMMITMENT TO ENFORCEMENT FUNDING
Senator Shelby. Mr. Commissioner, would you commit to this
Subcommittee on Appropriations that any enforcement resources
that we allocate to you will be used for the purpose it was
appropriated for? In other words, for the enforcement
initiatives which you have been pushing?
Mr. Everson. Yes, sir, I will. The only exception I would
give you is that if this problem you just talked about was so
severe that if I had to take cuts, I will take them. I commit
to you that I will take them across-the-board. I would take
them at the service side, infrastructure, and I might have to
touch some of the enforcement base. But we will make this
build, the new programs on enforcement, we will do.
DELINQUENT TAX INVENTORY
Senator Shelby. Every year the IRS fails to collect
billions in delinquent tax obligations. What headway will the
IRS make in curbing the growing delinquent tax inventory that
exists? Do you anticipate another large write-off of delinquent
taxes as was the case last year?
Mr. Everson. Collections are an important element of this
enforcement build. The revenue officers that I mentioned, those
are the folks that actually go out and work to collect the
dollars owed. We will add many collection officers through
this.
The other thing you may be familiar with that is important
to us, is pending legislation to get private collection
agencies to do some of the work here. This is somewhat more
controversial, but frankly, over 40 States have this, in terms
of their own tax programs. We will run this with full
protection of taxpayer rights.
Senator Shelby. But collection agencies would help you
collect money that is owed to the government.
Mr. Everson. Absolutely, and what it will enable us to do,
sir, is focus on the more complicated matters, the ones--there
was a hearing up here not too long ago on monies owed by
defense contractors that we are not fully getting after. This
initiative will enable us to work on things like that, if we
have relatively more simple matters being attended to by some
of the private collection agencies.
Senator Shelby. Ms. Gardiner, has your office, the Treasury
Inspector General for Tax Administration, reviewed the efforts
of the IRS to collect outstanding tax debts? Would you comment
on the proposal to improve the collection case management?
Ms. Gardiner. We actually did an audit some time ago of the
original pilot for using outside contractors, and then we
looked at what IRS was proposing in this newer effort and
believe it is an appropriate effort. I would guess that if IRS
is not going to get the money to collect it themselves then we
do believe that using outside debt collection agencies is a
good move.
Our only concern there would be that IRS still would need a
sufficient level of staffing themselves to provide proper
oversight, because it would be a little tricky in terms of just
monitoring the accounts that are turned over to the private
collection agencies, ensuring that they do the work
appropriately, protect taxpayers' rights, and those issues.
WORKFORCE REALIGNMENT
Senator Shelby. Mr. Commissioner, you announced a
realignment of your workforce in January. You also expect
savings from a related initiative to close some facilities,
such as the Brookhaven service center. How much do you expect
to save from these cost-reduction efforts?
Mr. Everson. Through a variety of programs, Senator, we
would expect to save over $100 million on an annual basis. What
these actions do is enable us to free up a couple thousand
folks that would work on the enforcement side of the house. A
lot of this is due to the tremendous success we have in
electronic filing. As electronic filing increases--it was 53
million last year, up again 12 percent so far this year--you
obviously do not need as many people opening the mail and doing
the data entry.
At the same time what we are doing is consolidating some of
our processing operations where after we realigned the Service
around four lines of business, we did not fully realign all of
the support efforts, which a business would have done. Some of
this is consolidation of activities, administrative activities
that businesses did 10 and 20 years ago. We are doing this
because--I think, again, it goes back to our earlier dialogue--
it is responsible that we be as efficient as possible.
Senator Shelby. Ms. Gardiner, how likely are the
anticipated savings the IRS is talking about to materialize?
Ms. Gardiner. Some things are tied to you just working
smarter, not harder. The National Research Program is an
example of that. As IRS can devote its resources, the limited
resources in a smarter way, then they really should have
savings. Modernization should bring about savings too.
For these particular efforts, we would have to look into
them to see if the savings actually materialized.
TAX LAW ACCURACY
Senator Shelby. The TIGTA testimony indicates that the
telephone access rate for the IRS is steadily increasing. At
the same time, the accuracy rate on tax law questions declined
to 73 percent. Do you have a plan to bring that rate up? Does
the telephone staff receive enough training? Are there specific
questions that should not be answered by the telephone staff?
How do you work all that?
Mr. Everson. This comes back, Senator, to the conversation
we had a little while ago about how we are continually trying
to improve tax law accuracy both at the phones and also for the
walk-in centers. It comes down to training. We did some things,
as I mentioned, earlier this year that we believe in the long
term will actually increase the accuracy rate, but because of
training some people who had been working on the accounts side
of it, and rewriting the scripts, there was a short-term
degradation and the accuracy went down about 6 percent.
Our figures are just a little bit different from TIGTA's,
but they are basically consistent. They do show that decline. I
think over time they will get better. We assess this on a
weekly basis. We have real-time monitoring of conversations
where supervisors are sitting in and listening randomly to the
workers' calls. So we are continually trying to improve this.
But again, work on the simplification; it will help us too.
BUSINESS SYSTEMS MODERNIZATION
Senator Shelby. On the subject of modernization, the
Congress has appropriated approximately $1.7 billion for the
Business Systems Modernization (BSM) program. The IRS has
requested an additional $285 million in this year's fiscal year
2005 submission. This substantial investment is on top of
almost $4 billion we provided and was lost by BSM's
predecessor, TSM. The investment in TSM was a total loss. That
was before your time, I have to say that to both of you. After
serving a year as Commissioner of the IRS, what is your
assessment on the progress of BSM at this time?
Mr. Everson. This is a very important question. I
established three themes, as I testified before the Finance
Committee before my confirmation, and I continue to believe
that they are the correct themes. They are to continue to
improve service and implement the reorganization that former
Commissioner Rossotti and his team did a splendid job on before
I got here. They are to augment the enforcement efforts, as we
have been discussing. But it is also to successfully execute
the modernization of the IRS. That is fundamental to achieving
the first two. We will not be able to continue to improve
service and help taxpayers, we will not be able to enforce the
law adequately, if we do not modernize the IRS. So it is
terribly important.
After I arrived, we commissioned a series of studies last
summer to look at this basket of projects. I would say to you
that, first of all, it is not all bad news. I give the Service
a mixed grade here. There are many successes. It is true, some
of them have cost more than they should have. As a taxpayer,
you can check the status of your refund on the Internet, and
you can file electronically. Practitioners now can get employer
identification numbers. There is a whole suite of products
where I would suggest to you the IRS has improved its services
to the taxpayer--I would be hard-pressed to find another
government agency that has made the dramatic leaps that we have
made largely through technology. So that is a lot of good news.
Where we have failed, though, is on these big ticket
projects, like CADE that you discussed, that are at the core of
our master files. Or also another one that you did not
mention--
Senator Shelby. We cannot afford to fail this time.
Mr. Everson. We cannot afford to fail. The other one was
the financial system we have been struggling to put in.
These studies indicated three problems. The first was that
the IRS business units did not have adequate ownership of the
projects. They were running as independent technical solutions,
so that the businesses were not involved in setting
specifications or the testing and development schedules.
The second observation was we were trying to do too much.
GAO had said this, and as we studied this I concurred with all
those observations.
The third was that we were getting uneven performance from
the vendor. We are working on each of these. We have got the
business units much more involved. They are participating every
step of the way. We have resized the portfolio, as you
indicated. I am comfortable with this. It will provide more
focus. I believe in the long run we will actually get more done
because as we change our work processes and hold people
accountable to get things done, I think we will actually move
faster.
We are working with the contractor. I meet with the
president and chief operating officer of CSC--a big company,
Computer Sciences Corporation runs the consortium--every month
and we go over the deliverables. We will see. Later this summer
we will have that long-delayed first step of CADE, which works
on a section of the 1040EZ filers. The feedback I am getting is
pretty optimistic at this stage. It is not done till it is
done. And the same thing is true on the financial system. I
will report back to you. We will know for sure what is
happening here.
Just to close I would say, we have held the contractor
accountable in a way that I would say is fairly unusual in
government. I sent a letter after they missed their last
deadline and I said, look, for the next big piece of work we
are going to do, which is a filing and payment compliance
system, we are going to not automatically award that to this
PRIME alliance. We are going to open it up to competition. That
is a strong statement, very strong statement because it hurts
them financially, and I think it got their attention.
Senator Shelby. When do you expect BSM to be completed?
Mr. Everson. I will have to get back to you on that. That
is a big, complicated project.
Senator Shelby. It is an important question.
Mr. Everson. It is important. I think we will have a much
better idea as we adjust our programs here. If we are
successful with CADE, this first section of CADE, I will tell
you that in about a year we will have a better capability of
giving you a longer term projection.
[The information follows:]
The hallmark application of the Business Systems Modernization
Program (BSM) is the Customer Account Data Engine (CADE), which is the
application we are building to eventually replace the existing
Individual Master File (IMF) and the Business Master File (BMF). CADE
is now in service and handling its first filing season. Currently CADE
is only handling a subset of Form 1040EZ filers, with the expectation
that it will process approximately 1.9 million returns this calendar
year. Our plans for CADE are now set for the next 2 years, with the
expectation that CADE will handle 33 million returns in calendar year
2007. It is not possible, however, for us to predict when CADE will be
fully implemented, since timing is based on a variety of unknown
factors, including BSM funding levels, insertion of new technology to
improve development productivity on CADE, and policy decisions
regarding the extent to which CADE will need to handle returns from
prior years. As a point of comparison, former Commissioner Charles
Rossotti stated that he expected BSM implementation to last 10 years.
Progress anticipated in the first 4 years of the project, however, fell
far short of our goals for reasons that we have publicly stated. In
addition, we based that plan on extremely robust funding levels for
fiscal year 2005 and fiscal year 2006. Because of steps we have taken
to streamline and focus the work we are doing on BSM, we requested and
received lower funding levels than Commissioner Rossotti anticipated
when he provided his estimate.
Additionally, given the size and complexity of the IRS's IT assets,
modernization must be an ongoing endeavor. Modernization programs at
the IRS have been difficult, mainly due to the fact that we did not
have a program of continual modernization of its IT assets. This
deficiency has led to a situation of increasingly antiquated software
applications that are not well documented, are difficult to maintain
and upgrade, and are difficult with which to interface. Given that the
heart of our IT efforts is to increase the effectiveness and efficiency
of tax administration, modernization will always be an ongoing activity
at the IRS.
RESOURCES NECESSARY TO COMPLETE MODERNIZATION
Senator Shelby. Ms. Gardiner, I want to ask you a few of
these questions since you are the Inspector General. How much
more is needed to complete this effort to modernize the IRS's
outdated systems and processes? And how is the IRS's 2005
budget request consistent with that vision?
Ms. Gardiner. As far as what is needed, the estimates are
that it would be $7 billion to complete the whole----
Senator Shelby. Say it again.
Ms. Gardiner. Seven billion dollars to complete the whole
effort, and those are the estimates.
Senator Shelby. How many years?
Ms. Gardiner. A total of 15, and I believe that includes
the 6 that have already passed.
Senator Shelby. That is a continuous modernization.
Ms. Gardiner. Correct. Even with that, I am not sure that
you will ever get to a point where you will say, okay, we are
all done and we do not have to spend--you know, there will be
upgrades and changes as time goes on.
Senator Shelby. You will have to continue to do that to
keep up.
Ms. Gardiner. But I agree with the Commissioner that
getting CADE, the first release accomplished, that has to occur
before you can make any projections on anything else.
Senator Shelby. When do you think that will be?
Ms. Gardiner. I think everybody is giving it about 60 to 70
percent odds that the first part will be rolled out this year
in August.
Senator Shelby. What do you think? You said everybody.
Mr. Everson. I am interested in this answer.
Ms. Gardiner. Actually I could answer it for IFS. I am not
as sure for CADE.
Senator Shelby. Give me your best judgment.
Ms. Gardiner. It does appear that the testing and
everything is going well. Certainly, the contractor is on
notice that they need to do this. I would say it is probably a
very good bet that in August they will be----
Senator Shelby. Who is the main contractor here?
Ms. Gardiner. CSC is the one that is overseeing the whole
effort.
Senator Shelby. What about the total cost overruns so far
on this project? Does that bother you, Ms. Gardiner? You are
the Inspector General.
Ms. Gardiner. It does. We have been making recommendations
for the past 2 years that we think have all been incorporated
in these recent studies too, which is good, that it has
validated what we have said and I think that that is getting
the attention of Treasury and IRS and others. Some of the cost
overruns were changing requirements. These projects are hard
projects. They are totally new, and they are huge and complex.
It would be one thing if you were just starting today to say,
okay, let us create a master file. But the problem is they have
to interface and talk to the old system. That is the biggest
piece----
Senator Shelby. Plus, you are doing business every day as
you are doing this.
Ms. Gardiner. That is right.
Mr. Everson. Let me just expand, if I could, for a second
on that last remark. This tie back to the legacy systems is
very difficult because the IRS did a lousy job over a period of
decades of keeping documentation of all the multitude of
changes it made to the systems each year when the tax code
would change. So when people have done the work, they developed
a road map, but then all of a sudden when they get into doing
the work they find it is much, much more complicated than they
had contemplated. That, together with governance issues, too
many changes in overall requirements, they all contributed to a
very bad cocktail, I would suggest.
BSM COST OVERRUNS
Senator Shelby. How much money are we talking about in
overruns, hundreds of millions of dollars?
Ms. Gardiner. I would have to get back to you on that. We
do know that information and we keep track of it.
[The information follows:]
Through BSM spend plans, the IRS requests funding for program level
activities (e.g. MITRE Corporation assistance, PRIME Program Management
Office, etc.) and modernization projects (e.g. Infrastructure Shared
Services (ISS), Customer Account Data Engine (CADE), etc.). As of
February 2002, we determined that 20 BSM projects had experienced costs
increases of approximately $75 million.\1\
---------------------------------------------------------------------------
\1\ Analysis of Business Systems Modernization Cost, Schedule, and
Functionality Performance (Reference Number 2003-20-007, dated October
2003).
---------------------------------------------------------------------------
At the time of our analysis, the majority of the projects were in
the planning phases. IRS officials responded that the reliability of
costs estimates for the development and deployment phases would be much
greater than that for the planning phases. This belief has not proven
to be true. Most projects have now moved into the development and
deployment phases and cost increases have risen, partially due to the
fact that projects require more funds during the development and
deployments phases.
The GAO testified in February 2004 that the IRS had experienced
cost variances of approximately $290 million for 10 completed or
ongoing projects.\2\ The chart below is reprinted from the most recent
data available (GAO testimony).
---------------------------------------------------------------------------
\2\ Business Systems Modernization: Internal Revenue Service Needs
to Further Strengthen Program Management (GAO-04-438T, dated February
2004).
------------------------------------------------------------------------
Reported/
Cost Variance Revised
Project Name (In Thousands) Estimated Cost
(In Thousands)
------------------------------------------------------------------------
Completed Projects:
Security and Technology +$7,553 $41,287
Infrastructure Release 1...........
Customer Communications 2001........ +5,310 46,420
Customer Relationship Management -1,938 7,375
Exam...............................
Human Resources Connect Release 1... +200 10,200
Internet Refund/Fact Of Filing...... +12,923 26,432
Ongoing Projects (as of 09/30/2003):
Modernized e-File................... +17,057 46,303
e-Services.......................... +86,236 130,281
CADE Release 1...................... +36,760 97,905
Integrated Financial System Release +53,916 153,786
1..................................
Custodial Accounting Project Release +72,058 119,219
1..................................
-------------------------------
TOTAL............................. +290,075 ..............
------------------------------------------------------------------------
Senator Shelby. Mr. Commissioner, we hold the American
taxpayers to a high standard: file your return by April 15 or
face stiff penalties and interest payments. Why should we not
hold the IRS acquisition process and the Service's contractor
to a similar standard and enforce penalties when deadlines are
missed and costs are increased? Ms. Gardiner, what steps have
been taken or would you recommend that the IRS take to improve
acquisition and management and discipline?
Ms. Gardiner. We actually have suggested that
disincentives, or penalties so to speak, are built into
contracts and that has not been looked on that favorably by the
Service.
Senator Shelby. Who has not looked on it favorably? I know
the contractors never look on it favorably.
Ms. Gardiner. IRS as well. The folks that do the
contracting have not really accepted those types of
recommendations. They have accepted another, and that is that
we have recommended early on that IRS use firm fixed-price
contracts as often as possible. When we looked at it in the
first year they were used very infrequently, and now they are
using them more. So that puts the burden on the contractor and
we think that certainly is a step in the right direction.
Mr. Everson. If I could, the other thing I would note on
this is--after the contractor missed this deadline on the
financial system, I did take that action of saying, we will
open this up to competition for the next enforcement module.
That is a very strong action because they contemplated, they
had built their----
Senator Shelby. That is a strong message.
Mr. Everson. They built their business on a projection of
how much work they were going to get over a period of years,
and I just said, wait a minute, you have just potentially lost
this piece of work. They can compete for it, but it is very
different. I have run businesses, and when you have a 100
percent account, that is different than running an account
where there are other players in there. So that is a strong
statement.
I have also communicated that these upcoming deliverables
for CADE and IFS are critical to the maintenance of our
continued relationship. So I think the stakes are very clear at
this point.
BSM MANAGEMENT
Senator Shelby. Good. Mr. Commissioner, what is the IRS's
plan and schedule for fully implementing and institutionalizing
all management processes and controls needed to effectively
manage the BSM program? I know that is a big job.
Mr. Everson. This goes back to the point a few minutes ago
of first and foremost getting an overall business sensitivity
to this project. After I arrived at the Service I created a
second deputy. It follows a model that we put in over at
Homeland where we consolidated all of the support functions,
CFO, CIO, human resources, in our case, mission assurance,
which is security. We have cyber-security and physical
security, people security, all of that, plus facilities
management under one individual. He was our senior career
official--came out of the business units--so that we would get
proper attention to the long-term needs of the Service in our
functions including the CIO function. I appointed our CFO,
moved him over to be the CIO, to shake this up and to make sure
that we are addressing this on a long-term basis.
I would suggest to you that--you mentioned earlier the $4
billion that had been squandered in the early 1990s. One of the
reactions to that was the way this BSM project was done,
perhaps too much was actually given to the PRIME alliance. We
are taking a careful look at where we need to augment our own
skills. It comes back to what Ms. Gardiner was saying before,
it does not do us any good to just have contractors if you do
not have enough people inside who are monitoring and working
and understanding. So we are looking at that as well.
Senator Shelby. Ms. Gardiner, do you view BSM's current
problems as resource related, management related, or both?
Ms. Gardiner. One of the big, broad issues was just
matching the capability in-house with the portfolio of
projects. That would be somewhat resource related because they
tried to take on more than they really could. But I would say
probably the bigger part is management. Things like, if your
process says that you are going to clearly define requirements
and you are going to follow certain steps before you go to the
next stage of the project, that you have to stick with that,
and that has been a problem. Or for testing, in order to move
the project on to the next stage the same thing applies, that
you have to test and make sure that defects are identified and
fixed, and they really have had some problems with that. But
they do recognize those problems and are addressing them.
Senator Shelby. As far as modernization is concerned, we
both noted that $4 billion was lost, squandered or misused.
Could you assure this subcommittee that your current refocus
can put the program back on track so it will not go the way of
TSM? That is important. In other words, we do not want it to go
the way of TSM. TSM money was squandered or wasted, and it was
$4 billion.
Mr. Everson. Senator, I can tell you that this is getting a
lot of my attention. I am doing my level best to make sure it
is being done responsibly, and we will reach a very real
decision point. If this first piece of CADE and the financial
system do not roll out correctly now, I will have to very
seriously reassess it because we would run the risk of going
down that corridor. I do not expect that will be the case, but
we are not home free until we make sure we get that far. I give
you my commitment that this will not leave my attention.
CUSTOMER ACCOUNT DATA ENGINE
Senator Shelby. The Customer Account Data Engine (CADE), is
the first major component of BSM and will replace the IRS's
Master Files with a modern database management system. That is
the goal. It will serve as the foundation for the rest of the
BSM initiative. Thus far, the delivery of the first of CADE's
five phases--I believe there are five phases--has already been
delayed by at least 3 years. I think it has gotten off to a
poor start. When will CADE be delivered, if you can say within
some time frame? The first phase?
Mr. Everson. It is our expectation that this first phase
will be delivered this summer. So far the testing is proceeding
according to plan.
Senator Shelby. How much will CADE cost over the original
estimate?
Mr. Everson. I would want to respond for the record. It is
many tens of millions of dollars. There are functions of
complexity, also delay that have contributed to that problem.
Senator Shelby. Do you have a figure on that, Ms. Gardiner?
Ms. Gardiner. No.
Senator Shelby. Can you give us a figure for the record?
Mr. Everson. We will certainly do that. Let me say this
though, we have just recently negotiated a cap on what this
first module will cost, and that is responsive to what Ms.
Gardiner was saying a few minutes ago about a change in
philosophy in the last months that we have brought in, and we
have worked very well with the vendor to do that. So that
protects the Government's interest a lot more.
[The information follows:]
While we do not have current cost figures from the Automated
Financial System (AFS) for the CADE, the following chart represents the
funding that has been requested and received for the CADE project (all
releases).
------------------------------------------------------------------------
Amount Amount
BSM Spend Plan Requested Received
------------------------------------------------------------------------
Spend Plan #1........................... $3,500,322 $3,500,322
Emergency Funding Release #1............ 1,616,000 1,616,000
Spend Plan #2........................... 15,312,000 15,312,000
Emergency Funding Release #2............ 1,400,000 1,400,000
Spend Plan #3........................... .............. ..............
Spend Plan #4........................... 40,038,000 40,038,000
Spend Plan #5........................... 53,974,000 53,974,000
Spend Plan #6........................... 27,683,000 27,683,000
Spend Plan #7........................... 62,800,000 62,800,000
-------------------------------
TOTAL............................. \1\ 206,323,32 \1\ 206,323,32
2 2
------------------------------------------------------------------------
\1\ This amount includes $15,574,000 that was requested in spend plan 5,
but never spent on the CADE.
As shown in the response to Question 1, the CADE Release 1 has
experienced a $36,760,000 cost variance.
Future releases of the CADE have also experienced cost variances of
$25,723,000. Please see the table below.
----------------------------------------------------------------------------------------------------------------
Current
Amount Estimate (As
Release or Activity Originally of September Variance
Requested 2003)
----------------------------------------------------------------------------------------------------------------
Release 2....................................................... $38,400,000 $44,755,000 $6,355,000
Business Rules Management (Phase 1)............................. .............. 8,300,000 8,300,000
Business Rules Management (Phase 2)............................. 17,000,000 17,000,000 ..............
Release 3....................................................... 9,779,000 20,837,000 11,058,000
-----------------------------------------------
TOTAL..................................................... .............. .............. 25,713,000
----------------------------------------------------------------------------------------------------------------
According to the CADE Baseline Business Case from March 2001, the
overall estimated cost of CADE is $982 million over its life cycle.
CADE Cost Overrun (From the Original Estimate)
The description below explains the costs that GAO reported in their
Audit of the fiscal year 2004 Expenditure Plan:
(1) Design work from September 2000 to July 2001:
--$15.3 million.--Initial estimate in March 2000 Expenditure Plan;
--$19.3 million.--Actual cost;
--$4.0 million.--Variance due to design period being extended by 3
months to add detail in some areas and to bridge to
Development.
(2) Development work from July 2001 to March 2004:
--$40.0 million.--Initial estimate in March 2001 Expenditure Plan;
--$53.6 million.--Actual cost;
--$13.6 million.--A 2-month extension for a pilot using real tax
returns (cost of $5.3 million) and the addition of capacity at
the Martinsburg Computing Center to support Development and
Testing (cost of $4.0 million) created $9.3 million of this
variance. We incurred the cost of the delays outlined below,
creating the remaining variance of $4.3 million.
(3) Cost impact of 2-year delay in delivering CADE:
--$2.4 million.--Hiring of non-PRIME contractors to support our IRS
testing;
--$1.9 million.--Establishing a CADE Program Office (work to build an
organizational framework to support multiple CADE releases
simultaneously);
--$18.0 million.--Cost to apply tax law and other changes for 2003
and 2004 filing season.
These costs do not reflect any changes since the GAO audit of the
fiscal year 2004 Expenditure Plan.
IRS ACTIONS IN REGARD TO THE PRIME
Senator Shelby. Let me ask you a tough question. What steps
will the IRS take, Mr. Commissioner, if the PRIME contractor
fails to deliver?
Mr. Everson. I have made it very clear through the action
to date----
Senator Shelby. You are on top of them.
Mr. Everson [continuing]. That we will hold them
accountable. And I have also said that we will have to reassess
the very continuance of the relationship if we cannot do what
we have said we will do.
Senator Shelby. You would change that if the effort
continues to flounder?
Mr. Everson. We will have to consider that, absolutely.
Senator Shelby. Would you change if you thought you needed
to?
Mr. Everson. I retain that latitude, yes.
Senator Shelby. What is your view, Ms. Gardiner, for the
slowness of this program?
Ms. Gardiner. I think some of it, as I mentioned, it
certainly is complex. It is unique.
Senator Shelby. It is complex.
Ms. Gardiner. But I do think a big part of it too is just
the whole cost and scheduling process was flawed. It gave much
more optimistic deadlines than it should have in the first
place, so it caused people's expectations to be higher than
they should have been.
For example, even just in simple segments of it for
testing, they were so optimistic and they did not build in time
for recovery in terms of if certain defects occurred, or there
were failures, to fix those and then to start over again. So to
some degree it is that, and then the rest is that it is very
complex, and then also changing requirements. So I think
everybody is disappointed, and we are too, as far as how long
it is taking.
Senator Shelby. But your modernization program is
essential.
Mr. Everson. We cannot back away from this effort. We have
to do it. We have got aging technology right now and we have
got an aging workforce. I liken this, as I have said before, to
the movie ``Space Cowboys'', if you ever saw that, where they
send Clint Eastwood out into outer space because they have got
these old guys who are the only ones who understand the
technology. We have a bunch of people who want to retire, but
they are still helping us because we have got 1960s and 1970s
technology that we are running. We cannot keep doing that
forever.
PERFORMANCE OF THE CONTRACTOR
Senator Shelby. Do you believe that the contractor is up to
the challenge here? This is a very complex undertaking, but it
has to be done. You are spending a lot of money here to
modernize the IRS, which we think is important.
Mr. Everson. I feel that I have seen an improvement in the
attitude and the work that is being done in the year that I
have been involved with the Service, and I very much appreciate
the leadership of Mike Laphen, is the president of the company.
He has been in my office once a month. That is quite a devotion
of resources for someone who is running, I think it is a $13
billion business. We have got a relationship that I believe is
starting to improve. We had to let it all out, if you will.
There had to be this accountability of what most recently
happened. So I am cautiously optimistic that they can do this.
Senator Shelby. But you are also guarded because you know
what happened to $4 billion with TSM.
Mr. Everson. This is the old Ronald Reagan, ``trust but
verify'', attitude.
Senator Shelby. We hope you will, and we wish you every
success, and we will continue to help you.
Mr. Everson. Thank you, sir.
ADDITIONAL PREPARED STATEMENT
Senator Shelby. The subcommittee has received a statement
from the Internal Revenue Service Oversight Board which will be
included in the record.
[The statement follows:]
Prepared Statement of the Internal Revenue Service Oversight Board
INTRODUCTION
The IRS Oversight Board thanks the Chairman for the opportunity to
submit this statement to the Subcommittee on Transportation/Treasury
and General Government of the Committee on Appropriations. The Internal
Revenue Service (IRS) Oversight Board is required by 26 U.S.C. Section
7802(d) to review and approve the budget request prepared by the IRS,
submit a request to Treasury, and ensure that the approved budget
supports the annual and long-range strategic plans of the IRS.
This year, the IRS drafted a special report presenting its
recommended fiscal year 2005 IRS budget, comparing it to the
administration's request, and explaining why the Board believes its
recommended budget is needed to support the annual and long-term needs
of the IRS. This statement discusses that report. The complete version
is available on the Board's website at www.irsoversightboard.treas.gov
and the Board asks that this report be entered into the record as well.
THE IRS OVERSIGHT BOARD BUDGET RECOMMENDATION
The IRS budget is more than dollars and cents. It represents the
choices that we as a Nation make about the future of our tax
administration system and how we help over 100 million American
taxpayers deal with an increasingly complex tax code while ensuring
that everyone pays his or her fair share of taxes.
The IRS Oversight Board acknowledges that the IRS's budget has
increased in each year of President Bush's Administration, and that the
administration's request for fiscal year 2005 is significant against
other non-defense, non-homeland security discretionary funding. That
commitment is commendable, and the Board recognizes and thanks
Secretary Snow for his efforts, especially at a time when the Nation
must balance many important and competing priorities.
However, the Board believes that now is a critical time for our tax
system to be strengthened, not merely maintained at current levels.
Enforcement activities are still at unacceptable levels. Our Nation's
tax gap is estimated at $311 billion,\1\ leaving billions of dollars on
the table simply because the IRS does not have the resources to do its
job.\2\
---------------------------------------------------------------------------
\1\ Nina Olson, National Taxpayer Advocate's 2003 Annual Report to
Congress, (Washington, DC: December 31, 2003) p. 20-21. This is based
on a July 2001 IRS Office of Research report.
\2\ Charles O. Rossotti, Report to the IRS Oversight Board:
Assessment of the IRS and the Tax System (Washington, DC: September
2002), p. 16.
---------------------------------------------------------------------------
The Board's own research shows that each year, more Americans
believe it is acceptable to cheat on their taxes. At the same time, our
already complex tax code continues to be a changing, tangled mystery to
most honest taxpayers--and an asset to those intent on skirting the
law. Every effort must be made to provide quality service to honest
taxpayers who want to comply with the law.
In crafting its fiscal year 2005 budget for the IRS, the Board
addressed these concerns head on by reinvesting in the IRS to produce
tangible benefits and results for America's taxpayers and our Nation.
It is a sensible and pragmatic budget that reflects the real world in
which the IRS must operate and be funded.
The Board recommends a 10 percent increase in funding from fiscal
year 2004 to $11.204 billion, with a significant increase of 3,315
full-time equivalents (FTEs) to boost enforcement efforts. If enacted,
the Board's budget would increase our Nation's revenue by approximately
$5 billion each year once the IRS has hired and trained additional
enforcement personnel.\3\
---------------------------------------------------------------------------
\3\ These estimates are based upon the projected revenue
anticipated by hiring and training full-time employees who would audit
or collect owed taxes in known cases of taxpayers who did not file or
pay, or who substantially underreported their taxes, as described in
former IRS Commissioner Charles O. Rossotti's Report to the IRS
Oversight Board: Assessment of the IRS and the Tax System, p. 16.
---------------------------------------------------------------------------
Under the Board's budget, the IRS would have the additional
resources to:
--Close over an additional 1,000 cases involving high risk/high-
income taxpayers and promoters who avoid paying income taxes by
using offshore credit cards and abusive trusts and shelters.
--Boost audit rates by 42 percent from fiscal year 2004 to examine
companies that use aggressive tax avoidance tactics, such as
offshore transactions and flow-through entities.
--Contact an additional 200,000 taxpayers who fail to file or pay
taxes due; a 40 percent boost from fiscal year 2004 and a 27
percent increase from the administration's request. This alone
will allow the IRS to collect $84 million more in revenue owed
than the administration's request would allow.
--Sustain the one-on-one assistance that millions of Americans rely
on at tax time. The Board's budget will ensure that the IRS
will be able to maintain its improved service to taxpayers by
answering eight out of ten phone calls.
IRS MUST STAY THE COURSE ON CUSTOMER SERVICE
Mr. Chairman, the vast majority of Americans want to file their
returns and pay their fair share, yet our Nation's tax code continues
to become more complex. Resources must be available so the IRS can
answer taxpayers' questions and promptly and accurately, whether it is
over the phone, through the IRS website, by mail, or at walk-in center.
Under the board's proposed budget, customer service funding will
remain at about the same level as fiscal year 2004; however, service
should improve due to the deployment of self-service technology.
For taxpayers, that means eight out of ten phone calls will be
answered. For tax practitioners calling the IRS toll-free hotline to
resolve problems regarding clients' accounts, hold-time will remain at
current levels.
The IRS call-routing systems as well as website applications that
allow taxpayers to check the status of their tax refunds have already
shown dramatic benefits in speeding service to taxpayers. New systems,
such as e-Services, will soon be available, providing additional
automated services to tax practitioners.
Clearly, service to taxpayers has improved in the past 5 years.
Such improvements make it all the more imperative that we sustain them
and not allow this positive trend to languish, or worse, decline. The
agency must stay the course.
DAYS OF ``OUTMANNED AND OUTGUNNED'' IRS MUST END
The IRS is doing a better job of identifying egregious
noncompliance--now it needs the resources to fight back. In the past 2
years, the IRS sharpened its compliance focus to identify and pursue
promoters and participants of abusive tax shelters and tax evasion
schemes. For example, the agency is now targeting its resources on
promoters of illegal tax schemes that are often marketed to high-income
individuals, but are also finding their way to middle-market
businesses.
Despite this focus, enforcement activities are still at an
unacceptable level simply because the IRS does not have the resources
needed to accomplish its mission. It continues to be outmanned and
outgunned. In fiscal year 2003, the agency was able to pursue only 18
percent of known cases of abusive devices designed to hide income,
leaving an estimated $447 million uncollected.\4\
---------------------------------------------------------------------------
\4\ Rossotti, p. 16.
---------------------------------------------------------------------------
TAX CHEATING: ALARMING TRENDS
Public attitudes towards tax cheating show some alarming trends,
particularly among young Americans. The Board's 2003 Survey on Taxpayer
Attitudes found that support for total tax compliance diminished by
four points over the previous year to 81 percent. In other words,
nearly one out of five Americans now believe that it is acceptable to
cheat at least a little on their taxes. Almost one-third (30 percent)
of young adults age 18-24 age are among those most likely to feel that
any amount of cheating is acceptable, an increase of six points since
last year. Yet ironically, ``fear of being audited'' has the greatest
impact on these non-compliers at a time when actually being audited is
near historic lows.\5\
---------------------------------------------------------------------------
\5\ Roper ASW, 2003 IRS Oversight Board Annual Survey on Taxpayer
Attitudes, September 2003, p.17.
The IRS must prove to the public that it can and will identify and
pursue those who show contempt for the tax code. The Board's proposed
budget allows the IRS to begin to reverse this disturbing trend.
The Board's recommendation would increase our Nation's revenue by
almost $5 billion each year once the IRS has hired and trained
additional enforcement personnel. The Board believes the additional
revenue achieved makes a strong business case for the recommended
additional enforcement resources. While this is a modest boost in
closing our compliance gap, it will also send a message to those
contemplating tax avoidance: the IRS's hands are no longer tied.
MODERNIZATION CRITICAL TO TAX ADMINISTRATION
In December 2003, the Oversight Board released an independent
analysis of the IRS Business Systems Modernization (BSM) program. The
Board called for nine specific recommendations for turning around the
critical but troubled program that has experienced significant and
unacceptable delays and cost overruns.
However, the Board still believes that the overall Modernization
plan is sound and well-designed. Moreover, it is critical to the future
of tax administration. As a Nation, we must remain committed to the
IRS's computer modernization program. The Board testified before the
House Ways & Means Subcommittee on Oversight on Feb 12, 2004:
``The IRS Oversight Board firmly believes that the IRS
Modernization program cannot be allowed to fail. The IRS cannot
continue to operate with the outmoded and inefficient systems and
processes it uses today. Over time, the existing systems will become
impossible to maintain and at that point, the ability to administer our
country's tax system will be in grave danger. Such a risk to our nation
is unacceptable. We remain convinced that the overall Modernization
plan is sound and well-designed. The challenge is executing that plan.
The IRS and the Prime must get it right this time.''\6\
---------------------------------------------------------------------------
\6\ Larry R. Levitan, IRS Oversight Board Testimony before House
Ways and Means Oversight Subcommittee Hearing on IRS BSM Program,
February 10, 2004.
The Board's proposed budget provides the stable resources needed to
focus and stabilize the steady stream of funding for the IRS's computer
modernization initiative. Special controls are in place to ensure that
no funding in this account is spent until the IRS has the capability to
spend it effectively. If the IRS does not correct the weaknesses in the
BSM program by fiscal year 2005, the Board advocates that the funds
earmarked for modernization should not be spent. However, the Board
does not believe the IRS should plan for failure. The agency must be
poised to move forward with BSM once it has demonstrated that it has
corrected the program's weaknesses. The funding level recommended by
the Board sets the foundation for genuine progress for the program in
fiscal year 2005.
The Board expects that the Customer Account Data Engine (CADE)
Release 1 will occur in 2004. Over the next year, the IRS will test and
build upon that system. The IRS should continue to strengthen its
ability to manage the program and the Prime to deliver projects on
budget and on time. By the end of fiscal year 2005 and early fiscal
year 2006, the IRS should be able to proceed with the remaining
releases of CADE as quickly as possible. This will minimize future risk
and the long-term cost of modernization while providing a basis to
deliver tangible results for taxpayers.
If the IRS's fiscal year 2005 BSM funding is reduced to $285
million, as it is in the administration's budget, future funding likely
will be adversely affected. If that happens, the projects will drag on,
risk will increase, and ultimately, the program will cost taxpayers
much more.
For that reason, the Board believes fiscal year 2005 BSM funding
should be set at $400 million, with only $285 million put into the
fiscal year 2005 spend plan. This will allow the IRS's Business Systems
Modernization fund to operate like a multi-year fund, as originally
envisioned by Congress and as the Board has recommended each year since
its inception.
Further, as its archaic, tape-based computers begin to give way to
modern business systems, the IRS must plan for a smooth transition. The
Board's budget recognizes that need. As new systems are incorporated,
the IRS must plan to operate both the old and new systems in parallel
for some time. The IRS must also retain employees with critical skills
while training existing and new employees to use new systems. This will
allow the IRS to reduce the risk of a catastrophic disruption to the
system.
In addition, the Board believes that the transition to
modernization is a real cost that must be incurred. There are no short
cuts to successful modernization--the IRS's budget must reflect the
real cost of maintaining legacy systems while simultaneously supporting
modernized systems. Accordingly, the Board recommends an additional $25
million to cover these costs. The administration's budget fails to
acknowledge them.
THE ADMINISTRATION'S FISCAL YEAR 2005 BUDGET REQUEST
By comparison, the Board believes the administration's fiscal year
2005 budget cannot achieve its stated goal to add almost 2,000
personnel to bolster the IRS's enforcement efforts, and will threaten
hard-earned improvements in customer service. This year's request will
lead to a $230 million shortfall in the IRS budget because it fails to
budget adequately for the anticipated $130 million of congressionally-
mandated civilian pay raises, rent increases, and at least $100 million
of unfunded expenses.
In its fiscal year 2005 budget recommendation, the Board
anticipates a 3.5 percent pay raise for civilian employees, which
achieves parity with the administration's call for a 3.5 percent
military pay raise. The administration, but contrast, calls for a 1.5
percent civilian pay raise. While discussions are now underway in
Congress regarding parity, the Board believes that the 1.5 percent
civilian pay increase fails to recognize recent history.
In fact, fiscal year 2005 is the fourth year in a row in which the
administration has called for IRS staff increases, while not covering
pay raises or required expenses.
As a result, the administration's proposed increase in the IRS's
fiscal year 2005 budget will erode before new employees can be hired,
more taxpayer phone calls can be answered, or new audits of possible
tax cheats can be conducted.
IMPACT OF $230 MILLION BUDGET SHORTFALL ON THREE MAJOR IRS FUNCTIONS
----------------------------------------------------------------------------------------------------------------
Fiscal Year
2005 Revised Goal
Function Performance Measure Performance After $230
Goal Million Cut
----------------------------------------------------------------------------------------------------------------
Field Collection.............................. Number of tax deliquent account 981,000 463,000
cases resolved.
Toll-free Telephone Level of Service......... Calls answered.................. 32,000,000 17,000,000
Field Exam.................................... Exams of individual taxpayers 118,840 73,000
<$100,000 AGI.
----------------------------------------------------------------------------------------------------------------
BOARD CITES COMPLEXITY AS FUNDAMENTAL FLAW
The IRS Oversight Board is precluded by law from addressing tax
policy issues, but it would be remiss not to address the cost of our
Nation's complex tax system; a cost ultimately borne by taxpayers and
the IRS. The administration's legislative proposals contained in its
budget request only begin to address the problems caused by complexity.
The approach so far to tax simplification fails to address a
fundamental flaw in our tax system: its costly, confusing, and
debilitating complexity. The administration has, however, requested
that Congress provide some relief in fiscal year 2005 on the
Alternative Minimum Tax, but has not yet identified a long-term
solution.\7\ In her annual report, IRS National Taxpayer Advocate Nina
Olson recommended repeal of the AMT, saying:
---------------------------------------------------------------------------
\7\ Recent public remarks by Treasury Secretary Bodman noted that
the President's budget extends through 2005 the temporary increase in
the AMT exemption and the provision that allows certain personal
credits to offset the AMT. These temporary provisions will keep the
number of taxpayers affected by the AMT from rising significantly in
the near-term. More importantly, they will allow the Treasury
Department the time necessary to develop a comprehensive set of
proposals to deal with the AMT in the long-term. Treasury Press Release
JS-1250 contains the full statement of his remarks.
``The AMT is extremely and unnecessarily complex and results in
inconsistent and unintended impact on taxpayers . . . [T]he AMT is bad
policy, and its repeal would simplify the Internal Revenue Code,
provide more uniform treatment for all taxpayers, and eliminate the
oddity of dual tax systems. AMT repeal would also allow the IRS to
realign compliance resources to facilitate more efficient overall
administration of the tax code.'' \8\
---------------------------------------------------------------------------
\8\ Olson, p. 16.
The Board fully concurs with her assessment, and urges the
administration and Congress to consider accepting this recommendation
in future legislation.
CONCLUSION
The Board was established to bring to bear its collective expertise
and familiarity with private sector best practices on the IRS's
problems. To the private-life Board members, investments in enforcement
pay for themselves many times over, not only in revenue dollars but by
the deterrence value of reinforcing the belief that all taxpayers are
paying their fair share. A strong business case can be made for
providing the IRS with several hundred million dollars so it can
collect billions in revenue. At a time when Federal revenue as a
percentage of the economy has shrunk to 1950s levels and we face a $500
billion deficit, the Board believes it imperative that we strengthen
our tax collection system.
For that reason, the Board recommends that both Congress and the
administration reevaluate their methodology by including the revenue
value to the country when estimating budget requests for the IRS.
Indeed, considering the positive impact of additional resources
provides a better framework for making informed decisions and will lead
to a more effective IRS.
In conclusion, the Board calls for Congress to stay the course it
set more than 5 years ago with the passage of the IRS Restructuring and
Reform Act. The IRS has made progress in carrying out the spirit and
letter of the Act; we must now give it the resources to finish the job.
______
Attachment 1.--IRS Oversight Board Fiscal Year 2005 IRS Budget
Recommendation and Administration Request: Program Summary Comparison
ADMINISTRATION FISCAL YEAR 2005 BUDGET REQUEST PROGRAM SUMMARY
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Increase
Fiscal Year Fiscal Year -------------------------------
Appropriation Title 2004 Enacted 2005 OB Enacted vs.
Request Request Percent
----------------------------------------------------------------------------------------------------------------
Processing, Administration and Management....... $4,009 $4,148 $139 3.5
Tax Law Enforcement............................. 4,171 4,564 393 9.4
Information Systems............................. 1,582 1,642 60 3.8
Business Systems Modernization.................. 388 285 -103 -26.5
Health Insurance Tax Credit Administration...... 35 35 .............. ..............
---------------------------------------------------------------
Appropriation............................. 10,185 10,674 490 4.8
----------------------------------------------------------------------------------------------------------------
IRS OVERSIGHT BOARD FISCAL YEAR 2005 BUDGET REQUEST PROGRAM SUMMARY
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Increase
Fiscal Year Fiscal Year -------------------------------
Appropriation Title 2004 Enacted 2005 OB Enacted vs.
Request Request Percent
----------------------------------------------------------------------------------------------------------------
Processing, Administration and Management....... $4,009 $4,291 $282 7.0
Tax Law Enforcement............................. 4,171 4,770 598 14.3
Information Systems............................. 1,582 1,708 126 8.0
Business Systems Modernization.................. 388 400 12 3.1
Health Insurance Tax Credit Administration...... 35 35 .............. 0.3
---------------------------------------------------------------
Appropriation............................. 10,185 11,204 1,019 10.0
----------------------------------------------------------------------------------------------------------------
Attachment 2.--Unfunded IRS Costs, Fiscal Year 2002-2003
UNFUNDED IRS COSTS, FISCAL YEAR 2002-2004
[Dollars in millions, rounded]
------------------------------------------------------------------------
Fiscal Fiscal Fiscal
Detail Year 2002 Year 2003 Year 2004
------------------------------------------------------------------------
Labor Inflation:
Unfunded Pay Raise Increase $42.3 $128
(President's Request to
Congressional Action)...........
==================================
42.3 128
Non-Labor Inflation:
Rent Shortfall................... 32 54
Postage.......................... 16 53
Corporate & Electronic Contracts. .......... 23
Health Service Contract.......... 3 2
Interpreter's Contract........... 0.5 0.3
Child Care Subsidy............... 1 ..........
Increased Department of Labor 2 ..........
EFAST Contract Processing Costs.
----------------------------------
TOTAL.......................... 55 132
==================================
Added Requirements:
Background Investigations........ .......... 4
Increase Cash Awards from 1.24 8 16
percent to 1.42 percent.........
Competitive Sourcing............. .......... 8
Campus Security Response......... 15 ..........
Congressional Mandates........... 5 ..........
Guard Services................... 20 16
Public Transportation Subsidy.... 9 ..........
----------------------------------
TOTAL.......................... 56 44
==================================
Total.......................... 153 304
----------------------------------
Total Less Pay Raise and Rent.. 79 122
------------------------------------------------------------------------
Attachment 3
WHERE THE ADDITIONAL ENFORCEMENT RESOURCES ARE APPLIED
[Dollars in thousands, rounded]
----------------------------------------------------------------------------------------------------------------
Oversight Board Administration Difference
Recommendation Recommendation ---------------------
Enforcement Initiatives --------------------------------------------
Budget FTE Budget FTE Budget FTE
----------------------------------------------------------------------------------------------------------------
SBSE-2 Curb Egregious Non-Compliance.......... $159,264 1,408 $90,161 874 $69,103 534
SBSE-3 Select High-Risk Cases for Examination. 5,500 ......... ......... ......... 5,500 .........
SBSE-7 Savings through Consolidation--Case 16,085 200 14,469 144 1,616 56
Processing...................................
SBSE-8 Savings through Consolidation-- 7,656 69 5,531 65 2,125 4
Insolvency Processing........................
WAGE-2 Increase Individual Taxpayer Compliance 46,406 521 15,469 175 30,937 346
WAGE-9 Improve ITIN Application Process....... 15,484 50 ......... ......... 15,484 50
WAGE-10 Eliminate Erroneous EITC Payments.... 18,000 ......... ......... ......... 18,000 .........
LMSB-1 Combat Corporate Abusive Tax Schemes... 60,017 394 36,100 207 23,917 187
TEGE-1 Combat Diversion of Charitable Assets. 3,914 44 3,914 44 ......... .........
TEGE-5 Stop Abusive Transactions in the TEGE 11,140 100 11,140 100 ......... .........
Community....................................
CI-1 Combat Financial Fraud in the Corporate 25,600 98 25,600 98 ......... .........
Sector.......................................
CI-2 Dismantle International and Domestic 12,208 80 ......... ......... 12,208 80
Terrorist Financing..........................
CI-3 Reinforce Core Mission Tax Enforcement 34,086 130 34,086 130 ......... .........
Resources....................................
CI-7 Forensic Electronic Evidence Acquisition 3,104 4 3,104 4 ......... .........
and Analysis.................................
CI-10 Leverage/Enhance Special Agent 2,500 28 2,500 28 ......... .........
Productivity.................................
APPEALS-1 Resolve Appeals..................... 13,945 112 7,000 56 6,945 56
COUNSEL-1 Combat Abusive Tax Avoidance........ 10,852 75 5,426 38 5,426 37
NHQ-2 Deliver Strategic Compliance Data....... 2,712 2 ......... ......... 2,712 2
-----------------------------------------------------------------
Fiscal Year 2005 Enforcement Increases. 448,472 3,315 254,500 1,963 193,972 1,352
----------------------------------------------------------------------------------------------------------------
ADDITIONAL COMMITTEE QUESTIONS
Senator Shelby. There are some additional questions that
will be submitted in writing for your response.
[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 Internal Revenue Service
Questions Submitted by Senator Richard C. Shelby
Question. Following the IRS Reform legislation of 1997, the IRS
realigned significant levels of resources from Tax Enforcement and
Compliance activities to customer service, telephone assistance, and
submission processing activities.
How do the fiscal year 2005 realignment proposals and the new
funding initiatives proposed for 2005 compare to the pre-reform
legislation levels for those programs?
Answer. The proposed fiscal year 2005 realignment proposals and new
funding initiatives strive to better balance service and enforcement.
The IRS's service lagged in the 1990's. In response to the IRS
Restructuring and Reform Act of 1998 (RRA 98), the IRS took important
and necessary steps to upgrade service--significantly improving the
answering of taxpayer telephone inquiries and electronic filing.
Unfortunately, improvement in service coincided with a drop in
enforcement activity. Since 1996, the number of IRS revenue agents,
officers, and criminal investigators has dropped.
The President's fiscal year 2005 budget--if approved by Congress--
will help with IRS efforts to continue strengthening enforcement
activities while maintaining and enhancing levels of service. The
submission requests an enforcement increase of $300 million over the
fiscal year 2004 consolidated appropriations level. This increase will
allow a partial recovery in the numbers of enforcement personnel, but
will not fully restore the workforce.
----------------------------------------------------------------------------------------------------------------
FTE FTE FTE Fiscal FTE FTE
Enforcement Workforce Fiscal Fiscal Year 2005 Fiscal Percent
Year 1997 Year 2004 Initiatives Year 2005 Change
----------------------------------------------------------------------------------------------------------------
Revenue Agents......................................... 14,592 12,172 841 13,387 -9
Revenue Officers....................................... 7,333 5,238 332 5,734 -28
Criminal Investigators................................. 3,244 2,553 160 2,739 -22
----------------------------------------------------------------------------------------------------------------
Question. Will IRS essentially restore those realignments from
1997, or does the request make real advances in tax compliance efforts?
Answer. As in the past 2 years, the IRS has identified efficiency
improvements that could generate resources to be applied to high
priority areas. These resources will be applied to enforcement in
fiscal year 2005. However, they are not sufficient to completely
reverse the decline in enforcement performance. The IRS needs the
increase in enforcement resources requested in the fiscal year 2005
budget to carry out an appropriate level of activity in the enforcement
arena.
The primary goal in the fiscal year 2005 budget request is to
continue restoring the strength of the enforcement function. Staffing
devoted to compliance and enforcement operations declined in the 1990's
as the IRS focused on customer service; it is just beginning to
recover. The number of revenue agents, revenue officers, and criminal
investigators each declined by over a quarter from fiscal year 1997 to
fiscal year 2003. Annual growth in return filings and additional work
related to RRA 98 have contributed to a steady decline in enforcement
presence, audit coverage, and case closures in front-line compliance
programs.
This budget has an increase of $300 million for a more vigorous
enforcement of the tax laws. This strong commitment to tax
administration will provide a significant augmentation of enforcement
resources, but will not completely restore enforcement personnel to
1997 levels. Improvements will also come from productivity increases
(e.g. reeningeering, better audit targeting).
Question. Are the realignment proposals recognition that sufficient
service and staffing levels have been achieved for IRS customer service
and processing program areas?
Answer. While the ultimate desired level of taxpayer service
remains to be reached, the IRS has improved and increased recognition
of, and respect for, taxpayer rights. The IRS has made steady gains in
better serving American taxpayers. Each filing season and year is
appreciably better than the previous one and the IRS continues to build
on those successes.
FISCAL YEAR 2004 FILING SEASON SUCCESSES--DATA AS OF APRIL 23 COMPARED
TO SAME PERIOD IN FISCAL YEAR 2003
------------------------------------------------------------------------
Fiscal Year Fiscal Year Percent
Service\1\ 2003 2004 Change
------------------------------------------------------------------------
Free Filed Returns................. 2.7 3.4 26
Where's My Refund.................. 9.5 12.4 31
Telephone Level of Service 83 85 2
(Percent).........................
E-Filing From Home................. 11.7 14.2 21
------------------------------------------------------------------------
\1\ Service usage in millions, except percentages.
The IRS is doing a better job; however, much more remains to be
done. The objectives for improved taxpayer service are three-fold:
--improve and increase service options for the taxpaying public;
--facilitate participation in the tax system by all sectors of the
public;
--simplify the tax administration process.
Although the IRS is not requesting increases in fiscal year 2005
for taxpayer service initiatives, the IRS will be able to build upon
its experience over the past 6 years and will continue to improve
taxpayer service. In recognition of the need to rebalance service and
enforcement activities, consistent with the formula of service plus
enforcement equals compliance, the only increases the IRS requested in
fiscal year 2005 are for enforcement.
Question. What headway will IRS's request make in the growing
delinquent tax inventory that exists, or do you still anticipate large
write-offs of delinquent taxes similar to this past year, even with the
resource requests in the fiscal year 2005 budget?
Answer. Delinquent tax write-offs declined by 35 percent from
818,000 in fiscal year 2001 to 533,000 in fiscal year 2003. The dollar
value of this inventory declined from $10.5 billion in March 2001 to
$7.4 billion in March 2004. The fiscal year 2005 budget staffing
increase will enable the IRS to continue this progress in reducing the
delinquent tax inventory. Passage of the administration's proposed
Private Collection Agent legislation would further reduce delinquent
inventory.
Question. A continuing priority of the IRS has been to maintain and
improve the Tax Fraud and Criminal Investigations program area. This
committee has supported IRS requests in this area.
Has IRS invested all the resources granted by the Congress in
recent years for the Criminal Investigations area or have some of the
new resources been reallocated to other areas in the IRS?
Answer. The IRS has directed all the resources provided by the
Congress for the Criminal Investigation area to the Criminal
Investigation division (CI). None of the resources have been
reallocated to other areas in the IRS; however, the IRS has applied any
across-the-board rescissions or unfunded pay raises to CI
proportionally. The IRS has protected all new CI initiatives.
Question. The IRS, in recent testimony, indicated that Congress has
not provided the resources it needs to meet tax administration
responsibilities. A review of IRS requests by GAO has shown that more
than 98 percent of IRS's requests have been funded since fiscal year
2002, with most reductions relating to across-the-board reductions and
absorptions beyond the control of this committee.
What is the basis of IRS's assessment on Congress' review of your
requests?
Answer. The IRS has based its budget strategy on increasing
productivity in current operations from reengineering, modernization,
and increases in electronic filing to free up resources for
reinvestment in taxpayer service and enforcement. The administration
also has sought modest FTE increases in the last few years. If
successful, this strategy would have enhanced taxpayer service and met
the demands of increased return workload. However, this strategy has
not been as effective as anticipated due to unexpected cost increases.
For example, the IRS absorbed $97 million to fund a portion of the
fiscal year 2004 pay raise, in addition to an appropriation reduction
of $252 million from the President's Budget.
The IRS absorbed these costs across the agency, protecting only the
new fiscal year 2004 enforcement initiatives from reduction.
Nevertheless, although the IRS protected these enforcement initiatives,
the enforcement base absorbed a prorated share of these unexpected cost
increases discussed above, and this resulted in FTE reductions in
enforcement activities.
Question. Does IRS's assessment imply that the administration did
not request sufficient resources for the IRS in past years' budgets?
Answer. The IRS has received the administration's full support, and
funding requests have been sufficient. However, unfunded expenses
absorbed throughout the agency have negatively affected budget goals.
These unfunded expenses have been driven primarily by pay raises higher
than those proposed by the administration.
Question. What is IRS's assessment of the request for fiscal year
2005? Is it adequate to support IRS tax administration
responsibilities?
Answer. The proposed fiscal year 2005 budget takes a balanced,
measured approach to the challenges facing the American tax system,
with a needed emphasis on strengthening enforcement. The goal is to
ensure that the tax system is fair for all while protecting taxpayer
rights.
The request, if funded, is adequate to support IRS tax
administration responsibilities. However, the fiscal year 2005 budget
request includes a 1.5 percent increase for the pay raise, as proposed
by the administration. If Congress approves the 3.5 percent increase
proposed by some members, it would result in a shortfall of $109
million.
Question. What is IRS's assessment of long term requirements?
Answer. The vision of the IRS is to re-center the agency with the
proper balance of service and enforcement poised to quickly meet
technological and demographic changes, new challenges of taxpayer
compliance, and customer expectations.
The IRS's goals remain the same--to improve taxpayer service,
enhance enforcement through uniform application of the law, and improve
the IRS infrastructure and modernize technology. The IRS's working
equation is that service plus enforcement equals compliance. The IRS is
maintaining high levels of taxpayer service, while focusing on
corrosive areas of non-compliance. Ensuring fairness will help maintain
the taxpaying public's faith in the Nation's tax system.
Question. How is the IRS's fiscal year 2005 request consistent with
that vision?
Answer. The IRS will enforce the law and it will continue to
improve service and respect taxpayer rights. The administration's
fiscal year 2005 budget request will help the IRS restore the balance
between service and enforcement envisioned in the IRS's Strategic Plan.
The fiscal year 2005 request allocates $300 million toward
enforcement initiatives designed to curb abusive tax practices, end the
proliferation of abusive tax shelters, improve methods of identifying
tax fraud, identify and stop promoters of illegal tax schemes and
scams, and increase the number and effectiveness of audits to ensure
compliance with the tax laws. This budget will allow the IRS to apply
resources to areas where non-compliance is greatest: promotion of tax
schemes, misuse of offshore accounts and trusts to hide income, abusive
tax shelters, underreporting and non-reporting of income, and failure
to file and pay large amounts of employment taxes. The administration
also has proposed a number of legislative changes to significantly
enhance current enforcement programs and prevent the promotion of
abusive tax avoidance transactions. The goal of these initiatives is to
ensure that the tax system is fair for all, while protecting taxpayer
rights.
Question. Besides the across the board reductions, what other
expenses did the IRS pay that were not budgeted?
Answer. Examples of the expenses incurred that were not budgeted
include $97 million for a portion of the unfunded pay raise, and
unanticipated rent increases causing a shortage of $40 million. The IRS
is working to manage our space inventory to minimize future rent
increases to the extent possible.
Question. The GAO states that IRS has requested more enforcement
staff to be funded partly by budget increases and partly through
internal savings.
Please provide, for fiscal year 2002 and fiscal year 2003, a
detailed breakout of the anticipated internal savings and the actual
amount saved.
Answer. In fiscal year 2002, the IRS intended to offset projected
non-labor inflation of $57 million by reducing travel and contractual
services and improving purchasing power through interdepartmental
consolidation of procurements. Actual results of those actions in
fiscal year 2002 were:
------------------------------------------------------------------------
Obligations
Variance From
Object Class Fiscal Year
2001-2002
------------------------------------------------------------------------
Temporary Space Leases.................................. ($19,765,165)
Management and Professional Support Services............ (10,462,898)
Contractual Labor--Private Sector....................... (10,052,952)
Training/Travel......................................... (4,114,005)
Misc Expenses, Foreign Posts--Government................ (3,151,254)
Printing, Reproduction, & Related Services--Commercial.. (1,900,000)
Support Services--Private Sector........................ (1,711,693)
Local Telephone Service................................. (1,280,417)
Services and Maintenance to Buildings and Space......... (1,088,284)
Administrative Mail Costs............................... (1,042,750)
Telecommunications Equipment, Capitalized............... (912,880)
Communication, Telephone Service--EE.................... (811,571)
Travel of Experts & Witnesses........................... (577,566)
---------------
Total............................................. (56,871,435)
------------------------------------------------------------------------
The IRS highlighted specific initiatives for savings in fiscal year
2003. Actual results of those reductions were:
[Dollars in millions]
----------------------------------------------------------------------------------------------------------------
Budgeted Realized, EOY Difference
Savings--Fiscal Year 2003 -------------------------------------------------------------------
Dollars FTE Dollars FTE Dollars FTE
----------------------------------------------------------------------------------------------------------------
CI--Narcotics Program....................... $14.6 85 $4.0 33 ($10.6) (52)
CI--Realigned Attrition..................... $11.6 80 $9.7 80 ($1.9) ..........
COUNSEL--Reduced Tax Court Cases............ $0.6 5 $0.6 5 .......... ..........
WAGE--E-File................................ $18.5 490 $12.0 475 ($6.5) (15)
WAGE--Reengineering/Quality Improvements... $67.4 1,044 ......... ......... ($67.4) (1,044)
WAGE, SBSE--e-services release.............. $4.0 69 $0.3 6 ($3.7) (63)
LMSB--Customer Relationship Management (CRM) $11.9 119 $1.2 12 ($10.7) (107)
Exam.......................................
MITS--Selected Tier B Projects.............. $3.3 57 ......... ......... ($3.3) (57)
SBSE--Reduced Field Innocent Spouse......... $13.8 184 $7.7 103 ($6.1) (81)
SBSE--Reduced Filing Season Support......... $12.1 154 $17.9 230 $5.8 76
-------------------------------------------------------------------
GRAND TOTAL........................... $157.8 2,287 $53.4 944 ($104.4) (1,343)
----------------------------------------------------------------------------------------------------------------
Question. The GAO states that the IRS realized only 32 percent of
its claimed internal savings in fiscal year 2003. Is this correct? If
so, does this point to a weakness in budget formulation at the IRS?
Answer. The actual figure is 34 percent. The fiscal year 2003
budget submission is the first such submission to identify specific
reduction initiatives that could be used to fund high priority
initiatives. Since then, the IRS has been improving. For example, in
fiscal year 2004, the IRS expects to achieve 68 percent of the
projected savings. The savings result either from modernization
projects or reengineered systems that generate productivity increases.
Because the IRS starts development of budget estimates over 15 months
prior to execution year, the assumptions made can change, and any
changes in assumption will affect the actual savings realized. In many
cases these savings have been delayed, but will eventually be realized.
Question. Does it point to a lack of conviction to realize the
savings promised to promote change at the IRS? If the IRS does not
realize the savings assumed in its budget requests, how does it make up
for the shortfall?
Answer. The IRS's prior experience in realizing specific reduction
initiatives, particularly with respect to fiscal year 2003, in no way
reflects a lack of commitment by the IRS to achieve cost savings and
efficiencies.
In most cases, the savings generated are used to fund other high
priority areas in the same business unit. Therefore, there is an
incentive to ensure that the reengineering actions are taken so that
the new work can be done. However, if for some reason the savings are
not generated at the time expected, then the business unit must either
scale back its hiring plans, and, therefore, projected performance, or
reduce non-labor costs in other areas to maintain its performance
level. Part of the problem experienced in fiscal year 2003 and 2004 was
that the IRS did not use generated savings to fund higher priority
work, as planned in the budget, but used the savings mainly to fund
unfunded mandates and unexpected costs.
Question. Congress has appropriated approximately $1.7 billion for
the Business Systems Modernization program. IRS has requested an
additional $285 million in this year's fiscal year 2005 budget. The
current program is showing mounting delays in project milestones, with
few results to show for the taxpayer.
What is the current status of this program?
Answer. The BSM program is--without a doubt--one of the largest,
most visible, and most sensitive modernization programs ever undertaken
in the world.
The results have been mixed; but first, the good news. The IRS
built a strong technical infrastructure and designed and implemented
stringent security and control mechanisms into the infrastructure. The
IRS also developed a rigorous enterprise life cycle methodology. Over
the past 2 years, the IRS has been working toward instituting and
integrating established streamlined governance and management
processes. The IRS has made progress, but a major thrust now focuses on
sustaining a solid balance of business commitment, accountability, and
scope management. Finally, the IRS has achieved a great deal of success
with the projects delivered to date.
The IRS has fully deployed all e-Services Release 1.0 products and
made them available over the Internet, including: registration and
online address change access for third parties and IRS employees
through secure user portals; Preparer Tax Identification Number (PTIN)
online application; interactive Taxpayer Identification Number (TIN)
matching; secure Electronic Return Originator (ERO) application
processing; and access to e-Services registration and application
processes by Modernized e-File (MeF) participants.
E-Services Release 2.0 products are also now in production and
available for use by IRS staff and taxpayers, including: Application
for e-Filing (external); Electronic Account Resolution (EAR);
Electronic TIN Bulk Matching (Bulk Requests); Disclosure Authorization
(DA); and infrastructure support for outbound facsimile service.
In March 2004, James D. Leimbach appeared before the Ways & Means
Oversight Subcommittee on behalf of the National Association of
Enrolled Agents (NAEA) and said, ``This new capability is truly going
to revolutionize the way we conduct future business with the IRS. The
ultimate beneficiary is the American taxpayer. We are truly amazed and
thrilled beyond description at this way of doing business with the IRS,
and we would like for you to understand why we feel as we do.''
The IRS delivered several additional applications that are
providing tangible benefits to taxpayers and improving the efficiency
and effectiveness of the tax administration systems such as Where's My
Refund?, Where's My Advance Child Tax Credit?, Internet EIN, Modernized
e-File, HR Connect, etc. The following chart highlights the
applications the IRS has delivered, as well as the measurable business
benefits being realized.
BSM DELIVERS REAL BUSINESS VALUE (RESULTS AS OF 6/15/04)
----------------------------------------------------------------------------------------------------------------
Project Description Recent Statistics
----------------------------------------------------------------------------------------------------------------
Internet Refund Fact of Filing Improves customer self-service by --17.9 million inquiries in 2003; 22
(2002). providing instant refund status million inquiries to date in 2004
information and instructions for (1/1/04-6/6/04).
resolving refund problems to --32 percent of all real time IRS
taxpayers with internet access. assistance calls come from IRFoF.
--Modest reduction of
telecommunications costs (about
$250,000).
--Every 1,000 IRFoF contacts
eliminate 1,500-2,000 refund
assistance calls.
Advanced Child Tax Credit (2003)... Modifies the Internet Refund --15.5 million inquiries in 2003;
application to provide taxpayers 11.9 million inquiries to date in
with Advance Child Tax Credit refund 2004 (10/1/03-6/13/04).
status on the internet. --Peak date 1.1 million interaction.
Customer Communications (2001)..... Improves communications --68,000 calls in one 3-minute
infrastructure, including telephone period during initial week
call management, call routing and (coincided with start of Advanced
customer self-service applications. Tax Refund of 2001).
--50 percent reduction in waiting
time for assistor to answer call.
--50 percent reduction in abandoned
calls.
--Number of Spanish calls doubled.
--More accurate pre-routing of
calls.
Internet Employee Identification Allows businesses and taxpayers to --1.37 million internet EIN
Number (2003). apply for and receive employer applications received to date (as
identification numbers over the of 6/5/04).
internet.
HR Connect (2002).................. Delivers an enterprise solution to --75,000 internal users.
allow IRS employees to access and --Cited by Commissioner Everson as
manage their human resources an enabling factor in the
information online. redirection of approximately 750
staff years to enforcement.
--Treasury was selected as 2004
ComputerWorld Honors Laureate for
HR Connect development and
implementation.
e-Services R1 (2003-2004).......... Creates a web portal and value adding --Over 69,624 PTIN applications
e-Services services to promote the (W7P) entered to date, data entry
goal of conducting most of the IRS's productivity doubled (from 8/15/03-
transactions with tax practitioners 6/10/04).
electronically. --Over 58,201 e-File applications to
the Third-Party-Data-Store (TPDS)
entered to date (from 8/15/03-6/10/
04).
--Approximately 24,939 Registered
(and confirmed) User Portal (RUP)
to date (from 10/1/03-6/10/04).
Customer Relationship Management Provides standard tax computation --Deployed to almost 4,000 Revenue
Exam (2001). software to Large & Mid-Sized Agents.
Business Revenue Agents.
Modernized e-File (2004)........... Provides e-filing to large businesses --Went live on 2/23/04.
(1120 family) and tax exempt --Over 35,090 returns (1120 family)
organizations (990 family). accepted as of 6/13/04.
--Over 3,287 participating
Electronic Return Originators as of
6/13/04.
--Winner of Government Solutions
``Best-of-the Best'' Pioneer
Solutions.
----------------------------------------------------------------------------------------------------------------
The bad news, however, is major. Significant cost overruns and
repeated schedule delays have plagued critical projects, such as the
Customer Account Data Engine (CADE), the Integrated Financial System
(IFS), and the Custodial Accounting Project (CAP). CADE replaces the
current master files that are the IRS's repository of taxpayer
information. IFS will be the IRS's new core accounting system. CAP
provides an integrated link between tax administration (revenue) and
internal management (administrative) financial information.
The IRS has delayed the CADE program four times. It originally
planned to deliver the first release of CADE in December 2001. The IRS
then rescheduled it for August 2003, and later rescheduled it for April
2004. The IRS recently finalized the re-planning effort for CADE and
set the latest delivery date for September 2004. While CADE is farther
along than the IRS has ever been in replacing a component of the master
file, there are still major hurdles to overcome. The CADE delays
stemmed from infrastructure upgrades, initial poor software quality
during the startup of systems integration testing combined with the
failure to understand the complexity of balance and control, and the
resolution of operational and performance issues that occurred during
Phase 3 of the Release 1.0 pilot.
Like CADE, IFS has been plagued with schedule delays. The IRS
originally planned to deliver the first release of IFS in October 2003.
The IRS then rescheduled it for January 2004. The IRS later rescheduled
it for April 2004. The IRS has subsequently scheduled Release 1.0 for
October 2004. The IRS delayed the first release of IFS because of the
need to make technical changes to comply with the enterprise
architecture, the inability to resolve key design and integration
issues in a timely manner, the identification of the health coverage
tax credit interface requirement late in the development process, and
delays experienced in integration testing due to poor application
quality and interface testing issues.
IFS Release 1.0 will cover core accounting functions such as budget
preparation, general ledger, accounts payable, accounts receivable,
financial reporting, and purchasing. Problems continue to seriously
jeopardize the scheduled delivery of this first release of IFS. The IRS
is 2 weeks behind schedule on testing, which puts the data conversion
schedule at risk. The IRS is negotiating a fixed price contract for the
October delivery.
The IRS is also encountering delays on the first release of the
Custodial Accounting Project (CAP), which provides an integrated link
between tax administration (revenue) and internal management
(administrative) financial information. The first release of CAP will
address revenue from individual taxpayers on initial tax payments.
Later releases of CAP will address businesses and collections. CAP
delays resulted from unstable CADE and IFS interface definitions,
needing additional testing time due to a much larger than anticipated
volume of data anomalies discovered during the conversion of data from
the current Individual Master File (IMF), and the time required
resolving system performance issues.
In addition, though not directly responsible for CAP delays to
date, the IRS has made some adjustments to the functionality that it
needs to have in CAP Release 1 to support the GAO financial audit as
well as internal accounting and management. These adjustments will
increase the cost of later sub-releases of CAP Release 1. The IRS has
now completed all testing for CAP Release 1, and is adding changes to
reflect IMF changes from the start of the 2004 filing season (Release
1.1). The IRS plans to start production, which includes the initial
load of IMF data, in mid-August. The IRS negotiated a fixed price
contract for Release 1 and Release 1.1 in May 2004.
Question. Are the current problems resource-related or management-
related?
Answer. The current problems experienced by the IRS are a
combination of both. The IRS needs a more versatile team of seasoned
executives to provide long-term stability to the program. The IRS is
complementing the skills of experienced IRS tax executives with outside
seasoned technology executives who have experience managing large-
scale, complex IT projects. As such, the IRS is hiring two Associate
Chief Information Officers to join the MITS organization, and an
executive search firm is conducting searches for five senior executives
with a wide range of diverse experience in developing and implementing
large modernization systems. As a result of missing CADE and IFS key
deliverables last summer, the Commissioner and Computer Sciences
Corporation (CSC) commissioned external assessment studies from outside
experts. The studies produced no major surprises; but, the IRS now
understands more about the issues. All of the assessments confirmed
that the IRS modernization effort is a massive, highly complex, high-
risk program that is confronting a number of critical management and
technological challenges. These studies also made it clear that the IRS
should not turn back, but rather make a series of changes to strengthen
the BSM program.
While all of these studies assessed different components of the
modernization program, three major recommendations emerged, including:
--Scaling back the modernization portfolio to better align with IRS
and CSC's capacities;
--Engaging IRS business units to drive the projects with a business
focus; and,
--Improving contractor performance on cost, scheduling, and
functionality.
The assessments also raised a number of other key improvement
opportunities, including:
--Adding outside expertise to help manage the program and to
complement IRS skills;
--Strengthening human resources capacity management;
--Adhering to methodologies in areas such as configuration
management, cost and schedule estimating, and contract
management;
--Reducing the burden from oversight organizations;
--Simplifying the budget process; and,
--Initiating the testing of the business rules engine on CADE.
Question. How much more is needed to complete this effort and
modernize IRS's outdated systems and processes and is the fiscal year
2005 budget request consistent with that projection?
Answer. It is virtually impossible to estimate how much more is
needed to complete the modernization effort and modernize IRS's
outdated systems and processes. There are just too many unknown
variables at this time. The IRS has a BSM Expenditure Plan in the
approval process that includes a proposal on how it plans to allocate
the $285 million in the administration's fiscal year 2005 budget
request for the BSM program. This is the first time that the Business
Systems Modernization Office (BSMO) has forecast so far ahead in an
Expenditure Plan. The purpose of providing a 2-year plan is twofold.
First, the goal is to provide key stakeholders with a comprehensive
understanding of the sequencing of activities and to show the impact of
changes to the plan across multiple years. Second, the objective is to
provide enough information in advance so that funding for future fiscal
years can be made available earlier in the fiscal year. The IRS will
provide an updated BSM fiscal year 2005 Expenditure Plan in the summer
of 2004, reflecting any adjustments made during the upcoming months.
A key component to delivering on the challenge of modernizing
America's tax system is for the IRS to establish credibility with key
stakeholders that it is identifying and addressing barriers to
achieving business modernization success, and to show its constituents
that it can and will get modernization done ``right.'' The IRS must
gain the trust of its stakeholders by consistently delivering systems
on time and within budget, and significantly improving its
productivity, quality, and effectiveness in building modernized
systems.
Getting modernization ``right'' means building systems that meet
the business needs of tax administration, while delivering tangible
benefits to taxpayers. The right balance of IRS business leaders are
now engaging with the modernization technology team to help determine
how to best apply technology in order to improve service to taxpayers,
support enforcement activities, and improve compliance.
Sharing leadership roles requires clarifying responsibilities,
empowering managers with decision making authority, and holding
individuals (both contractors and employees) accountable for delivering
measurable results on time and within budget. The IRS has implemented
processes and procedures to enable and enforce accountability, such as
establishing a governance structure, clearly defining roles and
responsibilities, and defining project milestone requirements.
Scope growth and unresolved issues can easily derail the best laid
plans for developing and implementing large, complex, high-risk
systems. The IRS resized the business systems modernization project
portfolio, adopted policies to support the prompt escalation of issues,
and reached an agreement to significantly control discretionary change
requests. Maturing management processes, strategically driven business
requirements, and improved project life cycle methodologies will define
and drive the modernization initiative going forward.
The IRS has placed an emphasis on increasing the timeliness and
accuracy of BSM communications to ensure that key stakeholders are well
informed of program goals and the status of projects against schedule
and cost targets.
There is much more work to do, but the Commissioner is committed to
modernizing the IRS's archaic computer systems. While progress to-date
has been decidedly mixed, the IRS owes it to taxpayers to stay the
course and put a solid foundation in place upon which the IRS can build
for decades to come.
Question. Please provide an update of all core systems being
developed. In the update, please provide the original estimated cost of
each program, the current cost estimate, the original estimated date of
completion and the new completion date.
Answer. Response is combined with the response to the subsequent
question.
Question. Please provide a list of any core system of the BSM
program that the IRS has delivered on time and within the original
budget estimate?
Answer. The IRS and PRIME have not delivered any BSM projects on
time and within the original budget estimate. The following describes
the major projects and includes a table detailing cost and schedule
variances to date.
Modernized e-File (MeF)
Modernized e-File Release 1.0, which provides electronic filing for
the first time ever to large corporations and tax exempt organizations,
went live in February 2004. MeF provides 53 forms and schedules for
1120/1120S (corporations) and 990 (tax exempt organization) e-filing.
It also provides the functionality to support those forms including:
--applicable interfaces;
--validation;
--retrieval and display options;
--the capability for large taxpayers to file using the internet; and,
--the capability to use Adobe files.
Release 1.0 has exceeded project volume for the year after only 2
months of operation. The project won the Government Solutions Pioneer
Award from Federal Computer Week Magazine (1 of 15).
Modernized e-file release 2.0 will include 36 additional forms and
schedules that are filed with Forms 1120/1120S (corporations) and 990
(tax exempt organizations). The IRS exited Release 2.0 Milestone 3
System design in March 2004. The IRS plans deployment for the summer of
2004. The IRS provides a chart listing the cost and schedule variances
at the end of this response.
E-Services
The e-Services project focuses on providing electronic account
resolution and fostering easy-to-use electronic products and services
targeted at specific practitioner segments that will inform, educate,
and provide service to the taxpaying public. In addition, e-Services
will provide electronic customer account management or Indirect Channel
Management capabilities to all businesses, individuals, and other
customers in a safe and secure manner. This project will help the IRS
move toward the Congressional goal of receiving 80 percent of tax
returns and information filings by electronic transaction, while
achieving a 90 percent customer and employee satisfaction rate by 2007.
Taxpayers who e-file will have the benefit of quicker refunds, more
accurate transaction processing, and access to an array of new
electronic services. The IRS has made noticeable improvements in the
2003 and 2004 filing seasons, with considerable improvement resulting
from a series of strategic enhancements resulting from a series of
planned releases late in 2003.
The IRS has delivered electronic services to tax practitioners, and
other third parties such as banks and brokerage firms that report
1099's. The IRS deployed all Release 1.0 and Release 2.0 initial
operations functionality by the end of April 2004, except for
Transcript Delivery System (TDS), which will be available in June 2004.
The IRS conducted additional pilot and performance testing of both
releases prior to deployment to the broad practitioner community.
The IRS fully deployed, and made available over the Internet, all
e-Services Release 1.0 products, including: registration and online
address change access for third parties and IRS employees through
secure user portals; Preparer Tax Identification Number (PTIN) online
application; interactive Taxpayer Identification Number (TIN) matching;
secure Electronic Return Originator (ERO) application process; and,
access to e-Services registration and application processes by
Modernized e-file (MeF) participants.
E-Services Release 2.0 products are now in production and available
for use by IRS staff and taxpayers, including: Application for e-Filing
(external); Electronic Account Resolution (EAR), Electronic TIN Bulk
Matching (Bulk Requests); Disclosure Authorization (DA); and
infrastructure support for outbound facsimile service. A chart listing
cost and schedule variances for the e-Services program is provided at
the end of this response.
Customer Account Data Engine (CADE)
The IRS has delayed the CADE program four times. The IRS originally
scheduled the first release of CADE for delivery in December 2001. The
IRS then rescheduled it for August 2003 and again for April 2004. The
IRS recently finalized the re-planning effort for CADE--under a fixed
price contract--and set the latest delivery date for September 2004.
While CADE is farther along than the IRS has ever been in replacing
a component of the master file, there are still major hurdles to
overcome. The CADE delays stemmed from:
--Infrastructure upgrades;
--Failure to understand the complexity and control function combined
with poor software quality during the startup of systems
integration testing; and,
--Resolution of operational and performance issues that occurred
during an initial release of the pilot.
The delivery of the CADE project is particularly important because,
for the first time, it moves taxpayer data from the outdated tape-to-
tape reels into an updated tax administration data and processing
system that can be accessed and updated in real time. Like the new
online technical infrastructure that the IRS deployed, CADE is a core
fundamental component of the modernized systems. As such, CADE is the
IRS's highest priority technology project. As of May 14, 2 weeks
remained on 2004 filing season release pilot (Reprocesses cycles 4-8
from earlier this year). The pilot has gone well. The IRS recently
signed a fixed-price contract through initial operating capability
(IOC) and has started work on the 2005 filing season release.
Integrated Financial System (IFS) Release 1
Like CADE, IFS has been plagued with schedule delays. The IRS
originally planned to deliver the majority of the first release of IFS
in October 2003, and the balance in January 2004. The IRS later
rescheduled it for April 2004. The IRS has subsequently scheduled
Release 1.0 for October 2004. Delay of the first release of IFS
occurred because of:
--The need to make technical changes to comply with the enterprise
architecture;
--The inability to resolve key design and integration issues in a
timely manner;
--Identification of the health coverage tax credit interface
requirement late in the development process; and
--Delays experienced in integration testing due to poor application
quality and interface testing issues.
IFS Release 1.0 will cover core accounting functions such as budget
preparation, general ledger, accounts payable, accounts receivable,
financial reporting, and purchasing. Problems continue to seriously
jeopardize the scheduled delivery of the first release of IFS.
The IRS is currently negotiating a fixed-price contract for October
delivery. Testing is behind schedule by 2 weeks and data conversion is
at risk within the scheduled 6-week window. The IRS lists IFS cost and
schedule variances in the chart at the end of this response.
Custodial Accounting Project (CAP) Release 1
The IRS has encountered delays on the first release of the
Custodial Accounting Project (CAP). This project provides an integrated
link between the tax administration (revenue) and internal management
(administrative) financial information. The first release of CAP will
address revenue from individual taxpayers on initial tax payments.
Later releases of CAP will address businesses and collections. CAP
delays resulted from unstable CADE and IFS interface definitions.
Additional testing time is necessary due to a much larger than
anticipated volume of data anomalies discovered during the conversion
of the data from the current individual Master File (IMF), and the time
required resolving system performance issues.
In addition, though not directly responsible for CAP delays to
date, the IRS has made some adjustments to the functionality that it
needs to have in CAP Release 1 to support the GAO financial audit, as
well as its internal accounting and management. These adjustments will
increase the cost of later sub-releases of CAP Release 1. The IRS has
now completed all testing for CAP Release 1, and is adding changes to
reflect IMF changes from the start of the 2004 filing season (Release
1.1). The IRS plans to start production, which includes the initial
load of IMF data, in mid-August.
The IRS has scheduled the completion of negotiations of a fixed
price contract for Release 1.0/1/1 for no later than the end of June.
Once those negotiations are complete, the IRS will begin negotiating a
fixed price contract for Release 1.2 (mid-year 2004 changes). The IRS
lists cost and schedule variance information in the chart at the end of
this response.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Est. Actual/Revised Initial Est. Completion Actual/Revised Est. Schedule
Project Cost Est. Cost Cost Variance Date Completion Date Variance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Customer Communications (CC) $41,110,000 $46,420,000 +$5,310,000 5/31/01.................... 2/26/02 (Full Deployment).. +9 mo.
2001.
Improves communications
infrastructure, including
telephone call
management, call routing,
and customer self-service
applications.
Recent Statistics:
--68,000 calls in one
3-minute period
during initial week
--50 percent reduction
in waiting time for
assistor to answer
call
--50 percent reduction
in abandoned calls
--Number of Spanish
calls doubled
--More accurate pre-
routing of calls
Customer Relationship $9,313,000 $7,375,000 $(1,938,000) 6/30/02.................... 9/30/02 (Full Deployment).. +3 mo.
Management Exam (CRM Exam).
Provides standard tax
computation software to
Large & Mid-Sized
Business Revenue Agents.
Recent Statistics:
--Deployed to almost
4,000 Revenue Agents
--Software meets 91
percent of LMSB
requirements
--Average case time
reduced due to new
automated tax
computation
--Improved accuracy in
computing corporate
taxes
Security and Technology $33,734,000 $41,287,000 +$7,553,000 8/31/01.................... 1/31/02 (Initial Operation) +5 mo.
Infrastructure Release (STIR)
Release 1.
Internet Refund/Fact of Filing $13,509,000 $26,432,000 +$12,923,000 7/31/02.................... 9/26/03 (Full Deployment).. +14 mo.
(IR/FoF).
Improves customer self-
service by providing
instant refund status
information and
instructions for
resolving refund problems
to taxpayers with
Internet Access.
Recent Statistics:
--17.9 million
inquiries in 2003,
19.2 million to date
in 1994 (1/1/04-4/25/
04)
--32 percent of all
real time IRS
assistance calls come
from IR/FoF
--Modest reduction of
telecommunications
costs (about
$250,000)
--Every 1,000 IR/FoF
contacts eliminate
1,500-2,000 refund
assistance calls
Human Resources (HR) Connect $10,000,000 $10,200,000 +$200,000 12/31/02................... 12/31/02 (Initial N/A.
Release 1. Operation).
Delivers an enterprise
solution to allow IRS
employees to access and
manage their human
resources information
online.
Recent Statistics:
--75,000 internal
users
--Cited by
Commissioner Everson
as an enabling factor
in the redirection of
approximately 750
staff years to
enforcement
--Treasury was
selected as 2004
Computerworld Honors
Laureate for HR
Connect development
and implementation
E-Services.................... $44,045,000 $130,281,000 +$86,236,000 10/31/03................... 4/30/05 (Full Deployment).. +18 mo.
Creates a web portal and
value adding e-Services
services to promote the
goal of conducting most
of the IRS's transactions
with tax practitioners.
Recent Statistics:
--Over 57,000 PTIN
applications (W7P)
entered to date; data
entry productivity
doubled (from 8/15/03-
4/21/04)
--Over 56,000 e-file
applications to the
Third-Party-Data-
Store (TPDS) entered
to date (from 8/15/03-
4/15/04)
--Approximately 23,000
Registered (and
confirmed) User
Portal (RUP) to date
from (10/14/03-4/21/
03)
--4.7 million Bulk TIN
requests
Modernized e-File (MeF) $29,246,000 $46,303,000 +$17,057,000 ........................... ........................... +4.5 mo.
Release 1.
Provides e-filing to large .............. .............. ............... 11/3/03: Assurance Testing. 11/04/03: Assurance Testing +1 day.
businesses (1120 family) 12/22/03: Web-Filing....... 2/9/04: Web-Filing......... +7 weeks.
and tax exempt 1/9/04: Production......... 2/23/04: Production........ +6 weeks.
organizations (990
family).
Recent Statistics:
--Went live 2/23/04
--Over 30,600 returns
(1120) family accepted
as of 4/25/04
--Over 3,109
participating
Electronic Return
Originators as of 4/25/
04
Customer Account Data Engine $61,145,000 $97,905,000 +$36,760,000 12/31/02................... September 2004............. +21 mo. \1\
(CADE)--Individual Master
File (IMF) Release 1.
Creates authoritative
computations and stores
data for individual
taxpayer accounts and tax
return information; it
provides timely complete,
accurate taxpayer
information to IRS
employees.
Custodial Accounting Project $47,161,000 $119,219,000 +$72,058,000 1/31/03.................... August 2004................ 20 mo.
(CAP) Release 1.
Provides integrated,
reliable tax operations
and internal management
information to support
evolving decision
analytics, performance
measurement, and
management information
needs.
Integrated Financial System $99,870,000 $153,786,000 +$53,916,000 3/31/04.................... October/November 2004...... 7-8 mo.
(IFS) Release 1.
Modernizes IRS financial
management systems by
providing a single
general edger for
custodial and financial
data and a platform to
integrate core financial
data with budget,
performance, and cost
accounting data.
Customer Account Management $57,578,000 TBD \2\ TBD \2\ 10/31/04................... TBD \2\ (Initial Operation) TBD. \2\
(CAM) Release 1.
Delivers an enterprise
solution to support
access to tax account
data, contact management,
case management, outbound
correspondence
management, and workflow
management.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ CADE, CAP and IFS project schedules are currently under review.
\2\ CAM project work suspended following completion of preliminary design activities ($15,452,000 expended). No further work planned until at least
fiscal year 2005.
Source: GAO analysis of IRS data contained in Business Systems Modernization (BSM) Expenditure Plans.
Question. The budget contains an initiative related to Private
Collection Agencies. Please provide some detail justifying this
initiative.
How will taxpayer privacy rights be protected?
Answer. Private Collection Agencies (PCAs) will be required to
comply with all taxpayer protections with which IRS employees are
required to comply, including the provisions of RRA98, and would be
prohibited from threatening or intimidating taxpayers, or otherwise
suggesting that enforcement action will, or may be taken, if a taxpayer
does not pay the liability.
--In no case would a PCA be permitted to take enforcement action
against a taxpayer.
--PCAs will be required to comply with the Fair Debt Collection
Practices Act.
--Under the proposal, taxpayers would be permitted to seek damages
from PCAs and their employees who violate the protections
provided.
--The IRS will approve PCA operational plans that will detail the
actions a PCA will take to resolve IRS accounts.
--The IRS will establish an oversight group with responsibility for
managing case referrals, monitoring and evaluating PCA
performance against the approved operations plan, and reviewing
and approving PCA actions.
--The IRS oversight function will use live phone monitoring, recorded
phone monitoring, review of PCA systems for adherence to
operation plans, and on-site reviews to ensure taxpayer rights
are fully respected.
Question. The IRS implemented a similar pilot program in 1996. What
lessons were learned from that pilot?
Answer. Implementation Period.--The IRS was required to implement,
almost from scratch, the pilot program within the year of the
appropriation legislation.
--Funding.--The pilot program was funded from the IRS's Tax Law
Enforcement appropriation.
--Processing and Communications.--At the time of the pilot program,
IRS computer and communication systems were not adequate for
the processing, delivery, and updating of liabilities being
handled by the PCAs.
--Selection of Accounts.--The pilot program required the IRS to place
accounts where the IRS had previously made attempts to collect.
Consequently, the pilot program involved the referral of many
outstanding liabilities to PCAs that did not have realistic
collection potential. This resulted in wasted effort by both
the PCA and the IRS.
--Taxpayer Information.--The pilot program overly restricted the
amount of information that could be provided to PCAs for
purposes of collecting outstanding liabilities. As a result,
many debts had to be returned by the PCAs to the IRS due to the
PCAs' inability to respond to often-straightforward questions
about a taxpayer liability.
--Contract Structure.--The pilot program involved a fixed-price
contract with incentive payments.
Question. Have those lessons been implemented in the new
initiative?
Answer. The administration's proposal reflects the lessons learned
from the pilot program. The primary issues affecting the success of the
pilot program, and the manner in which this proposal addresses those
issues, are set out below.
--Implementation Period.--In contrast, this proposal has been
developed over the past 2 years and has involved discussions
between the IRS, Treasury Department, Office of the National
Taxpayer Advocate, Department of Justice, and prospective
contractors. Moreover, even if authorizing legislation were
enacted in the next 6 months, this proposal contemplates that
an additional ramp-up period of over a year would be required
before the PCA program could begin. This additional time would
be required to ensure that the business processes, security and
oversight measures, and taxpayer protections are brought on-
line and fully tested before the program begins.
--Funding.--The pilot program conducted in 1996/1997 was funded from
IRS's Tax Law Enforcement appropriation. Funding in this manner
resulted in a net reduction to the IRS compliance resources. In
contrast, the administration's proposal to fund PCA activities
from proceeds would allow PCAs to supplement, not displace,
existing IRS resources.
--Processing and Communications.--The IRS will invest in modernized
Collection Decision and Inventory Management Systems to ensure
the successful integration of PCA activities into the IRS
collection process.
--Selection of Accounts.--The IRS, under the administration's
proposal, would focus on ensuring that the outstanding
liabilities referred to PCAs are those that not only are within
the authority of the PCA to resolve but also represent cases
with the greatest likelihood of payment if a PCA were to handle
the liability.
--Taxpayer Information.--Under the administration's proposal, PCAs
would have access to specific information regarding an
outstanding tax liability (e.g., type of tax, tax years
affected, dates of assessment, whether the assessment is based
on a taxpayer's own balance due return or an IRS notice, prior
payments, and application of prior payments) in order to answer
basic, but important, questions that a taxpayer may have
regarding the liability. The taxpayer information that would be
provided to PCAs would be strictly limited to the information
required for the collection of the specific tax liability at
issue. PCAs would not receive, for instance, information
regarding a taxpayer's total or adjusted income, sources of
income, delinquency history for liabilities not being handled
by the PCA, or employer information.
All existing restrictions imposed by section 6103 of the Code
would apply to the PCAs, and taxpayers would have the right to
assert a claim against PCA employees who violate those
protections.
--Contract Structure.--The administration's proposal would involve a
competitive, fee-for-service, performance-based, incentive
contract structure. The performance evaluation would be based
on a balanced scorecard that would look to quality of service,
taxpayer satisfaction, and case resolution, in addition to
collection results.
The allocation of accounts among the PCAs participating in the
program would be based on this performance evaluation, thereby
providing a further incentive for PCAs to respect all taxpayer
rights and protections. This compensation structure is modeled
on the successful FMS and Department of Education contracts.
--Oversight.--The administration's proposal would involve extensive
IRS oversight of the PCAs participating in the program. This
IRS oversight would ensure that procedures are followed, and
that any issues are identified and resolved early.
Question. How much outstanding tax debt owed to the Federal
Government is likely to be collected if this initiative moves forward?
Answer. The Treasury Department has estimated net revenue will
total $1.5 billion over 10 years. The gross revenue collected in the
Treasury calculations is $1.9 billion over 10 years.
Question. The Customer Account Data Engine (CADE) is the
centerpiece of the modernization effort. It holds the promise of moving
the IRS from the tape driven system of the 1960's to a modern reliable
database.
What needs to occur to make this plan a reality for the IRS?
Answer. As you have so appropriately noted, the delivery of the
CADE project is particularly important because--like the new online
technical infrastructure that the IRS deployed--CADE is a core
fundamental component of the modernized systems. As such, CADE is the
IRS's highest priority technology project.
The first release of CADE is scheduled for delivery in September
2004. The IRS has 2 weeks remaining on the fiscal year 2004 filing
season release pilot. The pilot has gone well. The IRS is scheduled to
go into initial production operation sometime in July or August under a
fixed price contract through initial operating capacity.
Question. What has caused the 30-plus month delay in the delivery
of Phase 1 of this system?
Answer. The CADE delays stemmed from infrastructure upgrades,
initial poor software quality during the startup of systems integration
testing combined with the failure to understand the complexity of
balance and control, and the resolution of operational and performance
issues that occurred during Phase 3 of the Release 1.0 pilot.
Question. Why has the estimated cost gone from $61,145,000 to
$97,905,000? When can the committee expect a delivery of Phase 1? What
is the IRS doing to control the massive cost increases to this system?
Answer. CADE Cost Overrun (from the original estimate of
$61,145,000 to $97,905,000).--The description below explains the costs
that GAO reported in their Audit of the fiscal year 2004 Expenditure
Plan:
Design Work from September 2000 to July 2001
$15.3 million--initial estimate in March 2000 Expenditure Plan.
$19.3 million--actual cost.
$4.0 million--variance due to design period being extended by 3
months to add detail in some areas and to bridge to Development.
Development Work from July 2001 to March 2004
$40.0 million--initial estimate in March 2001 Expenditure Plan.
$53.6 million--actual cost.
$13.6 million--$9.3 million of the variance was due to a 2-month
extension for a Pilot using real tax returns (cost of $5.3 million) and
the addition of capacity at the Martinsburg Computing Center to support
Development and Testing (cost of $4.0 million). The remaining variance
of $4.3 million was due to incurring the cost impact of delays (see
first two items outlined below).
Cost Impact of 2-Year Delay in Delivering CADE
$2.4 million--hiring of non-PRIME contractors to support IRS
testing.
$1.9 million--establishing a CADE Program Office (work to build an
organizational framework to support multiple CADE releases
simultaneously).
$18.0 million--cost to apply tax law and other changes for 2003 and
2004 filing season.
These costs do not reflect any changes since the GAO audit of the
fiscal year 2004 Expenditure Plan.
Question. Please provide the committee with an update of the
review.
Answer. The IRS used the results from independent studies
commissioned during the summer of 2003 to create a BSM Challenges Plan
comprised of 40 some action items. Given the strategic importance of
the plan, the Commissioner appointed an IRS business unit deputy
commissioner to oversee the implementation of the plan.
As a first step, the BSM project team developed a crosswalk to
ensure that the BSM Challenges Plan's definition of the issues
addressed and/or satisfied all of the recommendations from the four
commissioned studies as well as the recommendations submitted by the
IRS Oversight Board, and the Software Engineering Institute (SEI) study
of CADE.
While the deputy commissioner made significant progress in
implementing the plan, the full closure of all actions items was
unrealistic within the elapsed timeframe of the 6-month appointment.
Concurrently, the CIO created a new direct report position for
modernization management and assigned responsibility for implementing
the plan to the individual recently hired into this newly created
position.
Under the leadership of the deputy commissioner, the IRS and CSC
team brought closure to several key actions items, including:
clarifying the roles of committees as advisory, identifying
``blockers'' on contracting issues, appointing business leaders to each
project, establishing a risk-adjusted schedule and new baseline for
CADE Releases 1.0 and 1.1, and increasing the frequency of CADE reviews
with the business owner to twice monthly. The majority of the action
items are still works-in-progress, some of which will take time to
fully complete. Others will span the life of the BSM program.
For example, strengthening systems engineering capabilities by
hiring external candidates will take time since it involves conducting
the searches, interviewing the candidates, and negotiating the new
hires to come on board. The IRS and CSC developed ground rules for
escalating issues, but they will need to be continually enforced
throughout the life of the program. The IRS rewrote the charters of the
governing committees to reflect their advisory role and clearly
articulated their responsibilities, however, it will probably take a
year to truly evaluate and measure their effectiveness.
As stated, the IRS has made progress toward closing all the action
items, but it has much more work to do in critical areas. For example,
the IRS needs to religiously follow the proper methodologies and hold
people accountable if they do not. The IRS must start ``doing things
right'' as opposed to ``doing things fast'' such as exiting milestones
prematurely. An ongoing challenge will be balancing the scope and pace
of projects consistent with capacity, ensuring that the right people
are in place before launching a project, and setting realistic delivery
schedules and cost estimates. The IRS is committed to staying-the-
course and delivering on its promise to modernize America's tax
systems, but it is important for everyone to acknowledge this is a
monumental effort.
The magnitude and evolution of the BSM program dictates that the
IRS will always be going through an evolution of assessment and
improvements. In that regard, the BSM Challenges Plan is still evolving
and the IRS is using certain action items to continuously improve the
program.
Question. What changes need to be implemented to get this mission
critical system back on track?
Answer. As a result of missing CADE and IFS key deliverables last
summer, the Commissioner and CSC commissioned external assessments
studies from outside experts. The studies produced no major surprises;
but the IRS now understands more about the issues. All of the
assessments confirmed that the IRS modernization effort is a massive,
highly complex, high-risk program that is confronting a number of
critical management and technological challenges. These studies also
made it clear that the IRS should not turn back, but rather make a
series of changes to strengthen the BSM program.
While all of these studies assessed different components of the
modernization program, three major recommendations emerged including:
--Scaling back the modernization portfolio to better align with IRS
and CSC's capacities;
--Engaging IRS business units to drive the projects with a business
focus; and
--Improving contractor performance on cost, scheduling, and
functionality.
The assessments also raised a number of other key improvement
opportunities, including:
--Adding outside expertise to help manage the program and to
complement IRS skills;
--Strengthening our human resources capacity management;
--Adhering to methodologies in areas such as configuration
management, cost and schedule estimating, and contract
management;
--Reducing the burden from oversight organizations;
--Simplifying the budget process; and
--Initiating the testing of the business rules engine on CADE.
The Software Engineering Institute (SEI) will periodically review
the CADE program, and a third party (MITRE) will regularly assess the
overall health of the modernization program reporting directly to the
CIO.
The IRS committed to scaling back the modernization efforts to
better match its management capacity as well as the PRIME's, and to
focus on the most critical projects and initiatives. The IRS reduced
the size and scope of the modernization program considerably, and has
initially developed a human resource capacity planning model to help
ensure the right people, with the right skills, are dedicated for the
right amount of time to each IT project it undertakes.
The Commissioner is holding IRS senior business unit managers
accountable for the success of modernization efforts as it relates to
defining, developing, and controlling business requirements. For
example, the involvement and leadership of the Deputy Commissioner for
Wage and Investment played a key role in the successful delivery of
Modernized e-File.
It was evident that CSC, as the PRIME contractor, needed to
significantly improve their performance. While CSC has improved their
performance somewhat, delays and cost increases persist, as evidenced
by the continual delays in delivering CADE, IFS, and CAP. As a result,
the IRS will expand the competition for the new enforcement projects
that it plans to start later this year and next year. The IRS is also
moving to capped or fixed price contracts for development work to
balance the financial risk between the Government and the contractor in
modernization projects.
The IRS needs a more versatile team of seasoned executives to
provide long-term stability to the program. It is complementing the
skills of experienced IRS tax executives with outside seasoned
technology executives who have experience managing large-scale, complex
IT projects. As such, the IRS is hiring two Associate Chief Information
Officers to join the MITS organization, and an executive search firm is
conducting searches for five senior executives with a wide range of
diverse experience in developing and implementing large modernization
systems.
The IRS has placed an emphasis on increasing the timeliness and
accuracy of BSM communications to ensure that key stakeholders are well
informed of program goals and the status of projects against schedule
and cost targets.
There is much more work to do, but the IRS is committed to
modernizing its archaic computer systems. While progress to-date has
been decidedly mixed--the IRS owes it to the taxpayers to stay-the-
course and put a solid foundation in place upon which the IRS can build
for decades to come.
Question. The committee understands that the E-Services program is
expected to be fully operational by fiscal year 2005. Is this program
still on schedule? What has occurred to make this project cost go from
$44,045,000 to $130,281,000? Why is it 18 months behind schedule?
Answer. The IRS has achieved a great deal of success with the e-
Services project. The IRS has delivered electronic services to tax
practitioners, and other third parties such as banks and brokerage
firms that report 1099s. The IRS deployed all Release 1.0 and Release
2.0 initial operations functionality by the end of April 2004. The IRS
conducted additional pilot and performance testing of both releases
prior to deployment to the broad practitioner community. The response
has been extremely positive.
In March 2004, James D. Leimbach appeared before the Ways & Means
Oversight Subcommittee on behalf of the National Association of
Enrolled Agents (NAEA) and said, ``This new capability is truly going
to revolutionize the way we conduct future business with the IRS. The
ultimate beneficiary is the American taxpayer. We are truly amazed and
thrilled beyond description at this way of doing business with the IRS,
and we would like for you to understand why we feel as we do.''
All e-Services Release 1.0 products are fully deployed and
available over the Internet, including:
--Registration and online address change access for third parties and
IRS employees through secure user portals;
--Preparer Tax Identification Number (PTIN) online application;
--Interactive Taxpayer Identification Number (TIN) matching for
payers and/or authorized agents who submit any of six
information returns subject to backup withholding (Forms 1099-
B, INT, DIV, OID, PATR, and MISC);
--Secure Electronic Return Originator (ERO) application process; and
--Access to e-Services registration and application processes by
Modernized e-file (MeF) participants.
E-Services Release 2.0 products are now in production and available
for use by IRS staff and taxpayers, including:
--Electronic Account Resolution (EAR);
--Electronic TIN Bulk Matching (Bulk Requests);
--Disclosure Authorization (DA); and
--Infrastructure support for outbound facsimile service.
Statistics gathered as of May 13, demonstrate that the e-services
program is providing important benefits for taxpayers and tax
practitioners:
--No. of Individuals registered=24,000;
--No. of Individuals changing address during registration=3,000;
--No. of Interactive TIN Match requests=221,000;
--Bulk TIN Requests=4.7 million.
There were five main causes for the schedule delays and cost
increases from $44,045,000 to $130,281,000.
Budget Omission for Infrastructure Functionality/Acquisition ($8-9
million).--The original project budget failed to consider the
integration of the e-services application with the modernized
infrastructure or budget for the acquisition of specific hardware or
software to support e-Services development and production environments.
Extended Testing and Infrastructure Integration ($15-17 million).--
The quality of the software that CSC and Unisys delivered to the IRS
for e-Services was lower than anticipated and the time it took to
resolve each of the errors took longer than anticipated. In addition,
there was a series of actual integration issues between the application
and the infrastructure that were greater in number and took longer than
anticipated to resolve.
Modernized e-file 1040 e-file support ($4-6 million).--In reviewing
the proposed design for the Modernized e-file project, it was
discovered that the project plan called for a system that would not be
multifunctional. The IRS developed an alternative plan to expand e-
Services functionality to provide these services for Modernized e-file
in a manner that was consistent with the Enterprise Architecture, which
describes the business and information systems and technical
infrastructure that are both in place (Current) and planned (Target).
In addition, the Enterprise Architecture defines the architectural
strategies to be followed and prescribes standards and technologies to
be used.
IRS Initiated changes including filing season changes ($8-10
million).--Due to the fact that it took longer than anticipated to
build the e-Services system, the IRS made a number of significant
changes to ensure that the e-Services system was consistent with filing
season requirements and current production changes.
Extension of MS5 and a misestimate of MS5 costs ($45-48 million--
increased estimates for costs through 9/30/05).--Because the e-Services
project ran over cost and schedule estimates, the IRS deployed the
project using version 8.1 Peoplesoft, CRM. Peoplesoft will stop
maintenance of this version of the software in 2005. The IRS must
upgrade the production system to conform to latest Peoplesoft CRM 8.8
release. Due to the complexity of the upgrade, the BSM program had to
make the changes before turning it over to ITS for operations and
maintenance. The BSM program was originally scheduled to turn the e-
Services project over in May 2004. The program will now be maintaining
and upgrading the system a year longer, until May 2005.
Question. Of the ten computer modernization projects ongoing as of
September 2003, nine are currently over their original cost estimate by
a total of $292,013,000.
What needs to occur for the IRS to better monitor the escalating
costs of these systems?
What types of oversight does the IRS provide over the contracts for
development and acquisition of these projects?
Answer. The IRS is currently putting in place several control
mechanisms for Contractual, Enterprise Life Cycle, Earned Value
Management, Performance and Cost and Schedule Estimating that directly
address the estimate overruns. In particular, the IRS is enacting
methodologies that will eliminate future ``escalating costs.''
The IRS has been working jointly with MITRE and CSC (the PRIME
Contractor) to improve cost and schedule estimating capability. The IRS
is using the well-recognized Carnegie Mellon Software Engineering
Institute's (SEIs) Requisites for Reliable Estimating Processes as a
guide. The requisites provide for development and execution of the
following key cost and schedule estimating objectives:
--Maintaining historical data;
--Structured estimating processes;
--Mechanisms for extrapolating estimates from successful past
projects;
--Audit trails; and
--Ensuring integrity in dealing with dictated costs and schedules.
Both CSC and the IRS have made significant progress towards
achieving these key objectives. The IRS has implemented procedures for
validating contractors' estimating systems and for reviewing cost and
schedule estimates. The procedures provide guidance for evaluating
reliability of documentation supporting individual estimates and for
tracking compliance with sound estimating practices. Furthermore, the
procedures also address professional development of personnel with the
right skill set for developing and evaluating cost and schedule
estimates. CSC has established a historical database, calibrated
estimating models and developed detailed requirements for documenting
and supporting bases of estimates along with related guidance and
directives. Work is also in progress for continuing refinement and
improvement in each of these elements.
In addition, joint training is being conducted for IRS, CSC and
MITRE personnel as an integral part of the overall plan to ensure
competent deployment of improved processes and procedures. The IRS,
with MITRE's assistance, recently completed a review of CSC's
estimating system. The IRS is finalizing the results and will issue
them in a report in the latter part of June. In general, there have
been improvements. The report will include a time phased corrective
action plan for addressing deficiencies. To ensure the tools, guidance,
processes and procedures are part of a mature repeatable process, a
concerted effort is underway to fully validate all aspects of the
processes and procedures prior to official roll-out within the IRS.
This pilot program is intended to verify the soundness of the processes
and procedures and provide lessons learned, before full implementation
is effected.
Every effort is being made to hire qualified staff and fully
implement improved tools, guidance, processes and procedures as soon as
possible. However, this is taking more time than the IRS would like.
This is a pervasive problem on programs of the size and complexity of
the modernization initiative. Nonetheless, the IRS believes that there
will be evidence of increased accuracy by the end of fiscal year 2004
and continued improvements over time.
Finally, all of these efforts are part of a highly visible set of
plans geared to identifying, tracking, reporting, and reviewing the
critical cost and schedule estimating commitments with IRS Executive
Management and GAO/TIGTA.
The following initiatives have been implemented (or are pending) to
improve performance in the other areas:
--Application of Performance-Based Contracting (PBC) Techniques.--
Applying performance-based contracting techniques and
leveraging lessons learned enhances the IRS's ability to
proactively establish expectations for and manage the PRIME
contractor's performance.
--Determination of Task Order for Acquiring Modernization Systems.--
To further improve modernization controls and capabilities, the
IRS has established and is implementing a process for
determining the type of task order to be awarded when acquiring
modernization systems. The IRS issued a policy stating that
contracts and task orders for the BSM projects in Milestones 4
and 5 (development and deployment) will be fixed price, as
appropriate. This type of task order will shift most or all
risks from the IRS to the PRIME.
--Implementation of Fixed Price Contracting Policy.--The IRS's
Contracting organization and the Enterprise Life Cycle program
are developing a joint approach to implement the fixed price
contracting policy.
--Identification of Issues and Tracking Progress.--The IRS is making
use of Earned Value Management, Program Performance
Measurements, and a sophisticated electronic analysis and
reporting mechanism (the Dashboard) to track progress, identify
variances early, and facilitate escalation of issues early in
the life cycle.
--Development of Metrics.--Finally, the Program Performance
Management Office (PPMO) is developing efficiency and outcome
metrics to:
--decrease contracted program variances,
--decrease requirements volatility, and,
--increase contracted requirements delivery.
These metrics support program management effectiveness, and provide
the ability to assess achievement of program performance goals relative
to cost, schedule, requirements scope, and requirements delivery.
FUEL TAX EVASION
Question. The Federal Highway Administration (FHWA) Motor Fuel Tax
Evasion Project supports Federal and State efforts to enhance motor
fuel tax enforcement. The program was established by the Intermodal
Surface Transportation Efficiency Act of 1991 (Public Law 102-240) and
continued under the Transportation Equity Act for the 21st Century
(TEA-21) (Public Law 105-178).
Since 1998, the Department of Transportation has provided the
Internal Revenue Service (IRS) $31 million from Highway Trust Fund
revenues to enhance motor fuel tax enforcement, primarily by developing
and operating an automated excise fuel tax reporting system, the Excise
Fuel Information Reporting System (ExFIRS). The administration's
proposed Safe, Accountable, Flexible and Efficient Transportation
Equity Act (SAFETEA) of 2003 includes $163 million for the IRS through
fiscal year 2009, and the Surface Transportation Authorization bill as
passed by the Senate proposes about $300 million.
The IRS has been struggling to modernize its automated systems. For
example, the committee has been told that Commissioner Everson excluded
one contractor from a project to update the IRS's tax enforcement
systems after learning the contractor would miss an April deadline for
putting in a new general ledger accounting system.
How is ExFIRS currently being used to enhance motor fuel tax
enforcement and what are its capabilities? Is the system fully
operational and functioning as envisioned? If not, what is needed to
complete the systems development effort?
Answer. ExFIRS is an umbrella system made up of several subsystems/
modules that support the collection of motor fuel industry information,
support automated analysis of this information, and help identify areas
with the highest risk for non-payment of excise tax liabilities
(therefore offering higher potential for return on investigative and
enforcement activities). The most important of the subsystems is the
Excise Summary Terminal Activity Reporting System (ExSTARS), which
tracks all petroleum movements, in and out, through approved terminals,
and captures information that the IRS shares with State taxing
agencies.
ExSTARS is the information reporting system that was designed
similar to the IRS 1099 matching system that matches information
received from employers, financial institutions and other businesses
with information reported by taxpayers. It enables the IRS to track all
reported fuel transactions that occur within the fuel industry's bulk
shipping and storage system. It provides tracking capabilities of fuel
from the pipeline/barge delivery system to the point of taxation for
the Federal Excise Tax at the terminal. This information is then
matched by the IRS to fuel sales transactions reported by taxpayers and
to verify their tax liabilities reported on the quarterly Forms 720.
ExSTARS was operational on April 1, 2001. However, the large volume
of paper returns filed each month has hampered the maximum use and
benefit of the system. ExSTARS requires information reporting from over
1,400 terminals registered to transact fuel sales in this country, as
well as the pipelines and barge carriers that transport the fuel from
the refineries to the terminals. The IRS receives information reports
on 10 to 14 million fuel transactions monthly. Approximately 70 percent
of these are filed electronically. Working with the remaining 30
percent filed on paper documents is both impractical and cost
prohibitive. Senate Bill S. 1072, the Safe, Accountable, Flexible, and
Efficient Transportation Equity Act of 2004 (SAFETEA), would require
electronic filing of any return containing more then 25 transactions,
as proposed in the administration's SAFETEA bill. This legislation, if
passed, will greatly enhance the tracking capabilities of ExSTARS.
ExFIRS includes a Data Warehouse module that interfaces with
ExSTARS. This module uses the information reported in ExSTARS, on the
distribution of fuel, to match against the reported amounts on
taxpayer's 720 Excise Tax Returns. ExFIRS also includes legacy systems
that the IRS used to track and monitor compliance in the motor fuel
area. The Excise Tax Registration Authentication System (ExTRAS)
contains the monitoring system for the registration program of
taxpayers allowed to carry on tax free transactions within the fuel
distribution system. The Excise Fuel On-line Network (ExFON) is the
management information system used to monitor the Dyed Fuel Program.
The IRS included these systems in the ExFIRS Program because they are
an integral part of the motor fuel tax program and must be included in
the IRS's tracking of activities that impact compliance in this area.
The funding for the update and enhancement of these systems came from
IRS operating funds. These systems have been operational for several
years and the updated versions are in place and operating within the
ExFIRS Program. The Excise Tax Agent Work Center (ExTAC) is an
automated work center that will enable IRS Excise Tax Agents to receive
tax returns in electronic format and to conduct examinations in an
automated environment. ExTAC is a part of ExFIRS and will receive
information from the system to assist in the examination of returns.
ExTAC was funded by the IRS and is currently a working prototype
version. The system will be in full production and used by agents by
the end of the first quarter of fiscal year 2005.
Question. Given the problems IRS has experienced fixing its other
automated systems, what reasonable assurance can you provide this
committee that taxpayers are getting a good return on their investment
in ExFIRS and that the project is being properly managed?
Answer. In 1998, Congress passed the Transportation Equity Act for
the 21st Century, requiring the IRS to develop a fuel tracking system.
This act required the IRS to use an outside contractor for the
development and maintenance of the system. The IRS has met this
requirement, and is using Software Engineering Institute (SEI) CMMI
Level 2 development processes to manage the development efforts of the
contractor and subcontractor personnel in order to ensure a continuous,
uninterrupted, integrated approach to the development, installation and
implementation of the ExFIRS subsystems.
As stated above, the ExSTARS module of ExFIRS was operational April
1, 2001. The design and development of this system was a joint effort
between the IRS, industry and the States. The IRS is using the system,
but the ability to date to maximize the effectiveness has been limited
by two factors.
Due to the high volume of paper returns that contain thousands of
individual transactions, the IRS only captures summary information from
paper returns. This limits the IRS's ability to meet the goal of
matching ExSTARS information to filed Excise Tax returns.
The filing requirements for ExSTARS required a significant
investment for the fuel industry and at the time of ExSTARS becoming
operational, some companies were not fully prepared to meet all of the
filing requirements. Since April 1, 2001, the IRS has worked closely
with industry filers to ensure accurate and timely filing of the
information returns required for the operation of ExSTARS. The IRS
formed a Data Perfection Team composed of IRS personnel along with
outside contractors to work with and assist individual companies meet
their filing requirements. Although the IRS has made great progress
this area, some companies are still experiencing problems. The IRS has
made a decision to continue to work in a cooperative manner with all
companies that demonstrate a desire to address their problems and come
into compliance with the ExSTARS filing requirements.
The IRS is using the system today. It has the ability to track the
movement of fuel in all States--but within the limitations of the
problems outlined above. If the issue of paper returns is addressed,
the IRS will be able to match individual filers to the ExSTARS
database. This will enable the IRS to better determine where to
allocate its enforcement resources to combat fuel tax non-compliance.
This same information will allow States that have the same tax point as
the Federal Excise Tax to ``piggyback'' on this data to enhance their
own compliance efforts.
On the question of the return on investment to the American
taxpayers, one needs to look at the effectiveness of information
reporting for compliance with income taxes. Matching information
received from employers, financial institutions, and other businesses
with information reported by taxpayers has long been recognized as one
of the most powerful tools that the Internal Revenue Service has used
to ensure income tax compliance. In fact, third parties report
approximately 80 percent of the personal income received by taxpayers.
Through its document matching programs, the Internal Revenue Service is
able to use this data as an effective compliance tool. The ExFIRS
Program will deliver the same effectiveness to the Excise Fuel Tax
arena. The information gathered by the ExFIRS Program will be shared
with all State motor fuel taxing agencies and will lead to increased
compliance for the States. The States will directly benefit from the
increased revenues that will be generated by a higher level of
compliance in both the Federal and State areas.
Question. How were systems requirements determined and were other
Federal and State law enforcement agencies involved in defining the
requirements?
Answer. The design, development, and implementation of ExSTARS is a
result of a working collaboration between the Internal Revenue Service,
Contractors, Federal Highway Administration, State tax administrators,
and industry stakeholders over more than a 5-year time period. A key
goal in the development process was to create a system that would
benefit State revenue agencies as well as the IRS. The system uses the
Uniform Reporting Standards developed by the States to ensure all data
is compatible with State systems. The Excise Tax On-line Exchange
(ExTOLE) module was developed specifically for use by the States.
ExTOLE allows States to exchange data that relates to motor fuel tax
issues.
Question. What is the total cost of ExFIRS to date? What is the
cost, funding, and schedule status of any development effort still
needed for the system? What is the annual cost to operate and maintain
the system?
Answer. The IRS and FhWA have provided funding for ExFIRS. The IRS
funding is used to cover the incorporation of legacy system into
ExFIRS. The two charts below show the cost to date:
FHWA ExFIRS EXPENDITURES
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Cost Categories 1999 2000 2001 2002 2003 Totals
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Distribution from FHWA...................... $9,430,000 $7,923,000 $4,479,000 $4,609,000 $4,739,000 $31,180,000
Budget Reduction from FHWA.......................... (180,000) .............. (11,000) .............. (32,500) (223,500)
Total Available for Project......................... 9,250,000 7,923,000 4,468,000 4,609,000 4,706,500 30,956,500
Contractors......................................... 6,151,747 4,237,216 3,913,663 3,938,222 2,922,850 21,163,698
Labor............................................... 517,849 943,910 ............... 114,489 ............... 1,593,948
Training............................................ 20,615 33,270 85,320 112,165 96,653 348,023
Travel.............................................. 521,052 968,000 ............... 165,000 287,610 1,941,662
Background Investigations........................... ............... 32,175 20,000 4,000 5,425 61,600
Hardware............................................ 1,871,037 772,693 89,015 108,315 271,358 3,112,418
Software............................................ ............... 769,676 146,079 13,819 918,060 1,847,634
Maintenance......................................... ............... 2,000 28,140 2,990 54,544 87,674
Criminal Investigation Division..................... 150,000 150,000 150,000 150,000 150,000 750,000
Telecom............................................. ............... 14,060 35,783 .............. ............... 49,843
---------------------------------------------------------------------------------------------------
Total Spent on Project........................ 9,232,300 7,923,000 4,468,000 4,609,000 4,706,500 30,956,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
IRS ExFIRS EXPENDITURES
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Cost Categories 1999 2000 2001 2002 2003 Totals
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Request from IRS........................... $2,510,000 $2,101,000 $3,758,000 $5,204,000 $9,106,000 $22,679,000
Budget Reduction from IRS.......................... (92,338) .............. (1,037,469) (3,406,000) (7,220,000) (11,755,807)
Total Available for Project........................ 2,417,662 2,101,000 2,720,531 1,798,000 1,886,000 10,923,193
Contractors........................................ 1,173,062 2,077,039 2,720,531 1,319,000 1,886,000 9,175,632
Labor.............................................. ............... .............. ............... ............... ............... ...............
Training........................................... ............... .............. ............... ............... ............... ...............
Travel............................................. ............... .............. ............... ............... ............... ...............
Background Investigations.......................... ............... .............. ............... ............... ............... ...............
Hardware........................................... 967,462 8,000 ............... 62,000 ............... 1,037,462
Software........................................... 149,998 15,961 ............... ............... ............... 165,959
Maintenance........................................ 127,140 .............. ............... 417,000 ............... 544,140
Criminal Investigation Division.................... ............... .............. ............... ............... ............... ...............
Telecom............................................ ............... .............. ............... ............... ............... ...............
----------------------------------------------------------------------------------------------------
Total Spent on Project....................... 2,417,662 2,101,000 2,720,531 1,798,000 1,886,000 10,923,193
--------------------------------------------------------------------------------------------------------------------------------------------------------
In addition, here are spreadsheets detailing future development,
maintenance and operating cost through fiscal year 2006. Funding is
provided each year to assist the IRS CI in their efforts on motor fuel
issues.
ExFIRS SUPPORT CONTRACTOR COST ESTIMATES BY FISCAL YEAR
[In thousands of dollars]
------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
ExFIRS SW Develop/Enhance/ 2004 Oct 2005 Oct 2006 Oct
Maint Via TIPSS Type Contract 2003-Sep 2004-Sep 2005-Sep
2004 2005 2006
------------------------------------------------------------------------
ExFON Dev/Maint/Enhancement 700.8 790.4 160.0
(includes Legacy Maint, New
ExFON Dev In Web Envir and
Data Migration)..............
ExSTARS Dev/Maint/Enhancement 2,945.0 1,594.2 400.8
(includes Maint of ExSTARS 1
and Dev/Maint of ExSTARS 2)..
ExTRAS Dev/Maint/Enhancement 80.0 372.8 160.0
(includes legacy maint and
development in Web
environment).................
BTRIS Dev/Maint/Enhancement 424.0 1,118.2 225.0
(includes maint of current
BTRIS and development of the
Analyst Module)..............
ExCIDS Dev/Maint/Enhancement 190.6 1,182.7 120.0
(includes devel of case mgt
and workflow modules)........
ExTAC Dev/Maint/Enhancement 770.8 691.2 320.0
(includes maint of current
system, development of GM
module, and migration to Web
environment).................
ExTOLE Maint/Enhancement 80.0 160.0 120.0
(includes maint of current
system and development of
enhancements called out in
SOW).........................
ExMIS Dev/Maint/Enhancement 546.0 597.1 120.0
(includes DW and ExCIS maint
and analysis/reporting
enhancements)................
Common Costs Associated with 2,466.2 2,476.1 1,866.4
all Subsystems (includes Prog
Mgt, Sys Engr, CM, QA,
Testing, SEI/CMM, Security,
Subcontract Mgt, travel
expenses, etc.)..............
Infrastructure Costs--See 3,779.0 3,789.0 3,568.0
Infrastructure sheet
(includes SW/HW Upgrades/
Migrations, Tier 2 and
Modernization Requirements,
COTS and SW Licenses/
Maintenance, Technology
Advancements, Service Center
Support, etc.)...............
-----------------------------------------
Subtotal................ 11,982.4 12,771.7 7,060.2
-----------------------------------------
FhWA Funding at Current Rate.. 4,200.0 4,200.0 4,200.0
Projected Need................ 7,782.4 8,571.7 2,860.2
IRS Funding Allotted.......... 4,959.0 4,250.0 3,453.0
Funding Shortfall............. 2,823.4 4,321.7 -592.8
------------------------------------------------------------------------
ExFIRS INFRASTRUCTURE COST ESTIMATES BY FISCAL YEAR
[In thousands of dollars]
------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
ExFIRS Infrastructure 2004 Oct 2005 Oct 2006 Oct
Estimates 2003-Sep 2004-Sep 2005-Sep
2004 2005 2006
------------------------------------------------------------------------
Annual COTS Licenses, Yearly 656.0 637.0 668.0
Maintenance and New User
Licenses (Oracle,
Informatica, Paper Free,
Mecator, Business Objects,
MapInfo, FileNet, Ventica)...
ExFIRS SW Migrations for New 924.0 236.0 970.0
RDBMS/OS/COTS (Oracle/Sun/
NT). Major migration every
other year (even years)......
Tier 2 Requirements (New CM 231.0 243.0 100.0
tool, additional security,
move to Tier 2 infrastructure
and web page compliance--
508J)........................
ExFIRS Harware Migrations 236.0 892.0 248.0
(production, development, and
test servers/user desktops,
laptops and handheld devices/
gateway firewalls and routers/
technology upgrades). Major
upgrade every other year (odd
years).......................
ExFIRS Service Center Expenses 982.0 1,031.0 1,082.0
(SA/DBA personnel and
training covered by SLA--9.9
staff years).................
Other ExFIRS Expenses (SW 750.0 750.0 500.0
upgrades for technolgy
advancements, new user
functionality and IRS
modernization initiatives)...
-----------------------------------------
Subtotal................ 3,779.0 3,789.0 3,568.0
------------------------------------------------------------------------
Question. What benefits does FHWA derive from the system? Does IRS
believe FHWA receives satisfactory return on investment from the
system?
Answer. Tax receipts deposited in the Highway Trust Fund Account
totaled $35.2 billion in fiscal year 2003, of which $30.2 billion went
to the Highway Account and $5 billion to the Mass Transit Account. As
described above, the ExFIRS Program will enhance fuel tax compliance
directly impacting the FHWA's mission. In addition, the FHWA will be
able to use data from the system in its own planning process. Just
recently the IRS met and provided summary data to FHWA to assist in its
efforts to develop their model of State revenue sharing.
Question. Has an independent audit or review ever been performed of
the ExFIRS development effort?
Answer. ExFIRS has a requirement to operate at a minimum of
Maturity Level 2 of the SEI CMM. Yearly Process Appraisal Review
Methodology (PARM) review of the process was completed in February 23,
2004. At Technology Solutions Center a CMMI SEI Level 2 rating was
verified by independent evaluations (external SCAMPI Class A) on
February 27, 2004.
Question. Fuel tax fraud creates a drain on Highway Trust Fund
(HTF) revenues, which FHWA estimates costs at least $1 billion
annually. Department of Transportation Secretary Mineta has called
evasion of Federal motor fuel taxes ``a serious and growing problem
that requires a serious Federal response.'' The loss of motor fuel
taxes is also detrimental to State programs. The impact of these losses
is even greater coming at a time when we have experienced a reduction
in the growth of HTF revenues, while demands on highway capacity have
reached unprecedented levels, and replacement and rehabilitation costs
for aging infrastructure are rapidly increasing.
Although fuel excise taxes represent less than 2 percent of total
Federal tax revenues, they are a critical funding source for DOT
programs. Taxes on gasoline, diesel, and other fuels provide about $33
billion each year, or 89 percent of the HTF revenues used to finance
highway and transit projects nationwide. Increased tax collections mean
increased Federal revenues for funding the Nation's highways and
transit programs.
In July 2002, FHWA Administrator Peters testified before Congress
that the administration proposed to halt fuel tax evasion through ``a
vigorous and more collaborative enforcement effort by State and Federal
agencies'' and a significant increase in funding over TEA21. The
administration proposed providing $202 million for the Highway Use Tax
Evasion Project, of which $163 million would be transferred to the IRS.
What does IRS currently estimate the losses from fuel tax evasion
to be and how was this estimate derived?
Answer. KPMG, not the Federal Highway Administration, estimates
drain on the Highway Trust Fund revenues to be the $1 billion. Although
it is difficult to estimate evasion because the IRS does not know what
is not being reported, the IRS identified and is addressing critical
areas of excise tax non-compliance. These include the:
--Continuing misuse of dyed diesel fuel;
--Smuggling to evade payment of taxes;
--Cocktailing (increasing the fuel volume by mixing in other
products) to illegally reduce the effective tax rate; and
--Diverting aviation jet fuel to highway use to illegally evade motor
fuel taxes.
The IRS continues to discover misuse of dyed diesel fuel for tax
evasion purposes despite the numerous legislative and regulatory steps
Federal and State governments have taken. The 140 fuel compliance
officers (FCO) monitor 1,400 terminals, all fuel wholesalers, thousands
of retail motor fuel outlets, and U.S. border crossings. Additionally,
FCOs periodically inspect on-road vehicles on highways throughout the
country. From January 1, 2003 through December 15, 2003, FCOs have
assessed over 1,400 penalties totaling over $1,400,000 for misuse of
dyed diesel fuels. A further analysis of these results indicates that
70 percent of the penalties involved the misuse of fuel by taxpayers in
the construction and agriculture industries. Both of these industries
are subject to broad-based tax exemptions for non-highway use of motor
fuels, thereby, presenting opportunities for abuse.
Another critical compliance problem is smuggling of motor fuel.
This involves the illegal introduction of fuel into the United States
to evade payment of excise taxes. This problem may occur at border
crossing points and points of entry for ocean-going vessels. More than
9 million trucks pass through the 55 border crossings between Canada
and Mexico into the United States each year.
The IRS also has found instances of fuel smuggled into the country
by people using barges that off load from ocean-going vessels. The IRS
is involved in two investigations of barges being used to smuggle fuel;
however, it does not know the full extent of activities in this area.
These activities are extremely hard to identify due to the multitude of
locations and means smugglers may use. The Corps of Engineers has
identified over 600 locations that are not terminals but are known to
have the ability to off load fuel from barges. In addition, barges may
have portable devices that become mobile racks, providing the ability
to off load fuel at any location.
Another compliance problem is the use of adulterated fuel through
cocktailing. This technique increases profits by increasing the volume
of diesel fuel with used motor oil and other distillates including
pollutants, cleaning agents, and unfinished refinery products. This
form of tax evasion is attractive for two reasons. First, the
substances used to extend the fuel are often not regulated, so they are
not recorded in any fuel reporting system. Second, in some cases, the
substances are regulated as waste materials, providing an unscrupulous
individual an opportunity to get paid to dispose of the product(s) and
then blend them into gasoline and get paid again. This tax evasion
technique results in an ongoing revenue loss. It may also be dangerous
to the public when the taxable fuels are blended with hazardous waste.
Aviation fuel is the last interchangeable product available within
the legal fuel distribution system that is not taxed when the fuel
leaves a terminal. In any given month, hundreds of millions of gallons
of aviation fuel flow into and out of registered terminals. This exempt
removal at the rack creates incentives and opportunities to divert
aviation fuel to highway use. From fuel inspections, the IRS knows
aviation fuel is being diverted. However, the IRS does not know for
certain the amount diverted. The IRS is finding aviation fuel in small
amounts blended into normal diesel in the propulsion tanks of trucks/
tractors. Also, the IRS has found aviation fuel in larger quantities in
retail outlets through its Below The Rack compliance efforts. The IRS
has found a blend of 5 to 10 percent in most cases.
In 2002, KPMG released a report alleging that the possible loss
each year to aviation fuel diversion may exceed $1 billion. The results
from IRS internal efforts do not support or disprove an estimate of
that size. The IRS initiated an audit program to determine if it could
identify significant diversion through aviation fuel distributors
operating as 637 H Registrants. In most situations, the distributor had
the paperwork to support a tax free/reduced tax sale of the fuel. To
date, the IRS has not identified registrants with massive amounts of
fuel for which they cannot account. Due to the lapse of time between
the sale of the fuel and the audit, the IRS could not successfully
track down the ultimate users of the fuel to verify that the fuel was,
in fact, used in a proper fashion. The only way to ensure the fuel is
used properly is to track the fuel to each end user. The diversion of 1
percent of the aviation fuel that leaves the terminals in the United
States represents the loss of over $65,000,000 per year. Based on IRS's
findings in the fingerprinting test, it believes that a 3 percent
diversion is a conservative estimate. This amount of diversion would
cost $195,000,000 per year.
Dyed Fuel Misuse.--Dyed Fuel used on highways.--The IRS does not
have an exact figure that it can state as the extent of total non-
compliance for the misuse of dyed fuel. Based on penalties asserted
over the past 3 years, the IRS assesses a penalty on an average of 1
percent of the trucks it inspects on the highway and 6 percent of the
end user sites that it inspects. The IRS does not have data on the
total volume of fuel involved in each of these cases; however, these
results indicate a continuing non-compliance issue with the proper use
of dyed fuel. Based on this experience, the IRS believes that at least
1 percent of dyed fuel sold each year is diverted, resulting in loss of
tax of at least $50,000,000.
Cocktailing/Illegal Blending.--The Internal Revenue Service has
developed a ``fuel fingerprinting'' technology to combat fuel tax
evasion occurring ``below the rack''--particularly bootlegging,
smuggling, and adulterated fuel through ``cocktailing'' or blending the
product. Fuel fingerprinting is a technique that examines the
``chemical fingerprint'' of samples taken from retail stations for
adulteration or for a mismatch with samples taken from the terminal
racks that normally supply those stations. This technology allows for
the detection of untaxed kerosene intended to be used as aviation fuel,
``transmix'' taken out of pipelines, waste vegetable oils, used dry-
cleaning fluids, and other chemicals that may be mixed with diesel fuel
and find their way into the tanks of trucks on the road. Fuel
fingerprinting provides a more efficient and comprehensive method to
monitor compliance compared to traditional audit techniques. The IRS
has conducted sampling on diesel fuel in several parts of the country.
Results indicate approximately 8 percent of the diesel fuel tested has
some form of adulterant. The amount of adulterant found in retail
outlets has been in the range of 2 percent-25 percent with an average
of 8.2 percent. Using these results, the IRS estimates that there is a
minimum of $50,000,000 each year in tax loss due to illegal blending of
diesel fuel.
Due to safety issues with handling gasoline, the IRS has not
conducted fuel fingerprinting tests for gasoline. The IRS has anecdotal
information from informants that illegal blending is much more common
for gasoline then diesel. The reason given is the huge demand for
gasoline and the ease to hide the adulterants among the large volume of
fuel moving through a location. Using estimates for diesel fuel and
comparing the sale of gasoline to diesel (3 to 1), the IRS has a
minimum estimate of $150,000,000 per year for illegal gasoline
blending.
Although the IRS has evidence of fuel being smuggled into the
country, it does not have a reasonable basis for an estimate at this
time. As mentioned in the discussion of the various schemes used for
motor fuel tax non-compliance, the IRS does not have exact estimates of
the potential revenue losses. All of these schemes are outside the law
and the information is based on information the IRS has gathered
through examinations and fuel testing. The IRS believes this is a
conservative estimate and, in fact, does not include any estimation for
smuggling in these numbers. In summary, estimates for the overall loss
of revenue are as follows:
------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
Misuse of Aviation Fuel................................. $195,000,000
Misuse of Dyed Fuel..................................... 50,000,000
Cocktailing of Diesel................................... 50,000,000
Cocktailing of Gasoline................................. 150,000,000
---------------
Overall Estimate.................................. 445,000,000
------------------------------------------------------------------------
Question. How is IRS working with other Federal agencies and States
to leverage enforcement resources? Since 2000, how many cases are being
jointly investigated with other Federal and State law enforcement
agencies?
Answer. The IRS has a long history of working fuel cases with its
State counterparts and, when appropriate, with other Federal agencies.
With current disclosure provisions it is difficult to jointly
investigate motor fuel cases with other Federal agencies. In the past,
the IRS has successfully worked with other Federal agencies under the
umbrella of the grand jury. Working with State counterparts is most
effective when the State has a similar point of taxation, that being at
the terminal rack.
The IRS does not have a measurement process for determining how
many cases have been worked with State or other Federal agencies. These
situations have been on a case-by-case basis with the documentation in
the case file.
Question. Who is responsible for coordinating the overall Federal
and State efforts for pursuing all fuel tax evasion-related offenses?
Answer. The Internal Revenue Service is responsible for Federal
efforts to pursue fuel tax evasion. It works in a collaborative fashion
with State agencies and other Federal agencies. In these efforts, the
IRS does not direct the resources of the other agencies; however, it
does share information that it can properly share under the existing
disclosure provisions. As stated earlier, the ability to share
information with these partners must conform with the provisions of IRC
6103 for disclosure of taxpayer information.
Question. What is the total Federal ``level of effort'' in terms of
staff and resources, being directed at these crimes?
Answer. The IRS has several programs/activities that support motor
fuel tax compliance and other taxes that support the Highway Trust
Fund. The Small Business/Self Employed (SB/SE) Division has
approximately 260 revenue agents who are excise tax specialists and
approximately 140 fuel compliance officers (FCOS). Historically, IRS's
revenue agents spend 40-50 percent of their direct examination time on
the taxes that support the Highway Trust Fund. The FCOs spend 100
percent of their time enforcing the dyed fuel laws and detecting
illegally blended fuel through its below the rack (BTR) efforts. In
addition to these employees, the IRS has approximately 50 tax examiners
that audit claims for excise tax refunds, the majority being for motor
fuel taxes. Motor fuel excise tax compliance is a priority for Criminal
Investigation (CI) and included in its fraud program along with
bankruptcy, insurance, healthcare, and other financial frauds. CI
resources are applied to this program area based on the degree of
criminal activity identified.
Question. What is the IRS's budget request for fuel tax enforcement
activities for fiscal year 2005? Please compare to funding allocated to
this area of enforcement for the past 5 fiscal years. Does IRS have any
plans to increase the number of resources devoted to this area? Should
funding for this project increase?
Answer.
COSTS FOR EXCISE AGENTS \1\
----------------------------------------------------------------------------------------------------------------
FTE Salaries Benefits Total
----------------------------------------------------------------------------------------------------------------
Fiscal year 2000........................................... 271 $59,636 $18,832 $21,264,828
Fiscal year 2001........................................... 267 61,249 19,342 21,517,797
Fiscal year 2002........................................... 285 63,451 20,037 23,794,080
Fiscal year 2003........................................... 282 65,421 20,659 24,274,560
Fiscal year 2004........................................... 252 68,103 21,506 22,581,468
Fiscal year 2005 \2\....................................... 240 69,465 21,936 21,936,240
----------------------------------------------------------------------------------------------------------------
\1\ Based on GS-13 Step 5 RUS.
\2\ Projected.
The above chart reflects the total number of Excise Agents that
worked all Excise returns. The IRS is currently evaluating the staffing
levels for fiscal year 2005 but no decisions have been made to date. In
its SAFETEA legislation, the administration proposed $54.5 million for
highway use tax evasion projects in fiscal year 2005. This funding
would enable the IRS to increase resources applied to motor fuel tax
compliance. As ExFIRS becomes a more viable system, the IRS anticipates
having improved data to determine the appropriate level of future
staffing.
Question. What is IRS's current fuel tax evasion investigative
caseload? How many staff does IRS devote to this area? Does the IRS
need to devote additional revenue agents or criminal investigators to
fuel tax evasion fraud? Why or why not?
Answer. Criminal Investigation currently has fourteen motor fuel
cases under investigation. In fiscal year 2003 the IRS devoted nine
special agent FTE and three non-special agent FTE to excise tax cases.
Criminal Investigation does not anticipate a significant increase in
resources devoted to motor fuel excise tax evasion cases because the
legislative changes enacted over the past decade have significantly
curtailed opportunities for abuse that previously existed, but CI will
commit additional resources if local or regional compliance problems
arise.
Question. How does IRS measure the success or failure of its fuel
tax evasion efforts? What indictments, recoveries, and convictions has
IRS attained as a result of their fuel tax evasion efforts? What
successes or failures have the States and other Federal agencies had in
this area?
Answer. Criminal Investigation has no formal measures to gauge the
success of its excise tax program. Ultimately, it is the impact of
successful prosecutions that ultimately determine success or failure.
During the period fiscal year 1993 through fiscal year 2003, the IRS
prosecuted 364 people for participating in schemes to evade excise
taxes. In aggregate, these prosecutions involved over $500,000,000 in
tax revenue and involved many prominent members of organized crime. CI
reported the magnitude of this effort in the excise tax case summaries
contained in their annual reports from fiscal year 1993 through fiscal
year 2001. These summaries chronicle many prominent cases and the
history of motor fuel enforcement efforts over the last decade. After
fiscal year 1997, motor fuel tax evasion case initiations began to
decline. Subsequent schemes lacked the complexity and scope previously
seen. This decline is attributable to the following factors:
--The cooperative efforts of Federal and State revenue and regulatory
agencies;
--Support from the motor fuel distribution industry and professional
associations;
--Effective criminal prosecutions;
--Development of improved auditing and compliance tools (particularly
fuel tracking systems, fuel dyeing and the on road inspection
programs; and,
--Passage of fundamental legislative changes that reduced the
opportunities for evasion.
Question. Does the IRS have a plan for achieving a more vigorous
and collaborative Federal and State effort for pursuing fuel tax
evasion? If so, please describe the plan. Does IRS see any barriers to
expanding current efforts to collaborate with other agencies on fuel
tax fraud-related investigations?
Answer. The IRS is continuing to work closely with other Federal
and State agencies that enforce motor fuel laws. It also works with
State environmental agencies when notified of misuse of hazardous
materials in illegal cocktailing and blending. The IRS is participating
with nine regional task force groups as part of the joint project with
FHWA. IRS staff meets periodically with State counterparts to share
information and conduct joint investigations. The IRS is involved in
several ongoing cases with multiple States and agency.
With the expansion of the ExSTARS reporting, several of the holes
will be plugged in tracking motor fuel products. With the enhanced
reporting, the States and the IRS will be able to easier identify fuel
diversions. The principal roadblock to collaborating with other Non-
revenue State and Federal agencies is the disclosure restrictions.
Question. How do fuel tax evasion-related crimes relate to homeland
security? How is IRS working with the U.S. Customs and Border
Protection agency to combat this problem?
Answer. Motor fuel product is a very volatile liquid and in the
hands of the wrong individuals could have disastrous results. Criminal
Investigation is a member of the FBI's Joint Terrorism Task Forces.
These task forces are aware fuel tanker trucks could be utilized by
terrorists to perpetrate a terrorist attack. Since September 11, 2001,
all allegations involving fuel tanker trucks have been vigorously
investigated, as have allegations that persons potentially affiliated
with terrorist groups may be acquiring licenses to operate fuel tankers
or transport hazardous materials.
The IRS believes the ExFIRS/ExSTARS programs have the capability to
handle enhanced tracking of fuel systems and it supports the
legislation that would track vessels both for security and tax
purposes. The IRS has also developed an acoustical device for
identifying product that is being transported to ensure that the actual
product being shipped matches the shipping paperwork.
bank secrecy act enforcement
Question. Given the limited resources in the IRS budget for
enforcement and compliance, what standards does the IRS use to select
cases to review for Bank Secrecy Act (BSA) compliance?
Answer. The Internal Revenue Manual (IRM) 4.26.3.2.4, Selection for
Assignment provides specific guidelines to the Anti-Money Laundering
(AML) coordinators about case selection. It provides:
--The AML coordinator should select entities from the nonbank
financial institution (NBFI) database or the Form 8300
inventory, using risk-based analysis to select those entities
with the highest potential for noncompliance for compliance
examinations or reviews, such as:
--Entities with a high volume of cash transactions or abnormal cash
activity;
--Entities in local geographic areas with high potential in money
laundering;
--Entities which have a previous history of noncompliance; and
--Entities which have been cited for poor or inadequate
recordkeeping.
--The AML coordinator should consider available resources as well as
balanced coverage (geographic area and industry) when selecting
NBFIs or Non-financial trade or Businesses (NFTB) for
compliance examinations or reviews.
--Input from other operating divisions (e.g. TE/GE) can assist the
coordinator in assessing risk.
--Prior to opening the exam or review the names of selected entities
are to be furnished to Criminal Investigation (CI) for
clearance.
The IRS and the Financial Crimes Enforcement Network (FinCEN)
jointly establish the priorities for types of NBFIs to be examined, and
the IRS provides these priorities to its AML coordinators in an annual
program letter. In addition, as part of the efforts to improve the
effectiveness of the AML program, the IRS provided training for its AML
coordinators in March 2003 on methods to apply against the Currency
Banking and Retrieval System (CBRS) to identify cases. Since that time,
CBRS analysis has been provided to the coordinators on a regular basis
to assist them in the identification of cases. To further ensure
consistency in case selection, the IRS plans to centralize the case
identification process by October 2004. The IRS is also working with
its SBSE Research to enhance the case selection criteria.
Question. Are the standards for determining BSA cases for review
uniform in every office? Please provide a copy of those uniform
standards.
Answer. The standards for selecting cases for review are detailed
in the response to the question above. During the AML program reviews
conducted by the headquarters office, conformity with these guidelines
is reviewed specifically.
The IRS is currently centralizing case selection. BSA typed
inventory varies demographically and changes or moves constantly. The
IRS is seeing the shift of currency cells away from banks and larger
cities. Efforts to centralize inventory selection will better help the
IRS recognize these trends and quickly shift field resources as needed.
Question. How many cases were reviewed for BSA compliance? How many
possible cases are there? What percentage of total cases are forwarded
for prosecution or further review?
Answer. In fiscal year 2003, the IRS closed 3,655 NBFI cases. The
IRS also contacted an additional 8,800 businesses to determine if those
that had a requirement to register had done so. The number of possible
Money Service Businesses (MSB) is constantly changing, but there are
currently more than 88,000 potential NBFIs on the database. One of the
objectives of the program is to identify new businesses while removing
from the database those that no longer are in business.
In fiscal year 2003, seven cases were forwarded to the IRS's
Criminal Investigation Division and two cases were referred to FinCEN
for penalty consideration. The number of cases is less than 1 percent
of those examined.
Question. Does the IRS train its compliance personnel in the IRS's
responsibilities under the USA PATRIOT Act?
Answer. IRS Compliance personnel involved in the AML program
receive specific training regarding BSA AML Compliance Programs and
related proposed regulations. IRS revised its Basic AML Course to
reflect the changes resulting from the USA PATRIOT Act. As part of this
training, personnel are:
--Instructed on how to access the Office of Foreign Asset Control's
(OFAC) website to identify individuals and countries which have
been placed on OFAC's Specially Designated Nationals (SDN)
list. In addition, information regarding the SDN list is placed
on the AML Website to insure that examiners are aware of any
changes to the list.
--Trained to look for transactions going to OFAC sanctioned
countries. If such transactions are found, personnel are
trained to contact the OFAC's Compliance Hotline and proceed
directly to OFAC.
--Trained to look for unlicensed money transmitters. Two Continuing
Professional Education (CPE) modules have been developed
specifically addressing Informal Value Transfer Systems and
Section 352 of the USA PATRIOT Act.
--Trained in audit procedures to detect structuring, using data from
actual examples of structured transactions. They are taught to
follow the transaction through the final clearing in order to
identify structured transactions through OFAC sanctioned
countries.
Question. What training does each compliance officer receive each
year related to BSA and the USA PATRIOT Act?
Answer. This year, the IRS provided CPE modules to IRS's AML
examiners: Suspicious Activity Reports, Structuring, Informal Value
Transfer Systems, and Section 352 of the USA PATRIOT Act. The IRS
provides examiners with workshops regarding the BSA during group
meetings held at least once a year. The IRS makes AML Technical
Advisors available to attend these group meetings.
In addition, information regarding new regulations is forwarded
from Headquarters to Territory Managers for immediate dissemination to
examiners, and examiners review FinCEN's SAR Activity Reviews Digests
as well as other issued guidance. In addition, examiners are required
to refer to the AML website on a regular basis for any changes to
procedures and/or regulations.
Question. When the IRS audits a casino, is the auditor versed in
the intricacies of the Patriot Act?
Answer. AML examiners, all of whom have received training that
deals specifically with the USA PATRIOT Act (for example, the four
recent CPE modules: Suspicious Activity Reports, Structuring, Informal
Value Transfer Systems, and Section 352 of the USA PATRIOT ACT),
conduct the IRS's examinations of casinos. In addition, the Casino
Course these examiners attend includes changes in the law under the
Patriot Act, and the IRS makes these changes available to all casino
examiners on the AML web page.
Question. Does IRS have any performance measures to determine
auditor knowledge of the laws they enforce?
Answer. The official IRS position descriptions for the AML
examiners outline the job knowledge required as well as Critical Job
Elements. The Critical Job Elements on which AML examiners are
evaluated include Knowledge and Application of Anti-Money Laundering
Law. The IRS is currently developing case review procedures that will
centralize closed case reviews using full time reviewers as well as
provide managers with a review document. The attributes in the case
review document include the interview conducted, managerial
involvement, interpretation and application of the law, fact gathering,
penalty determination, and documentation.
Question. Is there any follow-up with the casinos or money service
businesses to get feed-back on its audit?
Answer. The IRS has an effort under way to develop a customer
satisfaction survey for the AML Program by the end of fiscal year 2004.
Question. How many cases were referred by the IRS in fiscal year
2003 for enforcement action? What were the outcomes of the referrals?
Answer. In fiscal year 2003, seven cases were referred to IRS's
Criminal Investigation (CI) Division; three are currently under active
investigation. In addition, during the first 6 months of fiscal year
2004, SB/SE referred an additional seven cases to CI, five of which are
under investigation. As a result of referrals from its AML program, the
IRS also examined and closed 538 cases for income tax violations in
fiscal year 2003.
Question. How many cases were referred by the IRS in fiscal year
2003 to FinCEN for further review? What were the outcomes of the
referrals?
Answer. In fiscal year 2003, the IRS referred two cases to FinCEN
for penalty consideration. Both were issued warning letters. The IRS
referred two additional cases in the first half of fiscal year 2004,
and is currently developing another two for referral.
Question. What level of oversight regarding the compliance of
casinos and money service businesses (MSB's) does the IRS exercise?
Please describe those efforts in detail.
Answer. The IRS has been delegated responsibility for civil
examinations for BSA compliance. In addition to examinations, the IRS
also conducts outreach (in coordination with FinCEN) to ensure
businesses are aware of their filing, recordkeeping and registration
responsibilities. The IRS currently has approximately 350 examiners
(including managers) assigned to the Anti-Money Laundering (AML)
program. They are supported by 16 Area AML coordinators and
approximately 8 computer audit specialists from LMSB. IRS AML examiners
currently are conducting 5,576 examinations, which reflects 6 percent
of the IRS-known potential population.
In addition to the examination of NBFIs, the AML examiners also
conduct reviews for compliance with the currency reporting requirements
of Sec. 6050I of the Internal Revenue Code. Since Sept. 30, 2000, the
IRS has added 48,688 potential NBFI entities to the database. As of
March 31, 2004 the NBFI database reflected over 88,000 potential NBFIs.
The IRS is also conducting investigations on 690 businesses for
potential registration requirements.
From September 30, 2000 through the present, the IRS has closed
13,288 cases and conducted 5,940 (fiscal year 2003 and fiscal year
2004) registration examinations.
Since 2002, the AML Compliance program has transitioned from
conducting individual education visits to focusing on examinations. The
education and outreach now is performed by the Small Business and Self-
Employed operating Division's (SB/SE) Taxpayer Education and
Communication (TEC) Division. TEC delivers education/outreach to
external stakeholders, using leveraged resources to reach a larger
number of covered businesses. The National TEC AML strategy was
designed in conjunction with SB/SE Compliance, IRS's Criminal
Investigation Division and FinCEN to increase compliance of MSBs, NBFIs
and casinos with the BSA.
Question. What performance measures are in place to measure IRS
compliance efforts as they relate to MSB's and casinos?
Answer. The current measures for the AML examination program
include the number of NBFIs identified, the number of examinations
conducted and closed, and the results of completed examinations. The
IRS also now has a database in place that provides information on the
hours per closed case as well as the cycle time of cases. In the course
of the BSA examinations conducted, the IRS also identifies potential
cases for unreported income under Title 26. On the education/outreach
side, the TEC organization monitors the number of outreach events they
deliver and the number of participants at the events.
Question. The Tax Inspector General for Tax Administration (TIGTA)
reports that the IRS small business/self employed (SB/SE) division
responsible for compliance of the BSA for non-bank financial
institutions lacks meaningful performance measures, has no useful data
to provide oversight of program performance, and does not base case
selection in risk factors. Similar findings also occurred in a previous
audit in December of 2000. The IRS has known since at least 2000 that
these problems were pervasive in the compliance program. In September
of 2003, the IRS continues to fail in delivering compliance results
commensurate with the resources spent. In the response on this issue to
the committee the IRS has stated that the agency ``does not
characterize this as a problem''. There are two TIGTA audit reports
which demonstrate the IRS has failed repeatedly to make meaningful
progress in its compliance efforts for BSA. If the IRS and FinCEN do
not believe this as a problem, what would elevate it to warrant
recognition? How can the IRS allow these types of lapses to recur?
Answer. In 2002, the IRS made a commitment to ensure the effective
operation of the Anti-Money Laundering Program. In particular, the IRS
has taken the following steps:
--Named a national AML program manager in February 2002;
--Created 32 groups nationwide dedicated to the AML program (added
one additional group in 2004);
--Replaced part-time revenue agents, for whom AML was a collateral
duty, with full-time, fully trained revenue agents dedicated to
AML;
--Minimized the use of lower-graded tax compliance officers, who
previously handled many of the AML examinations;
--Designated a territory manager in each IRS Area for AML program
responsibility;
--Designed a Management Information System to capture the results of
BSA examinations; and
--Secured funding from FinCEN, beginning in fiscal year 2003, to add
70 additional FTEs to the AML compliance program.
As a result of these improvements, all program indicators (numbers
of MSBs identified, outreach contacts, and examinations) are trending
up. In the first half of fiscal year 2004, the IRS's SB/SE Division
made more referrals to FinCEN and had more referrals accepted by CI
than in all of fiscal year 2003. In fiscal year 2003, SB/SE also
focused on ensuring that MSBs that had a requirement to register did,
in fact, register. Those efforts resulted in an additional 2500
registrations, which represented a 20 percent increase in the number of
registered MSBs.
In a recent review of the AML program, TIGTA acknowledged the IRS's
efforts to enhance the program but identified the need for further
improvements. Ongoing efforts include the following:
--Centralization of case identification, incorporating leads from the
field and CI, as well as CBRS analysis for October 2004;
--Piloting of MSB examinations at the entity's corporate headquarters
level to facilitate the identification of MSB agents with the
highest risk of noncompliance;
--Incorporation of quality performance measures into the embedded
quality process in October 2004;
--Transition of outreach activities from Compliance to TEC within SB/
SE to provide broad educational opportunities to external
stakeholders;
--Completion of a template for a Fed/State MOU to provide reciprocal
opportunities to leverage resources for examinations, outreach,
and training;
--Partnership with FinCEN to identify locations of potential
noncompliance, as well as the first joint examination of a
major MSB with FinCEN; and
--MOU with FinCEN to allow IRS full access to SARs (for purposes of
BSA examinations only).
Question. What is the IRS doing to ensure case selection criteria
are uniform? Please provide a copy to explain how case selection
criteria have changed since the Tax Inspector General for Tax
Administration (TIGTA) audit in 2003.
Answer. As mentioned previously in questions 1 and 2, the Internal
Revenue Manual provides guidelines about case selection to the AML
coordinator in IRM 4.26.3.2.4, Selection for Assignment. During AML
program reviews conducted by the SB/SE headquarters office, conformity
with the guidelines is an item specifically reviewed.
TIGTA identified a concern that there was no consistency in how the
IRS selected AML cases for examination. To remedy this situation, the
IRS increased program oversight to ensure the compliance risk case
selection tools provided to the field are being used to identify cases.
The centralization of case identification, incorporating leads from the
field and Criminal Investigation, as well as CBRS analysis, is
scheduled to be in place by October 2004. The centralization of
workload identification will ensure consistency in risk based case
selection. The IRS is including FinCEN in this process. Case selection
methods are addressed in Area program reviews. In addition, SB/SE's
Research organization has undertaken a project to possibly identify
other methods for selection.
Question. The IRS has a poor record regarding regulatory compliance
operation and management of BSA data according to numerous IG, GAO, and
TIGTA reports. What is the IRS doing to correct these long-standing
problems? What guarantees can the IRS provide that will show they will
do the job right this time?
Answer. In recent years, the IRS has shown significant commitment
to the effective operation of the Anti-Money Laundering Program, and
considers the identification of opportunities for improvement to be an
ongoing process. Improvement efforts in progress include the
centralized review process, the embedded quality initiative, improved
management information systems and centralized compliance examinations.
In particular, the IRS has taken the following steps to enhance the
effectiveness and professionalism of the AML program:
--Named a national AML program manager in February 2002;
--Created 32 groups nationwide dedicated to the AML program (added
one additional group in 2004);
--Replaced part-time revenue agents, for whom AML was a collateral
duty, with full-time, fully trained revenue agents dedicated to
AML;
--Minimized the use of lower-graded tax compliance officers, who
previously handled many of the AML examinations;
--Designated a territory manager in each IRS Area for AML program
responsibility;
--Designed a Management Information System to capture the results of
BSA examinations; and
--Secured funding from FinCEN, beginning in fiscal year 2003, to add
70 additional FTEs to the AML compliance program.
As a result of these improvements, all program indicators (numbers
of MSBs identified, outreach contacts, and examinations) are trending
up. In the first half of fiscal year 2004, the IRS's SB/SE Division
made more referrals to FinCEN and had more referrals accepted by CI
than in all of fiscal year 2003. In fiscal year 2003, SB/SE also
focused on ensuring that MSBs that had a requirement to register did,
in fact, register. Those efforts resulted in an additional 2500
registrations, which represented a 20 percent increase in the number of
registered MSBs.
In a recent review of the AML program, TIGTA acknowledged the IRS's
efforts to enhance the program but identified the need for further
improvements. Ongoing efforts include the following:
--Centralization of case identification, and incorporating leads from
the field and CI, as well as CBRS analysis for October 2004;
--Piloting of MSB examinations at the entity's corporate headquarters
level to facilitate the identification of MSB agents with the
highest risk of noncompliance;
--Incorporation of quality performance measures into the embedded
quality process in October 2004;
--Transition of outreach activities from Compliance to TEC within SB/
SE to provide broad educational opportunities to external
stakeholders;
--Completion of a template for a Fed/State MOU to provide reciprocal
opportunities to leverage resources for examinations, outreach
and training;
--Partnership with FinCEN to identify locations of potential
noncompliance, as well as the first joint examination of a
major MSB with FinCEN; and
--MOU with FinCEN to allow IRS full access to SARs (for purposes of
BSA examinations only).
Question. The IRS, in its response to the committee, states that
there are standards in place to select cases in all compliance
programs. TIGTA states in its 2000 and 2003 audit that the program
still lacks performance standards. The only performance goal that
exists for this program is ``delivery of Direct Examination Staff Years
(DESYs).'' To accomplish this goal the IRS need only assign sufficient
personnel to the program to meet the allocated DESYs. There are no
other measures for evaluating the program's performance. Does the IRS
consider this performance measure sufficient to measure the outputs and
outcomes of this program? Are other compliance programs held to such a
low threshold?
Answer. In addition to the delivery of DESYs, the AML Program
currently measures the number of NBFIs identified, the number of
examinations conducted and closed, the results of completed
examinations, the number of Title 26 information items prepared and
related income tax examinations completed. The TEC organization
monitors the number of outreach visits, seminars, participants, and
mailings accomplished. Recent improvements to the MIS now provide
information on the hours per closed case, as well as the cycle time of
cases.
Question. The committee understands that IRS has begun to review
its performance measures and is in the process of establishing
measurable performance-based indicators for BSA programs. What is the
status of this effort? Please include in your response the new
performance measures being used to measure fiscal year 2004
performance?
Answer. The current measures for the AML examination program
include the number of NBFIs identified, the number of examinations
conducted and closed, and the results of completed examinations. The
IRS also now has a database in place that provides information on the
hours per closed case, as well as the cycle time of cases. In the
course of the BSA examinations conducted, examiners also identify
potential cases for unreported income under Title 26. On the education/
outreach side, the TEC organization monitors the number of outreach
events they deliver and the number of participants at the events.
Question. In Treasury's April 30 responses to the committee, the
Department and the IRS contend that IRS compliance programs include
reviews of examiners work. Performance plans for all managers include
the requirement to review cases and to be involved in case development.
Yet the IRS in its response to the TIGTA report state ``there continues
to be significant risk of undetected noncompliance and inconsistent
program delivery. Based on our review of a judgmentally selected sample
of 76 cases from 3 Area Offices, standard case selection criteria are
not used, cases are not properly documented and potential noncompliance
information is not available''. How does the IRS explain the
discrepancy between stated requirements and failed results?
Answer. The quote attributed above to the IRS was actually a
statement made by TIGTA in their Report (Audit No. 200330004). The
relevant TIGTA recommendations from that report, and the actions the
IRS is taking to implement them, are as follows:
--Develop standard risk-based case selection criteria that would
provide minimum requirements and parameters for case selection.
The SB/SE Division Research function is developing a scoring
system, or set of rules, to prioritize workload by using
Currency Banking Retrieval System data. Until the scoring
system is implemented, the IRS has taken other steps to ensure
appropriate case selection. The IRS has increased program
oversight to ensure the compliance risk case selection tools
already provided to the field are being used to identify cases.
In addition, case selection methods are addressed as part of
the Area program reviews. The centralization of case
identification, incorporating leads from the field and Criminal
Investigation, as well as CBRS analysis, is scheduled to be in
place by October 2004. This centralization will ensure
consistency in using risk based case selection for the AML
cases.
--Reinforce the importance of case documentation with specific
instructions or case models and implement a centralized quality
review process.
The IRS has taken a number steps to increase the quality of the
cases. In July 2003, two technical advisors were added to
headquarters staff to provide technical assistance to the
field. Since their arrival, they have visited several areas, to
review cases and meet with the examiners and managers to
discuss their observations. This has been well received by the
field personnel, and requests for their participation continue
to increase. The first AML Technical Digest, which addresses
examination issues, will be published on the AML web page in
late May 2004.
The IRS is on target to incorporate quality performance measures
for AML into the new embedded quality process that will be in
place in October 2004. Including AML in the embedded quality
process will provide a systemic method for consistent
managerial feedback. In addition, the centralized closed case
review process, which will be a part of embedded quality, will
provide headquarters with the ability to identify trends and
training needs.
--Coordinate with the FinCEN to secure BSA examiner and RA access to
SARs.
The Commissioner, SB/SE Division, initiated a Memorandum of
Understanding with the Director of the FinCEN to permit BSA
examiners access to SARs for the purpose of MSB compliance
checks. That MOU has been signed by both the IRS and FinCEN.
IRS senior executives are continuing to pursue access to SARs
for RAs in the regular examination program.
Question. TIGTA found that ``no standard criteria exist for
selecting BSA compliance cases.''
Should the committee be concerned that there are no standards that
exist for case selection?
IRS states that AML coordinators use their own criteria. Please
provide a complete list of those criteria.
Given Mr. Everson's strong statements about the need for more
resources, does this program not point out that IRS has enormous
savings to be realized by using its current resources in a smarter and
more efficient manner?
Answer. Through its Internal Revenue Manual (IRM) 4.26.3.2.4,
Selection for Assignment, the IRS provides specific guidelines to its
AML coordinators about case selection. It reads as follows:
--The AML coordinator should select entities from the nonbank
financial institution (NBFI) database or the Form 8300
inventory, using risk-based analysis to select those entities
with the highest potential for noncompliance for compliance
examinations or reviews, such as:
--Entities with a high volume of cash transactions or abnormal cash
activity;
--Entities in local geographic areas with high potential in money
laundering;
--Entities which have a previous history of noncompliance;
--Entities which have been cited for poor or inadequate
recordkeeping;
--The AML coordinator should consider available resources as well as
balanced coverage (geographic area and industry) when selecting
NBFIs or NFTBs for compliance examinations or reviews;
--Input from other operating divisions (e.g. TE/GE) can assist the
coordinator in assessing risk;
--Prior to opening the exam or review the names of selected entities
are to be furnished to Criminal Investigation (CI) for
clearance.
The IRS has increased program oversight to ensure these compliance
risk case selection tools provided to the field are being used to
identify cases. In addition, the IRS and FinCEN jointly establish the
priorities for types of NBFIs to be examined, and the IRS provides
these priorities to its AML coordinators in an annual program letter.
Further, as part of the efforts to improve the effectiveness of the AML
program, the IRS provided training for its AML coordinators in March
2003 on methods to apply against the Currency Banking and Retrieval
System (CBRS) to identify cases. Since that time, CBRS analysis has
been provided to the coordinators on a regular basis to assist them in
the identification of cases. Case selection methods also are addressed
during Area program reviews.
To further ensure consistency in case selection, the IRS plans to
centralize the case identification process by October 2004. This
centralization, which will incorporate leads from the field and
Criminal Investigation, as well as CBRS analysis, will ensure
consistency in risk based case selection and allow for improved trend
analysis. In addition, SB/SE's Research organization has undertaken an
effort to enhance the case selection criteria.
To improve its utilization of resources, the IRS is piloting the
examination of Money Service Businesses (MSB) at the entity's corporate
headquarters level. Three such examinations are currently underway.
Working with the business, IRS will be able to identify the MSB's
agents with the highest risk of noncompliance. This is a new approach
for the program, one that was developed in cooperation with FinCEN, and
one that will provide better customer service.
Question. IRS indicates that it is creating a scoring system to
prioritize its BSA workload. Please provide an update to the committee
on the development of this system?
Answer. SB/SE Research is designing a process that uses the
Currency and Banking Retrieval System (CBRS) data to prioritize or
select entities for Title 31 and Form 8300 examinations based on risk
factors. The project is organized into five phases, including
assessment of current processes used to select workload (Phase 1),
development of rules that express predictive and evaluative factors of
non-compliance with BSA requirements (Phase 2), engineering of formulas
to evaluate and rank entities for risk of non-compliance based on CBRS
data and completion of the decision factor set that will be used (Phase
3), suitability testing to ensure the proposed system follows the best
practices identified by AML technical advisors (Phase 4), and
assessment of automation and programming needs required to pilot the
proposed system (Phase 5).
To date, much of the data and knowledge acquisition activity has
been completed. As a by-product of this work, the research team
developed a work flow diagram depicting ``best practices'' of
processes, tools, techniques, and decisions in the AML program.
Following review by the technical advisors, the IRS plans to make this
interim work product will be available to Compliance Policy/AML
examiners in July 2004 for use in the current program. The work that
SB/SE Research is doing to develop a risk-based selection process using
CBRS data will assist the IRS in applying case selection standards
uniformly across the country. The proposed system will use the same
identified scoring factors (with priorities and weights) to rank all
entities for examination potential. Subsequently, local program
managers will be able to filter the ranked list for geographic
location, providing a local list that reflects the same selection
criteria as any other case. A potential side benefit of the proposed
system will be IRS's ability to assess whether their resources are
appropriately deployed geographically and make adjustments based on
where the prioritized workload actually exists.
Question. TIGTA has identified that IRS examiners have a perception
that FinCEN does not assess penalties. TIGTA has also identified that
FinCEN has a negative perception of the IRS case quality and that the
cases referred for enforcement actions do not contain sufficient
information to assess penalties. What are these two organizations doing
to overcome these barriers?
Answer. FinCEN and the IRS are jointly committed to identifying
opportunities to improve case development and the ability to assess
civil penalties when appropriate. As a part of the IRS's revamped
training efforts, FinCEN is participating in AML basic training classes
to provide guidance on developing cases for penalty referral to FinCEN.
For fiscal year 2004 the IRS has committed to taking a more proactive
approach to getting FinCEN's input when serious violations have been
identified, by providing them opportunity for involvement early in the
development of the penalty case. To support this commitment, the IRS
also has developed new referral guidelines based on previous well-
developed cases, and has included these guidelines in the AML Technical
Digest.
Question. The SB/SE division is responsible for compliance with the
BSA. This unit spends $43 million for BSA compliance including
examinations outreach and compliance. Please provide a detailed break
out of how the $43 million is spent on by activity. Given the numerous
reports about the failures of the SB/SE division, what is the IRS doing
to correct the deficiencies identified?
Answer. The original estimate of $43 million for BSA compliance
included some one-time training costs related to BSA, but did not
include costs associated with Currency Transaction Report (CTR)
processing (which is essential to the AML program). Based on a revised
estimate, which reflects only annualized costs, SB/SE expects to spend
$53.7 million in fiscal year 2004 in support of BSA compliance,
including examinations, education and outreach activities, and
processing of CTRs. The breakdown of these costs for both fiscal year
2003 and fiscal year 2004 is shown in the following table:
EXPENDITURES FOR BSA COMPLIANCE
[In millions of dollars]
------------------------------------------------------------------------
Fiscal Year
Functional Activity Fiscal Year 2004
2003 (Actual) (Projected)
------------------------------------------------------------------------
Compliance.............................. 33.66 34.97
Taxpayer Education and Communications... 0.86 1.14
CTR Processing \1\...................... 7.81 17.57
-------------------------------
Total for SB/SE................... 42.33 53.68
------------------------------------------------------------------------
\1\ In fiscal year 2003, IRS's Modernizing Information Technology
Systems spent $8.84 million in support of CTR Processing. In fiscal
year 2004, SB/SE is responsible for the full program.
As described in the responses to the earlier questions, the IRS has
taken, and is continuing to take, a series of proactive steps to
improve its AML program. To summarize, the IRS has:
--Revamped the structure and staffing of its AML program by:
--Naming a national AML program manager in February 2002;
--Creating 32 groups nationwide dedicated to the AML program (added
one additional group in 2004);
--Replacing part-time revenue agents, for whom AML was a collateral
duty, with full-time, fully trained revenue agents
dedicated to AML;
--Minimizing the use of lower-graded tax compliance officers, who
previously handled many of the AML examinations;
--Designating a territory manager in each IRS Area for AML program
responsibility; and
--Securing funding from FinCEN, beginning in fiscal year 2003, to
add 70 additional FTEs to the AML compliance program;
--Focused increased attention on case selection using current
guidelines, while developing a centralized case identification
process;
--Ensured all AML examiners receive appropriate training, including
the changes resulting form the USA PATRIOT Act;
--Undertaken a research-driven effort to design and develop a method
for prioritizing case selection based on CBRS data;
--Taken steps to improve AML case quality via technical case reviews
and included the AML program in the embedded quality measures
process to be implemented in October 2004;
--Transferred AML outreach activities from Compliance to TEC within
SB/SE to provide broad educational opportunities to external
stakeholders; and
--Increased its coordination with FinCEN, especially in the areas of
training, workload identification and penalty referrals.
workforce and facility realignment
Question. The IRS expects to receive some savings from the closure
of the Brookhaven Service Center. Are you going to increase the
frontline enforcement personnel with these savings?
Answer. The IRS anticipates savings in fiscal year 2005 of $6
million and 147 FTE because of e-file efforts, including the closure of
the Brookhaven facility. These savings, along with $105 million
additional savings, will be reapplied as described in the IRS's fiscal
year 2005 Congressional Justification. These reinvestments are:
[Dollars in millions]
------------------------------------------------------------------------
Millions of
Reinvestment Dollars FTE
------------------------------------------------------------------------
Curb Egregious Noncompliance................ $31.4 293
Select High Risk Cases for Examination...... $6.0 ...........
Embedded Quality \1\........................ $1.6 26
Consolidation--Case Processing.............. $13.7 80
Consolidation--Insolvency................... $2.1 15
Combat Corporate Abusive Tax Schemes........ $5.0 34
Leverage/Enhance Special Agent Productivity. $2.5 28
Standardize CLMC Training Rooms............. $0.5 ...........
IRS Reorganization Transition............... $5.0 ...........
Servicewide Competitive Sourcing............ $9.1 ...........
MITS Reorganization Transition.............. $34.0 236
---------------------------
Total................................. $110.9 712
------------------------------------------------------------------------
\1\ This initiative, through an Embedded Quality system in Submission
Processing (EQSP), will create a new measurement system that will
identify the cause and impact of errors, apply common measures to
every level of the new organization, and enable frontline employees to
understand how their contributions impact IRS's performance. An
embedded quality system links individual and business performance with
multiple quality review sources. EQSP will instill complete
accountability for quality performance across operations.
TAX LAW ENFORCEMENT BUDGET PRIORITIES AND RESOURCE ALLOCATION
Question. Given IRS's inability to increase enforcement in recent
years, what will be different in fiscal year 2005?
Answer. The IRS's enforcement statistics for fiscal year 2003
demonstrate that IRS has arrested the enforcement decline that began in
the 1990's and continued through the implementation of RRA 98. Audits,
criminal investigations, and monies collected have all increased. In
particular, when compared with fiscal year 2001, audits of taxpayers
with incomes over $100,000 increased by over 50 percent by fiscal year
2003.
The administration's 2005 budget request for the IRS will continue
to rebuild its enforcement activities. Two-thirds of the new monies
requested will be devoted to addressing abuses by high-income taxpayers
and corporations, and increasing criminal investigations.
In fiscal year 2005, the IRS is seeking an additional $300 million
for enforcement activities to focus on the following four objectives in
enforcement:
--Discourage and deter non-compliance, with emphasis on corrosive
activity by corporations, high-income individuals and other
contributors to the tax gap;
--Ensure that attorneys, accountants and other tax professionals
adhere to professional standards and follow the law;
--Detect and deter domestic and off-shore tax and financial criminal
activity; and
--Discourage and the misuse of tax-exempt and government entities for
tax avoidance and other purposes.
These incremental resources will help IRS to address the tax gap,
the difference between what is owed and what is paid due to non-filing,
underreporting, and underpayment, and secure billions of extra dollars
for the Treasury. Once the IRS hires and trains enforcement personnel,
it estimates the direct return on investment will be about 6 to 1 for
direct revenue-producing initiatives. Beyond the incremental revenues
directly associated with the increased audits, investigations and
collection activity, the increased publicity of these actions will
discourage other taxpayers from cheating.
FUTURE STAFFING REQUIREMENTS
Question. What is IRS's assessment of the IRS's long term
requirements?
Answer. The vision of the IRS remains to re-center the agency with
the proper balance of service and enforcement poised to quickly meet
technological and demographic changes, and customer expectations.
The IRS's goals remain the same--to improve taxpayer service,
enhance enforcement through uniform application of the law, and improve
the IRS infrastructure and modernize technology. The IRS working
equation is that service plus enforcement equals compliance. The IRS is
maintaining high levels of taxpayer service while focusing on corrosive
areas of non-compliance. Ensuring fairness will help restore faith in
the Nation's tax administration system.
Question. Can the IRS assure this committee that the current
refocus can put this program back on schedule so that it will not go
the way of TSM?
Answer. The IRS needs a more versatile team of seasoned executives
to provide long-term stability to the program. The IRS is complementing
the skills of experienced IRS tax executives with outside seasoned
technology executives who have experience managing large-scale, complex
IT projects. As such, the IRS is hiring two Associate Chief Information
Officers to join the MITS organization, and an executive search firm is
conducting searches for five senior executives with a wide range of
diverse experience in developing and implementing large modernization
systems.
In addition, the IRS used the results from independent studies
commissioned during the summer of 2003 to create a BSM Challenges Plan
comprised of 40 some action items. Given the strategic importance of
the plan, the Commissioner appointed an IRS business unit deputy
commissioner to oversee the implementation of the plan.
As a first step, the BSM project team developed a crosswalk to
ensure that the BSM Challenges Plan's definition of the issues
addressed and/or satisfied all of the recommendations from the four
commissioned studies as well as the recommendations submitted by the
IRS Oversight Board, and the Software Engineering Institute (SEI) study
of CADE.
While the deputy commissioner made significant progress in
implementing the plan, the full closure of all actions items was
unrealistic within the elapsed timeframe of the 6-month appointment.
Concurrently, the CIO created a new direct report position for
modernization management and assigned responsibility for implementing
the plan to the individual recently hired into this newly created
position.
Under the leadership of the deputy commissioner, the IRS and CSC
team brought closure to several key actions items, including:
clarifying the roles of committees as advisory, identifying
``blockers'' on contracting issues, appointing business leaders to each
project, establishing a risk-adjusted schedule and new baseline for
CADE Releases 1.0 and 1.1, and increasing the frequency of CADE reviews
with the business owner to twice monthly. The majority of the action
items are still works-in-progress, some of which will take time to
fully complete. Others will span the life of the BSM program.
For example, strengthening systems engineering capabilities by
hiring external candidates will take time since it involves conducting
the searches, interviewing the candidates, and negotiating the new
hires to come on board. The IRS and CSC developed ground rules for
escalating issues, but they will need to be continually enforced
throughout the life of the program. The IRS rewrote the charters of the
governing committees to reflect their advisory role and clearly
articulated their responsibilities, however, it will probably take a
year to truly evaluate and measure their effectiveness.
As stated, the IRS has made progress toward closing all the action
items, but it has much more work to do in critical areas. For example,
the IRS needs to religiously follow the proper methodologies and hold
people accountable if they do not. The IRS must start ``doing things
right'' as opposed to ``doing things fast'' such as exiting milestones
prematurely. An ongoing challenge will be balancing the scope and pace
of projects consistent with capacity, ensuring that the right people
are in place before launching a project, and setting realistic delivery
schedules and cost estimates. The IRS is committed to staying-the-
course and delivering on its promise to modernize America's tax
systems, but it is important for everyone to acknowledge this is a
monumental effort.
The magnitude and evolution of the BSM program dictates that the
IRS will always be going through an evolution of assessment and
improvements. In that regard, the BSM Challenges Plan is still evolving
and the IRS is using certain action items to continuously improve the
program.
BSM MANAGEMENT
Question. Is IRS's schedule for completing the remaining corrective
actions identified in the associated BSM Action Plan?
Answer. Please see response to previous question.
ACTUARIAL SOFTWARE PROGRAM
Question. What number of life insurance companies or what
percentage of the industry does the IRS consider an appropriate amount
to examine in order to provide the IRS with ``sufficient data to
conduct a cost benefit analysis?''
Answer. The IRS has determined that a sample of four Coordinated
Industry life insurance audits (based on the criteria as described in
the question below) will give sufficient data for preliminary results
from a cost benefit analysis. The fact that the IRS anticipates closing
four cases led it to determine that a 5 percent completion rate would
give it preliminary figures so that it could project over the total
population.
Question. What selection criteria is the IRS using to make sure
that the initial examination results analyzed are an accurate
estimation or cross-section of the industry?
Answer. The IRS based the selection criteria it used on a mix of
variables, such as the stage of the audit cycle, product mix, and size
of taxpayers. These criteria allowed the IRS to have a cross-section of
the industry. Due to the length of time it takes to examine life
insurance reserves, the stage of the audit means that the IRS needs to
examine reserves very early in the audit and not when the audit's
estimated completion date is approaching. Product mix means that the
IRS attempted to select taxpayers for audit who sold different kinds of
policies such as traditional life insurance, universal life insurance,
variable life insurance, single premium annuities, and etc. Size of the
taxpayer means that the IRS is looking to select not only the extremely
large taxpayers in the Coordinated Industry arena but also the ones who
have lesser gross receipts and assets in size.
Question. When does the IRS expect to have sufficient data?
Answer. The IRS is projecting to have four audits complete by the
end of the fiscal year that would give sufficient data. The fact that
the IRS anticipates closing four cases led it to determine that a 5
percent completion rate would give it preliminary figures so that it
can project over the total population.
Question. Congress has funded the program for 3 years, yet due to
the very late start date of the program, although the program has been
provided fiscal year 2004 funding, the program is still using fiscal
year 2003 funding. Has the IRS set aside the fiscal year 2004 funding
provided for the third year of the program?
Answer. The appropriation language for fiscal year 2003 reads that
the IRS will provide up to $4 million from available funds to support
the program. As services are rendered and invoices received, the IRS is
currently paying amounts to the vendor out of fiscal year 2003 funding
for the actuarial software license, maintenance, actuary salaries, and
related travel costs to conduct training sessions. In addition, the IRS
has available $2 million from fiscal year 2004 funding for IRS employee
travel and training expenses, testing and the related implementation
costs, the purchase of additional memory to upgrade revenue agent
computers to 512MB capacity, the purchase of additional software which
is required for the vendor's Total Life software to work, and the
possibility of hiring additional life insurance actuaries to assist on
examinations.
Question. What plans does the IRS have for this funding?
Answer. Please see response to previous question.
Question. In March 2004, the IRS stated that after software
training for 2004 is complete, ``this will result in 41 coordinated
life insurance examinations having the use of the software.'' How many
coordinated life insurance examinations currently exist?
Answer. There currently are approximately 75 Coordinated Industry
life insurance examinations, of which 30 are either using the software
or are planning to use it in the near future. Another class is
scheduled for the second week in June where more teams will receive
training in using the software. The fact that the IRS anticipates
closing four cases led it to determine that a 5 percent completion rate
would give it preliminary figures so that it can project over the total
population.
Question. Should not the software be used on all life insurance
examinations?
Answer. If the results of the cost benefit analysis prove
productive and promote compliance, the goal would be to use the
software on any life insurance examination, as appropriate. The stage
of the audit cycle, as mentioned in the second question above, will
dictate when it is appropriate to use the software on the balance of
the Coordinated Industry life insurance cases.
Question. Given the technical nature of the program, does the IRS
have personnel with sufficient expertise and knowledge to effectively
implement the program? What additional personnel, if any, does the IRS
believe it needs to make the program fully effective?
Answer. Experience has shown over the last year of training revenue
agents and computer audit specialists that they would have the
expertise to utilize the software on audits immediately following
training with the assistance of a life insurance actuary. The Large and
Mid-Size Business Operating Division has two in-house life insurance
actuaries with the level of expertise and knowledge to implement the
program. Since audit cycles are normally 2 to 3 years in length, on an
average, a revenue agent may only use this software once during this
time frame, which may result in a high learning curve or the need for
additional refresher training for subsequent and additional audit
cycles. The IRS believes that it is essential for life insurance
actuaries to be involved as the focal point to utilize this software
effectively.
Depending on the benefit analysis results, the IRS will evaluate
the opportunity to hire additional life insurance actuaries as funding
permits.
______
Questions Submitted by Senator Patty Murray
FAILURE TO COLLECT DELINQUENT TAXES
Question. Based on your collections to date, it appears that IRS is
not pursuing billions of dollars in uncollected taxes. In recent
testimony before the Finance Committee, Treasury Deputy Secretary
nominee Samuel Bodman stated that:
--As of the end of fiscal year 2003, $16.5 billion was in deferred
status, meaning that these taxpayers have filed a return and
owe tax, but have not paid it or have only partially paid.
--The largest delinquent amount in deferred status is more than $50
million.
--In recent years, accounts in deferred status have decreased
slightly but the dollar amounts have increased.
Mr. Everson, how do you respond to this pathetic record of
collecting unpaid taxes?
Answer. The collection results for accounts that are in a deferred
status are not indicative of the IRS's overall Collection effort.
During fiscal year 2003, the IRS issued first notices to about 11.8
million new balance due accounts, as required by IRC section 6303.
During the same period, the IRS resolved about 7.6 million accounts by
full payment, installment agreement, or other means as a result of the
taxpayer's response to the first or subsequent notices. The IRS
subsequently resolves a significant portion (on average, about 67
percent) of the balance due accounts, which are not resolved in notice
status and become Taxpayer Delinquent Accounts (TDAs), through full
payment or the initiation of an installment agreement.
Deferred accounts are placed in a suspended category because of
other collection priorities and resource limitations and they are first
subject to risk and collection probability analysis. Cases that have a
modest compliance risk, i.e., lesser impact on tax administration and
subsequent noncompliance, and low probability of collection are
deferred, freeing Collection resources to work more in-business trust
fund cases and cases where there is a likelihood of full payment.
However, the IRS is refining its Collection models for these cases and
evaluating the benefit of filing notices of Federal tax liens on
deferred accounts.
Question. Mr. Everson, your budget documents say that a growing
number of Americans think it is okay to cheat on their taxes and that
``this trend threatens the government's future revenue stream and basic
respect for the law.'' Why should these taxpayers take their IRS debt
seriously if the agency never presses for collection?
Answer. All delinquent accounts receive Collection action. The
treatment for a particular delinquent account depends on the amount
owed and the predicted compliance risk. Taxpayers generally receive at
least two notices and if they fail to respond, enforcement action is
likely. Each year, the IRS resolves a large percentage of its
delinquent accounts through full payment or installment agreement. Many
others are ultimately resolved through refund offsets, abatements, and
Offers in Compromise. As shown in the following chart, overall
enforcement actions on taxpayer delinquent accounts have increased
significantly since fiscal year 2000. In fiscal year 2003, the IRS
filed 548,683 Notices of Federal Tax Lien and served 1,680,844 Notices
of Levy. Passage of the administration's proposed Private Collection
Agent (PCA) legislation will further improve these results.
----------------------------------------------------------------------------------------------------------------
Activity 2000 2001 2001 2003
----------------------------------------------------------------------------------------------------------------
Enforcement activity (actual numbers):
Number of notices of Federal tax liens filed 287,517 426,166 482,509 548,683
Number of notices of levy served upon third 219,778 674,080 1,283,742 1,680,844
parties....................................
Number of seizures.......................... 74 234 296 399
----------------------------------------------------------------------------------------------------------------
In addition, the IRS has taken a number of steps recently to
further address taxpayers' noncompliance with their filing and payment
obligations, including:
--Case Selection.--The IRS refined its inventory delivery system so
that the higher priority cases (in terms of impact on tax
administration and subsequent noncompliance as well as
potential for collection) are selected for assignment to the
Collection field function and the Automated Collection System.
The IRS continually examines how case selection can be
improved.
--Employment Taxes.--The failure of employers to make their Federal
tax deposits and pay over the withheld trust fund taxes is a
serious compliance issue. The IRS has developed and is
implementing a strategy to improve collection of employment
taxes.
--Causes for Underpayment and Non-Filing.--The IRS is working to
identify the components of its potentially collectible
inventory, the main causes of non-compliance, and the
contributing market segments. The information obtained is being
used to address taxpayers through outreach and education, and
to determine potential systems and policy changes. One
significant component involves estimated tax compliance.
--Taxpayer Education.--The IRS is aggressively reaching out to
taxpayers before they either intentionally or inadvertently,
fail to file or fail to pay the full amount of tax due.
Stopping noncompliance before it occurs is far preferable than
having to find it afterwards. The IRS website has been a
tremendous success and has been an important resource for
taxpayers. It also is an important way for the IRS to
communicate to taxpayers, including reaching out to those
taxpayers who may be missing out on important tax benefits when
they fail to file a return. The IRS is continuing to examine
how taxpayer outreach can be improved and made more effective.
Question. A recent report by the Treasury Inspector General for Tax
Administration (TIGTA) found that IRS's existing procedures are
ineffective in ensuring even that criminals who are convicted in court
for tax evasion are paying their civil tax liabilities. Why can't IRS
collect from tax cheats?
Answer. In response to problems identified in the TIGTA audit, the
IRS completed a review of the process for referring criminal cases for
civil disposition that have conditions of probation. CI conducted this
review in partnership with SB/SE. Furthermore, CI and SB/SE have taken
the following steps:
--The Chief CI and SB/SE Commissioner issued a joint memorandum on
April 13, 2004, to field office personnel stressing the
importance of cooperation in handling civil closings for
sentenced taxpayers and provided operating procedures for
processing the civil closings of all sentenced taxpayers. CI
and SB/SE are revising the Internal Revenue Manual to implement
these procedural changes.
--The Technical Service, Advisory Unit within SB/SE is reviewing
assessed tax liabilities in these cases to identify cases
wherein the conditions of probation were not met and will
report this information to CI.
--CI's Research Unit has identified all cases within their management
information system that have outstanding conditions of
probation or appear anomalous. The Research Unit forwarded the
information to the appropriate CI field office for review and
corrective action, if necessary. Twice a year, the Research
Unit will submit similar information to the responsible field
office(s) for verification and correction.
--The CI Research Unit added additional tracking codes to the
management information system to ensure that management only
tracks and reviews viable open cases.
--CI revised its Criminal Investigation Closing Report. This report
will serve as CI's notice to the SB/SE Territory Manager of
Technical Services that the court has sentenced a taxpayer and
document the tax-related conditions of the sentence.
--CI is developing a ``Fraud Life Cycle'' communications model as an
educational tool to improve its understanding of the
interaction among the various CI and SB/SE functional
processes. This model will help CI and SB/SE develop ways to
improve the processing of conditions of probation cases.
--CI front line managers received refresher training on using current
systems to effectively identify, report, and monitor terms and
conditions of probation on tax investigations.
--CI's Review and Program Evaluation (RPE) Section has incorporated,
as part of its field office review process, an analysis of the
CIMIS information on terms and conditions of probation. Senior
executives in CI will use RPE reports to ensure that all
conditions of probation procedures are effectively implemented
in each field office.
--The Program Manager, Technical & Insolvency of SB/SE will include
the monitoring of conditions of probation in fiscal year 2005
reviews of Technical Services operations and keep the Director,
Payment Compliance informed of adherence to IRM procedures.
These procedures require Technical Services to immediately
report to CI evasive or uncooperative taxpayers, as well as
taxpayers who have fully complied with conditions of probation.
For other non-compliant taxpayers subject to conditions of
probation, Technical Services must provide the required reports
to CI no later than 6 months before the probation expires. CI
will advise the Courts of these conditions.
These steps will improve coordination between CI and SB/SE, clarify
areas of responsibility, enhance employees' understanding of newly
implemented procedures, and improve the processing of conditions of
probation cases.
Question. Ms. Gardiner, given the fact that the head of IRS-
Criminal Investigations disagreed with a number of your
recommendations, are you confident that this grotesque abuse will be
stopped? Mr. Everson, would you care to comment as well? Ms. Gardiner,
why do you believe that IRS has not cleared up even the simplest of
cases of uncollected taxes? Do you consider it a possibility that IRS
has not done so in order to build a case for the use of private
collection agencies?
Answer. The IRS unequivocally states that no collection action has
been taken or not been taken for the purpose of building a case for the
use of private collection agencies (PCAs). Under the administration's
proposals, PCAs would supplement, and not supplant, IRS collection
efforts. PCAs would expand the IRS's overall capability to address
outstanding tax liabilities while also allowing the IRS resources to be
directed at more complex cases and issues.
TIGTA will respond separately.
Question. Ms. Gardiner, why do you believe that IRS has not cleared
up even the simplest of cases of uncollected taxes?
Answer. TIGTA will respond separately.
Question. Do you consider it a possibility that IRS has not done so
in order to build a case for the use of private collection agencies?
Answer. TIGTA will respond separately.
Question. In response to questions posed at the Treasury Deputy
Secretary's nomination hearing, Mr. Bodman said that IRS has
implemented several actions to ensure that all deferred accounts
receive adequate collection. But as I read it, only one of these four
actions actually tries to collect from the taxpayer: the annual notices
that remind taxpayers to pay their obligations. The other three seem to
only further penalize the already delinquent party. How do these other
activities really help in the collection of tax debts? Don't they
simply compound the problem? Are these really the best ways to go after
tax cheats?
Answer. The actions described by Dr. Bodman (refund offsets, the
Federal Payment Levy Program (FPLP), and reactivation) are the
principal methods of collection for deferred accounts; the IRS also
uses these techniques as supplemental collection techniques for other
types of cases. Since these methods generally employ automated
processes, they allow the IRS to pursue these accounts at relatively
low cost. Reactivation of a deferred account may be triggered when the
taxpayer incurs a new liability, a tax filing delinquency occurs, or
the IRS learns of a source of income. Based on the triggering event,
the IRS reevaluates the priority of the case in terms of compliance
risk and potential to collect the delinquency. Typically, if the case
is deemed collectible, the IRS can expect to collect 64 percent of the
debt through full payment or an installment agreement.
As noted in Dr. Bodman's response, many of the accounts in deferred
status represent taxpayers who have filed a tax return showing an
amount of tax due, but who have failed to pay the tax. Other accounts
represent taxpayers who have been assessed additional tax by the IRS
and have made three or more voluntary payments to satisfy that
additional tax, but who have stopped making payments. These taxpayers
are aware of their outstanding liabilities. The IRS, however, is unable
to continuously pursue each taxpayer with an outstanding tax liability
because of other resource and collection priorities. Many taxpayers
with outstanding tax liabilities, however, would make payment if
contacted by telephone and, if necessary, offered the ability to make
payment of the full amount in installments. The administration's fiscal
year 2005 budget proposes to permit the IRS to use private collection
agencies (PCAs) to address accounts in deferred status.
Question. Mr. Everson, a recent IRS Oversight Board report claims
that each year, ``the IRS must absorb millions of unfunded costs, such
as rent increases and postage, left uncovered by the administration's
budget request.'' The Board estimates that in both fiscal year 2004 and
fiscal year 2005, there will be at least $100 million in unfunded
expenses. Further, the ``resulting shortfalls mean that the IRS is
consistently unable to hire the personnel assumed in the
administration's request.'' In what areas has the IRS cut, in order to
pay these unfunded costs?
Answer. The IRS took reductions across-the-board from all programs
to fund pay parity, but protected enforcement initiatives. When
absorbing the appropriation reduction, the IRS protected enforcement
initiatives and related support costs, and took the majority of the cut
from Information Systems and other support.
The fiscal year 2005 budget includes a 1.5 percent increase for
pay. If Congress approves and the President signs the anticipated 3.5
percent increase, the impact of this increase would result in a
shortfall of $109 million. Most of the IRS budget is composed of labor
(71 percent) and most of the remainder is composed of items that
support staff directly (travel, rent, supplies and equipment). The
total percentage of the IRS budget that does not support staff directly
is less than 18 percent. Any reduction to IRS funding or any absorption
of an unfunded mandate like a pay raise would, of necessity, have a
direct impact on FTE. Because most IRS staffing is devoted to taxpayer
casework--answering telephones, collecting overdue money, or auditing
returns--reductions inevitably affect these taxpayer assistance areas,
affecting both taxpayer service and enforcement.
[Clerk's Note.--The report follows:]
Report
BACKGROUND
The National Commission on Restructuring the IRS issued a report in
1997 defining ``A Vision for a New IRS.'' In 1998, the IRS
Restructuring and Reform Act (RRA 98) codified much of that vision into
law. Since the passage of RRA 98, the IRS has undergone enormous
changes, including the most extensive reorganization of the agency in
the past 50 years. Prior to the IRS reorganization, all ten IRS
Submission Processing Centers performed similar functions and processed
returns for both the Individual Taxpayers (IMF) and Business Taxpayers
(BMF). Each center also handled Taxpayer Accounts (correspondence/
telephones) and Compliance programs for both IMF and BMF.
Although the ten-center configuration was successful and worked for
many years, we felt we could improve our business results and better
respond to customer needs by organizing around our customer segments.
We based the initial IMF Consolidation Strategy of our centers around
Wage and Investment (W&I), Small Business/Self Employed (SB/SE), Large
and Mid-Size Business (LMSB), and Tax Exempt and Government Entities
(TE/GE) customer segments. As a result of this reorganization, we
realigned the ten Processing Campuses into eight W&I (IMF) and two SB/
SE (BMF) Submission (paper returns) Processing Centers. We completed
this realignment of the customer base in 2002. Now, all BMF taxpayers
file their paper returns at our processing centers located at either
Ogden, Utah or Cincinnati, Ohio. All IMF taxpayers file their paper
returns at one of the W&I centers.
The RRA 98 also mandated that the IRS improve the Electronic Tax
Administration program to reach the goal of 80 percent of individual
returns filed electronically by 2007. With increased emphasis and
success of electronic filing, the volume of paper returns has
decreased. To effectively administer and manage this change in taxpayer
behavior, the IRS analyzed ``E-file versus Paper Trends'' and developed
a detailed business plan to gradually reduce the number of IMF paper
Processing Centers. We approved this ``Business Plan,'' which will take
several years to fully implement, in 2002. The plan calls for the
consolidation of an IMF paper processing center every few years,
contingent on the public's continued migration from paper to
electronically filed returns.
At the completion of each filing season, we assess both the e-file
progress and the paper return filing pattern to see if we need to
adjust the consolidation timelines for the next filing season.
Flexibility is a key component in this plan, allowing the IRS to plan
and react appropriately as paper return volumes fluctuate. Many
restructuring changes have already taken place at the Ogden, Utah;
Cincinnati, Ohio; and Brookhaven, New York campuses. At Memphis,
Tennessee; Philadelphia, Pennsylvania; and Andover, Massachusetts, the
IRS will consolidate the paper return processing function over the next
several years.
However, compliance and tax account work will remain at all the
campuses, making them key employment centers. Our timetable for
consolidating IMF paper processing at the campuses is as follows:
--Consolidate the processing of BMF paper returns into two sites
(Ogden, Utah and Cincinnati, Ohio). We completed this migration
in 2002.
--Discontinue the processing of IMF paper returns at Brookhaven, New
York. We completed this change in October 2003.
--Discontinue the processing of IMF paper returns at Memphis,
Tennessee by June 2005.
--Discontinue the processing of IMF paper returns at Philadelphia,
Pennsylvania by June 2007.
We will determine the specific dates for consolidating of the
remaining centers based on e-file and paper volume projections for
subsequent years.
ELECTRONIC FILING
In 1999 the IRS processed 29 million electronically filed returns,
and in 2003, 53 million taxpayers chose to file electronically. We
estimate that nearly half of all taxpayers will e-file in 2004. We are
encouraged by both the growth of e-file to date and the projected
growth through 2010. We will continue to strive to reach the RRA 98
goal, but believe that individual returns filed electronically will not
reach 80 percent by 2007; however the IRS's electronic tax filing
program has experienced tremendous gains in customer acceptance. The
chart below reflects the progress we made in e-file from 1997 through
2003, and our projections for the future look equally promising.
ACTUAL
[Volume in millions]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Total Returns............................. 120.7 125.2 126.0 128.4 131.0 131.7 130.1
Total Paper............................... 101.5 100.6 96.7 93.0 90.9 85.0 77.2
Total Electronic.......................... 19.2 24.6 29.3 35.4 40.1 46.7 52.9
Percent e-filed........................... 15.9 19.6 23.3 27.6 30.6 35.5 40.7
Percent growth Electronic................. ........ 28.1 19.1 20.8 13.3 16.5 13.3
Percent decrease Paper.................... ........ 0.9 3.9 3.8 2.3 6.5 9.2
----------------------------------------------------------------------------------------------------------------
PROJECTED--2004 AND BEYOND
[Volume in millions]
----------------------------------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
Total Returns............................. 130.9 133.3 135.5 137.3 139.0 140.5 141.9
Total Paper............................... 71.1 66.6 62.2 58.1 54.8 51.9 49.5
Total Electronic.......................... 59.8 66.7 73.3 79.2 84.2 88.6 92.4
Percent e-filed........................... 45.7 50.0 54.1 57.7 60.6 63.1 65.1
Percent growth Electronic................. 13.5 11.5 9.9 8.0 6.3 5.2 4.3
Percent decrease Paper.................... 8.1 6.3 6.6 6.6 5.7 5.3 4.6
----------------------------------------------------------------------------------------------------------------
PROCESSING PAPER RETURNS
As a result of the increase in e-file volume, the paper return
volume has decreased each year since 1998. For example, in 1999 we
processed over 97 million paper returns, or 77 percent of the total
returns processed by the IRS. From 1999 through 2003, paper return
volume has decreased by almost 26 million returns, a 26 percent
reduction. In 2004, we project we will process 71 million paper
returns, which is 54 percent of the total returns processed. This is an
average of over 4 million fewer paper returns each year; a trend that
we expect will continue. Based on these trends, we analyzed the impact
on operations and developed a comprehensive business plan by looking at
the impact e-file would have on our processing centers (Phase I), and
then developing a strategy to address the decline in paper return
volumes (Phase II).
PHASE I OF CONSOLIDATION STRATEGY
Due to the actual and projected increases in electronic filing
(ELF), we decided to assess the current and future impact of e-file on
our paper processing sites. In 2000, we developed a long-term strategy
by answering three key questions about the future of IMF return
processing:
--How does an increased ELF volume affect the workforce?
--What is the ideal configuration (end state) of centers when we
achieve 80 percent ELF?
--How will the IRS manage the path toward the end-state
configuration?
We assessed projected volumes of ELF and paper processing capacity
at each site, multiple transition scenarios, and business objectives to
arrive at a consolidation strategy. The results of this analysis showed
that continuing to operate ten paper processing sites was inefficient.
Although we analyzed multiple strategies, consolidating one IMF center
at a time (as the volume of e-file returns continues to increase) was
the most efficient strategy. We shared this strategy with all our
internal and external stakeholders, then proceeded to implement this
``Modernization/Consolidation of Submission Processing Centers,''
starting with the consolidation of the Brookhaven IMF Submission
Processing operation. As a result, Brookhaven stopped processing
individual paper returns as of October 2003.
Our strategy will allow us to improve customer service, increase
business performance, and adjust the plan as paper and e-file volumes
and patterns dictate. It will also permit us to reduce overhead and
real estate costs campus by campus.
PHASE II OF CONSOLIDATION STRATEGY
For the second phase of our analysis, we reviewed each site against
factors including business operational alignment, economies of scale,
labor market issues, and real estate costs. This analysis identified
the order of the consolidation of IMF processing centers, starting with
the Brookhaven Submission Processing center in October 2003, the
Memphis Submission Processing center in October 2005, and the
Philadelphia Submission Processing Center in October 2007.
We expect these consolidations to be followed by the Andover
Submission Processing center, and so forth, until the IRS reaches its
``end state'' configuration. Again, this plan is contingent on the
continued growth in the number of e-filed returns.
TAXPAYER IMPACT
At the very beginning of our modernization efforts, we recognized
the challenge we would face in ensuring our customers understood the
reason for consolidating our operations and the changes they could
expect to see. We have tried to minimize the impact of these changes by
consulting with various groups including the National Treasury
Employees Union (NTEU) and Tax Practitioner groups. Working with our
own Multi-Media operation, we made sure that various tax packages
included updated instructions on the location to send returns. We also
made presentations at various tax forums around the country. Although
this effort has been challenging, we have successfully consolidated IMF
and BMF customer processing sites and the Brookhaven Submission
Processing operation. Even though we substantially reduced the number
of returns processed at Brookhaven in 2003, we completed one of our
most successful filing seasons. We review each consolidation process
and build on that foundation as we continue our consolidation efforts.
WORKFORCE IMPACT
We recognize that one of our greatest assets is the people who help
in the daily processing of taxpayers' returns. We also recognize that
consolidating paper processing operations will affect our workforce. In
anticipation of the consolidation, we stopped hiring ``career
conditional'' employees and started hiring ``temporary'' employees in
Memphis, Philadelphia, and Andover. The new hires understand their
appointment is temporary. When job reductions occur, we will make every
effort to minimize the adverse effects on our employees. For example,
when we realigned the processing of IMF/BMF paper returns into eight
IMF centers and two BMF centers, we did so without a loss of jobs. In
addition, in the Brookhaven and Memphis centers we prepared for staff
downsizing by consolidating our Centralized Offer in Compromise (COIC)
program in the centers, creating hundreds of job opportunities at each
location. We also recently announced the proposed consolidation of Case
Processing and the Insolvency Program, which will also create hundreds
of jobs in Memphis and Philadelphia.
We are working with NTEU to develop workforce transition plans and
to take advantage of every tool we have to help employees through this
transition. We have held ``Town Hall'' meetings with the employees at
all our campuses and will continue to do so as we schedule specific
campuses for consolidation. We will also continue to provide our
employees with job placement assistance. Of course, if we must
involuntarily separate employees from the IRS, we will give them all
the benefits to which they are entitled under the law.
CONCLUSION
We began modernizing our paper processing centers in 1998. We
conducted an extensive business plan analysis before making
consolidation decisions, and we continue to rely on this business plan
as we move forward with consolidation. We also adjust our plan based on
our initial experiences with the streamlining of the service centers.
This report captures at a high level the analysis, efforts and progress
we have made in improving our processing operations. We would welcome
the opportunity to present this extensive business case to you and your
staff at your earliest convenience.
Question. In addition to the new enforcement funding IRS is seeking
from Congress, the IRS's budget justification states the following
about its intention to fund enforcement from other areas: ``In fiscal
year 2005, $111 million will come from current operations to improve
enforcement and infrastructure.'' ``The majority of resources ($61
million) generated from base mining will be diverted to enforcement
activities. . . .'' Why is only a little more than half of the money
going toward enforcement? For what specific purposes is the other money
going and what is meant by infrastructure?
Answer. The IRS is emphasizing enforcement, but it cannot ignore
service or the infrastructure supporting it. Thus, in order to balance
its efforts, the IRS redirected some funds to modernizing IRS
infrastructure. The IRS budget strategy is designed to redirect
productivity enhancements from increases in electronic processing and
modernization of business systems to continue to improve taxpayer
service and enforcement.
Of the $111 million in redirected resources, $61 million will be
diverted to enforcement activities. The remaining $50 million will be
redirected as follows:
INFRASTRUCTURE EXPENSES
[In millions of dollars]
------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
Cost of Transitioning Employees\1\...................... 39.0
Continue Competitive Sourcing Studies................... 9.0
Embedded Quality \2\.................................... 1.6
Create ADA-Compliant Training Facility.................. 0.5
---------------
TOTAL............................................. 50.1
------------------------------------------------------------------------
\1\ Includes lump-sum leave, severance and relocation.
\2\ This initiative, through an Embedded Quality system in Submission
Processing (EQSP), will create a new measurement system that will
identify the cause and impact of errors, apply common measures to
every level of the new organization, and enable frontline employees to
understand how their contributions impact IRS's performance. An
embedded quality system links individual and business performance with
multiple quality review sources. EQSP will instill complete
accountability for quality performance across operations.
Infrastructure refers to programs and activities that support
enforcement and taxpayer service. These activities align with the IRS's
third strategic goal, ``modernize the IRS through its people,
processes, and technology.''
Question. As part of its budget request, IRS proposes spending
$121.6 million and 1,167 FTE to ``curb egregious noncompliance''.
Please provide a table citing each instance of egregious noncompliance,
along with the associated dollar amount and FTE.
Answer. The ``Curb Egregious Noncompliance'' (CEN) enforcement
initiative addresses the continuing concern over the proliferation of
abusive domestic and international tax avoidance transactions and
schemes. In addition, requested staffing will allow the IRS to address
issues associated with certain individual taxpayers and those who use
structured transactions and flow-through entities to conceal or
improperly reduce taxable income and avoid payment of taxes owed. This
noncompliance represents a real threat to the American system of
voluntary compliance. Traditional approaches aimed at maintaining audit
coverage and managing growing case inventories with a declining
resource base have failed to adequately address these complex
enforcement issues.
To address these issues, the CEN initiative will allow the IRS to
hire and train new staff in the Examination, Collection and Document
Matching programs during fiscal year 2005.
The following table shows the projected expenditures of FTE and
dollars by program.
[Dollars in millions]
------------------------------------------------------------------------
Program FTE Amount
------------------------------------------------------------------------
Field Examinations...................... 492 $66.0
Field Collection........................ 332 $29.2
Automated Underreporter................. 53 $4.2
Automated Collection (ACS).............. 125 $10.9
Correspondence Exams.................... 165 $11.3
-------------------------------
Total............................. 1,167 $121.6
------------------------------------------------------------------------
Question. Please provide a breakdown by percentage of how proposed
enforcement resources would be allocated toward the various segments of
the taxpayer population within $25,000 increments.
Answer. In fiscal year 2005, proposed increases for the Tax Law
Enforcement account, including annualization and enforcement
initiatives, total $393 million. The IRS aligns increases in
enforcement as follows:
--Corporations.--$59 million (22 percent) and 562 FTE;
--High-income taxpayers (>$100,000).--$57 million (21 percent) and
674 FTE;
--Criminal activity.--$64 million (23 percent) and 299 FTE;
--Tax-exempt organizations.--$16 million (6 percent) and 180 FTE; and
--Other contributors to the tax gap.--$76 million (28 percent) and
1,226 FTE.
The increase also includes $121 million for inflation to maintain
current levels.
IRS REORGANIZATION
Question. Please summarize in detail what has happened to IRS
employees who were determined to be ``transitional'', stating from
which program area they were taken and when, how many reassigned, how
many were lost due to attrition, as well as how the requested $5
million will remove the remaining employees ``from the rolls.''
Answer. Upon stand-up in September 2000, approximately 5,000
employees did not align with the new organizational structure. Over the
next 3 years, the IRS placed approximately 4,450 employees into
permanent positions or they voluntarily left the IRS. Approximately
1,000 of these employees left under Voluntary Early Retirement
Authority (VERA) or Voluntary Separation Incentive Payment (VSIP). On
August 9, 2003, the IRS terminated the ``transition'' designation and
declared permanent all employees previously designated as
``transition.'' At that time, there were approximately 550 formerly
transition employees. Of this group, the IRS placed approximately 290
employees in permanent positions and 260 remained in non-continuing
positions. The IRS expects to offer VERA/VSIP to the employees in the
non-continuing positions to facilitate voluntary separations.
Question. In early January, IRS officials announced a major
organizational restructuring resulting in 2,400 layoffs as well as
office consolidations. As part of the same announcement, IRS indicated
its intention to then fill 2,200 new positions. What is the cost of the
2,200 new enforcement positions the IRS intends to add? What is the
cost savings associated with the layoffs and consolidations?
Answer. As noted in the January announcement, as a result of our
planned consolidation, the IRS expects to perform its Case Processing
and Insolvency operations while using fewer full-time employees--saving
approximately 350 staff years. Similarly, the IRS expects that Support
Optimization initiative will allow it to deliver its operations support
services while saving approximately 750 staff years. The Memphis
Submissions Processing ramp-down will eliminate approximately 2,200
positions. The January announcement stated the intention to redeploy
the personnel reductions towards enforcement priorities.
In determining the approximate numbers of full-time positions that
could be redirected to enforcement activities, the IRS assumed a 1-for-
1 redeployment of the full time positions (i.e., approximately 350 from
Case Processing and Insolvency and 750 from Support Optimization) and a
2-for-1 redeployment for the submissions processing positions (i.e.,
for every two submission processing positions eliminated the IRS could
expect approximately one full-time position available for redeployment,
or approximately 1,100 positions). Thus, the IRS estimated that
approximately 2,200 positions would be available for redeployment to
enforcement activities that would not be otherwise available without
such efficiencies.
In determining the numbers of employees potentially subject to
involuntary separation, the IRS estimated the numbers of employees in
positions to be eliminated, and reduced that figure to account for the
numbers of employees who are expected to voluntarily leave through
normal attrition, the use of Voluntary Early Retirement Authority
(VERA) and Voluntary Separation Incentive Payments (VSIP), and those
employees expected to be placed in other positions with the IRS. For
this determination, the IRS did not include employees hired for
limited-term appointments, because employees accepted these positions
with the understanding that the positions would ``sunset'' in 2005 and
because the elimination of these positions does not require the same
involuntary separation procedures.
For the income tax returns processing initiative, the IRS estimates
that approximately 2,200 positions will be eliminated. Of this number,
approximately 400 are term appointments. Therefore, the IRS determined
that approximately 1,800 permanent (full-time or seasonal) positions
would be eliminated. Based on this figure, the IRS anticipates
approximately 1,000 employees will be involuntarily separated. For the
case processing and insolvency initiatives, the IRS estimates that
approximately 1,400 positions will be eliminated. Of this number, it
anticipates that approximately 1,000 employees will be involuntarily
separated (because the case processing and insolvency initiative
involves consolidating work, i.e., eliminating positions in field
offices while creating positions in the four consolidated campus
locations, the net number of positions available for redeployment
(approximately 350) is less than the gross numbers of positions being
eliminated (approximately 1,400)). The Support Optimization initiative
involves eliminating approximately 750 positions, and based on that
figure, the IRS anticipates approximately 400 employees will be
involuntarily separated. Thus, the total number of employees estimated
to be subject to involuntary separation is estimated to be 2,400.
Question. The nationwide case processing and insolvency support
workforce would be reduced from 1,600 positions to 1,200, a 25 percent
reduction. What analysis has been done to show that 25 percent fewer
employees can perform this work? What cost savings does the IRS project
from this? All background on how the savings are projected should be
provided.
Answer. The IRS has been studying the reengineering of the case
processing and insolvency operations since 2000. Even after taking into
account costs such as severance, hiring, training, salary cost
differentials, and infrastructure, the IRS expects these initiatives to
yield more than $300 million in savings over the next 10 years. These
savings will allow us to redirect the equivalent of 350-425 full-time
employees to front line tax law enforcement.
The IRS considered alternative approaches, including switching
staffing allocations from the area offices to the campuses at a pace
driven by natural attrition. The IRS rejected this approach because of
low return on investment and implementation difficulties. Competitive
outsourcing was also considered and rejected because case processing
and insolvency work is mainly inherently governmental.
The IRS's analysis involved baselining the existing case processing
and insolvency processes currently performed in the areas, identifying
best practices, and standardizing the processes to be implemented in
the campus from these baselines and best practices. The new operational
structure builds on existing processes currently being performed at IRS
campuses, provides economies of scale and standardization, allows the
creation of a quality review unit, offers staffing flexibility, and
creates space savings due to shift work.
The IRS's analysis of sources such as OMB and best practices used
in private industry predicted that a 35 percent reduction in case
processing and insolvency costs would be possible through consolidation
and process standardization. The results predicted from external
indicators were compared with area and campus case closure
efficiencies. Centralized staffing calculations were updated based on
area and campus efficiency and projected work plans resulting in a more
conservative of 25 percent cost savings projection.
Question. IRS has stated that no employee would be involuntarily
separated before January 2005. When would new employees be hired and
what kind of training will be provided? How would IRS deal with an
inexperienced workforce--reduced by 25 percent from current levels--
that will have no institutional memory?
Answer. The IRS is currently in negotiations with NTEU regarding
the potential reduction in force. Until negotiations are finalized, no
employee will be involuntarily separated. However, the IRS has recently
entered into a separate memorandum of understanding with NTEU that
authorizes a staged hiring at the campus consolidated sites to address
excess workload in the area offices created by the natural attrition of
staff. This step will allow the organization to begin ramp up by
providing training and significant experience with the work before any
off rolls occur.
Once this IRS reaches its final agreement with NTEU, full
implementation will occur with a staged deployment of hiring at the
campuses, redirecting work from the field, and workforce transition in
the non-continuing sites. This approach allows campus personnel
additional experience with total centralization before off rolls will
occur in 2005.
The IRS established a training team made up of subject matter
experts from case processing, insolvency, and campus employees to
revise existing training material, write additional training lessons
and develop training guidelines and timeframes. All campus hires will
be given a combination of classroom and on the job training as soon as
they are hired, which is a significant improvement over current field
practices in case processing and insolvency.
Learning curves were projected for centralized case processing and
insolvency new hires aligned by grade level and skill set. These
learning curves provided the underpinnings for decisions regarding the
timing for early ramp up and staging the implementation. Projections
for the time needed for training are conservative as many of the hires
will already have experience from positions and activities currently
performed on the campus that are similar to those in centralized case
processing and insolvency.
Question. How is it more efficient to move these case processing
staff away from the collection staff they are supporting to centralized
locations?
Answer. In a centralized situation, a smaller team of employees can
focus on one function for longer periods of time, and can work more
efficiently than the larger number of staff in the separate locations.
The workload can also be more easily managed and scheduled because of
the consolidation. Training expenses and other costs have been
considered, and the resulting savings shows centralization is cost
effective.
Many revenue officers and revenue agents currently mail their work
to the area offices and under the new design the only change for them
would be the address they mail to. To address lingering concerns of the
collection staff there will be a FORT (Field Office Resource Team)
consisting of revenue officers who will be responsible for assisting
tax examiners and field collection personnel in making any necessary
corrections to reports or closing documents.
Question. How is it more efficient to centralize insolvency/
bankruptcy staff when this work is ruled in large part by 50 different
State laws?
Answer. Over 900 Insolvency Specialists and Advisors will remain in
the area offices to address the more technical issues. They will no
longer be pulled away from the technical work to help with clerical and
para-professional duties. Therefore, centralization will actually
enhance the relationships with the bankruptcy courts, trustees and
external stakeholders that have been established over the years and
increase customer service.
The new structure provides economies of scale and standardization,
allows the creation of a quality review unit, offers staffing
flexibility, and creates space savings due to shift work.
Centralization will also help create an environment suitable for
electronic processing and transmission of Proofs of Claim. The planned
use of an electronic knowledge system will provide a national resource
for State law information.
Question. Have you discussed this reorganization with the affected
parties? What do the revenue officers and agents think the impact of
this will be on their efficiency? What do tax practitioner groups think
of this?
Answer. There is a natural concern and uneasiness that accompanies
any change. Focus interviews and customer surveys were conducted with
area directors, revenue officers, revenue agents, and other bargaining
unit employees in which the case processing redesign team received
valuable information on issues and ideas to be considered for possible
centralization. As a result of this feedback, the IRS developed the
concept of the Field Office Resource Team (FORT). The FORT, consisting
of revenue officers, will be available to address the needs of field
collection personnel in making any necessary corrections to reports or
closing documents.
Insolvency has little contact with revenue officers, revenue
agents, or practitioners. A centralized phone number and phone unit
will be established to answer calls and concerns of trustees, taxpayers
as well as any internal customers.
The Case Processing Team had conversations with some of the large
institutional practitioner groups and received support for the
redesign.
Question. At the Memphis Service Center, 2,200 current employees
would be laid off and not replaced. IRS claims that this is aimed at
reducing paper processing staff in response to increases in electronic
filing. IRS has already downsized returns processing employees at the
Brookhaven, NY Service Center. The House report accompanying the fiscal
year 2004 Transportation, Treasury Appropriations bill recommended that
IRS refrain from initiating any premature and ill-considered reductions
in force until reporting to Congress. What progress has been made on
the report to Congress and when will it be submitted? What are the cost
savings associated with the reduction in force?
Answer. The IRS delivered the report to Congress on April 22, 2004.
A copy is attached. The IRS estimates the cost savings for Memphis to
be $12.5 million for the period 2004 through 2006 and then an annual
cost avoidance of $9.5 million dollars a year starting in 2007.
Question. GAO has indicated that electronic filing is far short of
IRS projections. What is the level of electronic filing compared to IRS
projections? What level of increase in electronic filing is IRS
projecting that will make it plausible to lay off 2,200 return
processing employees within the next year?
Answer. While the IRS is below projections needed to achieve the
goal of 80 percent of individual returns filed electronically by 2007,
it is continuing to make strong gains. The Consolidation Strategy is
based on projections that are keyed to the workload shifts necessary to
process the reduced paper volumes. In 2004, the IRS projected 59.8
million electronic returns would be filed. As of May 14, taxpayers
exceeded the number e-filed returns from the prior year by over 8
million returns to reach the 60 million mark. This figure equates to
approximately 50 percent of all individual returns filed and represents
a milestone in e-file progress. The IRS's Consolidation Strategy is on
track.
PROBLEMS WITH IRS BUSINESS SYSTEMS MODERNIZATION (BSM)
Question. In a March 2004 review, GAO found that although IRS has
made some progress in implementing their recommendations and improving
its modernization management, certain recommendations have not yet been
fully implemented or institutionalized. These weaknesses have
contributed, at least in part, to BSM project cost and schedule
shortfalls. GAO states that, ``Projects continue to incur cost
increases and schedule delays for several reasons, including inadequate
definition of systems requirements, increases in project scope, and
cost and schedule estimating deficiencies.'' Mr. Everson, this
modernization effort has been plagued with these problems from the
start. What have you done to ensure that IRS staff is adequately
prepared to define its systems requirements instead of relying
completely on the contractors to do so? What steps are you taking to
ensure that cost and schedule estimates, which have been grossly off-
track, will now be more accurate?
Answer. Recent improvements to the IRS Enterprise Life Cycle (ELC)
will ensure that the IRS adequately defines system requirements in the
future. The recent updates to the ELC include a new milestone
(Milestone 4A), that requires a detailed definition of a systems'
physical design baseline under strict configuration management (CM)
control. This baseline can be used for awarding fixed priced contracts
for the development, integration, and testing of the system. As a
prerequisite to the implementation of MS 4A, the ELC now requires
redefinition of requirements management, and strict CM control for
projects in prior milestones. For example, at Milestone (MS) 2,
business requirements constitute the functional baseline. The
functional baseline is then decomposed into logical systems
requirements that are baselined under CM control at MS 3. Requirements
that evolve from milestone 1 through 4A are verifiable and traceable in
both directions and must be compliant with the Enterprise Architecture
in order for a project to gain approval to move to the next stage of
development. There will be a major systems engineering review at the
end of each development phase, conducted by IRS business and technical
personnel.
As the IRS moves forward, constant involvement of the IRS
stakeholder organizations is critical. Stakeholder involvement in the
definition, approval, and coordination of system requirements will
ensure that what the IRS develops is closely traced to IRS's business
needs and that ownership is clearly identified and understood. As this
revised ELC strategy is unveiled, training will be provided to ensure
that IRS personnel are adequately prepared to achieve success.
The IRS has been working jointly with MITRE and CSC (the PRIME
Contractor) to improve cost and schedule estimating capability. The IRS
is using the well-recognized Carnegie Mellon Software Engineering
Institute's (SEIs) Requisites for Reliable Estimating Processes as a
guide. The requisites provide for development and execution of the
following key cost and schedule estimating objectives:
--Maintaining historical data;
--Structured estimating processes;
--Mechanisms for extrapolating estimates from successful past
projects;
--Audit trails; and
--Ensuring integrity in dealing with dictated costs and schedules.
Both CSC and the IRS have made significant progress towards
achieving these key objectives. The IRS has implemented procedures for
validating contractors' estimating systems and for reviewing cost and
schedule estimates. The procedures provide guidance for evaluating
reliability of documentation supporting individual estimates and for
tracking compliance with sound estimating practices. Furthermore, the
procedures also address professional development of personnel with the
right skill set for developing and evaluating cost and schedule
estimates. CSC has established a historical database, calibrated
estimating models and developed detailed requirements for documenting
and supporting bases of estimates along with related guidance and
directives. Work is also in progress for continuing refinement and
improvement in each of these elements.
In addition, joint training is being conducted for IRS, CSC and
MITRE personnel as an integral part of the overall plan to ensure
competent deployment of improved processes and procedures. The IRS,
with MITRE's assistance, recently completed a review of CSC's
estimating system. The IRS is finalizing the results and will issue
them in a report in the latter part of June. In general, there have
been improvements. The report will include a time phased corrective
action plan for addressing deficiencies. To ensure the tools, guidance,
processes and procedures are part of a mature repeatable process, a
concerted effort is underway to fully validate all aspects of the
processes and procedures prior to official roll-out within the IRS.
This pilot program is intended to verify the soundness of the processes
and procedures and provide lessons learned, before full implementation
is effected.
The IRS is making every effort to hire qualified staff and fully
implement its improved tools, guidance, processes, and procedures as
soon as possible. However, this is taking more time than the IRS would
like. This is a pervasive problem on programs of the size and
complexity of the modernization initiative. Nonetheless, the IRS
believes that there will be evidence of increased accuracy by the end
of fiscal year 2004 and continued improvements over time.
Finally, all of these efforts are part of a highly visible set of
plans geared to identifying, tracking, reporting, and reviewing the
critical cost and schedule estimating commitments with IRS Executive
Management and GAO/TIGTA.
Question. The modernization of IRS business systems has suffered
numerous problems and delays and now some IRS staff integral to the
process are leaving, including the director of BSM. How will this
affect the program, what steps are being taken to ensure that
institutional knowledge of the modernization program remains?
Answer. In addition to putting a succession management plan in
place, the IRS needs a more versatile team of seasoned executives to
provide long-term stability to the program. The IRS is complementing
the skills of its experienced tax executives with outside seasoned
technology executives who have experience managing large-scale, complex
IT projects. As such, the IRS is hiring two Associate Chief Information
Officers to join the MITS organization, and an executive search firm is
conducting searches for five senior executives with a wide range of
diverse experience in developing and implementing large modernization
systems. The new Associate CIOs will assume modernization management
responsibilities so that the Associate CIO of business systems
modernization can focus primarily on delivering projects.
Question. Until recently, IRS has used its information technology
services staff with minimal input from its business units. The business
units will be the ultimate users of this program. What steps has IRS
taken to incorporate the business managers into BSM?
Answer. The Commissioner is holding IRS senior business unit
managers accountable for the success of modernization efforts as it
relates to defining, developing, and controlling business requirements.
For example, a senior business unit manager is responsible for working
closely with the BSM and Modernization and Information Technology
Services (MITS) executives to ensure that the delivery of the CADE
project meets all business requirements.
Question. GAO has concluded that the IRS must institutionalize the
management processes and controls necessary to resolve the deficiencies
identified by the reviews and assessments in order to strengthen
management of the Business Systems Modernization program. What steps is
IRS undertaking to accomplish this?
Answer. Over the past 2 years, the BSM organization has been
working diligently toward integrating and institutionalizing the
management processes of the BSM program. While the IRS has achieved
real progress, as recognized by TIGTA and GAO, the BSM Challenges Plan
has complemented ongoing efforts by providing a special focus on
significant issues that needed more attention.
GAO recognized the need for continual growth in the maturity of the
BSM management processes and raised concerns in key areas such as
configuration management, human capital management, contract
management, and cost and schedule estimating. Accordingly, BSMO
committed to maturing its management processes and established
corrective action plans for each area, assigned responsibilities and
set milestones, and initiated a formal monitoring process for measuring
progress in each area.
For example, the IRS has developed configuration management
processes and is institutionalizing configuration procedures. It
established a process for determining the type of task order to be
awarded and MITS is implementing plans for attracting, developing, and
retaining requisite human capital resources. Key stakeholders are
reviewing documented procedures for how to effectively validate the
cost and scheduling estimates submitted by the PRIME.
Question. The IRS Oversight Board stated in a December 2003 report
that, as the foundation of the modernization project, the Customer
Account Data Engine (CADE), requires special attention. CADE will
replace the existing IRS Master File of taxpayer accounts. It is the
most costly, complex, largest, and longest-running project within the
BSM portfolio. IRS has engaged Carnegie Mellon's Software Engineering
Institute (SEI) to review CADE. One of SEI's findings is that a key
component of CADE, its ``business rules engine'' which translates tax
processing rules into computer code, must be defined and modeled in
order for CADE to succeed. Is IRS following this recommendation and if
so, what is the status? If not, why not?
Answer. The IRS is following the recommendation from Carnegie
Mellon's Software Engineering Institute. The IRS tasked PRIME to do a
business rules engine performance engineering study that measured and
modeled the performance of the business rules engine. The IRS also
tasked PRIME to evaluate design alternatives that lowered risk of
implementing business rules. The PRIME has completed performance tests.
Senior engineers from IRS, PRIME, MITRE, and Sapiens (the business
rules vendor) met the week of May 10, to review the test results and
assess alternatives that will improve the performance of CADE and lower
the risk of implementing business rules. Design changes will be modeled
using the performance data obtained in the tests. The final report is
due to be completed June 20, 2004.
Question. In Ms. Gardiner's formal testimony, she states that
oversight groups are starting to lose confidence in the ability of your
PRIME contractor to meet its commitment in modernizing the IRS's
business systems. This observation is clearly based on the deadlines
that have already been missed and the cost overruns already incurred.
Mr. Everson, what is your current assessment of your PRIME contractor's
ability to get the job done without further delays and further cost
overruns? Are you giving any consideration to changing your PRIME
contractor on this critically important endeavor? If so, what would be
the cost to the taxpayer of changing your PRIME contractor at this
time?
Answer. There are no current plans to replace CSC as the PRIME
contractor, however, Commissioner Everson has made it vividly clear to
Mike Laphen, the President and Chief Operating Officer of CSC, that CSC
needs to significantly improve their performance. In February 2004, he
announced his decision to direct the upcoming enforcement modernization
projects for collection contract support and filing and payment
compliance to other contracts. It is the Commissioner's hope that this
action, while no doubt unwelcome to CSC, will lead to a sharpened focus
and discipline, and will in fact enhance the prospects for successful
and timely delivery of other modernization projects by CSC.
While CSC has improved their performance somewhat, the IRS
carefully assessing CSC's performance on current projects and the
results of CSC's overall program management and integration efforts
before awarding any follow-on work for existing projects. The IRS needs
consistent, high-level performance and service from CSC. The IRS has
also moved to capped or fixed price contracts for almost all
development work to balance the financial risk on modernization
projects.
COMPETITIVE SOURCING
Question. Mr. Everson, you are very familiar with the President's
competitive sourcing initiative since you served as Deputy Director for
Management at OMB. I understand that you plan to spend $9.1 million in
unbudgeted funds in fiscal year 2005. What areas are you planning to
contract out?
Answer. The $9.1 million you cite is the amount the IRS has
requested in the fiscal year 2005 budget submission to support the
Competitive Sourcing program. The IRS plans to use public-private
competition to improve operations, but only if it makes economic sense.
Traditionally, the employee government bid teams have won over 50
percent of the public-private competitions. Historically, organizations
that have successfully used competition to improve operations have
achieved an overall 30 percent reduction in operating costs. These
reductions are typically in the support functions and are achieved
through such actions as consolidation of existing facilities (releasing
commercially leased space), staff reductions, and increased use of
technology. Similarly, the IRS focus is on support functions.
Question. What is the status of all the competitive sourcing
studies that have been undertaken at IRS? Please include year, area,
and result. How much money has been spent on these competitions? Since
the competitions are not budgeted for, where has the money come from?
Answer. It has been difficult to finance the Competitive Sourcing
Program since the IRS does not know the outcomes in advance, the exact
level of savings are yet to be determined, and it takes time to realize
these savings. The IRS had to internally realign. However, the
investments made today in public-private competitions show a return on
investment usually within 2-3 years (including payment of transition
costs--voluntary early retirement, voluntary separation incentive,
etc.). At that time, the IRS plans to reinvest the savings to fund
future competitions and cover transition costs. It will take several
years to get there. The IRS does request funding in the fiscal year
2005 budget for the Competitive Sourcing program.
Status of IRS Competitive Sourcing Studies
Architects and Engineers (10 FTE).--Streamline competition resulted
in in-house award. The in-house team was most efficient.
No savings achieved.
Area Distribution Centers (500 FTE in Bloomington, IL; Rancho
Cordova, CA; Richmond, VA).--The three Area Distribution Centers
distribute tax forms, instructions and publications to taxpayers and
internal use documents to IRS employees.
Standard Competition with award decision scheduled for June 28,
2004.
Expected Saving and Benefits: Consolidation of activities and
geographic locations resulting in the release of commercial space,
revised operational processes and procedures to gain efficiencies, new
information system, reduced staff and increased managerial span of
control.
Anticipated return on investment (fiscal year 2005-fiscal year
2009): $22 million.
Building Delegations or Operation and Maintenance (O&M) of
Delegated Buildings (100 FTE in Covington, Fresno, Austin, Ogden,
Philadelphia, Headquarters).--O&M are those functions identified in the
Building Delegation Agreements between the General Services
Administration (GSA) and the IRS. These services include
responsibilities to operate and maintain building systems (electrical,
HVAC, control systems, etc.).
Standard Competition with solicitation release scheduled for June
2004.
Expected Saving and Benefits: Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated return on investment (fiscal year 2006-fiscal year
2010): $3.9 million.
Mail Rooms (70 FTE).--Mailroom services functions include all
aspects of the delivery of mail from full service delivery to mail stop
or desktop to self-service mailrooms where customers pick up their own
mail. The IRS made a decision to divide the study among headquarters,
nationwide ``stand alone sites'' and campuses.
The IRS plans to use public-private competition to improve
operations.
Direct Conversion--in progress.
Fully Implemented--Denver, CO; Detroit, MI; Plantation, FL; Detroit
Computing Center, MI; Houston (Leland), TX; Laguna Niguel, CA; Oklahoma
City, OK; and San Francisco, CA.
Partially Implemented--Washington, DC; New Carrollton, MD.
Scheduled for Implementation--Cincinnati, OH; Jacksonville, FL (5/
17); and Nashville, TN.
Implementation Not Scheduled--Atlanta, GA; Baltimore, MD; Boston,
MA; Buffalo, NY; Dallas, TX;; Greensboro, NC; Hartford, CT; Houston
(Alliance), TX; Indianapolis, IN; Los Angeles, CA; Milwaukee, WI; New
Orleans, LA; Oakland, CA; Philadelphia, PA; Phoenix, AZ; Richmond, VA;
Chicago, IL; Springfield, NJ; St. Louis, MO; St. Paul, MN.
Anticipated return on investment (fiscal year 2005-2009): $399,000.
Campus Operations (Information Technology) (350 FTE in Ogden, UT;
Atlanta, GA; Brookhaven, NY; Andover, MA; Cincinnati, OH; Fresno, CA;
Austin, TX; Memphis TN; Kansas City, MO; Philadelphia, PA).--This
functional area provides the Information Systems (IS) computer
operations at the ten IRS Campus facilities. The positions include
computer operators, production controllers, tape librarians, computer
specialists, and clerks.
Standard Competition with award decision scheduled for July 2004.
Expected Saving and Benefits: Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated return on investment (fiscal year 2005-2009): $12.7
million.
Logistics Support (formerly Warehouse and Transportation) (160 FTE
in Andover, MA; Philadelphia, PA; Brookhaven, NY; Atlanta, GA;
Covington, KY; Austin, TX; Kansas City, MO; Ogden, UT; Fresno, CA;
Memphis, TN).--This functional area provides warehousing and
transportation, mainly at the 10 campus sites. This activity includes
positions such as material handlers, warehouseman, motor vehicle
operators, laborers, and clerks.
Standard Competition with Performance Work Statement development
underway.
Expected Saving and Benefits: Revised operational processes and
procedures to gain efficiencies, release of leased space, reduced staff
and increase of managerial span of control.
Anticipated return on investment (fiscal year 2006-2010): $4.8
million.
Campus Files Activity (1458 FTE in Austin, TX; Andover, MA;
Philadelphia, PA; Brookhaven, NY; Cincinnati, OH; Memphis, TN; Atlanta,
GA; Kansas City, MO; Ogden, UT; Fresno, CA).--This functional area
receives, controls, shelves and maintains all returns/documents for
retention and retirement. They retrieve documents as requested by
customer organizations. Liaison work is critical with the Federal
Records Centers for final retention of documents. The work is routine
and does not involve making complex determinations or present unique
fact patterns.
Standard Competition with solicitation release scheduled for the
fourth quarter of 2004.
Expected Saving and Benefits: Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated return on investment (fiscal year 2006-2010): $22
million.
Learning and Education (617 FTE Service-wide).--This functional
area is responsible for determining service-wide and division-level
professional training requirements, developing training plans and
curriculum, evaluating the effectiveness of training, and performing a
broad spectrum of program administration.
Standard Competition with Performance Work Statement development
underway.
Expected Saving and Benefits: Consolidation of activities, revised
operational processes and procedures to gain efficiencies,
implementation of learning content management and learning management
systems, reduced staff and increased managerial span of control.
Anticipated return on investment (fiscal year 2006-2010): $25
million.
Competitive Sourcing Competition Costs
[In millions of dollars]
------------------------------------------------------------------------
Amount\1\
------------------------------------------------------------------------
Fiscal year 2003........................................ 5.0
Fiscal year 2004........................................ 6.3
------------------------------------------------------------------------
\1\ Travel, training, staffing, expert contractor support (PWS, Most
Efficient Organization, Independent Review)--does not reflect
transition/separation costs.
Note.--Return on investment includes cost of conducting competition and
transition/separation costs. The IRS calculated savings calculated
through fiscal year 2007.
Business Case Analysis/Feasibility Studies
Tax Law Telephone.--This is a preliminary feasibility assessment of
having a vendor provide tax law telephone assistance. After the
completion of the preliminary feasibility assessment, the IRS will make
a decision as to whether to go forward with the competition.
Fuel Compliance Activity (140 FTE Service-wide).--This function
area monitors 1,400 terminals, all fuel wholesalers, thousands of
retail motor fuel outlets, and U.S. border crossings. Additionally,
these personnel are charged with conducting periodic inspections of on-
road vehicles on highways throughout the country.
IT Support (Service-wide).--This is identification and development
of sourcing strategy to identify candidate public-private competition
activities.
Question. One of the provisions included in last year's
appropriations bill was a prohibition against using fiscal year 2004
funds to contract out any Federal job overseas. To my shock, the
President's budget specifically requests that this provision be deleted
for fiscal year 2005. Mr. Everson, could you cite for me some instances
at IRS where you might take work that is currently be conducted by
Federal employees and send that work overseas?
Answer. The IRS has no specific plans to move work overseas. There
are added complexities and security challenges that make moving work
that would involve access to the IRS's information technology systems
and/or sensitive data cost prohibitive.
However, while the IRS has no specific plans to contract work
overseas, it is conceivable that qualified bidders with overseas
operations may be responsive to future IRS public-private competitions
that do not involve access to the IRS's information technology systems
and/or taxpayer return information. The IRS will continually identify a
series of functions that are commercial in nature in accordance with
the FAIR Act. At that time, a business case is developed that indicates
whether or not a more efficient method of operation may be available.
If so, a competitive sourcing initiative is begun under the guidelines
of the OMB A-76 Circular. A contractor may then bid for that work. It
is highly unlikely that a contractor would bid work to be performed
overseas given the nature of the work the IRS has identified to date or
anticipates identifying. Under the IRS Competitive Sourcing Program, no
initiative has resulted in Federal jobs being outsourced overseas. The
IRS adheres primarily to the Federal Acquisition Regulations (FAR) and
the A-76 Circular when conducting public-private competitions for work
performed by Federal employees. The FAR currently contains some
limitation on issuance of contracts to some overseas locations.
CUSTOMER SERVICE
Question. IRS consistently finds its own accuracy rates higher than
TIGTA does when measuring taxpayer assistance functions, whether we are
talking about toll-free telephone assistance, walk-in service at
Taxpayer Assistance Centers, or the IRS website. Mr. Everson, how do
you explain the discrepancy? Ms. Gardiner, would you care to comment?
Answer. Typically, TIGTA's reports on accuracy are based on limited
judgmental sampling conducted during the brief period of their
fieldwork on a particular audit. The results that they report are not
statistically valid. The IRS results for telephone accuracy and for
irs.gov e-mail assistance are based upon an on-going process that is
statistically reliable. TIGTA typically acknowledges the limitations of
their data in their reports with statements such as, ``We selected a
judgmental sample of calls to monitor between April 21 and May 16,
2003. Our results cannot be compared to the statistical results
reported by the IRS.''
The discrepancy between the TIGTA accuracy rates and the Taxpayer
Assistance Center (TAC) walk-in service accuracy rates is due to the
calculation methodology. TIGTA and the IRS treat responses to tax law
questions differently. In contrast to the IRS, TIGTA includes referrals
to publications, service denied, and referrals to other employees in
its accuracy calculation. The IRS disagrees with the assertion that a
non-response is synonymous with providing an incorrect answer. While it
is clear that there is some disparity in methodology, it is important
to note that neither of these methods of measuring walk-in service
accuracy is statistically reliable.
TIGTA will respond separately.
Question. As stated in testimony, TIGTA found that IRS employees
incorrectly prepared 19 of the 23 tax returns prepared during TIGTA
audit visits to Taxpayer Assistance Centers. What steps has IRS taken
to remedy this egregious example of inaccuracy and Mr. Everson, do you
plan to implement the additional actions that TIGTA recommended?
Answer. The IRS implemented the recommendations made by TIGTA and
has taken several steps to remedy inaccurate return preparation. The
IRS directed all TAC employees to adhere to existing screening
procedures to ensure taxpayers meet the return preparation criteria. In
addition, the IRS required all employees to use the appropriate
worksheets in the return preparation software and the publication
method guide to assist in determining a taxpayer's eligibility for
deductions and credits claimed on the tax return.
The IRS also implemented a quality review plan to ensure TAC
employees adhere to these and other return preparation procedures in
the Internal Revenue Manual. The IRS requires group managers to
complete three employee return preparation reviews and the quality
review staff is required to visit each Area and conduct at least two
return preparation reviews.
Question. As stated in testimony, TIGTA found that IRS didn't
respond to several of the questions TIGTA submitted anonymously to the
website. Do you have statistics about the number of questions that go
unanswered? How is this allowed to happen? What is being done to
prevent this in the future?
Answer. During the period from February 22 to March 6, 2002, TIGTA
anonymously submitted 90 questions through the website. TIGTA reported
that they did not receive a response to 14 of these questions. During
that period of time, the IRS was making system changes that affected
its responsiveness. As it transitioned to a new server and a new
contractor, some messages did not transfer between servers. The IRS was
able to recover most messages, but unfortunately lost several,
including some initiated by TIGTA.
In an October 2002 report, Reference No. 2003-40-014, TIGTA
recommended that the IRS improve its control system by sending an e-
mail receipt acknowledgement to the requestor and develop a system to
track each question submitted to ensure the IRS provides a response.
The IRS concurred with these recommendations and modified the program
to add both new features in 2003. Both of these enhancements are
performing as designed. However, taxpayer e-mail limitations, such as
address problems, discontinued service, mailbox full, and stringent
spam filters may continue to block delivery of an IRS response.
Question. Ms. Gardiner points out that the IRS revised its
modernization plan for fiscal year 2003 to focus on executable segments
that could be accomplished in a timely manner. Despite all of the IRS's
assurances to the contrary, all of the projects on the newly downsized
list still experienced delays and most incurred significant cost
increases. What are her observations regarding the IRS's abilities to
deliver modernization projects on time and on budget for the current
fiscal year and next year? Why should we believe that the IRS and its
contractors will improve its performance on these projects going
forward? Mr. Everson, do you care to comment on this matter?
Answer. The BSM program is--without a doubt--one of the largest,
most visible, and most sensitive modernization programs ever undertaken
in the world.
When nominated in February 2003, the Commissioner set three
priorities for his term as Commissioner. First, the IRS must continue
to improve service to make it easier for taxpayers to understand and
comply with tax laws. Second, modernization of IRS information
technology is also a high priority. The third priority is to strengthen
the integrity of the American tax system with enhanced enforcement
activities. The Commissioner's first action to address the
modernization priority was to appoint two new leaders to the
modernization effort.
Commissioner Everson appointed John Dalrymple, a 30-year IRS
veteran who has spent his career focusing on front-line taxpayer
issues, as the Deputy Commissioner for Operations Support to own the
modernization initiative and drive productivity across the IRS.
Simultaneously, he appointed the former IRS Chief Financial Officer, W.
Todd Grams, to the position of Chief Information Officer to bring
stronger leadership and discipline to the technology modernization
program.
These executive appointments to the IRS modernization program
represent a major change in the way the IRS has managed previous
modernization projects. They were necessary steps to bring more
management discipline and increased business unit knowledge and
involvement to the modernization program. The following is a brief
recap of IRS's progress and struggles over the past year.
The results have been mixed. The IRS built a strong technical
infrastructure, and designed and implemented stringent security and
control mechanisms into the infrastructure. It also developed a
rigorous enterprise life cycle methodology. Over the past 2 years, the
IRS has been working toward maturing its management processes. The IRS
has made progress, but a major thrust now focuses on sustaining a solid
balance of business commitment, accountability, and scope management.
Finally, the IRS has achieved a great deal of success with the projects
delivered to date.
For the first time ever, corporations and tax exempt organizations
have the option of filing their annual income tax and information
returns electronically using Modernized e-File (MeF). This new
electronic filing system significantly reduces the time and cost for
corporations and tax exempt entities to file their Forms 1120 and 990.
Simply by using a secure Internet connection to file 1120 and 990
forms, corporations and tax exempt organizations eliminate the need to
submit hundreds of pages of paper returns. The e-Gov Institute recently
chose MeF as a winner of the Government Solutions Center Pioneer
Awards.
The IRS has achieved a great deal of success with the e-Services
projects. All e-Services Release 1.0 products are fully deployed and
available over the Internet, including: registration and online address
change access for third parties and IRS employees through secure user
portals; Preparer Tax Identification Number (PTIN) online application;
interactive Taxpayer Identification Number (TIN) matching; secure
Electronic Return Originator (ERO) application processing; and access
to e-Services registration and application processes by Modernized e-
File (MeF) participants.
E-Services Release 2.0 products are also now in production and
available for use by IRS staff and taxpayers, including: Application
for e-Filing (external); Electronic Account Resolution (EAR);
Electronic TIN Bulk Matching (Bulk Requests); Disclosure Authorization
(DA); and infrastructure support for outbound facsimile service.
In March 2004, James D. Leimbach appeared before the Ways & Means
Oversight Subcommittee on behalf of the National Association of
Enrolled Agents (NAEA), the professional society of enrolled agents, to
present NAEA's views regarding e-Services delivering electronic
services to tax practitioners. NAEA's overall assessment was that the
2003 filing season has run very smoothly--and the NAEA gave the IRS a
great deal of praise.
Mr. Leimbach said, ``The difficulty in integrating a 1960's era
mainframe with the Internet and doing so in an environment using highly
complex encryption is enormous, costly, and worth every effort and
every dime spent.'' He added, ``This new capability is truly going to
revolutionize the way we conduct future business with the IRS. The
ultimate beneficiary is the American taxpayer. We are truly amazed and
thrilled beyond description at this way of doing business with the IRS
and we would like for you to understand why we feel as we do.''
Mr. Leimbach cited numerous examples of eliminating time delays of
over a week and reducing response times from weeks and months to 3 days
simply by having the ability--24 hours a day, 7 days a week--to submit
information directly to the IRS using the Internet.
The IRS delivered several additional applications that are
providing tangible benefits to taxpayers and improving the efficiency
and effectiveness of tax administration systems such as Where's My
Refund?, Where's My Advance Child Tax Credit?, Internet EIN, Modernized
e-File, HR Connect, etc. The following chart highlights the
applications the IRS delivered, as well as the measurable business
benefits being realized.
BSM DELIVERS REAL BUSINESS VALUE (RESULTS AS OF 6/15/04)
----------------------------------------------------------------------------------------------------------------
Project Description Recent Statistics
----------------------------------------------------------------------------------------------------------------
Internet Refund Fact of Filing Improves customer self-service by --17.9 million inquiries in 2003; 22
(2002). providing instant refund status million inquiries to date in 2004
information and instructions for (1/1/04-6/6/04).
resolving refund problems to --32 percent of all real time IRS
taxpayers with internet access. assistance calls come from IRFoF.
--Modest reduction of
telecommunications costs (about
$250,000).
--Every 1,000 IRFoF contacts
eliminate 1,500-2,000 refund
assistance calls.
Advanced Child Tax Credit (2003)... Modifies the Internet Refund --15.5 million inquiries in 2003;
application to provide taxpayers 11.9 million inquiries to date in
with Advance Child Tax Credit refund 2004 (10/1/03-6/13/04).
status on the internet. --Peak date 1.1 million interaction.
Customer Communications (2001)..... Improves communications --68,000 calls in one 3-minute
infrastructure, including telephone period during initial week
call management, call routing and (coincided with start of Advanced
customer self-service applications. Tax Refund of 2001).
--50 percent reduction in waiting
time for assistor to answer call.
--50 percent reduction in abandoned
calls.
--Number of Spanish calls doubled.
--More accurate pre-routing of
calls.
Internet Employee Identification Allows businesses and taxpayers to --1.37 million internet EIN
Number (2003). apply for and receive employer applications received to date (as
identification numbers over the of 6/5/04).
internet.
HR Connect (2002).................. Delivers an enterprise solution to --75,000 internal users.
allow IRS employees to access and --Cited by Commissioner Everson as
manage their human resources an enabling factor in the
information online. redirection of approximately 750
staff years to enforcement.
--Treasury was selected as 2004
ComputerWorld Honors Laureate for
HR Connect development and
implementation.
e-Services R1 (2003-2004).......... Creates a web portal and value adding --Over 69,624 PTIN applications
e-Services services to promote the (W7P) entered to date, data entry
goal of conducting most of the IRS's productivity doubled (from 8/15/03-
transactions with tax practitioners 6/10/04).
electronically. --Over 58,201 e-File applications to
the Third-Party-Data-Store (TPDS)
entered to date (from 8/15/03-6/10/
04).
--Approximately 24,939 Registered
(and confirmed) User Portal (RUP)
to date (from 10/1/03-6/10/04).
Customer Relationship Management Provides standard tax computation --Deployed to almost 4,000 Revenue
Exam (2001). software to Large & Mid-Sized Agents.
Business Revenue Agents.
Modernized e-File (2004)........... Provides e-filing to large businesses --Went live on 2/23/04.
(1120 family) and tax exempt --Over 35,090 returns (1120 family)
organizations (990 family). accepted as of 6/13/04.
--Over 3,287 participating
Electronic Return Originators as of
6/13/04.
--Winner of Government Solutions
``Best-of-the Best'' Pioneer
Solutions.
----------------------------------------------------------------------------------------------------------------
The bad news, however, is major. Significant cost overruns and
repeated schedule delays have plagued critical projects, such as the
Customer Account Data Engine (CADE), the Integrated Financial System
(IFS), and the Custodial Accounting Project (CAP). CADE replaces the
current master files that are the IRS's repository of taxpayer
information. IFS will be the IRS's new core accounting system. CAP
provides an integrated link between tax administration (revenue) and
internal management (administrative) financial information.
The IRS has delayed the CADE program four times. It originally
planned to deliver the first release of CADE in December 2001. The IRS
then rescheduled it for August 2003, and later rescheduled it for April
2004. The IRS recently finalized the re-planning effort for CADE and
set the latest delivery date for September 2004. While CADE is farther
along than the IRS has ever been in replacing a component of the master
file, there are still major hurdles to overcome. The CADE delays
stemmed from infrastructure upgrades, initial poor software quality
during the startup of systems integration testing combined with the
failure to understand the complexity of balance and control, and the
resolution of operational and performance issues that occurred during
Phase 3 of the Release 1.0 pilot.
Like CADE, IFS has been plagued with schedule delays. The IRS
originally planned to deliver the first release of IFS in October 2003.
The IRS then rescheduled it for January 2004. The IRS later rescheduled
it for April 2004. The IRS has subsequently scheduled Release 1.0 for
October 2004. The IRS delayed the first release of IFS because of the
need to make technical changes to comply with the enterprise
architecture, the inability to resolve key design and integration
issues in a timely manner, the identification of the health coverage
tax credit interface requirement late in the development process, and
delays experienced in integration testing due to poor application
quality and interface testing issues.
IFS Release 1.0 will cover core accounting functions such as budget
preparation, general ledger, accounts payable, accounts receivable,
financial reporting, and purchasing. Problems continue to seriously
jeopardize the scheduled delivery of this first release of IFS. The IRS
is 2 weeks behind schedule on testing, which puts the data conversion
schedule at risk. The IRS is negotiating a fixed price contract for the
October delivery.
The IRS is also encountering delays on the first release of the
Custodial Accounting Project (CAP), which provides an integrated link
between tax administration (revenue) and internal management
(administrative) financial information. The first release of CAP will
address revenue from individual taxpayers on initial tax payments.
Later releases of CAP will address businesses and collections. CAP
delays resulted from unstable CADE and IFS interface definitions,
needing additional testing time due to a much larger than anticipated
volume of data anomalies discovered during the conversion of data from
the current Individual Master File (IMF), and the time required
resolving system performance issues.
In addition, though not directly responsible for CAP delays to
date, the IRS has made some adjustments to the functionality that it
needs to have in CAP Release 1 to support the GAO financial audit as
well as internal accounting and management. These adjustments will
increase the cost of later sub-releases of CAP Release 1. The IRS has
now completed all testing for CAP Release 1, and is adding changes to
reflect IMF changes from the start of the 2004 filing season (Release
1.1). The IRS plans to start production, which includes the initial
load of IMF data, in mid-August. The IRS negotiated a fixed price
contract for Release 1 and Release 1.1 in May 2004.
Question. Ms. Gardiner, in her testimony, points out that she found
several instances where the Business System Modernization project teams
at the IRS were cutting corners and not following established testing
procedures due to their desire to meet overly optimistic project
schedules. It seems that the IRS responds to missing its deadlines by
cutting corners and thus undermining the likelihood that the agency
will get what it paid for. What has Ms. Gardiner concluded about the
IRS's ability to manage these projects effectively and ethically? Is
there any reason to hope that the IRS is turning a corner and actually
getting value for the taxpayer from these modernization projects? Mr.
Everson, would you care to comment?
Answer. The IRS used the results from independent studies
commissioned during the summer of 2003 to create a BSM Challenges Plan
comprised of 40 some action items. Given the strategic importance of
the plan, The Commissioner appointed an IRS business unit deputy
commissioner to oversee the implementation of the plan.
As a first step, the BSM project team developed a crosswalk to
ensure that the BSM Challenges Plan's definition of the issues
addressed and/or satisfied all of the recommendations from the four
commissioned studies as well as the recommendations submitted by the
IRS Oversight Board, and the Software Engineering Institute (SEI) study
of CADE.
While the deputy commissioner made significant progress in
implementing the plan, the full closure of all actions items was
unrealistic within the elapsed timeframe of the 6-month appointment.
Concurrently, the CIO created a new direct report position for
modernization management and assigned responsibility for implementing
the plan to the individual recently hired into this newly created
position.
Under the leadership of the deputy commissioner, the IRS and CSC
team brought closure to several key actions items, including:
clarifying the roles of committees as advisory, identifying
``blockers'' on contracting issues, appointing business leaders to each
project, establishing a risk-adjusted schedule and new baseline for
CADE Releases 1.0 and 1.1, and increasing the frequency of CADE reviews
with the business owner to twice monthly. The majority of the action
items are still works-in-progress, some of which will take time to
fully complete. Others will span the life of the BSM program.
For example, strengthening systems engineering capabilities by
hiring external candidates will take time since it involves conducting
the searches, interviewing the candidates, and negotiating the new
hires to come on board. The IRS and CSC developed ground rules for
escalating issues, but they will need to be continually enforced
throughout the life of the program. The IRS rewrote the charters of the
governing committees to reflect their advisory role and clearly
articulated their responsibilities, however, it will probably take a
year to truly evaluate and measure their effectiveness.
As stated, the IRS has made progress toward closing all the action
items, but it has much more work to do in critical areas. For example,
the IRS needs to religiously follow the proper methodologies and hold
people accountable if they do not. The IRS must start ``doing things
right'' as opposed to ``doing things fast'' such as exiting milestones
prematurely. An ongoing challenge will be balancing the scope and pace
of projects consistent with capacity, ensuring that the right people
are in place before launching a project, and setting realistic delivery
schedules and cost estimates. The IRS is committed to staying-the-
course and delivering on its promise to modernize America's tax
systems, but it is important for everyone to acknowledge this is a
monumental effort.
The magnitude and evolution of the BSM program dictates that the
IRS will always be going through an evolution of assessment and
improvements. In that regard, the BSM Challenges Plan is still evolving
and the IRS is using certain action items to continuously improve the
program.
______
Questions Submitted by Senator Richard J. Durbin
TAX EVASION/IRS COLLECTION
Question. In the days leading up to April 15, newspapers around the
country ran features on personal and corporate tax evasion and the
IRS's failure to collect many of the taxes it is owed. The President
proposes a 4.6 percent increase in IRS funding for fiscal year 2005,
claiming that this will allow the hiring of 5,000 new auditors and
collectors. While increasing the number of IRS agents and officers is
central to more effective tax collection, the IRS Oversight Board
argues that much of the 4.6 percent increase will be swallowed by
rising salaries and administrative costs. In fact, the Oversight Board
claims that fiscal year 2005 is the fourth year in a row in which the
administration has called for IRS staff increases while failing to
cover pay raises or required expenses.
In your estimation, how many new auditors and collectors would be
hired as a result of a 4.6 percent increase in IRS funding in fiscal
year 2005, and what would be the impact of such an increase on the
IRS's ability to collect some of the estimated $250 billion in owed
taxes that go unpaid each year due to tax evasion?
Answer. The IRS will hire approximately 5,000 new enforcement
personnel. These new hires will improve voluntary compliance by
increasing the number of individual and corporate returns examined and
directly increasing collections of delinquent revenue owed to the
government by approximately $3 billion in the first 3 years of the
initiative, fiscal year 2005 through fiscal year 2007, and additional
collections of $1.5 billion annually thereafter. This increase in IRS
enforcement personnel also improves voluntary compliance by deterring
would-be tax cheats from engaging in illegal behavior.
TAX ASSISTANCE PROGRAM--ILLINOIS
Question. In the fiscal year 2004 Senate Transportation-Treasury
Appropriations report, language was included regarding the Tax
Assistance Program in Chicago, Illinois. ``The Committee is aware of an
innovative financial literacy and tax assistance project in Chicago,
Illinois--Tax Assistance Program--designed to assist low income workers
and their families with tax education and filing, in cooperation with
the State of Illinois and the City of Chicago's Earned Income Tax
Credit (EITC) outreach efforts. The Committee encourages the IRS to
continue to provide appropriate technical and financial assistance for
this worthwhile initiative.''
Is the IRS working with the Tax Assistance Program in Chicago,
Illinois, and what Federal resources are being provided? Will the IRS
continue to work with programs like TAP in Chicago in fiscal year 2005?
Answer. The IRS has partnered with the Tax Assistance Program (TAP)
for several years and each year has been increasingly impressed with
the achievements and the dedication of the staff and volunteers. The
IRS is very fortunate to have this fine organization as a partner in
providing free tax preparation to low income taxpayers in the Chicago
metro area. The IRS hopes to sustain this relationship in fiscal year
2005 and for many years to come. However, outside the Low Income Tax
Clinic (LITC) Grant Program, the IRS has no legal authority to offer
funding to the TAP organizations. The TAP currently receives Federal
funds available through the LITC Grant Program, and the IRS anticipates
that the TAP will continue to apply for funding through this program in
the future.
______
Questions Submitted to the Treasury Inspector General for Tax
Administration
Questions Submitted by Senator Richard C. Shelby
MODERNIZATION
Question. How much more is needed to complete and modernize the
IRS's outdated systems and processes?
Answer. We do not know the true total cost needed to complete the
Business Systems Modernization (BSM) effort. To date, the Internal
Revenue Service (IRS) has received $1.6 billion for this effort. The
IRS anticipates that the value of the PRIME \1\ contract will be $8
billion. However, the PRIME contract is not the only cost associated
with the BSM effort as other contractors, such as Northrop Grumman,
International Business Machines, and MITRE Corporation, are involved in
the BSM effort. In addition, the IRS is incurring substantial internal
costs in managing the BSM effort. The sum of all PRIME contractor,
other modernization contractors, and IRS costs for the life of the BSM
program is not known.
---------------------------------------------------------------------------
\1\ The PRIME contractor is the Computer Sciences Corporation,
which heads an alliance of leading technology companies brought
together to assist with the IRS's efforts to modernize its computer
systems and related information technology.
---------------------------------------------------------------------------
Question. Is the fiscal year 2005 budget request consistent with
that TIGTA assessment?
Answer. Yes. We have recommended since September 2002 that the IRS
slow the pace of the BSM program due to some of the risks that have
surfaced. The fiscal year 2005 budget request is consistent with our
past recommendations.
Question. When will BSM be completed?
Answer. The BSM program is currently in its sixth year of a 15-year
contract. However, the IRS and the PRIME contractor have been
experiencing significant delays. For example, the Customer Account Data
Engine (CADE) \2\ project is approximately 30 months behind schedule,
and the detailed planning for the business taxpayer account portion
(Federal tax deposits, corporate entities, partnerships, etc.) of the
project has not been completed. Unless the IRS and the PRIME contractor
take actions to make up the lost time and thoroughly plan all projects,
it is difficult to know how long the BSM effort will last.
---------------------------------------------------------------------------
\2\ The CADE is the foundation for managing taxpayer accounts in
the IRS's modernization plan. It will consist of databases and related
applications that will replace the IRS's existing Master File
processing systems and will include applications for daily posting,
settlement, maintenance, refund processing, and issue detection for
taxpayer tax account and return data.
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Question. What is the status of IRS's efforts to resolve the
findings and deficiencies identified by the various internal and
independent assessments of BSM?
Answer. To address the results of the recent assessments, the IRS
and the PRIME contractor have developed a 48-point action plan, known
as the ``BSM Challenge Plan''. While the 48 planned corrective actions
should help improve the BSM program, it will take time to
institutionalize new processes and ensure they are being followed. Only
at that time will it be possible to determine if the actions have been
effective.
The IRS recently reported that 44 of the 48 action plan items were
closed. However, our preliminary analysis shows that additional actions
are scheduled for many of these closed items. The IRS Chief Information
Officer acknowledged that follow-on actions are required to completely
address the various internal and independent BSM assessments.
It should be noted that the various assessments resulted in 21
recommendations for improvement in the BSM program, 15 of which are
similar to those made in Treasury Inspector General for Tax
Administration (TIGTA) reports issued during the past 3 years. In
several instances, the principal recommendations were reported multiple
times during this period. Since many of the prior TIGTA recommendations
have resurfaced as part of the recent assessments, we conclude that
previous weaknesses have proven difficult to correct. Only time will
tell whether actions taken as part of the 48-point plan will completely
address the root causes identified in the various assessments.
______
Questions Submitted by Senator Patty Murray
MODERNIZATION
Question. Ms. Gardiner, your testimony says that IRS plans to
request $142 million--the remainder of the $388 million appropriated
last year--for Business Systems Modernization in fiscal year 2004. In
your opinion, based on performance to date, should the Congress
withhold or make conditional the approval of that $142 million?
Answer. While we have not been provided with a copy of the revised
spending plan, our opinion is that the Congress should approve the
release of the remaining $142 million. In February 2004, the
Commissioner testified, ``It's no secret that our projects have
consistently run late, delivered less functionality than planned, and
cost significantly more than targeted.'' The IRS's track record is of
concern; however, the withholding of funds could cause projects to
stop, which would result in the loss of contractor expertise and would
lead to additional costs needed to restart the projects. In addition,
there has been little time to determine if the actions being taken as
part of the 48-point plan are leading to improvements.
We believe the $142 million in additional funding should be
provided, but we would recommend to the Appropriations Subcommittee
that the BSM program be monitored closely to determine if future
funding is warranted. The IRS and the PRIME contractor have developed a
48-point plan to respond to various internal and independent
assessments. Once the 48-point plan is implemented, it will take time
to institutionalize new processes and ensure they are being followed.
Only at that time will it be possible to determine if the corrective
actions have been effective.
Question. Ms. Gardiner, you point out that the IRS revised its
modernization plan for fiscal year 2003 to focus on executable segments
that could be accomplished in a timely manner. Despite all of the IRS's
assurances to the contrary, all of the projects on the newly downsized
list still experienced delays and most incurred significant cost
increases. What are your observations regarding the IRS's abilities to
deliver modernization projects on time and on budget for the current
fiscal year and next year? Why should we believe that the IRS and its
contractors will improve its performance on these projects going
forward? Mr. Everson, do you care to comment on this matter?
Answer. We believe that there are two critical areas that the IRS
needs to address to be able to deliver modernization projects on time
and on budget: requirements management and contract management. We have
provided recommendations for improvement to the IRS in these areas, and
the 48-point plan also addresses these areas. In addition, we have
additional concerns in the areas of portfolio management, integration
management, and staffing.
Requirements Management
The PRIME contractor testified that the heart of the problem has
been the lack of fully defined requirements. While it is inevitable
that some requirements changes will be needed, e.g., legislative
changes, the PRIME contractor testified that it often began work
without fully understanding requirements, and requirements were still
being identified during the testing phase. In our opinion, this is the
fault of both the IRS and the PRIME contractor. The IRS should create
detailed requirements before moving forward, and a contractor at the
maturity level of the PRIME contractor should know not to start work
without a full understanding of requirements. Requirements instability
will continue to lead to increased costs and schedule delays if not
corrected. This area has been a continuing concern and has been
reported in several TIGTA reports, beginning in November 2001.
Contract Management
Beginning in February 2001, we have made recommendations to assist
the IRS in shifting financial risk to the PRIME contractor. Our
recommendations have ranged from including positive and negative
contractor incentives in task orders to using firm-fixed price task
orders whenever possible. The recent BSM assessments also recommended
moving toward a firm-fixed price model. When requirements are fairly
stable, a firm-fixed price task order shifts some of the risk away from
the government and to the contractor. If requirements become stable and
firm-fixed price task orders begin to be issued, this will begin to
curb some of the cost overruns that have been experienced to date.
However, this may not have an effect on the timeliness of delivery.
Portfolio Management
Beginning in 2002, both the TIGTA and the General Accounting Office
recommended that the IRS slow the pace of the BSM program due to some
of the risks that have surfaced. The recent internal and independent
assessments also make this point. While the IRS responded to this
concern by scaling back the scope and number of projects in fiscal year
2003, we noted the fiscal year 2004 BSM plan includes an additional
modernization project (Collection Contract Support--part of the Filing
and Payment Compliance project).\3\ Since the IRS and its contractors
have been unable to deliver the scaled-back portfolio of projects on
time and within cost, we continue to be concerned that the IRS and its
contractors may not have the ability to successfully manage the BSM
portfolio.
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\3\ The Filing and Payment Compliance project will provide support
for detecting, scoring, and working nonfiler cases (filing compliance)
and delinquency cases (payment compliance).
---------------------------------------------------------------------------
Integration Management
When the BSM effort began, the PRIME contractor was responsible for
all modernization projects, with the exception of the Custodial
Accounting Project.\4\ As such, one significant role of the PRIME
contractor was to ensure integration between all modernization
projects. This role has become blurred recently with the PRIME
contractor not being responsible for the Modernized e-File project. In
addition, the Commissioner testified that he had decided to direct
upcoming enforcement modernization projects to other contracts. With
more modernization work being performed outside of the PRIME contract,
the risk increases that modernization projects will not work in a fully
integrated fashion.
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\4\ The CAP will be a single, integrated data repository of
taxpayer account information, integrated with the general ledger and
accessible for management analysis and reporting.
---------------------------------------------------------------------------
Staffing
Recently, the IRS reported to the IRS Oversight Board that it has
or will make changes in six of eight executive positions within the BSM
program in an effort to bring more outside experience into the program.
While the addition of new executives from outside the organization may
bring new ideas and energy to the program, we are concerned about the
potential disruption that it may cause. As part of our annual BSM
assessment, we have included the following challenge for the last 3
fiscal years: ``Maintain the continuity of strategic direction with
experienced leadership.''
Question. Ms. Gardiner, in your testimony, you point out that you
found several instances where the Business System Modernization project
teams at the IRS were cutting corners and not following established
testing procedures due to their desire to meet overly optimistic
project schedules. It seems that the IRS responds to missing its
deadlines by cutting corners and thus undermining the likelihood that
the agency will get what it paid for. Ms. Gardiner, what have you
concluded about the IRS's ability to manage these projects effectively
and ethically? Is there any reason to hope that the IRS is turning a
corner and actually getting value for the taxpayer from these
modernization projects? Mr. Everson, would you care to comment?
Answer. Our audits are not designed to examine the ethics of
project management and, therefore, we cannot answer this portion of the
question. The IRS and its contractors have deployed projects that
provide value to taxpayers and have built the infrastructure needed to
support these projects. Some of the BSM projects that have delivered
value to taxpayers are the Customer Communications, Internet Refund/
Fact of Filing (IRFOF), Internet Employer Identification Number (I-
EIN), e-Services, and Modernized e-File (MeF) projects.
Customer Communications.--This project has improved customer
service by increasing the capacity of the toll-free telephone system
and providing the ability to route taxpayers' calls to the appropriate
IRS employees. This project became operational in August 2001.
IRFOF.--This application (also known as ``Where's My Refund?'')
offers improved customer self-service by providing refund status
information via the Internet. The pilot version of the ``Where's My
Refund?'' application was deployed in May 2002. The application was
upgraded in 2003 and was accessed 17.9 million times that year
according to the IRS. In 2003, the application was modified to provide
taxpayers with Advance Child Tax Credit refund status via the Internet.
The IRS stated that 15.5 million Advance Child Tax Credit inquiries
were received in 2003.
I-EIN.--This application allows small businesses and self-employed
taxpayers to obtain EINs online, eliminating the need to send paperwork
to the IRS. This application was deployed in May 2003. The Commissioner
recently testified that the application had processed over 450,000
applications as of February 2004.
e-Services.--Deployed in August 2003, this project allows tax
professionals the ability to register online, create an electronic
account, and apply for a Preparer Tax Identification Number to use in
place of their Social Security Number for submitting returns. The IRS
reported in January 2004 that over 16,000 tax professionals had applied
to use the e-Services application.
MeF.--This project is developing the modernized, web-based platform
for electronically filing approximately 330 IRS forms. The first
release of the MeF project was deployed in late February 2004 and
provided electronic filing for 59 forms, including United States (U.S.)
Corporation Income Tax Return (Form 1120), U.S. Income Tax Return for
an S Corporation (Form 1120S), Return of Organization Exempt From
Income Tax (Form 990), Short Form Return of Organization Exempt From
Income Tax (Form 990-EZ), U.S. Income Tax Return for Certain Political
Organizations (Form 1120-POL), and Application for Extension of Time To
File an Exempt Organization Return (Form 8868). The IRS has stated that
over 18,520 tax returns had been accepted by March 21, 2004.
Progress is being made. Nonetheless, BSM projects are taking longer
and costing more to deliver less than originally anticipated. Over the
past 2 fiscal years, we have cited 4 primary challenges the IRS and its
contractors must overcome to be successful: (1) implement planned
improvements in key management processes and commit necessary resources
to enable success, (2) manage the increasing complexity and risks of
the BSM program, (3) maintain the continuity of strategic direction
with experienced leadership, and (4) ensure PRIME contractor
performance and accountability are effectively managed. Based on the
results of recent TIGTA audits, as well as the assessment findings, we
believe these four challenges still need to be met to achieve program
success.
While the actions in the 48-point plan mentioned previously should
help improve the BSM program, it will take time to institutionalize new
processes and ensure they are being followed. Only at that time will it
be possible to determine if the corrective actions have effectively
addressed the four major challenges.
FAILURE TO COLLECT DELINQUENT TAXES
Question. A recent report by the Treasury Inspector General for Tax
Administration (TIGTA) found that IRS's existing procedures are
ineffective in ensuring even that criminals who are convicted in court
for tax evasion are paying their civil tax liabilities. Why can't IRS
collect from tax cheats?
Answer. In response to our recommendations in the subject report,
the IRS issued an April memorandum to both the Small Business/Self-
Employed Division and the Criminal Investigation organization
containing interim procedures to process cases with terms of probation
and to monitor compliance with these cases.
Question. Ms. Gardiner, given the fact that the head of IRS-
Criminal Investigations disagreed with a number of your
recommendations, are you confident that this grotesque abuse will be
stopped?
Answer. The IRS did, in fact, disagree with several of our
recommendations. First, the IRS disagreed with our recommendation
concerning a technical legal matter on disclosure of tax information,
stating that it believed it already had sufficient instructions on the
matter. Our main concern in reporting the issue was to ensure that the
disclosure rules were interpreted consistently and with the broadest
possible application. The disclosure issue itself is tangential to the
main problem of inadequate monitoring of, and follow-up on, probation
cases.
The IRS also disagreed with our characterization of the impact of
the errors in the Criminal Investigation Management Information System.
Again, this issue is tangential to the main problem and does not affect
the IRS's need for or commitment to improving its processes on
monitoring terms of probation.
Finally, although the IRS disagreed with a recommendation to
establish certain procedures and part of another recommendation to
establish periodic systemic reports, it committed to reemphasizing its
existing instructions and procedures, which it did in the April
memorandum referenced above. As we stated in our report, we believe
that this commitment satisfied the intent of our recommendations.
As to whether we are confident that this abuse will be stopped, the
key will be the proper implementation and monitoring of the corrective
actions recently taken or planned. If done properly, the IRS should be
in a much better position to report to the courts whenever terms of
probation are not met. Of course, collecting delinquent taxes or
securing delinquent returns will also be a function of the taxpayer's
ability to pay or requirement to file.
Question. Ms. Gardiner, why do you believe that IRS has not cleared
up even the simplest of cases of uncollected taxes?
Answer. The IRS collection process for most cases begins with a
series of notices mailed to taxpayers, asking them to pay the balance
due. If the taxpayers do not respond, the cases are assigned either to
the Queue (which is a holding area for cases waiting further assignment
to the Collection Field function (CFf)) or the Automated Collection
System (ACS) to be worked by telephone collectors. Generally, higher-
priority cases are placed in the Queue while lower-priority cases are
assigned to the ACS. If the ACS cannot resolve the cases, some of them
are also assigned to the Queue. Cases in the Queue are assigned to
Revenue Officers in the CFf according to priorities established by IRS
management. In addition, the IRS has recently implemented a risk-based
approach that attempts to select those cases with the highest
probability of being collected. As a result, many lower dollar amount
cases for individual taxpayer liabilities may not be collected if the
taxpayer did not respond to the notice or a phone call.
Overall, the IRS is making some progress in collecting unpaid
taxes. As we reported in April 2004, the level of compliance activities
and the results obtained in many Collection function areas in fiscal
year 2003 showed a continuing increase. Enforcement actions were higher
in fiscal year 2003 than in fiscal year 2002, but they have not
returned to pre-1998 levels. Enforcement revenue collected increased
substantially in fiscal year 2003, while the total amount of
uncollected liabilities and the gap between new delinquent accounts and
account closures decreased slightly. Finally, the amount owed on
accounts in the Queue decreased in fiscal year 2003, but the number of
accounts in inventory increased.
Question. Do you consider it a possibility that IRS has not done so
in order to build a case for the use of private collection agencies?
Answer. The IRS does not have the resources to work every
delinquent account case. It has established risk-based priority systems
in an attempt to use ACS and CFf resources as efficiently as possible.
We have no evidence that the IRS is intentionally not working these
cases to build a case for the use of private collection agencies.
CUSTOMER SERVICE
Question. IRS consistently finds its own accuracy rates higher than
TIGTA does when measuring taxpayer assistance functions, whether we are
talking about toll-free telephone assistance, walk-in service at
Taxpayer Assistance Centers, or the IRS website. Mr. Everson, how do
you explain the discrepancy? Ms. Gardiner, would you care to comment?
Answer. The large number of taxpayers who use Toll-Free Telephone,
Taxpayer Assistance Centers (TAC), or the IRS's website, IRS.gov, to
get answers to their tax law and account questions prohibits us from
using statistical sampling techniques in our audits to determine the
accuracy of IRS answers.
----------------------------------------------------------------------------------------------------------------
IRS-Reported IRS-Reported TIGTA-Reported
Type of Service Customers Accuracy Accuracy
Served (Percent) (Percent)
----------------------------------------------------------------------------------------------------------------
Taxpayer Assistance Centers..................................... 8,588,850 \1\ 75 69
Referral-Mail................................................... 279,558 72 74
Toll-Free Accounts.............................................. 27,645,540 89 78
Toll-Free Tax Law............................................... 5,381,687 83 73
Internet-based IRS website, IRS.gov............................. 119,036 N/A Over 80
----------------------------------------------------------------------------------------------------------------
\1\ IRS accuracy rate reported in the Wage and Investment Operating Division Business Performance Report, page
10, dated May 11, 2003.
Figures for TACs, Referral-Mail, Toll-Free Accounts, and Toll-Free
Tax Law reported by the IRS are for fiscal year 2003. Figures for
IRS.gov reported by the IRS are for the 2002 Filing Season.
Toll-Free Telephone Assistance
The differences in the TIGTA's and IRS's accuracy rates are based
largely on the differences in the sampling methodologies, including the
sample sizes. For example, during the 2004 Filing Season, we monitored
over 350 toll-free tax law calls while during the same time period for
the same types of tax law questions (referred to as applications) the
IRS selected for monitoring a statistically valid sample of 1,527 tax
law calls. For fiscal years 2002, 2003, and 2004, we monitored a
judgmental sample of live taxpayer toll-free tax law calls received by
the IRS during the filing season, generally considered the months of
January through April. Although our judgmental sample is not
statistically valid, we attempt to ensure it is representative of the
population by creating a sampling plan in which the percentage of calls
monitored by type of tax law question is reflective of the IRS's
planned filing season volumes of calls per application. However, we do
not always monitor calls on late evenings and on the weekends.
See ``Improvement Is Needed in E-Mail Responses to Complex Tax
Questions Submitted Through Toll-Free Telephone Help Lines'' (Reference
Number 2004-40-029, dated December 2003); ``Toll-Free Account
Assistance to Taxpayers Is Professional and Timely, but Improvement Is
Needed in the Information Provided'' (Reference Number 2004-40-057,
dated February 2004); ``Toll-Free Tax Law Assistance to Taxpayers Is
Professional and Timely, but Improvement Is Needed in the Information
Provided'' (Reference Number 2003-40-216, dated September 2003).
Taxpayer Assistance Centers
The IRS did not measure the accuracy of its answers to tax law
questions asked in the TACs until fiscal year 2003. For 2003, the IRS
used judgmental sampling to determine accuracy. In fiscal year 2004,
the IRS is attempting to establish a baseline using statistical
sampling.
Though we used judgmental sampling for Calendar Years 2002 and 2003
to determine whether taxpayers were provided correct and prompt answers
to their questions, we did ensure all TACs were visited during these 2
years. For Filing Season 2004, we again used a judgmental sample of
TACs, ensuring that we visited at least one TAC in each of the IRS's
territory offices. We visited 199 TACs in 2002, 209 in 2003, and 64 in
2004 (note that these numbers are only TACs visited to ask questions
within the scope of TAC employees' training).
However, we average 80 questions per month while the IRS's Field
Assistance quality reviewers average 420 a month (Wage and Investment
Operating Division Business Performance Report, page 6, dated May 11,
2003). In addition, the IRS does not compute its accuracy rates the
same way we compute it. TIGTA results present the overall results of
auditor visits. Accuracy rates are calculated by dividing the total
response for each category (i.e., correct, incorrect, refer to
publication, etc.) by the total number of questions asked. In contrast,
the IRS disagrees with our methodology for including referrals to
publications and service denied when computing accuracy rates.
See ``Taxpayer Assistance Center Employees Correctly Answered More
Tax Law Questions During September and October 2003 Than Compared to
One Year Ago'' (Reference Number 2004-40-037, dated January 2004),
``Accuracy Rates Have Increased at Taxpayer Assistance Centers, but
Improvement Is Needed to Provide Taxpayers Top-Quality Customer
Service'' (Reference Number 2004-40-065, dated February 2004), and
``Taxpayer Assistance Center Employees Correctly Answered More Tax Law
Questions During November and December 2003 Than Compared to One Year
Ago'' (Reference Number 2004-40-090, dated April 2004).
IRS.gov
The differences in the TIGTA's and IRS's accuracy rates are based
on the different methodologies, including the sample sizes. For the
TIGTA fiscal year 2002 audit, TIGTA auditors anonymously submitted 90
tax law questions typical of those that may be submitted by an
individual taxpayer. We rated the answers to those questions we
submitted. In contrast, during the 2001 Filing Season, the IRS quality
review system selected 995 questions for quality review.
The IRS has a centralized quality review site that samples email
responses for accuracy and measures accuracy with a statistically valid
sampling plan designed by its Statistics of Income function. The
sampling plan requires the selection of email responses without regard
to the type of taxpayer or tax law category, i.e., whether the tax law
question pertains to individual or business taxpayers.
See ``Response Accuracy Is Higher for the Internet Program Than
Other Options Available to Taxpayers Needing Assistance With Tax Law
Questions'' (Reference Number 2003-40-014, dated October 2002) and
``Management Advisory Report: The Internal Revenue Service Needs a
Reliable Measure of the Quality of Electronic Tax Law Assistance
Provided to Small Businesses and Self-Employed Taxpayers'' (Reference
Number 2002-30-120, dated July 2002).
SUBCOMMITTEE RECESS
Senator Shelby. I appreciate both of you appearing here,
and we will be meeting and talking from time to time.
Ms. Gardiner. Thank you very much.
Senator Shelby. The hearing is recessed.
[Whereupon, at 11:27 a.m., Wednesday, April 7, the subcom-
mittee was recessed, to reconvene subject to the call of the
Chair.]
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
TUESDAY, APRIL 20, 2004
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. Richard C. Shelby (chairman)
presiding.
Present: Senators Shelby, Bennett, Stevens, Murray, and
Dorgan.
DEPARTMENT OF THE TREASURY
Office of the Secretary
STATEMENT OF HON. JOHN SNOW, SECRETARY
OPENING STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. The subcommittee will come to order.
I would like to welcome Secretary John Snow to this
morning's hearing. I look forward to hearing about your vision
for the future of the Treasury Department, as well as the
challenges you will face during the upcoming fiscal year.
In your first year on the job, you presided, Mr. Secretary,
over the divestiture of 30,000 Treasury employees pursuant to
the Homeland Security Act of 2002. You also oversaw the
establishment of the new Alcohol and Tobacco Tax and Trade
Bureau (TTB). Such significant realignment of the Department is
no small task, and you are to be commended, Mr. Secretary, for
the fine job you have done in completing this transition.
Now that the transition is complete, I would like to hear
how the Department is refocusing its resources on its core
missions of economic policymaker, financial manager, revenue
collector and the leader in tracking terrorist finances. All of
these missions are critical to the continued success of the
economy.
There is no economic stimulus that can equal the power of
allowing taxpayers to retain more of their hard-earned
paychecks and thereby spend their money as they best see fit
for themselves and their families. I can think of no better way
to stunt the present economic growth than a sudden increase in
taxes. Such an action would dry up the additional capital that
has flowed into our private markets and would set the Nation's
economy back on the downward course of recession.
Even if those who propose to raise taxes during the
recovery are prevented from doing so, we will still face the
specter of numerous expiring tax cuts over the coming years.
Without a permanent extension of tax cuts, there is no way to
provide the certainty and stability necessary to sustain our
current economic recovery.
Even as our economy recovers, the threat of terrorism still
hangs over us. Given its long-standing relationships with
financial institutions throughout the world and its existing
intelligence gathering and law-enforcement infrastructure, the
Department is ideally suited to lead the Federal Government in
our Nation's fight against terrorist financing. I believe it is
time for the Treasury to step up to the task.
Along those lines, I am keenly interested in the proposal
to create the Office of Terrorism and Financial Intelligence
(TFI). All of us share the administration's goal to thwart
financial support for terrorists. We will look forward to
working with you to establish and to fund this office. I
believe it is critical that we work together to ensure that we
get the right structure and the necessary funding in place.
The Banking Committee and the Select Committee on
Intelligence combined their efforts to give Treasury a platform
to reposition itself as the linchpin in the Nation's efforts to
identify and track movements of funds and commodities which
would support those who seek to destroy our way of life.
The Intelligence Authorization Act of 2004 included a new
Assistant Secretary for Intelligence and Analysis. Treasury
committed to create an office that would ``enhance the
Department's access to Intelligence Community information and
permit a reorganization and upgrading of the scope and
capacities of Treasury's intelligence functions in light of the
Nation's counter-terrorist and economic sanctions programs.''
In hearings last year in the Banking Committee, we heard
from various experts who noted a need for the Treasury to
recapture enforcement capabilities. Given the unique status of
Treasury with the financial services industry, I believe only
you have the full responsibility, Mr. Secretary, for ensuring
the integrity of the financial services industry. I am,
therefore, disappointed that your vision for the revitalized
role of Treasury has not been as robust as I would have liked.
I see no plans for reorganization or the growth that we
anticipated, especially in the enforcement area.
Your letter dated April 16 merely reiterates the agreements
our staffs reached in November of 2003. You propose no real
increase in staff and request no new funding in the budget
submission. I expected more, but I trust that you will take
this task as a priority. No task of this size can be
accomplished without your direction, Mr. Secretary, and your
vision.
We on this committee and on the Banking Committee stand
ready to assist. We have prioritized and will continue to
prioritize our oversight function to ensure that the American
people are safe and the integrity of our Financial Services
Industry is secure.
Mr. Secretary, I would be remiss if we did not discuss the
Department of Treasury's $11.6 billion budget request for 2005,
and particularly the $10.7 billion request for the Internal
Revenue Service (IRS). The IRS faces enormous problems, and I
am especially concerned about the continuing failures in
computer modernization.
Mr. Secretary, the IRS has spent $2.7 billion on the
Business System Modernization (BSM) program and has yet to
produce any real benefit to the taxpayer. In fact, the IRS is
running late and is over-budget in all of seven core projects
related to BSM. I am interested in hearing what oversight the
Department of Treasury is performing to help the IRS put this
program on track. Without modernization, the IRS will never be
able to achieve meaningful improvements to taxpayer customer
service or compliance.
Mr. Secretary, I listened with interest to your statements
in the news on April the 15th about simplifying the Federal tax
code. I believe that the complexity of the tax code is a large
part of the problem at the IRS. Our tax code and its
regulations total a staggering 54,000 pages: they are too
complex, too confusing, and too costly to comply with.
Comprehensive reform of the tax code itself would go a long
way to reducing tax fraud by making the process simpler and the
system fairer for all taxpayers. A less complex tax code would
provide fewer opportunities for cheaters and reduce the
paperwork burden for all Americans. I look forward to working
with you to reach this goal.
Mr. Secretary, I look forward to hearing your thoughts on
the economy and also on the Treasury's budget request. I look
forward to working with you on other issues that are important
for the Nation.
Senator Murray.
STATEMENT OF SENATOR PATTY MURRAY
Senator Murray. Thank you, Mr. Chairman.
I want to welcome Secretary Snow to our subcommittee. And
this morning I want to focus on three issues: terrorist
financing, outsourcing, and IRS debt collection.
Let me start with terrorist financing. Our government has
certainly stepped up its efforts to stop the flow of money to
terrorist organizations since September 11. Unfortunately, that
is not saying much, given the attitudes of some in our
government before September 11.
Richard Clarke, the former counter-terrorism official,
documented these attitudes in his recent book ``Against All
Enemies.'' Clarke said, ``I wanted to raise the profile of our
efforts to combat terrorist financing, but found little
interest.'' Clarke said that the President's economic advisor,
Larry Lindsay, ``had long argued for weakening U.S.'s anti-
money-laundering laws'' and Clarke said that former Treasury
Secretary Paul O'Neill ``was lukewarm at best towards the
multilateral efforts to `name and shame' foreign laundering
havens.''
Since then, we have taken some important steps, but I am
concerned that we may still be ``behind the curve'' in areas
such as enforcement, nontraditional banking, staff and
resources, and communication.
Our country and our international partners have put new
laws on the books, but we must do a better job of enforcing
them. We cannot allow companies like Riggs Bank to shelter
their clients by ignoring critical Federal requirements to
report large and suspicious cash transactions, especially
transactions involving foreign nationals and unknown charities.
Our money-laundering laws must be adhered to and enforced,
and we must insist that Saudi Arabia and other nations follow
through on their commitments to shut down suspect charities
that are financing the recruiting of future terrorists and
possibly terrorist attacks as well.
We also need to stay a step ahead of those who would harm
us by looking beyond traditional banking. We can expect
terrorists to act like drug smugglers. As we successfully close
down their access to cash in one area, they will move to
another and we have got to stay a step ahead. That means we
must close down their operations of smuggling gold, cash, and
diamonds across borders. We also need to get our hands around
the ``hawala'' money transfer system. We have got to be able to
distinguish between the legitimate transactions of immigrants
who are sending money to their families back home and dangerous
transactions that move cash into the hands of terrorists.
We also need to make sure that new government officials
we've put in place have the resources, the staff, and
communication to do their jobs effectively.
Recently we have expanded the portfolios of several Federal
agencies. We've appointed new Under Secretaries, Deputy Under
Secretaries and Assistant Secretaries. That is a fine start but
we need to make sure that these offices actually have the staff
and resources to succeed and we must avoid the communication
problems that have plagued the CIA and the FBI.
Clearly, we have got a lot of work to do to stop the flow
of money to terrorist organizations and that is one of the
topics I will explore with the Secretary today.
I also want to talk about outsourcing. Secretary Snow has
been outspoken in his belief that moving American jobs offshore
serves to benefit the American economy in the long run. Mr.
Chairman, I represent the most trade dependent State in the
Nation, and I have a strong record of supporting international
trade.
But I do not believe that expanding trade requires hundreds
of thousands of American families to lose their jobs, their
health care, and their dignity so that their employers can
pursue cheaper labor elsewhere.
One recent survey suggests that we may be on the leading
edge of an outsourcing tidal wave, especially in areas like
information technology (IT). According to a recent survey of
182 companies conducted by DiamondCluster International, 86
percent plan to increase the use of offshore IT outsourcing
firms in the next 12 months. That compares to just 32 percent
of the companies that responded the same way just 2 years ago.
Those who defend outsourcing claim that the companies that
are shipping jobs overseas today will increase their employment
here in the United States down the road. That is little comfort
to someone who has lost his job, particularly because his old
job is not the one that will be coming back.
There is a real mismatch between the skills needed for the
jobs that are moving overseas and the skills needed for the
jobs that may be open in the future. For example, an increasing
number of U.S. engineering jobs have been moved to India. Right
now the unemployment rate for engineers in the United States is
twice the national average. That is really hurting a lot of
families.
There are fields where we have shortages like nursing, but
I do not know how many engineers can go to school to become a
nurse while they still have to feed their families. These
mismatches are all around.
The factory worker who is laid off from a manufacturing
company cannot turn around tomorrow and take a job at a drug
company that looks for pharmacological researchers.
Simply put, the people who suffer from outsourcing today
cannot move easily into available jobs. The skills they have
today are not the ones that will be in demand tomorrow.
Fortunately, we do know how to help people move from
yesterday's jobs into the jobs that are open today and the jobs
that will be open tomorrow. The answer is our Nation's job
training system. This is the time to invest in that system so
it can help all of the people who have lost their jobs through
no fault of their own. Unfortunately, the administration is
moving in the wrong direction.
In addition to serving as the ranking member on this
subcommittee, I also serve as the ranking member of the
Employment Subcommittee in the Senate. I have analyzed in
detail President Bush's proposal to increase job training, and
here is the bottom line. His proposal does not add $1 to our
Federal efforts to train our workforce. Not $1.
In fact, the President's budget cuts $300 million from
existing assistance for workforce training. Even worse, those
new cuts for 2005 come on top of more than $500 million in job
training and employment service reductions that have been
recommended since President Bush took office. In my book, those
who defend outsourcing should be the biggest advocates of a
real increase in job training for American workers who end up
on the losing end of the international trade, and I want to
explore that later this morning with Secretary Snow as well.
Finally, Mr. Chairman, I want to discuss my concerns over
the Secretary's proposal to allow private contractors to
collect unpaid tax debts owed to the IRS. This proposal is
currently included in the FISC/ETI bill that will be debated
again on the Senate floor in a few days. We all know that the
IRS has done a very poor job of collecting unpaid tax debts. In
fact, to my shock, it has become apparent that the IRS has not
even collected unpaid taxes from several individuals who have
been convicted in court of tax evasion. The Treasury Department
should request sufficient funds so that IRS agents can collect
those unpaid debts. But instead the Department has decided to
invite the private sector to do the job. For anyone familiar
with the Treasury Department's record on using contractors, it
raises serious red flags about the privacy of individual
taxpayers.
The Department's abominable record on ensuring that
contractors protect the privacy of our citizens is not
speculation. It is fact. A little more than a year ago the
Treasury Inspector General for Tax Administration (TIGTA) did
an audit and observed that the IRS has no assurance that its
contractors completed the required background investigations of
their employees.
Just last month, the Treasury Inspector General (IG)
completed another audit that made it clear that the IRS
continues to do a very poor job of monitoring the overall
trustworthiness of its private contractors. According to the
Inspector General, IRS contractors had ``committed numerous
security violations that placed IRS equipment and taxpayer data
at risk.''
In some cases, contractors blatantly circumvented IRS
policies and procedures, even when the IRS's security personnel
identified inappropriate practices. One disgruntled contractor
employee planted a computer time bomb on an IRS system that
would have destroyed sensitive taxpayer data. Another
contractor connected an unsecured computer to the IRS network
and cost the agency $1.5 million in downtime and cleanup costs
to eliminate a virus introduced by that contractor.
The Treasury Department has given all sorts of verbal
guarantees that taxpayers will not have their privacy
compromised when private contractors start collecting tax debts
from the public. But given the IRS's abysmal record in
monitoring its own contractors, I am deeply concerned that
these private collection agents will not respect the privacy of
taxpayers.
I hope this subcommittee will insist on nothing less than
the strictest privacy guarantees and assurances before we allow
the IRS to allow private contractors into the Federal debt
collection business.
Thank you very much, Mr. Chairman.
Senator Shelby. Senator Bennett.
STATEMENT OF SENATOR ROBERT F. BENNETT
Senator Bennett. Thank you, Mr. Chairman. This is the first
time that I have served on the Treasury and General Government
portion of this subcommittee. I have been involved in the
Transportation portion. So I come to these issues, Secretary
Snow, with less of a background than I do as the other issues
that we have had.
I listened to Senator Murray talk about the IRS and, of
course, one of the great frustrations that I have had while I
have been in the Senate is the inability of the IRS to get on
top of the technological revolution and take advantage of the
increase in productivity that IT makes available to everybody
else.
We all remember, and I cannot put a year on it out of my
memory, but we remember the tremendous investment that the IRS
made during the 1990s and came up totally empty-handed. I
worked a little bit with that as Chairman of the Committee on
the Year 2000 Problem and we were frustrated by the inability
of the IRS to be as forward in their understanding of IT as
some of the other departments.
So, like Senator Murray, I would like to hear from the
Secretary as to where the IRS is today in trying to get their
computers up to speed and whether progress has been made from
the unfortunate performance that existed in the 1990s.
I have often thought if this were a business, given the
amount of information that is provided to the IRS
electronically, the IRS ought to be able to figure the tax
return and on the 15th of April send the taxpayer either a bill
or a check and the taxpayer would not have to be involved in
figuring out his own taxes at all.
But unfortunately, we are not at that point and I would
hope that might be a goal that could be set for some point in
the future, because with 1099s and W-2s and W-4s and K-1s and
so on, all in the hands of the IRS to begin with, the computer
system ought to be good enough that it could produce that sort
of result.
So recognizing that the bulk of, if I read your testimony
correctly, Mr. Secretary, the bulk of your $11.7 billion
request is for the IRS. I think that is an area we could
profitably spend some time talking about.
I thank the Secretary for his willingness to appear here
and look forward to his testimony.
Senator Shelby. Senator Dorgan.
STATEMENT OF SENATOR BYRON L. DORGAN
Senator Dorgan. Mr. Chairman, thank you very much.
I have another Appropriations Subcommittee hearing going on
next-door, around the corner, so I will be going back and
forth. I did read the Secretary's statement last evening and I
do want to come back and ask some questions about a number of
issues including, as he might expect, Cuban travel and the use
of the Office of Foreign Assets Control (OFAC) to do what they
have been doing recently.
I hope the Chairman will give me an opportunity to pursue
that at some length because I think that is a very important
topic.
Senator Shelby. We will have a number of rounds.
Mr. Secretary, we welcome you again to the committee. Your
testimony will be made part of the record in its entirety. You
proceed as you wish.
STATEMENT OF SECRETARY JOHN SNOW
Secretary Snow. Thank you very much, Mr. Chairman and
Senator Murray, Senator Dorgan, Senator Bennett.
It is a great privilege to appear before you and have an
opportunity to talk about Treasury, its major thrust, how it is
functioning in this new post-Homeland Security environment,
where so many of the former enforcement functions are no longer
a part of Treasury. Treasury continues to have major
responsibilities in the financial war on terror, as the
Chairman pointed out.
As Senator Bennett pointed out, Treasury's budget is
largely a function of the IRS. It is 90 percent of the total
budget. The IRS is the biggest single management problem inside
the Treasury Department. It is something that I try to spend a
good deal of time on, now that we have a Deputy Secretary, Sam
Bodman, who had been the Deputy Secretary at Commerce. In his
role as chief operating officer of the Treasury Department, I
have asked Sam to give particular attention to the IRS. There
are a myriad of issues there that we can talk about, some of
which have already been alluded to in your questions.
A word on our budget, and I will be brief. It reflects
increases in two areas basically. Everything else is either
down or funded at the prior steady State levels.
One is IRS enforcement. Here we feel that there is need for
more attention on enforcement. And the budget proposes adding a
number of additional positions in the IRS focusing on the
enforcement activities. Of the $300 million we are asking for
additional enforcement money, two-thirds of it will go to
corporations to deal with auditing of corporations to get at
abusive tax schemes and tax shelters and high income people,
and the marketing of tax shelters and abusive tax schemes to
them.
The first area of increase is enforcement so that we get
effective enforcement and better compliance. There seems to
have been some erosion in that area over the last few years,
and I think the IRS is doing a better job on respecting
taxpayer rights, with taxpayer services, with treating
taxpayers better, answering the phones better, giving better
advice when calls come in. So the customer service side of the
IRS has improved. Now we need to make equal improvements in the
enforcement side.
The second broad area of increase, and Mr. Chairman, this
goes precisely to the issue you raised with me in your opening
comments and otherwise in our correspondence, is Treasury's
role in the war on terror.
Our role, as we see it, is to lead the financial war on
terror, to interdict the flows of funds, to be there as a
guardian of the financial system of the United States so that
the financial system is not used to move terrorist funds. And
to enlist the finance ministers and central banks of the world
at large to do the same thing, to create a broad coalition, a
global coalition, in the financial war on terrorism.
What we know about terrorism is that it knows no borders.
So if we are going to effectively deal with it, we have to
enlist all of the world. And I think we have made very good
progress on that score.
This weekend, the finance ministers of the world are in
Washington for the International Monetary Fund (IMF) and World
Bank and G-7 meetings. I have called a separate meeting of the
finance ministers on the issue of global terrorism to make sure
we are exchanging best practices and continuing to learn from
each other and take appropriate actions.
So the second area where we have asked for a budget
increase is fighting the financial war on terrorism, and I
greatly appreciate, Mr. Chairman, your support and the support
of other members of the committee in setting up the new office
in Treasury which will be the focal point for our anti-
terrorist funding activities.
The new Under Secretary will be responsible for the
functioning office and the principal person in the United
States Government, responsible day to day to think about how
our financial system could be penetrated by terrorists to move
money, with broad authority over the Office of Foreign Assets
Control (OFAC) and Financial Crimes Enforcement Network
(FinCEN) and the Bank Secrecy Act and the USA PATRIOT Act, and
all those tools that Congress has made available to wage this
war on terrorism.
The Office has a new Assistant Secretary, approved by the
Congress last fiscal year, so that Treasury will now have
access to its own intelligence gathering, an Assistant
Secretary for Intelligence. I commend the Congress for
recognizing that need in Treasury, to put a priority on
financial intelligence so that this Assistant Secretary can
continue to speak to the Federal Bureau of Investigation (FBI),
speak to the National Security Advisor (NSA), speak to the
Central Intelligence Agency (CIA), speak to the
intergovernmental intelligence gatherers about the role of
financial intelligence.
Everything else in the budget is basically static. I hope
we will be able to satisfy you, Mr. Chairman. I know that it
will be a long dialogue that we will have on this issue of
Treasury playing its appropriate role.
Deputy Secretary Bodman will be up before the Banking
Committee next week to elaborate on these points.
Finally, a word on the economy. A year ago, when I
testified here, there were great questions about what course
the American economy was on. You will recall at that time there
was concern about the possibility of a double dip recession.
There was concern about deflation.
I think it is safe to say we have turned the corner and
have the economy on a very good path. And clearly the tax cuts
that Congress approved last year lie at the very center of the
changed circumstances of the American economy, with growth for
this quarter forecasted to be between 4 percent and 5 percent,
with growth in the last half of last year, after the tax cuts
took effect, of over 6 percent, with jobs coming back, 308,000
jobs in March and over 500,000 for the first quarter.
PREPARED STATEMENT
Corporate spending is up. Exports are up. Retail sales are
strong. Construction is strong. Housing is strong. The economy
is on a good strong path and, again, I appreciate the role
Congress played in making that possible with the Jobs and
Growth Bill.
With that, Mr. Chairman, I thank you again for the chance
to appear before you and look forward to responding to your
questions.
[The statement follows:]
Prepared Statement of John Snow
Chairman Shelby, Senator Murray, and Members of the committee, I
appreciate the opportunity to appear before you today to discuss
President Bush's fiscal year 2005 proposed budget for the Department of
the Treasury.
The President's request for fiscal year 2005 of $11.7 billion for
Treasury provides funding we need to support the core missions as
identified in our new strategic plan--in promoting national prosperity
through economic growth and job creation; maintaining public trust and
confidence in our economic and financial systems; and ensuring the
Treasury organization has the workforce, technology, and business
practices to meet the Nation's needs effectively and efficiently. Two
key strategic objectives are to collect Federal tax revenue when due
through a fair and uniform application of the law and to disrupt and
dismantle the financial infrastructure of terrorists, drug traffickers,
and other criminals and isolate their support networks.
One historic change at Treasury in the past year has been the
movement of most of the Department's law enforcement divisions--
affecting some 30,000 employees--to the Department of Homeland Security
and the Department of Justice. This change has provided an opportunity
for Treasury to refocus on its core missions as the Federal
Government's economic policymaker, financial manager, and revenue
collector. This puts us in a better position to fulfill our critical
role in fighting the war on terrorist financing. In addition, the
Department revised and completed a new strategic plan in September
2003. To complement this strategic planning initiative, the Department
and many of the bureaus underwent a restructuring of their budget
activities and programs--discontinuing enforcement programs which no
longer fit into the Treasury strategic vision and developing new
performance goals and measures focused on getting value for taxpayers.
As a result of these efforts, our fiscal year 2005 request reflects
significant reengineering and reprogramming to ensure efficient and
effective use of our resources.
Mr. Chairman, we provided the Committee with a detailed breakdown
and justification for President's fiscal year 2005 budget request for
Treasury. I would like to take the opportunity today to point out some
highlights of our request and then I'd be happy to take whatever
questions you may have.
PROMOTING PROSPEROUS AND STABLE U.S. AND WORLD ECONOMIES
The aim of these strategic goals is to ensure that the United
States and world economies perform at full economic potential. In order
to perform at its full potential, the U.S. economy must increase its
rate of growth and create new, high quality jobs for all Americans.
Additionally, the legal and regulatory framework must support this
growth by providing an environment where businesses and individuals can
grow and prosper without being limited by unnecessary or obsolete rules
and regulations. The Treasury Department and three of its bureaus, the
Community Development Financial Institutions Fund, the Office of the
Comptroller of Currency and the Office of Thrift Supervision play
diverse roles in the domestic economy. From serving as the President's
principal economic advisor to issuing tax refunds to millions of
Americans, the Treasury has a significant influence on creating the
conditions for economic prosperity in the United States. A prosperous
world economy serves the United States in many ways. It creates markets
for U.S. goods and services, and it promotes stability and cooperation
among nations. For these reasons, the Department of the Treasury will
work with other Federal agencies and offices to promote international
economic growth and raise international standards of living through
interaction with foreign governments and international financial
institutions. Our budget requests $158.9 million to support these
strategic goals.
MAINTAINING PUBLIC TRUST AND CONFIDENCE IN OUR ECONOMIC AND FINANCIAL
SYSTEMS
Treasury's mission of managing the U.S. Government's finances
effectively is the bulk of the President's fiscal year 2005 request for
the Department. The budget request of $11 billion--the majority of
which is for the Internal Revenue Service--will provide funds to ensure
that the tax system is fair for all while maintaining high quality
service to our taxpayers and ensuring compliance with the tax laws.
In past years, IRS's focus has been on improving customer service.
We believe that we have been successful in that effort and are
committed to further enhancing customer service for the vast majority
of American taxpayers who do their best to pay their fair share. For
those who do not, fundamental fairness requires that our enforcement
efforts in fiscal year 2005 continue moving us towards a tax system in
which everyone is complying with the tax laws. Our fiscal year 2005
request, which includes a net increase of $300 million, will focus our
resources toward enforcement initiatives designed to curb abusive tax
practices, end the proliferation of abusive tax shelters, improve
methods of identifying tax fraud, identify and stop promoters of
illegal tax schemes and scams, and increase the number and
effectiveness of audits to ensure compliance with the tax laws. This
request will allow the IRS to apply resources to areas where non-
compliance proliferates: promotions of tax schemes, misuse of offshore
accounts and trusts to hide income, abusive tax shelters,
underreporting of income, and failure to file and pay large amounts of
employment taxes.
The President's request also provides $285 million to continue our
effort in modernizing the Nation's tax system through investments in
technology. During the fall of 2003, the IRS performed comprehensive
studies to review its modernization efforts. From these studies, the
IRS has resized its modernization efforts to allow greater management
focus and capacity on the most critical projects and initiatives. The
IRS is also responding to these studies by increasing the business unit
ownership of the projects and revising its relationships with the
contractor and ensuring joint accountability. While the IRS has thus
far failed to deliver several important projects with which taxpayers
are not directly involved, it is important to note they have had some
notable successes. The IRS has made progress on applications such as
improved telephone service and a suite of e-services to tax
practitioners. For the first time, large businesses and corporations
can electronically file. In addition, taxpayers can access refund and
Advance Child Tax Credit information from the irs.gov website. The
IRS's business systems modernization expenditure plan provides more
detail on this request.
In addition, IRS will work to improve customer service by making
filing easier; providing top quality service to taxpayers needing help
with their return or account; and providing prompt, professional,
improved taxpayer access and helpful treatment to taxpayers in cases
where additional taxes may be due.
The provisions of the Trade Act of 2002 (Public Law 107-210)
chartered the Treasury Department (through the IRS) with establishing
and implementing a new health coverage tax credit program in 2003. This
program provides a refundable tax credit to eligible individuals for
the cost of qualified health insurance for both the individual and
qualifying family members. The request provides $35 million to continue
implementation and operation of the Health Insurance Tax Credit
Program.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) was created when
the Homeland Security Act of 2002 divided the Bureau of Alcohol,
Tobacco and Firearms into two agencies. Our fiscal year 2005 request
includes $81.9 million for TTB: $58.3 million to support the Collect
the Revenue function, and $23.5 million to Protect the Public, both of
which will facilitate their efforts in collecting $14.6 billion in
revenue from the alcohol and tobacco industries and monitor alcohol
beverages in the marketplace to detect contamination and adulterated
products. Their focus this coming fiscal year is to promote voluntary
compliance of existing regulations and to protect the consumer through
efficient and effective service.
Key to the U.S. Government's management of financial systems is the
Financial Management Service (FMS), whose mission is to provide central
payment services to Federal program agencies, operate the Federal
Government's collection and deposit systems, provide Government-wide
accounting and reporting services, and manage the collection of
delinquent debt. The fiscal year 2005 request of $231 million for FMS
includes legislative proposals to improve and enhance opportunities to
collect delinquent debt through FMS' debt collection program. The
proposals would: eliminate the 10-year limitations period applicable to
the offset of Federal non-tax payments to collect debt owed to Federal
agencies; increase amounts levied from vendor payments (from 15 percent
to 100 percent) to collect outstanding tax obligations; allow the
Secretary of the Treasury to match information about persons owing
delinquent debt to the Federal Government with information contained in
the Department of Health and Human Service's National Directory of New
Hires; and allow the offset of Federal tax refunds to collect
delinquent State unemployment compensation overpayments.
The Bureau of the Public Debt (BPD) continues its management and
improvement of Federal borrowing and debt accounting processes. BPD
will provide vital support to the processing of applications and the
operation of systems used for re-enforcing its mission of providing
quality debt management services to financial institutions,
individuals, foreign governments, and over 200 government trust funds.
The activities of the United States Mint and the Bureau of
Engraving and Printing (BEP) are vital to the health of our Nation's
economy. These agencies share the responsibility for ensuring that
sufficient volumes of coin and currency are consistently available to
carry out financial transactions in our economy. Treasury, Mint and BEP
will deliver a study to Congress regarding options to merge and/or
streamline operations by consolidating certain functions and sharing
costs between the Mint and the BEP.
fighting the war on terror and safeguarding our financial systems
Our goals in preserving the integrity of U.S. financial systems
include ensuring that the U.S. financial system and access to U.S.
goods and services are closed to individuals, groups and nations that
threaten U.S. vital interests, ensuring that these systems are kept
free and open to legitimate users while excluding those who wish to use
the system for illegal purposes, and ensuring that the financial
systems will continue to operate without disruption from either natural
disaster or manmade attacks. To support such efforts, the President has
requested $250.9 million for fiscal year 2005.
The administration announced the creation of the Office of
Terrorism and Financial Intelligence (TFI) within the Department of the
Treasury on March 8, 2004. TFI will lead Treasury's efforts to sever
the lines of financial support to international terrorists and will
serve as a critical component of the administration's overall effort to
keep America safe from terrorist plots.
The TFI, which will include Treasury's newly established Executive
Office for Terrorist Financing and Financial Crime (EOTF/FC), will have
policy oversight over the Financial Crimes Enforcement Network
(FinCEN), the Office of Foreign Assets Control (OFAC), and the Treasury
Executive Office for Asset Forfeiture (TEOAF). This will create a
single lead office in Treasury for fighting the financial war on terror
and combating financial crime, enforcing economic sanctions against
rogue nations, and assisting in the ongoing hunt for Iraqi assets.
The Office of Foreign Assets Control (OFAC) is central to our
efforts to disrupt financing of terrorist activities. Only days after
September 11, 2001, OFAC drafted and implemented Executive Order 13224,
which invoked Presidential authority contained in the International
Emergency Economic Powers Act and froze the assets of 29 entities and
individuals linked to Osama bin Laden and his al Qaeda network. Since
then, OFAC research and investigation helped identify between 200 and
300 additional entities and individuals as Specially Designated Global
Terrorists under the Order. Since September 2001, OFAC and our allies
have frozen over $136 million in terrorist assets and vested $1.9
billion of frozen Iraqi assets.
The President's fiscal year 2005 request also includes $64.5
million for the Financial Crimes Enforcement Network (FinCEN) to
enhance its ability to fight the war on terror and combat financial
crimes such as money laundering. Its mission to safeguard the U.S.
financial systems from the abuses imposed by criminals and terrorists
and to assist law enforcement in the detection, investigation,
disruption and prosecution of such illicit activity is accomplished
through its statutory role as the administrator of the Bank Secrecy Act
(31 C.F.R.) FinCEN issues and enforces regulations that require a wide
gamut of financial institutions to implement anti-money laundering
programs and report transactions that are indicative of money
laundering, terrorist financing and other financial crimes, thus
providing a wealth of information to assist law enforcement, both
domestic and international, in pursuing such crimes. FinCEN also
ensures that the information collected under these regulations is made
fully accessible to law enforcement and the regulatory community in a
secure manner and provides both tactical and strategic analysis to a
variety of customers. In addition, FinCEN is the Financial Intelligence
Unit (FIU) for the United States and has been central in the
development of a consortium of FIU's around the globe that permits fast
and effective sharing of financial intelligence on an international
scale.
The IRS's Criminal Investigative Division (IRS-CI) also plays a key
role in investigating financial crimes. The request supports the unique
skills and expertise of IRS-CI agents in investigating tax fraud and
financial crimes not only support tax compliance, but also benefit the
war on terror and our efforts to root out financial crimes.
In addition, the Office of Critical Infrastructure Protection and
Compliance Policy leads our efforts to safeguard the financial
infrastructure. This Office works closely with the Department of
Homeland Security, other Federal agencies, and the private sector to
safeguard our infrastructure. That is essential, given that the
majority of the critical financial infrastructure of the United States
is owned and operated by the private sector. The financial system is
the lifeblood of our economy and this Office leads our efforts to keep
it safe.
ENSURING PROFESSIONALISM, EXCELLENCE, INTEGRITY AND ACCOUNTABILITY IN
MANAGEMENT OF TREASURY
The President has requested $229.6 million for ensuring proper
stewardship of the Department. Included in this request is $14.2
million for the Department's Office of Inspector General (OIG) and
$129.1 million for the Inspector General for Tax Administration
(TIGTA).
The 1988 amendments to the Inspector General Act of 1978 created
the OIG to conduct audits and investigations relating to Treasury
programs and operations; to promote economy and efficiency, and detect
and prevent fraud and abuse, in such programs and operations; and to
notify the Secretary and Congress of problems and deficiencies in such
programs and operations.
The Internal Revenue Service Restructuring and Reform Act of 1998
created the Inspector General for Tax Administration (TIGTA) to oversee
operations at the Internal Revenue Service (IRS). TIGTA promotes the
public's confidence in the tax system by assisting the IRS in achieving
its strategic goals, identifying and addressing its material
weaknesses, and implementing the President's Management Agenda.
Further, TIGTA undertakes investigative initiatives to protect the IRS
against threats to systems and/or employees.
To maximize efficiencies and effectiveness, the administration has
proposed to merge the Treasury Inspector General and the Treasury
Inspector General for Tax Administration into a new Inspector General
office, called the Inspector General for Treasury. The new organization
will have all of the same powers and authorities as its predecessors
have under current law. We will work with the Congress to move this
legislation forward.
Also included in this request is an increase of $10.8 million for a
host of modernization activities of our systems including IT
Governance, E-Government, operational security, and Treasury enterprise
architecture.
FOUNDATION FOR SUCCESS--THE PRESIDENT'S MANAGEMENT AGENDA
As mentioned earlier, following the movement of the law enforcement
bureaus to the Departments of Homeland Security and Justice, Treasury
restructured and refocused its strategic goals and objectives based on
the five initiatives of the President's Management Agenda (PMA).
Treasury developed and issued its new Strategic Plan, which linked
intricately with each of the five initiatives of the PMA. This new
strategic vision, coupled with the efforts underway in the PMA,
provides the mechanism and focus for continuous improvement throughout
Treasury and its bureaus.
In fiscal year 2003, Treasury achieved many significant milestones
in implementing the President's Management Agenda. Specific
accomplishments included:
--In the past 18 months, Treasury has drafted the first-ever
Department-wide Human Capital Strategic Plan, which addresses
the Standards for Success as issued by the Office of Personnel
Management (OPM) and the Office of Management and Budget (OMB).
Treasury incorporated human capital into its strategic planning
and budget formulation and execution processes, and the plan
will guide future efforts in areas such as workforce and
succession planning, diversity, performance management, and
managerial accountability.
--In competitive sourcing, Treasury completed 3 full competitions,
over 20 streamlined competitions, and currently has studies
involving approximately 4,500 positions in various phases of
completion.
--In budget and performance integration, Treasury revised the
performance reporting requirement to facilitate review and
assessment of bureaus' key performance data. Treasury also
restructured some of the bureaus' budget activities to reflect
alignment with the new strategic plan and the full cost of
achieving results.
--Treasury also maintained its government-wide lead in accelerated
financial reporting. The Department implemented a 3-day monthly
close and successfully issued its fiscal year 2003 Performance
and Accountability Report on November 14, 2003, 2\1/2\ months
ahead of the official deadline.
Treasury will continue to work closely with OMB and other
stakeholders to make improvements in implementing the initiatives set
forth in the President's Management Agenda.
THE PRESIDENT'S SIX-POINT ECONOMIC GROWTH PLAN
At the beginning of my testimony I talked about what the Treasury
Department does to support our strategic goal of encouraging a
prosperous and stable U.S. economy. I would also like to talk about our
efforts across the administration to promote economic growth as
embodied by President's six-point plan for growth.
That includes making health care more affordable with costs more
predictable.
We can do this by passing Association Health Plan legislation that
would allow small businesses to pool together to purchase health
coverage for workers at lower rates.
We also need to promote and expand the advantages of using health
savings accounts . . . how they can give workers more control over
their health insurance and costs.
And we've got to reduce frivolous and excessive lawsuits against
doctors and hospitals. Baseless lawsuits, driven by lottery-minded
attorneys, drive up health insurance costs for workers and businesses.
The need to reduce the lawsuit burden on our economy stretches
beyond the area of health care. That's why President Bush has proposed,
and the House has approved, measures that would allow more class action
and mass tort lawsuits to be moved into Federal court--so that trial
lawyers will have a harder time shopping for a favorable court.
These steps are the second key part of the President's pro-jobs,
pro-growth plan.
Ensuring an affordable, reliable energy supply is a third part.
We must enact comprehensive national energy legislation to upgrade
the Nation's electrical grid, promote energy efficiency, increase
domestic energy production, and provide enhanced conservation efforts,
all while protecting the environment.
Again, we need Congressional action: we ask that Congress pass
legislation based on the President's energy plan.
Streamlining regulations and reporting requirements are another
critical reform element that benefits small businesses, which represent
the majority of new job creation: three out of every four net new jobs
come from the small-business sector! Let's give them a break wherever
we can so they're free to do what they do best: create those jobs.
Opening new markets for American products is another necessary step
toward job creation. That's why President Bush recently signed into law
new free trade agreements with Chile and Singapore that will enable
U.S. companies to compete on a level playing field in these markets for
the first time--and he will continue to work to open new markets for
American products and services.
Finally, we've got to enable families and businesses to plan for
the future with confidence.
That means making the President's tax relief permanent.
Rate reductions, the increase in the child tax credit and the new
incentives for small-business investment--these will all expire in a
few years. The accelerated rate reductions that took effect in 2003
will expire at the end of this year. Expiration dates are not
acceptable--we want permanent relief.
The ability of American families and businesses to make financial
decisions with confidence determines the future of our economy. And
without permanent relief, incentives upon which they can count, we risk
losing the momentum of the recovery and growth that we have experienced
in recent months.
The tax relief is the key stimulus for increased capital formation,
entrepreneurship and investment that cause true economic growth.
CONCLUSION
Mr. Chairman, I look forward to working with you, members of the
Committee, and your staff to maximize Treasury's resources in the best
interest of the American people and our country as we move into fiscal
year 2005. I am hopeful that together we can work to make this
Department a model for management and service to the American people.
Thank you again for the opportunity to present the Department's
budget today. I would be pleased to answer your questions.
ECONOMY AND JOBS
Senator Shelby. Thank you, Secretary Snow. You referenced
economic growth. Last month, you stated 308,000 jobs were
created. That was robust.
I have been told that up to 50 economists are predicting an
average of about 180,000 new jobs a month for the next 6 or 7
months. Some months might be smaller and some months larger
than others. That is good news. Do you believe that is going to
happen?
Secretary Snow. Senator, I have seen those estimates. I
think they are well supported and well reasoned estimates. And
yes, very definitely, I think this economy will produce lots of
jobs in the months ahead.
Senator Shelby. If we could create 1 million new jobs or so
in the next 6 or 7 months, it would be good for America and
good for workers, would it not?
Secretary Snow. It would be tremendous. It is what always
occurs in a recovery, and the very fact that additional jobs
come on stream helps the recovery to gain even further
momentum.
Senator Shelby. Later today, in the Banking Committee,
among other people, we will have Chairman Greenspan testify,
and we will talk about the economy and the state of the banking
community.
Are you concerned about inflation at all at this point?
Secretary Snow. Mr. Chairman, not at this point I am not. I
see the economy continuing to operate with lots of headroom to
grow in a non-inflationary way. We still have considerable
unused capacity in our factory and manufacturing systems. Real
wage rates have only begun to move up a little bit. We still
have unemployment higher than it should be.
So we still have lots of unused resources in the economy
that can be put to better use. And we live in this global
economy where competition is ever present and affecting prices
in the United States. And few executives who you talk to feel
they have real pricing power.
No, I think we have a lot of headroom to grow without
inflation rearing its head.
Senator Shelby. Mr. Secretary, how important, in your
judgment, is making the tax cuts permanent?
Secretary Snow. Mr. Chairman, I think it is absolutely
critical. I think the evidence is clear that the tax reductions
that Congress enacted last year have made this strong recovery
possible.
Senator Shelby. It has put money in people's pockets, their
money, has it not?
Secretary Snow. That's what it is about.
Senator Shelby. Let them keep the money they have earned.
Secretary Snow. And when they keep the money they earn,
good things happen. They do good things with it. They spend it.
And as they spend it, then businesses around the country find
that they need to replenish their inventories. Their shelves
are coming down. And that leads to demand for their suppliers,
and so on and so forth. So good things happen when people have
more money to spend.
Senator Shelby. Mr. Secretary, a lot of people have
characterized the tax cuts that we pushed through, and I
certainly voted for every one of them, as tax cuts for the
rich. But I do not buy that. I believe that it was a tax cut
for everybody who works, in a sense, and it also eliminated
taxes on a great portion of people where they pay hardly
anything. Is that correct?
Secretary Snow. You are absolutely correct, Mr. Chairman.
TERRORIST FINANCING
Senator Shelby. I want to discuss terrorist financing. In
fiscal year 2004, the Congress provided $3.5 million more than
the budget request to fund and establish the Executive Office
for Terrorist Financing and Financial Crimes (EOTF/FC) at
Treasury. Would you update us on the creation of that office
and explain how that office will mesh with the Office of
Terrorism and Financial Intelligence (TFI) that you are
proposing to create?
Secretary Snow. Yes, Mr. Chairman, and thank you for the
opportunity to do that.
The Office of Terrorism and Financial Intelligence (TFI) is
just now being set up. It will be headed by an Assistant
Secretary who will be responsible for making sure that the
Treasury Department has access to the intelligence being
gathered across this government and across other governments,
and has the intelligence it needs to carry out its role, its
critical role.
So more priority on financial intelligence. There is lots
of intelligence being gathered. We want to see more priority on
the financial side.
Senator Shelby. Is Treasury not central to all of this?
Secretary Snow. I think Treasury is right at the center of
it. It has to be.
Senator Shelby. It is your obligation.
Secretary Snow. It is our obligation. We have the
authorities from the Executive Orders of the President,
implementing the statutes that you have passed. Treasury has
the expertise, knowledge of the financial systems of the United
States, knowledge of the people in the financial system of the
United States, and knowledge of the international financial
system.
The office you mentioned will be headed by an Assistant
Secretary for terrorist finance and will be responsible for
giving broad policy direction to OFAC and FinCEN and overseeing
the National Money Laundering Strategy (NMLS) and overseeing
our relationship with the international institutions that are
engaged in the global war on terrorist finance.
Senator Shelby. Will Treasury share with the FBI and CIA
and others, without impediment, the information that is central
to terrorist financing?
Secretary Snow. Absolutely.
Senator Shelby. Because you notice with the 9/11 Commission
and others, one of the problems is the lack of sharing
information. If you do it begrudgingly, it is not timely and it
does not work.
Secretary Snow. Mr. Chairman, I will pledge that we will
share the information that we gather. And by having a senior-
level Senate confirmed person sitting at the table with the
other intelligence gathering agencies, we will see that
Treasury's priorities are given appropriate attention.
Senator Shelby. How will this office interface with the
Executive Office for Terrorist Financing and Financial Crimes
and with the Bureaus at Treasury? Are you going to integrate
this where we have some type of sharing or analysis center?
Secretary Snow. Mr. Chairman, the two offices will be
headed by a new Under Secretary. It was contemplated in the
legislation Congress passed last fiscal year, for which I am
very grateful. The Under Secretary will be the senior official
in the United States Government on financial terrorism, will
coordinate all the activities in Treasury, and be our point
person. We will now have one person I can turn to and hold
accountable for all of these activities. We have identified a
first-rate individual to be the Under Secretary whose name I
think will be released, or has very recently been released, for
confirmation.
Senator Shelby. With the new office, how will the Treasury
function better than before?
Secretary Snow. Yes, exactly. We did not have either the
Under Secretary or the Assistant Secretary for Intelligence.
Senator Shelby. Mr. Secretary, we all support resources and
methods to fight terror financing because it goes to the heart
of it. I am concerned that the Treasury may have abdicated, in
certain areas, its statutory responsibility and missions
relating to terror financing to other Federal agencies.
I am also concerned, Mr. Secretary, that in the void, other
Federal agencies are establishing or enhancing capabilities
that duplicate what Treasury should be doing, and could lead to
further interagency communication problems in the future.
COORDINATION WITH HOMELAND SECURITY
Besides establishing a new office, what is the Treasury
Department doing that the Homeland Security Department does not
in this regard?
Secretary Snow. We coordinate very closely with Homeland
Security. I can see why it might appear to be duplication. But
in reality, we have different roles to play, different core
functions.
Treasury's function is to play the lead in all
relationships with financial institutions.
Senator Shelby. The primary responsibility is Treasury's.
Secretary Snow. Primary responsibility is Treasury's to
play the lead in the money laundering, in the enforcement of
the Bank Secrecy Act, in the bank and financial institutions
knowing their customers, and in reaching out to all segments of
the financial community. Now it is including jewelers and
credit card companies and insurance companies--wherever money
could be laundered or moved.
Senator Shelby. On the Homeland Security web page,
Secretary Ridge is quoted as saying ``safeguarding the
integrity of America's financial systems is a key part of
Homeland Security.''
It seems to me that that is Treasury's mission. Are we
duplicating this? And if so, what we are what are we going to
do about it?
Secretary Snow. I think what Secretary Ridge has in mind,
in saying what he said, is to underscore the role they have
which is protection of a physical sort, physical protection.
But Treasury's role is the financial war on terror.
But if a building is going to be penetrated by a terrorist,
a bomb is going to be dropped, an explosive device is going to
be detonated in a banking center, that would be properly their
responsibility.
But if it is penetrating the financial system, if it is the
flow of money through the system, if it is interdicting those
flows, then Treasury clearly has the lead.
Senator Shelby. Treasury is going to keep that lead, are
you not?
Secretary Snow. Absolutely.
Senator Shelby. You are going to fight for your turf, I
hope.
Secretary Snow. We are going to play the role you have
assigned us and the President has assigned us. Yes sir, Mr.
Chairman.
Senator Shelby. Senator Murray.
OUTSOURCING
Senator Murray. Thank you, Mr. Chairman.
Mr. Secretary, as I mentioned in my opening statement a
recent private sector survey revealed that 86 percent of the
companies questioned expect to expand the use of offshore IT
outsourcing over the next 12 months. When that same question
was asked of companies just 2 years ago the number was only 32
percent.
My home State of Washington has an extraordinary number of
IT specialists who are now suffering as a result of this
downturn in the industry. Is the Treasury Department monitoring
this situation and the potentially explosive growth of
outsourcing in certain select industries?
Secretary Snow. Senator Murray, I have seen some studies on
this and try and keep myself apprised to the extent I can in
the area.
Unfortunately the data is not all that we would like it to
be on that score and we get different analyses and different
estimates. I think the Commerce Department and the Labor
Department are in a better position to talk technically to what
the data shows.
But what I have seen from the various surveys, Forrester
Group I think is the one that is doing the study you are
referring to, so far the effects have been relatively--that is
relative to the total number of jobs that are being created in
the United States economy. And the displacement rates are
fairly small.
Senator Murray. What other industries do you think, besides
IT, might experience this outsourcing?
Secretary Snow. Well, I guess we have seen radiology
outsourcing. I think Massachusetts General Hospital is getting
X-rays read overseas. Medical, health care, service industries,
I am told, and telecommunications.
Senator Murray. What is the Bush Administration doing to
try and stem the fund of jobs that our country is losing?
Secretary Snow. I think the best thing we can do, and of
course we do not want to see any jobs lost anywhere, is to keep
the American economy as vibrant and strong and creative as
possible so that we are continuously creating as many new jobs,
and good new jobs, jobs that point to careers, as we possibly
can.
Senator Murray. It is fine for economists and policymakers
to argue back and forth over whether our country gains or
benefits from outsourcing, but one thing that really is
forgotten in this debate a lot is the people and the families
that have lost their jobs.
I recently read about a 40-year-old woman in Seattle whose
name is Meara Bronstein. She worked at an IT job at a company
called Watchmart Corporation. She worked there for 2 years. And
one day she said that her entire department was informed that
they would be laid off in a month. And worse, they were told
they had to train their Indian replacements or lose their
severance package.
She is still without work after 10 months and her
unemployment benefits just ran out. These are her words, let me
read them to you. She says ``my life has changed drastically
over my 10 months of unemployment. I have cashed in my 401(k),
can no longer afford health insurance and can just barely pay
the rest of the bills. I have even resorted to selling a number
of my things on eBay to get money for essentials. I think that
my biggest struggles throughout this experience are the
constant feelings of powerlessness and paralysis. I did
everything I could to succeed. I got a good education. I paid
off big student loans. I worked hard at my job. But now I
realize that it does not matter what I do to make myself a
marketable employee if there are no policies in this country to
protect our jobs from being sent overseas to someone who will
work for 1/16 of the price. I cannot compete with that. You
could say that I woke up from the American dream.''
What you say, Mr. Secretary, to someone like that?
Secretary Snow. Obviously, Senator, your heart goes out to
anybody who finds themselves in those circumstances. Those are
dreadful circumstances for anybody to find themselves in.
Two things I think we can say. One is that we live in the
most dynamic economy in the world. We live in an economy that
is continuously changing, an economy in which there is
continual regeneration going on, which means displacement is
continuously occurring. There are about 40 million new jobs
created every year in the United States. And there are roughly
40 million people displaced from their old jobs. So we have
this extraordinarily dynamic economy.
What I think we need to do, and it is why those tax cuts
were so important, is continuously focus on making sure
aggregate demand is large enough to support employment for
everyone.
OUTSOURCING AND JOB DISPLACEMENT
Senator Murray. But if you are an IT person today, you
cannot become a nurse tomorrow.
Secretary Snow. I understand that, Senator. And the second
part of the answer is we have to make sure, I think we have an
obligation in an economy that is changing as fast as this one,
because remember a lot of people are getting displaced not
because of contracting out or foreign competition. They are
getting displaced because of domestic competition.
We have to make sure that opportunities for skills
development and retraining and education are widely available.
Senator Murray. So you would say investing in those are
critical?
Secretary Snow. Yes, I do. I think investing and making
sure people have easy access to low-cost ways to acquire the
skills to give them the jobs of the future is an obligation we
must take on.
Senator Murray. What about bridges like unemployment
compensation for people like that?
Secretary Snow. Yes, absolutely there is a role for that.
Senator Murray. Mr. Secretary, one of the provisions that
were included in last year's appropriations bill was a
prohibition against using fiscal year 2004 funds to contract
out any Federal job overseas. To my shock, the President's
budget specifically requests that this provision be deleted
from fiscal year 2005.
Mr. Secretary, could you cite for me some instances at the
Treasury Department where you might work that is currently
being conducted by Federal employees and send that work
overseas?
Secretary Snow. Senator, I am not aware of any.
Senator Murray. Then tell me why the President wants us to
grant him authority to move Federal jobs overseas?
Secretary Snow. Senator, I am not familiar with the
background to that provision. I am sure somebody at OMB or DOD
could talk about it better. I am just not knowledgeable enough
to offer you a thoughtful opinion on that.
Senator Murray. But you have no jobs in your department
that you----
Secretary Snow. Not that I am aware of and I will check----
Senator Murray. So you would not object to us putting that
provision in the bill?
Secretary Snow. Well, there may be reasons beyond the
Treasury Department. We are only a small part of this
government. And there may be some compelling rationale in some
other department for some access to that. But I am not aware of
any at Treasury.
Senator Murray. I know a lot of the comments have gone back
and forth over this issue about whether outsourcing American
jobs is beneficial to the economy but there is a different
question that surrounds this issue that I want to take a second
to discuss with you. And that is the question of whether it is
ethical and patriotic to send these American jobs overseas.
Many of the companies that are sending these jobs overseas,
for the longest time benefited by being American companies. And
they have benefited from being part of the most vibrant economy
in the world. They have benefited from our substantial
investments by us as taxpayers in our national defense, in our
tax structure, in innovation and commitment of the American
people.
We can disagree on the issue of whether it is good
economics to ship the jobs overseas, but I still do want to ask
you this today. Do you think these companies that have
benefited from the American experience for so long and are now
shipping American jobs overseas are operating in an ethical
manner? Is there anything we or they owe these American
workers?
Secretary Snow. Senator, the management of America's
companies have a fiduciary duty to their shareholders. And that
fiduciary duty, which they must under the law take seriously,
and when they do not, we get into things like the Enron
scandals. They have a fiduciary duty to pursue the best
interests of their owners and that means staying competitive
and producing good products and producing them at low-cost.
So the first responsibility of management is in an ethical
way to pursue the best interest of their shareholders.
Senator Murray. Over the best interests of taxpayers that
have invested in investments that make them profitable today?
Secretary Snow. I am not sure there is a conflict there,
Senator. If American companies do not stay competitive, then
they are going to have a hard time creating good American jobs
and competing effectively, and of course a lot of competition
comes from firms that are located outside the shores of the
United States. If they cannot stay competitive with those
enterprises, they are going to cede market share to them, cede
revenues to them, and ultimately America's ability to create
good jobs here with high standard of living will be eroded.
Senator Murray. Mr. Chairman, I am not sure I would agree
but I know my time is up at this point. So I will move on and
wait until my second round.
Senator Shelby. Senator Bennett?
ACCESS TO OVERSEAS MARKETS
Senator Bennett. Thank you, Mr. Chairman.
I do not want to go too deeply into this but I am
stimulated by Senator Murray's questions. And my thoughts go to
Dell Computer, a company that has been attacked for making a
number of their purchases overseas. And they make a huge amount
of sales overseas.
And at least the Dell management says if we were not able
to buy at a world price the components that we put into Dell
Computers, which are assembled in the United States and then
shipped overseas, we would lose the American jobs that we now
have. That is, we are indeed contributing to jobs overseas by
purchasing overseas. But the people who assemble the Dell
Computers, who run the company, who do the accounting, all of
whom are American who work in America, would lose their jobs if
we did not have access to the overseas markets, which access is
controlled by our ability to purchase at lower prices.
I do not like the word ``globalization'' because I think it
carries connotations with it that have taken on emotional
baggage. I think the correct description of the world in which
we live is a borderless economy. And the biggest, meanest,
toughest competitors in the borderless economy are the
Americans. So I do not want to pursue policies that would hurt
America's ability to compete in the borderless economy because
the net effect of that ultimately will be the destruction of
more American jobs than those that are currently gone overseas.
TREASURY BUDGET INCREASE
But let us move on to the items that we are discussing
here. You talk about your budget being essentially static, but
the overall increase is 4.5 percent. The President is trying to
hold discretionary spending at 4 percent. Homeland Security is
going up substantially more than 4 percent. I am really asking
questions that Chairman Stevens would be asking.
But as we look at the overall attempt on the part of the
President to deal with the deficit by holding discretionary
spending at a relatively low level, at the same time funding
Homeland Security, increase funding for education and some of
the other areas where he has gone well above the 4 percent. We
have got to find less than 4 percent some other places.
I guess I am overly sensitive to this because as Chairman
of the Agriculture Subcommittee, I find mine going negative. I
would love to stay stable, but I am being pushed on the
President's budget $500 million below last year, and last year
was $1 billion below the year before.
So as I come to this subcommittee and see you going up a
little, you say basically static. I would like you to highlight
the areas where there are increases that take you to that 4.5
percent global number going up.
Secretary Snow. The principal area where we are going up is
IRS enforcement. That is over $300 million--it is about 10
percent of their enforcement budget increase. And that is to
make sure we are enforcing the code fairly and effectively in
some areas where questions have arisen, questions about tax
schemes, fraudulent tax schemes, abusive tax schemes used by
wealthy people, promoted by tax promoters to corporations and
wealthy people.
There appears to be, according to statistics we have, a
growing belief in the public that the code is not being
effectively enforced and that people can get away with it. That
is a serious issue of citizenship, and we cannot let that idea
take hold.
And I think we are leaving a lot of money on the table.
RETURN ON INVESTMENT
Senator Bennett. That was going to be my next question.
Have you done any studies to see what the return on that
investment might be? Could we look forward to recovering, by
virtue of increased enforcement, enough money--it does not show
up in the way we do it here on the appropriations--but looking
at your level, would the Treasury have any possibility of
recovering more money than the enforcement money coming in? In
other words, get a significant return on that investment?
Secretary Snow. Senator, I cannot prove it, but I think it
is the case and I think it is worth trying.
Senator Bennett. Are there any studies?
Secretary Snow. There are studies that suggest, and these
you have got all to take with a grain of salt, that there is a
so-called tax gap of a couple hundred, $250 billion I have
seen. We are asking for $300 million more in enforcement.
Senator Bennett. Three hundred million dollars, not $300
billion?
Secretary Snow. Yes, against a $250 billion tax gap.
I am alarmed about some of the tax schemes I see out there,
and unless we can catch them in the bud, are going to erode the
revenue line of the Federal Government. There are some really
abusive practices out there that we have to get at. The budget
here provides resources to go after those really abusive tax
schemes.
I have asked the head of the IRS, a very able fellow named
Mark Everson, to give me a report on what comes out of the $300
million so that when we go to OMB next year, and come before
you, we are going to have some idea of that, and not just
something we pull out of thin air.
I think right now while they do so--they call them ROI
analyses, return on investment analyses. I think they are good
efforts, but I would not bet the farm on them.
IRS INFORMATION TECHNOLOGY INVESTMENT
Senator Bennett. Okay. And finally, I made reference to
this in my opening statement.
What is the status of the entire IT effort in the IRS? The
complete collapse that we saw in the 1990s, the effort of the
last IRS Commissioner under the Clinton Administration--I am
trying to remember his name.
Secretary Snow. Charles Rossotti.
Senator Bennett. Rossotti. He was a very impressive fellow,
as he tried to get his arms around that and deal with that.
What progress have we made on that in the intervening years?
Secretary Snow. I think Commissioner Rossotti brought a
tremendous amount of good management to the IRS and helped put
it on a good path. But it is no secret that the IRS technology
modernization has not been a model of success. And it has come
in consistently over budget and behind the timelines. It may
have been because our reach exceeded our grasp. We tried to
take on too much.
This year's budget on the modernization side, the
technology side, is pared back significantly. It is about $100
million, but focused on more discreet and deliverable outcomes.
And it is getting intense management from IRS Commissioner
Everson, from Deputy Secretary Bodman and from me, because we
cannot afford not to have these systems proceed the way they
were supposed to proceed, because they are the foundation for
all of our tax collections.
I think of this, Senator, in terms of a first-rate credit
card company. That first-rate credit card company knows how
much you owe them. They know when you made your last payment.
They know what the interest due is. They know how to get a hold
of you. They have got all of your payment records. That is
where we need to go. And the efforts that are underway are to
put us in a position where in the future we will be a
counterpart, the IRS, which is a scale that is way beyond any
credit card company. But it would have that capability, closer
to the capability you talked about in your opening statement.
Now there has been some real progress made. This year some
50 million Americans are going to do e-filing. That is made
possible by these modernization systems. You can now go to
IRS.gov, and hit ``Where is my refund?'', and get good
information on how to go about getting the status of your
refund. That is real progress from where we have been.
These e-services, including online tax identification
numbers, are becoming more readily available. Some significant
number of small businesses are now able to go online and file
their taxes.
We are a long way from being where we need to be and I
think the IRS is approaching this in a more realistic way, by
taking smaller bites at the apple, and making sure that the
bites are digestible.
Senator Bennett. Thank you.
Senator Shelby. Senator Dorgan.
OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
Senator Dorgan. Mr. Chairman, thank you very much.
First, Mr. Secretary, I said good things when the President
selected you. I like you. I think that you are a good Secretary
of the Treasury and I remain pleased that I supported your
confirmation.
Secretary Snow. Thank you, sir.
Senator Dorgan. Having said that, we disagree on some
policy issues, as you might well imagine. And I do want to ask
you some questions about fiscal policy because I was really
intrigued by a couple of your answers, both to my colleague
from Utah.
And incidentally, with respect to that subject, the
question of a U.S. firm that moves overseas to sell back into
the United States is a construct that is slightly different
than the one the Senator from Utah posed. I would like to ask
about that, as well.
But having said that, I want to ask you a series of
questions that I asked Secretary O'Neill before he left, and it
deals with travel to Cuba.
I am going to tell you something. I am embarrassed at the
public policy of this country and furious with what is
happening at OFAC. So I wanted to say nice things before I
described to you my concern about this.
Let me hold up a couple of these charts, if I might. Let me
hold this one up, first.
This woman is Joanie Scott. She traveled to Cuba 4\1/2\
years ago to distribute free Bibles and help organize a prayer
group. Four years later she received a fine, just recently,
from the U.S. Treasury Department for $10,000. She went to
distribute free Bibles in Cuba.
Let me show you another one. This is Joan Sloate. She is
74, a grandmother. She is a senior Olympian bicyclist. She went
to ride her bicycle in Cuba. And OFAC fined her and, in fact,
has attempted to take her Social Security payments in
satisfaction of the debt. So that is Joan Sloate. I have met
Joan Sloate, but I do not know her well.
Let me describe another one. This is a group of Olympians
and they are disabled. And they are out $8,000 in their attempt
to travel to Cuba to participate in the team sports--the World
Team Sports for Disabled Americans was abruptly cancelled
despite the fact that they had been allowed to do that
previously. It was abruptly canceled. They are out $8,000. Many
of these athletes have lost the money they paid on non-
refundable flights to Miami.
This is what is going on in OFAC. And there are more.
Doctors, incidentally, have just been told by OFAC that
they cannot go to Cuba and lecture and train Cuban doctors
because the physicians in this country who have been doing
that, to lecture and train Cuban doctors, that is an export of
services to Cuba and Treasury says they are prohibited from
exporting a service such as teaching Cuban doctors such things
as strokes and comas.
You were just in Miami. Asa Hutchinson was in Miami
December 10. He gave a big old speech about this. And then you
followed him in Miami on February 9, gave a big old speech, and
both put out press releases about how you were cracking down on
all of this.
And my understanding is that you are, at OFAC and also in
Transportation Security and Homeland Security, you are working
with Customs agents and OFAC on all direct flights from Cuba
from Miami, JFK, Los Angeles, hundreds of aircraft, tens of
thousands of passengers--I am now quoting you--and the agents
are being extremely meticulous.
So apparently the results of that so far, as reported by
Homeland Security, 215 of 45,000 travelers were suspected of
attempting to vacation--that is a pretty serious crime. Two
hundred eighty alcohol and tobacco violations were uncovered.
Actually this was almost exclusively a small amount of cigars.
Forty-two narcotic seizures, and these all involved
prescription drugs, not heroine for example. And one hazardous
material violation, which appears to have been carbon dioxide
for adding fizz to seltzer water.
So we are trying to track terrorists in this country and
you have an organization called OFAC. I used to chair this
subcommittee and I asked hard questions of Secretary O'Neill. I
do not see any excuse for one person at OFAC to be doing what
they are now doing.
I know you are required to do it because the President and
the White House and others are sending you to Miami to give
speeches and ramp up this enforcement.
OFAC RESOURCES
But I am going to tell you something. I am going to offer
again an amendment to strike the money for the people that you
have got doing this. You know and I know that the issue of
travel to Cuba, eliminating the travel restriction, would pass
easily in both the House and the Senate. And trying to slap
Fidel Castro around, which is probably a pretty good thing to
do in my judgment, but doing so by injuring the right and the
freedom of the American people to travel is an outrage. Fining
somebody who is distributing free Bibles in Cuba is a shame.
So Mr. Secretary, what I would like to do, I am sorry you
had to listen to a lecture about that but it is the only
opportunity I have.
I am going to ask you to identify for me, in a submission
to this subcommittee, the amount of resources that OFAC is now
using, the number of people, the number of dollars, the amount
of time to engage in this approach, to chase women who are
distributing free Bibles in Cuba, to chase retired women who
are bicycling in Cuba, to try to stop doctors who would teach
Cuban doctors about stroke and comas and so on.
And then I will tell you that I will be asking if we can
have an amendment and have a vote on the amendment about
whether that is an effective and an appropriate use of
resources.
It would be unfair for me not to allow you to respond, to
give the standard response to this. But Mr. Secretary, go
ahead.
Secretary Snow. Thank you, Senator.
I know how strongly you feel on this issue, from our
correspondence.
What I would say is that in those areas that you
elaborated, humanitarian aid, education, travel, medicine,
religious efforts, my understanding is that licenses are
available and the problem is that people are going without
getting the appropriate licenses. Maybe we need to do a better
job of simply making clear that people can go if they have the
appropriate licenses.
I hope OFAC, and I am going to check on this when I get
back to Treasury, is putting appropriate resources into making
available knowledge of when such travel is appropriate pursuant
to the appropriate license.
[The information follows:]
Resource Information
OFAC's Salaries and Expenses for fiscal year 2004 enacted budget is
$21.726 million and 138 full time equivalent (FTE) level. Currently,
the total amount of funds directly attributable to the Cuba sanctions
regime is $3.3 million. OFAC has the equivalent of 21 FTEs who work on
a wide variety of Cuban embargo matters, including travel-related
matters. Supervisory personnel are also actively involved in the
process.
LICENSING INFORMATION RESOURCES
Treasury's Office of Foreign Assets Control (OFAC) has taken
measures to make information available to the public concerning the
U.S. policy with respect to travel to Cuba. They have published a
brochure entitled ``Cuba: What You Need to Know About the Embargo,''
which is available through their fax-on-demand service and on their
Internet website at www.treas.gov/ofac, that provide information in lay
terms. This brochure summarizes the most salient features of the
sanctions program, including the travel provisions. There is also a
separate two-page brochure, in both English and Spanish, covering just
the travel restrictions and licensing provisions. There are also
approximately 200 travel and carrier service providers authorized to
engage in transactions with Cuba to make travel arrangements for
licensed travelers. OFAC's Miami office provides training and ongoing
guidance to the service providers who pass on information about U.S.
Government requirements for travel to Cuba.
Last year, OFAC's Licensing Division issued ``Comprehensive
Guidelines for License Applications to Engage in Travel-Related
Transactions Involving Cuba'' which is available on OFAC's website. The
Application Guidelines have an introduction discussing the policy
surrounding travel to Cuba, including statutory restrictions limiting
travel licensing to 12 categories of activities, information on what is
covered under each licensable category of travel, and information to
applicants of what information should be furnished in the application
in order to receive a license. For each category of travel, the
Application Guidelines provide examples of activities that are
licensable and not licensable in order to give applicants an idea of
what would be appropriately within the scope of current U.S. policy
with respect to travel to Cuba. The Licensing Division also has
information in the travel advisory on Cuba that the State Department
makes available in its travel advisory system where information is
provided to the public covering most countries of the world.
Senator Dorgan. Mr. Secretary, in fact it is not the case
that those activities are acceptable and approved by the
Treasury Department. I mentioned to you the circumstance of the
disabled athletes. They were specifically denied the
opportunity to travel, despite the fact that they had been
allowed to travel previously.
I mentioned that the physicians, who have previously gone
to Cuba to teach and to lecture, are now told that constitutes
the delivery of a service to Cuba, which is not legal and
therefore will not be allowed.
So my point to you is, while I think most people believe
this travel research is being administered reasonably, it is
not the case that humanitarian activities, educational
activities, medical activities and others is routinely
excepted.
There is in this administration, both at the State
Department and in other areas and at OFAC, and it is trumpeted
in press releases from your office as well as Asa Hutchinson
and Homeland Security, that there is this crackdown.
And the other point of it is that we have apparently people
checking every passenger on every plane. And I am going to
spend a little time trying to determine whether we are doing
quite as much to try to keep terrorists out of the country as
we are to try to keep a few cigars out of the country. I do not
know quite how I will get to all of that.
My only point to you this, I hope you will look into that
because I think you have an understanding that is different
than is actually occurring with respect to OFAC.
But my point is I think this policy is bad policy and
things have changed dramatically in the crackdown with respect
to trying to injure the American people who in many cases--the
young woman who took Bibles to Cuba did so 4\1/2\ years ago.
She did not have the foggiest idea she needed a license. So she
apparently made a mistake, the mistake of taking free Bibles to
distribute in Cuba. Now she is being slapped with a $10,000
fine.
Mr. Chairman, I had indicated that I wanted to ask a couple
of questions about fiscal policy. I will wait for another
round, if that is appropriate.
PUBLIC POLICY ON TAX CODE
Senator Shelby. Okay, thank you, Senator Dorgan.
Secretary Snow, let me offer a comment to your exchange
with Senator Murray a few minutes ago. I think there is a big
difference, and I would hope that you would agree with me,
about the fiduciary duty that an executive of a company owes to
the stockholders. We know who owns the companies: the
stockholders own the companies. Management does not own
companies. And they did have a duty, I totally agree, to
enhance profits to make money. That is why they are created,
primarily.
But making public policy is a totally different thing from
that responsibility. I think you are dealing with apples and
oranges.
If we have a tax policy that encourages our companies to go
overseas, I think that is bad public policy. I understand we
have to trade. We have got to trade; it is a two-way street.
I would like to see us make public policy in our tax code
that would encourage people to invest here rather than
overseas, as I think do most people. I do not know how you feel
about that, but that is my own observation.
Secretary Snow. Senator, we have incorporated in this
year's proposals that we have sent to the Congress, some
efforts to deal with tax havens, with the interest stripping
provisions which create the juice in the transactions that take
firms to these tax havens, and so on. So I agree broadly with
what you say, that the tax code certainly should not encourage
that sort of activity.
COORDINATION WITH HOMELAND SECURITY
Senator Shelby. I want to touch again on Homeland Security.
I am looking at a statement sent out by the Department of
Homeland Security, by Secretary Ridge.
Among other things, he said under the SHARE program, which
is the Systematic Homeland Approach to Reducing Exploitation
Program, officials from ICE will be joined by the Secret
Service to jointly conduct semiannual meetings with the
executive members of the financial and trade communities
impacted by money-laundering, identity theft and other
financial crimes to share data on specific investigative
outcomes from investigations into money-laundering, identity
theft, and other financial crimes.
Now, you are not ceding any of your jurisdiction to
Homeland Security by what they do? You are trying to coordinate
with them--is there not a difference here?
Secretary Snow. Absolutely, and we coordinate very closely
through intergovernmental task forces. And I think the roles
really are well understood.
Our primacy comes with respect to the national money-
laundering strategy. It comes with respect to enforcing the
various provisions of the Bank Secrecy Act and the executive
order dealing with terrorist finance.
Senator Shelby. Also, from your statutory authority over
the financial institutions.
Secretary Snow. And the statutory authority over financial
institutions. And that Treasury chairs the President's Working
Group on Financial Institutions which is the Federal Reserve
and the Securities and Exchange Commission (SEC) Chair and the
head of the Commodities Futures Trading Commission. And where
necessary, we will share information with--and desirable--with
the Department of Homeland Security (DHS). But their role is
really different. Ours is more the broad policy, implementing
those statutes and executive orders, interdicting the flow of
money, and making sure that banks know their customers. Making
sure that the information is being shared, and that we get
through our databanks at FinCEN, with local, State and other
Federal authorities.
DHS has an important role to play, but it is a different
role.
EARNED INCOME TAX CREDIT (EITC)
Senator Shelby. Mr. Secretary, I want to discuss the Earned
Income Tax Credit (EITC) for just a minute. We have been told
by the IRS Commissioner last year that there are a lot of
erroneous and fraudulent EITC claims that are estimated to cost
the government between $8 billion and $10 billion annually.
We all want people who would qualify for this benefit to
get it. But where you are duplicating the benefits, it seems to
me that the IRS and Treasury are in dire need of some kind of
systems reform to be able to check who is doing what.
You referenced some of the financial institutions. If it
were American Express or any of these credit card companies,
they certainly would cross-reference everything. I cannot
imagine them letting happen what is happening with EITC claims.
Are you interested in more money to go after cheats and
fraudulent things? Heck yes, and we want to make sure you do
it. But you are sitting on tons of money if you would do your
job properly. Not just you, but others at the Department.
And if we are losing $8 billion to $10 billion a year
because of fraud or fraudulent and erroneous claims, something
is wrong, big time. And we are talking about billions, not
hundreds of millions.
Secretary Snow. Senator, there is something wrong here.
Senator Shelby. What are you going to do about it?
Secretary Snow. We are engaged in some pilot projects right
now to try to figure out what to do about it, to be honest with
you, because we do not have all the answers readily at hand.
Senator Shelby. Have you thought about outsourcing this?
Private-sector banks that do this every day are getting
consultants in there. We can not afford to wait 2 years from
now for answers and have the same rate of fradulent and
erroneous claims that you had 2 years ago.
Secretary Snow. I think we can fix this, but this is an
extraordinarily complex program where----
Senator Shelby. But complexity does not mean you cannot run
it with integrity.
Secretary Snow. We can run it and we will. The key to it is
getting eligibility criteria well-established so the people who
are eligible get the payments.
Senator Shelby. Absolutely.
Secretary Snow. And those who are not do not. And
unfortunately, these error rates are just extraordinary.
Senator Shelby. Let us stop a minute.
How are you going to come about with the eligibility
criteria that you need?
Secretary Snow. By getting databases that tell us when two
people not living in the same household are claiming the same
child. And that is happening.
Senator Shelby. Looks like a computer or good software
system could do this for you. That is what we have been told.
Secretary Snow. We are doing pilot projects right now to
try and get at that very problem. A lot of the cost of this
program, and it is a shame for the eligible participants who
were properly getting the checks, is we do an extraordinary
amount of post-audits and burden people who are properly
getting the monies with post-audits and are sending checks to a
lot of people who do not deserve the checks.
I do not know whether it is fraud as much--there is
probably some in this.
Senator Shelby. But it is wrong.
Secretary Snow. It is just wrong. It is errors--mistakes
and errors.
Senator Shelby. Let us say it is not fraud, but it is
erroneous and the people mean well. You need the criteria to
separate what is the real from the apparent, do you not?
Secretary Snow. Yes, we do.
Senator Shelby. And how are you going to do this? I know I
heard last year that you had a pilot program. I may have heard
it the year before.
But these erroneous payments and so on could have cost the
Treasury $100 billion. That is not chicken feed.
Secretary Snow. You mean over a 10-year period or
something?
Senator Shelby. Yes, sir. It is nothing to ignore.
Secretary Snow. We owe you an answer. We owe the American
taxpayers an answer on this.
TAX CODE DEFINITIONS
Senator Shelby. I think you owe the American taxpayer an
answer.
Secretary Snow. For certain, we owe the American taxpayers
an answer.
One thing is getting a uniform definition of a child.
Apparently in the code today, one of the complexities is we
have six, I am told, different definitions of a child. If we
could settle on one definition of a child.
Filing status is an issue. What is the filing--is that
person really the head of the household and the parent or not?
When various people are claiming the child as their dependent.
So getting the databases fixed.
Senator Shelby. Looks to me like a good software program is
needed to keep you from paying the EITC benefit here and from
paying it there for the same child. It looks like you could
find that the government is allowing someone in Alabama to
claim EITC and someone else in Illinois or somewhere else for
the identical benefit. And especially with the enormous amounts
of money involved, I do not understand why you would not want
to eliminate these erroneous and fraudulent payments.
Secretary Snow. This program does involve tens of millions
of Americans.
Senator Shelby. We understand what it involves.
Secretary Snow. Which adds to the complexity.
Senator Shelby. But what is right and honest is right and
honest, is it not?
Secretary Snow. It is, and to make it right and honest, we
need the systems in it at the front end of the EITC program
rather than what happens today, which is an awful lot of
checking and rechecking and checking and rechecking.
ADMINISTRATION OF EITC
Senator Shelby. Mr. Secretary, who administers the EITC
program?
Secretary Snow. It is administered by the IRS.
Senator Shelby. The Internal Revenue Service. The Internal
Revenue Service is part of Treasury, is that correct?
Secretary Snow. Yes, it is.
Senator Shelby. So the buck stops here with the
Commissioner of the Internal Revenue Service.
Secretary Snow. That is right. And the Commissioner of the
Internal Revenue has pledged to me that this issue is getting
his full attention, that he is on top of these pilot projects.
In fact, he made the decision last year to modify the pilot
projects and not put into place the fixes on the EITC before we
had the real results back.
I think this is as complex as it is is a little baffling,
but it involves the fact that there are just so many claimants
in an environment that it is so hard to really manage, with
definitions of child that are not uniform, with poor
information about dependents and who can claim dependents, poor
information about actual parentage. We have got a real data
collection and management problem here.
But there are three pilot projects going after the major
components of the problem.
Senator Shelby. I hope that we hear good news down the road
to stop all people who are either fraudulent or erroneously
filing things with the IRS.
Senator Murray.
Senator Murray. Thank you, Mr. Chairman.
Let us just not forget that there is another side to the
EITC issue which is many, many poor taxpayers who do not know
they are eligible who we are not giving their payments to. And
that is part of the error rate that we do not want to lose in
this.
Secretary Snow. Senator, I agree with you. That is a part
of the whole problem.
PRIVATE COLLECTION AGENCIES
Senator Shelby. We do not want to hurt anybody.
Senator Murray. Mr. Secretary, as I talked about in my
opening statement, IRS has proposed the use of private debt
collectors to collect tax debts. And as I said, I am really
uneasy about this proposal because of the abysmal record of the
IRS in protecting the privacy of taxpayers.
In fact, when the IRS tried the use of private collection
agencies in a pilot a couple of years ago, it was just fraught
with problems. Then, in February of 2003, the IG noted the
extraordinarily lax record of IRS in administering background
checks for IRS contractors, including contractors that have
access to sensitive tax data.
And then just last month the IG found that contractors
committed numerous security violations that placed IRS
equipment and taxpayer data at risk. In some, cases contractors
blatantly circumvented IRS policies and procedures, even when
security personnel identified inappropriate practices.
For example, one disgruntled contractor employee planted a
computer time bomb on a computer system that would have
destroyed sensitive taxpayer data. And another contractor
employee connected an unsecured computer to the IRS computer
network, which permitted the introduction of a virus into the
IRS computer system costing $1.5 million in downtime and
cleanup costs.
Mr. Secretary, given the fact that some of these findings
were published just last month, why should we believe that the
IRS is in a position to protect taxpayer information and
privacy when they hand over the responsibility to collect tax
debts to private contractors?
Secretary Snow. Senator, I would agree with you that the
prior experience with the private collection agencies did not
go well. It was not a success. It was not as well-planned, as
well thought out, as well structured as it should have been.
I think we have learned a lot of lessons from that prior
experience that will be applied here if Congress authorizes IRS
to go forward with the private collection agencies.
We are acutely aware of the protection of the taxpayer
rights, the private collection agencies would have no
enforcement power. They would go through intensive training
about their role, which is not enforcement but just collection.
They would go through intensive training on their legal
responsibilities to taxpayers, including protection of
confidentiality of taxpayer information.
This is really an effort on the part of the IRS to free up
highly trained IRS auditors and examiners to do more complex
work and use the collection agencies for what you might call
the low hanging fruit. That is, calling people up, notifying
them, reminding them that they have got an overdue tax bill,
but not bringing any enforcement action of any kind.
The thought here is that a lot of people, if they are
notified that they have an overdue tax bill and somebody calls
them up and pays some attention to them, they are compliant and
they would therefore be prepared to make their appropriate
payments. These are paid immediately or with some installment
plan.
PROTECTION OF TAXPAYER RIGHTS
Senator Murray. Mr. Secretary, I want to see what specific
steps have been taken and what specific steps will be taken to
protect privacy and to protect individual taxpayer data before
I think this committee should move forward in moving in some
kind of direction like that. I think that is extremely
critical.
Secretary Snow. Senator, I agree with you. I think it is
absolutely critical that taxpayer rights be protected here and
our proposal would mandate that the IRS monitor the activities
of these private collection agencies closely, monitor their
performance and deal----
Senator Murray. Monitoring is after-the-fact.
Secretary Snow [continuing]. Appropriately with it. There
is the prior training. There would be intensive training, and
there would be continuous monitoring. And then there would be
penalties for those who hopefully----
Senator Murray. If somebody has already planted a computer
time bomb, monitoring is not going to do anything but show you
that it has happened.
Secretary Snow. Senator, there is a big opportunity here to
help collect some overdue monies using these resources that
will not cost the Federal Government anything. And we are very
sensitive to the issues you are talking about and we will go to
great lengths to see that, as I say, the confidentiality and
the information is protected and that taxpayer rights are fully
protected.
TERRORIST USE OF CHARITY ORGANIZATIONS
Senator Murray. I will be following this issue very closely
because I am deeply concerned about that, but my time is
limited and I do want to ask you about funneling cash to
terrorist organizations, as I also mentioned in my opening
statement.
As you know, our government has linked some 23 charitable
organizations with the al Qaeda network. And it has been a
long-standing practice for terrorist organizations around the
globe to use charitable giving as an avenue for their
resources.
There appear to be some continuing disagreements between
our government and the governments of the European Union as to
which charities should be designated as being associated with
these terrorist organizations. A number of international
charities that are listed by the United States have not been
listed by the European nations.
Do you believe the nations of Europe attach a significant
amount of importance and commitment to combat terrorist
funding?
Secretary Snow. Senator, I think we have made a lot of
progress, but not enough. I think there needs to be more focus
on the issue you are talking about here. I do not buy the
distinction that some countries make between funding for a
charity that goes for charitable purposes and funding to a
charity that ends up going for terrorist purposes.
Our policy is that if a charity is getting funding that
goes for terrorist purposes, we designate that charity, as we
have done on a number of occasions where urging other countries
who are part of this FATF, the Financial Action Task Force, on
Terrorist Finance to do the same. We have made progress in some
places, not total progress in others.
DESIGNATION OF CHARITIES
Senator Murray. Which ones have we made progress with and
which ones do we need to make progress with?
Secretary Snow. We have made actually a lot of progress on
the whole subject. In the last several months, with Saudi
Arabia, we have named any number of Al-Haramain branch offices
around the world. And I can give you a full listing of all the
designations. But there are a number of designations of
charities now that have occurred.
In Europe, there is some reluctance to designate a charity
in its totality. Money is money, and money that goes into a
charitable organization is fungible with money that is used for
good purposes and terrorist purposes.
[The information follows:]
Designation Information
Not all of the charities designated by the United States are linked
to al Qaida. Those that are have been submitted to the United Nations
1267 Sanctions Committee, where most have now been added to their
consolidated list. Several others, however, were designated by the
United States solely because of their ties to Hamas, e.g., the U.S.-
based Holy Land Foundation for Relief and Development, the Al Aqsa
Foundation, and the five mostly-European based charities designated by
the United States last August.
To the extent a person or entity is designated by the United
Nations because of its ties to al Qaida, the Taliban, or Usama bin
Ladin, the mechanism within the European Union automatically triggers
designation by the E.U. Clearinghouse (requiring all member countries
to freeze the assets of the designated entity).
The U.N./Clearinghouse-linked process does not capture the U.S.
designations of charities that are tied to HAMAS or Hizballah.
Designation by the E.U. Clearinghouse without a U.N. designation
requires unanimous consent. Absent a Clearinghouse decision, many E.U.
countries do not have independent national authority to freeze assets,
others lack the political will to take unilateral action.
The European Union's decision last September to designate Hamas as
a terrorist group in its entirety represents an important first step
towards our position. We continue to push them on implementing this
decision by designating Hamas charities operating in Europe. As of this
date, the European Union has not designated any of the Hamas-affiliated
charities designated by the United States.
As a government, we are approaching this issue from many levels. We
have made clear our position on Hamas, and other such terrorist groups,
to our partners around the world. We are beginning to see a ``sea
change'' of the European attitude on this matter, based in large part
on the U.S. efforts to change attitudes and policies.
Part of these efforts include aggressive education on the
requirements of UNSCR 1373, which requires all member countries to
respond with actions to freeze assets when presented with credible
information from another country that the individual/entity to be
designated has been providing support to terrorists and terrorist
organizations. This is also one of the requirements adopted by the
Financial Action Task Force. Accomplishing this task will require a
change in the E.U. Clearinghouse process and/or countries enacting
separate authority to designate independent of the European Union and
having the political will to use such authority.
Senator Murray. But what about Indonesia and Pakistan?
Secretary Snow. When I was in Indonesia, we designated JI.
I will get you a complete list of all these designations, but
more need to come.
But it is interesting that Saudi Arabia has taken the steps
that they have taken.
Senator Murray. Are you satisfied that they are actually
enforcing the new restrictions that they have put in place?
Secretary Snow. I think they are. Yes, I do. I think they
take this very seriously. And of course, Al-Haramain is to them
what the United Way is to us. It is their major charity. So
good important progress is being made, but I think the
distinction that some countries make between the good functions
of charities and the terrorist functions of charities is an
artificial and false distinction.
Senator Murray. Thank you, Mr. Secretary. And I know my
time is limited. I need to go to another committee, as well.
I would like to submit my other questions for the record.
Senator Shelby. Without objection, it will be ordered.
Also along those lines, Senator Dorgan has a number of
questions, Mr. Secretary, that he would submit for the record.
Secretary Snow. I would be happy to respond, Mr. Chairman.
Senator Shelby. I also have a number of questions that I
will submit for the record. You usually are very prompt in
answering, and we appreciate that.
Mr. Secretary, what are your thoughts on Chinese currency?
We have talked about that privately. We have both been to
Beijing to talk with them about floating their currency, or at
least within a more realistic band as to its real worth. They
are buying a lot of the commodities of the world. Commodities
have gone up in price. Not just steel scrap, of which they are
buying a lot, but ore, metals, you name it. So they are going
to have a problem there.
Do you have any observations on that?
Secretary Snow. Well, I do, Mr. Chairman. I thank you for
raising the question and giving me an opportunity to discuss it
with you and compliment you on the good work you did on your
mission last fall.
Senator Shelby. We think they heard us, but they did not
change anything, at least then, did they?
Secretary Snow. I think the fact that they hear us is
important and I think what we are saying is being listened to.
They have committed again to move towards flexibility in the
currency. They are taking a number of steps to prepare the way
to do that, going after the bad loans in the banking system,
taking steps to widen the amount of funds that can be brought
in and out of the country, relaxing capital controls, putting
in place a strong bank regulator, allowing non-Chinese firms to
buy bad loans and take them off the government books which is
important as we did back with the RTC, with the savings-and-
loan crisis, advice we gave them and suggested they might want
to study our savings-and-loan experience.
Senator Shelby. But will that reoccur, though, as long as
they have state-owned industries and state-owned banks making
loans to state-owned industries which are not making any money
because of the political equation?
Secretary Snow. Mr. Chairman, that is the root problem,
that is the root issue. And they understand that and are
working to see that the capital that goes into the banking
system goes to support real liable private enterprises and
withdrawing more and more from the state enterprises.
I think that is the course they are on because they
recognize that capital going to the state enterprises is not
getting the return for the Chinese people that capital going
into the private enterprises is. And it is perpetuating the
problem.
Now they have an awful lot of people working in those state
enterprises, and their dilemma is to create the jobs.
ADDITIONAL COMMITTEE QUESTIONS
Senator Shelby. They have got a political problem there.
Secretary Snow. They have got a political problem.
We appointed last week Ambassador Speltz, who is our
representative to the Asian Development Bank, to be the
Treasury's Personal Representative to the Chinese government on
these currency and financial market issues. And it was well
received by the Chinese.
Treasury has an ongoing, very productive, dialogue with
China. A technical team is just back from China where we
interacted with the Chinese on a whole range of financial
market issues.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
Questions Submitted by Senator Richard C. Shelby
DEPARTMENTAL OFFICES
Question. Please update the committee on the status of hiring for
initiatives that were funded in Fiscal Year 2004 Transportation-
Treasury Appropriations bill.
Answer. The Executive Office for Terrorist Financing and Financial
Crimes hired 11 of its 14 positions; International Affairs has hired 1
of its 10 positions and made offers for the remaining 9 positions.
Question. In fiscal year 2004, the Departmental Offices received
$2.285 million to hire 19 positions for the Office of Terrorist
Financing and Financial Crimes and $2.73 million to hire 10 positions
for International Affairs. Please provide a financial plan for each of
these initiatives and the hiring status of these positions, including
the types of positions and responsibilities devoted to these new FTEs.
Answer. The financial plans are shown below:
FINANCIAL PLAN FOR FISCAL YEAR 2004 EXECUTIVE OFFICE FOR TERRORIST
FINANCING AND FINANCIAL CRIMES
[In thousands of dollars]
------------------------------------------------------------------------
Budget Object Class Amount Status
------------------------------------------------------------------------
Salaries.......................... 1,622 The Conference
Report limits the
office to 14 FTE of
which 11 have been
hired and the
remaining 3 will be
on board by the end
of the fiscal year.
Benefits.......................... 260
Travel............................ 100
Rent, Utilities................... 25
Other Services\1\................. 263
Supplies.......................... 9
Equipment......................... 6
-------------------------------------
Total....................... 2,285
------------------------------------------------------------------------
\1\ Includes SEAT Management computer equipment and software as well as
security reviews/clearances.
Type of Positions:
--Deputy Assistant Secretary (1)
--Director, Money Laundering and Financial Crimes Policy (1)
--Senior Policy Analyst (1)
--Financial Crimes Specialist (3)
--Senior Advisor (2)
--Terrorist Financing Specialist (1)
--Program Analyst (3)
--Review Analyst and Schedule Coordinator (1)
--Clerk (1)
However, it should be noted that the fiscal year 2004 bill provided
for 14 positions, not 19.
FINANCIAL PLAN FOR FISCAL YEAR 2004 INTERNATIONAL AFFAIRS INITIATIVE
[In thousands of dollars]
------------------------------------------------------------------------
Budget Object Class Amount Status
------------------------------------------------------------------------
Salaries.......................... 961 The 10 positions are
International
Economists. Of the
10, 1 position has
been filled and
offers have been
made to qualified
individuals to fill
the other 9.
Benefits.......................... 215
Travel............................ 200
Rent, Utilities, Misc............. 100
Other Services\1\................. 1,233
Supplies.......................... 7
Equipment......................... 14
-------------------------------------
Total....................... 2,730
------------------------------------------------------------------------
\1\ Includes SEAT Management computer equipment/software, training,
translation services, security review/clearances, and other services.
Question. How many FTE are currently working in the Office of
Terrorist Financing?
Answer. Currently, there are 11 FTEs in the Executive Office for
Terrorist Financing and Financial Crimes.
Question. Please provide the justifications and the methodology for
determining the business strategy adjustments included in the fiscal
year 2005 budgets of the Fiscal Bureaus.
Answer. Treasury encourages its bureaus to review program
performance for opportunities to redirect resources from obsolete and
low performing programs to those which are mandatory or higher
priority.
The fiscal year 2005 budget request reflects these efforts for two
of Treasury's bureaus which identified business strategy adjustments as
follows:
--The Financial Management Service request includes a reduction of
$5.163 million. It is proposed that these costs will be
reimbursed through the Debt Collection Program.
--The Bureau of Public Debt request includes a $967,000 reduction as
a result of withdrawal of the Series HH bonds.
Question. A large portion of the Law Enforcement function was
transferred from Treasury to Homeland Security and Justice in fiscal
year 2003. Please define the Department's current role in the area of
Law Enforcement.
Answer. Treasury still plays an important role in law enforcement--
our expertise, data, and resources are crucial for following the money
and stopping financial crimes, including money laundering, terrorist
financing, and tax-related fraud. Treasury is responsible for
administering the Bank Secrecy Act, including many of the provisions in
the USA PATRIOT Act. It also has the authority to employ Geographic
Targeting Orders (31 USC 5326) to attack money laundering systems
domestically, and to employ USA PATRIOT Act Section 311 ``special
measures'' for foreign financial threats. A description of Treasury's
Law Enforcement function by office follows:
--Internal Revenue Service-Criminal Investigation Division (IRS-CI)
is a crucial player investigation of criminal tax-related
offenses and in the areas of money laundering and terrorist
financing. IRS-CI has demonstrated its expertise by
identifying, tracing and attacking the laundering of drug and
other criminal enterprise proceeds, and assisting in the
government's anti-terrorist financing investigations.
--Treasury Inspector General for Tax Administration (TIGTA) is
responsible for oversight of IRS operations and investigation
of criminal assaults and threats against IRS facilities,
personnel, and infrastructure. TIGTA plays an integral role in
Treasury's liaison with the FBI Joint Terrorism Task Force and
other Federal entities that share intelligence relating to
threats.
--Financial Crimes Enforcement Network (FinCEN) is the keeper of Bank
Secrecy Act data, and serves as an information hub for the law
enforcement community, working directly with law enforcement to
provide support in the field.
--The Office of Foreign Assets Control (OFAC) works directly with the
law enforcement community--such as the former Customs bureau
and the FBI--to ensure the application of the criminal law to
those violating U.S. sanctions.
--The Treasury Executive Office of Asset Forfeiture (TEOAF) manages
asset forfeiture funds for the Treasury Department and the
Department of Homeland Security. Treasury uses this
responsibility to provide resources to law enforcement for key
projects and initiatives that combat crime.
Question. The fiscal year 2005 budget requests $20.3 million to
complete the Treasury Building and Annex Repair and Restoration
project. When is the scheduled completion date?
Answer. The anticipated final completion date is December 2005.
Phases 1 and 2 have been completed and Phase 3 is on schedule to be
completed by August 2004. Phase 4 (final phase) has begun and all
construction activities are planned for completion by December 2005.
This completion date assumes the availability of the $7 million
withheld from the fiscal year 2004 appropriation until further
committee approval and full funding of the fiscal year 2005 budget
request of $20.3 million.
Question. Will this be the last year that an appropriation is
necessary for this account?
Answer. Yes, fiscal year 2005 will be the last year that we request
funding for the TBARR account. However, some critical repairs to the
Main Treasury building have been deferred or cancelled in order to meet
the December 2005 deadline with no additional resources. It is
anticipated that additional funding will be required in future years to
complete these critical repairs and other deferred maintenance projects
in the Main Treasury and Annex buildings. This funding will not be
requested under the TBARR account but as on-going maintenance and
replacement expenses through the Salaries and Expenses, no-year,
Repairs and Improvements account.
Question. The fiscal year 2005 budget request includes $1.9 million
for the establishment of an Office of Emergency Preparedness. What will
be the responsibilities of this new office? What office carried out
this function in the past? Were there any appropriated expenses for
this function/office in fiscal year 2004 and prior years?
Answer. During this current fiscal year, the Department of Treasury
recognized the importance of a more focused effort to establish and
maintain viable and executable plans (in accordance with Presidential
Decision Directive (PDD) 67, ``Enduring Constitutional Government'' and
Executive Order (EO) 12656, ``Assignment of Emergency Preparedness
Responsibilities''), to ensure the continuity of its essential
functions during any conceivable emergency condition--especially
conditions denigrating or eliminating Treasury's ability to operate
from its downtown locations. More specifically, the Department of
Treasury's Office of Emergency Preparedness (OEP) will be responsible
for improving the operating capabilities in a number of critical areas
listed below:
--Treasury Emergency Management Center Operations;
--Continuity of Operations (COOP) Planning, Operations, and Alternate
Operating Facility;
--Continuity of Government (COG) Planning, Operations, and Alternate
Operating Facility;
--Emergency Management Policy and Guidance;
--Treasury Emergency Preparedness Test, Training & Exercise (TT&E)
Program;
--Coordination and Oversight of Treasury Bureau Emergency Management
Programs;
--Treasury Headquarters Evacuation and Shelter-in-Place Planning and
Operations.
The function of National Security Emergency Preparedness was
previously in the Office of Security and Continuity Planning, in the
Office of the Chief Information Officer. There were no expenses for
this office in fiscal year 2003 and prior; however, we expect to
obligate $177,000 in fiscal year 2004.
Question. A large part of the Treasury request for Departmental
Offices is related to reimbursing the Secret Service $2.4 million for
protective service. Is the USSS the only force available to provide
this protection? What were the costs related to this activity in fiscal
year 2004?
Answer. The USSS provides protection to the Secretary of the
Treasury. In fiscal year 2004, the United States Secret Service (USSS)
and the Department of the Treasury signed a Memorandum of Understanding
whereby the Department of the Treasury would reimburse USSS for only
the travel costs incurred protecting the Secretary, which were
estimated at $1.2 million. Starting in fiscal year 2005, the Department
of the Treasury will reimburse the USSS for the full cost of protecting
the Secretary of the Treasury (including personnel compensation and
overtime pay), currently estimated at $2.5 million.
Question. How was the amount of $2.4 million derived (please
provide detail)? With the payment by the Treasury Department of such
expense, what is the likelihood that the USSS will begin to charge the
Department for other costs associated with protection of the White
House Complex that Treasury is a part of?
Answer. On March 4, 2003, the President of the United States issued
a memorandum to the Secretary of Homeland Security directing the USSS
to continue providing physical protection for the Secretary of the
Treasury. The funding estimates for providing this security were
prepared by the USSS and a copy is provided below. We do not anticipate
other additional costs associated with the protection of the Secretary
of the Treasury. In addition to the protection provided by the USSS for
the Secretary of the Treasury, the USSS also protects the Treasury
Headquarters Building located to the east of the White House. Since the
USSS is mandated by statute to protect the buildings in the White House
complex, it has no authority to request reimbursement from the
Department of the Treasury for protection of that building.
Question. Has the analysis and proposal of this budget request
included a cost analysis of other Government Building Security
operations to determine that this is the best and most cost effective
alternative for the Department?
Answer. A cost analysis of other protective services was not
performed because the Secret Service has traditionally protected the
Secretary of the Treasury.
Question. Does the budget proposal cover all costs that USSS can
charge the department in fiscal year 2005?
Answer. The Department anticipates the fiscal year 2005 cost will
reflect increases for salaries, benefits and inflation. The USSS has
not notified the Department of any other increases in fiscal year 2005.
Question. Do other agencies pay the USSS for fulfilling their
protective mission?
Answer. Currently, the Secretaries of Homeland Security and
Treasury are the only Federal agency heads who receive USSS protection.
Since the USSS is part of the Department of Homeland Security, it
provides physical protection to the Secretary of Homeland Security
without reimbursement. Because the USSS is no longer a component of the
Department of the Treasury, it is reimbursed for the cost of physical
protection of the Secretary of the Treasury.
Question. Please provide the total program costs for implementing
and running HR Connect. With well over $200 million invested, is
Treasury getting the value promised from this investment?
Answer. Yes, Treasury is getting the value promised from its
investment in HR Connect. The web-enabled system, now operational in
all but one Treasury bureau, has the ability to replace the more than
100 paper-intensive, bureau-unique systems that cost more than $23
million annually to maintain. Of the 30 features envisioned for the
system, 20 have been implemented, 6 are being developed now, and 4 have
been subsumed by other efforts. In addition, the centralized system has
provided Treasury with enterprise-wide reporting and sophisticated HR
management tools. Unforeseen benefits have resulted, as well. The
system has elevated Treasury's e-Government compliance level, and OPM
has nominated HR Connect as one of four ``Best in Breed'' interoperable
common HR solutions.
Question. Is this system providing savings? If so, please provide
the savings achieved since the program became operational.
Answer. Significant savings have been realized with HR Connect. To
date, quantitative benefits have been captured in three distinct
categories: $7.8 million in productivity savings, $17.9 million in
reduction of 222 staff from the HR organization, and $2 million annual
operational savings through legacy systems retirement. (Productivity
savings are attributable to time saved by line organizations, or non-HR
staff. The HR Connect Program Office (HRCPO) anticipates that the saved
time will not result in reduction of line staff, but rather in re-
direction of staff to other mission critical activities.) In subsequent
years, additional savings are anticipated. In fiscal year 2005, HRCPO
estimates $10.0 million in productivity savings, $33.9 million in staff
reductions, and $12.4 million in legacy savings. Additional staff
reductions are expected throughout the 15-year program lifecycle, for a
total staff reduction and redirection savings of $633.1 million. Legacy
savings attributable to HR Connect should total $116 million by fiscal
year 2012.
Question. What is the yearly cost to maintain this system?
Answer. The system requires approximately $20 million annually for
operations and maintenance, excluding staffing costs. Technology
refreshes and system upgrades will be conducted every 3 years for an
additional cost of approximately $3 to $5 million.
Question. Are all Treasury bureaus connected to this system?
Answer. Eleven of Treasury's 12 bureaus have deployed and are
operating HR Connect, except the Office of Thrift Supervision (OTS),
which must convert to HR Connect's required e-Payroll provider, the
National Finance Center (NFC), before deploying HR Connect. OTS is
contemplating a delay in NFC conversion until April 2005, and
deployment of HR Connect will follow shortly thereafter. Additionally,
two former Treasury bureaus continue to operate HR Connect, despite a
divestiture that moved them to other agencies. Those bureaus are
Alcohol, Tobacco, Firearms, and Explosives, now in the Department of
Justice, and the United States Secret Service, now in the Department of
Homeland Security.
Question. What is the annual cost of each bureau to run this
system?
Answer. During HR Connect's development and deployment phase, the
primary source of program funding has been Congressional contributions
to the DSCIP fund. In fiscal year 2005, the HRCPO requested
approximately $17.5 million from Congress to fund the program's
transition year to full operations and maintenance mode. Based on
current estimates and new program requirements, which include the
implementation of an ePerformance module to support the SES Pay for
Performance initiative, the HRCPO predicts an additional $3 million
will be needed in fiscal year 2005. Funding for this gap will be
requested from the bureaus based on their proportionate share as
presented in the table below.
HRCPO is also recommending that, as an enterprise-wide solution,
Treasury continue to request Congressional funding for program
operations in the out years. If the recommendation is approved, the
bureaus will not incur operations and maintenance costs for HR Connect
in fiscal year 2006. If the recommendation is not approved, then the
bureaus will contribute their proportionate share of the annual costs
as presented below:
Question. The budget request includes $1 million for a Turkey
Financing facility. What will this facility provide?
Answer. The Emergency Wartime Supplemental Act signed by the
President on April 16, 2003 includes $1 billion in appropriations and
authorization for up to $8.5 billion in loans to Turkey to help protect
its economy from shocks from the war in Iraq and to maintain economic
stability in a key regional ally. Treasury estimates that it will cost
the Office of International Affairs an additional $1 million to
continue to administer the Turkey Financing Facility.
Question. Is this a one-time item or will it require funding over a
number of years?
Answer. The Facility anticipates making disbursements during fiscal
year 2005 and fiscal year 2006, but this depends on when the Turkish
government ratifies the Financial Agreement. Since disbursements from
the Facility could be imminent and the work demand is front-loaded,
Treasury has already received $1 million from the $1 billion
appropriated under the Economic Support Fund (ESF) in the fiscal year
2003 Emergency Wartime Supplemental for Turkey to cover expenses for
fiscal year 2004.
Question. The Department's budget includes over $5 million in E-gov
initiatives. Please describe Treasury's initiatives.
Answer. Treasury believes in the importance of E-government
initiatives and has developed partnerships with industry and other
Federal agencies to improve its interactions with citizens, businesses,
and other Federal, State, and local government entities through the use
of the Internet. Treasury is the lead agency for two E-government
initiatives: Internal Revenue Service Free File and Expanded Electronic
Tax Products for Businesses. The budget request for fiscal year 2005 is
for the following initiatives:
--Business Gateway.--The Small Business Administration (SBA) is the
lead agency. This initiative will create a single business
gateway portal to reduce the burden on businesses by making it
easy to find, understand, and comply with Federal laws and
regulations. Treasury assists the SBA with consolidation and
synchronization of Federal paperwork requirements. Small
businesses will be able to submit all of their information
electronically to the Federal Government which then can be
shared securely across Federal agencies.
--E-Authentication.--The General Services Administration (GSA) is the
lead agency. Treasury's Chief Information Officer (CIO) is the
Chairperson for the Executive Steering committee. This
initiative will minimize the burden on businesses, public, and
government when obtaining online services. It is designed to
provide the trusted and secure infrastructure--gateway,
confirming the identity of electronic transaction participants.
This initiative will enable Treasury to offer enterprise-wide
applications with different assurance levels.
--E-Records Management.--The National Archives and Records
Administration (NARA) is the lead agency. This initiative will
enable Treasury to increase the percentage of eligible data
archived/preserved electronically. Unified guidance will
provide consistency in implementing E-records management
applications. It will also improve Treasury's ability to
access/retrieve records.
--E-Rulemaking.--The Environmental Protection Agency (EPA) is the
lead agency. This initiative will enable citizens to search for
agency rules from any desktop computer, and to post remarks
online. E-Rulemaking will help Treasury and other agencies
integrate their applications into the government-wide system.
This will allow for a more citizen centric approach to the
regulatory process by providing more centralized online access
to regulatory material via Regulations.gov.
--E-Training.--The Office of Personnel Management (OPM) is the lead
agency. This initiative creates a premier E-training
environment that supports development of the Federal workforce
through simplified, one-stop access to high quality E-training
products and services, advancing the accomplishment of agency
missions.
--E-Travel.--The General Services Administration (GSA) is the lead
agency. This initiative will improve the internal efficiency,
administrative performance, and regulatory compliance relative
to travel. Redundant and stovepipe travel management systems
will be eliminated through a buy-once/use many shared services
approach. Therefore, capital investment, operations, and
maintenance costs for travel management services will be
minimized. Treasury will use this to bring world-class travel
management and superior customer service to the Federal travel
process.
--Integrated Acquisition Environment (IAE).--The General Services
Administration (GSA) is the lead agency. This initiative will
reduce the burden for vendors doing business with the Federal
Government. Achieve cost savings through consolidated vendor
information, procurement data systems, use of common processes
and reduce the cycle time of the procurement process. Treasury
will benefit from the integration of IAE applications into
Intra-governmental Transactions Exchange and the accessibility
it will have to vendors.
The following chart provides a summary of the Department's
contributions for these E-government initiatives. Of the $7.5 million
shown, $5.5 million will be paid from the Department-Wide Systems and
Capital Investment Program (DSCIP) and the remainder from bureau
appropriations. Departmental contributions to the Federal E-government
initiatives listed above are in compliance with the President's
Management Agenda to eliminate redundant systems, use improved
Internet-based technology to make it easy for citizens and businesses
to interact with the government, save taxpayer dollars, and streamline
citizen-to-government communications.
TREASURY CONTRIBUTIONS FOR E-GOVERNMENT INITIATIVES
----------------------------------------------------------------------------------------------------------------
Fiscal Year
Fiscal Year Fiscal Year 2005
Initiative 2003 Treasury 2004 Treasury President's
Actuals Actuals Request
----------------------------------------------------------------------------------------------------------------
Business Gateway................................................ $0 $0 $2,500,000
E-Authentication................................................ 3,178,572 377,000 393,000
EHRI............................................................ 0 0 0
E-Rulemaking.................................................... 100,000 775,000 885,000
E-Training...................................................... 0 2,630,000 2,200,000
E-Travel........................................................ 0 0 988,832
Expanding Electronic Tax Products............................... 0 3,200,000 0
Grants.gov...................................................... 0 0 0
Integrated Acquisition Environment.............................. 557,205 443,280 394,593
IRS Free File................................................... 0 0 0
E-Records Management............................................ 0 0 100,000
-----------------------------------------------
Totals.................................................... 3,835,777 7,425,280 7,461,425
----------------------------------------------------------------------------------------------------------------
Question. What benefits are these initiatives providing to the
Department?
Answer. The President's Management Agenda (PMA) set the stage for
Treasury to build upon its goal of simplifying and unifying IT efforts
to optimize services. Treasury's involvement in these initiatives is
based on benefits projected by the Managing Partners to each
participating agency by providing an enterprise-wide application,
elimination duplicative services, management of processes, and timely
and responsive service to all citizens. The Managing Partners of each
initiative can provide specific details on the costs savings to be
realized overall by undertaking each initiative.
Question. Does any of the funding relate to initiatives outside the
Department of the Treasury?
Answer. The funding request of over $5 million represents
Treasury's contribution to these E-government initiatives. Treasury is
partnering with these agencies to support of the President's Management
Agenda (PMA). As one of the five pillars of the PMA, E-government is
statutorily supported by the E-government Act, Clinger-Cohen Act, the
Government Paper Elimination Act, and other legislation seeking to
streamline electronic transactions and placing the Federal Government
at citizens' fingertips through the use of digital technologies.
Question. Please provide an update of the activities of the Office
of Critical Infrastructure.
Answer. The financial infrastructure of the United States is
extremely resilient. It has been tested time and again by hurricanes,
black outs, and terrorist attacks. Leaders within government and the
private sector are continually enhancing the resilience of this
financial infrastructure. Americans and, indeed, the world can have
confidence that the financial infrastructure of the United States is
better prepared than ever to handle man-made or natural disruptions.
In the event of an increase in the threat level, the Department of
the Treasury communicates regularly with the other Federal financial
regulators regarding the situation and whether additional actions are
necessary. In addition to these communications, Treasury and other
Federal and State financial regulators, working in close cooperation
with the Department of Homeland Security and the private sector, have:
--Identified the payments, custodial, clearing, exchange, banking,
trading, and other financial institutions that are most
critical to our financial infrastructure.
--Arranged for expert assessments of physical and cyber-
vulnerabilities in critical financial institutions.
--Arranged for critical financial institutions to have access to
priority telecommunications services--both land-based and
wireless--to help their voice and data communications get
through during times of crisis.
--Assisted in coordinating the protective response of State and local
authorities with critical financial institutions.
--Arranged for additional physical protection of critical financial
institutions, consistent with available protective resources
and the available threat information.
--Established systems and procedures that enable the Federal
financial regulators to communicate among themselves and with
the private sector during times of crisis as well as in advance
to mitigate risks to the financial infrastructure.
--Promoted industry measures that maintain crucial financial
communications among private sector participants.
--Conducted numerous tests, drills, and exercises to ensure that back
up systems work and to ensure that financial professionals know
what to do in times of either a heightened alert or an actual
attack.
--Worked with the Financial Services Information Sharing and Analysis
Center (FS-ISAC) to develop a more inclusive next-generation
FS-ISAC business model that embraces all elements of the
financial sector. The Treasury also acquired nearly $2 million
in services from the FS-ISAC, which had the added benefit of
making the next-generation FS-ISAC a reality. This next-
generation FS-ISAC now delivers integrated physical and cyber
alert information to Treasury and to thousands of financial
institutions and provides a secure, confidential platform to
help financial institutions respond to potential or actual
disruptions.
--Issued updated guidance on business continuity planning, including
benchmarks for systemically critical payments and clearing
organizations.
--Enhanced the security of the government's critical financial
functions, including: borrowing money; making payments--
including social security payments; and raising revenue through
the Internal Revenue Service.
--Documented lessons learned by consumers, financial institutions,
and government agencies in fighting the recent, dramatic rise
in phishing attacks so that other consumers, financial
institutions, and agencies could benefit from their experience.
--Established a plan for working with the telecommunications, energy,
information technology, and transportation sectors to address
vulnerabilities introduced into the financial sector by
interdependencies with these other sectors.
--At the customer level, through the Office of Critical
Infrastructure Protection, the Treasury leads administration
efforts to improve policies and efforts to improve the security
of personal financial information, particularly through efforts
to fight identity theft. The Fair and Accurate Credit
Transactions Act of 2003, and its implementation this year, are
examples of how the Treasury has worked closely with Congress
in this effort.
In addition to these government activities, the private sector,
with encouragement from and in cooperation with the Treasury, has taken
important actions to protect the critical financial infrastructure. For
example, the private sector has:
--Greatly reduced single points of failure in the telecommunications
infrastructure that supports the most critical financial
institutions by, for example, establishing private, self-
healing fiber-optic telecommunications circuits over
alternative pathways.
--Established improved business continuity plans.
--Developed security guidelines for institutions of different sizes
and locations to follow in response to changing threat levels.
--Created new backup facilities at greater distance from their
primary operations centers.
--In many cases, geographically dispersed executive and operational
leadership.
Question. Please provide an update to the committee on the
Department's efforts to meet its staffing divestiture goals as they
relate to the final FTE transfers to the Department of Homeland
Security.
Answer. For a complete response, please see the attached report (as
required by House Report 108-243) that the Department submitted to the
Congress on June 3, 2004.
[Clerk's Note.--The documents referred to have been retained in
Committee files.]
Question. The committee viewed the additional funding of 60
positions in fiscal year 2004 as stopgap funding during the transition
of deployment of personnel from Treasury to the new Homeland Security
Department. The Treasury Department's fiscal year 2005 budget proposes
permanent funding in the Departmental Offices base for the foreseeable
future. The committee had requested a report on the status of reducing
the remaining FTE, which were not reduced by the beginning of fiscal
year 2004 as planned. What is the status of this important report?
Answer. The report was submitted to the House and Senate
Appropriations committees on June 3, 2004.
Question. Is the original goal of transferring 226 FTE to Homeland
no longer valid?
Answer. For a complete response, please see the attached report (as
required by Senate Report 108-146) that the Department submitted to the
Congress on June 3, 2004.
[Clerk's Note.--The documents referred to have been retained in
Committee files.]
Question. Has DHS communicated that they can now operate at the
lower level and will require no further transfers from Treasury?
Answer. DHS has not communicated the need for additional resources.
Question. Has Treasury sought any technical assistance in reviewing
its secure IT systems from any private entity or government agency?
What entity or agency? What is the status of the review? If the review
is concluded, what corrective actions were taken? What has Treasury
done to address the concerns raised by the IG related to Departmental
Offices computer system vulnerabilities?
Answer. The Department of the Treasury has sought and received
technical and administrative assistance from private entities. Booz
Allen Hamilton, Inc. (BAH) and SRA International, Inc. have performed
FISMA/Critical Infrastructure Protection (CIP) reviews of the security
practices at the Departmental Offices (DO). Based on initial reviews,
Treasury has already completed, or is in the process of completing, the
following:
--Conducted appropriate IT security training and awareness sessions.
--Implemented applicable security policies and compliance programs.
--Established a DO Computer Security Incident Response Center
(CSIRC), reporting to Treasury's CSIRC.
--Assessing and validating DO system applications inventory and
conducting associated risk assessments and Certification and
Accreditations (C&As), as necessary.
Question. Does the Department have a fully operational COOP plan?
Does the Department have what it needs to implement and operate their
plan?
Answer. The Department does have a fully operational COOP plan;
however, there are still improvements required as identified in last
year's GAO audit. In addition, as a result of lessons learned from the
most recent FEMA exercise, Forward Challenge 2004, Treasury has
identified other areas that require attention and improvement. For
instance, Treasury still needs more robust communications for
interoperability at the alternate sites to support its essential
functions for COOP as stated in the GAO audit and the Federal
Preparedness Circular (FPC) 65.
Question. Please explain the policy, procedures and specific
processes that Treasury applies to oversee and manage the Departmental
Offices' resources (both FTE and dollars), including the salaries and
expenses, DSCIP, and TBARR accounts.
Answer. DO's Office of Financial Management prepares monthly
reports for all appropriations that track both funding balances and FTE
utilization. These reports are provided to the Assistant Secretary for
Management, as well as office officials so that they can monitor their
spending and make program decisions based on accounting reports. In
addition, policies and procedures are in place for internal control
purposes. At present, Management staff is reviewing, and updating as
needed, all Departmental Office Orders and policies. We are also
working with our policy offices to ensure that key department-wide
directives are current. Our goal is to provide clear, transparent
documentation and guidance to support optimal performance and
decentralized oversight where possible--working together with all DO
offices to maintain and observe proper financial and budgetary
controls.
DSCIP
Question. How much does Treasury currently spend on Information
Assurance? What IT security and functionality issues will the request
in fiscal year 2005 provide that currently do not exist?
Answer. Treasury supports internal cyber Critical Infrastructure
Protection (CIP), bureau Federal Information Security Management Act
(FISMA) program reviews, President's Management Agenda (PMA), and
Public Key Infrastructure (PKI) policy management through the
Department-wide Systems and Capital Investment programs (DSCIP)
account. The $1 million requested for Information Assurance in fiscal
year 2005 will build on the work being done in these areas to
specifically address the assurance of secure internet communications
with the Department, preventing cyber attacks and protecting against
identity theft in key information systems.
The fiscal year 2005 request provides for an automated Department-
wide Patch Management and Verification Process. Treasury currently
utilizes manual intensive processes to address its computer
vulnerabilities from a reactive mode. The fiscal year 2005 request will
be used to support the planning and implementation of this network
security functionality as well as asset identification, protection and
interdependency analysis.
Question. The fiscal year 2005 budget requests $1 million for
Operational Security. How was this program funded in the past? What
added functionality will $1 million provide? Please provide the
committee a detailed breakout and a spending plan for this request.
Answer. The fiscal year 2005 funding request of $1 million provides
for the implementation of a cohesive and comprehensive Security program
for Treasury's Headquarters offices, including the Office of the
Secretary and Policy Offices. Treasury's Headquarters offices have been
without a formal IT security program for a number of years. This has
been described by the Treasury Inspector General as a continuing
material weakness and must be addressed.
Efforts to address security training and awareness are a priority.
The request of $1 million will provide for the following:
--Issuance of policy and procedures ($100,000)
--Certification and Accreditation of applicable systems (19 Systems--
$300,000)
--Project management ($100,000)
--Compliance monitoring ($150,000)
--Security Engineering and Network Services support ($350,000)
Question. The budget requests $1 million for Treasury Enterprise
Architecture. Please provide a detailed justification for this request.
Answer. The request for $1 million is required to develop,
validate, and begin implementation of a Treasury Enterprise
Architecture (EA) management system. This funding requirement covers
three functional areas in moving the Treasury EA to the end state ``To
Be'' structure:
--Enterprise Solutions--$500,000.--Development of the business case
and management plans for the implementation of the ``To Be''
consolidated infrastructure and Enterprise Architecture. It
also includes contractor support to work with Treasury Bureaus
in the identification of three to four enterprise solutions
where Treasury can gain efficiencies. Currently, Treasury has
identified office automation, telecommunications, and
infrastructure as focus areas for possible cost avoidance/
savings. Funding provided in this area will allow Treasury to
``drill down'' in each of these areas in the development of the
EA.
--Reusable Components--$300,000.--Funding is required for contractor
support to identify and capitalize on opportunities to achieve
economies of scale and leverage the collective buying power of
the Department. Several Treasury Bureaus support the
President's Management Agenda e-Government initiatives;
however, managing IT activities from an enterprise level
requires refinement and streamlining with the Federal e-
Government managing partner. Bureaus are funding investments
that overlap with one or more of the 24 Federal e-Government
Initiatives to which the Department is already contributing.
This requested funding supports the development of three to
four reusable service components business cases and plans for
implementation, transition plans, standard profiles, and
elimination of duplicated e-Government services.
--Federal EA (FEA) Reference Models--$200,000.--Funding is required
for contractor support to develop the OMB FEA reference models.
The FEA is constructed through a collection of interrelated
``reference models'' designed to facilitate agency analysis and
the identification of duplicative investments, gaps, and
opportunities for collaboration within and across the Federal
Government. The models are the Performance Reference Model
(PRM), the Business Reference Model (BRM), the Service
Reference Model (SRM) and the Data and Information Reference
Model (DRM). Completing these models facilitated the
improvement in the Treasury Capital Investment Program. The
data from these reference models will be incorporated into our
portfolio management system. Development of these model works
to ensure that the budget is allocated per Treasury priorities
and key initiatives during the IT portfolio management process.
OFFICE OF TERRORISM AND FINANCIAL INTELLIGENCE
Question. Please provide a detailed breakout of the total numbers
of FTEs available to the organization, including all appropriated and
non-appropriated funds from Departmental Offices, any other Treasury
bureau funding, and any funding from another Federal agency that
supports this office.
Answer. Complete details of total FTE have not yet been finalized;
however, Treasury anticipates that the Office of Terrorism and
Financial Intelligence will oversee a staff of approximately 203
employees. These FTEs are our current estimate; however, the numbers
could change once the leadership is in place. With the exception of
staff detailed from the Financial Crimes Enforcement Network (FinCEN),
no bureau funding will be used to fund this office, nor will other
Federal agencies fund this office. This organization will consist
primarily of pre-existing offices that include the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC), the Treasury
Executive Office of Asset Forfeiture (TEOAF), Office of Foreign Assets
Control (OFAC), the Financial Crimes Enforcement Network (FinCEN) and
the Office of Intelligence Support (OIS). The fiscal year 2005 FTE
breakdown for those offices that will fall under the TFI umbrella is as
follows:
------------------------------------------------------------------------
Office FTE
------------------------------------------------------------------------
Under Secretary \1\..................................... 8
TFI (includes EOTF/FC and OIS) \1\...................... 58
TEOAF................................................... 17
OFAC.................................................... 120
---------------
Subtotal Departmental Offices..................... 203
FinCEN \2\.............................................. 292
---------------
TOTAL............................................. 495
------------------------------------------------------------------------
\1\ Includes funding and FTE request from the Deputy Secretary that is
currently under consideration by the Appropriations Committees.
\2\ FinCEN's 292 FTE include 1 reimbursable.
Question. Will the redirection of scarce resources from OFAC and
FinCEN affect those organizations' ability to accomplish actual work
fighting the war on terrorism?
Answer. The small number of detailees from OFAC and FinCEN should
have a minimal effect on those agencies' ability to accomplish their
missions. Indeed, the detailing of these officers should yield closer
coordination among OIA and OFAC and FinCEN, ensuring that the
Department focuses on its highest priorities and allows it to move
scarce resources across priority targets.
Question. Deputy Secretary Bodman indicated in his testimony before
the Senate Banking Committee that the Department will provide up to $2
million from other areas to fund this office in fiscal year 2004.
Please provide a detailed breakout of where these resources will be
derived from.
Answer. Since October 2003, many offices have experienced attrition
and the dollars saved during the process of filling those positions
will be used to start up this new office. Offices with the employee
turnover that generated the funds are:
------------------------------------------------------------------------
Salary Savings
Office Generated from
Turnover
------------------------------------------------------------------------
Executive Direction Offices............................. $324,000
Tax Policy.............................................. 270,000
Domestic Finance........................................ 112,000
Economic Policy......................................... 182,000
International Affairs................................... 518,000
Treasury-Wide Management and Administration............. 575,000
---------------
Total............................................. 1,981,000
------------------------------------------------------------------------
Question. In Treasury's press release of March 8, the Department
announced the creation of the Office of Terrorism and Financial
Intelligence. How will the Department fund this office? When?
Answer. Start-up costs in fiscal year 2004 will be derived from
salary savings in offices that have experienced employee turnover since
the beginning of the fiscal year and a hiring freeze which has been in
place since May. Once approved by the committee, funding will be
programmed to the office on an as-needed basis, which will occur as the
new office is staffed.
Question. The fiscal year 2005 request does not provide funding for
this new office. How much will it cost to staff and run this office in
fiscal year 2005?
Answer. The estimated additional cost for staffing and running this
new office is approximately $4.6 million.
Question. What is the vision for this office in 2 years? In 5
years?
Answer. The establishment of TFI will bring together Treasury's
intelligence, regulatory, law enforcement, sanctions, and policy
components, and enhance Treasury's efforts. As well, the new Office of
Intelligence and Analysis (OIA) will address one of the longstanding
issues identified in the Department of the Treasury, which is a lack of
an integrated intelligence function that supports the Department and is
linked directly into the Intelligence Community. Two primary functions
are provided with the addition of OIA.
The Department of the Treasury needs actionable intelligence that
can be used to exercise its legal authorities under all or portions of
such acts as the International Emergency Economic Powers Act (IEEPA),
USA PATRIOT Act, the Bank Secrecy Act, the Drug Kingpin Act, and
Trading with the Enemy Act. Analytical products from the intelligence
community are largely intended to inform policymakers rather than
taking action. They also tend to be highly classified, whereas Treasury
often needs to use the lowest classification possible to use such
material openly to press foreign governments or in evidentiary
packages.
OIA will also provide intelligence support to other senior Treasury
officials on a wide range of other international economic and political
issues of concern to the Department. Subsuming the functions of the
current Office of Intelligence Support, OIA will continue to review
incoming raw and finished intelligence from other agencies, and then
select relevant items for senior officials. The intelligence advisors
will also drive collection by drafting requirements for the
intelligence agencies to ensure that Treasury's information needs are
met. Moreover, they will continue to serve in a liaison capacity with
the intelligence community and represent the Department in various
intelligence-related activities.
The Treasury Department is following a staged approach in the
creation of TFI. This will ensure that the office will be able to work
towards its short term goals while strengthening its capabilities and
accomplishing its mission over the long term.
Question. What specifically will this office do that is not already
being done by the United States Government?
Answer. The establishment of TFI will bring together Treasury's
intelligence, regulatory, law enforcement, sanctions, and policy
components, and enhance Treasury's efforts. As well, the new Office of
Intelligence and Analysis (OIA) will address one of the longstanding
issues identified in the Department of the Treasury, which is a lack of
an integrated intelligence function that supports the Department and is
linked directly into the Intelligence Community. Two primary functions
are provided with the addition of OIA.
The Department of the Treasury needs actionable intelligence that
can be used to exercise its legal authorities under all or portions of
such acts as the International Emergency Economic Powers Act (IEEPA),
USA PATRIOT Act, Bank Secrecy Act, the Drug Kingpin Act, and Trading
with the Enemy Act. Analytical products from the intelligence community
are largely intended to inform policymakers rather than taking action.
They also tend to be highly classified, whereas Treasury often needs to
use the lowest classification possible to use such material openly to
press foreign governments or in evidentiary packages.
OIA will also provide intelligence support to other senior Treasury
officials on a wide range of other international economic and political
issues of concern to the Department. Subsuming the functions of the
current Office of Intelligence Support, OIA will continue to review
incoming raw and finished intelligence from other agencies, and then
select relevant items for senior officials. The intelligence advisors
will also drive collection by drafting requirements for the
intelligence agencies to ensure that Treasury's information needs are
met. Moreover, they will continue to serve in a liaison capacity with
the intelligence community and represent the Department in various
intelligence-related activities.
The Treasury Department is following a staged approach in the
creation of TFI. This will ensure that the office will be able to work
towards its short term goals while strengthening its capabilities and
accomplishing its mission over the long term.
Question. What enhanced ability will this office give the
Department?
Answer. The creation of TFI will increase Treasury's efforts in
several ways. The combined use of intelligence and financial data is
the best way to detect how terrorists are exploiting the financial
system and to design methods to stop them. By coordinating Treasury's
intelligence functions and capabilities, TFI will benefit from enhanced
analytical capabilities, as well as additional expertise and
technology. Second, the USA PATRIOT Act gave the Department important
new tools to detect and prevent the abuse of our financial system by
terrorists and other criminals. TFI will coordinate Treasury's
aggressive effort to enforce these regulations. Third, we have forged a
strong international coalition to combat terrorist financing. The
ongoing, cooperative efforts between the United States and our
international partners are at unprecedented levels. The unified
structure will promote a robust international engagement and allow us
to intensify outreach to our counterparts in other countries. Finally,
having a single office is the best way to ensure accountability and
achieve results for this essential mission.
Question. What functionality will this provide the U.S. Government
that does not currently exist?
Answer. The establishment of TFI will bring together Treasury's
intelligence, regulatory, law enforcement, sanctions, and policy
components, and enhance Treasury's efforts. As well, the new Office of
Intelligence and Analysis (OIA) will address one of the longstanding
issues identified in the Department of the Treasury, which is a lack of
an integrated intelligence function that supports the Department and is
linked directly into the Intelligence Community. Two primary functions
are provided with the addition of OIA.
The Department of the Treasury needs actionable intelligence that
can be used to exercise its legal authorities under all or portions of
such acts as the International Emergency Economic Powers Act (IEEPA),
USA PATRIOT Act, the Bank Secrecy Act, the Drug Kingpin Act, and
Trading with the Enemy Act. Analytical products from the intelligence
community are largely intended to inform policymakers rather than
taking action. They also tend to be highly classified, whereas Treasury
often needs to use the lowest classification possible to use such
material openly to press foreign governments or in evidentiary
packages.
OIA will also provide intelligence support to other senior Treasury
officials on a wide range of other international economic and political
issues of concern to the Department. Subsuming the functions of the
current Office of Intelligence Support, OIA will continue to review
incoming raw and finished intelligence from other agencies, and then
select relevant items for senior officials. The intelligence advisors
will also drive collection by drafting requirements for the
intelligence agencies to ensure that Treasury's information needs are
met. Moreover, they will continue to serve in a liaison capacity with
the intelligence community and represent the Department in various
intelligence-related activities.
The Treasury Department is following a staged approach in the
creation of TFI. This will ensure that the office will be able to work
towards its short term goals while strengthening its capabilities and
accomplishing its mission over the long term.
The creation of TFI will increase Treasury's efforts in several
ways. The combined use of intelligence and financial data is the best
way to detect how terrorists are exploiting the financial system and to
design methods to stop them. By coordinating Treasury's intelligence
functions and capabilities, TFI will benefit from enhanced analytical
capabilities, as well as additional expertise and technology. Second,
the USA PATRIOT Act gave the Department important new tools to detect
and prevent the abuse of our financial system by terrorists and other
criminals. TFI will coordinate Treasury's aggressive effort to enforce
these regulations. Third, we have forged a strong international
coalition to combat terrorist financing. The ongoing, cooperative
efforts between the United States and our international partners are at
unprecedented levels. The unified structure will promote a robust
international engagement and allow us to intensify outreach to our
counterparts in other countries. Finally, having a single office is the
best way to ensure accountability and achieve results for this
essential mission.
Question. Please provide an organizational chart for the proposed
office.
Answer. Please see the attached organizational chart.
Question. Please provide the committee with the number of detailees
from OFAC, FinCEN and other agencies that are expected to support the
new office.
Answer. To date, the Office of Intelligence Analysis has two
employees detailed from OFAC, two detailed from FinCEN, and one
detailed from CIA. Additional detailees have not yet been determined.
Question. When will the detailees be returned to their parent
agencies?
Answer. They are currently on a 6-month detail. We will review the
arrangement after the 6-month period is over. They can either renew
their detail agreement or return to their home agencies.
Question. Who will have day to day oversight of these employees?
Answer. Those four officers are supervised by the Deputy Assistant
Secretary for Intelligence and Analysis.
Question. How many FTE and budget resources will be realigned from
Departmental offices (excluding OFAC)?
Answer. Approximately 27 FTEs will be realigned from DO in fiscal
year 2005.
Question. What other offices within the Department will be merged
into this new structure?
Answer. This structure will include the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC), the Treasury
Executive Office of Asset Forfeiture (TEOAF), Office of Foreign Assets
Control (OFAC), and the Office of Intelligence Support (OIS). There is
always the possibility that other resources and synergies within
Treasury can be found to amplify the efforts of TFI.
Question. If this office is critical, will the Department send up a
budget amendment to realign its internal resources to fund this new
office?
Answer. The administration does not intend to send up a budget
amendment. In order to provide our perspective on the appropriate
fiscal year 2005 funding levels, on June 25, 2004, the Treasury
Department submitted a revised funding structure reflecting changes
made to the DO account that can be viewed as an amendment to the Budget
Justifications that we submitted to the committee in February 2004.
Question. How many FTEs, funded or detailed, are proposed to work
in this office by the end of fiscal year 2004? Please break out the
numbers between the responsibilities of the two assistant secretaries.
Answer. By the end of the fiscal year, the Department hopes to have
191 employees in the new office. The estimated breakdown is as follows:
------------------------------------------------------------------------
Office FTE
------------------------------------------------------------------------
Under Secretary......................................... 6
TFI (includes EOTFFC and OIS)........................... 48
OFAC.................................................... 120
TEOAF................................................... 17
---------------
Subtotal Departmental Offices..................... 191
FinCEN.................................................. 292
---------------
Total............................................. 483
------------------------------------------------------------------------
Question. Please provide a detailed explanation of the roles and
responsibilities of each of the new assistant secretaries.
Answer. The Office of the Assistant Secretary for Intelligence and
Analysis (OIA) will be responsible for developing a robust analytical
capability on terrorist financing. The office will draft actionable
intelligence to support Treasury's efforts to exercise its legal
authorities, including the USA PATRIOT Act, the International Emergency
Economic Powers Act (IEEPA), the Drug Kingpin Act, the Bank Secrecy
Act, and Trading with the Enemy Act. It will provide intelligence
support to other senior Treasury officials on a wide range of
international economic and political issues of concern to the
Department. The Assistant Secretary for Intelligence and Analysis will
serve as the Senior Official of the Intelligence Community (SOIC) and
represent the Department in intelligence community fora, such as the
National Foreign Intelligence Board committees and the Community
Management Staff. Moreover, the Assistant Secretary will be responsible
for managing the Department's security functions, including information
security, personnel security, industrial security, physical security,
and counterintelligence.
The overall purpose of OIA is to ensure that the Treasury
Department properly exploits the vast pools of financial data already
collected by the Department and combines that data with the relevant
intelligence collected by the intelligence community to create
strategic and actionable financial intelligence and analysis to support
Treasury's mission and authorities. For example, this analysis will be
used to designate individuals under Presidential Executive Orders,
target corrupt foreign financial institutions under Section 311 of the
USA PATRIOT Act, guide regulatory policies and compliance, and direct
strategic international engagement to set appropriate standards to
safeguard the international financial system. OIA's priorities include
identifying and attacking the financial infrastructure of terrorist
groups; identifying and addressing vulnerabilities that may be
exploited by terrorists and criminals in domestic and international
financial systems; and promoting stronger relationships with our
partners in the United States and around the world. A key long-term
goal will be to ensure Treasury's full integration into the
intelligence community, and ensure that the Secretary's economic and
financial responsibilities are supported fully by the intelligence
community.
OIA is already responding to Treasury's urgent short-term needs. A
small team of analysts has already begun to closely monitor and review
current intelligence threat reporting. These analysts sit together in
secure space in the Main Treasury building and ensure that Treasury can
track, analyze possible financial angles, and then refer their analysis
to relevant Treasury and U.S. government components for appropriate
action. In the near term, the Treasury Department plans to develop its
analytical capability through OIA in untapped areas, such as strategic
targeting of terrorist financial networks as well as analyzing trends
and patterns and non-traditional targets such as hawalas and couriers.
The Office of the Assistant Secretary for Terrorist Financing (OTF)
builds on the functions that have been underway at Treasury over the
past year by developing, organizing, and implementing U.S. government
strategies to combat terrorist financing and financial crime, both
internationally and domestically. This office is the policy and
outreach apparatus for the Treasury Department on the issues of
terrorist financing, money laundering, financial crime, and sanctions.
The Assistant Secretary is responsible for coordinating with other
elements of the U.S. government, including law enforcement, and for
working with the Federal regulatory agencies, both those within the
Treasury Department such as the OCC and OTS and those outside such as
the Federal Reserve, SEC and CFTC to ensure effective supervision for
BSA and USA PATRIOT Act compliance.
OTF will be the primary office responsible for formulating Treasury
Department counter-terrorist financing and anti-money laundering
policies and implementing Treasury's related regulatory, sanctions, and
enforcement programs and authorities. These functions include the
administration, implementation, and enforcement of Presidential
Executive Orders, in particular, those related to the freezing of
terrorist assets, as well as the administration and safeguarding of the
Bank Secrecy Act, as expanded by the USA PATRIOT Act.
In addition, OTF is responsible for integrating FinCEN, OFAC and
TEOAF into these efforts. FinCEN provides a government-wide, multi-
source intelligence and analytical network designed to support money
laundering and other financial crime investigations, and it ensures the
quality of the information it administers through outreach and
regulatory action performed in the course of its administration of the
BSA. OFAC has long administered and enforced economic and trade
sanctions based on U.S. foreign policy and national security goals
against targeted foreign countries, foreign terrorists, international
narcotics traffickers, and those engaged in activities related to the
proliferation of weapons of mass destruction. TEOAF provides oversight
and management of Treasury's nationwide forfeiture program and the
Treasury Forfeiture Fund. OTF also works in close partnership with IRS-
CI to enforce terrorist financing, money laundering, and BSA laws.
OTF leads and coordinates the U.S. representation at international
bodies dedicated to fighting terrorist financing and financial crime
such as the Financial Action Task Force (FATF) and increases our
multilateral and bilateral efforts in this field. This office creates
global solutions to evolving international problems, attack financial
crime and safeguard the financial system by advancing international
standards, conduct assessments, provide technical assistance, and apply
protective countermeasures against high-risk foreign jurisdictions and
financial institutions. Bilaterally, OTF works with foreign finance
ministries--such as the Russian Finance Ministry--to craft strategies
to jointly attack terrorist financing both globally and within specific
regions, and with foreign financial intelligence units to establish
special channels of information exchange.
Question. Has the Department detailed FTE or expended funds from
the Office of Foreign Assets Control? If there is a legal opinion
related to this action, please provide such to the committee.
Answer. As noted above, the Department has detailed two officers
from OFAC. Treasury asked its attorneys to review the draft
documentation for establishing the non-reimbursable details of two OFAC
employees to the Office of Intelligence and Analysis in the
Departmental Offices for a period of up to 6 months. That documentation
explained that the two employees would provide OFAC with relevant
financial intelligence, targets and leads that would be the basis for
further analytical work to be performed by OFAC, and that this work
directly furthers OFAC's mission by permitting the analysts to assist
in the coordination of financial intelligence research and analysis on
a Department-wide basis. On the basis of this information, the
attorneys expressed no legal objection to the details. No formal legal
opinion was issued.
Question. Will all intelligence related to terrorist financing
resident in the CIA, FBI, and Homeland Security become a part of this
office? If not, why not?
Answer. The Office of Intelligence and Analysis will draw
intelligence reporting from the CIA, FBI, and DHS to produce its own
analytical products in support of Treasury's mission. It is also in
daily contact with its interagency counterparts regarding threat
reporting and other counterterrorism issues.
Question. How will the functions of this office differ from the
Foreign Terror Asset Tracking Group (FTAT-G)?
Answer. We are in the process of evaluating how OIA and the FTAT-G
will interact to ensure no overlap arises.
Question. How will it differ from the Terror Threat Integration
Center (T-TIC)?
Answer. TTIC has the primary responsibility in the United States
for terrorism threat analysis and is responsible for the day-to-day
terrorism analysis provided to the President and senior policymakers.
OIA differs from TTIC in that it will focus primarily on the financial
angle of counterterrorism issues. It will also specifically support
Treasury's authorities and its relations with foreign counterparts.
Question. Who will be the lead agency in overseas technical
assistance that assists countries in learning about how to stop
terrorists from using financial systems?
Answer. The Treasury Department will continue to provide technical
assistance to countries around the world to help build anti-money
laundering and counter-terrorist financing capacity. The State
Department leads the coordination of terrorist financing-related
training efforts with the interagency Terrorist Financing Working Group
(TFWG). The Treasury Department participates actively in TFWG.
Question. Regarding intelligence gathering efforts, if the
Department is currently obtaining intelligence on these issues, how it
is being used to accomplish its mission?
Answer. The Treasury Department uses intelligence for several
purposes. Most significantly, we use the information to develop the
legal basis to impose economic sanctions, ranging from a designation to
designate a primary money laundering concern under Section 311 of the
USA PATRIOT Act to action under E.O. 13224. Intelligence information is
used to develop strategic direction, e.g., determining countries that
are vulnerable to exploitation by terrorists and, therefore, priorities
for technical assistance or diplomatic outreach.
Within the Treasury Department, it can be used to designate a
terrorist or narco-trafficker and it may be used to support an action
for failure to comply with a designation, e.g., information may be
provided to the FBI to support an investigation for providing support
to a designated party--a criminal violation. It can be used to
determine a primary money laundering concern or shared with a State or
local law enforcement agency investigating a drug crime. It may be used
by the Office of Critical Infrastructure Protection and Compliance
Policy to evaluate a threat to the Treasury. Moreover, it may be used
by the Office of the Under Secretary for Domestic Finance to identify
vulnerabilities within the financial services industry's critical
infrastructure that could be exploited. And, as previously discussed,
it may be used by my senior staff and me as background for bilaterals
with our foreign government colleagues.
Question. Is this information coming from the intelligence
community and law enforcement?
Answer. Treasury receives information from the intelligence
community and law enforcement, but also from our own analysis of
information provided directly to Treasury under the Bank Secrecy Act,
e.g., Suspicious Activity Reports (SARs) filed with the Financial
Crimes Enforcement Network.
Question. What intelligence is Treasury providing that the
Intelligence Community does not already have access to?
Answer. Information from the Bank Secrecy Act, such as Suspicious
Activity Reports, and OFAC-related information from the banking
community is managed by Treasury and is available to the intelligence
community. The discussion of specific information available to the
intelligence community is best left for a classified forum.
TERRORIST FINANCING
Question. Is Treasury considered the finance ministry of the U.S.
Government?
Answer. Yes.
Question. Who has primary jurisdiction over financial intelligence?
Answer. No one agency has primary jurisdiction over financial
intelligence. Different agencies use financial intelligence to support
their specific missions. For example, the intelligence and law
enforcement agencies use their collection and analysis on terrorist
financing to support their operations. While consolidating financial
intelligence into one agency could enhance accountability for outcomes
under the statutes that Treasury enforces, other agencies will need the
function to support their own missions.
Question. Should Treasury be the home of the financial intelligence
units in the U.S. Government?
Answer. The term ``financial intelligence unit'' is a term-of-art
that refers to the entity within a government that is responsible for
receiving, analyzing, and disseminating information derived from
suspicious activity reports and other money laundering-related reports
from the financial sector. The Financial Crimes Enforcement Network
(FinCEN) serves as the financial intelligence unit for the United
States. FinCEN is an integral part of the Department of the Treasury
and substantially benefits from Treasury's unique relationship with the
financial community, the law enforcement community and the regulatory
community.
Question. Who is the Federal Government's lead agency in the war on
terrorist financing?
Answer. There is no one agency that is the lead agency in the war
on terrorist financing. Each participating agency has a unique mission.
The Treasury Department has the lead in safeguarding the integrity of
the United States and international financial systems--including from
abuse by terrorists and those who support them.
Treasury has expertise throughout the Department that stretches
across the entire anti-money laundering/counter-terrorist financing
(AML/CTF) spectrum and allows it to deal with complicated issues
associated with the movement of money and assets in the United States
and international financial system. All of these components give
Treasury the necessary broad perspective to create and implement
strategies to safeguard the financial system against abuse.
In its role safeguarding the financial systems both home and
abroad, the Treasury Department utilizes numerous capabilities:
Sanctions and Administrative Powers.--Treasury wields a broad range
of powerful economic sanctions and administrative powers to attack
various forms of financial crime, including E.O. 13224 and Section 311
of the USA PATRIOT Act.
Law Enforcement and Law Enforcement Support.--Treasury combats
various forms of financial crime through the direct law enforcement
actions of IRS-CI and the law enforcement support provided by FinCEN
and Treasury's regulatory authorities.
Financial Regulation and Supervision.--FinCEN administers the Bank
Secrecy Act and issues and enforces AML/CTF regulations. Treasury
further maintains close contact with the Federal financial
supervisors--including the Treasury Department's Office of the
Comptroller of the Currency and Office of Thrift Supervision--with the
goal of ensuring that these regulations are being implemented
consistently throughout the financial sectors. In addition, OFAC
administers and enforces the various economic sanctions and
restrictions imposed by statute and under the Secretary's delegated
IEEPA authority.
International Initiatives.--The Treasury Department is part of and
has access to an extensive international network of Finance Ministries
and Finance Ministry-related bodies such as the Financial Action Task
Force (FATF) and various FATF-Style Regional Bodies, the International
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral
development banks. In addition, Treasury is the critical facilitator
for the international relationship between financial intelligence units
organized through the Egmont Group.
Private Sector Outreach.--As a result of our traditional role in
safeguarding the financial system, Treasury has developed a unique
partnership with the private sector. Through outreach programs such as
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and
educational seminars and programs, Treasury maintains a close
relationship with U.S. financial institutions to ensure a smooth
exchange of information related to money laundering and terrorist
financing. Treasury also maintains a close dialogue with the charitable
sector to help it address its vulnerabilities to terrorist financing.
The Office of Terrorism and Financial Intelligence (TFI) brings
together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components, and enhances Treasury's efforts in
combating terrorist financing and financial crime. TFI will work in
coordination with its partners in the interagency community to ensure
that its efforts complement and augment the important initiatives
already underway.
Question. What other agencies or departments are engaged in
Treasury-related functions in terrorist financing?
Answer. Treasury works with many agencies on terrorist-financing
matters. In fact, E.O. 13224 requires Treasury to consult with the
Department of Justice, Department of State, and Department of Homeland
Security in making designation decisions. Treasury also ensures that
our activities are part of a coordinated government approach. To that
end, we also work with the Central Intelligence Agency, Department of
Defense, and National Security Agency.
Question. What is the cost and how much duplication is created when
other agencies and departments engage in Treasury's responsibilities?
Answer. Each agency brings its own expertise, jurisdictions, and
capabilities to the tasks at large. This expertise is used to the
advantage of our overall efforts in the war against terrorist
financing. As long as there is effective coordination and
collaboration, we maximize efficiency and minimize cost and
duplication.
Question. If there were a consolidation into one unit, would that
allow the different agencies to focus on their core responsibilities
and save resources to do more against terrorism?
Answer. Treasury has no reason to believe that other agencies are
not currently focusing on their core responsibilities.
Question. Why was Treasury removed as the lead of the President's
Coordinating Committee on terrorist financing?
Answer. Reflecting the high importance that the White House places
on this issue, the National Security Council (NSC) currently chairs the
Policy Coordinating Committee (PCC) on Terrorist Financing. Treasury
continues to play an important role on the PCC. The purpose of the PCC
has always been to coordinate the policy direction and actions of the
U.S. Government related to terrorist financing. As chair, we may have
had administrative responsibilities and shared a useful tool in this
campaign. As chair, we often found ourselves driving the process by our
readiness to take one action--forcing discussion on other options that,
on many occasions, were more appropriate for the government to pursue.
As a participant, we continue to bring a useful tool to the campaign
and, as before, find ourselves fostering discussions through our
readiness to act, but being responsive to other methods for
accomplishing the ultimate goal--severing the link between a source of
money and some willing and able to commit an act of terrorism.
Question. Should Treasury be the lead on all matters related to
terror financing?
Answer. The Treasury Department has the lead in safeguarding the
integrity of the United States and international financial systems--
including from abuse by terrorists and those who support them.
Treasury has expertise throughout the Department that stretches
across the entire anti-money laundering/counter-terrorist financing
(AML/CTF) spectrum and allows it to deal with complicated issues
associated with the movement of money and assets in the United States
and international financial system. All of these components give
Treasury the necessary broad perspective to create and implement
strategies to safeguard the financial system against abuse.
In its role safeguarding the financial systems both home and
abroad, the Treasury Department utilizes numerous capabilities:
Sanctions and Administrative Powers.--Treasury wields a broad range
of powerful economic sanctions and administrative powers to attack
various forms of financial crime, including E.O. 13224 and Section 311
of the USA PATRIOT Act.
Law Enforcement and Law Enforcement Support.--Treasury combats
various forms of financial crime through the direct law enforcement
actions of IRS-CI and the law enforcement support provided by FinCEN
and Treasury's regulatory authorities.
Financial Regulation and Supervision.--FinCEN administers the Bank
Secrecy Act and issues and enforces AML/CTF regulations. Treasury
further maintains close contact with the Federal financial
supervisors--including the Treasury Department's Office of the
Comptroller of the Currency and Office of Thrift Supervision--with the
goal of ensuring that these regulations are being implemented
consistently throughout the financial sectors. In addition, OFAC
administers and enforces the various economic sanctions and
restrictions imposed by statute and under the Secretary's delegated
IEEPA authority.
International Initiatives.--The Treasury Department is part of and
has access to an extensive international network of Finance Ministries
and Finance Ministry-related bodies such as the Financial Action Task
Force (FATF) and various FATF-Style Regional Bodies, the International
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral
development banks. In addition, Treasury is the critical facilitator
for the international relationship between financial intelligence units
organized through the Egmont Group.
Private Sector Outreach.--As a result of our traditional role in
safeguarding the financial system, Treasury has developed a unique
partnership with the private sector. Through outreach programs such as
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and
educational seminars and programs, Treasury maintains a close
relationship with U.S. financial institutions to ensure a smooth
exchange of information related to money laundering and terrorist
financing. Treasury also maintains a close dialogue with the charitable
sector to help it address its vulnerabilities to terrorist financing.
The Office of Terrorism and Financial Intelligence (TFI) brings
together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components, and enhances Treasury's efforts in
combating terrorist financing and financial crime. TFI will work with
its partners in the interagency community to ensure that its efforts
complement and augment the important initiatives already underway.
Treasury has a central role to play in the overall fight against
terrorist financing due to our unique responsibilities and position
within the government and with respect to the financial sector. Of
course, many agencies have important roles to play and have the lead in
their specific areas of expertise. The FBI, for example, has the lead
in terrorist financing investigations. This does not diminish from
Treasury's role or responsibilities.
Question. Has Treasury's role on the PCC for Terrorist Financing
changed since being replaced as the chair?
Answer. Treasury continues to play an important role on the PCC.
The purpose of the PCC has always been to coordinate the policy
direction and actions of the U.S. government related to terrorist
financing. As chair, we may have had administrative responsibilities
and shared a useful tool in this campaign. As chair, we often found
ourselves driving the process by our readiness to take one action--
forcing discussion on other options that, on many occasions, were more
appropriate for the government to pursue. As a participant, we continue
to bring a useful tool to the campaign and, as before, find ourselves
fostering discussions through our readiness to act, but being
responsive to other methods for accomplishing the ultimate goal--
severing the link between a source of money and some willing and able
to commit an act of terrorism.
Question. The Secretary indicated in his testimony before the
subcommittee that there are clear lines of responsibility between
Treasury and Homeland. Please provide a detailed description of the
responsibilities of both Departments as they relate specifically to
terrorist financing. Please include any Memorandum of Understanding or
relevant documents for the record. Please also differentiate the role
of Cornerstone from the Department's role.
Answer. The most fundamental responsibility of the Treasury
Department is the safeguarding of the soundness and integrity of the
United States and international financial systems. Treasury meets this
responsibility through a wide range of programs, ranging from domestic
regulatory actions to far-reaching international initiatives through
the International Monetary Fund, participation in multilateral groups
such as the Financial Action Task Force and the World Bank. Each of
these programs benefits from the historic, deep and ongoing
relationship that Treasury maintains with the U.S. financial community
and our support for law enforcement investigative initiatives through
financial powers unique to the Department of the Treasury.
Of course, a vital component of our overall efforts is the
protection of the U.S. financial system from abuse by terrorist
financiers, money launderers and other financial criminals. Central to
these efforts are such Treasury components as the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN),
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the
Office of Critical Infrastructure Protection and Compliance Policy, and
will soon include the newly-established Office of Terrorism and
Financial Intelligence. Each of these offices works closely with the
U.S. law enforcement community--including the FBI, DEA, IRS-CI, U.S.
Secret Service, U.S. Postal Inspection Service, and the Bureau of
Immigration and Customs Enforcement (ICE)--to ensure that criminals
seeking to use and abuse the U.S. financial system are identified and
brought to justice.
FinCEN, as the administrator of the Bank Secrecy Act, ensures that
information reported under that act is provided to law enforcement
agencies such as the Bureau of Immigration and Customs Enforcement
(ICE). In addition to making the fruits of this activity available to
law enforcement, FinCEN also uses its analytical resources to mine the
data to support existing law enforcement cases on request, as well as
to proactively identify potential new cases for law enforcement. FinCEN
provides guidance to industry to ensure that its regulatory efforts are
directed at law enforcement concerns, and takes enforcement action as
necessary to ensure that its regulations are being followed. In
addition, FinCEN publishes a number of analytical products to help law
enforcement understand the financial system and follow the money, and
to help the financial industry improve its monitoring and reporting of
suspicious activity. Finally, in the international context, FinCEN's
relationship with its counterpart financial intelligence units provides
tremendous information where funds are flowing into or out of the
United States, and are available for appropriate use by ICE as well as
all Federal law enforcement investigating financial crimes. A large
portion of FinCEN's budget is devoted to developing and supporting its
systems and analytical tools to assist and complement the financial
investigatory effort of programs such as Cornerstone, which Treasury
welcomes. We look forward to a continued close cooperation with ICE in
our efforts to combat financial crimes.
Question. The Bureau of Immigration and Customs Enforcement (BICE)
administers the Systematic Homeland Approach to Reducing Exploitation
program (SHARE) where BICE will be joined by U.S. Secret Service to
jointly conduct semiannual meetings with members of the banking and
trade communities impacted by money laundering, identity theft and
other financial crime. There is no mention of Treasury in the DHS press
announcement or on the web page.
Does Treasury participate in these meetings? If so, please provide
the materials presented in the last meeting to the private sector.
Answer. We understand from DHS that there have been no meetings to
date under the SHARE auspices.
Question. Why is BICE taking the lead when it comes to dealing with
financial institutions? Isn't this Treasury's role? What information is
DHS providing that Treasury doesn't?
Answer. The Treasury Department has the lead in protecting the
integrity of the U.S. financial sector and in dealing with financial
institutions. Treasury would welcome efforts by DHS to provide the
financial community with information related to DHS enforcement issues.
For example, the Secret Service plays an important role in the
investigation of counterfeiting U.S. currency, credit card fraud and
identity theft.
Question. Does FinCEN deliver BSA data to BICE? Is it a gross data
transfer? Does BICE have data mining software that is similar to what
FinCEN was created to do? If so, what functionality for the financial
industry is FinCEN providing?
Answer. Under a legacy process in place when certain ICE agents
were employees of the U.S. Customs Service and part of Treasury, FinCEN
provided a direct download of BSA data into the Treasury Enforcement
Communications System (TECS), which is now administered by the
Department of Homeland Security. We are not familiar with ICE's current
data mining tools.
FinCEN, as administrator of the BSA and as mandated in Section 361
of the USA PATRIOT Act, has the responsibility for communicating with
the financial industry about BSA matters. In meeting this obligation,
FinCEN:
--Participates in numerous conferences and seminars being held
throughout the year across the country;
--Participates in compliance training workshops;
--Chairs and conducts regular meetings with the BSA Advisory Group
and its subcommittees;
--Interacts on a daily basis with bank officials throughout the
country regarding various aspects of BSA compliance;
--Conducts customer surveys;
--Produces publications such as the The Suspicious Activity Review, a
semiannual publication providing feedback and guidance to
financial institutions on BSA reporting and anti-money
laundering requirements; and
--Provides interaction with the financial institutions through its
Regulatory Help Line, which handles more than 5,000 calls a
year, and through website postings of regulations, guidance,
comment letters and other regulatory-related materials.
Question. This sounds virtually identical to the mission of FinCEN
and the Treasury Department. How are the two roles different?
Answer. The missions are quite distinct. FinCEN is responsible for
administering the Bank Secrecy Act. In that role, FinCEN is ultimately
responsible for the collection, maintenance, analysis and dissemination
of information collected under that Act. FinCEN has a statutory mandate
to provide feedback to the industry. FinCEN provides guidance to the
financial industry to ensure that its regulatory efforts are directed
at law enforcement concerns, and takes enforcement action as necessary
to ensure that its regulations are being followed. In addition, FinCEN
publishes a number of analytical products to help law enforcement
understand the financial system and follow the money, and to help the
financial industry improve its monitoring and reporting of suspicious
activity. Finally, in the international context, FinCEN is the United
States financial intelligence unit and is responsible for the Egmont
secure web, providing the Egmont Group, an international collection of
financial intelligence entities charged with the collection and
analysis of financial information to help prevent money laundering and
other illicit finance, with the ability to communicate with one another
via secure e-mail, posting and assessing information regarding trends,
analytical tools, and technological developments. Currently, 76 of the
94 countries are connected to the Egmont Secure Web. In this area,
FinCEN is unique in that it supports all of U.S. law enforcement and
assists all international Egmont partners.
Question. What provisions of the National Money Laundering Strategy
does Treasury enforce?
Answer. The National Money Laundering Strategy is not an
enforcement document, but rather a document setting forth the
President's overarching goals in a variety of areas to identify and
combat money laundering, terrorist financing and other financial
crimes.
Question. Is this strategy essential to coordinating the government
goals to fight money laundering?
Answer. The Department believes that the requirement of drafting a
national Strategy has been beneficial in that it has required the
principal U.S. government anti-money laundering and anti-terrorist
financing regulators and law enforcement investigators and prosecutors,
as well as the intelligence community to discuss overarching goals and
directions, as well as to identify trends and emerging threats. The
resulting Strategies reflect those interagency discussions.
Question. Has the administration transmitted a reauthorization
proposal to Congress regarding the National Money Laundering Strategy?
Answer. I am not aware of a formal submission.
Question. The Secretary also indicated in his testimony that the
Treasury Department is the lead agency for interdicting the flows of
terrorist financing in the financial system and that Homeland Security
is only responsible for the protecting the physical structures, but not
the financial system itself.
Is there any written understanding between the Department of
Homeland Security and the Department of the Treasury that clearly
delineates the roles of the two agencies?
Answer. There are no written procedures delineating respective
roles.
Question. Is there an MOU or other document between Justice and
Treasury that defines the roles and missions of each Department in
terrorist financing? Please provide a copy of any written
understandings.
Answer. I am not aware of an MOU.
Question. The Memorandum of Understanding between the Justice
Department and Homeland Security Department that establishes the
Federal Bureau of Investigation as the lead in all terrorist financing
investigations. What is the role of Treasury in investigating terrorist
financing investigations? Why is the Department excluded from an MOU
where Treasury has a major stake in the decisions being made?
Answer. The MOU referenced was necessary to provide clarity of
jurisdiction so as to ensure proper coordination of law enforcement
investigations of terrorist financing. The Treasury Department's law
enforcement and support entities (IRS-CID, FinCEN, and OFAC) support
the FBI-led Joint Terrorism Task Forces (JTTFs) on terrorist financing
investigations. We see no need for Treasury to have been a signatory to
an MOU allocating responsibility for domestic operational
investigations of terrorist financing between the FBI and ICE.
Question. Who is the agency primarily responsible for safeguarding
the integrity of America's financial systems?
Answer. The most fundamental responsibility of the Treasury
Department is the safeguarding of the soundness and integrity of the
United States and international financial systems. Treasury meets this
responsibility through a wide range of programs, ranging from domestic
regulatory actions to far-reaching international initiatives through
the International Monetary Fund, participation in multilateral groups
such as the Financial Action Task Force and the World Bank. Each of
these programs benefits from the historic, deep and ongoing
relationship that Treasury maintains with the U.S. financial community
and our support for law enforcement investigative initiatives through
financial powers unique to the Department of the Treasury. Although
other agencies have primacy in the regulation of specific sectors of
the U.S. financial system, no other agency has this overarching
responsibility.
Of course, a vital component of our overall efforts is the
protection of the U.S. financial system from abuse by terrorist
financiers, money launderers and other financial criminals. Central to
these efforts are such Treasury components as the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN),
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the
Office of Critical Infrastructure Protection and Compliance Policy, and
will soon include the newly-established Office of Terrorism and
Financial Intelligence. Each of these offices works closely with the
U.S. law enforcement community--including the FBI, DEA, IRS-CI, U.S.
Secret Service, U.S. Postal Inspection Service, and ICE--to ensure that
criminals seeking to use and abuse the U.S. financial system are
identified and brought to justice.
FinCEN, as the administrator of the Bank Secrecy Act, ensures that
information reported under that act is provided to law enforcement
agencies such as the Bureau of Immigration and Customs Enforcement. In
addition to making the fruits of this activity available to law
enforcement, FinCEN also uses its analytical resources to mine the data
to support existing law enforcement cases on request, as well as to
proactively identify potential new cases for law enforcement. FinCEN
provides guidance to industry to ensure that its regulatory efforts are
directed at law enforcement concerns, and takes enforcement action as
necessary to ensure that its regulations are being followed. In
addition, FinCEN publishes a number of analytical products to help law
enforcement understand the financial system and follow the money, and
to help the financial industry improve its monitoring and reporting of
suspicious activity. Finally, in the international context, FinCEN's
relationship with its counterpart financial intelligence units provides
tremendous information where funds are flowing into or out of the
United States, and are available for appropriate use by ICE as well as
all Federal law enforcement investigating financial crimes. A large
portion of FinCEN's budget is devoted to developing and supporting its
systems and analytical tools to assist and complement the financial
investigatory effort of programs such as Cornerstone, which Treasury
welcomes. We look forward to a continued close cooperation with ICE in
our efforts to combat financial crimes.
Question. What agency is ultimately responsible for fighting the
financial war on terrorism?
Answer. Several agencies work together in fighting the financial
war on terrorism. The Treasury Department has the lead in safeguarding
the integrity of the United States and international financial
systems--including from abuse by terrorists and those who support them.
Treasury has expertise throughout the Department that stretches
across the entire anti-money laundering/counter-terrorist financing
(AML/CTF) spectrum and allows it to deal with complicated issues
associated with the movement of money and assets in the United States
and international financial system. All of these components give
Treasury the necessary broad perspective to create and implement
strategies to safeguard the financial system against abuse.
In its role safeguarding the financial systems both home and
abroad, the Treasury Department utilizes numerous capabilities:
Sanctions and Administrative Powers.--Treasury wields a broad range
of powerful economic sanctions and administrative powers to attack
various forms of financial crime, including E.O. 13224 and Section 311
of the USA PATRIOT Act.
Law Enforcement and Law Enforcement Support.--Treasury combats
various forms of financial crime through the direct law enforcement
actions of IRS-CI and the law enforcement support provided by FinCEN
and Treasury's regulatory authorities.
Financial Regulation and Supervision.--FinCEN administers the Bank
Secrecy Act and issues and enforces AML/CTF regulations. Treasury
further maintains close contact with the Federal financial
supervisors--including the Treasury Department's Office of the
Comptroller of the Currency and Office of Thrift Supervision--with the
goal of ensuring that these regulations are being implemented
consistently throughout the financial sectors. In addition, OFAC
administers and enforces the various economic sanctions and
restrictions imposed by statute and under the Secretary's delegated
IEEPA authority.
International Initiatives.--The Treasury Department is part of and
has access to an extensive international network of Finance Ministries
and Finance Ministry-related bodies such as the Financial Action Task
Force (FATF) and various FATF-Style Regional Bodies, the International
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral
development banks. In addition, Treasury is the critical facilitator
for the international relationship between financial intelligence units
organized through the Egmont Group.
Private Sector Outreach.--As a result of our traditional role in
safeguarding the financial system, Treasury has developed a unique
partnership with the private sector. Through outreach programs such as
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and
educational seminars and programs, Treasury maintains a close
relationship with U.S. financial institutions to ensure a smooth
exchange of information related to money laundering and terrorist
financing. Treasury also maintains a close dialogue with the charitable
sector to help it address its vulnerabilities to terrorist financing.
The Office of Terrorism and Financial Intelligence (TFI) brings
together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components, and enhances Treasury's efforts in
combating terrorist financing and financial crime. TFI will work in
coordination with its partners in the interagency community to ensure
that its efforts complement and augment the important initiatives
already underway.
Treasury has a central role to play in the overall fight against
terrorist financing due to our unique responsibilities and position
within the government and with respect to the financial sector. Of
course, many agencies have important roles to play and have the lead in
their specific areas of expertise. The FBI, for example, has the lead
in terrorist financing investigations. This does not diminish from
Treasury's role or responsibilities.
Question. Is all information shared with Treasury from the Foreign
Terror Asset Tracking Group (FTAT-G)?
Answer. With respect to FTAT-G, the purpose of that entity is to
provide a forum where the various agencies with what can be described
as proprietary information can work together, each bringing their
separate ``databases'' of information to bear on tracking assets. This
information is used to develop reports that are used by decision-
makers. Treasury has participated in the FTAT-G and, as a result, has
had an opportunity to review and comment on working drafts and receives
copies of all the final reports they prepare.
Question. Does the Terror Threat Integration Center (T-TIC) clear
all of its terrorist financing information with the Department?
Answer. With respect to the TTIC, Treasury will become a party to
the MOU authorizing the sharing of appropriate threat information.
Treasury components will identify what, if any, information it may have
covered by the MOU and will share.
Question. With Treasury being the lead agency on terrorist
financing, does all terror financing intelligence and investigations
come through the Department? How? Does the Treasury Department
coordinate these actions? How?
Answer. All terrorist financing investigations do not come through
the Department of the Treasury, nor should they. Just like OFAC
designations, criminal investigation and prosecution are tools
available to the United States in its war against the financing of
terror. The Department, through its participation on the PCC, shares
and receives information needed to make informed decisions concerning
which anti-terrorist financing tools to apply in given circumstances.
Question. Does the Department direct the actions or the resources
that other agencies spend to fight terror financing?
Answer. Treasury does not have the authority to direct the
resources of other agencies.
Question. Does the Department have any input on the resources that
Homeland spends on Cornerstone, as an example?
Answer. No.
Question. According to the testimony of numerous witnesses, there
seems to be a considerable amount of duplication in the Federal
Government on the issue of terror financing. What agency is making the
resource decisions in spending by Department on the amounts spent on
terror financing? Does Treasury have any input in this process?
Answer. The Office of Management and Budget (OMB) coordinates
spending decisions. Treasury, like all agencies, works with OMB on
those decisions.
Question. Should there be an evaluation of the coordination and
actions of these financial intelligence units? Is any agency doing
this?
Answer. There are existing fora for coordinating the actions of our
financial intelligence functions. The National Security Council (NSC)
oversees this coordination. We continuously work with the NSC and OMB
to maximize our efforts developing financial intelligence and will
continue to do so in the future. Treasury is always studying how we can
best improve our efforts to meet our responsibilities, both within this
agency and in cooperation with our sister agencies.
The term ``financial intelligence unit'' is a term-of-art that
refers to the entity within a government that is responsible for
receiving, analyzing, and disseminating information derived from
suspicious activity reports and other money laundering-related reports
from the financial sector. The Financial Crimes Enforcement Network
(FinCEN) serves as the financial intelligence unit for the United
States. FinCEN is an integral part of the Department of the Treasury
and substantially benefits from Treasury's unique relationship with the
financial community, the law enforcement community and the regulatory
community.
Question. If the resources were provided, could Treasury enforce
its responsibilities under the Patriot Act, allowing the other agencies
to focus on their core missions?
Answer. The Treasury Department believes that it is meeting its
current USA PATRIOT Act responsibilities, but there is always more we
can do. We have no reason to believe that other agencies are not
focusing on their ``core missions.''
Question. What resources would be necessary?
Answer. The Treasury Department believes that it is meeting its
current USA PATRIOT Act responsibilities, but there is always more we
can do. We have no reason to believe that other agencies are not
focusing on their ``core missions.''
Question. How will Treasury enforce the provisions of the USA
PATRIOT Act it is responsible for?
Answer. Different components of the Department have differing
``enforcement'' responsibilities under both the BSA and the USA PATRIOT
Act. For example, by virtue of a delegation order from the Secretary of
the Treasury and an organic statute passed as part of the USA PATRIOT
Act, FinCEN is charged with the responsibility of administering the
regulatory regime of the BSA. In this capacity, among other things,
FinCEN issues regulations and accompanying interpretive guidance;
collects, analyzes and maintains the reports and information filed by
financial institutions pursuant to BSA regulations; makes those reports
and information available to law enforcement and regulators; and
ensures financial institution compliance with the regulations through
enforcement actions. The USA PATRIOT Act both refined and extended
FinCEN's focus in carrying out these responsibilities.
Amendments to the BSA by the USA PATRIOT Act sharpened FinCEN's
responsibilities relating to the management of BSA information. For
example, FinCEN designed and implemented the Patriot Act Communications
System to provide a platform for electronically capturing at least 90
percent of all BSA reports, and built information sharing and
dissemination systems required under Section 314. FinCEN is also
undertaking the ``BSA Direct'' initiative to significantly upgrade
mandated requirements to ensure that it secures this sensitive
information and that it audits its use; that it ``networks'' disparate
agencies accessing the information to ensure more robust investigation
and to ensure that investigations do not overlap; and to collect and
provide feedback and other information to the entities reporting the
information--the financial industry--so that reporting can be better
and more relevant for law enforcement.
The USA PATRIOT Act also extended FinCEN's regulatory
responsibilities by accelerating expansion of BSA coverage to a broad
range of new industries. Generally FinCEN's role involves such things
as providing prompt BSA interpretive guidance to examiners, policy
makers and the financial service industries, and ensuring the
consistent application of the BSA regulations across industry lines,
most notably through the rule making process and subsequent guidance.
While FinCEN is responsible for ensuring compliance with the BSA
regulatory regime, FinCEN does not itself examine financial
institutions for compliance. Instead, FinCEN taps the resources and
expertise of other Federal agencies and self-regulatory organizations
by delegating to these agencies the responsibility for conducting
compliance exams.
FinCEN does have an important role in supporting the examination
regime created through these delegations. To enhance this role, FinCEN
will create a new program office devoted solely to the BSA examination
function. The new structure will consolidate all examination support
functions and better enable FinCEN to provide the necessary support to
regulatory agencies conducting BSA compliance exams. As an initial
priority, FinCEN plans to focus on assisting the IRS in its examination
function, particularly in light of the new regulations that FinCEN has
and will issue to bring thousands of additional businesses under the
BSA anti-money laundering program provision.
Since coordination among the functional regulators is essential for
improving the overall compliance process, FinCEN will be working
through the Bank Secrecy Act Advisory Group to identify, in
coordination with the regulatory agencies, ways in which we can
identify common compliance deficiencies, provide feedback and guidance
to examiners, collaborate on a continuing basis on examination
procedures, and engage in joint examiner training.
As part of our investigation of the current BSA regulatory system's
ability to enforce industry compliance with provisions of the BSA,
FinCEN is pursuing a number of initiatives to improve such compliance
through enforcement and other actions, including: creating a new
Examination Program Office; dedicating analytical resources to
compliance support and examination targeting; allocating resources to
provide interpretive guidance to examiners; reviewing enforcement
referral guidelines and reporting requirements to FinCEN; and focusing
on compliance by money service businesses.
FinCEN is also exploring ideas for enhanced coordination among the
Federal regulators. These ideas include: identifying common compliance
deficiencies; enhancing collaboration on examination procedures; and
encouraging more joint examiner training. Treasury will work closely
with FinCEN and the Federal regulators to develop these ideas and
others as our investigation into the effectiveness of the current BSA
compliance and enforcement system progresses.
Finally, FinCEN retains the authority to pursue civil enforcement
actions against financial institutions for egregious non-compliance
with the BSA and the implementing regulations. Under the BSA, FinCEN is
empowered to assess civil monetary penalties against, or require
corrective action by, a financial institution committing negligent or
willful violations.
The IRS also has large BSA and USA PATRIOT Act enforcement
responsibilities, both civilly and criminally. In addition to its
primary jurisdiction, which is set forth in Title 26 of the United
States Code (Internal Revenue Code), IRS-CI also has investigative
jurisdiction involving other financial-related statutes. Beginning in
1970, Congress enacted a number of laws that led to greater
participation by CI in the financial investigative environment. The
Currency and Foreign Transactions Reporting Act of 1970 (Bank Secrecy
Act); The Comprehensive Crime Control Act of 1984; The Anti-Drug Abuse
Acts of 1986 and 1988; Crime Control Act of 1990; The Annunzio-Wylie
Anti-Money Laundering Act of 1992; The Money Laundering Suppression Act
of 1994; The Antiterrorism and Effective Death Penalty Act of 1996; The
Health Insurance Portability and Accountability Act of 1996; and the
USA PATRIOT Act of 2001 all developed and refined the existing anti-
money laundering and anti-terrorism laws under Titles 31 and 18 of the
United States Code.
Additionally, IRC, Section 6050 I, requires anyone involved in a
trade or business, except financial institutions, to report currency
received for goods or services in excess of $10,000 on a Form 8300.
The combination of tax, money laundering and Bank Secrecy Act
statutes enables IRS to identify and investigate tax evasion cases
involving legal and illegal income sources. Ultimately, this
versatility leverages IRS's ability to be a major contributor to many
important national law enforcement priorities.
Responsibility for ensuring compliance with the BSA and USA PATRIOT
Act of all non-banking and financial institutions not otherwise subject
to examination by another Federal functional regulator i.e., Money
Service Businesses (MSBs), casinos and credit unions was delegated to
the IRS by the Department of Treasury in December 1992. Under the
delegation, IRS is responsible for three elements of compliance--the
identification of MSBs, educational outreach to all three types of
organizations, and the examination of these entities suspected of
noncompliance. The IRS performs these compliance functions along with
its criminal enforcement role.
The processing and warehousing of BSA documents into the Currency
Banking and Retrieval System (CBRS), including FBARs \1\, CTRs \2\,
8300s \3\ and SARs \4\, are also the responsibility of the IRS. All
documents entered into the CBRS (approximately 14 million annually) are
made available to other law enforcement and regulatory agencies in
addition to IRS. However, the IRS is the largest user of the CBRS.
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\1\ Foreign Bank & Financial Account Report (FBAR).
\2\ Currency Transaction Report--(CTR) FinCEN Form 104 and FinCEN
Form 103 (filed by casinos).
\3\ Report of Cash Payments Over $10,000 Received in a Trade or
Business (IRS and FinCEN form 8300).
\4\ Suspicious Activity Reports (SARs)--filed by financial
institutions when there is suspicious activity, as determined by the
financial institution.
---------------------------------------------------------------------------
To meet its obligations under 31 CFR 103.57(b) and Treasury
Delegation Order 15-41 IRS ensures that certain financial institutions
(FIs) are in compliance with their recordkeeping and reporting
requirements under the Bank Secrecy Act.
This is accomplished by a balanced civil and criminal program that
includes:
--identifying financial institutions (FIs) under IRS jurisdiction,
--identifying those FIs that are actively involved in or facilitate
money laundering and seek ways to end this activity,
--conducting BSA compliance examinations to identify or uncover
potential areas of noncompliance, money laundering trends,
patterns, schemes, and forwarding the information for use in
enhancing the National Anti-Money Laundering Strategy,
--an aggressive effort to assist FIs for which IRS has jurisdiction
in understanding their role in combating money laundering and
to voluntarily meet their obligations under the BSA,
--actively participating in coordinated multi-agency anti-money
laundering initiatives such as GTOs, HIDTAs, HIFCAs, and SAR
Review Teams designed to disrupt and dismantle money laundering
organizations,
--securing information on currency transactions which should have
been reported or recorded and make available to law enforcement
and other interested parties,
--utilizing and evaluating various currency transaction reports as
authorized for tax compliance activities.
IRS's civil and criminal outreach efforts include State, and
national associations affiliated with financial services industries.
IRS provides keynote speakers, conducts seminars and provides
educational programs relating to check cashers, bankers, tax
practitioners, fraud examiners, corporate security personnel and bank
security officers. This outreach and our efforts to contact money
service businesses is a significant part of our program to identify and
educate MSBs regarding their requirements to register their business
with both the State and Federal Government.
IRS has approximately 350 civil examiners assigned to the anti-
money laundering program. These examiners are currently conducting
5,576 examinations. In addition to the examination of non-banking
financial institutions (NBFI), civil examiners also conduct reviews for
compliance with the currency reporting requirements of Section 6050I of
the Internal Revenue Code. As of March 31, 2004, the IRS NBFI database
reflected over 88,000 potential NBFIs. From September 30, 2000 through
May 2004, IRS has closed 13,288 examinations and conducted 5,940
registration examinations.
On June 3, 2004, the Comptroller of the Currency testified before
the Senate Committee on Banking, Housing and Urban Affairs, and
detailed the actions OCC is taking under both the BSA and USA PATRIOT
Act to ensure anti-money laundering compliance. That testimony is
available on the Department of the Treasury's web site.
Question. Would the consolidation of financial intelligence into
one Federal agency make the government more accountable for outcomes
under the statutes that Treasury enforces?
Answer. Different agencies use financial intelligence to support
their specific missions. For example, the intelligence and law
enforcement agencies use their collection and analysis on terrorist
financing to support their operations. While consolidating financial
intelligence into one agency could enhance accountability for outcomes
under the statutes that Treasury enforces, other agencies will need the
function to support their own missions.
Question. On the Bureau of Immigration and Customs Enforcement
(BICE) webpage is the following description of their role in terrorist
financing:
``Cornerstone is ICE's premier financial crime program that seeks
to identify vulnerabilities in financial systems through which
criminals launder their illicit proceeds, bring the criminals to
justice, eliminate the vulnerabilities, and develop a working
partnership with industry representatives to share information and
close industry-wide security gaps that could be exploited by money
launderers and other criminal organizations. `Safeguarding the
integrity of America's financial systems is a key part of homeland
security,' said Secretary Ridge. Criminal organizations are seeking new
ways to finance their operations, and the Department of Homeland
Security is moving aggressively to identify vulnerabilities within U.S.
financial systems that could be exploited to those ends.''
Describe in detail Treasury's role in the BICE program described
above.
Answer. ICE is a law enforcement bureau within the Department of
Homeland Security. We regard Operation Cornerstone as primarily a law
enforcement investigative initiative of that bureau, and therefore have
little involvement. That said, Operation Cornerstone does have a
private sector outreach component, and Treasury is taking steps to
ensure that this aspect of Cornerstone is coordinated with overall
financial community outreach, a responsibility with which Treasury
clearly is charged. Treasury's primary mechanism for such outreach is
the Bank Secrecy Act Advisory Group (BSAAG), which is chaired by
FinCEN.
Question. Was Cornerstone a coordinated effort with Treasury? What
is Treasury's role?
Answer. As noted above, we regard Operation Cornerstone as
primarily a law enforcement investigative initiative of that bureau,
and therefore have had little involvement. That said, Operation
Cornerstone does have a private sector outreach component, and Treasury
is taking steps to ensure that this aspect of Cornerstone is
coordinated with overall financial community outreach, a responsibility
with which Treasury clearly is charged. Treasury's primary mechanism
for such outreach is the Bank Secrecy Act Advisory Group (BSAAG), which
is chaired by FinCEN.
Question. Does Cornerstone share all of their money laundering and
terrorist financing information with the Treasury Department?
Answer. Operational law enforcement matters properly are handled by
law enforcement agency or agencies, or joint task forces that are
investigating the specific activities involved. It would not be
appropriate for all information relating to such investigative
operations to be shared with the Treasury Department.
That said, DHS, DOJ and Treasury do routinely share new and
developing money laundering trends and methodologies information to
ensure that their enforcement and prosecutorial efforts stay abreast of
the activities of the criminals. As to terrorist financing information,
ICE has merged all of its terrorist financing activities into the FBI's
Terrorist Financing Operations Section (TFOS). Additionally, Treasury,
through IRS-CI, is an active participant in DOJ's JTTF, along with ICE
and other law enforcement agencies.
Question. How is this different from FinCEN's mission and also the
mission of the Office of Critical Infrastructure? Please be specific.
Answer. FinCEN is responsible for administering the Bank Secrecy
Act. In that role, FinCEN is ultimately responsible for the collection,
maintenance, analysis and dissemination of information collected under
that Act. FinCEN has a statutory mandate to provide feedback to the
industry. FinCEN provides guidance to industry to ensure that its
regulatory efforts are directed at law enforcement concerns, and takes
enforcement action as necessary to ensure that its regulations are
being followed. FinCEN's primary mechanism for private sector outreach
is the Bank Secrecy Act Advisory Group. In addition, FinCEN publishes a
number of analytical products to help law enforcement understand the
financial system and follow the money, and to help the financial
industry improve its monitoring and reporting of suspicious activity.
Finally, in the international context, FinCEN is the U.S. financial
intelligence unit and is responsible for the Egmont secure web,
providing the Egmont Group, an international collection of financial
intelligence entities charged with the collection and analysis of
financial information to help prevent money laundering and other
illicit finance, with the ability to communicate with one another via
secure e-mail, posting and assessing information regarding trends,
analytical tools, and technological developments. Currently, 76 of the
94 countries are connected to the Egmont Secure Web.
The Office of Critical Infrastructure Protection and Compliance
Policy works with the financial services sector and regulators on
behalf of the Department in the area of critical infrastructure
protection for the financial services sector. The Department is the
agency of the U.S. government responsible for coordinating the
development of policies to reduce vulnerabilities and increase
resilience for the Nation's financial services sector critical
infrastructure. This office develops policy formulations intended to
increase the resilience of private sector financial services firms. The
office also supports the Assistant Secretary for Financial
Institutions, who chairs the Financial and Banking Information
Infrastructure Committee, a grouping of Federal and State financial
regulators that focuses on the resilience and integrity of financial
sector infrastructure. Moreover, this office supports Treasury
policymakers concerning the development of policies regarding
information sharing, the protection of personal financial information,
and remittances.
Question. This seems to be not only complimentary of the Treasury
mission; it seems to be the Treasury mission. Why is the Federal
Government funding two different agencies in two Executive Branch
Departments to do the same job?
Answer. We view the Cornerstone initiative as complimentary and not
as duplicative. The most fundamental responsibility of the Treasury
Department is the safeguarding of the soundness and integrity of the
U.S. and international financial systems. Treasury meets this
responsibility through a wide range of programs, ranging from domestic
regulatory actions to far-reaching international initiatives through
the International Monetary Fund, participation in multilateral groups
such as the Financial Action Task Force and the World Bank. Each of
these programs benefits from the historic, deep and ongoing
relationship that Treasury maintains with the U.S. financial community
and our support for law enforcement investigative initiatives through
financial powers unique to the Department of the Treasury.\5\
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\5\ For example, the most important tool in the United States
arsenal to attack systemic money laundering is the Geographic Targeting
Order (31 U.S.C. 5326) by and through which financial industry
reporting can be reduced and more finely honed. In the international
realm, use of PATRIOT Act Section 311 (31 U.S.C. 5318A) to target
``primary money laundering jurisdictions, accounts, financial
institutions and others is a very potent weapon''.
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Of course, a vital component of our overall efforts is the
protection of the U.S. financial system from abuse by terrorist
financiers, money launderers and other financial criminals. Central to
these efforts are such Treasury components as the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC), Office of Foreign
Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN),
the Treasury Executive Office of Asset Forfeiture (TEOAF) and the
Office of Critical Infrastructure Protection and Compliance Policy, and
will soon include the newly-established Office of Terrorism and
Financial Intelligence. Each of these offices works closely with the
U.S. law enforcement community--including the FBI, DEA, IRS-CID, U.S.
Secret Service, U.S. Postal Inspection Service, and ICE--to ensure that
criminals seeking to use and abuse the U.S. financial system are
identified and brought to justice.
FinCEN, as the administrator of the Bank Secrecy Act, ensures that
information reported under that act is provided to law enforcement
agencies such as the Bureau of Immigration and Customs Enforcement
(ICE). In addition to making the fruits of this activity available to
law enforcement, FinCEN also uses its analytical resources to mine the
data to support existing law enforcement cases on request, as well as
to proactively identify potential new cases for law enforcement. FinCEN
provides guidance to industry to ensure that its regulatory efforts are
directed at law enforcement concerns, and takes enforcement action as
necessary to ensure that its regulations are being followed. In
addition, FinCEN publishes a number of analytical products to help law
enforcement understand the financial system and follow the money, and
to help the financial industry improve its monitoring and reporting of
suspicious activity. Finally, in the international context, FinCEN's
relationship with its counterpart financial intelligence units provides
tremendous information where funds are flowing in to or out of the
United States, and are available for appropriate use by ICE as well as
all Federal law enforcement investigating financial crimes. A large
portion of FinCEN's budget is devoted to developing and supporting its
systems and analytical tools to assist and complement the financial
investigatory effort of programs such as Cornerstone, which Treasury
welcomes. We look forward to a continued close cooperation with ICE in
our efforts to combat financial crimes.
Question. Considering that ICE and FBI have financial intelligence
units with hundreds of staff devoted to financial intelligence, why
should Treasury still be considered as the lead agency?
Answer. The Treasury Department has the lead in safeguarding the
integrity of the U.S. and international financial systems--including
from abuse by terrorists and those who support them.
Treasury has expertise throughout the Department that stretches
across the entire anti-money laundering/counter-terrorist financing
(AML/CTF) spectrum and allows it to deal with complicated issues
associated with the movement of money and assets in the United States
and international financial system. All of these components give
Treasury the necessary broad perspective to create and implement
strategies to safeguard the financial system against abuse.
In its role safeguarding the financial systems both home and
abroad, the Treasury Department utilizes numerous capabilities:
Sanctions and Administrative Powers.--Treasury wields a broad range
of powerful economic sanctions and administrative powers to attack
various forms of financial crime, including E.O. 13224 and Section 311
of the USA PATRIOT Act.
Law Enforcement and Law Enforcement Support.--Treasury combats
various forms of financial crime through the direct law enforcement
actions of IRS-CI and the law enforcement support provided by FinCEN
and Treasury's regulatory authorities.
Financial Regulation and Supervision.--FinCEN administers the Bank
Secrecy Act and issues and enforces AML/CTF regulations. Treasury
further maintains close contact with the Federal financial
supervisors--including the Treasury Department's Office of the
Comptroller of the Currency and Office of Thrift Supervision--with the
goal of ensuring that these regulations are being implemented
consistently throughout the financial sectors. In addition, OFAC
administers and enforces the various economic sanctions and
restrictions imposed by statute and under the Secretary's delegated
IEEPA authority.
International Initiatives.--The Treasury Department is part of and
has access to an extensive international network of Finance Ministries
and Finance Ministry-related bodies such as the Financial Action Task
Force (FATF) and various FATF-Style Regional Bodies, the International
Monetary Fund (IMF), the World Bank, the G-7, and various multilateral
banks. In addition, Treasury is the critical facilitator for the
international relationship between financial intelligence units
organized through the Egmont Group.
Private Sector Outreach.--As a result of our traditional role in
safeguarding the financial system, Treasury has developed a unique
partnership with the private sector. Through outreach programs such as
the Bank Secrecy Act Advisory Group (BSAAG) and other regulatory and
educational seminars and programs, Treasury maintains a close
relationship with U.S. financial institutions to ensure a smooth
exchange of information related to money laundering and terrorist
financing. Treasury also maintains a close dialogue with the charitable
sector to help it address its vulnerabilities to terrorist financing.
The Office of Terrorism and Financial Intelligence (TFI) brings
together Treasury's intelligence, regulatory, law enforcement,
sanctions, and policy components, and enhances Treasury's efforts in
combating terrorist financing and financial crime. TFI will work in
coordination with its partners in the interagency community to ensure
that its efforts complement and augment the important initiatives
already underway.
Treasury has a central role to play in the overall fight against
terrorist financing due to our unique responsibilities and position
within the government and with respect to the financial sector. Of
course, many agencies have important roles to play and have the lead in
their specific areas of expertise. The FBI, for example, has the lead
in terrorist financing investigations. This does not diminish from
Treasury's role or responsibilities.
FINCEN
Question. Please provide a detailed description of what BSA Direct
will provide in functionality to FinCEN.
Answer. The BSA Direct initiative encompasses systems and processes
that will significantly alter the way Bank Secrecy Act information is
provided to law enforcement and the regulators that access the
information. It will provide those entities, including FinCEN, with
state of the art data search tools in a robust user-friendly
environment. Users will be able to search Bank Secrecy Act information
faster and better, and will be able to do more with the data than they
currently can. Eventually, sophisticated data mining, geographic and
other analytic tools will be added to the environment, which will add
to the value of the Bank Secrecy Act information. Finally, the
initiative will help free FinCEN analytic resources to focus on more
complex and strategic analysis of the financing of terror, money
laundering and other illicit finance. To better understand the specific
functionality this initiative will provide to FinCEN, it is important
to understand the way Bank Secrecy Act information is currently
managed, analyzed and disseminated.
FinCEN is the delegated administrator of the Bank Secrecy Act, a
regulatory statute designed to deter, prevent and address money
laundering and illicit finance, including the financing of terrorism.
The keystone of the Bank Secrecy Act is a reporting regime under which
financial institutions report to the Federal Government certain
information--large cash transactions or suspicious activity. Over 13
million Bank Secrecy Act reports are filed each year by more than
200,000 U.S. financial institutions, providing invaluable information
to detect and prevent financial crimes. FinCEN is responsible for
ensuring that information is collected, securely housed, analyzed and
shared with law enforcement. Amendments to the Bank Secrecy Act by the
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this
information. Among other things, FinCEN is responsible for securing
this sensitive information and auditing its use; networking with
disparate agencies accessing the information to ensure more robust
investigation and ensuring that investigations do not overlap; and
collecting and providing feedback and other information to the entities
reporting the information--the financial industry--so that reporting
can be better and more relevant for law enforcement.
Currently, under a legacy process that predates FinCEN, Bank
Secrecy Act reports are collected by the Internal Revenue Service's
Detroit Computing Center and are housed in an IBM IDMS mainframe
environment incorporating 12 hierarchical databases. Most persons
access the data through a ``gateway'' connection. While the IRS is
currently converting the data to a ``DB2'' relational format, the data
on the mainframe system in Detroit is not currently kept in a
relational database, so search capabilities are limited for persons and
entities that access Bank Secrecy Act information through that system.
Because of the limitations of this system, FinCEN devotes a significant
portion of its analytic resources to data retrieval for many of its law
enforcement customers. As a result of this system, FinCEN downloads a
duplicate copy of the Bank Secrecy Act database every night to other
systems and into programs that provide relational data mining and
analytical capabilities.
FinCEN is not the only entity that downloads all or part of the
Bank Secrecy Act data from the Detroit Computing Center. Under legacy
arrangements that pre-date FinCEN's current leadership, Suspicious
Activity Reports (SARs) filed by depository institutions are downloaded
directly from the IRS's Detroit Computing Center to the Federal Bureau
of Investigation and United States Secret Service. Bank Secrecy Act
information is also downloaded to the Treasury Enforcement
Communications System (TECS), which was maintained by the former U.S.
Customs Service and is now maintained by the Department of Homeland
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally
access Bank Secrecy Act information through that system. FinCEN has a
limited ability to network the use of the data by those who download it
since it is entirely dependent on manual feedback on the use of the
data, which is difficult to obtain. Moreover, auditing the use of the
data is far more difficult since it depends on manual reviews combined
with the tracking system in place at the independent system. Simply
put, currently FinCEN cannot fully meet any of its statutory
responsibilities relating to the data utilizing the current system and
processes in place.
The systems and processes contemplated in the BSA Direct initiative
will allow FinCEN to not only meet these responsibilities, but will
provide law enforcement, regulators and FinCEN a modern, user-friendly
environment to mine and analyze BSA data. The heart of the BSA Direct
initiative is a secure data warehouse to consolidate the Bank Secrecy
Act information into a single, integrated data set. Users will have a
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web
access, to Bank Secrecy Act information with capabilities that allow
end users to perform ad hoc as well as pre-defined queries and
reporting. Users will gain easier, faster data access and enhanced
ability to query and analyze Bank Secrecy Act information, and FinCEN
will have tools to control and audit the use of this sensitive
information, network with agencies that are using the data, and provide
better feedback to the financial industry about the use of the data,
which will lead to more relevant reporting.
The full scope and detail of the functionality will be more fully
determined as a result of the user requirements analyses in the first
months of the project. However, the following examples identify the
types of capabilities that BSA Direct will afford FinCEN and its
customers that they presently do not have:
--The automated capability for FinCEN to control and audit the use of
all persons accessing Bank Secrecy Act information.
--The capability, through an alert system, for FinCEN to ``network''
all users of Bank Secrecy Act information that ``hit'' the same
data, or appear to be analyzing the same information.
--The capability to analyze law enforcement's use of the data to
provide meaningful feedback to the financial industry, which
will result in better reporting.
--The capability to develop sophisticated filer profiles for
financial industry members to help FinCEN and the regulators
target entities for compliance examinations as well as the
ability to be notified automatically by the system when there
is a significant filing anomaly.
--An intuitive interface to enable users to query data with little or
no training, and with strong, context-sensitive on-line help.
--Users will be able to keep and view a list of their prior queries.
--Managers in organizations will be better able to audit and manage
the use of the data by their subordinate users.
--Users will be able to schedule a particular query to re-run on a
schedule set by the user.
--Users will be able to customize query output, i.e., define what
columns of information are displayed, rearrange the order of
the columns, and then save that order as a personal default
view.
--Users will have the ability to sort, filter, and aggregate columns
of data.
--Users will be able to run ``batch queries,'' e.g., social security
numbers from all bankruptcy filings 6 months ago against all
Bank Secrecy Act filings in the last year.
--Users will be able to create customized queries and reports.
--A geographic mapping tool will provide information to show the
geographic significance of Bank Secrecy Act data.
--Users will have the capability to pre-schedule queries and receive
reports on a timetable scheduled by users.
--Users will be able to download results into popular formats, e.g.,
Word, Excel, Analysts Notebook, etc.
Question. Please provide the cost and schedule, as well as an
assessment of the technical risk of development, for BSA Direct for
fiscal year 2005 and for future fiscal years.
Answer. The Request for Proposals (RFP) for BSA Direct (full and
open competition) was released in February 2004. FinCEN is currently in
the final stages of evaluating the proposals received in response to
the RFP. Because the BSA Direct RFP clearly specifies that the offerors
must utilize standards based methodology (SEI-CMM level 2 or higher)
and use open standards, COTS products, and because the underlying data
warehousing technology is relatively mature, technical risk is
minimized. Risk management is a key component of the project
management.
FinCEN has submitted a Cost and Schedule Milestones chart for BSA
Direct (as submitted to the Office of Management and Budget in December
2003) below. The costs in this chart were based upon estimates provided
by the Mitre Corporation, which FinCEN engaged to help evaluate the
project. It is important to note that these are only estimates based on
Mitre's study. FinCEN will be pleased to provide the committee with a
much more accurate cost picture for this project once a contract for
the system is awarded.
COST AND SCHEDULE GOALS: ORIGINAL BASELINE FOR A PHASE/SEGMENT/MODULE OF PROJECT (INVESTMENT)
----------------------------------------------------------------------------------------------------------------
Planned
----------------------------------------------------------------------------------
Description Schedule Duration
-------------------------------------------------- Planned Cost Funding Agency
Start Date End Date Days Hrs. (BCWS)
----------------------------------------------------------------------------------------------------------------
1. Program Administration 09/01/2003..... 03/13/2004..... 194 ...... $225,000 FinCEN
Costs, excludes FTE.
2. Project Management, 04/05/2004..... 09/30/2005..... 543 ...... $1,006,000 Department of
excludes FTE. Treasury
3. BSA Direct Proof of 10/02/2003..... 03/12/2004..... 162 ...... $393,000 Treasury
Concept (POC) Development.
4. BSA Direct System 04/05/2004..... 06/10/2005..... 431 ...... $4,278,000 Treasury
Development and Construction.
4.1 Requirements 04/05/2004..... 08/20/2004..... 137 ...... $531,000 Treasury
Definition and Analysis.
4.2 System Design........ 06/14/2004..... 10/29/2004..... 137 ...... $398,000 Treasury
4.3 System Design Review. 10/18/2004..... 11/05/2004..... 18 ...... $40,000 Treasury
4.4 System Development 07/05/2004..... 08/13/2004..... 39 ...... $80,000 Treasury
Environment Setup.
4.5. System Development & 09/06/2004..... 03/18/2005..... 193 ...... $929,000 Treasury
Construction.
4.6 Data Conversion, 06/14/2004..... 09/30/2004..... 108 ...... $744,000 Treasury
Transformation, &
Migration.
4.7. System/Integration/ 09/27/2004..... 11/05/2004..... 30 ...... $80,000 Treasury
Test Environment.
4.8. Usability/Component 01/24/2005..... 04/15/2005..... 81 ...... $239,000 Treasury
Functional Testing.
4.9. System/Integration/ 03/21/2005..... 06/10/2005..... 81 ...... $372,000 Treasury
Testing.
4.10. Integration with 03/21/2005..... 06/10/2005..... 81 ...... $465,000 Treasury
other systems.
4.11. Lease costs 04/05/2004..... 06/10/2005..... 431 ...... $400,000 Treasury
hardware and software.
5. BSA Direct Deployment and 06/28/2004..... 09/16/2005..... 445 ...... $1,675,000 Treasury
Rollout.
5.1. Deployment and 06/28/2004..... 09/17/2004..... 81 ...... $239,000 Treasury
Rollout Strategy
Planning.
5.2. Acceptance/ 05/02/2005..... 07/08/2005..... 67 ...... $398,000 Treasury
Production Ready Testing.
5.3. Production System 05/02/2005..... 09/16/2005..... 137 ...... $531,000 Treasury
Deployment & Rollout.
5.4. User Training and 06/06/2005..... 08/26/2005..... 81 ...... $372,000 Treasury
Transition.
5.5. Lease costs hardware 06/02/2005..... 09/30/2005..... 120 ...... $135,000 Treasury
and software.
6. BSA Direct Operations and 10/01/2005..... 09/30/2006..... 364 ...... $2,500,00 FinCEN
Maintenance.
----------------------------------------------------------------------------------
PROJECT TOTAL.......... 09/01/2003..... 09/30/2006..... 1,125 ...... $10,077,000 ...............
----------------------------------------------------------------------------------------------------------------
Question. If full funding were provided, when will the system be
complete?
Answer. With full funding, the FinCEN basic system contemplated by
BSA Direct system will be operational and available to users by October
2005. It is anticipated that FinCEN will continue to enhance the basic
functionality of the system in future years. The goal at this point is
to get the basic foundation of the system up and running as quickly as
possible.
Question. If BSA Direct were fully funded, what functionality would
that provide FinCEN that it currently does not have?
Answer. The full scope and detail of the functionality will be more
fully determined as a result of the user requirements analyses in the
first months of the project. However, the following examples identify
the types of capabilities that BSA Direct will afford FinCEN and its
customers that they presently do not have:
--The automated capability for FinCEN to control and audit the use of
all persons accessing Bank Secrecy Act information.
--The capability, through an alert system, for FinCEN to ``network''
all users of Bank Secrecy Act information that ``hit'' the same
data, or appear to be analyzing the same information.
--The capability to analyze law enforcement's use of the data to
provide meaningful feedback to the financial industry, which
will result in better reporting.
--The capability to develop sophisticated filer profiles for
financial industry members to help FinCEN and the regulators
target entities for compliance examinations as well as the
ability to be notified automatically by the system when there
is a significant filing anomaly.
--An intuitive interface to enable users to query data with little or
no training, and with strong, context-sensitive on-line help.
--Users will be able to keep and view a list of their prior queries.
--Managers in organizations will be better able to audit and manage
the use of the data by their subordinate users.
--Users will be able to schedule a particular query to re-run on a
schedule set by the user.
--Users will be able to customize query output, i.e., define what
columns of information are displayed, rearrange the order of
the columns, and then save that order as a personal default
view.
--Users will have the ability to sort, filter, and aggregate columns
of data.
--Users will be able to run ``batch queries,'' e.g., social security
numbers from all bankruptcy filings 6 months ago against all
Bank Secrecy Act filings in the last year.
--Users will be able to create customized queries and reports.
--A geographic mapping tool will provide information to show the
geographic significance of Bank Secrecy Act data.
--Users will have the capability to pre-schedule queries and receive
reports on a timetable scheduled by users.
--Users will be able to download results into popular formats, e.g.,
Word, Excel, Analysts Notebook, etc.
Question. Is BSA Direct on schedule?
Answer. Each of the offerors has committed to deliver BSA Direct by
October 14, 2005, or sooner. This is a 2-week delay from our initial
schedule.
Question. What will it cost to complete the system?
Answer. FinCEN has submitted a Cost and Schedule Milestones chart
for BSA Direct (as submitted to the Office of Management and Budget in
December 2003) below. The costs in this chart were based upon estimates
provided by the Mitre Corporation, which FinCEN engaged to help
evaluate the project. It is important to note that these are only
estimates based on Mitre's study. FinCEN will be pleased to provide the
committee with a much more accurate cost picture for this project once
a contract for the system is awarded.
COST AND SCHEDULE GOALS: ORIGINAL BASELINE FOR A PHASE/SEGMENT/MODULE OF PROJECT (INVESTMENT)
----------------------------------------------------------------------------------------------------------------
Planned
----------------------------------------------------------------------------------
Description Schedule Duration
-------------------------------------------------- Planned Cost Funding Agency
Start Date End Date Days Hrs. (BCWS)
----------------------------------------------------------------------------------------------------------------
1. Program Administration 09/01/2003..... 03/13/2004..... 194 ...... $225,000 FinCEN
Costs, excludes FTE.
2. Project Management, 04/05/2004..... 09/30/2005..... 543 ...... $1,006,000 Department of
excludes FTE. Treasury
3. BSA Direct Proof of 10/02/2003..... 03/12/2004..... 162 ...... $393,000 Treasury
Concept (POC) Development.
4. BSA Direct System 04/05/2004..... 06/10/2005..... 431 ...... $4,278,000 Treasury
Development and Construction.
4.1 Requirements 04/05/2004..... 08/20/2004..... 137 ...... $531,000 Treasury
Definition and Analysis.
4.2 System Design........ 06/14/2004..... 10/29/2004..... 137 ...... $398,000 Treasury
4.3 System Design Review. 10/18/2004..... 11/05/2004..... 18 ...... $40,000 Treasury
4.4 System Development 07/05/2004..... 08/13/2004..... 39 ...... $80,000 Treasury
Environment Setup.
4.5. System Development & 09/06/2004..... 03/18/2005..... 193 ...... $929,000 Treasury
Construction.
4.6 Data Conversion, 06/14/2004..... 09/30/2004..... 108 ...... $744,000 Treasury
Transformation, &
Migration.
4.7. System/Integration/ 09/27/2004..... 11/05/2004..... 30 ...... $80,000 Treasury
Test Environment.
4.8. Usability/Component 01/24/2005..... 04/15/2005..... 81 ...... $239,000 Treasury
Functional Testing.
4.9. System/Integration/ 03/21/2005..... 06/10/2005..... 81 ...... $372,000 Treasury
Testing.
4.10. Integration with 03/21/2005..... 06/10/2005..... 81 ...... $465,000 Treasury
other systems.
4.11. Lease costs 04/05/2004..... 06/10/2005..... 431 ...... $400,000 Treasury
hardware and software.
5. BSA Direct Deployment and 06/28/2004..... 09/16/2005..... 445 ...... $1,675,000 Treasury
Rollout.
5.1. Deployment and 06/28/2004..... 09/17/2004..... 81 ...... $239,000 Treasury
Rollout Strategy
Planning.
5.2. Acceptance/ 05/02/2005..... 07/08/2005..... 67 ...... $398,000 Treasury
Production Ready Testing.
5.3. Production System 05/02/2005..... 09/16/2005..... 137 ...... $531,000 Treasury
Deployment & Rollout.
5.4. User Training and 06/06/2005..... 08/26/2005..... 81 ...... $372,000 Treasury
Transition.
5.5. Lease costs hardware 06/02/2005..... 09/30/2005..... 120 ...... $135,000 Treasury
and software.
6. BSA Direct Operations and 10/01/2005..... 09/30/2006..... 364 ...... $2,500,00 FinCEN
Maintenance.
----------------------------------------------------------------------------------
PROJECT TOTAL.......... 09/01/2003..... 09/30/2006..... 1,125 ...... $10,077,000 ...............
----------------------------------------------------------------------------------------------------------------
Question. How is FinCEN providing information to the law
enforcement entities that it serves?
Answer. FinCEN provides analytic products--both tactical and
strategic--to appropriate law enforcement customers. FinCEN also
administers a process under Section 314 of the USA PATRIOT Act that
permits law enforcement to submit requests to financial institutions
for transactional and account information in certain cases. A
particular institution indicates whether it has such information and
that information is provided to law enforcement. FinCEN also maintains
some general information for law enforcement on its public web-site and
will provide more and better information to law enforcement through BSA
Direct.
FinCEN also provides access to Bank Secrecy Act data. Legacy
processes and inadequate data retrieval capabilities currently result
in this data being provided to Federal, State and local law enforcement
in several ways:
--Through direct case support from a FinCEN analyst.
--Through ``Platform'' support, whereby law enforcement agencies may
send personnel to FinCEN to use its technical and analytical
resources to work their agency's respective cases on an as
needed basis.
--Through ``Gateway,'' which provides direct, dial-in access to Bank
Secrecy Data housed at the IRS's Detroit Computing Center.
--To certain entities, through wholesale direct downloads of all or
part of the Bank Secrecy Act data from the Detroit Computing
Center. Direct downloads are currently provided to:
--The Federal Bureau of Investigation and United States Secret
Service receive wholesale downloads of suspicious activity
reports filed by depository institutions.
--A wholesale download of all Bank Secrecy Act information is made
into the Treasury Enforcement Communications System (TECS).
TECS, which was previously administered by the former U.S.
Customs Service, is now administered by the Department of
Homeland Security. Various law enforcement entities have
access to TECS.
Question. Is FinCEN sending law enforcement wholesale data or does
it screen requests through its system?
Answer. FinCEN provides wholesale data to the following Federal law
enforcement agencies: the Federal Bureau of Investigation and the
United States Secret Service receive downloads of Suspicious Activity
Reports (SARs) filed by depository institutions. In addition, a
wholesale download of all Bank Secrecy Act information is made into the
Treasury Enforcement Communication System (TECS) which is now
administered by the Department of Homeland Security. All other requests
are thoroughly screened.
Question. Is FinCEN doing gross data information transfers to the
Bureau of Immigration and Customs Enforcement and the Federal Bureau of
Investigation without any directed analysis or query from them?
Answer. Yes. The BSA Direct initiative encompasses systems and
processes that will significantly alter the way Bank Secrecy Act
information is provided to law enforcement and the regulators that
access the information. It will provide those entities, including
FinCEN, with state of the art data search tools in a robust user-
friendly environment. Users will be able to search Bank Secrecy Act
information faster and better, and will be able to do more with the
data than they currently can. Eventually, sophisticated data mining,
geographic and other analytic tools will be added to the environment,
which will add to the value of the Bank Secrecy Act information.
Finally, the initiative will help free FinCEN analytic resources to
focus on more complex and strategic analysis of the financing of
terror, money laundering and other illicit finance. To better
understand the specific functionality this initiative will provide to
FinCEN, it is important to understand the way Bank Secrecy Act
information is currently managed, analyzed and disseminated.
FinCEN is the delegated administrator of the Bank Secrecy Act, a
regulatory statute designed to deter, prevent and address money
laundering and illicit finance, including the financing of terrorism.
The keystone of the Bank Secrecy Act is a reporting regime under which
financial institutions report to the Federal Government certain
information--large cash transactions or suspicious activity. Over 13
million Bank Secrecy Act reports are filed each year by more than
200,000 U.S. financial institutions, providing invaluable information
to detect and prevent financial crimes. FinCEN is responsible for
ensuring that information is collected, securely housed, analyzed and
shared with law enforcement. Amendments to the Bank Secrecy Act by the
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this
information. Among other things, FinCEN is responsible for securing
this sensitive information and auditing its use; networking with
disparate agencies accessing the information to ensure more robust
investigation and ensuring that investigations do not overlap; and
collecting and providing feedback and other information to the entities
reporting the information--the financial industry--so that reporting
can be better and more relevant for law enforcement.
Currently, under a legacy process that predates FinCEN, Bank
Secrecy Act reports are collected by the Internal Revenue Service's
Detroit Computing Center and are housed in an IBM IDMS mainframe
environment incorporating 12 hierarchical databases. Most persons
access the data through a ``gateway'' connection. While the IRS is
currently converting the data to a ``DB2'' relational format, the data
on the mainframe system in Detroit is not currently kept in a
relational database, so search capabilities are limited for persons and
entities that access Bank Secrecy Act information through that system.
Because of the limitations of this system, FinCEN devotes a significant
portion of its analytic resources to data retrieval for many of its law
enforcement customers. As a result of this system, FinCEN downloads a
duplicate copy of the Bank Secrecy Act database every night to other
systems and into programs that provide relational data mining and
analytical capabilities.
FinCEN is not the only entity that downloads all or part of the
Bank Secrecy Act data from the Detroit Computing Center. Under legacy
arrangements that pre-date FinCEN's current leadership, Suspicious
Activity Reports (SARs) filed by depository institutions are downloaded
directly from the IRS's Detroit Computing Center to the Federal Bureau
of Investigation and United States Secret Service. Bank Secrecy Act
information is also downloaded to the Treasury Enforcement
Communications System (TECS), which was maintained by the former U.S.
Customs Service and is now maintained by the Department of Homeland
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally
access Bank Secrecy Act information through that system. FinCEN has a
limited ability to network the use of the data by those who download it
since it is entirely dependent on manual feedback on the use of the
data, which is difficult to obtain. Moreover, auditing the use of the
data is far more difficult since it depends on manual reviews combined
with the tracking system in place at the independent system. Simply
put, currently FinCEN cannot fully meet any of its statutory
responsibilities relating to the data utilizing the current system and
processes in place.
The systems and processes contemplated in the BSA Direct initiative
will allow FinCEN to not only meet these responsibilities, but will
provide law enforcement, regulators and FinCEN a modern, user-friendly
environment to mine and analyze BSA data. The heart of the BSA Direct
initiative is a secure data warehouse to consolidate the Bank Secrecy
Act information into a single, integrated data set. Users will have a
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web
access, to Bank Secrecy Act information with capabilities that allow
end users to perform ad hoc as well as pre-defined queries and
reporting. Users will gain easier, faster data access and enhanced
ability to query and analyze Bank Secrecy Act information, and FinCEN
will have tools to control and audit the use of this sensitive
information, network with agencies that are using the data, and provide
better feedback to the financial industry about the use of the data,
which will lead to more relevant reporting. FinCEN provides analytic
products--both tactical and strategic--to appropriate law enforcement
customers. FinCEN also administers a process under Section 314 of the
USA PATRIOT Act that permits law enforcement to submit requests to
financial institutions for transactional and account information in
certain cases. A particular institution indicates whether it has such
information and that information is provided to law enforcement. FinCEN
also maintains some general information for law enforcement on its
public web-site and will provide more and better information to law
enforcement through BSA Direct.
FinCEN also provides access to Bank Secrecy Act data. Legacy
processes and inadequate data retrieval capabilities currently result
in this data being provided to Federal, State and local law enforcement
in several ways:
--Through direct case support from a FinCEN analyst.
--Through ``Platform'' support, whereby law enforcement agencies may
send personnel to FinCEN to use its technical and analytical
resources to work their agency's respective cases on an as
needed basis.
--Through ``Gateway,'' which provides direct, dial-in access to Bank
Secrecy Data housed at the IRS's Detroit Computing Center.
--To certain entities, through wholesale direct downloads of all or
part of the Bank Secrecy Act data from the Detroit Computing
Center. Direct downloads are currently provided to:
--The Federal Bureau of Investigation and United States Secret
Service receive wholesale downloads of suspicious activity
reports filed by depository institutions.
--A wholesale download of all Bank Secrecy Act information is made
into the Treasury Enforcement Communications System (TECS).
TECS, which was previously administered by the former U.S.
Customs Service, is now administered by the Department of
Homeland Security. Various law enforcement entities have
access to TECS.
Question. Is this how the law requires the system to work?
Answer. The Bank Secrecy Act, as amended by the USA PATRIOT Act,
does not specify any particular method or limitation on the delivery of
Bank Secrecy Act information. The Bank Secrecy Act requires that the
purpose of any request for information must be for an authorized
purpose--criminal, tax, regulatory or intelligence activities relating
to terrorism. Section 361 of the USA PATRIOT Act requires FinCEN to
maintain a government-wide data access network with access in
accordance with applicable legal requirements, and further requires
FinCEN to develop appropriate standards and guidelines governing who is
to be given access, what limits are to be imposed on the use of the
information, and how the exercise of constitutional rights is to be
protected.
In accordance with these statutory mandates, FinCEN grants access
only for purposes authorized by the Bank Secrecy Act (criminal, tax,
regulatory, intelligence activity directed at counter-terrorism) and
strictly controls dissemination of the information contained in the
reports. FinCEN has met this statutory mandate in the creation of the
``Gateway'' system by entering into agreements for access and
establishing the capability to monitor and audit each query. Currently,
FinCEN does not have the capability to audit entities that receive
wholesale downloads of data, which is one reason why FinCEN is placing
such a high priority on the development of BSA Direct. The BSA Direct
initiative encompasses systems and processes that will significantly
alter the way Bank Secrecy Act information is provided to law
enforcement and the regulators that access the information. It will
provide those entities, including FinCEN, with state of the art data
search tools in a robust user-friendly environment. Users will be able
to search Bank Secrecy Act information faster and better, and will be
able to do more with the data than they currently can. Eventually,
sophisticated data mining, geographic and other analytic tools will be
added to the environment, which will add to the value of the Bank
Secrecy Act information. Finally, the initiative will help free FinCEN
analytic resources to focus on more complex and strategic analysis of
the financing of terror, money laundering and other illicit finance. To
better understand the specific functionality this initiative will
provide to FinCEN, it is important to understand the way Bank Secrecy
Act information is currently managed, analyzed and disseminated.
FinCEN is the delegated administrator of the Bank Secrecy Act, a
regulatory statute designed to deter, prevent and address money
laundering and illicit finance, including the financing of terrorism.
The keystone of the Bank Secrecy Act is a reporting regime under which
financial institutions report to the Federal Government certain
information--large cash transactions or suspicious activity. Over 13
million Bank Secrecy Act reports are filed each year by more than
200,000 U.S. financial institutions, providing invaluable information
to detect and prevent financial crimes. FinCEN is responsible for
ensuring that information is collected, securely housed, analyzed and
shared with law enforcement. Amendments to the Bank Secrecy Act by the
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this
information. Among other things, FinCEN is responsible for securing
this sensitive information and auditing its use; networking with
disparate agencies accessing the information to ensure more robust
investigation and ensuring that investigations do not overlap; and
collecting and providing feedback and other information to the entities
reporting the information--the financial industry--so that reporting
can be better and more relevant for law enforcement.
Currently, under a legacy process that predates FinCEN, Bank
Secrecy Act reports are collected by the Internal Revenue Service's
Detroit Computing Center and are housed in an IBM IDMS mainframe
environment incorporating 12 hierarchical databases. Most persons
access the data through a ``gateway'' connection. While the IRS is
currently converting the data to a ``DB2'' relational format, the data
on the mainframe system in Detroit is not currently kept in a
relational database, so search capabilities are limited for persons and
entities that access Bank Secrecy Act information through that system.
Because of the limitations of this system, FinCEN devotes a significant
portion of its analytic resources to data retrieval for many of its law
enforcement customers. As a result of this system, FinCEN downloads a
duplicate copy of the Bank Secrecy Act database every night to other
systems and into programs that provide relational data mining and
analytical capabilities.
FinCEN is not the only entity that downloads all or part of the
Bank Secrecy Act data from the Detroit Computing Center. Under legacy
arrangements that pre-date FinCEN's current leadership, Suspicious
Activity Reports (SARs) filed by depository institutions are downloaded
directly from the IRS' Detroit Computing Center to the Federal Bureau
of Investigation and United States Secret Service. Bank Secrecy Act
information is also downloaded to the Treasury Enforcement
Communications System (TECS), which was maintained by the former U.S.
Customs Service and is now maintained by the Department of Homeland
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally
access Bank Secrecy Act information through that system. FinCEN has a
limited ability to network the use of the data by those who download it
since it is entirely dependent on manual feedback on the use of the
data, which is difficult to obtain. Moreover, auditing the use of the
data is far more difficult since it depends on manual reviews combined
with the tracking system in place at the independent system. Simply
put, currently FinCEN cannot fully meet any of its statutory
responsibilities relating to the data utilizing the current system and
processes in place.
The systems and processes contemplated in the BSA Direct initiative
will allow FinCEN to not only meet these responsibilities, but will
provide law enforcement, regulators and FinCEN a modern, user-friendly
environment to mine and analyze BSA data. The heart of the BSA Direct
initiative is a secure data warehouse to consolidate the Bank Secrecy
Act information into a single, integrated data set. Users will have a
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web
access, to Bank Secrecy Act information with capabilities that allow
end users to perform ad hoc as well as pre-defined queries and
reporting. Users will gain easier, faster data access and enhanced
ability to query and analyze Bank Secrecy Act information, and FinCEN
will have tools to control and audit the use of this sensitive
information, network with agencies that are using the data, and provide
better feedback to the financial industry about the use of the data,
which will lead to more relevant reporting.
The full scope and detail of the functionality will be more fully
determined as a result of the user requirements analyses in the first
months of the project. However, the following examples identify the
types of capabilities that BSA Direct will afford FinCEN and its
customers that they presently do not have:
--The automated capability for FinCEN to control and audit the use of
all persons accessing Bank Secrecy Act information.
--The capability, through an alert system, for FinCEN to ``network''
all users of Bank Secrecy Act information that ``hit'' the same
data, or appear to be analyzing the same information.
--The capability to analyze law enforcement's use of the data to
provide meaningful feedback to the financial industry, which
will result in better reporting.
--The capability to develop sophisticated filer profiles for
financial industry members to help FinCEN and the regulators
target entities for compliance examinations as well as the
ability to be notified automatically by the system when there
is a significant filing anomaly.
--An intuitive interface to enable users to query data with little or
no training, and with strong, context-sensitive on-line help.
--Users will be able to keep and view a list of their prior queries.
--Managers in organizations will be better able to audit and manage
the use of the data by their subordinate users.
--Users will be able to schedule a particular query to re-run on a
schedule set by the user.
--Users will be able to customize query output, i.e., define what
columns of information are displayed, rearrange the order of
the columns, and then save that order as a personal default
view.
--Users will have the ability to sort, filter, and aggregate columns
of data.
--Users will be able to run ``batch queries,'' e.g., social security
numbers from all bankruptcy filings 6 months ago against all
Bank Secrecy Act filings in the last year.
--Users will be able to create customized queries and reports.
--A geographic mapping tool will provide information to show the
geographic significance of Bank Secrecy Act data.
--Users will have the capability to pre-schedule queries and receive
reports on a timetable scheduled by users.
--Users will be able to download results into popular formats, e.g.,
Word, Excel, Analysts Notebook, etc.
Question. How does FinCEN audit information requested if there is
no formal request and delivery system?
Answer. The Bank Secrecy Act, as amended by the USA PATRIOT Act,
does not specify any particular method or limitation on the delivery of
Bank Secrecy Act information. The Bank Secrecy Act requires that the
purpose of any request for information must be for an authorized
purpose--criminal, tax, regulatory or intelligence activities relating
to terrorism. Section 361 of the USA PATRIOT Act requires FinCEN to
maintain a government-wide data access network with access in
accordance with applicable legal requirements, and further requires
FinCEN to develop appropriate standards and guidelines governing who is
to be given access, what limits are to be imposed on the use of the
information, and how the exercise of constitutional rights is to be
protected.
In accordance with these statutory mandates, FinCEN grants access
only for purposes authorized by the Bank Secrecy Act (criminal, tax,
regulatory, intelligence activity directed at counter-terrorism) and
strictly controls dissemination of the information contained in the
reports. FinCEN has met this statutory mandate in the creation of the
``Gateway'' system by entering into agreements for access and
establishing the capability to monitor and audit each query. Currently,
FinCEN does not have the capability to audit entities that receive
wholesale downloads of data, which is one reason why FinCEN is placing
such a high priority on the development of BSA Direct. The BSA Direct
initiative encompasses systems and processes that will significantly
alter the way Bank Secrecy Act information is provided to law
enforcement and the regulators that access the information. It will
provide those entities, including FinCEN, with state of the art data
search tools in a robust user-friendly environment. Users will be able
to search Bank Secrecy Act information faster and better, and will be
able to do more with the data than they currently can. Eventually,
sophisticated data mining, geographic and other analytic tools will be
added to the environment, which will add to the value of the Bank
Secrecy Act information. Finally, the initiative will help free FinCEN
analytic resources to focus on more complex and strategic analysis of
the financing of terror, money laundering and other illicit finance. To
better understand the specific functionality this initiative will
provide to FinCEN, it is important to understand the way Bank Secrecy
Act information is currently managed, analyzed and disseminated.
FinCEN is the delegated administrator of the Bank Secrecy Act, a
regulatory statute designed to deter, prevent and address money
laundering and illicit finance, including the financing of terrorism.
The keystone of the Bank Secrecy Act is a reporting regime under which
financial institutions report to the Federal Government certain
information--large cash transactions or suspicious activity. Over 13
million Bank Secrecy Act reports are filed each year by more than
200,000 U.S. financial institutions, providing invaluable information
to detect and prevent financial crimes. FinCEN is responsible for
ensuring that information is collected, securely housed, analyzed and
shared with law enforcement. Amendments to the Bank Secrecy Act by the
USA PATRIOT Act sharpened FinCEN's responsibilities relating to this
information. Among other things, FinCEN is responsible for securing
this sensitive information and auditing its use; networking with
disparate agencies accessing the information to ensure more robust
investigation and ensuring that investigations do not overlap; and
collecting and providing feedback and other information to the entities
reporting the information--the financial industry--so that reporting
can be better and more relevant for law enforcement.
Currently, under a legacy process that predates FinCEN, Bank
Secrecy Act reports are collected by the Internal Revenue Service's
Detroit Computing Center and are housed in an IBM IDMS mainframe
environment incorporating 12 hierarchical databases. Most persons
access the data through a ``gateway'' connection. While the IRS is
currently converting the data to a ``DB2'' relational format, the data
on the mainframe system in Detroit is not currently kept in a
relational database, so search capabilities are limited for persons and
entities that access Bank Secrecy Act information through that system.
Because of the limitations of this system, FinCEN devotes a significant
portion of its analytic resources to data retrieval for many of its law
enforcement customers. As a result of this system, FinCEN downloads a
duplicate copy of the Bank Secrecy Act database every night to other
systems and into programs that provide relational data mining and
analytical capabilities.
FinCEN is not the only entity that downloads all or part of the
Bank Secrecy Act data from the Detroit Computing Center. Under legacy
arrangements that pre-date FinCEN's current leadership, Suspicious
Activity Reports (SARs) filed by depository institutions are downloaded
directly from the IRS's Detroit Computing Center to the Federal Bureau
of Investigation and United States Secret Service. Bank Secrecy Act
information is also downloaded to the Treasury Enforcement
Communications System (TECS), which was maintained by the former U.S.
Customs Service and is now maintained by the Department of Homeland
Security (DHS). Agencies with access to TECS (e.g., DHS's Immigration
and Customs Enforcement, DHS's Customs and Border Protection, DOJ's
Bureau of Alcohol, Tobacco, Firearms and Explosives, etc.) generally
access Bank Secrecy Act information through that system. FinCEN has a
limited ability to network the use of the data by those who download it
since it is entirely dependent on manual feedback on the use of the
data, which is difficult to obtain. Moreover, auditing the use of the
data is far more difficult since it depends on manual reviews combined
with the tracking system in place at the independent system. Simply
put, currently FinCEN cannot fully meet any of its statutory
responsibilities relating to the data utilizing the current system and
processes in place.
The systems and processes contemplated in the BSA Direct initiative
will allow FinCEN to not only meet these responsibilities, but will
provide law enforcement, regulators and FinCEN a modern, user-friendly
environment to mine and analyze BSA data. The heart of the BSA Direct
initiative is a secure data warehouse to consolidate the Bank Secrecy
Act information into a single, integrated data set. Users will have a
flexible and robust query system accessible through an intuitive web-
based interface. This system will provide access, including secure web
access, to Bank Secrecy Act information with capabilities that allow
end users to perform ad hoc as well as pre-defined queries and
reporting. Users will gain easier, faster data access and enhanced
ability to query and analyze Bank Secrecy Act information, and FinCEN
will have tools to control and audit the use of this sensitive
information, network with agencies that are using the data, and provide
better feedback to the financial industry about the use of the data,
which will lead to more relevant reporting.
The full scope and detail of the functionality will be more fully
determined as a result of the user requirements analyses in the first
months of the project. However, the following examples identify the
types of capabilities that BSA Direct will afford FinCEN and its
customers that they presently do not have:
--The automated capability for FinCEN to control and audit the use of
all persons accessing Bank Secrecy Act information.
--The capability, through an alert system, for FinCEN to ``network''
all users of Bank Secrecy Act information that ``hit'' the same
data, or appear to be analyzing the same information.
--The capability to analyze law enforcement's use of the data to
provide meaningful feedback to the financial industry, which
will result in better reporting.
--The capability to develop sophisticated filer profiles for
financial industry members to help FinCEN and the regulators
target entities for compliance examinations as well as the
ability to be notified automatically by the system when there
is a significant filing anomaly.
--An intuitive interface to enable users to query data with little or
no training, and with strong, context-sensitive on-line help.
--Users will be able to keep and view a list of their prior queries.
--Managers in organizations will be better able to audit and manage
the use of the data by their subordinate users.
--Users will be able to schedule a particular query to re-run on a
schedule set by the user.
--Users will be able to customize query output, i.e., define what
columns of information are displayed, rearrange the order of
the columns, and then save that order as a personal default
view.
--Users will have the ability to sort, filter, and aggregate columns
of data.
--Users will be able to run ``batch queries,'' e.g., social security
numbers from all bankruptcy filings 6 months ago against all
Bank Secrecy Act filings in the last year.
--Users will be able to create customized queries and reports.
--A geographic mapping tool will provide information to show the
geographic significance of Bank Secrecy Act data.
--Users will have the capability to pre-schedule queries and receive
reports on a timetable scheduled by users.
--Users will be able to download results into popular formats, e.g.,
Word, Excel, Analysts Notebook, etc.
Question. Does this raise privacy concerns?
Answer. While FinCEN is not providing these few law enforcement
entities with information to which they are not entitled or couldn't
otherwise receive, the fact remains that FinCEN is very limited in its
ability to audit the use or guarantee the security of this information.
Important privacy interests associated with Bank Secrecy Act
information will be better protected once BSA Direct is built and
implemented.
Question. There are currently at least five other financial
intelligence units in the Federal government outside of Treasury that
download Bank Secrecy Act data wholesale from FinCEN. If FinCEN is just
the delivery system for BSA data, what is its role other than to be a
library? What analytics are occurring at FinCEN that are not occurring
at the Bureau of Immigration and Customs Enforcement, the Federal
Bureau of Investigation, the Central Intelligence Agency, or the United
States Secret Service? If everyone has these databases with all the
Bank Secrecy Act data, what is the value added by FinCEN?
Answer. While the provision of Bank Secrecy Act information to law
enforcement is a key aspect to FinCEN's mission, FinCEN is much more
than a library. It has been and continues to be a source of unequaled
analytic expertise on financial information, particularly information
reported under the Bank Secrecy Act. It is recognized throughout the
world for its expertise in studying and exploiting financial
information.
Other law enforcement agencies have come to recognize the
importance of exploiting financial information--a fact that is at
least, in part, attributable to FinCEN's work. From our point of view,
the proliferation of financial analytical units in law enforcement
agencies is a good thing. It means that exploitation of financial
information, which is a key element to defining and dismantling
criminal and terrorist organizations, will continue to grow. It also
means that FinCEN will be freer to focus its analytic resources on
niche areas as well as tactical and strategic analytical projects that
are more sophisticated. As for the niche areas, FinCEN has unique
responsibilities that differentiate it from any other entity working
with financial data:
--Helping Financial Institutions to understand, assess and address
the risk of money laundering, the financing of terror and other
illicit finance.--FinCEN is the administrator of the Bank
Secrecy Act. It is uniquely positioned, and required by
statute, to provide feedback to the financial industry about
the use of this data. FinCEN will focus on providing
information to the financial industry that will enable it to
better target those issues and organizations for reporting.
This will result in better and more relevant reporting for law
enforcement, and will fulfill an important mandate of the USA
PATRIOT Act to establish a communication channel between the
government and private industry.
--Leveraging FinCEN's counterpart financial intelligence units around
the world.--FinCEN is in the forefront of international efforts
to develop new Financial Intelligence Units (FIUs) and enhance
the capabilities of existing FIUs. FinCEN is also a founding
member of the Egmont Group, an informal organization of 84
financial intelligence units around the world that share
tactical and strategic financial information for the benefit of
law enforcement and other competent authorities. Furthermore,
the Egmont Group's Secure Website offers member FIUs the
ability to rapidly share and broadly disseminate such
information. FinCEN will focus analytic effort on supporting
those relationships and making the financial intelligence units
more productive and relevant in addressing what is a global
problem.
--Focusing FinCEN analytic effort on the Strategic.--FinCEN will also
focus much of its analytic resources on strategic projects.
Strategic studies of new financial industry products and
trends, methods of illicit finance, and ways to address
systemic weaknesses that lead to financial crime. FinCEN will
also engage more in predictive analysis--trying to predict
where the next problems will arise in the financial system.
Addressing these three issues does not mean that FinCEN will not
participate in traditional tactical analysis in support of law
enforcement, but as law enforcement agencies add analytical units to
support their missions, FinCEN will be able to better focus on these
important niche areas.
Question. FinCEN issues regulations under Title 31 related to the
Bank Secrecy Act and the Patriot Act. Please provide a detailed
description of the joint training that occurs between FinCEN and the
Internal Revenue Service related to the intricacies of those
regulations, especially when dealing with the financial community.
Answer. FinCEN has worked extensively with the IRS SB/SE Taxpayer
Education and Communication (TEC) organization to conduct joint
training of IRS examiners. FinCEN has conducted joint training of IRS
examiners on various Title 31 and Patriot Act requirements at the last
two IRS Examiner training classes, held in Seattle and in Indianapolis.
FinCEN will be conducting training at an upcoming meeting of IRS
supervisory level personnel who have Bank Secrecy Act examination
responsibility. In addition, FinCEN is working with IRS to revise the
IRS IRM Manual that guides the conduct of Bank Secrecy Act
examinations, and is used as a training template for its Bank Secrecy
Act examiners as well.
The cooperation between FinCEN and IRS on Bank Secrecy Act training
extends to seminars conducted for the financial community as well.
FinCEN works with the IRS SB/SE TEC to coordinate the content of
presentations given by the IRS to provide education and outreach to the
financial industries it is delegated to regulate. For example, FinCEN
and IRS gave presentations to the Money Transmitter Regulators
Association (MTRA) conference, an annual forum attended by money
transmitters, their service providers, and State regulators in
September 2003 on MSB registration and Suspicious Activity Report
(SARs) requirements and issues.
Going forward, FinCEN will continue to use tools such as the Anti
Money Laundering monthly contact report provided by IRS TEC, which
provides information on upcoming outreach opportunities, to coordinate
and supervise the delivery of education on Title 31 and Patriot Act
requirements to the financial community.
Question. The costs of implementing Bank Secrecy Act are
significant to the financial industry. Who is responsible for
communicating with the financial industry to explain what their data is
being used for?
Answer. FinCEN, as administrator of the Bank Secrecy Act and as
mandated in Section 361 of the USA PATRIOT Act, is responsible for
communicating with the financial industry. While this is an important
aspect of FinCEN's mission, it also leverages the assets of the Federal
functional bank regulators, the Securities Exchange Commission, the
Commodity Futures Trading Commission, and the Internal Revenue Service
to help with this effort.
Question. Does Treasury meet with the financial community to
explain trends or the means of exploitation of the financial system?
Answer. Treasury's FinCEN interacts extensively with the financial
community through many different venues such as:
--Participation in numerous conferences and seminars being held
throughout the year across the country;
--Participation in compliance training workshops;
--Regular meetings with the Bank Secrecy Act Advisory Group and its
subcommittees;
--Daily interaction with bank officials throughout the country
regarding various aspects of Bank Secrecy Act compliance;
--Customer Surveys;
--Publications such as The Suspicious Activity Review intended to
provide feedback and guidance to financial institutions on Bank
Secrecy Act reporting and anti money laundering requirements;
and,
--Website interaction through posting of regulations, guidance,
comment letters and other regulatory-related materials.
Question. Does Treasury investigate recent money laundering arrests
to determine how criminals are evolving to exploit the U.S. financial
system? Does Treasury or FinCEN send people to every major money
laundering sting to determine how the organization was set up and how
it exploited the financial system? This information could then be given
to the financial community to alert it to recent trends. Does this
activity occur? If not, should it?
Answer. FinCEN directly communicates with law enforcement on a
daily basis to obtain current information on money laundering cases.
Information received from this dialogue helps FinCEN better understand
money laundering and terrorist financing. While FinCEN does not have a
specific program directed at debriefing money laundering sting
operations, as a practical matter, it captures much of this information
through its on-going dialogue with law enforcement.
Question. How many cases were analyzed in calendar year 2003 and
how much of that information was passed to the financial community? Has
the financial community been surveyed to see if the information was
helpful?
Answer. In fiscal year 2003 (FinCEN statistics are kept by fiscal
year), FinCEN provided support for approximately 5,000 requests
received from law enforcement. In the majority of these cases, FinCEN
helped retrieve Bank Secrecy Act information. FinCEN's new leadership
has recognized the need to keep better statistics to better capture the
work that FinCEN is accomplishing.
FinCEN, independent of providing analytical support to law
enforcement, conducts analysis of the Bank Secrecy Act information to
identify trends and patterns. Some of this information is published
semiannually in the Suspicious Activity Review--Trends, Tips & Issues.
As mentioned above, this Review is produced based on continuing
dialogue and close collaboration among our Nation's financial
institutions, law enforcement officials and regulatory agencies in
order to provide meaningful information regarding the preparation, use
and value of suspicious activity reports filed by financial
institutions. Each issue of this publication contains a Feedback Form
for the financial industry to complete and return to FinCEN and the
feedback FinCEN has received has been constructive and generally quite
positive. To date, FinCEN has not surveyed the financial industry to
determine satisfaction with FinCEN feedback, although that is something
FinCEN's new leadership is considering establishing as a benchmark.
Question. FinCEN's budget declares a 12.7 percent increase for
fighting terrorism. How is this number obtained? Looking at the
administration's budget submission in detail, the real increase is 2.7
percent, or $1.53 million, to fight the war on terror.
--Mandatory cost increases equal $1.76 million.
--Program cost annualization for fiscal year 2004 new initiatives
equals $1.52 million.
--Transfer from the IRS for BSA work that is already done equals $2.5
million.
Answer. The 12.7 percent increase was calculated by adding the cost
of program increases ($1.533 million), program annualizations ($1.522
million), cost increases ($1.716 million), and the transfer from the
Internal Revenue Service for the BSA Direct System ($2.5 million)--
totaling an overall increase of $7.271 million over fiscal year 2004.
Question. What types of outreach programs does FinCEN have with the
financial community?
Answer. FinCEN is in daily contact with the financial industries it
helps regulate. First, and perhaps most importantly, through the
process created pursuant to Section 314(a) of the USA PATRIOT Act,
FinCEN now routinely contacts thousands of financial institutions to
relay important information from law enforcement about individuals and
entities that may be relevant to terrorism or significant money
laundering investigations. FinCEN plans to expand this process and
begin sharing information with the financial community that will enable
industry reports to be more relevant. Also, FinCEN has encouraged the
voluntary sharing of information between certain financial institutions
related to possible terrorism or money laundering by implementing
regulations under Section 314(b) of the USA PATRIOT Act.
Since September 2001, FinCEN has maintained a hotline for financial
institutions to voluntarily report suspected terrorist financing
activity. FinCEN then expedites this information to appropriate law
enforcement agencies. Since inception of this hotline, FinCEN has
referred more than 850 tips to law enforcement.
Treasury's FinCEN interacts extensively with the financial
community through many different venues such as:
--Participation in numerous conferences and seminars being held
throughout the year across the country;
--Participation in compliance training workshops;
--Regular meetings with the Bank Secrecy Act Advisory Group and its
subcommittees;
--Daily interaction with bank officials throughout the country
regarding various aspects of Bank Secrecy Act compliance;
--Customer Surveys;
--Publications such as The Suspicious Activity Review intended to
provide feedback and guidance to financial institutions on Bank
Secrecy Act reporting and anti money laundering requirements;
and,
--Website interaction through posting of regulations, guidance,
comment letters and other regulatory-related materials.
Question. Has FinCEN done any surveys or interviews with the
financial community to better understand what their needs and concerns
are?
Answer. Yes. For example, when FinCEN adopted its rule requiring
money services businesses to register, FinCEN conducted an extensive
industry outreach program, including conducting focus groups, sending
surveys and holding meetings with individual companies, trade
associations, State regulators, and law enforcement to discuss
implementation of the rule and solicit input on guidance. FinCEN also
developed reference and guidance products, including posters, ``take-
one'' cards, Quick Reference Guides on Bank Secrecy Act and suspicious
activity reporting, an Anti-Money Laundering Prevention Guide, a
suspicious activity reporting training video, and an interactive CD-ROM
for MSBs. All of these materials are free and available to the public
through FinCEN's website at www.msb.gov.
In another example, FinCEN conducted a survey of financial
institutions filing Currency Transaction Reports (CTRs) in order to
produce a report to Congress in 2002 as required by the USA PATRIOT
Act. That report sought to analyze financial institutions' use of
exemptions from the CTR filing requirement.
MINT/BEP MERGER PROPOSAL
Question. Please provide a detailed accounting of how the study to
merge the Mint and BEP was funded.
Answer. The cost, which was funded using Interagency Agreements,
was evenly split between the Mint and the Bureau of Engraving and
Printing.
Question. How many phases are there to this contract to study a
merger?
Answer. Three phases were identified in the Request for Proposal:
--1. Develop a business case;
--2. Facilitate in developing a short and long-term approach; and
--3. Advise on preparation of report roll-out.
The first phase was to identify efficiencies and develop the
business case to support those efficiencies identified in the study.
Under the second phase, the government has exercised its option to have
LMI's continued assistance in the analysis of the options. The
government also has an option to have LMI assist in preparing the
report to OMB.
Question. What accounts were used at the BEP and the Mint to pay
for the study?
Answer. The study was funded through the BEP revolving fund and the
Mint Public Enterprise Fund. The actual costs were charged to the line
items--consulting services provided by a non-government entity. Both
the Mint and the BEP allocate resources to assess changing market
conditions and management improvements.
Question. Does Treasury believe that this is a proper use of the
funds in these accounts?
Answer. The Treasury Department continues to look for taxpayer
savings and efficiencies in all its bureaus. Due to changing market
conditions, review of the Treasury Department's structure is necessary
to best serve the public. By studying the structure of the U.S. Mint
and Bureau of Engraving and Printing, the Treasury Department ensures
effective use of taxpayer resources.
Question. Please provide the parameters provided to the contractor
to conduct the study.
Answer. The Request for Proposal (RFP) outlined the parameters and
was provided to IBM, Booz Allen Hamilton, and LMI. The RFP provided to
these three bidders is attached.
Question. What underlying data was used in the study to determine
whether a merger was cost effective?
Answer. Documents reviewed as part of the study included:
--The Treasury 5-year Strategic Plan
--Budget in Brief
--BEP and Mint 2005 Budget Documents and Annual Reports
--BEP Facilities Study--July 1998
--Coin and Currency (Security) GAO Study, July 2003
--1987 Consolidation Study
These documents were supplemented with additional data such as BEP/
Mint historical costs, industry standards, OMB Circular A-94, OPM
guidelines and the DOD Cost Factor Handbook.
The study drew guidance from management theory, in both the public
and private sectors, and from an empirical perspective using best
practices in the manufacturing industry.
Question. Has OMB or Treasury sought comments from the potentially
impacted agencies?
Answer. The BEP and the Mint have both been involved in the effort
from the beginning. They helped draft the scope of work, select the
winning contractor, assist in the data gathering, and commented freely
on each report reiteration.
OMB has monitored progress on the effort, but will not seek
comments until it receives the report on July 1, 2004.
Question. Has the Federal Reserve been asked to comment on the
effects of a proposed merger? If not, should Treasury initiate a
discussion?
Answer. Treasury views the Federal Reserve as a key stakeholder.
Senior officials at the Federal Reserve have been interviewed and their
suggestions have been incorporated into the process. The Federal
Reserve is also being updated on progress.
Question. Prior to the merger of any systems or services, would the
Department intend to seek Congressional approval? Does it require
legislation?
Answer. We will not pursue any of those options without a full
consultation with Congress and, in fact, Treasury will not call for any
merger of any system or function prior to the end of the 108th
Congress.
It is still too early in the process to predict if or when
legislation might be necessary.
Question. When will the first phase of the study be completed?
Answer. The first phase concluded with LMI's May 2004 assessment of
the financial implications of the options open to Treasury.
Question. Will there be any merger of any system or functions prior
to the end of the year?
Answer. Treasury will not call for any merger of any system or
function prior to the end of the 108th Congress.
Question. The purpose of most mergers is to create efficiencies and
save taxpayer dollars. Previous studies conducted by the GAO and the
Treasury IG found that only 4-5 percent of the workforces of the two
agencies ``overlapped''. Moreover, the study surmised that since the
agencies' production plants are located in 5 different locations, there
was little likelihood that production lines could be streamlined. What
has changed recently to nullify the findings of the GAO and the IG
reports?
Answer. The Treasury Department continues to look for taxpayer
savings and efficiencies in all its bureaus. Due to changing market
conditions, a review of the Treasury Department's structure is
necessary to best serve the public. By studying the structure of the
U.S. Mint and Bureau of Engraving and Printing, the Treasury Department
ensures effective use of taxpayer resources.
Question. The committee understands that a rough draft of the
merger report was supposed to be submitted on April 16 with the final
report to be delivered on May 4. What is the status of this report?
Will any actions be taken prior to Congress having adequate time to
review the report and determine whether the correct measurements were
used to justify any possible consolidation?
Answer. The document produced by LMI was designed to assess the
potential for taxpayer savings and efficiencies. The April 16 and May 4
dates were the dates initially proposed by Treasury in the Request for
Proposal (RFP). These dates were negotiable. LMI's report was delivered
on time and is currently being assessed. The initial schedule to
deliver this report to OMB on July 1 is still on track. We will not
pursue any plan without a full consultation with Congress and, in fact,
Treasury will not call for any merger of any system or function during
the 108th Congress.
Question. The cost of the initial stage of this study was estimated
to exceed $400,000. Under what authority was this money spent? Was
Congress consulted prior to spending money on a study that has already
undergone two extensive reviews?
Answer. The United States Mint Public Enterprise Fund (PEF) statute
(31 U.S.C. 5136) provides the authority to spend the Mint's portion
of the expenses.
Public Law 81-656, which created the Bureau of Engraving and
Printing Fund, provides for funding without fiscal year limitation for
all expenses of operating and maintaining the Bureau. This would
include studies such as the Mint-BEP study, which is focused on
ensuring cost effective and efficient operations.
The study was announced in the President's Budget, which was sent
to the Congress in early February. However, Congress was not
specifically consulted prior to expending the funds for the study. This
study is simply an effort to ensure the American people that Treasury
is keeping up with changing technologies and market conditions. We will
not pursue any of those options without a full consultation with
Congress and, in fact, Treasury will not call for any merger of any
system or function during the 108th Congress.
Question. Will the study consider putting the Mint and BEP under
the Federal Reserve?
Answer. The study has assessed that option.
Question. What is the future of the penny? What will happen to the
Mint's production once the cost of the penny is more than 1 cent to
produce? With the decline in coin usage and the accelerating cost of
the penny, what plans does the Mint have to cut its manufacturing
costs?
Answer. 31 U.S.C. 5112 requires the minting and issuance of a
three-quarter-inch diameter 1 cent coin composed of copper and zinc.
The United States Mint will continue to mint and issue 1 cent coins
pursuant to this statutory mandate. The United States Mint is committed
to keeping production costs as low as possible.
The United States Mint will produce pennies to fulfill all Federal
Reserve Bank orders. Current forecasts suggest there will be demand of
about 7.3 billion pennies in fiscal year 2004 from the Federal Reserve
Banks.
The United States Mint has taken several cost reduction steps.
First, the total number of employees at the United States Mint has
fallen from approximately 2,900 in fiscal year 2000 to 2,132 today,
saving significant personnel costs. The United States Mint currently
has a rigorous review ongoing, consisting of more than 10 task forces
that are examining opportunities to streamline and reduce costs in an
effort to enhance overall taxpayer value. Also, the United States Mint
is examining ways to lower its direct production cost by incorporating
additional automation and lean manufacturing concepts on the production
lines. Finally, the agency is engaged in ongoing research to determine
the feasibility of less expensive materials that could be used for
coins without having an effect on their quality and utility.
Congressional action would be required before changes could be made to
the composition of most denominations.
Question. How many dollar coins remain in the Mint's vaults? What
is the estimated cost of this storage?
Answer. The United States Mint is currently storing 262.6 million
Golden Dollars. The United States Mint's coin inventory is stored in
United States Mint facilities in Denver and Philadelphia, as well as
Federal Reserve Banks in Phoenix, AZ and Helena, MT. The Golden Dollar
is stored as part of the overall coin inventory at these locations at
no additional incremental cost to the government.
Question. How many sites does the Mint occupy in the Washington
Metropolitan area? Please identify the use, location, amount of square
footage, and cost for each of these locations.
Answer. The United States Mint currently occupies two buildings in
Washington, DC, both of which are used for administrative purposes. The
total United States Mint occupied square footage in the Washington
Metropolitan area is 237,273 square feet at an annual net cost to the
bureau of $8,682,427.
The first building, 801 9th Street, has a total of 232,000 square
feet, of which the United States Mint occupies 163,079 square feet and
subleases the remaining 68,921 square feet to the Internal Revenue
Service, the Treasury Executive Institute, and the United States
Marshals Service. The total annual rent expense of this building is
$7,790,560. The United States Mint receives $2,314,367 in rent payments
from our sublet tenants, for a net total annual rent expense of
$5,476,193.
At the second building, 799 9th Street, the United States Mint
rents a total of 149,647 square feet, occupies 74,194 square feet, and
subleases the remaining 75,453 square feet to the Customs Service and
the Bureau of Public Debt. The United States Mint does not lease the
entire building; the General Services Administration, however, leases
out other parts of this building to other Federal agencies. The United
States Mint's total annual rent expense for its part of this building
is $6,486,176. The United States Mint receives $3,279,942 in rent
payments from our sublet tenants, for a net total annual rent expense
of $3,206,234.
Note.--The United States Mint also rents a small (about 100 square
feet) sales kiosk within Washington DC's Union Station at an annual
cost of $78,000, operated by one or two sales clerks during business
hours.
Question. In 1997, the GAO testified before the Congress on the
issue of a BEP-Mint merger. At that time the GAO was unable to conclude
that a merger would save as much money as the cost of consolidation.
Does Treasury have any new information that would discredit or
invalidate the GAO findings?
Answer. Treasury's study is still ongoing. The study will
incorporate the 1997 GAO findings and account for changed market
conditions.
Question. Prior estimates of implementation costs for merging the
basic functions of the Mint-BEP were calculated to exceed $50,000,000
and could plausibly reach $100,000,000. When will the merger study be
complete? Will it provide detailed cost estimates on a basic merger?
Would it provide the costs of any proposed merger of production lines?
Because of the concerns involved in the costs and the futures for these
two organizations will the Treasury Department fully consult with the
Congress prior to consolidation of any functions?
Answer. The study will provide detailed cost estimates of the
options under consideration.
We will not pursue any of those options without a full consultation
with Congress and, in fact, Treasury will not call for any merger of
any system or function during the 108th Congress.
ALCOHOL AND TOBACCO TAX AND TRADE BUREAU
Question. The Bureau of Alcohol, Tobacco, Firearms, and Explosives
(ATF) was transferred to the Department of Justice, including IT
services that support for the newly formed Alcohol and Tobacco Tax and
Trade Bureau (TTB) at Treasury. Are the IT services for TTB provided by
ATF? If so, why are these services still being provided by an agency of
the Department of Justice?
Answer. When ATF was split, all IT infrastructures (servers,
storage systems, desktop computers, laptop computers, network
equipment, etc.) remained with ATF. It was intended that pending
funding costs for moving TTB to Treasury hardware and support, ATF
would continue to provide IT support. TTB has taken some steps toward
transition off of ATF support. TTB is currently moving all accounting,
procurement, travel, property, and personnel applications to the
Treasury Bureau of Public Debt (BPD).
ATF currently provides the IT equipment and services for TTB that
directly require an IT infrastructure. TTB has assumed the IT functions
that can be performed without IT equipment (i.e. IT Security Policy,
Capital Planning, and Enterprise Architecture). ATF provides all
servers, network equipment and desktop/laptop equipment as well as all
office productivity software. ATF provides services that include
hosting and supporting all of TTB's custom business applications and
office automation applications, TTB's computer security operations,
TTB's network connectivity and client (desktop/laptop/peripheral)
equipment support.
On April 29, 2004, ATF provided formal notification that they will
no longer support TTB after fiscal year 2005.
Question. There is a Memorandum of Understanding (MOU) between TTB
and ATF. Will the MOU between TTB and ATF be in effect for fiscal year
2005?
Answer. Yes, although not as many services will be included. For a
number of non-IT areas, ATF has advised TTB that they intend to
discontinue servicing TTB in fiscal year 2005 (see answer below). In
the IT area, TTB has moved some services to BPD, as noted above.
Question. What are the services provided under the MOU and what is
the cost attached to the MOU?
Answer. The current negotiated MOU with ATF for fiscal year 2004 is
for $13.7 million and is comprised of two principal components, the IT
services at $9.5 million and non-IT administrative support services at
$4.2 million.
The IT services covered under the MOU include the following:
--Custom Business Application and Office Application hosting and
support
--Network and Phones equipment and support
--Customer Equipment and Support (desktops/laptops/peripherals)
--Software Maintenance of Custom Business Applications
--Configuration Management
The current non-IT administrative support services covered under
the (MOU) are as follows:
--Legal services (assisting with one old EEO case and two Merit
Systems Protection Board cases from fiscal year 2003)
--Peer support
--Emergency management services*
--Document services*
--Space management*
--Protective programs (finishing existing project)*
--Science and technology (This will continue for years because of
shared laboratory facilities.)
ATF has informed us they will not provide IT services or within
most of the non-IT areas noted above with an asterisk (*).
TTB has elected to move the following administrative support
services to Bureau of Public Debt's Administrative Resource Center, a
Treasury operation, to provide optimal efficiency and effectiveness in
the delivery of those services to our program operations:
--Acquisition and material management (BPD for supplemental services)
--Financial management (BPD for 2005)
--Personnel services and personnel security (BPD beginning June 2004)
--Training and professional development (supplemented by BPD).
Question. How long do you anticipate ATF charging TTB for services
rendered and is it necessary for TTB to rely on ATF for these services?
Answer. As indicated above, ATF will continue services in some
areas as we continue to seek means to secure or provide these services
independent of ATF; however, we organized our Bureau to provide
services to our customers and as such the FTE distribution is very
streamlined in the area of internal services. We will rely on the
reimbursable agreement with BPD for several areas of service. In the
meantime, we continue to research the most economical and efficient
ways to secure these services. Our major issue at this time is the IT
services that ATF currently provides; they have advised us in writing
that they will no longer service us after fiscal year 2005 in that
area.
It is necessary for these services to continue until TTB can
transition the functions serviced at ATF to an alternate provider,
including time to implement the transition after funding is provided.
Question. TTB has the Tax Audit Division that is responsible for
auditing taxpayers for compliance with the Internal Revenue Code and
other laws and regulations. What strides has TTB made with the Tax
Audit Division?
Answer. TTB Tax Audit was first established in late fiscal year
2003 as part of TTB's strategic plan to collect the revenue that is
rightfully due from the alcohol, tobacco, and firearms and ammunitions
industries. The division was established to provide a systematic
approach to safeguard over $14 billion in annual revenue collected by
TTB.
The mission of the Tax Audit Division (TAD) is to promote voluntary
compliance in the payment of excise taxes that TTB administers and to
verify that such payment was made. The TAD also ensures compliance with
the laws and regulations relating to revenue collection. TTB Tax Audit
uses a risk-based approach to target non-compliant industry members.
TTB's goal in 2004 is to establish a baseline for measuring tax revenue
audited in a 5 to 6 year period and the industry compliance rate
(percentage of taxpayers audited with no material findings, thereby
validating the amount of tax paid was accurate and rightfully due).
Based upon these findings, TTB will determine its follow up audit
strategy.
TTB's accomplishments in fiscal year 2004 as they relate to Tax
Audit include:
--Established 10 field offices covering the U.S. territory.
--Recruited and hired 70 auditors. The average auditor has 10 years
of previous audit experience and holds one audit certification
such as CPA license.
--Established a formal industry-training program. Seventy-five
percent of the workforce has been trained in three or more
industries (tobacco, distilled spirits plants, beer, wine,
manufacture of non-beverage products, and firearms).
--Implemented an automated audit documentation tool to facilitate a
standard audit approach and create efficiencies.
--Developed an audit workplan scheduling 110 taxpayers for review in
2004.
--As of May 24, 10 audits have been completed and 55 are underway.
Initial audit findings have resulted in $872,000 in additional
revenue due to TTB.
Question. What is the status regarding flavored malt beverages and
beers?
Answer. TTB has reviewed and analyzed the approximately 16,000
comments to Notice No. 4 concerning flavored malt beverages. At this
time we are in the closing stages of evaluating the comments and we are
discussing the comments with the Department of the Treasury.
Question. Has the hiring process been streamlined or improved in
the past year?
Answer. Under the MOU, all human resource recruitment services were
provided by ATF during fiscal year 2004; however, TTB just negotiated
an agreement with the Bureau of Public Debt Administrative Resource
Center (BPD ARC), to provide all TTB's human resource services for the
bureau, including staff recruitment. This enhancement begins June 13,
2004. We believe this change in service provider will improve the
recruitment process and streamline the paperwork, while allowing the
bureau to attract highly skilled and qualified applicants for our
vacancies.
Question. Will TTB reach its FTE ceiling of 559 this year?
Answer. TTB will not reach its FTE utilization ceiling of 559 this
year. The bureau FTE ceiling of 559 includes 15 positions for Puerto
Rico, which is a Reimbursable program, and 544 direct FTE funded
positions. As of the most recent pay period, TTB has 509 staff on
board, including 13 in Puerto Rico, and TTB will make every effort to
reach the 559 targeted staffing levels by the end of this fiscal year.
TTB's recruitment strategy as outlined with BPD ARC is very aggressive,
and TTB is hopeful that the targeted staffing level can be reached.
Their goal is to have a full staffing complement to begin the fiscal
year 2005 fiscal year, but FTE utilization may only reach 504.
Question Submitted by Senator Robert F. Bennett
Question. In 2002 Treasury officials advised the Open World
Leadership Center on the legislation needed to clarify and obtain
authority to invest the Center's Trust Funds (and similarly the Stennis
Center and Madison Fellowships) in special par value obligations. Such
investment is a necessary and desirable protection of appropriated
funds provided to OWLC by the Congress as ``no year'' funding in annual
appropriations. The OWLC has requested that they be allowed to invest a
portion of their trust in a special Treasury par value obligation. This
request is being reviewed by the Office of the Asst General Counsel for
Banking & Finance in Treasury Headquarters. I understand that Treasury
is concerned whether, under the rules of statutory construction, the
new conditions for issuing special obligations to the Stennis Center
also apply to the OWLC. Please provide an update on the status of this
request.
Answer. The Treasury Department has recently advised the Library of
Congress (which manages the Open World trust fund) that amounts in the
Open World trust fund may now be invested in par value Treasury
specials.
______
Questions Submitted by Senator Patty Murray
NEWLY-CREATED JOBS WILL NOT GO TO THOSE WHO ARE BEING LAID-OFF/JOB
TRAINING
Question. As I mentioned in my opening statement, it is fine to
point out that some of the same companies that are shipping American
jobs overseas might also create jobs here in the United States in the
future. But we also need to recognize that the people who are having
their jobs sent overseas are not the ones that are likely to get the
new jobs those companies are creating here at home.
For many Americans who are trained in one partfield and have
supported their families on that same job for decades, the decision to
move that job overseas represents the beginning of a long period of
heartbreak and financial ruin.
Mr. Secretary, do you agree that the job descriptions and skill
requirements of the new positions that are likely to be created in the
United States in the future are not the same as those for the jobs that
companies are currently shipping overseas?
Answer. It's true that many new jobs in our economy require new
skills and education. Those new skills and education are one of the
sources of our rising standard of living. That is why the President has
made improving our Federal job training programs a priority. New jobs
demanding new skills are always appearing. A quarter of all Americans
are working in jobs that weren't even in the Census Bureau's occupation
list in 1967.
The U.S. labor market is always changing, and is one of the most
resilient and flexible labor markets in the world. One aspect of that
flexibility is the high rate of job changes as employers and employees
continually adjust to changing business needs and personnel
requirements. Data from the Bureau of Labor Statistics (BLS) Job
Opening and Labor Turnover Survey (JOLTS) suggests that there are more
than 1 million new hires each week. In March 2004, there were 4.5
million new hires and about 4.1 million separations, and JOLTS reports
that on the last day of March, there were about 3.1 million job
openings available. The President is committed to ensuring workers have
the skills necessary to obtain those jobs.
Question. I mentioned earlier that the President's new job training
proposal does not add $1 to his budget request for job training. In
fact under his proposal, the amount of money going to community
colleges for all job training purposes will actually decline. For the
last 3 years, the Bush Administration has requested half a billion
dollars in cuts in job training.
Mr. Secretary, what does the Bush Administration have to offer the
manufacturing worker or the software engineer or the call center worker
whose job is being sent overseas?
Answer. The President's goal is to increase job growth in this
country while making sure workers have the skills necessary to access
those jobs. Over the past 9 months, 1.4 million new jobs have been
created. The tax cuts, which were proposed by the President and passed
by the Congress in 2001 and 2003, played a vital role in creating a
strong growth environment. During the last 3 years, the
administration's tax reductions have been successful--first, in keeping
the recent economic slowdown from worsening substantially in the face
of terrorist attacks, corporate malfeasance, and wars in Afghanistan
and Iraq, and secondly, in promoting a solid economic recovery and
enhancing job prospects.
Our econometric work suggests that without the tax cuts, more than
2 million fewer Americans would have been working by the end of last
year and the unemployment rate would have been more than 1 percentage
point higher.
To ensure workers have the skills necessary to obtain these new
jobs, the President's Fiscal Year 2005 Budget provides $23 billion for
job training and employment assistance, including Pell Grants used by
students at technical and 2-year post-secondary schools. This funding
level is $500 million (2.3 percent) more than in 2004 and $2.5 billion
(12.5 percent more than in 2001).
Moreover, the President has proposed reforming the major Workforce
Investment Act grant programs to double the number of workers who
receive job training. These reforms will maximize the available Federal
dollars going to train workers by eliminating unnecessary overhead
costs, reducing expenditures on overhead by $300 million. His Jobs for
the 21st Century initiative includes a $250 million proposal to help
America's community colleges train 100,000 additional workers for
industries that are creating the most new jobs.
Finally, the President has proposed a $50 million Personal
Reemployment Accounts pilot program to help unemployed workers who have
the hardest time finding jobs get back to work. These flexible
accounts, which would be in addition to unemployment compensation,
would allow certain unemployed workers to purchase the training, child
care, transportation, or other reemployment services they need to
return to work. They would be allowed to keep unused amounts as a
``reemployment bonus'' if they become employed quickly. The
administration is pleased that the House passed H.R. 444, the Worker
Reemployment Accounts Act, on June 3 to authorize this pilot program
under the Workforce Investment Act and urges the Senate to act on this
important legislation for America's workers.
Question. What do you expect these people to do to try and maintain
their level of income, their health insurance, and their ability to
feed their families?
Answer. Whatever the cause, loss of jobs is taken very seriously by
this administration. First and foremost, the administration believes
that the best way to help workers who are competing in the global
marketplace is to keep economic growth strong at home, to help make
American companies more competitive, and to make America the best place
in the world to do business. Recent employment gains show that our
program is working. Employment has increased more than 1.4 million in
the past 9 months and initial claims for State unemployment insurance
benefits have fallen 20 percent from a year earlier.
As with any transition, an evolving economy can produce
dislocations for individuals and communities in the short term. The
administration is committed to helping these workers find good jobs at
good wages as quickly as possible.
Our primary responsibility is to keep the economy growing.
Maintaining and increasing economic growth is the key to increasing the
number of good jobs in the economy, making it easier for people who
have lost their jobs to find new and better ones.
The President has proposed several new measures to help prepare
Americans for the rapidly changing and increasingly global workplace.
His Jobs for the 21st Century initiative includes more than $500
million to help prepare U.S. workers to take advantage of the better
skilled, higher-paying jobs of the future, including $250 million in
proposed funding targeted to community colleges to train workers for
industries that are creating the most new jobs.
COMPETITIVE SOURCING
Question. What is the status of all the competitive sourcing
studies that have been undertaken at IRS? Please include year, area,
and result.
Answer. The following list summarizes the status of IRS Competitive
Sourcing studies:
Architects and Engineers (10 FTE)
Streamline competition resulted in in-house award. No savings were
achieved. The in-house team was the most efficient.
Area Distribution Centers (500 FTE in Bloomington, IL; Rancho Cordova,
CA; Richmond, VA)
The three Area Distribution Centers distribute tax forms,
instructions and publications to taxpayers and internal use documents
to IRS employees. A standard competition with award decision is
scheduled for June 28, 2004.
Expected Saving and Benefits.--Consolidation of activities and
geographic locations resulting in the release of commercial space,
revised operational processes and procedures to gain efficiencies, new
information system, reduced staff and increased managerial span of
control.
Anticipated Return on Investment (fiscal year 2005-fiscal year
2009).--$22 million.
Building Delegations or Operation and Maintenance (O&M) of Delegated
Buildings (100 FTE in Covington, Fresno, Austin, Ogden,
Philadelphia, and Headquarters)
O&M are those functions identified in the Building Delegation
Agreements between the General Services Administration (GSA) and the
IRS. These services include responsibilities to operate and maintain
building systems (electrical, HVAC, control systems, etc).
A standard competition with solicitation release is scheduled for
June 2004.
Expected Saving and Benefits.--Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated Return on Investment (fiscal year 2006-fiscal year
2010).--$3.9 million.
Mail Rooms (70 FTE)
Mailroom services functions include all aspects of the delivery of
mail from full service delivery to mail stop or desktop to self-service
mailrooms where customers pick up their own mail. The IRS made a
decision to divide the study among headquarters, nationwide ``stand
alone sites'' and campuses. The IRS plans to use public-private
competition to improve operations.
A direct conversion is in progress.
Fully Implemented.--Denver, CO; Detroit, MI; Plantation, FL;
Detroit Computing Center, MI; Houston (Leland), TX; Laguna Niguel, CA;
Oklahoma City, OK; and San Francisco, CA.
Partially Implemented.--Washington, DC; New Carrollton, MD.
Scheduled for Implementation.--Cincinnati, OH; Jacksonville, FL (5/
17); and Nashville, TN.
Implementation Not Scheduled.--Atlanta, GA; Baltimore, MD; Boston,
MA; Buffalo, NY; Dallas, TX; Greensboro, NC; Hartford, CT; Houston
(Alliance), TX; Indianapolis, IN; Los Angeles, CA; Milwaukee, WI; New
Orleans, LA; Oakland, CA; Philadelphia, PA; Phoenix, AZ; Richmond, VA;
Chicago, IL; Springfield, NJ; St. Louis, MO; St. Paul, MN.
Anticipated Return on Investment (fiscal year 2005-fiscal year
2009).--$399,000.
Campus Operations (Information Technology) (350 FTE in Ogden, UT;
Atlanta, GA; Brookhaven, NY; Andover, MA; Cincinnati, OH;
Fresno, CA; Austin, TX; Memphis TN; Kansas City, MO;
Philadelphia, PA)
This functional area provides the Information Systems (IS) computer
operations at the ten IRS Campus facilities. The positions include
computer operators, production controllers, tape librarians, computer
specialists, and clerks. A standard competition with award decision is
scheduled for July 2004.
Expected Saving and Benefits.--Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated Return on Investment (fiscal year 2005-fiscal year
2009).--$12.7 million.
Logistics Support (formerly Warehouse and Transportation) (160 FTE in
Andover, MA; Philadelphia, PA; Brookhaven, NY; Atlanta, GA;
Covington, KY; Austin, TX; Kansas City, MO; Ogden, UT; Fresno,
CA; Memphis, TN)
This functional area provides warehousing and transportation,
mainly at the 10 campus sites. This activity includes positions such as
material handlers, warehouseman, motor vehicle operators, laborers, and
clerks. A standard competition with Performance Work Statement
development is underway.
Expected Saving and Benefits.--Revised operational processes and
procedures to gain efficiencies, release of leased space, reduced staff
and increase of managerial span of control.
Anticipated Return on Investment (fiscal year 2006-fiscal year
2010).--$4.8 million.
Campus Files Activity (1,458 FTE in Austin, TX; Andover, MA;
Philadelphia, PA; Brookhaven, NY; Cincinnati, OH; Memphis, TN;
Atlanta, GA; Kansas City, MO; Ogden, UT; Fresno, CA)
This functional area receives, controls, shelves and maintains all
returns/documents for retention and retirement. They retrieve documents
as requested by customer organizations. Liaison work is critical with
the Federal Records Centers for final retention of documents. The work
is routine and does not involve making complex determinations or
present unique fact patterns. A standard competition with solicitation
release is scheduled for the fourth quarter of 2004.
Expected Saving and Benefits.--Revised operational processes and
procedures to gain efficiencies; reduced staff; and increased
managerial span of control.
Anticipated Return on Investment (fiscal year 2006-fiscal year
2010).--$22 million.
Learning and Education (617 FTE Service-wide)
This functional area is responsible for determining service-wide
and division-level professional training requirements, developing
training plans and curriculum, evaluating the effectiveness of
training, and performing a broad spectrum of program administration.
A standard competition with Performance Work Statement development
is underway.
Expected Saving and Benefits.--Consolidation of activities,
revision of operational processes and procedures to gain efficiencies,
implementation of learning content management and learning management
systems, reduction of staff and increased managerial span of control.
Anticipated Return on Investment (fiscal year 2006-fiscal year
2010).--$25 million.
Note.--Return on investment includes cost of conducting competition
and transition/separation costs. The IRS calculated savings through
fiscal year 2009.
The following highlights IRS Business Case Analysis/Feasibility
Studies:
Tax Law Telephone
This is a preliminary feasibility assessment of having a vendor
provide tax law telephone assistance. After the completion of the
preliminary feasibility assessment, the IRS will make a decision as to
whether to go forward with the competition.
Fuel Compliance Activity (140 FTE Service-wide)
This function area monitors 1,400 terminals, all fuel wholesalers,
thousands of retail motor fuel outlets, and U.S. border crossings.
Additionally, these personnel are charged with conducting periodic
inspections of on-road vehicles on highways throughout the country.
IT Support (Service-wide)
This is identification and development of sourcing strategy to
identify candidate public-private competition activities.
Question. How much money has been spent on these competitions?
Since the competitions are not budgeted for, where has the money come
from?
Answer. Competitive Sourcing Competition Costs (Travel, training,
staffing, expert contractor support (PWS, Most Efficient Organization,
Independent Review)--does not reflect transition/separation costs):
--Fiscal year 2003--$5.0 million;
--Fiscal year 2004--$6.3 million.
It has been difficult to finance the Competitive Sourcing Program
since the IRS does not know the outcomes in advance, the exact level of
savings are yet to be determined, and it takes time to realize these
savings. The IRS had to internally realign. However, the investments
made today in public-private competitions show a return on investment
usually within 2-3 years (includes payment of transition costs--
voluntary early retirement, voluntary separation incentive, etc.). At
that time, the IRS plans to reinvest the savings to fund future
competitions and cover transition costs. The IRS proposes to fund $9.1
million in the fiscal year 2005 budget for the Competitive Sourcing
program by reinvesting resources freed up through productivity savings.
PROGRESS ON STEMMING THE USE OF CHARITIES TO FUNNEL CASH TO TERRORIST
ORGANIZATIONS
Question. Our government has linked some 23 charitable
organizations with the Al Qaeda network. It has been a longstanding
practice for terrorist organizations around the globe to use charitable
giving as an avenue for illicit resources. There appear to be some
continuing disagreements between our government and the governments of
the European Union as to which charities should be designated as being
associated with terrorist organizations. A number of international
charities that are listed by the United States have not been listed by
European nations.
Why can't the United States and Europe agree over which charities
are financing terrorism?
Answer. One of the primary differences between the United States
and the European Union (E.U.) on the issue of terrorism and terrorist
financing is the fact that the European Union has not traditionally
treated non-al Qaeda terrorist groups, such as Hamas and Hizballah, in
the same way that the United States treats them. The European Union has
an efficient process for designating al Qaeda-related entities that
have been designated by the U.N. 1267 Sanctions Committee. Under their
system, action on an organization or individual by the U.N. 1267
Sanctions Committee is a sufficient legal basis for the European Union
to designate that same organization or individual. The European Union's
designation system for non-al Qaeda groups (i.e., for groups designated
pursuant to U.N. Security Council Resolution (UNSCR) 1373), however,
suffers from a lack of efficiency and effectiveness. This has resulted
in delays and gaps in the European Union's designation on several non-
al Qaeda-related entities.
One significant example of this problem is the European Union's
failure to act swiftly and effectively with respect to Hamas. It is
beyond question that funding to Hamas and other terrorist groups must
be stopped, and the United States does not accept any artificial
distinctions that some Europeans have in the past drawn between the so-
called ``military'' and the so-called ``socio-political'' wings of
Hamas or other terrorist groups. Hamas leaders themselves have publicly
acknowledged this distinction is one without a difference. The
conclusion is supported by the fungibility of funds. Money allocated to
the humanitarian works of Hamas charities makes available for terrorist
activity the Hamas funds that otherwise would have gone to those
humanitarian purposes. Moreover, the United States believes that the
funds raised by Hamas-related charities are used to finance the
organization and ultimately fuel terrorist activities. For example, it
is clear that Hamas uses its humanitarian operations to recruit
militants and secure support for their activities among local
communities and populace.
To that end, the United States has designated charities that have
provided support to Hamas. We have made clear our position on Hamas,
and other such terrorist groups, to our partners around the world. We
are beginning to see a ``sea change'' of the European attitude on this
matter, based in large part on the U.S. efforts to change attitudes and
policies. The European Union's decision in September 2003 to designate
Hamas in its entirety as a terrorist group represents an important
first. Due to inefficiencies within the E.U. designation process,
however, this overarching designation has not always resulted in the
designation of individual European charities that are funding Hamas. We
therefore must continue to encourage the European Union to implement
their decision by designating Hamas charities operating in Europe.
Recently there have been encouraging signs from certain E.U. members.
Last year, the Dutch government froze the assets of the Al Aqsa
Foundation, a European charity supporting Hamas. The German government
shut down the offices of the Al Aqsa Foundation in their country, and
the Danish government took actions against certain individuals
operating Al Aqsa in Denmark.
The United States will continue to work with our E.U. counterparts,
both by urging action and by keeping channels of communication open to
share evidence supporting a complete designation of these terrorist
groups.
Question. Have you seen a demonstrable increase in the level of the
effort on the part of European nations in going after terrorist
financing since the Madrid bombings?
Answer. Yes. The European Union's attention to the threat of
terrorist financing has increased since the Madrid bombings. This
renewed dedication is articulated in the European Union's Declaration
on Combating Terrorism, which was issued on March 24, 2004, just 2
weeks after the Madrid bombings and by the accompanying appointment of
Gijs de Vries to the newly created position of E.U. Counter-Terrorism
Coordinator.
Question. What concrete changes have you seen since the Madrid
bombings?
Answer. As noted above, immediately following the Madrid bombings,
the European Union issued a Declaration on Combating Terrorism and
appointed Mr. de Vries as the counter-terrorism coordinator. Mr. de
Vries has articulated an aggressive agenda and has visited the United
States to consult with key U.S. counter-terrorism officials. We are
hopeful that the establishment of this position will enhance E.U.
effectiveness in combating terrorist financing.
Question. In your view, which European nations have done the most
in combating terrorist financing and which have the longest way to go?
Answer. The State Department's recently issued annual report on
``Patterns of Global Terrorism 2003'' includes a country-by-country
discussion of actions by European countries in fighting terrorist
financing. Treasury concurs with that assessment and refers the
committee to that document for more information about country-specific
activity.
Question. After some considerable pressure from Congress and the
General Accounting Office, the IRS has finally published guidance to
the States on how they can help regulate and monitor charitable
organizations in this country that may be funneling money to
terrorists.
Do you believe that the States have done all they can monitor
charitable organizations that may be funneling money to terrorists?
Answer. States have an obligation to ensure the integrity of
charities. They are the ground-level watchdog of charities and we rely
on them to fulfill that function. They do not always, however, have the
ability to effectively monitor global organizations. That is where the
resources of not only the U.S. government, but the capabilities of
umbrella organizations within the philanthropic community become
critical.
Question. Do you believe States have the kind of resources that are
necessary to do this job adequately?
Answer. I am not in a position to comment on the type or level of
resources applied by each State to address the abuse of charities by
terrorist financiers. I note, however, that we are engaged in a
campaign to enhance their resources through cooperation. The first step
was an outreach event recently held by the Treasury Department, with
the focus being a discussion of the voluntary best practices against
abuse of charities by terrorist financiers, previously published by
Treasury. One of the significant results of this meeting was a decision
to create an ``advisory group'' on charities. This group will serve as
a resource and provide a forum that not only includes the States and
the U.S. government, but also includes representatives from charities
(large and small) and watchdog organizations.
has progress in saudi arabia triggered progress in other arab nations?
Question. Mr. Secretary, you traveled to Saudi Arabia back in
September. Your agency has heaped praise on the Saudi government for
enacting a significant number of new laws and regulations to prohibit
the free flow of money to terrorist organizations in that country. But,
as I noted in my opening statement, there is a difference between
putting the laws on the books and actually enforcing them.
Do you believe the Saudis have actually cut off the flow of money
in a significant way between their suspect charitable organizations and
terrorist groups?
Answer. The Saudi Arabian government has taken decisive steps to
curb the flow of terrorist money and we are hopeful that there will be
further developments. Recognizing the significant role of charitable
giving (zakat) in the Kingdom, this is a monumental task that not only
requires legal and regulatory changes, but also a change in mindset
among the population. The Saudis, who have now become victims of
terrorism, appear to be committed to taking decisive action to address
this problem. Even so, we continue to work with the Saudi government
and other countries around the world to do more, faster and more
aggressively.
The most fundamental challenge facing the Kingdom is defusing the
radical extremism that facilitates support and recruitment for radical
Islamist terrorist organizations like al Qaeda. The Saudi efforts to
deal with this issue are important to ensure that militant religious
extremism does not provide a platform for terrorists from which they
can justify and launch their terrible actions.
The Saudi government must fully implement and enforce the
comprehensive measures it has enacted to ensure charities, hawalas, and
their formal financial systems are not abused for terrorist purposes.
Recently, Saudi Arabia took concrete steps to do just that. On June 2,
2004, the United States and Saudi Arabia jointly designated five
branches of the Saudi-based charity, the Al Haramain Foundation (AHF),
and at the same time Saudi Arabia announced its intention to dissolve
AHF in its entirety and merge its remaining operations and assets into
the newly-established Saudi National Commission for Charitable Work
Abroad. Saudi Arabia announced that this new entity will be subject to
strict financial transparency, will be subject to legal oversight and
will operate according to clear policies, so as to ensure that
charitable funds intended to help the needy are not misused.
Question. Has the improved level of effort on the part of Saudi
Arabia elicited similar responses by other Islamic nations?
Answer. We have been working closely with many Islamic nations
since the events of September 11 and have seen continued progress in
their anti-terrorist financing efforts. There has been ongoing work and
cooperation on fighting terrorist financing since September 11, given
the real threat that al Qaeda poses to many countries, particularly
those in the Middle East. Gulf Countries such as Kuwait and the United
Arab Emirates (UAE) have been cooperative in responding to decisions by
the U.N. 1267 Sanctions Committee and have taken important steps to
address issues like regulation of charities and hawalas. Other
countries have been victims of terrorism and have taken important steps
to address that issue. For example, we have worked closely with
Algeria, which has a secular government, to support their anti-
terrorist financing efforts.
Significant steps that are still needed include further action on
cross-border currency transactions, wire transfers, and effective
oversight of alternative payment systems such as hawalas. We are
encouraging regional discussions on these issues and continue to
advance progress on these issues in the Middle East and around the
world.
Question. What about the United Arab Emirates (UAE)?
Answer. The UAE Government has made many positive reforms to their
anti-money laundering program. Further, it has cracked down on
potential vulnerabilities in the financial markets and is cooperating
in the international effort to prevent money laundering, particularly
by terrorists and their supporters. In 2002, the UAE, in partnership
with the United States, blocked the assets of more than 150 named
terrorist entities, including significant assets in the UAE belonging
to Al-Barakat. The Central Bank (CB) of the UAE has frozen a total of
$3.13 million in 18 bank accounts in the UAE between September 11, 2001
and March 2004.
Additionally, the UAE has recognized the importance and threat of
hawala, and other alternative remittance systems, and they have made
efforts to address the particular vulnerabilities from a lack of
oversight and regulation of this sector. New regulations to improve
oversight of the hawala system were implemented in 2002, and the CB now
supervises 61 hawala brokers, which--like other financial institutions
in the UAE--are now required to submit the names and addresses of
transferors and beneficiaries involved in transfers to the CB and to
complete suspicious transaction reports. The new attention on hawala is
encouraging more people to use regulated exchange houses in the UAE.
Traders in Dubai's Central Souk (Market) have stated that hawala
exchange rates are now only 3 percent cheaper than formal exchange
houses, persuading many to use the formal banking network. In May 2002,
the UAE hosted an International Conference on Hawala attended by over
300 delegates from 58 countries. The conference concluded with the
issuance of ``The Abu Dhabi Declaration on Hawala,'' which calls for
the establishment of a sound mechanism to regulate hawala, including,
but not limited to the recommendation that countries adopt the 40
Recommendations on money laundering and 8 Special Recommendations on
terrorist financing of the Financial Action Task Force (FATF). In April
2004, they held a second international conference on hawala reaffirming
their commitment to the regulation of alternative remittance systems.
UAE has also just established the Anti-Money Laundering and
Suspicious Case Unit (AMLSCU), located within the Central Bank, which
functions as that nation's Financial Intelligence Unit (FIU). In June
2004, they co-hosted the South Asia Conference on Money Laundering with
FinCEN, the U.S. FIU, further showing their commitment to combating
money laundering and terrorist financing--especially on a regional
basis.
Question. Have you seen any improved level of cooperation from the
UAE?
Answer. Yes. The UAE Government has made many positive reforms to
their anti-money laundering program. Further, it has cracked down on
potential vulnerabilities in the financial markets and is cooperating
in the international effort to prevent money laundering, particularly
by terrorists and their supporters. In 2002, the UAE worked in
partnership with the United States to block terrorist financing, and
froze the assets of more than 150 named terrorist entities, including
significant assets in the UAE belonging to Al-Barakat. The Central Bank
(CB) of the UAE has frozen a total of $3.13 million in 18 bank accounts
in the UAE between September 11, 2001 and March 2004.
Additionally, the UAE has recognized the importance and threat of
hawala, and other alternative remittance systems, and they have made
efforts to address the particular vulnerabilities from a lack of
oversight and regulation of this sector. New regulations to improve
oversight of the hawala system were implemented in 2002, and the CB now
supervises 61 hawala brokers, which--like other financial institutions
in the UAE--are now required to submit the names and addresses of
transferors and beneficiaries involved in transfers to the CB and to
complete suspicious transaction reports. The new attention on hawala is
encouraging more people to use regulated exchange houses in the UAE.
Traders in Dubai's Central Souk (Market) have stated that hawala
exchange rates are now only 3 percent cheaper than formal exchange
houses, persuading many to use the formal banking network. In May 2002,
the UAE hosted an International Conference on Hawala attended by over
300 delegates from 58 countries. The conference concluded with the
issuance of ``The Abu Dhabi Declaration on Hawala,'' which calls for
the establishment of a sound mechanism to regulate hawala, including,
but not limited to the recommendation that countries adopt the 40
Recommendations on money laundering and 8 Special Recommendations on
terrorist financing of the Financial Action Task Force (FATF). In April
2004, they held a second international conference on hawala reaffirming
their commitment to the regulation of alternative remittance systems.
UAE has also just established the Anti-Money Laundering and
Suspicious Case Unit (AMLSCU), located within the Central Bank, which
functions as that nation's Financial Intelligence Unit (FIU). In June
2004, they co-hosted the South Asia Conference on Money Laundering with
FinCEN, the U.S. FIU, further showing their commitment to combating
money laundering and terrorist financing--especially on a regional
basis.
will treasury ban non-cooperating nations from the banking sector?
Question. Mr. Secretary, the Patriot Act gave you a new power to
designate certain individual foreign jurisdictions or financial
institutions as being ``primary money laundering concerns'' of the
United States. To date, you have done this in the case of Burma,
briefly in the case of the Ukraine, and in the case of the small
country of Nauru. You can use this power under the Patriot Act to go so
far as to cut those countries off from the U.S. financial sector.
Mr. Secretary are you considering expanding the use of this tool in
terms of pushing foreign nations to improve their efforts in the area
of combating terrorist financing?
Answer. The Treasury Department is committed to employing the tools
given to us in Section 311 of the Patriot Act effectively and
aggressively. As you note in your question, Treasury has already used
this authority to designate the jurisdictions of Ukraine, Nauru and
Burma, and two individual Burmese banks, all based on money laundering
concerns. Additionally, the Treasury Department has designated the
Commercial Bank of Syria and its Lebanese subsidiary under Section 311
based on a variety of issues, including terrorist financing concerns.
In the cases of Ukraine, Nauru, and Burma, the designations have proved
effect in pushing the foreign governments to improve their anti-money
laundering efforts. It is our hope and expectation that the Syrian-
related designation will prove effective as well.
Moving forward, Treasury will continue to safeguard the U.S.
financial system by identifying and designating appropriate targets
under Section 311, including those that pose risks related to terrorist
financing.
Question. Which nations would you identify as having the most work
to do to bring their level of effort up to a level that you would
consider acceptable?
Answer. All countries should be constantly striving to improve
their efforts in the fight against terrorist financing. Some countries
have steps that they should take to improve the underlying structure of
the counter-terrorist financing legal and regulatory systems. Others
have these systems in place and need to focus on effective
implementation. The State Department's recently issued annual report on
``Patterns of Global Terrorism 2003'' includes a country-by-country
discussion of actions in fighting terrorist financing. Treasury concurs
with that assessment and refers the committee to that document for more
information about country-specific activity.
IS TREASURY REQUESTING ENOUGH FOOT SOLDIERS IN THE WAR ON TERRORIST
FINANCING?
Question. Many critics have observed that your agency's efforts to
combat terrorist financing are spread over too many offices with little
or no coordination between the Office of Foreign Asset Control, the
IRS, the Financial Crimes Enforcement Network and other parts of the
Treasury Department. As such, I commend your decision to create the new
Office of Terrorism and Financial Intelligence within the Department to
coordinate all of these efforts. The leaders of the Senate Finance
Committee--both Chairman Grassley and Senator Baucus--have commented in
a letter to the President that your new initiative seems to be ``heavy
on generals and light on soldiers.'' Also, it was recently revealed
that, in developing President Bush's budget request for 2005, a request
by the IRS to increase the number of criminal financial investigators
working on terrorist financing by 50 percent was rejected.
Are you sure that the amount of money that you have requested will
supply enough resources to boost the number of foot soldiers that can
follow up on leads and disseminate information to have the maximum
impact in combating terrorism?
Answer. Over the last year, we have made substantial progress in
coordinating the activities of the Office of Foreign Assets Control
(OFAC), the IRS-Criminal Investigation Division (IRS-CI) and the
Financial Crimes Enforcement Network (FinCEN) through the leadership of
Deputy Assistant Secretary Juan Zarate and the Executive Office for
Terrorist Financing and Financial Crimes (EOTF/FC). With the creation
of the Office of Terrorism and Financial Intelligence (TFI), we are
taking the final step of fully integrating the intelligence functions
and resources of the Treasury Department into this effort. Initially,
we are focusing on ensuring we are using what resources we have as
effectively as possible. As part of this, we are exploring all options,
e.g., exploiting the expertise and resources of existing Treasury
bureaus and offices, not just for intelligence or law enforcement
purposes, but also looking at regulatory actions. But before we turn to
the solution of adding more people, we are ensuring we clearly know
what is necessary--whether expertise, personnel, technology, or legal
authorities.
Question. How do you respond to the criticism that your new
initiative is too top heavy and doesn't provide enough people to follow
up on every potential lead?
Answer. The key to this new structure is the combination of our
resources as well as the elevation of the status of these efforts
within the Treasury Department and the U.S. Government. Both elements
are essential to making the Office of Terrorism and Financial
Intelligence (TFI) function well. Thus, we will be creating necessary
efficiencies both within Treasury and in the U.S. Government to ensure
we are maximizing our efforts. This is a team effort, not just within
Treasury, but within the government. As we create this new office, we
need expertise and leadership that will not only maximize the resources
we have within Treasury, but also the resources within the government
that contribute to this effort.
WILL THE BUDGET BOOST ACTUALLY IMPROVE FINANCIAL CRIMES NETWORK
ENFORCEMENT'S (FINCEN'S) PERFORMANCE?
Question. Your Financial Crimes Enforcement Network, or FinCEN, is
charged with collecting and disseminating information on all
questionable financial transactions that are reported by the banking
sector. This agency has been subjected to a lot of criticism because of
outdated technology and the long delays between the time questionable
transactions are reported and the time they can be accessed by law
enforcement agencies. Your budget seeks a 13 percent boost in funding
for FinCEN this year.
If we approve this request, will we see demonstrable improvement in
the amount of time it takes from when your agency takes receipt of this
information to when it is available to the Federal and State agencies
that are actually investigating and prosecuting these crimes?
Answer. Yes. Electronic filing from institutions is the best way to
ensure faster provision of Bank Secrecy Act (BSA) information after it
is received. An amount of $3.238 million of this budget request is for
program costs associated with the various mandates of the USA PATRIOT
Act, and one of these mandates is to build a system that would permit
the electronic filing of Bank Secrecy Act reports. The system built by
FinCEN--the Patriot Act Communications System--has been operational
since June 2002. Some of this request will be used to enhance this
system's reliability and to develop tools that FinCEN believes will
result in greater usage by industry.
FinCEN has also requested $1.354 million and two FTEs for program
increases to expand law enforcement's access to Bank Secrecy Act
information through the on-line access system known as Gateway. This
will broaden electronic access to this information among law
enforcement.
Finally, FinCEN's BSA Direct initiative--a program critical to
FinCEN's ability to provide law enforcement access to timely
information--will improve law enforcement's access to the critical Bank
Secrecy Act data by integrating the data into a consolidated, modern
data warehouse. BSA Direct will include sophisticated query and
reporting tools. Law enforcement and regulatory agencies will gain
easier data access and enhanced ability to query and analyze the Bank
Secrecy Act reports. These improvements are expected to lead to
increased use of the Bank Secrecy Act data and will permit FinCEN to
achieve its statutory obligations to control access and audit access to
this sensitive information, provide FinCEN with the ability to network
agencies with overlapping investigations, and will help FinCEN provide
feedback and better communicate with the financial industry.
Question. The so-called ``hawala'' network is considered one of the
prime ways in which terrorist organizations have been able to move
money across borders without a paper trail. These networks are used for
legitimate money transfers from immigrant families to their families
back home. A blue ribbon task force on terrorist financing recommended
that your Financial Crimes Enforcement Network register these
operations in this country and require them, like banks, to report
suspicious financial transactions.
Has any progress been made toward that goal by your Financial
Crimes Enforcement Network?
Answer. To date, approximately 18,000 money service businesses have
registered with FinCEN. It is unclear, however, how many of these
entities are informal value transfer systems such as hawalas, hundi,
fei ch'ien and others. Although there is a clear requirement for
informal value transfer systems to register with FinCEN as a money
services business, the registration does not distinguish these systems
from other money service businesses. Failure to register can result in
a Federal felony conviction.
FinCEN is working closely with the Internal Revenue Service (IRS),
the agency with delegated responsibility to examine these businesses
for Bank Secrecy Act compliance, to look for ways to identify these
informal value transfer systems and bring them into compliance. FinCEN
and the IRS are also focusing outreach and education efforts in
communities where these informal systems are popular. Finally, FinCEN
is working closely with law enforcement to identify those persons and
entities that may be operating outside the bounds of the law.
Question. Should we expect any progress this year?
Answer. Yes. A central focus of FinCEN's new leadership is to
improve registration and compliance by money service businesses. FinCEN
is developing a comprehensive plan aimed at increasing registration and
otherwise improving money service business compliance with Bank Secrecy
Act regulations. Steps that FinCEN is already taking include:
--Obtaining better information on the size and nature of components
of the money service business industry--including informal
value transfer systems--to better ascertain the scope of
education and outreach necessary and focus compliance resources
on those sectors of the industry that critically need to be
addressed;
--Coordinating with State regulators and Trade Associations to
identify potential registrants and provide education and
outreach;
--Conducting analysis of the Bank Secrecy Act reports for leads on
locating money service business identified by other financial
institutions as unregistered, non-compliant or engaged in
suspicious activity. FinCEN will then point the IRS or law
enforcement to those entities for action.
--Improving the registration form and regulatory requirements to
simplify the registration and filing process, reduce filer
error and improve quality of the data provided by filers.
TREASURY'S TERRORIST FINANCING INITIATIVE NEEDS DEADLINES AND
MILESTONES
Question. Mr. Secretary, a variety of oversight agencies, including
the GAO and others have criticized your national money laundering
strategy and other elements of the war on terrorist financing because
they tend to lack milestones and deadlines. You are now standing up a
new office of Terrorism and Financial Intelligence within the Treasury
Department to improve coordination between all of the agencies within
your department that work on this important effort.
Do you think it is reasonable to have the new head of this office
submit a comprehensive series of department-wide deadlines and
milestones for each of the elements of your war on terrorist financing?
Answer. Treasury and the Executive Office for Terrorist Financing
and Financial Crimes already use measures or milestones to help mark
and guide our efforts in the areas of terrorist financing and financial
crime. These have been incorporated into Treasury's comprehensive
strategic plan, which is attached. Elements of this plan specifically
focus on terrorist financing and financial crimes.
The ultimate goal of our efforts is to detect, deter and disrupt
terrorist activity by cutting off access to sources of funds and
systems. The most valuable way to measure our success in this effort is
often intelligence information that suggests to us the impact we are
having on the terrorist organization that we are targeting. This
information is often anecdotal. Recognizing that we are dealing with a
nefarious and clandestine network about which it is hard to obtain hard
facts on cash flows, we have tried to identify other measures on how to
evaluate success.
Question. How soon do you think you would be in a position to
submit this to the committee?
Answer. A copy of Treasury's strategic plan is attached, and we
will continue to develop adequate measures to help monitor our efforts.
[Clerk's Note.--A copy of this document has been retained in
Committee files.]
ARE THERE MORE RIGGS BANKS OUT THERE?
Question. Mr. Secretary, one of the last acts of the Clinton
Administration was to issue a new money laundering guidance that
specifically addressed requirements of financial institutions to
monitor the financial transactions of senior foreign political figures.
A lot of attention has been paid in the press to the possibility that
Riggs Bank, here in the District of Columbia, knowingly violated those
procedures since they do so much business with the Foreign Diplomatic
Corps.
How widespread do you believe the problem is?
Answer. We have no reason to believe that the industry as a whole
is not complying with the Bank Secrecy Act (BSA) requirements, although
we recognize that we may need to improve coordination and enhance
regulatory oversight.
Question. Are there other financial institutions besides Riggs
Banks that are currently under investigation for failing to monitor the
transactions of foreign government officials and foreign diplomats?
Answer. It would be inappropriate to comment on current
investigations. However, at any given time, banks are examined by their
functional Federal regulator for compliance with the Bank Secrecy Act
(BSA). In fact, Federal bank regulators have explicit BSA examination
cycles for institutions under their supervision. If an institution is
found not to be in compliance with its requirements under the BSA,
appropriate measures are taken to ensure full investigation and
appropriate resolution of the matter.
Question. To what extent do you believe that the transactions that
were not reported by Riggs Bank or others are in fact directly
attributable to terrorist financing?
Answer. FinCEN is not in a position to confirm or deny the
possibility that Riggs Bank facilitated terrorist financing. The
transactions identified as suspicious were referred to law enforcement,
as is our standard procedure for all such reporting for any financial
institution.
Question. Have we established any direct links between actual
terrorist groups and some of the transactions that have been discussed
in the press?
Answer. FinCEN has no factual basis for concluding that the
transactions not reported by Riggs Bank involved the financing of
terrorism, and the transactions identified as suspicious were referred
to law enforcement for possible investigation.
WHAT ACCOMPLISHMENTS ARE HOPED FOR IN NEXT G-8 SUMMIT?
Question. Mr. Secretary, exactly 7 weeks from today, President Bush
will host the Sea Island G-8 Summit in Georgia. The theme of the summit
is ``Freedom, Prosperity and Security'', and the efforts of the
international community in fighting terrorism are on the agenda.
Can you specify for us what specific accomplishments in the area of
combating terrorist financing are you hoping to bring about at the next
G-8 summit?
Answer. The G-8 heads of state have provided crucial leadership to
the international coalition against terrorist finance, which met in
June 2004 at the Sea Island Summit. They have charged the G-7 Finance
Ministers with the lead operational role in these efforts, and the
Finance Ministers have reported to Heads at the end of last year about
their accomplishments and their plans for this year, which included
work on cash couriers, alternative remittance systems, and making asset
freezing regimes more effective. They have also continued to implement
the heads' charge to undertake outreach efforts to countries outside
the G-7 by hosting meetings with key finance ministers and central bank
governors in September 2003 (Dubai) and April 2004 (Washington, DC).
IRS STAFFING REDUCTIONS
Question. In January, IRS announced plans to reorganize.
What is the status of the reorganization? Please list current and
proposed reductions by number of employees, type of work performed,
center location including State, and date of reduction or proposed
reduction.
Answer. In January, the Internal Revenue Service (IRS) announced
changes designed to create operational efficiencies that will
ultimately allow the IRS to re-direct the savings towards approximately
2,200 new enforcement positions. These changes include: Income Tax
Returns Processing, Consolidation of Back Office Operations, and
Reduction of Agency Overhead. Below are the specific details of each
initiative, in turn.
Income Tax Returns Processing.--The IRS is gaining efficiency from
the increase in e-filed returns and the drop in the more labor-
intensive paper filings. Since 1990, the number of returns filed
electronically has grown from 4 million to 60 million in 2004, reducing
the need for employees to enter the data manually. It is expected that
in 2005 over half of the returns received by IRS will be electronically
filed. Some time ago, after realizing ten centers would not be needed
to process tax returns, IRS developed a plan that would, over time,
reduce the number of centers processing paper returns. The IRS
Brookhaven center stopped processing paper returns in September 2003.
In January, the IRS announced the second step in this process. The IRS
Memphis center will stop processing paper returns in October 2005. At
the Memphis location, about 2,200 employees currently process tax
returns. Almost 2,000 of these employees are either seasonal employees
or employees hired under a limited-term appointment. The IRS
Philadelphia center is scheduled to stop processing paper returns in
2007, and the Andover center will be scheduled after Philadelphia,
depending on experiences with the other locations. IRS has taken steps
in Philadelphia to limit the impact on career employees.
Consolidation of Back Office Operations.--For approximately 3
years, the IRS studied the reengineering of two administrative case
management operations: case processing and insolvency operations. Case
processing employees are responsible for a variety of back-office
administrative tasks in support of examination and collection casework,
such as processing cases, computer research and inventory controls. The
insolvency organization protects the government's interests by ensuring
that the government's claim in bankruptcy proceedings receives the
highest possible priority relative to other creditors.
The case processing initiative involves more than 1,200 employees
in over 80 locations. The insolvency initiative involves more than 300
employees in more than 50 locations. IRS is currently examining the
impacts on each State, but will work to minimize the impact on
employees by providing the maximum opportunities possible in affected
areas.
The current structure of these two operations is a vestige of the
old IRS structure prior to the reorganization mandated by the IRS
Reform and Restructuring Act of 1998. Under this structure, many of the
posts of duty have very few employees; indeed, some locations have only
one employee performing case processing or insolvency work. As a
result, we have minimal ability to respond to peak demand or manage
workload; and employees have little opportunity to develop specialized
skills or advance their careers. In addition, this widely dispersed
geographic structure results in a variety of non-standard processes and
makes quality review difficult.
The new operational structure builds on existing processes
currently being performed at IRS campuses; provides economies of scale
and standardization; allows the creation of a quality review unit;
offers staffing flexibility; and creates space savings due to shift
work. Specifically, Case Processing operations will be centralized at
four campuses (Cincinnati, Memphis, Ogden, and Philadelphia), and a new
function will be created to support the redesigned organization through
help-desk support, technical assistance and quality review. Insolvency
operations will be realigned across clerical, paraprofessional and
professional staff. The clerical and paraprofessional staff will be
consolidated in Philadelphia. (Approximately 900 Insolvency Specialists
and Advisors will remain in field offices.)
Even after taking into account costs such as severance, hiring,
training, salary cost differentials, and infrastructure, we expect
these initiatives to yield savings in excess of $300 million over the
next 10 years. These savings will allow us to redirect the equivalent
of 350 to 425 full-time employees to front line tax law enforcement
over the next 3 to 5 years.
Reduction of Agency Overhead.--The IRS has studied human resources
and other support functions to identify staff efficiencies and
determine the proper size of these activities. Streamlining and
centralization of these functions will generate annual savings of
approximately 750 staff years, primarily two initiatives in the human
resource area: Personnel Field Services and Transaction Processing
Centers. The staff reductions are expected to occur in late 2005. IRS
is in the process of finalizing these plans and will announce the
details as they are able.
--Personnel Field Services.--The Personnel Field Services provides
internal and external staffing support for the IRS business
units, and administers over 30 benefit and work life programs.
This initiative will take advantage of new technologies, such
as a new automated Personnel system, HR Connect, mandated for
use throughout Treasury and CareerConnector, as well as
improved business processes and consolidation to create
efficiency gains. Through this initiative, we will consolidate
the Employment operations organizationally and geographically,
producing economies of scale and improved operations, and
yielding substantial support resource savings. Employment
services will be consolidated in locations to support on-site
campus operations.
--Transactional Processing Centers.--Transactional Processing Centers
(TPCs) process payroll and timekeeping for the IRS. Currently,
these operations are located at nine sites, each of which have
a timekeeping, payroll, and employee inquiry function. As we
implement HR Connect, we anticipate a 50 percent decrease in
workload at the TPCs. The TPC consolidation is also part of a
larger process of integrating the staff of the Employee
Resource Center (which handles all administrative inquiries
from Service employees) and the TPCs. Since about one-third of
the administrative inquiries concern payroll, integration of
these functions will permit us to answer more inquiries on
first contact.
Question. What is the rationale for these reductions?
Answer. As noted above, in January, the Internal Revenue Service
(IRS) announced changes designed to create operational efficiencies
that will ultimately allow the IRS to re-direct the savings towards
approximately 2,200 new enforcement positions. These changes include:
Income Tax Returns Processing, Consolidation of Back Office Operations,
and Reduction of Agency Overhead. Below are the specific details of
each initiative, in turn.
Income Tax Returns Processing.--The IRS is gaining efficiency from
the increase in e-filed returns and the drop in the more labor-
intensive paper filings. Since 1990, the number of returns filed
electronically has grown from 4 million to 60 million in 2004, reducing
the need for employees to enter the data manually. It is expected that
in 2005 over half of the returns received by IRS will be electronically
filed. Some time ago, after realizing ten centers would not be needed
to process tax returns, IRS developed a plan that would, over time,
reduce the number of centers processing paper returns. The IRS
Brookhaven center stopped processing paper returns in September 2003.
In January, the IRS announced the second step in this process. The IRS
Memphis center will stop processing paper returns in October 2005. At
the Memphis location, about 2,200 employees currently process tax
returns. Almost 2,000 of these employees are either seasonal employees
or employees hired under a limited-term appointment. The IRS
Philadelphia center is scheduled to stop processing paper returns in
2007, and the Andover center will be scheduled after Philadelphia,
depending on experiences with the other locations. IRS has taken steps
in Philadelphia to limit the impact on career employees.
Consolidation of Back Office Operations.--For approximately 3
years, the IRS studied the reengineering of two administrative case
management operations: case processing and insolvency operations. Case
processing employees are responsible for a variety of back-office
administrative tasks in support of examination and collection casework,
such as processing cases, computer research and inventory controls. The
insolvency organization protects the government's interests by ensuring
that the government's claim in bankruptcy proceedings receives the
highest possible priority relative to other creditors.
The case processing initiative involves more than 1,200 employees
in over 80 locations. The insolvency initiative involves more than 300
employees in more than 50 locations. IRS is currently examining the
impacts on each State, but will work to minimize the impact on
employees by providing the maximum opportunities possible in affected
areas.
The current structure of these two operations is a vestige of the
old IRS structure prior to the reorganization mandated by the IRS
Reform and Restructuring Act of 1998. Under this structure, many of the
posts of duty have very few employees; indeed, some locations have only
one employee performing case processing or insolvency work. As a
result, we have minimal ability to respond to peak demand or manage
workload; and employees have little opportunity to develop specialized
skills or advance their careers. In addition, this widely dispersed
geographic structure results in a variety of non-standard processes and
makes quality review difficult.
The new operational structure builds on existing processes
currently being performed at IRS campuses; provides economies of scale
and standardization; allows the creation of a quality review unit;
offers staffing flexibility; and creates space savings due to shift
work. Specifically, Case Processing operations will be centralized at
four campuses (Cincinnati, Memphis, Ogden, and Philadelphia), and a new
function will be created to support the redesigned organization through
help-desk support, technical assistance and quality review. Insolvency
operations will be realigned across clerical, paraprofessional and
professional staff. The clerical and paraprofessional staff will be
consolidated in Philadelphia. (Approximately, 900 Insolvency
Specialists and Advisors will remain in field offices.)
Even after taking into account costs such as severance, hiring,
training, salary cost differentials, and infrastructure, we expect
these initiatives to yield savings in excess of $300 million over the
next 10 years. These savings will allow us to redirect the equivalent
of 350 to 425 full-time employees to front line tax law enforcement
over the next 3 to 5 years.
Reduction of Agency Overhead.--The IRS has studied human resources
and other support functions to identify staff efficiencies and
determine the proper size of these activities. Streamlining and
centralization of these functions will generate annual savings of
approximately 750 staff years, primarily two initiatives in the human
resource area: Personnel Field Services and Transaction Processing
Centers. The staff reductions are expected to occur in late 2005. IRS
is in the process of finalizing these plans and will announce the
details as they are able.
--Personnel Field Services.--The Personnel Field Services provides
internal and external staffing support for the IRS business
units, and administers over 30 benefit and work life programs.
This initiative will take advantage of new technologies, such
as a new automated Personnel system, HR Connect, mandated for
use throughout Treasury and CareerConnector, as well as
improved business processes and consolidation to create
efficiency gains. Through this initiative, we will consolidate
the Employment operations organizationally and geographically,
producing economies of scale and improved operations, and
yielding substantial support resource savings. Employment
services will be consolidated in locations to support on-site
campus operations.
--Transactional Processing Centers.--Transactional Processing Centers
(TPCs) process payroll and timekeeping for the IRS. Currently,
these operations are located at nine sites, each of which have
a timekeeping, payroll, and employee inquiry function. As we
implement HR Connect, we anticipate a 50 percent decrease in
workload at the TPCs. The TPC consolidation is also part of a
larger process of integrating the staff of the Employee
Resource Center (which handles all administrative inquiries
from Service employees) and the TPCs. Since about one-third of
the administrative inquiries concern payroll, integration of
these functions will permit us to answer more inquiries on
first contact.
Question. What kind of hires will occur as a result of the
reorganization?
Answer. The savings from the reorganization initiatives will
ultimately be re-directed towards approximately 2,200 new enforcement
positions. The case processing and insolvency initiative will result in
the creation of positions in Cincinnati, Memphis, Ogden and
Philadelphia. Case processing operations will be centralized at four
campuses and a new function will be created to support the redesigned
organization through help-desk support, technical assistance and
quality review. Insolvency operations will be realigned across
clerical, paraprofessional and professional staff. The clerical and
paraprofessional staff will be consolidated in Philadelphia.
(Approximately 900 Insolvency Specialists and Advisors will remain in
field offices.)
The reduction in agency overhead will fund expected efficiencies of
$18 million directed by the administration in the IRS's fiscal year
2005 budget.
IRS returns processing savings anticipated in fiscal year 2005 are
approximately $6 million and 147 FTE. These savings, along with $105
million additional savings will be reapplied as follows:
------------------------------------------------------------------------
Millions of
Reinvestment Dollars FTE
------------------------------------------------------------------------
Curb Egregious Noncompliance............ 31.4 293
Select High Risk Cases for Examination.. 6.0 ..............
Embedded Quality........................ 1.6 26
Consolidation--Case Processing.......... 13.7 80
Consolidation--Insolvency............... 2.1 15
Combat Corporate Abusive Tax Schemes.... 5.0 34
Leverage/Enhance Special Agent 2.5 28
Productivity...........................
Standardize CLMC Training Rooms......... 0.5 ..............
IRS Reorganization Transition........... 5.0 ..............
Service-wide Competitive Sourcing....... 9.1 ..............
MITS Reorganization Transition.......... 34.0 236
-------------------------------
Total............................. 110.9 712
------------------------------------------------------------------------
Downstream rent savings will be used to reduce rent deficits,
allowing IRS to protect enforcement initiatives.
IRS ENFORCEMENT INCREASE
Question. Mr. Snow, at our recent hearing with IRS Commissioner
Everson, we heard about the unbudgeted-for costs at IRS and how funding
that was to be used for enforcement, instead went to help pay for these
unbudgeted costs such as pay, postage and rent.
Can you give us the same commitment that Commissioner Everson did,
that every dollar that this subcommittee provides for enforcement for
this year and next year actually be spent on enforcement activities?
Answer. Yes, if the Congress provides the requested enforcement
funds, the committee can count on those funds going toward enforcement.
The only caveat is, as noted by Commissioner Everson when he
testified before the committee, is a government-wide rescission or
similar device is enacted, we will take them across the board and that
may affect the total enforcement resource level as it will affect all
of the other IRS accounts.
Question. Also, Mr. Secretary, we have been told by IRS that for
the past 3 years, enforcement has been declining at IRS. Now, IRS is
changing its focus and making enforcement a top priority.
Why has it taken 3 years for the IRS to stem the reduction in
enforcement activities?
Answer. The decline in enforcement activities was driven by
concurrent declines in frontline enforcement personnel and
implementation of significant process changes required to respond to
the mandates of the Restructuring and Reform Act of 1998. From fiscal
year 1996 to fiscal year 2003, the combined FTE for revenue agents,
revenue officers and criminal investigators declined by 27 percent.
During this period, IRS placed an increased emphasis on improving
taxpayer service, often to the detriment of enforcement. Despite this,
enforcement outputs increased in 2003 across all major programs. IRS
expects these increases to continue in 2004 with additional hires and
continued roll-out of reengineered processes. The fiscal year 2005
budget seeks to further restore IRS to a balanced program emphasizing
both service and enforcement.
OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
Question. Recently, OFAC provided supplemental budgetary
information to the Appropriations Committee outlining six areas of
focus relating to Executive Orders, followed by two significant efforts
on joint task force actions.
Please provide for the record how many FTEs or employee hours--
whichever is more applicable--are allocated for the above-mentioned
areas.
Answer.
------------------------------------------------------------------------
Executive Order \1\ FTE
------------------------------------------------------------------------
President's Financial War on Terrorism (E.O. 13224)..... 30.443
Charities and Regulatory Strategy/Financial War on 2.930
Terrorism (E.O. 13224).................................
Blocking Saddam's Misappropriated Assets (E.O. 13315)... 5.820
Western Balkans Executive Order (E.O. 13219)............ 1.070
Kingpin Act Program..................................... 9.095
SDNT--Colombian Cartels Program......................... \2\ 7.045
---------------
Total............................................. 56.403
------------------------------------------------------------------------
\1\ These numbers are estimates based on current workload and allocation
of resources to meet these needs. As workload demands change, the
numbers will fluctuate as well. Numbers in these tables include
allocation of resources for program implementation and support.
\2\ Includes Operation Dynasty and Operation Panama Express.
Question. What are the remaining FTEs or employee hours allocated
to?
Answer.
------------------------------------------------------------------------
Programs \1\ FTE
------------------------------------------------------------------------
Afghanistan/Taliban..................................... 0.69
Cuba.................................................... 21.43
Iran.................................................... 13.62
Iraq.................................................... 5.43
Libya................................................... 5.06
North Korea............................................. 0.34
Sudan................................................... 4.1
Syria................................................... 0.75
Burma................................................... 0.021
Liberia................................................. 2.06
Zimbabwe................................................ 0.58
Haiti................................................... 0.045
Other Programs.......................................... 6.971
Program Support......................................... 9.61
---------------
Total............................................. 70.707
------------------------------------------------------------------------
\1\ These numbers are estimates based on current workload and allocation
of resources to meet these needs. As workload demands change, the
numbers will fluctuate as well. Numbers in these tables include
allocation of resources for program implementation and support.
Question. Please list for the record, how many FTEs and employee
hours are dedicated to administering and enforcing the restrictions on
travel to Cuba.
Answer. Cuba, because of its proximity and distinctive relationship
with the United States, has a unique and critical sanction program
which receives strict attention. OFAC has the equivalent of 21.43 FTEs
who administer, oversee and enforce the Cuba program, including the
travel embargo and remittance restrictions. These FTEs focus on a full
range of OFAC services required for the administration of the program,
including licensing, enforcement, supervision and other important
aspects of the embargo. Of the 21.43 FTEs, approximately half are
devoted to processing travel-related license requests, which include
family, educational, humanitarian, religious, professional,
journalistic, governmental, and other types of travel.
Question. How has this differed from FTEs and hours spent during
each of the past 5 years?
Answer. Departmental Offices' financial management reporting system
does not have the capability of allocating the number of employees
dedicated to administering and enforcing the restrictions on travel to
Cuba over the past 5 years. The financial reporting system reflects the
total number of employees, authorized, on-board, and project FTE usage.
Question. How does the fiscal year 2005 budget request allocate
resources for this purpose?
Answer. The fiscal year 2005 budget request allocates resources for
this purpose based on the current FTE level (21.43 FTEs). It is
anticipated that this FTE level will remain approximately the same.
PROPOSED MERGER OF THE U.S. MINT AND THE BUREAU OF ENGRAVING AND
PRINTING
Question. Mr. Secretary, in March, the Treasury Department hired a
consulting company to study ways to merge the U.S. Mint and the Bureau
of Engraving and Printing (BEP). This is not a new idea and is one that
has been studied by GAO in 1997, by the National Performance Review in
1995, and by the Treasury Inspector General in 1987. In all cases, the
idea of a merger was rejected as impractical and potentially costly.
Despite these facts, the decision was made to pay for a new study at a
cost that will exceed $400,000. I have been told that this study will
not make a recommendation, that it is only a 60-day study that will
simply provide options.
Is this a wise use of taxpayer dollars when the idea has already
been rejected on three separate occasions?
Answer. The Treasury Department continues to look for taxpayer
savings and efficiencies in all its bureaus. Due to changing market
conditions, review of the Treasury Department's structure is necessary
to best serve the public. By studying the structure of the U.S. Mint
and Bureau of Engraving and Printing, the Treasury Department ensures
effective use of taxpayer resources.
Question. Is this expenditure reflected as a line-item in the
Fiscal Year 2005 President's Budget? If not, why not?
Answer. The expenditure is not a line item in the President's
Fiscal Year 2005 Budget. The U.S. Mint and the Bureau of Engraving and
Printing allocate resources for efficiency assessments they believe
necessary. The specifics of these studies are not always known when the
budget is formulated.
Question. Who at the Treasury Department made the decision to hire
the consultant?
Answer. The Secretary directed senior officials at the Bureau of
Engraving and Printing and the U.S. Mint to work with his staff. These
efforts at the Department are run out of the Office of the Assistant
Secretary for Management.
Question. Why wasn't this an open competition? Only three firms
were considered off the GSA schedule. Who were they and what factors
led to the winner's selection over the other two?
Answer. This was an open competition. The Department complied with
the requirements for full and open competition by obtaining three
experienced companies from the GSA Schedule. IBM, Logistic Management
Institute (LMI), and Booz Allen Hamilton are prominent and respected
firms in this field.
LMI was selected because the contracting officer determined the
firm submitted the best proposal based on their:
--1. Management Approach.--This includes ``Understanding of the
Requirement'' and ``Demonstrated Ability to Meet Timeframes
with Quality Products''
--2. Experience of Proposed Personnel in Cost Modeling, Government
Management Improvement Efforts, Redevelopment of Excess Plant
Capacity/Office Space, and OMB/Congressional Budget Issues
--3. Past Performance.--Includes the proposed individuals and the
firm.
Question. Why is this study being rushed in 60 days in order to
provide information for the fiscal year 2006 budget cycle? This is not
a new issue. Why is it imperative to cut corners and go to unnecessary
expense for this proposal?
Answer. The study was designed to be completed in approximately 60
days in order for Treasury to consider an inclusive approach that
assesses the possible impact of changing market conditions. This
inclusive approach calls for augmenting the business case for BEP/Mint
efficiencies within the context of current ``good government''
initiatives.
While the issue is not new, the environment (impact of E-Commerce
on demand and 9/11 impact on security) has changed since the prior
studies.
We believe this timeframe was reasonable for the assessment and is
a necessary expense and integral to implementing our approach for the
study.
Question. Will you provide your assurance, Mr. Secretary, that from
this point further, the Treasury Department will not expend any
additional funding to implement a Mint-BEP merger until such a time
that this committee and the Congress provide its approval?
Answer. We will not pursue any of these options without a full
consultation with Congress and, in fact, Treasury will not call for any
merger of any system or function during the 108th Congress.
______
Questions Submitted by Senator Robert C. Byrd
Question. Congress included in the Fiscal Year 2004 Consolidated
Appropriations bill, enacted as Public Law 108-199, on January 23,
2004, language that directs the administration to negotiate a solution
to the World Trade Organization's (WTO) ruling against the Continued
Dumping and Subsidy Offset Act. When will the United States present its
negotiating position on this matter to the WTO?
Answer. In accordance with the Appropriations bill language, the
United States filed and presented a formal paper in the World Trade
Organization (WTO) Negotiating Group on Rules for its meeting the week
of April 26, 2004, raising the issue of the right of WTO Members to
distribute monies collected from antidumping and countervailing duties.
That paper is publicly available on the WTO website (www.wto.org),
under the document designation TN/RL/W/153.
It should be noted that the November 2001 Doha Ministerial
Declaration mandate for the WTO Rules Group calls for an initial phase
of issue identification before any negotiations over specific changes.
Given this Doha mandate, it has been U.S. practice with respect to all
the issues we have raised thus far in the Rules negotiations to begin
with a submission identifying the issue generally, and we followed this
practice in our paper with respect to this issue as well.
Question. In report language accompanying the Fiscal Year 2004
Consolidated Appropriations bill, enacted as Public Law 108-199,
Congress directed the administration to report to the Senate
Appropriations Committee every 60 days on the progress of these
negotiations.
Can you explain why the first report was not provided to the
Appropriations Committee 60 days from enactment of the Consolidated
Appropriations bill, meaning on or about March 23, 2004? Can you
confirm that the next report will be provided 60 days from March 23,
2004?
Answer. The United States Trade Representative (USTR) is working to
schedule a briefing with Senate Appropriations Committee staff to
report on this issue as soon as it can be arranged.
Question. The Bush Administration currently does not pursue trade
remedies under the U.S. countervailing duty law against non-market
economies like China, even though: (1) the United States negotiated
subsidy disciplines with China as part of its accession to the WTO; (2)
the United States has worked to see that China participates in the
ongoing OECD steel subsidy negotiations; and (3) USTR reports that
various agricultural industries are experiencing ongoing export
subsidies by China. Can you tell me whether the administration is
reexamining this issue? If not, why not?
Answer. The Department of Commerce has informed us that it does not
currently apply the countervailing duty (CVD) law to non-market
economies (NMEs), a practice upheld in 1984 by the Court of Appeals for
the Federal Circuit in Georgetown Steel Corp. v. United States. In that
case, the Court affirmed Commerce's view of NMEs as devoid of the kinds
of market benchmarks necessary to identify a subsidy. The Court also
relied on Congress's 1974 effort to address unfairly traded NME exports
through the AD law by enacting the factors-of-production methodology.
Commerce has re-affirmed Georgetown many times, most recently in the
1997 preamble to the post-URAA CVD regulations. Congress enacted
substantial amendments to the CVD law in 1988 and 1994 without
disturbing Commerce's practice in this area.
The Commerce Department recognizes that the reasoning underlying
the Georgetown decision may not apply to China today to the extent that
it did 20 years ago. However, applying the CVD law to NMEs would raise
complex issues of policy and methodology, including implications for
antidumping policy and practice. Any such shift away from 20 years of
trade practice should therefore only be implemented after careful
consideration and review.
Question. The U.S. Bureau of Customs and Border Protection (CBP)
issued a report in March, which revealed that at least $130 million in
import duties were uncollected in fiscal year 2004, primarily in cases
involving imports from the People's Republic of China. Several weeks
ago CBP Commissioner Bonner suggested that an interagency task force
had been launched specifically to ensure that antidumping duties,
including those imposed on Chinese imports, are properly assessed and
collected by the U.S. government.
Please advise as to whether U.S. Treasury Department officials are
involved in this task force and, if they are, provide specific
information regarding what they plan do to solve this problem.
Answer. Assessment and collection of duties, including antidumping
duties, have been delegated to the Department of Homeland Security
pursuant to the Homeland Security Act. Treasury Department and CBP
officials have, nevertheless, discussed the issue of how to ensure that
antidumping duties are properly assessed and collected. Treasury
officials, however, are not involved in the particular work group to
which you are referring, which involves CBP and Department of Commerce
staff. CBP has informed us that it currently has in place trade
strategies that focus specifically on antidumping/countervailing duty
and revenue. Each of these plans has a multi-office working group
responsible for the development, oversight and evaluation of the plans.
These plans have already developed and implemented a number of actions
that address dumping as a whole and by inclusion, China. These actions
include identification and clean up of outstanding dumping entries,
increased operational oversight of the dumping process, development of
improved mechanisms to ensure and monitor adequate bonding of dumping
entries, and improved communication with the Department of Commerce.
______
Questions Submitted by Senator Byron L. Dorgan
Question. I'm very concerned about the finding in a recently-
released U.S. General Accounting Office (GAO) report. The GAO report
found that a majority of foreign-based and U.S.-based companies pay
absolutely no Federal income taxes each year despite doing trillions of
dollars of business here. There is compelling evidence that many
multinational companies are using transfer pricing to shift their U.S.-
earned profits abroad to tax-haven countries. And the ``arm's length''
pricing enforcement methodology that has been advocated by the Treasury
Department--and applied by the IRS--is simply not putting a stop to
this blatant tax gimmickry. Repeated attempts by the United States to
make the current ``arm's length'' system work over the past decade have
failed.
At what point will this administration decide that it's time to
finally abandon its ``arm's length'' pricing approach and develop a
more effective way to administer and enforce our tax laws with respect
to firms that operate across national borders?
Answer. The arm's length standard provides a clear, consistent
principle for dividing the income of a multinational enterprise among
the countries where it operates. The policy is neutral in its treatment
of companies within a multinational group versus independent companies
and thus does not favor one form of business organization over the
other. These positive features have contributed to the broad acceptance
of the arm's length standard as the international standard for
determining the income of multinational enterprises.
Another compelling reason to continue with the arm's length
standard is because it represents the best way to deal with related
party transactions under today's economic circumstances. The conditions
that make formulary apportionment possible at the State level do not
exist at the international level. Internationally there are neither
common accounting standards nor common approaches for measuring income.
Moreover, there is no umbrella framework or organization comparable to
the Federal income tax or the Internal Revenue Service. Unless
countries were to adopt a common accounting system and some sort of
international body were to be established with authority to examine the
worldwide financial statements of all multinational companies, it would
not be feasible to abandon the internationally-accepted arm's length
approach in favor of global formulary apportionment.
The Treasury Department continues working to improve the
administration of the arm's length standard and to build upon the
advances made in the last 15 years. The Treasury Department is devoting
significant resources to ensuring that the transfer pricing regulations
are up-to-date and reach appropriate results consistent with the arm's
length standard. This effort includes appropriate revisions of the
applicable regulations as well as an administrative compliance
initiative that is being directed by the Internal Revenue Service.
Question. The administrative problems associated with the current
``arm's length'' pricing methodology are well-documented. A number of
prominent tax experts share my view that U.S. tax avoidance by
sophisticated multinational firms has been perpetuated, in large part,
by the Treasury Department's blind allegiance to this antiquated tax
enforcement method.
I think we should replace the ``arm's length'' pricing method with
an objective, formula-based approach for apportioning the world-wide
income of related companies. This approach would be similar to the
system that States have used successfully for decades to allocate the
overall income of corporations among the States in which they operate.
A formulary method avoids many of the problems caused by the overly
subjective and factually-sensitive nature of intercompany sale pricing
under the ``arm's length'' standard.
What do you believe are the major impediments, if any, to the
United States moving to a formula method for apportioning the world-
wide income of related companies? If there are impediments, what steps
do you think would be needed to overcome them?
Answer. The United States could not implement a global formulary
apportionment regime unilaterally. The implementation of a global
formulary apportionment regime would require substantial international
coordination and consensus on predetermined formulae. Thus, a
significant number of steps would need to be taken if a global
formulary apportionment regime were to be implemented.
First, significant changes to our longstanding statutory and
regulatory rules would be required.
Second, reconsideration of the entire U.S. network of bilateral
income tax treaties would be necessary. If global formulary
apportionment were to be implemented, it would be necessary to ensure
that U.S. income tax treaties require or permit the use of such
apportionment to determine the taxable income of multinational
enterprises. The U.S. network of bilateral income tax treaties is the
means by which we reach agreement with our treaty partners on the rules
and mechanisms for avoiding double taxation and preventing tax evasion.
Each bilateral income tax treaty represents a negotiated balance of the
two countries' interests and is necessarily tailored to the two
countries' particular circumstances. Current U.S. income tax treaties
contain articles pursuant to which each country applies the arm's
length standard in transfer pricing matters.
Third, and perhaps most significantly, a consensus regarding the
implementation and administration of a global formulary apportionment
regime would have to be reached among all of our major trading partners
at a minimum. As a longer term matter, a consensus would need to be
reached among all countries. Absent such an international consensus,
there would be double or multiple taxation of the same income (and also
the potential for income to escape taxation altogether). The likelihood
that American companies would be subjected to double taxation would be
very high if the United States were to attempt to implement a formulary
apportionment system without such an international consensus.
Formulary apportionment would require international consensus on
the following basic items as a starting point: (1) how to measure the
global tax base, including a common accounting system; (2) how to
define the scope of the worldwide unitary business subject to the
formulary apportionment; (3) the factors to be used to apportion the
tax base; (4) how to measure and weight the apportionment factors; (5)
how to address the potential for distorting the results under the
formula by artificially shifting the factors; and (6) how to address
the particularly complex questions relating to intangible property. In
addition, proper implementation of a global formulary apportionment
system would require establishment of some sort of international body
that would have to be vested with the authority to examine the
worldwide financial statements of all multinational companies and to
which the United States (and other countries) would have to cede the
ability to define taxable income.
This summary description of steps that would be required for
implementation of a global formulary apportionment regime provides some
insight into why the arm's length standard has become the international
standard for dividing the income of a multinational enterprise among
the countries where it operates. The arm's length standard provides a
clear and consistent principle which is grounded in economics and to
which all countries can agree. The fact that the arm's length standard
is grounded in the underlying economics of the transactions has made it
possible to develop an international consensus in favor of the arm's
length standard among countries with very different economic interests.
SUBCOMMITTEE RECESS
Senator Shelby. Mr. Secretary, appreciate your leadership
and look forward to continuing to work with you.
Thanks for your appearance today.
Secretary Snow. Thank you, Mr. Chairman.
Senator Shelby. This concludes the subcommittee hearing.
[Whereupon, at 11:40 a.m., Tuesday, April 10, the
subcommit-
tee was recessed, to reconvene subject to the call of the
Chair.]
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
THURSDAY, APRIL 22, 2004
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. Richard C. Shelby (chairman)
presiding.
Present: Senators Shelby, Stevens, Murray, and Dorgan.
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
STATEMENT OF MARION C. BLAKEY, ADMINISTRATOR
Senator Shelby. The subcommittee will come to order. Today
we welcome Ms. Marion Blakey, the Administrator of the Federal
Aviation Administration, and Mr. Ken Mead, the Inspector
General of the Department of Transportation. I thank you both
for being here this morning. I look forward to our discussion.
Madam Administrator, your agency and the aviation industry
are to be commended for operating the safest aviation system in
the world. The 3-year average for fatal commercial accidents is
at an all-time low.
Obviously no mission is more important than the Federal
Aviation Administration and we should strive to improve upon
this impressive safety record. I look forward to hearing from
our witnesses what additional steps can be taken to improve the
safety of our airways.
The FAA and the aviation industry face other challenges, as
well. Our current fiscal constraints require us to make choices
between priorities and programs. We are at a critical juncture
in the modernization and operation of our air traffic control
system. After almost a decade of vigorously growing budgets, we
are faced this year with a budget request and a budget
environment that would seem to indicate that tough choices will
have to be made at the FAA.
Mr. Mead's written statement points out that FAA has not
been accustomed to operating within a budget-constrained
environment and that changing the organizational culture to
accept budget constraints will be a challenge. Yet when I look
at the FAA budget request I am struck that the choices made in
this budget request are remarkably similar to the choices of
the past. The agency's operations account grows by 5 percent
while funding for facilities and new air traffic control
equipment is squeezed. When other Federal agencies are facing
1.5 percent growth, I find it astonishing that a request for 5
percent growth is viewed as constrained.
Madam Administrator, you are to be commended again for your
commitment to slow the growth rate in the FAA's operational
costs and in your efforts at personnel reform. Clearly we have
a long way to go to bring the FAA's operational cost growth
into line with the budget realities that we are likely to face
for the next several years. While you have all the legal
authority to implement virtually any reform you can imagine,
true personnel reform is elusive and remains exceptionally
difficult at the FAA.
PAY PERFORMANCE
Your effort to link pay and performance is a step in the
right direction. I note that you have had mixed success in
tying pay raises to meeting performance goals. It is ironic
that the controllers did not participate in this linkage
between raises and performances last year, even though one of
the three organizational goals that FAA missed was air traffic
control operational errors.
Administrator Blakey, tying pay to performance is
appropriate, I believe, and overdue. While your action last
year was only a step on a path toward linking pay and
performance, I commend you for taking this necessary first
step. I look forward to hearing what further steps you plan to
make.
I also want to mention your efforts to restructure air
traffic services and research and acquisition offices into a
performance-based organization called the Air Traffic
Organization. If this structure is properly implemented, it
will instill personal accountability throughout the FAA. On the
other hand, if the ATO is implemented incorrectly, it will only
add another layer of bureaucratic structure to an already
dysfunctional organization.
PROBLEMS WITH MODERNIZATION
I believe that we must improve FAA's workforce productivity
if we are to achieve any type of meaningful budgetary savings.
A major contributor to improving productivity should come
through making the right investments in modernization of the
National Airspace System. Yet when I review the facilities and
equipment budget, I am disappointed that this is where the cuts
to the FAA budget have been taken. I am concerned that the
lion's share of the remaining facilities and equipment funding
is poured into the same money pits that consumes a
disproportionate amount of our capital funding, including the
Wide Area Augmentation System (WAAS) and Advanced Technologies
and Oceanic Procedures (ATOP).
Further, I am increasingly concerned with the En Route
Automation Modernization procurement to replace the aging Host
system. The funding profile for ERAM is unrealistically
aggressive; the program structure is unnecessarily complex; and
the procurement strategy virtually guarantees substantial cost
growth, schedule slippage, and questionable outcomes. I am
interested in hearing from the Inspector General, his
suggestions for minimizing the risk associated with this
program.
We may be coming to the realization that the FAA is not
capable of developing realistic cost estimates and schedules
for major acquisition and development programs. We may also
need to determine what steps to take to protect the taxpayer
from what the Inspector General characterizes as historical
``cost growth, schedule slips, and shortfalls in performance.''
What concerns me most about the statement is the
implication that cost growth, schedule slippage, and
performance shortfalls are expected and seem to have become
part of the FAA culture. The FAA's failure to cost-effectively
modernize and redesign the National Airspace System is only
matched in spending and failure by the IRS's on-going failed
attempts to modernize its computer system.
FLIGHT DELAYS
The Bureau of Transportation Statistics recently published
its monthly analysis of airline on-time statistics and causes
of flight delays. The 6-month analysis shows that almost half
of flight delays are caused by insufficient infrastructure or
failures of the National Airspace System itself. I believe this
data underscores the primary issue facing the FAA in this
budget request: are we making the right decisions to address
constraints in the system, enhance safety, and improve
efficiency, or are we failing to question our assumptions and
merely following the same programs, procurements and pitfalls
that the FAA has slavishly adhered to in prior budgets? It is
an important question to ask and an even more important
question to honestly answer. I hope we can get some of these
answers here today.
Senator Murray.
STATEMENT OF SENATOR PATTY MURRAY
Senator Murray. Thank you, Mr. Chairman. I am glad you have
called this meeting this morning to focus specifically on the
needs and challenges facing the Federal Aviation
Administration.
The President's budget for fiscal year 2005 proposes to
effectively freeze overall funding for the Transportation
Department at the level of $58.7 billion. However, within that
proposed freeze are selected increases and corresponding cuts.
The largest single cut of any agency within the Transportation
Department is roughly the $400 million that President Bush
wants to cut from the FAA's efforts to modernize our air
traffic control system. Frankly, I was dismayed when I learned
of the President's planned retrenchment in aviation investment.
As a long-standing member of this subcommittee, I know well
that there have been several problems that have beset the FAA's
efforts to modernize the equipment that keeps the National
Airspace System operating each day. As the Inspector General
will tell us this morning, certain programs continue to
encounter significant cost overruns and schedule delays.
But in my mind, the solution to these problems is not the
wholesale disinvestment that is proposed by the President.
While a lot of attention has been focused on the $400 million
cut proposed for 2005, a little known fact is that President
Bush's multi-year budget anticipates even further cuts will be
made in the FAA's procurement budget in the future. For 2006,
the Bush Administration intends to cut air traffic control
modernization by an additional $61 million. Taken together,
under the President's proposal total funding for air traffic
control modernization over the 4-year period covered by the
Vision-100 Aviation Authorization Bill that the President just
signed a few months ago would be more than $2.3 billion less
than the level authorized in that bill.
What is even more perplexing is that the Bush budget
proposes that modernization funding stay almost $2 billion
below the level that President Bush himself proposed in his own
Aviation Reauthorization Bill. Finally, under the Bush budget,
funding for aviation modernization would be almost $1.3 billion
lower than the level we would achieve if we just froze
modernization funding at the current level.
This is truly harsh treatment. It seems no sooner did the
President sign the Vision-100 bill than he turned his back on
it. His wholesale retrenchment will mean that the flying public
will have to wait even longer to see the woefully outdated Air
Traffic Control System brought up to modern standards.
My principal concern with the President's decision to
disinvest in aviation is what it means for the future of
aviation and America's leadership in aviation. After leading
the world in aviation for its first 100 years, I have to wonder
whether the President is now creating an opportunity for
Europeans or others to control the next 100 years. When you
look at many of the modernization projects that have been
eliminated from the budget to accommodate the President's
proposed cuts, many of them were designed to bring the cutting
edge of technology into our air traffic control system to make
our aviation system safer and more efficient.
Just last week I had the opportunity of visiting the Air
Traffic Management enterprise at the Boeing Company in my home
State of Washington. They are making great strides in
developing plans for the next generation, satellite-based air
traffic control regime. These are the kinds of initiatives in
which we must continue to invest if we are to stay ahead of our
foreign competitors and lead the way in aviation. Leadership
means having a plan that addresses the future, not just a plan
to survive day to day with inadequate staff and outdated
equipment.
One case in point is the situation we find ourselves in
with our air traffic controllers. Today the number of air
traffic controllers at our 24 en route centers is 747
controllers--10 percent less than the level called for under
the FAA's own staffing standard. Some of these facilities are
currently staffed as much as 30 percent below the level called
for under the FAA's staffing standard.
The Inspector General will testify to us that the FAA is
going to need to take great care in planning for what is
expected to be a wave of controller retirements potentially
bringing the number of available air traffic controllers for
these facilities to an even lower level. The FAA needs the kind
of resources to implement a plan that is focused on the future
to ensure that as air traffic continues to grow there will be a
steady stream of fully trained controllers to manage our air
space so that our system can continue to be the safest in the
world.
AIRCRAFT MAINTENANCE
Another case in point is the area of aircraft maintenance.
The Inspector General will testify that the FAA has real
deficiencies in its inspection oversight of maintenance
activities that were formerly executed by the air carriers
themselves but are now commonly contracted out to third
parties. On January 8 of last year, a US Airways Express plane
crashed while taking off at Charlotte, North Carolina,
resulting in 21 fatalities. The NTSB's investigation of this
crash revealed that the cause was partially related to
defective maintenance by a third-party contractor.
We need to have an FAA that is sufficiently focused on the
future so that its inspectors are ahead of the industry trends,
not playing catch-up.
Mr. Chairman, we have an obligation to keep this agency
focused on the future, even if the President's budget wants to
focus them solely on survival from day-to-day. I hope this
subcommittee will not allow our Nation to lose its leadership
in aviation and undermine the progress we have made in ensuring
that our aviation system remains the safest in the world.
Thank you very much, Mr. Chairman.
Senator Shelby. Senator Dorgan.
STATEMENT OF SENATOR BYRON L. DORGAN
Senator Dorgan. Mr. Chairman, thank you. I am sorry I was
delayed. My understanding is that we have not yet had the
statement by the witnesses; is that correct?
Senator Shelby. We have not. This is the opening statements
of Senators.
Senator Dorgan. I will be very brief. I do have some
questions for the FAA Administrator.
This is obviously a big job. We are threatened in this
country with the prospect of terrorists that want to kill
innocent Americans and we know that they have used airplanes to
do that. The FAA has had a big job even notwithstanding
terrorism but add terrorism to the issue and it is significant.
I think the airline industry has had plenty of struggles in
recent years and our country and our economy depends on a
commercial airline network that works and that is safe and
provides reliable transportation. We have gone through a series
of things over many years of crowding and delays and passenger
issues and then the terrorist attacks and the shutdown of that
industry, so I think Administrator Blakey has her plate full
and I appreciate the work she does.
I do want to say this. I am concerned again about the
recommendation in the President's budget to cut funding for
essential air services by half, more than half, in fact. I
think it is a serious mistake. I remain concerned about the
prospect of contracting out or privatization of certain air
traffic control functions, and I will talk about that with the
Administrator.
Mr. Mead, thank you for the continuing work you do. You
have been, I think, very important to the work that we have
done on the Commerce Committee on many issues and important to
the work in the Appropriations Committee, so thank you very
much for being here, as well.
I will then hear the testimony and then ask questions, Mr.
Chairman.
PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN
Senator Shelby. Thank you, Senator Dorgan. Senator Durbin
has submitted a prepared statement which will also be included
in the record.
[The statement follows:]
Prepared Statement of Senator Richard J. Durbin
Chairman Shelby, Senator Murray, thank you for holding this
important hearing today on the fiscal year 2005 budget for the Federal
Aviation Adminstration (FAA).
I'd like to begin by welcoming FAA Administrator Marion Blakey and
Inspector General Ken Mead back to the committee for today's hearing. I
look forward to your testimony.
This morning, I'd like to briefly touch on a few issues of
importance to my home State of Illinois.
Administrator Blakey, I want to thank you and the Federal Aviation
Administration (FAA) for your continuing support of the Chicago O'Hare
modernization project. I'm told the City of Chicago and the FAA are
working well together and that a project office has been opened and a
time line established. As you know, this project remains a high
priority for me and it is vitally important to our national aviation
system.
It's my understanding that the FAA will begin the Environmental
Impact Statement (EIS) process in February 2005 and will endeavor to
have a signed EIS Record of Decision by September 2005. I hope this
project will remain on schedule. I encourage both the FAA and the City
of Chicago to keep working together to develop the roadmap for this
project. The positive impact that O'Hare modernization will have on the
region and the national aviation system is simply too important to
delay.
The O'Hare modernization project is the long-term solution to
chronic congestion and delays at the airport. However, in the interim
we need to pursue operational changes--better and more efficient
technology and procedures as well as flight operations.
Yesterday, Secretary Mineta announced an additional 2.5 percent
voluntary flight reduction by both American and United Airlines at
Chicago O'Hare during peak travel times. This follows a 5 percent
voluntary flight reduction in January, designed to help relieve
aviation congestion and flight delays at the ``World's Busiest
Airport.'' I was pleased to join you and the Secretary in pushing for a
temporary, voluntary reduction of flights during the peak hours at
O'Hare.
However, I want to ensure that these flight reductions do not
disproportionately affect smaller communities, like Downstate Illinois.
I look forward to reviewing the data on this initiative and working
with you and the airlines.
Finally, I would like to ask you to look into two Chicago Airport
System projects that were included in the fiscal year 2004 Omnibus
Appropriations conference report (Transportation-Treasury title), at my
request. First, $4 million for various improvements at Midway Airport
related to capacity expansion. And $1.5 million for CAT II/III
instrumentation for Runways 27L and 27R at O'Hare. It is my
understanding that this funding has not yet been released by the FAA. I
hope you can help resolve any outstanding issues on these projects
within the FAA in the near future.
Thank you, Mr. Chairman.
Senator Shelby. Both of your written statements will be
made part of the hearing record in their entireties. You may
proceed as you wish. We will start with you, Ms. Blakey.
STATEMENT OF MARION C. BLAKEY
Ms. Blakey. Thank you, Chairman Shelby. And I do
appreciate, Senator Murray, all of the leadership that the
Senate is exercising in this area, and I do want to thank you,
Senator Dorgan, for all of your attention to aviation. We have
had some good conversations, and it has been very helpful from
my standpoint.
It is a pleasure to appear before you today to represent
the men and the women of the Federal Aviation Administration. I
am also proud to be following Secretary Mineta, who I know
appeared before you last month.
Let me take a moment if I could, also, to recognize our
Inspector General. Ken Mead and his staff have worked very
closely with us over the last year and we do appreciate their
work to help us address a number of difficult issues. We also
appreciate their commitment to helping us improve the way we do
business.
Last year I testified before this committee for the first
time as the Administrator of the FAA. I told you then that I
had witnessed the best the agency has to offer, operating the
best aviation system in the world safely and efficiently; major
advances in modernization, capacity and, of course, safety. But
I also told you that the FAA has not achieved its full
potential. It had not become the performance-based organization
that it could be, that Congress intended it to be, and I said
we could do better.
FLIGHT PLAN
I am happy to say that we are doing better, Mr. Chairman.
In the past year we have made changes that will fundamentally
alter the way the agency operates. First, we began tracking
goals, programs and spending through our Flight Plan, the
agency's blueprint for action through 2008. For the first time
in FAA history, our business plan is tied directly to our
budget. The Flight Plan is making the FAA more businesslike,
more performance-driven, more customer-centered, and more
accountable.
And for the first time, each FAA organization now has its
own individual business plan that is linked to the Flight Plan,
costed out, and built into a performance tracking system that
our senior management regularly reviews. In fact, we get
together, all of us, once a month to look at this to see how we
are doing--are we hitting our numbers or not? And we post this
on the FAA website so everyone can see the status of our
reviews.
The chart next to me shows you the kind of information that
we are making publicly available. It is a very simple, very
accessible, red, yellow, and green system. It shows how we are
doing on things like decreasing runway incursions, increasing
our airport arrival efficiency rate, and bringing in our
critical acquisitions on schedule and on budget, as I
understand this committee has concern about.
We list all 30 targets in the Flight Plan and you can see
the progress we are making on them. For example, if you are on
the website and you click on that top red bar there, what you
are going to see is our general aviation accident data. And, as
you can see, we are currently in danger of missing our target
in this area. At the same time, we are well on our way to
meeting our goal on another one of the bars up there, of
reducing the most serious operational errors by 15 percent,
thanks to the very hard work of our controllers. You can see
the details of it again on this kind of chart. We are providing
this information to anyone who needs it.
AIR TRAFFIC ORGANIZATION
Just this past year we launched a new Air Traffic
Organization to eliminate bureaucratic stovepipes and provide
more cost-efficient services for our customers. We hired our
Chief Operating Officer from the private sector. This had been
a major goal from a congressional standpoint and certainly one
we shared. I would therefore like to introduce Russ Chew, our
new COO, behind us. Russ is really building the tactical engine
that is going to help us become more bottom-line-focused.
CHIEF FINANCIAL OFFICER (CFO)
Just weeks ago we hired a new Chief Financial Officer (CFO)
and I would like to introduce Ramesh Punwani, who is the former
CFO of Travelocity, TWA, and Pan Am, so we have wonderful
experience that we are drawing on.
Across the agency we are implementing the tools that will
allow us to operate more like a business. We have cost
accounting in two of our lines of business and several support
organizations. By the end of this fiscal year the remaining
lines of businesses for the FAA will have cost accounting up
and running.
COST ACCOUNTING
Now as an example of cost accounting, I think you will find
this interesting. The chart next to me shows a breakdown of the
FAA's hourly cost of providing en route services to individual
aircraft. We have not been able to do this before. It is
currently $139 per hour. With this data, the FAA can now
understand the cost of providing services and identify better
ways to drive those costs down.
On the other chart we have broken down the cost by
facilities, again en route services, and while there are very
legitimate differences between facilities, you can learn a lot
by looking at those that are operating at a lower cost per
flight hour. So again this illustrates what we are trying to
do.
Mr. Chairman, cost control is a priority, and I assure you
we are working on reducing the increases in those operating
costs that you talked about.
AIR TRAFFIC MOU'S
Now in response to concerns regarding the air traffic
control memoranda of understanding, we have implemented a
strict new internal process of reviewing all labor agreements.
We are also working to improve our performance-based pay
systems by strengthening our employees' incentives to perform.
PAY-FOR-PERFORMANCE
Within the last year we increased the percentage of our
employees under pay-for-performance from 35 percent of the
workforce to 75 percent of the workforce. Our sick leave,
workers comp, overtime costs, yes, the FAA's costs are among
the highest in government and we are aggressively working to
manage those costs.
SAFETY
While we are striving to control our costs and operate more
like a business, safety always remains the FAA's top priority.
I am pleased to announce that the Nation's commercial fatal
accident rate is at an all-time low--.022 fatal accidents per
100,000 departures. This chart, I think, really tells an
amazing story. Admittedly, .022 is a difficult number to
comprehend, so what does it mean? I thought one of the best
examples of this was articulated by Dr. Arnold Barnett, who is
Professor of Management Science at MIT. He puts it this way.
Pick a random flight every day. You will fly 21,000 years
before you are involved with a fatal crash.
This year we made good progress in bringing new technology
on line that will improve safety. Just take, for example,
required navigation performance or RNP, a revolutionary
approach that will move the United States from a ground-based
navigation system to one located within the aircraft itself.
Saves time, avoids delays for the traveling public, improves
safety, and improves the environment. What is not to like? And
because the equipment is already located on board many of our
aircraft, it saves the airlines, the government, and the
traveling public money.
REPAIR STATIONS
In addition to improving safety through modernization, we
are sharpening our focus on airline maintenance. Again that was
a focus of Senator Murray's discussion this morning. We are
looking very hard at repair stations, both here and abroad. We
have enhanced our new oversight programs for stations that
perform out-sourced maintenance work. In January, in fact, we
implemented sweeping revisions to repair station rules. It
gives us more surveillance authority, tougher standards for
contract maintenance, and mandates FAA-approved training
programs for these workers.
CAPACITY
Finally let me turn to capacity. Our budget requests $3.9
billion to expand capacity and improve mobility within the
Nation's aviation system. As we return to full capacity, we are
taking immediate and direct steps to avert a repeat of the
delay-ridden summer of 2000. We remember it all too well. We
forecast a return to pre-
9/11 traffic levels by 2006.
Less than a month ago we convened a Growth Without Gridlock
Conference that Russ Chew and his team put together that was a
first-of-its-kind meeting of industry, decision-makers and
government to see what we could do. Together, this group agreed
to new procedures, including express lanes. Those essentially
give us a way of streamlining our structure in the sky. We also
agreed to a policy that would impose minor delays at strategic
airports occasionally in order to avert massive delays across
the Nation.
So I am confident that these kinds of efforts are going to
lay an important foundation to greater capacity without
diminished efficiency.
PREPARED STATEMENT
So in closing, let me just emphasize we are working hard to
manage the FAA. We are changing the agency structure, with a
major shift to customer service and performance-focused
organization.
So with that, thank you, and I look forward to your
questions.
[The statement follows:]
Prepared Statement of Marion C. Blakey
Mr. Chairman, Senator Murray, and the distinguished members of this
committee, thank you for the opportunity to be here this afternoon. I'm
pleased to be following Secretary Mineta's appearance before you last
month and proud to be here representing the men and women of the
Federal Aviation Administration, which operates an aviation system that
is second to none in safety, complexity, and system efficiency.
Your message to the FAA last year was both clear and direct: The
FAA needs to operate more like a bottom-line business. We need to pay
greater attention to delivering high performance and cost-efficient
programs, and we need to show where we can save and redirect resources
to higher priorities.
These are very tough economic times for aviation, and we must
exercise care and caution with the taxpayer's dollar. In the past year,
the FAA has implemented several changes that will streamline our
operations, much in the same way a private sector corporation would
respond to a changing economy. From the way we deploy equipment to the
way we compensate our employees, we are working to make better use of
the monies appropriated to us. While we still have a ways to go, in the
past year, we achieved 75 percent of our performance goals, including
on-time arrival, exposure to noise, airport daily arrival capacity, and
airport arrival efficiency rate. The agency also is on track to meet
our performance goal of an 80 percent reduction in fatal commercial
accidents by 2008. The 3-year average for fatal commercial accidents is
at an all-time low.
THE FAA'S FLIGHT PLAN, 2004-2008
Step one for the agency was to put in place a strategy for setting
goals and achieving them. We call it our ``Flight Plan,'' modeled after
the specific routes a pilot follows from takeoff to touchdown. It is
the FAA's business plan--a blueprint for action through 2008. What's
more, for the first time in the history of the FAA, the plan is tied
directly to our budget. The leadership of the Secretary of
Transportation has made this possible. Mr. Mineta has provided the
Department of Transportation and this agency with a strategic direction
that has translated into results for the taxpayer.
The Flight Plan commits the FAA to four broad goals: increased
safety, greater capacity, increased U.S. international leadership, and
organizational excellence. The plan will make the FAA more business-
like, more performance-based, more customer-centered, and more
accountable. It is dynamic, adaptable, and cost-driven.
For the first time, as part of our Flight Plan, each FAA
organization now has its own individual business plan. Each of these
plans is linked to the Flight Plan, costed out, and tied to the budget.
Our business plan goals have been built into a performance-based
tracking system that we post to the FAA web site. It lists each of the
goals, performance targets, who's responsible, and the status of each.
Using this data, the senior management team conducts a monthly half-day
review of agency performance. This effort represents a first for the
FAA and is proving itself to be time well spent and money well
invested. When associated with other cost and performance data, this
information lets us see, clearly and precisely, the true cost of a
program. All the FAA lines of business are also implementing cost
accounting tools and practices.
SAFETY
Secretary Mineta has made it clear: there is no effort more
important to the Department of Transportation than improving safety,
and our budget reflects that commitment. Out of a total request of
$13.97 billion, almost two-thirds--about $8.8 billion--is dedicated to
improving or maintaining the safety of aviation. The Flight Plan lays
out an aggressive safety agenda. It supports further progress on
reducing the commercial and general aviation fatal accident rate and on
reducing the numbers of runway incursions, operational errors, and
HAZMAT incidents. It also establishes five new safety goals: reducing
accidents in Alaska; decreasing cabin injuries from turbulence;
preventing commercial space launch accidents; completing implementation
of a safety management system; and developing a single, composite
safety index. The overarching goal is to measure and achieve the lowest
possible accident rate, while constantly enhancing safety.
Already this year, we have made headway by bringing new technology
online. We are implementing a revolutionary new technology: required
navigational performance (RNP). Pilots and controllers use ``RNP'' in
areas where terrain can make it difficult or impossible to locate
traditional navigational aids, such as an instrument landing system. In
Juneau, Alaska, an unforgiving landscape and brutal weather conditions
make arrivals difficult. RNP enables Alaska Airlines to make smoother
arrivals. According to Alaska Airlines, this saves them $3 million per
year. I have had the privilege of flying an RNP approach into Juneau
firsthand. Controllers and pilots agree: RNP works.
From a technological standpoint, RNP combines the precision
information from satellite, airborne, and ground-based navigational
equipment into new procedures that enable the pilot to touch down at a
precise point on the runway. Its use allows for lower minima, enabling
pilots to land at airports that would previously have been unavailable
in bad weather. Much like computer software, there is no RNP to hold in
your hands, but its benefits are without question. RNP enhances safety.
It saves time and avoids delays for the traveling public. This will
help improve the environment. Because the equipment is already onboard
the aircraft, additional savings will be realized as well.
We remain equally committed to reducing the number of accidents
overall, not just those where fatalities or injuries occur. We
successfully installed the Airport Movement Area Safety System at 34
airports. ASDE-X is a similar success story. Designed to increase
airport safety by enhancing controller awareness, this surveillance
system detects potential conflicts on runways and taxiways. It depicts
aircraft and vehicle position with location information overlaid on a
color map showing the area. The first operational site was commissioned
last fall. Almost two dozen will be delivered by the end of 2005.
Our budget request includes $243 million to continue the Enroute
Automation Modernization, or ERAM. This is a critical program that
replaces obsolete hardware and software of the main host computer
system that is the backbone of en route operations. This level of
funding is vital to accomplishing our baseline schedule. I'm happy to
report that ERAM is progressing well. For example, one of the
precursors to deploying ERAM just went operational on February 25, more
than one month ahead of schedule. Another major milestone--the first
major software deliverable--was completed on time in December. However,
we do not underestimate the magnitude of this undertaking. But we have
the right team, the right approach, and a single-minded focus to bring
this program in on time and within budget.
In February, FAA alerted the airlines and aircraft manufacturers to
the possibility of an equipment change based on the FAA's consideration
of new regulations, whose object would be to reduce fuel tank
explosions. Years before, prospects seemed dim for a cost-effective
solution. Experts said it couldn't be done, but an FAA researcher
devised an inexpensive process to prevent fuel tank explosions. The
process replaces the oxygen inside the empty fuel tank with nitrogen,
an inert gas that will not explode. Statistics and research show that
this, combined with our efforts to remove ignition sources, will pretty
much close the book on fuel tank explosions for the U.S. fleet. Boeing
already is moving ahead to implement this technology aboard its
airliners, although the FAA is several months away from making a
decision on proposing new regulation.
We're also successful in deploying equipment to decrease the
effects of bad weather on aviation. Controllers, managers, and airlines
use our integrated terminal weather system--ITWS--for real-time
situational weather information that not only reduces weather-induced
delays and diversions, but also avoids wind shear. We already have
installed this system at Atlanta, Miami, Kansas City, Houston, St.
Louis, Chicago and Washington, DC. ITWS is currently being rebaselined;
we will provide you with our fiscal year 2005 plans for deploying
additional systems soon.
In addition, we are sharpening our focus on airline maintenance.
The FAA relies on almost 3,400 inspectors, 20 percent more than were
onboard at the time of the ValuJet accident, to ensure airlines meet
safety obligations. Over the last few years, we trained our inspectors
to work smarter in response to industry changes. We continue to
emphasize risk assessment and trend analysis to identify lapses. This
approach targets our surveillance to where it produces the greatest
safety benefit. Staying out in front of the cause--prevention--is still
the best way to stop an accident.
We're focusing on repair stations, both here and abroad. We're
enhancing new oversight programs for stations that perform
``outsourced'' maintenance work. In January, we implemented sweeping
revisions to repair station rules. This gives us more surveillance
authority, tougher standards for contract maintenance, and mandates
FAA-approved training programs for workers.
CAPACITY
While safety is our primary concern, we're also committed to
expanding capacity throughout the aviation system--both in the air and
on the ground. The budget requests $3.9 billion to expand capacity and
improve mobility within the Nation's aviation system. This request
supports expansion of capacity on the ground with new runways, as well
as the continued deployment of new technologies for increasing the
efficiency of the existing system.
We forecast a return to pre-9/11 traffic levels by 2006, and we are
taking steps to be ready. 2003 was a banner year for new runways--at
Houston, Miami, Denver, and Orlando--four of our busiest airports. In
each case, we reduced congestion problems at the specific location, as
well as providing relief to the overall system. We are well aware that
new runways are important at smaller airports, too. That's why our
reauthorization legislation gives small airports more flexibility for
capital improvements.
Our Flight Plan commits us to improving overall capacity at the
Nation's top 35 airports by 30 percent, over a 10-year period;
redesigning the airspace of eight major metropolitan areas (New York,
Philadelphia, Washington/Baltimore, Boston, San Francisco, Chicago,
Atlanta, and Los Angeles Basin); addressing environmental issues;
improving traffic efficiencies; and reducing airline delays. As you
know, if any of our major airports are suffering from congestion, the
whole system can be dramatically affected. Airport expansion and
enhancements are extremely challenging. But when it comes to finding a
solution, nothing can be ruled out--even building new airports.
As we increase capacity, we must ensure environmental
responsibility. The budget requests $571.6 million to support
environmental stewardship for noise mitigation, fuel efficiency
enhancements, and a comprehensive approach to addressing both noise and
emissions.
We continue to have success with the traffic management advisor--a
system that is designed to optimize the flow of high-altitude aircraft
into busy airports. It's operational at eight sites and has increased
the capacity at these airports by as much as 5 percent. We plan to
install this software at Chicago next year with the expectation that it
will increase capacity there by at least 2 percent.
The Standard Terminal Automation Replacement System (STARS)
provides controllers with standardized color displays and supporting
processors to display radar targets for control of the terminal
airspace. It replaces several generations of the existing terminal
automation systems. STARS' most significant feature is its open
architecture, enabling it to expand and adapt to new functional
requirements, and changing system configurations due to airspace
changes and runway modifications. Its unique fusion tracking allows it
to receive inputs from 16 locations to depict aircraft location more
precisely. It also represents a substantive increase in security and
redundancy over the existing terminal systems. STARS will be the
backbone for the next generation of safety and capacity tools. STARS is
operational at 19 FAA TRACON facilities and 13 DOD air traffic control
facilities. Our fiscal year 2005 plan for STARS will be provided to you
shortly, as we are currently undergoing a baseline review.
The Flight Plan charts our course to 2008. Beyond that, the
Operational Evolution Plan, our current 10-year rolling plan, sets out
the aviation community's strategy to increase capacity by 31 percent by
2010.
Looking further into the future, the aviation community needs to
develop a shared vision for aviation. That's why we launched a joint
planning and development office--called the JPDO. It is formulating a
plan for the evolution of aviation between now and 2025. The joint
planning and development office is housed in the FAA and comprised of
members from the Department of Transportation (DOT), NASA, the White
House Office of Science and Technology Policy, and the Departments of
Commerce, Defense, and Homeland Security. For the first time, we will
put in place a unified national plan to meet the aviation needs of U.S.
businesses, consumers, and the military.
Aviation is critical to the growth of the U.S. economy. This work
will lay an important foundation for the future. For example, some 51
million international visitors come to the United States every year,
making a contribution of more than $100 billion to the economy. Since
the tourism and aerospace industries generate about 10 percent of the
U.S. gross domestic product, we're preparing for both an increasing
number of domestic users and the opportunities of an ever-expanding
global sky.
INTERNATIONAL LEADERSHIP AND GLOBAL HARMONIZATION
The third goal in our Flight Plan is international leadership. The
United States must lead aviation into the second century of flight, as
it did in the first. Today, the FAA has operational responsibility for
approximately half of the world's air traffic, certifies nearly three-
quarters of the world's large jet aircraft, and provides assistance on
improving aviation systems to more than 100 countries. However, we must
become even more globally focused to ensure that U.S. citizens can
travel safely around the world, while being a catalyst for the smooth
flow of safety and capacity enhancing technology around the world. The
budget requests $45.2 million to support international leadership and
global connectivity.
Several weeks ago, I returned from a trip to Beijing, Hong Kong,
and Tokyo. Chinese aviation is thriving. The United States remains
China's largest export market, taking over one-third of China's
exports. According to forecasts, China, over the next 20 years, will
buy more transport category aircraft than any other country. By 2020,
China's air traffic operations will be second only to our own. In terms
of sheer numbers, China will be an important component of the expanding
global aviation system. Our goal is to work with Chinese aviation
officials to implement a system that is safe, efficient, and
interoperable with Western technology. The FAA already is laying the
groundwork to assist China's aviation system in supporting the 2008
Olympic games.
It is clear that the FAA needs to have a central role in advancing
the international leadership of the United States in aviation, and not
just in Asia. The numbers and the activity point to the need for a
globally regulated sky, and we are working to shape that destiny. I
have had the unique privilege of signing bilateral aviation safety
agreements with key aviation partners in Asia and Latin America,
literally within weeks of each other. These agreements are good for all
of us--for passengers, for government, and for the aviation industry.
ORGANIZATIONAL EXCELLENCE
The fourth goal is at the heart of the entire plan: to fulfill our
mission, the FAA must become a world-class organization. The people of
the FAA are the key to achieving this goal. We are committed to finding
and eliminating barriers to equity and opportunity. We believe that
fairness and diversity fortify our strength. Furthermore, we must give
our people the tools and resources they need to overcome the challenges
we face and to become more accountable and cost efficient. In turn, our
employee compensation and salary increases should be performance-based,
allowing the agency to pay for results and reward success.
In simple terms, our objectives are: to have stronger FAA
leadership, to meet our organizational goals, to control costs while
delivering quality customer service, and to make decisions based on
reliable data. The budget requests $428 million for organizational
excellence initiatives.
We can't be more accountable, cost efficient, and customer service
oriented unless we continue to change our way of doing business. The
FAA launched a new Air Traffic Organization (ATO) late last year. Our
previous organizational structure followed typical bureaucratic
stovepipes that often stymied progress. To overcome this, we hired a
chief operating officer who comes from the private sector, where
success is predicated on efficient organizational structures. This
group, known as the ATO, is taking its first steps toward becoming a
bottom-line-focused, results-driven service organization. One thing is
certain: the air traffic organization is the tactical engine that will
help us achieve the near-term goals of our Flight Plan and, eventually,
lead the FAA to a new way of doing business.
This is a real change in the agency's operating philosophy. We are
organizing around what we produce for our customers. We have 10
operating service units that will be responsible for not only
operations, but also for implementing new technology and capabilities
within their own business unit. The ATO is making changes across the
board. We recently hired a new vice president of safety. This position
provides day-to-day focus on safety from within the air traffic
organization. We also have created an office located outside the new
organization to provide independent air traffic safety oversight.
I am very excited about the possibilities that this new
organization holds for us in streamlining our operations and being more
accountable and productive. I will keep the committee apprised of its
activities and progress.
Like our counterparts in the private sector, we are determining how
best to utilize our human capital in the years to come. Our people are
our greatest resource, and the safety of the NAS, our greatest
priority. We have several challenges on the way to achieving
organizational excellence, one of which is the impending controller
retirements. As required by law, we have initiated a rulemaking to
consider waiver requests by individual controllers who want to work
beyond the current mandatory retirement age of 56. This rulemaking has
potentially significant personnel, budgetary, and other issues, so
although we have accelerated the process, it is not yet completed.
In addition, we are looking for other ways to become more
efficient. Specifically, we are investigating ways to right-size our
facilities. We are working to make our training programs more efficient
in order to reduce the time it takes to train new controllers.
Additional steps may need to be taken, and I will keep the committee
apprised of our actions.
I'm also pleased to note that FAA employees are, overall, adapting
well to the changes that are being made in the FAA and aviation, in
general. Our latest employee attitude survey shows a 71 percent job
satisfaction approval rating. That's an increase of 3 percent.
My initial impression is that while these survey numbers are moving
in the right direction, we still have a lot of work to do. As in past
surveys, employee ratings in several key areas are high, but in other
key categories, such as trust in upper management, accountability of
the organization, and communications, the numbers are not where they
should be. At this time, each line of business and staff office is
working to identify action plans that we must undertake to further
improve our scores in these areas. We are also looking at administering
the survey more frequently, as well as capitalizing on the success of
the private sector employee survey instruments and action planning used
by some of our external aviation partners.
COST CONTROL
One of our major objectives in the Flight Plan is cost control. As
you have requested, we are working on reducing our operating costs,
which have increased by 22 percent over the last 5 years. We are taking
the following steps to be more cost efficient:
--In response to your concerns regarding the proliferation of
memoranda of understandings (MOU's), last year, we implemented
a strict new internal process for reviewing all labor
agreements. We also renegotiated a number of costly pay rules
and MOU's with the National Air Traffic Controllers Association
(NATCA), as part of the controller's contract extension. We now
conduct an assessment of the budget impact and legal
implications of labor side agreements before we sign. We also
established an automated database for memoranda of
understanding that will allow us to track and analyze those
agreements.
--We are committed to negotiating pay-for-performance with our unions
until 100 percent of our workforce is under the system, and we
are actively working to control the growth of our labor costs.
Currently, 75 percent of the workforce is under a pay-for-
performance system. We have a very well compensated work
force--and deservedly so. They strive every day to achieve the
highest level of safety and service for the American people. At
the same time, we know we cannot sustain the growth in our
operating costs, and we are addressing it. We recently
negotiated an extension of the NATCA contract that links a
portion of pay increases to controller performance. Discussions
with the Professional Airways Systems Specialists (PASS) are
continuing. The NATCA multi-unit, a group of administrative
employees represented by NATCA independent of air traffic
controllers, has been at impasse for some time.
--Although FAA's Office of Worker's Compensation Program (OWCP) bill
has increased at a rate well below that of the rest of
government over the last several years, at a cost of $90
million, this program continues to be a major issue for us. We
have undertaken several initiatives that have begun to reduce
costs, and we plan to devote additional resources to the
program. A major OWCP issue facing not only the FAA, but also
the entire Federal Government is the right of beneficiaries to
stay on OWCP rolls well beyond normal retirement age. Forty-two
percent of former FAA employees on the OWCP rolls are 60 years
of age or older. Even more significantly, these individuals
account for almost 70 percent of the FAA's chargeback costs to
the Department of Labor (DOL), totaling well over $60 million!
--The agency's transition to a new financial management system,
DELPHI, remains under way. Bringing the system online has
proved to be a challenge. Slowly but steadily, the agency is
working to reduce the number of outstanding vouchers and
overdue vendor payments that were delayed during the transition
to the new system. Importantly, the agency received a clean
audit opinion on our financial statements for the third
consecutive year.
--We also are working diligently to implement the administration's
call for cost-effective business operations. An FAA study of
automated flight service stations is being conducted to compare
the cost of performing the function by Federal employees to the
cost of contracting it out. The study, initiated under the A-76
program, is designed to ensure that automated flight service
stations operate in the most cost-effective manner without
compromising safety or service. Our goal is to get the best
deal for the taxpayer, while focusing on the services required
for safe and efficient flight. The taxpayer stands to realize
substantial savings because of reduced annual operating costs,
which stand at $502 million in fiscal year 2003. The FAA enters
the process with an open mind and a commitment to make sure the
process is fair.
--The FAA is consolidating many of our personnel and accounting
functions to streamline the numbers of offices performing
duplicative functions. Much of our accounting operation will be
centrally located in Oklahoma City.
--The agency has implemented cost accounting in two lines of business
and several support organizations. We will implement cost
accounting in the remaining lines of business later this year.
The Office of the Inspector General has raised several concerns
with our labor distribution system, CRU-X, and we are refining
it to account more accurately for the distribution of labor
costs. The Inspector General raised justifiable concerns about
an ``automatic sign off'' feature in CRU-X that would, in
essence, punch an individual's time card without actually being
certain of when he or she stopped working. The Inspector
General also raised concerns about the ability for the system
to track all types of official time--such as breaks or when
conducting official union business.
CONCLUSION
In closing, let me emphasize that we are taking decisive steps to
manage the agency, its programs, and its expenditures. We are changing
the agency's structure with a major shift to a performance-based
organization, making hard, tough choices with our funding. We are
implementing cost accounting. We're operating more like a business. We
will continue to work on increasing the capacity of the system as it
returns to pre-9/11 levels. With that, I thank you for your time and
welcome the opportunity to discuss these issues in greater detail.
Senator Shelby. Thank you.
Mr. Mead.
Office of the Inspector General
STATEMENT OF KEN MEAD, INSPECTOR GENERAL
Mr. Mead. Thank you, Mr. Chairman, Senator.
I want to point out first that I think the feeling is
mutual with regard to the IG relationship with the FAA. The
management at FAA is clearly, unambiguously improving, in my
opinion, and the rigor of cost control, which is important in
these times, is clearly evident.
And as for you, I appreciate the kind words. It almost
seems to me like yesterday that I can recall testifying before
you. I can recall some of the exact questions and observations
you made just 2 weeks after 9/11, first in that extraordinary
joint House and Senate appropriations hearings and then the
Senate Secure Conference facility. It is etched in my mind.
The CBO has estimated that the deficit is going to be about
$477 billion this year. In 2001, FAA estimated that the trust
fund revenues next year would be about $14 billion. That number
has come down. It is now projected to be about $11 billion. So
their budget request of $14 billion is about $3 billion more
than the trust fund is going to bring in.
As the Administrator has said, a major focus for FAA this
coming year must be the control of costs. And as you noted,
Senator Shelby, in our statement we say that historically FAA
is not used to living in this type of environment.
I would like to make just a number of points here but the
first I would like to highlight is that FAA has got to be in a
position for rebounding air traffic. Domestic traffic levels
still fall short of the peak experienced in 2000, but there is
no question that traffic is rebounding.
PASSENGER ENPLANEMENTS
Some data points as a frame of reference here. In February
2004, the number of passenger enplanements is down 12 percent
from February of 2000. That represents a 5 percent growth over
enplanements last year. And I think this is an interesting
statistic, that in 13 of the 31 largest airports, including
some of those that experienced serious delays in 2000, the
number of scheduled flights in March 2004 is actually exceeding
the number of scheduled flights in March of 2000. But at 11 of
those 13 airports, the number of available seats scheduled is
still lagging behind the number offered in March 2000. One
reason that the operations in the air traffic control system
can be up but the number of passengers still down is the huge
growth in the use of regional jets. Since this time in 2000,
the number of regional jet flights has increased by 134
percent. That is a pretty astonishing figure.
Airports that bear watching include Chicago O'Hare. As you
could tell from the papers this morning, the Secretary and the
FAA took some additional actions yesterday. I would watch
Atlanta, and the three New York metropolitan airports. At those
five airports, arrival delays during the first 2 months of 2004
ranged from between 20 and 35 percent of scheduled flights and
the delays were generally 50 minutes or more, which is not
dissimilar from where we were in 2000.
Another watch item I would like to put on your RADAR screen
is Dulles Airport. The launch of Independence Air by former
United Airlines regional carrier Atlantic Coastal Airlines will
increase Dulles traffic this summer to historically high
levels. You can probably expect at least a 50 percent increase
in traffic there. That is going to place additional demands on
the air traffic control system, to say nothing of the already
taxed security checkpoints there.
SAFETY
Safety. It has already been mentioned that the January 2003
Air Midwest crash in Charlotte was the only fatal commercial
accident in the past 2 years. I do think that record is almost
remarkable. I can report that FAA has made progress again this
year in reducing runway incursions. Those are potential
collisions on the ground. Actually it is 3 years running that
those numbers are down, but at 324 this past year, that number
is still much too high.
Operational errors where controllers allow planes to come
too close together in the air, that remains a significant
safety risk. They continue to increase--over 1,000 of them in
2003, with an average of about one very serious error every 7
days. So those must come down.
On maintenance, there has been, as Senator Murray pointed
out, a gravitation of maintenance from in-house to out-sourced.
There are domestic repair stations and there are foreign repair
stations. We did issue a report last year on it that contained
a series of recommendations. The FAA has agreed with them all
and is proceeding to implement them.
The budget. Operating costs are mostly salaries and at $7.8
billion, those costs are the largest portions of the FAA's
budget. They continue to increase but not as markedly as they
had been in these last several years and I attribute that to
Administrator Blakey and her team.
MOU'S
We reported last year that FAA and NATCA had entered into
sidebar agreements called memoranda of understanding. Sometimes
FAA management did not even know about these and they had no
real inventory of them and there were a number that were costly
and rather wasteful.
Just one example. One memorandum of understanding allowed
controllers that were getting transferred to receive their pay
increase by as much as $45,000 before moving and sometimes they
would get that money a year ahead of time. Well, this past year
FAA and the controllers union have rescinded or modified a
large number of those memoranda of understanding. There are a
couple that I think still need attention but there has been a
lot of progress this year.
Getting big reductions in FAA's operating costs is tough,
Mr. Chairman, and that is because FAA has a very high salary
base and much of that salary base is covered by contract.
CONTROLLER RETIREMENTS
A cost driver this subcommittee needs to be aware of,
though, is a bubble of pending controller retirements. You have
in front of you two hand-outs and I would like to focus on the
first one. The hand-out that we provided indicates that FAA's
estimate is that about 7,000 controllers will leave the agency
over the next decade. As you can see from the chart, it begins
to hit big-time in 2006 and increases steadily from then on up
through 2012.
Now whether FAA is going to have to replace all these
controllers on a one-for-one basis is going to depend on a
variety of factors like the number of facilities and how many
people they need at each facility and initiatives that FAA
undertakes in its hiring and training process.
Well, we just completed an audit of FAA's process for
replacing and training controllers. I think it is with FAA for
comment and we will be issuing it soon. We see some
opportunities here.
First, I do not think FAA has a good handle on where the
vacancies are going to occur and when you are talking about
hiring people in these numbers, you really have to know where
they occur, because you have 300 facilities in the system. And
there is also a need for getting some solid, good estimates of
where they are going to occur and how many and when.
When we visited FAA facilities we found that they were all
over the map in how they were counting. While they all had
estimates of attrition, they differed. For example, one only
counted mandatory retirements. That is when you get to age 56.
Another used only transfers and excluded retirements and
another included all types of attrition, so they need to
calculate their estimates on a common basis.
OJT TRAINING
We also found that there were some huge differences in how
FAA facilities handle on-the-job training of new controllers.
They do not keep data on such things as the time and cost
required to complete OJT and we tried to calculate it at some
sample facilities and what we found was pretty astonishing. The
average time to train a new controller is about 3 years but we
found in some instances it would go up to almost 7 years.
COST ACCOUNTING
Cost accounting. Administrator Blakey is correct that they
have made progress at the agency on cost accounting but I am
really disappointed with the lack of progress in fielding a
labor distribution system plan for air traffic control. Until
you have that in place, it is going to be almost a crap shoot
to figure out where you are going to need controllers and when.
So I am hoping that we see some progress this next year on
that.
CAPITAL ACCOUNT
I will go to the capital account that both the chairman and
Senator Murray referred to. Last year we did analyze 20
projects and found schedule slips of up to 7 years. Fourteen
projects experienced cost growth of over $4.3 billion. That
number is an interesting number because it exceeds by more than
100 percent the annual appropriation for this account. FAA is
aware of this. We have seen some very positive signs as the
Administrator and her team are focused on addressing problems.
FAA has a lot on its plate with the existing acquisitions, plus
they're starting some new ones.
I would like to speak to the half-billion-dollar reduction
for a moment. It is not fair to say that the projects that were
cut lack merit but it is fair to say that the projects that
were cut did face some fundamental issues, like not having a
realistic cost estimate. And I do not mean just off by a little
bit; I mean by in some cases $100 million. In other cases there
were serious miscalculations about the benefits.
ACQUISITION PROGRAM
There are two things on the overall acquisition program
that FAA needs to do. The first is too many expensive projects
do not have reliable cost and schedule estimates, and I am
talking about huge swings. I know FAA is working on that but
until you get some reliable cost and schedule baselines you are
going to have a very difficult time figuring out what the game
plan is going to be for the future.
And second, stay away from these long-term cost-plus
contracts. By long-term I am not talking about just a couple of
years. I am saying sometimes a decade-long contract where you
enter into it and you say it is cost-plus, which is where the
contractor basically can bill the government and it is open-
ended. ERAM, as you mentioned, Senator Shelby, which is the
brain for controlling the high altitude air traffic, is one
such new system.
AIRPORTS
Airports. I would like to close on a couple of points on
airports. First is revenue diversion. Revenue diversion is
illegal in most cases. Congress put in some caveats and
grandfather clauses and so forth but overall, revenue diversion
is illegal and what revenues diversion is is that money that is
going to the airport, that the airport generates, is not
supposed to go to the city or the State, except to pay for
reimbursement for the services that are provided. We are
finding too much revenue diversion out there. I think FAA could
step up its efforts to provide some oversight.
PREPARED STATEMENT
Second is you have had some big plus-ups in the airport
account. It has gone from $1.5 billion, I think, to almost $3.5
billion. In addition, you authorized an increase in the
passenger facility charge, increased that to about $4.50. That
is yielding about $2 billion a year. Those funds are directed
by law toward airport-related projects, such as new runways.
However, FAA also incurs costs to support many airport
projects. Well, you are going to have to get money from
somewhere to provide the nav aids, the air traffic equipment,
and things of that nature that have to support those capacity
enhancements. I see this as a looming issue as to where you are
going to get the money to pay for those, particularly as FAA's
capital account gets squeezed more and more, because that is
the account where the money has historically come from.
Thank you, Mr. Chairman.
[The statement follows:]
Prepared Statement of Ken Mead
We appreciate the opportunity to testify today as the subcommittee
begins deliberations on the fiscal year 2005 appropriations for the
Federal Aviation Administration (FAA). This year, we are facing an
austere budgetary environment, one that will likely continue for at
least the next several years. The Congressional Budget Office estimates
that the Federal deficit will be $477 billion this year.
Within this context, FAA must also be positioned for a rebound in
air traffic. Domestic traffic levels still fall short of the peaks
experienced in 2000, but there is no question that traffic is
rebounding. In February 2004, the number of revenue passenger
enplanements (35.1 million) was down 12 percent from February 2000, but
this represents a 5 percent growth over enplanements in February 2003
(33.3 million).
While systemwide operations in February 2004 were slightly down
from February 2000, the story is very different on an airport-by-
airport basis. In 13 of the 31 largest airports, including some of
those that experienced serious delays in 2000, the number of scheduled
flights in March 2004 actually exceeded the number of scheduled flights
in March 2000. However, in 11 of those 13 airports the number of
available seats scheduled still lagged behind the number of available
seats offered in March 2000. This is an indication, at least in part,
of how network carriers are using regional jets in the place of narrow-
body jets to connect traffic to the network hubs.
It is unlikely that the situation will reach the level of
widespread system failures we experienced in the summer of 2000, but it
is possible that some airports could experience disruptions in service.
Airports that bear watching include Chicago O'Hare, Atlanta, and the
three New York metropolitan airports. At these five airports, arrival
delays during the first 2 months of 2004 ranged between 20 and 35
percent of scheduled flights.
The FAA and the Department have been working with the industry to
identify potential solutions to delays that might occur this summer
such as creating high-altitude express lanes and voluntary schedule
reductions. At Chicago O'Hare, arrival delays during March 2004
represented a 74 percent increase over delays in the same period in
2003 but down from triple digit increases during the period between
November and January.
One situation that bears watching, in particular, is the expected
service growth at Washington's Dulles airport. In June, when
Independence Air is launched by former regional carrier Atlantic Coast
Airlines as a new low-cost carrier, traffic at Dulles will increase
significantly. Some estimates put that increase at over 50 percent by
this summer. In addition to airside congestion, there are concerns with
airport terminal services, including the resources needed to process a
significantly increased number of passengers through security
checkpoints.
While air traffic levels continue to show improvement from the
sharp declines of 2001, there still remains a substantial decline in
projected Aviation Trust Fund revenues. In 2001, FAA estimated that
Trust Fund revenues in 2005 would be about $14.5 billion. That estimate
has now been reduced to $11.1 billion.\1\ FAA's fiscal year 2005 budget
request of $14 billion exceeds those revenues by nearly $3 billion.
---------------------------------------------------------------------------
\1\ Even though air traffic operations are rebounding, Aviation
Trust Fund revenues have not returned to previous levels partially
because of lower enplanements, lower air fares, and more point-to-point
service operations, all of which affect the amount of tax revenue
collected.
Clearly, a major focus for FAA this coming year, and for some time
to come, must be controlling costs. FAA has not been accustomed to
operating within this type of environment, and changing the
organizational culture to reflect that focus will be a challenge. This
past year, we have seen positive signs of leadership and commitment on
the part of Administrator Blakey and her staff to address FAA's costs.
For instance, there has been notable progress this past year in reining
in FAA's unabated cost growth in its operations account. Progress is
also being made toward restructuring the Air Traffic Organization into
a performance-based organization. However, much more remains to be done
to bring FAA's costs under control. Actions such as:
--developing realistic cost and schedule baselines for major
acquisitions,
--avoiding long-term cost-plus contracts,
--improving contract oversight,
--implementing a cost accounting and labor distribution system, and
--identifying ways to increase workforce productivity
will be key to effectively manage the Agency's budget, and this will be
the focus of our testimony today.
SAFETY
It is important to note that the U.S. aviation industry continues
to be the safest in the world. The January 2003 Air Midwest crash in
Charlotte was the only fatal commercial accident in the United States
in the past 2 years. This past year, FAA has made progress in reducing
runway incursions (potential collisions on the ground), but operational
errors (when controllers allow planes to come too close together in the
air) continue to increase. In fiscal year 2003, runway incursions
decreased 4 percent to 324, while operational errors increased 12
percent to 1,186, with an average of 3 operational errors each day and
1 serious error (those rated as high risk) every 7 days.
Additionally, a significant challenge for FAA will be to adjust its
safety oversight to emerging trends in the aviation industry, such as
outsourcing maintenance. While major air carriers outsourced 37 percent
of their aircraft maintenance in 1996, the amount spent on outsourced
maintenance increased to 47 percent of maintenance costs in 2002.
OPERATING COSTS
FAA is requesting $7.849 billion for its fiscal year 2005 operating
budget, which is about $370 million above the fiscal year 2004 enacted
amount of $7.479 billion. Operating costs represent the largest portion
of FAA's fiscal year 2005 total budget, over 56 percent, whereas FAA's
airports and capital accounts represent 25 percent and 18 percent,
respectively. This past year Administrator Blakey and her staff have
made notable progress in beginning the process of reining in FAA's
history of operating cost growth.
Last year we reported that FAA and the National Air Traffic
Controllers Association (NATCA) had entered into numerous sidebar
agreements or Memoranda of Understanding (MOU's). Many of those MOU's
had significant cost and/or operational impacts on the Agency, but we
found that FAA had no controls over the process.
This past year, FAA developed new policies and procedures that, if
properly implemented, should significantly improve controls over MOU's.
As part of an agreement to extend the controllers' collective
bargaining agreement for another 2 years, FAA and NATCA also rescinded
or modified many of the most costly MOU's. For example, FAA and NATCA
rescinded an MOU that allowed controllers transferring to larger
consolidated facilities to begin earning the higher salaries associated
with their new positions substantially in advance of their transfer or
taking on new duties.
However, one costly MOU that we identified last year was not
renegotiated. This MOU concerns ``Controller Incentive Pay'' (CIP),
which provides controllers at 110 locations with an additional cost-of-
living adjustment of between 1 and 10 percent, which is in addition to
Government-wide locality pay. In fiscal year 2003, this additional
cost-of-living adjustment cost FAA about $35.6 million.
FAA also made progress in linking pay and performance--a key tenet
of FAA's personnel reform efforts. As part of the 2-year extension of
the controllers' agreement, FAA and NATCA agreed to tie a portion of
controllers' salary increases to meeting four national performance
metrics, which include goals for reducing operational errors and runway
incursions. It is important to note, however, that the performance
increase represents a very small percentage of the controllers' total
annual pay increase. For each goal reached, controllers will receive a
pay increase of 0.2 percent. However, even if none of the performance
goals are met, controllers will still receive an average increase of
about 4.9 percent this year because of contractual requirements.
Achieving substantial reductions in operating costs represents a
tremendous challenge because salaries and benefits make up
approximately 73 percent of FAA's operating budget. Because FAA's
salary base is relatively fixed, it is unlikely that significant
reductions in operating cost growth can be achieved in the near term
without substantial improvements in the Agency's workforce
productivity.
Initiatives such as new air traffic systems, technological
improvements, efforts to redesign the National Airspace System, and
consolidating locations all have the potential to significantly improve
productivity. In the past, FAA has embarked on similar initiatives on a
limited basis but was unable to demonstrate any credible gains in
productivity partially because FAA did not have systems to accurately
capture reliable cost and workforce-related data.
Accurate cost and workforce data are particularly critical in light
of the anticipated wave of controller retirements. FAA currently
estimates that about 7,000 controllers could leave the Agency over the
next decade. Whether FAA will need to replace all of them on a one-for-
one basis depends on many factors, including future air traffic levels,
new technologies, and initiatives that FAA undertakes in its hiring and
training process. However, it is clear that as a result of the
anticipated increases in attrition, FAA will begin hiring and training
controllers at levels the Agency has not experienced since the early
1980's.
A substantial challenge for FAA will be to hire and train new
controllers within a tightly constrained operating budget. FAA has
recently made significant progress in this area by renegotiating
several pay rules with NATCA that previously allowed some newly hired
controllers to earn base salaries in excess of $79,000 while in
training. The renegotiated rules now allow FAA to set newly hired
controllers' salaries at levels that are more commensurate with an
entry-level position (from $25,000 to $52,000), which should help FAA
avoid higher costs as it begins hiring and training greater numbers of
new controllers.
We have just completed an audit of this issue and will be issuing a
report next month. We found that this is an area where management
attention is needed to better prepare for the expected increase in
retirements. For example, FAA has national estimates of expected
attrition within the controller workforce, but those estimates do not
take into account where vacancies will occur.
While most locations we visited had estimates of attrition over the
next 2 years, they included different information in developing those
estimates. One facility only projected mandatory retirements, another
projected attrition for transfers but not retirements, and another
provided estimates on all types of attrition (i.e., retirements,
transfers, hardships, resignations, and removals).
In addition, FAA does not keep national statistics on the
controller on-the-job training (OJT) process, which is the longest
portion of controller training. At the locations we visited, we found
that the overall time required for newly hired controllers to become
certified averaged 3.1 years, but in some cases it took as long as 7
years. To effectively manage the OJT process as hiring increases, FAA
will need data such as the time and costs required to complete OJT, the
number of training failures, and any delays in the process to benchmark
against and improve the time and costs associated with OJT.
The expected increase in controller attrition reinforces the need
for FAA to have its cost accounting and labor distribution systems in
place and operating effectively. This past year, FAA has made some
progress with its cost accounting system, but there has been very
little progress in fielding the labor distribution system planned for
air traffic employees. That system is critical for managing the
expected wave of controller retirements. FAA is aware of this need and
the Chief Operating Officer for the Air Traffic Organization has
committed to putting both of these systems in place.
MAJOR ACQUISITIONS
FAA modernization projects have historically experienced
considerable cost growth, schedule slips, and shortfalls in
performance. In the current budget environment, cost growth and
schedule slippages experienced in the past are no longer affordable or
sustainable. Cost and schedule problems with ongoing modernization
efforts have serious consequences because they result in postponed
benefits, the crowding out of other modernization projects, costly
interim systems, or a reduction in the number of units procured. In the
past, the severity of these problems has been masked by the size of a
modernization account that either grew or stayed constant.
We note that FAA has made downward adjustments in its fiscal year
2005 request for a number of modernization projects. These projects
have merit but they face fundamental problems with respect to
misjudging technological maturity, unexpected cost growth, or concerns
about how to move forward in a cost-effective way.
--The Local Area Augmentation System (LAAS) is a new precision
approach and landing system. In December 2002, we reported that
expectations for the cost, schedule, and performance of the new
system needed to be reset because the new landing system was
not as mature as FAA expected. Category I LAAS was planned for
2006, and more demanding Category II/III performance is now a
research and development effort with uncertain completion
dates. After assessing contractor progress, FAA believes that
it will take considerably longer, as much as 21 months, to
complete just the first phase of LAAS.
--Controller-Pilot Data Link Communications (CPDLC) is a new way for
controllers and pilots to share information that is analogous
to wireless email. FAA is deferring plans for CPDLC because of
concerns: (1) about how quickly users would equip with new
avionics; (2) that the approved program baseline of $167
million was materially understated and no longer valid; and,
(3) about the impact on the operations account, which is
already overburdened.
--Next Generation Air-to-Ground Communications System (NEXCOM) is an
effort to replace aging analog radios and foster the transition
to digital communications. The first segment of NEXCOM (new
radios and new ground infrastructure for digital
communications) was expected to cost $986 million. However, the
full cost of implementing NEXCOM throughout the National
Airspace System was uncertain, but later segments were
estimated to cost $3.2 billion. In addition, NEXCOM was
controversial with airlines because of FAA's preferred
technology. While FAA will move forward with replacing older
radios, it has postponed making decisions about NEXCOM ground
system development.
While we see positive signs that the Administrator and her team are
addressing fundamental problems with major acquisitions, additional
steps are needed.
--Developing reliable cost and schedule estimates.--Last year, we
reported that despite the benefits of acquisition reform
granted in 1996, cost growth and scheduled slips in
modernization efforts are all too common. For example, we
analyzed 20 major acquisition projects and found that 14 of
these projects experienced cost growth of over $4.3 billion
(from $6.8 billion to $11.1 billion), which represents
considerably more than the FAA's annual appropriation for
modernizing the National Airspace System.
For example, the cost of the Standard Terminal Automation
Replacement System (STARS), which will supply new controller
displays and related computer equipment for FAA's terminal
facilities, has nearly doubled from $940 million to $1.69
billion.
FAA has already obligated $1.1 billion through fiscal year 2003
and has installed 20 STARS systems, of which 19 are
operational. The Agency is currently reviewing its deployment
plans. We reported in September 2003 that STARS is not the same
program that was planned 8 years ago. The program has shifted
from a commercial off-the-shelf procurement to one that has
required more than $500 million in development costs. Moreover,
because of cost growth and a schedule slip to fiscal year 2012,
the benefits that supported the initial acquisition are no
longer valid.
The Fiscal Year 2004 Appropriations Conference Report directs our
office to review and validate the Agency's revised STARS
lifecycle cost estimates. We are encouraged that FAA has made
recent changes in the STARS program. To control cost growth,
FAA has developed a phased approach to STARS that will use a
fixed price contract and consider contractor performance before
moving to the next phase. Last Tuesday, FAA approved the first
phase limiting STARS to 50 locations. FAA is also developing a
business case to complete its terminal modernization program.
When FAA has completed its business case, we will review and
validate the cost estimates.
--Avoiding long-term cost-plus contracts.--Our work on the cost,
schedule, and performance problems of 20 major FAA acquisitions
illustrates why the Agency needs to avoid entering into long-
term cost-plus contracts before Agency requirements and user
needs are fully understood. Cost growth associated with
additional development work and changing requirements for both
STARS and the Wide Area Augmentation System was absorbed fully
by the government and ultimately the taxpayer.
FAA is now undertaking a large and complex automation effort
through a long term, cost-plus contract called the En Route
Automation Modernization (ERAM) program, which FAA estimates
will cost about $2 billion between now and 2011. FAA expects to
spend over $200 million annually on the project beginning in
fiscal year 2005. ERAM is designed to replace the Host Computer
System, the central nervous system for facilities that manage
high-altitude traffic.
One significant exception to programs with major cost overruns
with cost-plus contracts is the Advanced Technologies and
Oceanic Procedures program (ATOP), an effort to modernize FAA
facilities that manage air traffic over the Atlantic and
Pacific Oceans. Because FAA has relied on what is largely a
fixed price contract and kept requirements stable, the costs
associated with additional software development and correcting
software problems discovered during testing, until recently,
have been absorbed by the contractor.
Due to software development problems and pending delays, FAA
modified the contract and increased its value by $11 million in
an effort to maintain the Agency's schedule for deploying the
new system to Oakland by the end of June. This is a modest
adjustment compared to what we have seen with other
modernization projects that relied on cost-plus contracts.
While the $11 million can be accommodated in the current ATOP
cost baseline, the critical issue is what happens between now
and February 2005. This time frame is important because the
recent contract modification limits the contractor's
responsibility for paying to fix software problems FAA finds in
ATOP after February 28, 2005. FAA expects to complete work on
the initial version of ATOP software (required for Oakland)
shortly and plans to test the more advanced version of ATOP
software by the end of this year. Given the change in the
contract and tight time frames, it will be critical for FAA to
identify all software problems before February 28, 2005.
--Improving contract management.--Last year, we reported that FAA's
management of cost-reimbursable contracts was deficient, lacked
accountability, and did not adequately protect against waste
and abuse. Our audits have found that FAA officials did not:
(1) obtain audits of billions of dollars in expenditures on
cost-reimbursable contracts; (2) ensure reliable government
cost estimates were prepared and used in evaluating contracts;
and, (3) properly account for billing and expenditures to
prevent overpayments. For example, our current audit work has
identified that FAA officials did not obtain audits of 17 cost-
reimbursable contracts with a total value of $6.7 billion.
In January 2004, when we rendered our opinion on the Department's
financial statements, we identified these deficiencies as a
material weakness, and FAA is implementing a detailed action
plan to correct the deficiencies. We are working with FAA to
ensure that these actions are fully implemented. We do want to
note that FAA achieved a ``clean'' opinion on its fiscal year
2003 financial statements.
AIRPORTS
Finally, funding for the airport improvement programs (AIP) has
seen substantial increases over the past several years. FAA's AIP
account has increased from $1.5 billion in 1996 to $3.5 billion in
2005. This is on top of passenger facility charges (PFCs) that airports
collect (up to $4.50 per passenger) that FAA estimates will generate
over $2 billion in fees in 2004. FAA projections suggest that a similar
amount will be collected in 2005.
The increased amounts of AIP funding and PFC collections are
directed by law toward airport-related projects, such as new runways.
However, FAA also incurs costs to its other accounts in order to
support many of the airport projects. For example, FAA's Facilities and
Equipment (F&E) and Operations accounts bear the cost of air traffic
related projects, such as new weather or instrument landing systems and
the redesign of airspace to support new runways.
An emerging issue for FAA's budget is whether or not airport funds
should be used to support some air traffic control related projects. In
its budget request, FAA observes that new systems once considered
beneficial to FAA air traffic operations have evolved to provide
significant benefits to airport operators and users. FAA's budget
submission identifies several systems that should be considered for AIP
funding instead of funding from the F&E account.
Although AIP funds can be used for this purpose, the change would
represent a shift in the allocation of budgetary resources. FAA
estimates that this would impact the AIP account in fiscal year 2005 by
about $30 million, but this number could grow as more capacity projects
come on line. Accordingly, FAA needs to identify and quantify all the
specific systems that will be needed to support new infrastructure
projects and then identify the funding sources that will be used to pay
for them.
A longstanding problem that we continue to address through our work
is diversion of airport revenues by airport sponsors or owners. We have
been reviewing revenue diversions for over 13 years. Between 1991 and
2000, our audits disclosed over $344 million in diverted revenue. Last
year, we reported on revenue diversions at five large airports,
including one airport whose sponsor, a local government agency,
diverted about $40 million to projects not related to the airport.
Our work shows that FAA's oversight of revenue diversions is
limited. In the past, FAA has maintained that it did not have the
resources to devote to this issue. We recently met with the Associate
Administrator for Airports and members of her staff to discuss FAA's
specific plans to increase the Agency's oversight of revenue
diversions. We plan to meet next month to review progress and discuss
how we can coordinate efforts. These are steps in the right direction;
the key now is follow-through.
AVIATION SAFETY ISSUES
In terms of safety, FAA and U.S. air carriers have maintained a
remarkable safety record. The January 2003 Air Midwest crash in
Charlotte was the only fatal commercial accident in the past 2 years.
However, operational errors pose a significant safety risk, with an
average of three operational errors per day and one serious error
(those rated as high risk) every 7 days. In fiscal year 2003, the
number of operational errors increased 12 percent to 1,186, or 125 more
than the number of incidents that occurred in fiscal year 2002.
Additionally, while runway incursions have continued to decline for a
second year in a row, there is still an average of nearly 1 runway
incursion per day and an average of 1 serious runway incursion every 11
days (those incursions that barely avoided or had significant potential
for a collision).
As shown in the following table, while the total number of runway
incursions has decreased, during the first 6 months of fiscal year
2004, the most serious runway incursions have increased. Also, the
total number of operational errors continue to increase, even though
the most serious, or high severity, operational errors decreased during
this same time period.
RUNWAY INCURSIONS AND OPERATIONAL ERRORS--OCTOBER 1, 2003 THROUGH MARCH 31, 2004 \1\
----------------------------------------------------------------------------------------------------------------
Total Incidents Most Serious Incidents
-------------------------------------------------------------------
Fiscal Fiscal Percent Fiscal Fiscal Percent
Year 2003 Year 2004 Change Year 2003 Year 2004 Change
----------------------------------------------------------------------------------------------------------------
Runway Incursions........................... 165 157 (5) 13 18 38
Operational Errors.......................... 495 511 3 27 21 (22)
----------------------------------------------------------------------------------------------------------------
Fiscal year 2004 information is preliminary as all incidents may not have received a final severity rating.
Serious incidents for runway incursions include category A and B incidents. Serious incidents for operational
errors include high-severity incidents.
This past year, we also reported that improvements are needed in
FAA's oversight of a growing trend toward air carrier use of outsourced
maintenance facilities. While major air carriers outsourced 37 percent
of their aircraft maintenance expense in 1996, the amount spent on
outsourced maintenance increased to 47 percent of maintenance costs in
2002. Yet, over 90 percent of FAA's inspections are still focused on
in-house maintenance, leaving contract repair stations inadequately
reviewed. In response to our audit, FAA agreed to develop a new process
to identify repair stations that air carriers use to perform safety-
critical repairs and target inspector resources to those facilities.
ABATING A TREND OF OPERATING COST GROWTH
FAA is requesting $7.849 billion for its fiscal year 2005 operating
budget, which is about $370 million above the fiscal year 2004 enacted
amount of $7.479 billion. Operating costs represent the largest portion
of FAA's fiscal year 2005 total budget, over 56 percent, whereas FAA's
airports and capital accounts represent 25 percent and 18 percent
respectively. As shown in the following graph, FAA's operating costs
have been increasing substantially over the past 9 years.
This past year Administrator Blakey and her staff have made notable
progress in beginning the process of reining in FAA's history of
operating cost growth. Several areas stand out in particular.
--MOU's.--Last year, we reported that FAA and the National Air
Traffic Controllers Association (NATCA) had entered into
numerous sidebar agreements or Memoranda of Understanding
(MOU's). Many of those MOU's had significant cost and/or
operational impacts to the Agency, but we found that FAA had
virtually no controls over the process. This past year, FAA
developed new policies and procedures that, if properly
implemented, should significantly improve controls over MOU's.
As part of an agreement to extend the controllers' collective
bargaining agreement for another 2 years, FAA and NATCA also
rescinded or modified many of the most costly MOU's. For
example:
--FAA and NATCA rescinded an MOU that allowed controllers
transferring to larger consolidated facilities to begin
earning the higher salaries associated with their new
positions substantially in advance of their transfer or
taking on new duties. At one location, controllers received
their full salary increases 1 year in advance of their
transfer (in some cases going from an annual salary of
around $55,000 to over $99,000). During that time, they
remained in their old location, controlling the same
airspace, and performing the same duties. At three
locations alone, we found FAA incurred over $2.2 million in
unnecessary one-time costs as a result of this MOU.
--FAA and NATCA also renegotiated another MOU for a new free flight
tool that originally gave each controller two $250 cash
awards and a time-off award of 24 hours for meeting certain
training milestones on the new system. The MOU contained no
distinction of awards for individual contributions other
than coming to work and attending training. At six
facilities alone, this MOU resulted in FAA incurring
approximately $1.3 million in individual cash awards and
62,500 hours in time off, which is the equivalent of
approximately 30 full-time positions.
However, one costly MOU that we identified last year was not
renegotiated. This MOU concerns ``Controller Incentive Pay''
(CIP), which provides controllers at 110 locations with an
additional cost-of-living adjustment of between 1 and 10
percent, in addition to Government-wide locality pay. For
example, like all other Federal and FAA employees in the
Washington Metropolitan area, controllers receive 14.63 percent
in Government-wide locality pay (for Calendar Year 2004).
However, as a result of this MOU:
--Controllers at Dulles International also receive 4.6 percent in
CIP;
--Controllers at Reagan National also receive 3.3 percent in CIP;
--Controllers at Andrews Air Force Base also receive 5.9 percent in
CIP; and
--Controllers at Baltimore Washington International also receive
1.7 percent in CIP.
In fiscal year 2003, this additional cost-of-living adjustment
cost FAA about $35.6 million.
--Flight Service Stations.--Another area of progress this past year
is FAA's A-76 study of its flight services functions, which
provide general aviation pilots with aeronautical information
and services such as weather briefings, flight planning
assistance, and aeronautical notices. In December 2001, we
issued a report showing that FAA could save approximately $500
million over 7 years by consolidating its automated flight
service stations in conjunction with deployment of new flight
services software. In response, FAA began an A-76 study to
determine if flight services should be retained within the
government or contracted out.
FAA has made strides in the process this past year. FAA plans to
review proposals from several contractors, as well as the
government's ``More Efficient Organization'' proposal, within
the next several months and believes it will be ready to make a
final determination by March 2005. A key challenge will be
completing those actions under what are already tight
timeframes. Keeping this process on track is important because
the potential for cost savings is significant. FAA is requiring
a 22 percent cost savings, or about $478 million, over 5 years
as a selection factor for determining if a proposal will be
considered.
--Pay for Performance.--FAA also made progress in linking pay and
performance--a key tenet of FAA's personnel reform efforts. As
part of the 2-year extension of the controllers' agreement, FAA
and NATCA agreed to tie a portion of controllers' salary
increases to meeting four national performance metrics: (1) a
reduction in the number of operational errors; (2) a reduction
in the number of runway incursions; (3) improvements in arrival
efficiency rates; and (4) improvements in on-time performance.
This now means that 78 percent of FAA's workforce will be on a
pay-for-performance plan, up from 36 percent last year at this
time. It is important to note, however, that in the case of
controllers, the performance increase represents a very small
percentage of their total annual pay increase. For each goal
reached, controllers will receive a pay increase of 0.2 percent
However, even if none of the performance goals are met,
controllers will still receive an average increase of 4.9
percent this year because of contractual requirements.
Other FAA employees who are on other pay systems will receive
different pay increases. For example, non-bargaining unit
employees on the Agency's ``core compensation plan'' will
receive a 4.5 percent average pay increase. However, those
employees are still eligible to receive a performance increase,
which averages about 0.6 percent, based on an individual's job
performance and not on specific goals as in the case of
controllers.
--FAA Review of Overtime and Sick Leave Usage.--In the past, our
office received several hotline complaints alleging that FAA
employees at five large facilities were abusing credit hours
and manipulating work schedules to increase overtime. When we
made FAA aware of the allegations, the Agency took little or no
action. Recently, however, we met with senior FAA officials who
briefed us on measures taken to identify and address the
allegations at two of the cited locations. According to FAA
managers, the actions taken during the previous fiscal year
have resulted in a $4 million reduction in personnel costs and
a 19 percent reduction in overtime costs. These actions appear
to be steps in the right direction, but it is unclear what
measures have been taken at the other FAA facilities identified
in the hotlines. Accordingly, we are initiating a review of the
measures planned and taken at each location cited in the
hotline complaints and will be issuing a report within the next
few months.
Mr. Chairman, the actions taken by the Administrator and her staff
this past year are encouraging. However, it is important to keep in
mind that achieving significant reductions in operating costs
represents a tremendous challenge. This is because salaries and
benefits make up approximately 73 percent of FAA's operating budget or
about $5.7 billion in fiscal year 2005.
FAA's operating costs are further compounded by the fact that FAA
has a very high average salary base. For example, last year, the
average base salary for all FAA employees was over $87,000. We estimate
that this year, the average base salary for controllers, FAA's largest
workforce, will be about $111,000,\2\ which is exclusive of premium
pay. Against FAA's high salary base, pay increases (which are a
percentage of base pay) result in large dollar increases to FAA's
operating costs. For example, FAA's fiscal year 2005 budget request of
$7.8 billion for operations is a total increase of about $370 million
over fiscal year 2004 appropriations. However, FAA estimates that
approximately $200 million of the $370 million will be consumed by pay
increases alone.
---------------------------------------------------------------------------
\2\ Based on a 4.9 percent average increase, which does not take
into account possible additional increases for meeting performance
goals.
---------------------------------------------------------------------------
Because FAA's salary base is relatively fixed, it is unlikely that
significant reductions in operating cost growth can be achieved without
substantial improvements in the Agency's workforce productivity.
Initiatives such as new air traffic systems, technological
improvements, efforts to redesign the National Airspace System, and
consolidating locations all have the potential to significantly improve
productivity. In the past, FAA has embarked on similar initiatives on a
limited basis, but it was unable to demonstrate any credible gains in
productivity partially because FAA did not have systems to accurately
capture reliable cost and workforce-related data.
Expected Increases in Controller Attrition.--A significant issue
for FAA is the expected increase in controller attrition. Attrition in
FAA's air traffic controller workforce is expected to rise sharply in
upcoming years as controllers hired after the 1981 Professional Air
Traffic Controllers Organization controllers' strike become eligible
for retirement. FAA currently estimates that nearly 7,100 controllers
could leave the Agency over the next 9 years (Fiscal Years 2004-2012).
In contrast, FAA has only experienced total attrition of about 2,100
controllers over the past 8 years (Fiscal Years 1996-2003).
Whether FAA will need to replace all 7,100 controllers on a one-
for-one basis depends on many factors, including future air traffic
levels, new technologies, and long-term initiatives that FAA
undertakes. However, it is clear that as a result of the anticipated
increases in attrition, FAA will begin hiring and training controllers
at levels that the Agency has not experienced since the early 1980's.
We have just completed an audit of FAA's process for placing and
training air traffic controllers and will be issuing a report next
month. We found that this is an area where additional management
attention is needed. For example:
--FAA has national estimates of expected attrition within the
controller workforce, but those estimates do not take into
account where vacancies will occur. It is almost certain that
many will be at some of the busiest and most critical
facilities within the National Airspace System.
--While most locations we visited had estimates of attrition over the
next 2 years, they included different information in developing
those estimates. One facility only projected mandatory
retirements, another projected attrition for transfers but not
retirements, and another provided estimates on all types of
attrition (i.e., retirements, transfers, hardships,
resignations, and removals).
--In addition, FAA does not currently have a selection process for
determining if newly hired controllers have the knowledge,
skills, and abilities to complete training and become certified
at the facility level of their assigned location.
--FAA does not keep national statistics on the controller on-the-job
training (OJT) process, which is the longest portion of
controller training. At the locations we visited, we found the
overall time required for newly hired controllers to become
certified averaged 3.1 years but in some cases took as long as
7 years. To effectively manage the OJT process as hiring
increases, FAA will need data such as the time and costs
required to complete OJT, the number of training failures, and
delays in the process to benchmark against and improve the time
and costs associated with OJT.
A substantial challenge for FAA will be to hire and train new
controllers within a tightly constrained operating budget. FAA has
recently made significant progress in this area by renegotiating
several pay rules with NATCA that previously allowed some newly hired
controllers to earn base salaries in excess of $79,000 while in
training. The renegotiated rules now allow FAA to set newly hired
controllers' salaries at levels that are more commensurate with an
entry-level position (from $25,000 to $52,000), which should help FAA
avoid higher costs as it begins hiring and training greater numbers of
new controllers.
One point worth noting, Mr. Chairman, is that new controllers will
generally have lower base salaries than the retiring controllers they
replace. Over time, this could help reduce FAA's average base salary
and, in turn, help reduce FAA's operating cost growth. However, if FAA
does not place new controllers where and when they are needed, the
potential reductions in base salaries will be offset by lower
productivity as a result of placing too many or too few controllers at
individual facilities.
To effectively manage the expected increase in controller
attrition, FAA needs accurate cost and workforce data, which
underscores the urgency of getting the Agency's cost accounting and
labor distribution systems in place and operating effectively. The
Chief Operating Officer for the Air Traffic Organization has committed
to putting both of these systems in place. This past year, FAA has made
some progress with its cost accounting system, but there has been very
little progress in fielding the labor distribution system planned for
air traffic employees. That system is critical for managing the
expected wave of controller retirements.
--Cost Accounting.--In 2003, FAA's cost accounting system was
partially operational in two of FAA's five lines of business.
FAA produced limited cost accounting information for the Air
Traffic Services line of business, a major component of the new
Air Traffic Organization, and for the Commercial Space
Transportation line of business. FAA made progress during the
year by assigning some overhead costs properly, but much more
needs to done. For example, FAA is unable to assign about $1.3
billion of costs to individual facilities. Until these costs
can be assigned, managers will lack the information they need
to determine the true cost of facility operations.
--Labor Distribution.--CRU-X is the labor distribution system FAA
chose to track hours worked by air traffic employees. As
designed, CRU-X could have provided credible workforce data for
addressing concerns about controller staffing, related overtime
expenditures, and help determine how many controllers are
needed and where. However, CRU-X has not been deployed as
designed because of a September 2002 agreement between FAA and
NATCA that limited the system's capability to gather data
regarding workforce productivity. Specifically, the agreement
eliminated (1) requirements for controllers to sign in and out
of the system when arriving or leaving work, and (2) tracking
time spent by employees performing collateral duties.
In February 2004, FAA provided NATCA with substantive changes
planned for the system and began negotiations with the union in
March. FAA and NATCA need to complete actions to resolve
internal control deficiencies with CRU-X and implement the
system as quickly as possible so the Agency and union have
objective data to determine how many controllers are needed and
where.
BRINGING FISCAL DISCIPLINE AND ACCOUNTABILITY TO FAA MODERNIZATION
EFFORTS
FAA is requesting $2.5 billion for the Facilities and Equipment
account for fiscal year 2005. This represents a reduction of over $350
million from last year's appropriated level of $2.86 billion and nearly
$500 million less than the authorized level. Historically, FAA's
modernization projects have experienced considerable cost growth,
schedule slips, and shortfalls in performance.
In the current budget environment, cost growth and schedule
slippages experienced in the past are no longer affordable or
sustainable. As the following chart shows, only 56 percent of FAA's
$2.5 billion budget request for Facilities and Equipment is for
developing and acquiring air traffic control modernization projects.
The remaining funds are for salaries, FAA facilities, and mission
support.
Cost and schedule problems with ongoing modernization efforts have
serious consequences because they result in postponed benefits (in
terms of safety and capacity), the crowding out of other modernization
projects, costly interim systems, or a reduction in units procured. In
the past, the severity of these problems has been masked by the size of
a modernization budget that either grew or stayed constant.
Adjustments to FAA Modernization Projects.--FAA has reduced or
eliminated funding in its fiscal year 2005 request for a number of
modernization projects, including, the Local Area Augmentation System,
Controller-Pilot Data Link Communications, and the Next Generation Air
to Ground Communications System. These efforts were longer-term in
nature and called for airspace users to purchase and install new
avionics. Funding reductions also reflect an emphasis on near-term FAA
infrastructure projects.
These projects have merit but they face problems irrespective of
funding that needed to be addressed with respect to misjudging
technological maturity, unexpected cost growth, or concerns about how
to move forward.
--The Local Area Augmentation System (LAAS) is a new precision
landing and approach system. It was expected to cost $696
million and to be deployed in 2006, 4 years later than
originally planned. FAA is not requesting funds for LAAS in
fiscal year 2005 and will use funds from fiscal year 2004 to
continue work on the new system. In December 2002, we reported
that expectations with respect to cost, schedule, and
performance needed to be reset because the new landing system
was not as mature as FAA expected.\3\ Category I LAAS was
planned for 2006 and the more demanding CAT II/III LAAS is now
a research and development effort with uncertain completion
dates.\4\
---------------------------------------------------------------------------
\3\ FAA Needs to Reset Expectations for LAAS Because Considerable
Work Is Required Before It Can Be Deployed for Operational Use (AV-
2003-006, December 16, 2002).
\4\ CAT I precision approach has a 200 foot ceiling/decision height
and visibility of \1/2\ mile. CAT II precision approach has a 100 foot
ceiling/decision height and visibility of \1/4\ mile. CAT III precision
approach and landing has a decision height and visibility of less than
100 feet down to the airport surface.
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Considerably more development work is required for LAAS than FAA
expected just a year ago. The key issue is how to ensure the
system will work as safely as intended. After assessing
contractor progress, FAA estimated that it could take up to 21
months and an additional $37 million for the contractor to
recover and complete just the first phase for LAAS.
--Next Generation Air-to-Ground Communications System (NEXCOM) is an
effort to replace aging analog radios and foster the transition
to digital communications. The first segment of NEXCOM (new
radios and new ground infrastructure for digital
communications) was expected to cost $986 million. FAA is
requesting $31 million for NEXCOM in fiscal year 2005, $54
million less than last year's appropriated level of $85
million. FAA will move forward with replacing older radios (the
least complex element of the NEXCOM effort) but has postponed
making decisions about NEXCOM ground system development and is
re-evaluating its approach for modernizing the air to ground
communications. The full cost of implementing NEXCOM throughout
the NAS was uncertain but later segments were estimated to cost
$3.2 billion. Also, NEXCOM has been controversial with the
airlines because of FAA's preferred technology.
FAA's decision to postpone decisions about NEXCOM gives the
Agency opportunities to develop a cost-effective approach for
meeting the air-to-ground communications needs of the National
Airspace System. While FAA replaces older radios, the Agency
needs to needs to determine how it will: (1) sustain existing
communications infrastructure; (2) address frequency congestion
problems in the short term; and, (3) meet the communications
needs of FAA and airspace users in the most cost-effective way.
--Controller-Pilot Data Link Communications (CPDLC) is a new way for
controllers and pilots to share information that is analogous
to wireless email and considered an enabling technology for
Free Flight. FAA began using CPDLC at Miami Center in October
2002 and planned to deploy the system to other facilities that
manage high altitude traffic at a cost of $167 million. FAA
deferred these plans for expanding CPDLC last year. The
Conference report for the fiscal year 2004 Appropriations Act
directed our office to look into, among other things, the
circumstances leading to termination of the CPDLC program and
what control could have been put in place to avoid a program
failure of this type.
We found that a number of factors contributed to FAA's decision,
including concerns about how quickly users would equip with new
avionics and the fact the approved program baseline of $167
million was no longer valid. FAA estimates that it would cost
$236.5 million for eight locations--an increase of $69 million
for fewer than half the locations initially planned.
Another factor was the impact on the operations account, which is
already overburdened. CPDLC would have added $63 million in
cost to the operations account for, among other things,
controller training and overtime (for just eight locations),
and $20 million annually for the cost of data link messages. We
are continuing our work on CPDLC and will report back to this
committee later this year.
We see positive signs that the Administrator and her team are
addressing problems with major acquisitions. However, there
should be no mistake that FAA's efforts are in the early stages
and a number of fundamental steps are needed. They include:
--Developing reliable cost and schedule estimates,
--Avoiding long-term cost-plus contracts, and
--Establishing controls to prevent waste and abuse.
Developing Reliable Cost and Schedule Estimates.--Last year, we
reported that despite the benefits of acquisition reform granted in
1996, cost growth and scheduled slips in modernization efforts are all
too common. For example, we analyzed 20 major acquisition projects and
found that 14 of these projects experienced cost growth of over $4.3
billion (from $6.8 billion to $11.1 billion), which represents
considerably more than the FAA's annual appropriation for modernizing
the National Airspace System. Also, 13 of the 20 projects accounted for
delays ranging from 1 to 7 years. FAA recognizes these problems and the
Agency's strategic plan--Flight Plan 2004-2008--establishes a
performance target so that 80 percent of critical acquisitions are both
on schedule and within 10 percent of budget. This is an important step.
A number of key modernization projects that have been delayed still
do not have reliable cost and schedule baselines. Without better
information, FAA cannot effectively plan, manage the modernization
portfolio, or determine what is affordable. The following table
provides information on selected acquisitions that do not have reliable
cost and schedule baselines.
FOUR KEY PROJECTS NEEDING UPDATED COST AND SCHEDULE BASELINES
[Dollars in Millions]
----------------------------------------------------------------------------------------------------------------
Estimated Program Implementation Schedule
Costs Percent -------------------------------------- Schedule
Program ---------------------- Cost Delay
Original Current Growth Original Current Years
----------------------------------------------------------------------------------------------------------------
Wide Area Augmentation System.... $892.4 \1\ $2,92 227 1998-2001........ 2003-TBD \2\..... 5
2.4
Standard Terminal Automation 940.2 1.690.2 80 1998-2005........ 2002-2012 \2\.... 7
Replacement System.
Airport Surveillance Radar-11.... 743.3 1,040.0 39.9 2000-2005........ 2003-2013........ 8
Integrated Terminal Weather 276.1 283.7 3 2002-2003........ 2003-2008........ 5
System.
----------------------------------------------------------------------------------------------------------------
\1\ This includes the cost to acquire geostationary satellites.
\2\ Costs and schedules are under review.
Mr. Chairman, I would like to discuss three of these projects.
--Standard Terminal Automation Replacement System (STARS) will supply
new controller displays and related computer equipment for
FAA's terminal facilities. FAA's official STARS acquisition
cost estimate has nearly doubled from $940 million to $1.69
billion.
FAA has already obligated $1.1 billion through fiscal year 2003
but has only installed 20 systems, of which 19 are operational.
The Agency is currently reviewing its deployment plans. We
reported in September 2003 that STARS is not the same program
that was planned 8 years ago. The program has shifted from a
commercial off-the-shelf procurement to one that has required
more than $500 million in development costs. Moreover, because
of cost growth and a schedule slip to fiscal year 2012, the
benefits that supported the initial acquisition are no longer
valid. \5\ Due to STARS delays, FAA deployed Common Automated
Radar Terminal System (Common ARTS) hardware and software to
141 terminal facilities over the past 5 years.
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\5\ FAA Needs to Reevaluate STARS Costs and Consider Other
Alternatives, AV-2003-058, September 9, 2003.
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In our 2003 report, we recommended that FAA select the most cost-
effective and affordable strategy to complete terminal
modernization by augmenting STARS deployment with Common ARTS.
We estimated that implementing this approach would allow FAA to
put at least $220 million to better use. To date, the Agency
has not ruled out keeping some Common ARTS as an alternative if
STARS proves to be unaffordable or does not perform as
expected.
FAA officials maintain that STARS has important capabilities,
such as ``Sensor Fusion,'' which is designed to merge data from
multiple radars on controllers' displays. However, FAA
continues to experience problems with the Sensor Fusion
software. We have not yet seen sufficient evidence to justify
FAA's conclusion that the capabilities of STARS are far
superior to the capabilities of Common ARTS, and both systems
are certified for use in the National Airspace System.
The fiscal year 2004 Appropriations Conference Report directs our
office to review and validate the Agency's revised STARS
lifecycle cost estimates. We are encouraged that FAA has made
recent changes in the STARS program. To control cost growth,
FAA has developed a phased approach to STARS that will use a
fixed price contract and consider contractor performance before
moving to the next phase. Last Tuesday, FAA approved the first
phase, limiting STARS to 50 locations. FAA is also developing a
business case to complete its terminal modernization program.
When FAA has completed its business case, we will review and
validate the cost estimates.
--The Wide Area Augmentation System (WAAS) is a new satellite-based
navigation system to enhance all phases of flight. The program
has a long history of uncertainty regarding how much the system
will cost, when it will be delivered, and what benefits can be
obtained. Limited WAAS services became available in July 2003,
but additional work is needed to expand WAAS coverage through
additional ground stations. FAA has obligated over $800 million
on WAAS and expects to spend $100 million on the new system in
fiscal year 2005.
WAAS was expected to provide Category I performance to the
majority of the Nation's airports but will provide something
less when the system is deployed. Based on our discussions with
FAA, the subcommittee should expect to see a reduction in
overall WAAS baseline costs in the $300 to $400 million range
to reflect the fact that Agency will not pursue Category I
performance.
--The Integrated Terminal Weather System (ITWS) provides air traffic
managers with a 20-minute forecast of weather conditions near
airports and can help the National Airspace System recover from
periods of bad weather. FAA initially planned to complete
deployment of 38 systems by 2003 at a cost of about $276
million, but production costs increased significantly from
$360,000 to $1 million per system. According to FAA officials,
the Agency now plans to establish new cost and schedule
parameters this April, and accelerate an ITWS enhancement (the
Convective Weather Forecast product) in response to our
December 2002 report.
Avoiding Long-Term Cost-Plus Contracts.--Our work on the cost,
schedule, and performance problems of 20 major FAA acquisitions
illustrates why the Agency needs to avoid entering into long-term cost-
plus contracts before Agency requirements and user needs are fully
understood. Cost growth associated with additional development work and
changing requirements for both STARS and WAAS was absorbed fully by the
government. In the future, FAA needs to use a more incremental approach
to complex long-term efforts until the scope of work and development
are clearly defined and rely more on fixed price contracts.
FAA is now undertaking a large and complex automation effort
through a long term, cost-plus contract called the En Route Automation
Modernization (ERAM) program, which FAA estimates will cost about $2
billion between now and 2011. FAA expects to spend over $240 million
annually on the project beginning in fiscal year 2005. ERAM is designed
to replace the Host Computer System, the central nervous system for
facilities that manage high altitude traffic. The fiscal year 2004
Appropriations Conference Report directs our office to look at
executability of the program and identify program risks, including
security.
The following chart illustrates planned funding for ERAM and as
well as funding profiles for STARS and WAAS, two projects that have
been delayed for years and do not have reliable cost estimates.\6\ Any
cost increases with these programs will have a cascading effect on
other efforts and limit FAA's flexibility to begin new projects.
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\6\ STARS and WAAS funding profiles are currently under review by
FAA.
ERAM is the largest and most complex automation effort FAA has
embarked on since the Advanced Automation System. We anticipate
completing our first review of this complex program this year. At this
stage, we see key ERAM program risks as: (1) an aggressive schedule;
(2) complex software development and integration; and, (3) successfully
managing a long-term cost-plus contract that is already valued at close
to $1 billion. As FAA moves closer to the production phases of ERAM,
the Agency should seek opportunities to use fixed-price contracting
mechanisms.
One significant exception to programs with major cost overruns is
the Advanced Technologies and Oceanic Procedures program (ATOP), an
effort to modernize FAA facilities that manage air traffic over the
Atlantic and Pacific Oceans. \7\ This effort has experienced some
serious and unexpected software development and testing problems.
Problems are traceable to the fact that the contractor relied on non-
development software that could not meet FAA requirements.
---------------------------------------------------------------------------
\7\ For additional details on ATOP, see Status Report on FAA's
Advanced Technologies and Oceanic Procedures (report number AV-2004-
037, March 31, 2004).
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In June 2001, FAA awarded a $217 million contract for ATOP to
provide oceanic air traffic systems. Since the contract was awarded,
the contractor has experienced problems with software development and
testing. As a result, the first phase of testing, known as factory
acceptance testing, was completed 12 months behind schedule. In October
2003, FAA began operational testing to determine whether the new
automation system would perform as intended. This testing uncovered
further software problems that forced FAA to halt testing of ATOP's air
traffic management functions. FAA subsequently resumed and completed
that round of testing and begin site acceptance testing in April 2004.
FAA has relied on what is largely a fixed price contract and kept
requirements stable. Consequently, the costs associated with additional
software development and correcting software problems discovered during
testing have been absorbed by the contractor--not the government.
However, due to the software problems and pending delays, FAA decided
to modify the contract in an effort to maintain the schedule to install
the system in Oakland. The modification will expand the use of cost-
plus contract elements (including time and materials) and increase the
value of the contract by approximately $11 million.
While this $11 million adjustment is modest and can be accommodated
in the current ATOP cost baseline, the critical issue is what happens
between now and February 2005. This time frame is important because the
recent contract modification limits the contractor's responsibility for
paying to fix software problems FAA finds in ATOP after February 28,
2005. According to FAA, after work on the initial version of ATOP
software (required for Oakland) is complete, the Agency will test the
more advanced version at its Atlantic City Technical Center by the end
of this year. Given the change in the contract and tight time frames,
it will be critical for FAA to identify all software problems before
February 28, 2005.
We will continue to monitor progress with ATOP. The Conference
report accompanying the Appropriations Bill for fiscal year 2004
directed our office to compare FAA's pursuit of oceanic automation
capabilities to the experiences of NAVCanada and other oceanic air
traffic service providers. We intend to begin work on this later this
year.
Improving Contract Management.--Last year, we reported that FAA's
management of cost-reimbursable contracts was deficient, lacked
accountability, and did not adequately protect against waste and abuse.
Our audits have found that FAA officials did not: (1) obtain audits of
billions of dollars in expenditures on cost-reimbursable contracts; (2)
ensure reliable government cost estimates were prepared and used in
evaluating contracts; and (3) properly account for billing and
expenditures to prevent overpayments.
For example, our current audit work has identified that FAA
officials did not obtain audits of 17 cost reimbursable contracts with
a total value of $6.7 billion. In addition, we reported that FAA
officials did not ensure that contractor employees were qualified to do
the work. For example, a contractor employee charged approximately
$255,000 as a senior systems engineer, even though that individual had
only a Bachelors of Arts Degree in Psychology, and his past work
history indicated no experience in engineering.
When we rendered our opinion on the Department's financial
statements we identified these deficiencies as a material weakness, and
FAA has developed and begun implementation of a detailed action plan to
correct the deficiencies. For example, FAA has made progress in
reducing the backlog of 459 completed contracts by closing out 279
contracts valued at $2.55 billion. In addition, FAA is providing
adequate funding to perform cost-incurred audits of contract
expenditures. Congress provided $3 million in fiscal year 2004 funds
for this purpose, and FAA is establishing procedures to ensure the
funds are applied effectively by focusing on larger contracts.
FAA is also establishing a centralized control in FAA headquarters
to track the status of all completed and ongoing cost reimbursable
contracts in order to meet Congressional direction to audit 100 percent
of contracts over $100 million and 15 percent of contracts less than
$100 million. We are working with FAA to ensure that these plans are
implemented.
AIRPORT FUNDING ISSUES
Funding for the airport improvement programs (AIP) has seen
substantial increases over the past several years. FAA's AIP account
has increased from $1.5 billion in 1996 to $3.5 billion in 2005. This
is on top of passenger facility charges (PFCs) that airports collect.
The maximum amount allowed has increased from $3.00 to $4.50 per
passenger, and FAA estimates that PFCs will generate over $2 billion in
fees in 2004. FAA projections suggest that a similar amount will be
collected in 2005.
The following chart illustrates funding levels for FAA's airports,
operations, and facilities and equipment accounts from fiscal year 1996
through fiscal year 2005. It shows that AIP is taking up an increasing
share of FAA's overall budget. For example, in fiscal year 1996 AIP
made up 18 percent of FAA's total budget whereas in fiscal year 2005
AIP represents 25 percent of the Agency's total budget.
Emerging Issue for AIP.--The increased amounts of AIP funding and
PFC collections are directed by law toward airport-related projects,
such as new runways. However, FAA also incurs costs to its other
accounts in order to support many of the airport projects. For example,
FAA's Facilities and Equipment (F&E) and Operations accounts bear the
cost of air traffic related projects such as new weather or instrument
landing systems and redesigning airspace in order to support new
runways.
An emerging issue for FAA's budget is whether or not airport funds
should be used to support some air traffic control related projects. In
its budget request, FAA observes that new systems once considered
beneficial to FAA air traffic operations have evolved to provide
significant benefits to airport operators and users. FAA's budget
submission identifies several systems that should be considered for AIP
funding instead of funding from the F&E account.
Although AIP funds can be used for this purpose, the change would
represent a shift in the allocation of budgetary resources. FAA
estimates that this would affect the AIP account in fiscal year 2005 by
about $30 million but this number could grow as more capacity projects
come on line. Accordingly, FAA needs to identify and quantify all the
specific systems that will be needed to support new infrastructure
projects and then identify the funding sources that will be used to pay
for them.
Revenue Diversions.--A longstanding problem that we continue to
address through our work is diversion of airport revenues by airport
sponsors or owners and a lack of effective FAA oversight. It is a
matter of law that all airports receiving Federal assistance use
airport revenues for the capital or operating costs of an airport. Any
other use of airport revenue is considered a ``revenue diversion.''
Examples of common revenue diversions include charges to the airport
for property or services that were not provided, indirect costs such as
promotional activities that were improperly allocated to the airport,
and payments of less than fair market value for use of airport
property.
We have been reviewing revenue diversions for over 13 years.
Between 1991 and 2000, our audits disclosed over $344 million in
diverted revenue. Last year, we reported on revenue diversions at five
large airports, including one airport whose sponsor, a local government
agency, diverted about $40 million to other projects not related to the
airport. We also just completed an audit at San Francisco International
last month which disclosed about $12 million in diverted revenue.
Additionally, we have begun reviews regarding potential revenue
diversion and contracting irregularities at Los Angeles International
Airport.
Our work shows that FAA's oversight of revenue diversions is
limited. In the past, FAA has maintained that it did not have the
resources to devote to this issue. We recently met with the Associate
Administrator for Airports and members of her staff to discuss FAA's
specific plans to increase the Agency's oversight of revenue
diversions. We plan to meet next month to review progress and discuss
how we can coordinate efforts. Clearly, these are steps in the right
direction, but the key now is follow-through.
BEING POSITIONED FOR A REBOUND IN AIR TRAFFIC
Mr. Chairman, our testimony this morning has focused primarily on
cost issues within FAA's budget. However, an important issue for this
subcommittee is the fact that air traffic levels are beginning to
rebound. While domestic traffic levels still fall short of the peaks
experienced in 2000, there is no question that traffic is rebounding.
In February 2004, the number of revenue passenger enplanements (35.1
million) was down 12 percent from February 2000, but this represents a
5 percent growth over enplanements in February 2003 (33.3 million).
While this is good news for the airlines, the increased traffic levels
are bringing pressure to bear on our Nation's airports, air traffic
control systems, and the traveling public.
Aircraft operations have also increased significantly since
September 2001. In February 2004, domestic operations handled by Air
Route Traffic Control Centers were less than 1 percent below the
operations handled in February 2000. The 3.63 million February 2004
operations represented nearly 11 percent growth over operations handled
in February 2003.
While systemwide operations in February 2004 were slightly down
from February 2000, the story is very different on an airport-by-
airport basis. In 13 of the 31 largest airports, including some of
those that experienced serious delays in 2000, the number of scheduled
flights in March 2004 actually exceeded the number of scheduled flights
in March 2000. For example, at Denver International, the number of
flights scheduled for March 2004 exceeded March 2000 schedules by 10
percent and at Chicago O'Hare, scheduled flights in March exceeded 2000
levels by 9 percent.
In 11 of the 13 airports where March 2004 scheduled flights
exceeded March 2000 levels, the number of available seats scheduled
still lagged behind the number of available seats offered in March
2000. This is an indication, at least in part, of how network carriers
are using regional jets in the place of narrow-body jets to connect
traffic to the network hubs.
For example, in Cincinnati, a major Delta hub, scheduled flights in
March 2004 were 11.5 percent higher than in March 2000, while available
seats were down 7.7 percent. During this same period, regional jets, as
a percentage of all aircraft operations in Cincinnati, grew from 53.8
percent to 72.3 percent. Overall, the number of flights scheduled to be
operated by regional jets in March 2004 was 134 percent greater than in
March 2000.
The growth in aircraft operations, especially at some of what have
historically been our Nation's busiest airports creates a situation
that merits careful monitoring. Although systemwide arrival delays in
January and February 2004 were still 22 percent below those experienced
in the first 2 months of 2000, the number is up 33 percent from the
same period in 2003.
In some individual markets, the growth is particularly pronounced.
At Chicago O'Hare, arrival delays during the month of March 2004
represented a 74 percent increase over delays during the same period in
2003, down from the 90 percent increase during the first 2 months of
2004. At Dallas-Fort Worth, arrival delays in January and February
combined were up 80 percent over the same period in 2003.
The Department and FAA are aware of this growth in delays and the
potential near-term affects on the quality of air transportation
service if the growth goes unchecked. The subcommittee should also
follow the situation closely. It is unlikely that the situation will
reach the level of widespread system failures we experienced in the
summer of 2000, but it is possible that some airports could experience
disruptions in service. The FAA and the Department have been working
with the industry to identify potential solutions to delay problems
that might occur this summer such as high-altitude express lanes and
voluntary schedule reductions.
One situation that bears watching, in particular, is the expected
service growth at Washington's Dulles Airport. In June, when
Independence Air is launched by former regional carrier Atlantic Coast
Airlines as a new low-fare carrier, traffic at Dulles will increase
significantly. Executives at Independence Air anticipate operating
between 200 and 300 daily departures primarily between Dulles and East
Coast destinations.
Assuming that United does not reduce service in any of the markets
it had previously served using Atlantic Coast Airlines as a regional
partner--and it has made no indications that it plans to do so--daily
aircraft operations at Dulles could increase by more than 50 percent
this summer. In addition to airside congestion, there are concerns with
airport terminal services, including the resources needed to process a
significantly increased number of passengers through security
checkpoints.
That concludes my statement,\8\ Mr. Chairman. I would be pleased to
address any questions you or other members of the subcommittee might
have.
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\8\ This testimony was conducted in accordance with Government
Auditing Standards prescribed by the Comptroller General of the United
States. The work supporting this testimony was based on prior and
ongoing audits conducted by the Office of Inspector General. We updated
material to reflect current conditions or to reflect fiscal year 2005
budget requests as necessary.
---------------------------------------------------------------------------
______
ATTACHMENT 1.--RELATED OFFICE OF INSPECTOR GENERAL REVIEWS 1998-2004
Operations
Using CRU-X to Capture Official Time Spent on Representational
Activities--AV-2004-033, February 13, 2004
FAA's Management of Memorandums of Understanding with the National
Air Traffic Controllers Association--AV-2003-059, September 12, 2003
Safety, Cost and Operational Metrics of the Federal Aviation
Administration's Visual Flight Rule Towers--AV-2003-057, September 4,
2003
FAA's Oversight of Workers' Compensation Claims in Air Traffic
Services--AV-2003-011, January 17, 2003
FAA's National Airspace System Implementation Support Contract--AV-
2003-002, November 15, 2002
FAA's Air Traffic Services' Policy of Granting Time Off Work to
Settle Grievances--CC-2002-048, December 14, 2001
Subcontracting Issues of the Contract Tower Program--AV-2002-068,
December 14, 2001
Automated Flight Service Stations: Significant Benefits Could be
Realized by Consolidating AFSS Sites in Conjunction with Deployment of
OASIS--AV-2002-064, December 7, 2001
Compensation Issues Concerning Air Traffic Managers, Supervisors,
and Specialists--AV-2001-064, June 15, 2001
Technical Support Services Contract: Better Management Oversight
and Sound Business Practices Are Needed--2000-127, September 28, 2000
Contract Towers: Observations on FAA's Study of Expanding the
Program--AV-2000-079, April 12, 2000
Staffing: Supervisory Reductions will Require Enhancements in FAA's
Controller-in-Charge Policy--AV-1999-020, November 16, 1998
Personnel Reform: Recent Actions Represent Progress but Further
Effort is Needed to Achieve Comprehensive Change--AV-1998-214,
September 30, 1998
Liaison and Familiarization Training--AV-1998-170, August 3, 1998
Acquisition and Modernization
FAA's Advanced Technologies and Oceanic Procedures--AV-2004-037,
March 31, 2004
FAA Needs to Reevaluate STARS Costs and Consider Other
Alternatives--AV-2003-058, September 10, 2003
Status of FAA's Major Acquisitions--AV-2003-045, June 27, 2003
Integrated Terminal Weather System: Important Decisions Must Be
Made on the Deployment Strategy--AV-2003-009, December 20, 2002
FAA's Progress in Developing and Deploying the Local Area
Augmentation System--AV-2003-006, December 18, 2002
Follow-up Memo to FAA on STARS Acquisition--CC-2002-087, June 3,
2002
Letter Response to Senator Richard Shelby on FAA's Advanced
Technologies and Oceanic Procedures (ATOP)--CC-2001-210, April 12, 2002
Status Report on the Standard Terminal Automation Replacement
System--AV-2001-067, July 3, 2001
Efforts to Develop and Deploy the Standard Terminal Automation
Replacement System--AV-2001-048, March 30, 2001
Aviation Safety
Review of Air Carriers' Use of Aircraft Repair Stations--AV-2003-
047, July 8, 2003
Operational Errors and Runway Incursions--AV-2003-040, April 3,
2003
Air Transportation Oversight System (ATOS)--AV-2002-088, April 8,
2002
Oversight of FAA's Aircraft Maintenance, Continuing Analysis, and
Surveillance Systems--AV-2002-066, December 12, 2001
Further Delays in Implementing Occupational Safety and Health
Standards for Flight Attendants Are Likely--AV-2001-102, September 26,
2001
Despite Significant Management Focus, Further Actions Are Needed To
Reduce Runway Incursions--AV-2001-066, June 26, 2001
Airports
Revenue Diversions at San Francisco International Airport--SC-2004-
038, March 31, 2004
Oversight of Airport Revenue--AV-2003-030, March 20, 2003
These reports can be reviewed on the OIG website at http://
www.oig.dot.gov.
Senator Shelby. Senator Stevens, do you have an opening
statement?
Senator Stevens. I apologize for being late. There are too
many other meetings, but I am happy to see the witnesses here
today and I will have some questions when the time comes.
Senator Shelby. Thank you.
Senator Murray. Mr. Chairman, before you go to questions I
just want to recognize that our National Teacher of the Year
has joined us in the audience today, Dennis Griner from Palouse
High School in Palouse, Washington, and we are proud to see you
here today.
Senator Shelby. Thank you, Senator Murray.
SAFETY
Safety is, and I believe must always remain, FAA's top
priority. Madam Administrator, I know how serious your
commitment to improving aviation safety is. What are your top
safety priorities for fiscal year 2005? You are doing well, but
you want to do better.
Ms. Blakey. You are absolutely right. One of the things
that we are most committed to is working with our carriers, the
airline industry, to develop a safety system approach that
means we are all looking at risk factors. That we are all
looking at the way we should manage together that potential
risk, and not wait till an accident or incident happens, but
really getting in front of it.
Senator Shelby. What is your biggest safety concern?
Ms. Blakey. Well, I think right now what we would like to
do is marry up data and marry up information in a way that we
have never done before. For example, we have two systems out
there that are great. One is called Arrival Sequencing Program
(ASP), which gives pilots, dispatchers, all of those who are
operating the system a way to voluntarily say something went
wrong here. They can do it without penalty and that gives us
again access to information we would not have from their
perspective. You know, a dispatcher who says later on, I
probably should not have done that--a little too close to scud-
running; a pilot who says yes, I probably did make an error
there that is worth taking note.
We also have a way now, a program called Flight Operational
Quality Assurance (FOQA), which takes data, routine data off
the flight data recorder and lets us analyze that and see what
the machine is doing, see what is happening. We think we need
to marry that kind of information together and as an industry
and as the FAA, really work to make sure that we are inspecting
the right things, analyzing the right things, making training
changes, and doing air traffic control procedures better. All
of this will help.
FAA'S OPERATIONS ACCOUNT
Senator Shelby. The FAA's operations account has witnessed
significant increases over the years. Could both of you
identify the major cost drivers of the Operations
appropriation? First, Ms. Blakey.
PERSONNEL COSTS
Ms. Blakey. Mr. Chairman, I think the Inspector General has
it right. There is no question about the fact that the major
cost driver is our personnel costs. After all, that is what the
FAA is about. It is an operating agency and about 80 percent of
that operations cost goes to personnel. Also there are a lot of
contractual obligations that limit the flexibility we have in
controlling costs. I would also say that the way we have gone
about modernization has increased capacity and added additional
personnel requirements. It was not done to drive down
operations costs. It was done with an eye to increasing
capacity in the system, with more nav aids, with more
technology, which means more things to maintain and more people
to operate them. All of that has, as we have overlaid better
and better programs, increased safety, but that takes people
and certainly that has driven the costs up, as well.
MOU'S
Senator Shelby. Last year it became clear that FAA's
oversight of MOU's was seriously inadequate. The situation has
been well documented by the Inspector General, Mr. Mead. While
MOU's often serve useful purposes, they also have cost
implications. In the 2004 Appropriations Act, Congress required
the FAA to establish a central database on all MOU's. Has this
been accomplished? And what was the total budgetary impact of
the MOU's and what processes of control have been put in place?
Do you want to answer that first, Mr. Mead?
Mr. Mead. Well, we are not at an end state yet. I cannot
say exactly what the total budgetary impact is but I would put
the figure probably that the steps they have taken may have
avoided costs something on the order of $50 million. They have
a much better handle on having an inventory of these and they
have put the brakes on entering into new ones, at least ones
where the Administrator would not even know about them.
I think there are one or two more out there. One that I
think is particularly interesting is all Federal employees get
locality pay and the controllers entered into a memorandum of
understanding with FAA so they get something called controller
incentive pay, which is on top of that at 110 locations. That
one item is running FAA something on the neighborhood of $25 to
$30 million per year. They have a very generous pay package.
Senator Shelby. What is your recommendation to get control
of the process?
Mr. Mead. I think FAA is doing the right things and has the
right things. I think right now I would have no additional
recommendations except that they continue doing what they are
doing on the memoranda of understandings.
The issue on the growth in the operations account, you can
expect it to continue. It will not be as marked as it has been
in the past but it is still going to continue because you have
such a high salary base there. If you give a 4 percent or 5
percent pay increase on a salary base of, say, somebody who is
getting $135,000, that is a lot more every year compounded than
adding 5 percent every year on top of a salary base of $75,000
or $80,000.
Senator Shelby. It adds up.
Mr. Mead. Yes, sir, it does.
MODERNIZING NAS
Senator Shelby. The FAA has a poor track record of
modernizing the National Airspace System. The GAO and
Transportation Inspector General have published many reports on
projects that are late, overbudget, and cannot deliver as
promised. Madam Administrator, what are you doing to address
this long-standing problem?
Ms. Blakey. Well, I will tell you. As we have analyzed
this, I think we need to take a very different approach and
that is what our COO Russ Chew, and the entire group that is
managing these accounts is committed to. What I think has been
a really tremendous mistake in the past is the FAA took the
approach that somehow you could predict the cost of systems
that were going to be deployed over 10 years going where no one
had gone before. It is one thing if you are asked to talk about
a capital investment where you are pulling commercial off-the-
shelf technology. You then would know how many, and know
exactly where systems are going.
That was not the case with the FAA. We are talking about
what essentially were research programs, but the FAA committed
to figures in the baseline that would go out as many as a dozen
years. The question of how long it would take to get the
fundamental technology down, then what it was going to cost in
a prototype stage to actually build it and deploy it was not
addressed. Where should it really go? All the while you have
changing traffic patterns and a whole field operation out
there.
Here is what we are going to do. We are going to call
research ``research''. We are going to chunk these projects, if
you will, into much smaller stages where we commit to the
initial R&D as much as possible under firm, fixed-price
contracts. We will try our best to hold to that fixed price. We
will also do it in stages. We will, therefore, be making the
financial investments in stages so that we do not get in over
our head. We can continue to analyze the benefits, and as
circumstances change over 10 years, we are able to say ``wait a
minute'', let us not put all the things in facilities that we
had planned. We really can fine-tune modernization over time,
and I think get much better value for taxpayer dollars.
This is what we are doing with the STARS program, one of
our major programs that we feel we have to take a very
different approach.
Senator Shelby. Mr. Mead.
Mr. Mead. Yes, I think the most important thing in these
contracts where we do not know where we are buying and some of
these are concepts, to go into a 10-year contract and say the
pricing mechanism will be just bill me whatever it takes, with
no cap--we should not be doing that. It should scare this
committee. It scares me.
Senator Shelby. It does scare us. That is why I keep asking
this line of questioning.
Mr. Mead. Every one of the programs that is in trouble
falls into that pattern where it has been that type of
contract.
Senator Shelby. How are we going to deal with it? You are
the Inspector General; we are the appropriators. We are working
with you and the Administrator to make sure this money is spent
well for the right purpose.
Mr. Mead. I think you should insist on more fixed-price
contracts coming out of FAA. I think you would see some rapid
improvements. That single move, I think, would change a lot.
And what the Administrator says, too, about research and
development should be called research and development.
Senator Shelby. It should be called what it is, should it
not?
Mr. Mead. We should call it like it is, yes, sir.
FIXED PRICE
Ms. Blakey. Mr. Chairman, let me also add on the firm,
fixed price, I think the Inspector General and I agree on this
in concept. What I would say, though, is that we cannot expect
a corporate entity of any sort to assume all the risk without
dramatically increasing what they are willing to commit to on a
firm, fixed price, which goes back to let us take it in small
stages; let us go where we can all see what this is likely to
cost. Do not ask them to commit to something where they are
assuming enormous risk or where they are putting in huge costs.
Senator Shelby. Well, you have to be specific in what you
want. Or, if you do not know what you want or what you are
trying to improve, how can you contract for it, other than
learning as you go through a cost-plus acquisition. We cannot
always afford that. I do not believe that is the way to operate
the FAA, do you?
Ms. Blakey. I do not, either. And one of the things that we
have done in some of our capital programs is we have all
accepted what we and our customers want. It is fine to say we
want a system with certain capabilities but the question of how
do you get the technology to do that--we have not always been
realistic about how difficult that was going to be. And
frankly, in some of the areas where we have cut back on the F&E
programs, technology was the problem.
Mr. Mead. I have noticed over the years they pretend that
they know what they are buying and you will have the vendors
come in and say yes, it is off the shelf; we are going to get
it off-the-shelf; we know what you want. But then when you look
down into the details of the contract, it is kind of open-
ended; it is cost-plus. That is a sure give away nine times out
of ten.
Senator Shelby. That is suicide for the appropriators, too,
because if we do not know what things are going to cost, how do
we watch the money?
Senator Murray.
F&E
Senator Murray. Thank you, Mr. Chairman.
Ms. Blakey, the budget request for the FAA's Facilities and
Equipment account is nearly $400 million below last year's
level and represents the largest cut in the entire Department
of Transportation budget. In fact, when you look at the Bush
Administration's multi-year budget, it says that the funding
for air traffic control modernization will be $2 billion lower
than the amount authorized in the Vision-100 bill.
When Secretary Mineta came before our subcommittee a couple
of weeks ago, he explained those cuts by saying there was a
need to reevaluate those programs from a priority perspective.
Since your 2005 budget reduced by more than 50 percent programs
that were designed to prevent runway incursions and improve
air-to-ground communications, should we assume that those goals
are no longer a priority for the FAA?
SAFETY AND CAPACITY
Ms. Blakey. No, those goals are absolutely in place. We are
going to work very hard to make certain that we address our
overall safety goals and capacity. I would tell you that this
budget supports our safety and capacity goals. It is something
that we are going to as we move forward to make certain that we
support core programs that are delivered in those areas. This
budget does that.
It is true we are not in expansive times. Looking at the
Aviation Trust Fund and looking at other constraints, we are
dealing with an industry that is not able to equip like we had
at one point hoped and expected. Things have changed. But the
commitments that we have made in our capital account go to
capitalizing on those programs, which at this point, the
research and development is done. We are at the implementation
stage. We do need to move ahead with them. And those programs
that really are R&D, they are not ready for implementation and
the huge costs that go with implementation. That is what we
have tried to recognize here.
Senator Murray. Just last week the FAA's air traffic
control infrastructure experienced a power outage in Los
Angeles and a computer crash in Kansas. In Los Angeles, they
said that it took nearly 3 hours to get all the communication
systems back on line. Eighty flights were delayed. Two
airplanes violated FAA's safety standards by flying too close
together. And in Kansas, FAA technicians in the operations
control center and the field were left unable to electronically
communicate with each other for almost 12 hours. Can you assure
us that this is not a preview of what we can expect to see with
the $400 million cut to the air traffic control modernization
budget?
NETWORK OF SYSTEMS
Ms. Blakey. You know, the FAA does a remarkably good job at
keeping on line a huge network of systems. So every now and
then something occurs and the news media made a good bit out of
something that actually was not as severe as the papers
characterized it in terms of Los Angeles. It does catch
people's attention.
But I would have to tell you that our ongoing ability to
maintain and support our existing systems and network is a very
high priority, and it is something that you will continue to
see reflected in our budget.
Senator Murray. Mr. Mead, do you see any linkage between
the overall funding level for modernization of the ATC system
and the frequency of system crashes and other ATC outages like
I just mentioned?
Mr. Mead. No, I do not think I do. That is because if you
look back about 3 or 4 years, these outages were much more
frequent. We were reading about them almost every week and they
were all over the country. Actually the trend line shows that
they are getting better. But when they happen you wonder why
did they happen and how can we get the recovery back as quickly
as possible?
MAINTENANCE WORKFORCE
I would say that the maintenance workforce at FAA and how
you are going to provide maintenance, I think that is an area
that bears watching because the way the operations account is
structured, much of the growth in it is going to cover the air
traffic controllers, not much will go to maintenance
technicians. Your salaries in that area have a crowd-out
influence on other elements of that account and the maintenance
technicians are one other element of the account.
Ms. Blakey. One thing I would say about this, and this
really is a compliment to the vision of this committee and the
Congress in general. The investments you have made in
modernization have paid off in this area. We have seen a very
significantly improved picture because the equipment is newer
and much more reliable. It can be handled in many cases by
remote maintenance, scheduled maintenance, which is obviously
much more efficient than having to send folks out in the middle
of the night on something that is a last-minute emergency. That
really has made a very big difference, the fact that it is much
more reliable, much more situationally situated where we can do
it and do it well. So I think that we have to realize that the
picture has changed. We are very committed to training our
maintenance workforce not only for the challenges we have right
now, but also to look at specific situations to make sure what
happened here, what we are going to do to fix it to make sure
it does not happen the next time. The second thing is we need
to train people more for the upcoming systems, which are much
more software-intensive, so that we have people who are well
situated for the equipment of the future.
Senator Murray. Well, let me ask about maintenance, because
on March 1 a Federal arbitrator ruled that the FAA has not met
the minimum staffing levels needed for the agency's air traffic
control maintenance functions based on the agreement that was
reached in fiscal year 2000 between the FAA and the union that
represents the airway facilities technicians. The arbitrator
ruled that the FAA must immediately take action to raise the
total number of technical employees to a minimum staffing level
of 6,100. How was this allowed to happen and when was the last
time the FAA met that staffing level of 6,100?
Senator Stevens. Who made that ruling?
Senator Murray. A Federal arbitrator.
Ms. Blakey. This has been a longstanding difference of view
between ourselves and PASS, our union. So we really do see that
figure differently. We believe we have been meeting that 6,100.
It all goes to a question of how you count some of our
personnel and centers, and we believe they should be counted in
that figure. That said, we are looking at the situation now as
to whether we should appeal this or whether we should take
steps to increase the numbers there. This is a very recent
ruling.
Senator Murray. It was March 1. So can you give us a time
line of when you expect to move forward on that?
Ms. Blakey. I would be very happy to get back to you. I
have not consulted with the folks who are actually working that
arbitration, so let me find out and I will get back to you.
[The information follows:]
Timeline to move forward on the March 1 ruling on staffing for air
traffic control maintenance functions based on the fiscal year 2000
FAA/PASS agreement.--The FAA has appealed the arbitration award that
interpreted an agreement between FAA and PASS on systems maintenance
staffing levels. The primary issue in the dispute was what specific
positions should be counted towards the agreed on staffing number. FAA
believes that the award is inconsistent with the Federal Service Labor-
Management Relations Statute that governs labor relations in the
Federal Government. The appeal acts as a stay of the award until the
Federal Labor Relations Authority (FLRA) issues a decision on the
appeal. There is no fixed time for FLRA to issue a decision. The FAA
will comply with whatever decision the FLRA issues. In the meantime,
the FAA will continue to monitor maintenance staffing levels in
accordance with resource constraints and operational needs.
CONTROLLER RETIREMENTS
Senator Murray. The issue of controller retirements is not
a new one. I was dismayed last year when our conference
committee was required to accept the House's proposal to reject
the FAA's request for 328 more controllers. While the
conference report did not provide the requested funding to grow
the existing number of controllers, it certainly assumed that
there would be money to hire replacements for the usual number
of controllers that leave or retire over the course of a year.
Ms. Blakey, as I mentioned in my opening statement, the
number of air traffic controllers at our 24 en route centers is
747 controllers or 10 percent below the level called for under
the FAA's own staffing standard. That shortfall has worsened by
almost 100 controllers in just the last year. In fact, all but
four of the FAA's en route centers are below the staffing
standard and some are below by as much as 30 percent. Is your
agency promptly hiring enough controllers to replace the ones
that are retiring or leaving the system?
Ms. Blakey. The picture on the number of controllers FAA
has in terms of our staffing needs is complicated. It is
important to know at the beginning that in point of fact, when
you take our controller workforce as a whole, we are well above
our staffing standard. Currently I can give you the figures. We
have on board 15,428 controllers. The staffing standard calls
for 15,136. The question is are they in the right places? We
are talking about our centers. It is true that only one of our
centers--and the way the staffing standard operates, it says
that you should have a set number within plus or minus 10
percent, so there is a fair latitude there and that is because
it is hard--they differ a lot--to get it exact. We are looking
at some of the centers where we believe we need to address
that. Oakland is one, for example. Oakland, though, is
complicated because it has historically been hard to staff. It
is not where a lot of people have wanted to go for a variety of
reasons. So some of these have issues that are not so much a
question of resources; they are a question of trying to figure
out how we bring people in who both want to be there and who
qualify to be there. Now another indicator, besides these
staffing standards, which are sort of mathematical formulas, if
you will, about how many people we need----
Senator Murray. So you do not think those are good
standards?
Ms. Blakey. They are a standard. Another way to look at it,
though, is how is your overtime doing? Are you running
excessive overtime? We are not running excessive overtime in
our centers. So if you look at that as a measure you say well,
they are obviously operating fairly well with the existing
numbers of people they have on board.
I met with our facility representatives for NATCA about a
week ago in Redondo Beach with the leadership of all the
centers from a union standpoint and asked, ``what do you see?''
And one of the things they pointed out was let us take a look
at the folks who are talking to air traffic, talking to
airlines. We have a lot of folks in the centers who are doing
other kinds of things. So we need to look at both right-sizing
and duties. How are we doing? But I take your point that in
some of our centers we should increase the staffing and we are
working to do that.
Senator Murray. Mr. Mead, do you care to comment on this?
Mr. Mead. I think it is fair to say that FAA probably needs
to start hiring some number of controllers in anticipation of
this bubble, so I think you have a point there. At the same
time, these staffing standards--Congress or FAA directed the
National Academy of Sciences some years ago to take a look at
the staffing standards and the National Academy of Sciences did
not have a lot of favorable things to say about the application
of these standards down to the facility level.
So when you have a number of 15,000-odd controllers
nationally, the real issue is where do you need them? Because
you have 300 different places. We do not have one building
where we send 15,000 controllers. That is why I think this is a
problem that FAA shares with the controllers union. I think FAA
needs to take a look at how long it is taking for their on-the-
job training. I think they have to drill down to figure out
where they think these vacancies are going to occur.
I think the controllers union, for its part, needs to agree
to participate in a labor distribution system so you can tell
why do we have these disparities between similar facilities
with comparable traffic levels? How many hours is it reasonable
to expect the controllers to spend on scope? So I think it is
kind of a community problem here and we need to get on with
solving it.
CONTROLLER RETIREMENTS
Ms. Blakey. Senator Murray, you had also mentioned the
retirement bubble and your disappointment that we had not--and
as you know, in last year's budget we asked for additional
positions and the Congress as a whole said no, do some other
things. Congress asked us to look at the age 56 retirement
requirement, develop guidelines for waivers, and look at
training. But a big part of the push was right-sizing our
facilities, not having these significant shifts between
overstaffing and understaffing. So we are trying to do that.
The Inspector General mentioned the retirement bubble. We
agree that this bubble is coming up. I did bring a chart with
me that shows the FAA's predictions of retirements accompanied
by what actually happened that year. You will see that so far
we are spot on. I think that the Inspector General is correct
in saying we would like to have a lot more granularity at
each----
Senator Murray. Spot on? I am a little worried at where
that graph is going.
Ms. Blakey. Well, as I say, there is no question about the
fact that there is a significant retirement wave coming up.
That said, we believe we are accurately predicting this wave.
At this point we do think that one of the things we need, at
the facility level, is to determine a more granular picture of
who is retiring and when. But it is not easy to do, as you can
appreciate.
Senator Murray. What is the training time for those?
Ms. Blakey. It differs. Two-and-a-half, in some cases up to
about 5 years. It should not be running more than 5 years. But
you also are able to bring in what we call developmental
controllers, who can be productive and work much earlier than
the 2\1/2\-year mark. That is for a fully certified controller
on all the positions at the facility.
Mr. Mead. The concern is that as those bars increase and
you have more people in the system, more controllers that you
just hire, if I hire a controller today, send him to school,
gets out of school, that controller is not going to be
controlling air traffic, so you are going to have a lot of
trainees around the system. So the granularity point that the
Administrator points to about these disparities between
facilities cuts this way, too, that that granularity has to
figure out how many can we afford to have in training because
you cannot equally weight a trainee with a full performance
level controller.
Senator Murray. My time is up, Mr. Chairman. Thank you very
much.
Senator Shelby. Senator Stevens.
Senator Stevens. Thank you very much. First let me thank
you, Administrator, for working with us on the Adak runway. It
really has been necessary to have a transition there with the
State ownership and the operational capability of that area has
been enhanced by your willingness to maintain the runway lights
during the transition period. I do thank you for that.
LASER RUNWAY LIGHTING
I would like to ask if you would ask your people to give us
an update on the laser runway lighting proposal that is before
you. I know it is still in some test phase but I do not know if
most people understand that we have over 1,000 commercial
runways, some that you have a function on and mostly State and
just local support. But beyond that, we have a whole system of
private runways, people landing on their homesteads or in terms
of float planes, landing on lakes.
We have an enormous landing problem. That laser designation
for safe use is something that holds great promise to us to cut
costs considerably with regard to those and I would urge you to
see what we can do to accelerate the application of that.
[The information follows:]
A demonstration of the use of yellow lasers to highlight hold lines
was conducted in November 2002 at Ted Stevens Anchorage International
Airport. Using eye safe lasers, a single holding position line was
illuminated for 2 weeks. Tilt switches prevented the laser projectors
from projecting above the ground; no direct exposure was possible from
the ground-based projection system.
The second (longer term) demonstration is planned for September
2004 in Fairbanks, Alaska. Improved solid-state yellow lasers will be
used to illuminate a problem intersection on the Fairbanks Airport
where snow and ice cover the painted hold line over half the year. The
lasers that will be used in the Fairbanks demonstration have been
viewed by the FAA Administrator in a demonstration during her August
2003 trip to Alaska and have been reviewed by the FAA Radiological
Officer in September 2003. Further review will include the Society of
Automotive Engineers G-10T Committee that creates recommendations for
limiting the use of lasers in airport environments.
If the second demonstration proves operationally successful, the
laser technology will need to meet the requirements of FAA regulations
and Certification as well as FAA airports to ensure proper National
Airspace integration and eligibility for Airport Improvement Program
funding. Final review of physiological safety will be provided by the
FAA Civil Aerospace Medical Institute. Their concurrence is a necessary
element in the decision on suitability.
Senator Stevens. Secondly, though, I want to congratulate
the two of you, Mr. Mead and Ms. Blakey. I note that there's a
little more indication of contemporaneous review and comment in
your department. I have always believed that the staff of the
Inspector General has a responsibility for preventing problems,
as well as critiquing the results of problems, and you sound
like you have a little bit more communication than you have had
in the past and we applaud that. I do hope that it continues to
develop because this is a good problem.
CAREER STAFFING PROBLEM
I would like to show you sometime the chart for the Library
of Congress. You think you have problems; this is a problem for
the whole government and it comes about because of people
deciding to make a career out of government. As the pay
increased and as retirement benefits increased, as the health
care increased, more people are staying in government now than
ever before for longer periods of time. As a consequence, this
is a national problem, not just yours.
It requires some real help, Mr. Mead, from the inspector
generals to start looking at how we can utilize some of the
funds that are available.
And Ms. Blakey, I do believe inspector generals can step
out of the box a little bit. They do not have the long-term and
political responsibility that you might have but they have the
capability with their staffs to try to see around corners and
see how collisions could be avoided. As I said, I applaud you.
It seems like you are doing more of that, from the
conversations I have heard.
TRAINING OF NEW CONTROLLERS
I do want to ask you a little bit about this problem of
dealing with the movement of new people into full controller
status. It seems to me that that has got to be accelerated.
Have you looked at that, Mr. Mead? How do you accelerate the
time in which a person is really qualified to take the position
of the well qualified controllers that are going to leave?
Mr. Mead. We looked at this. You will remember, Senator
Stevens, some years ago FAA's academy in Oklahoma City used to
have--they say if you look to your left, look to your right,
two of you will not be there; you will not pass. And FAA
corrected that.
Senator Stevens. That is what they said when I went to law
school.
Mr. Mead. Same here.
Senator Stevens. They were right.
Mr. Mead. I think we need to take a look at that. We are
about to issue a report. FAA has it and I think you are quite
right about the extent that we communicate but----
Senator Stevens. We tried in Alaska to reach down into the
university and have the universities start training these
people and as they came through their college training, they
were prepared to move in and be ahead of those who might have
just walked off the street and said I would like to be an air
traffic controller.
I think we have a duty to reach down into the educational
process across government and say we want some of these
institutions to start training people more specifically for the
work that they may be able to fulfill for the government. If we
do not do something, you cannot train them post-college and
meet the goals of that chart or the Library of Congress or, for
that matter, take a look at the military departments. They
probably have the worst one of all right now.
Mr. Mead. FAA is using the university system. They used to
never use it. I do think you are right on target. I do not
recall whether you were in the room at the time of the
statistic I mentioned. It takes an average of 3 years after
they get out of school before they are at the full performance,
fully certified level and we found some instances, Senator
Stevens, where it took up to 7 years.
Senator Stevens. I just read that. It is on page 7 of your
report. I understand what you are saying but I do not think the
solution is to critique it as it is happening. I think we have
to find a solution in advance of the problem and it has to be--
maybe we should create--right after World War II we created
special schools. We authorized people to form special schools
for training of our professions and various jobs for
government. Have we got enough capability in the colleges to do
this? Have you examined into that? How many colleges are
willing to participate?
Mr. Mead. No, we have not.
Ms. Blakey. We have quite a few and certainly when I was in
Anchorage I was very impressed by the university's simulation
lab they had for air traffic controllers. I thought that was a
great thing, that they are actually beginning training that is
going to certainly feed into our system.
Senator Stevens. Have you seen our interdisciplinary
training, Mr. Mead, in Alaska? Have you seen what we are doing?
Mr. Mead. No, I have not.
Senator Stevens. We do not have taxis outside of the two or
three major cities. We do not have buses. We do not have
trains, only one train. We have fewer highways in the whole
State of Alaska, which is one-fifth the size of the United
States, than King County, Washington has. But we depend on
airplanes and we are using our system as sort of an incubator
for new ideas to deal with that need. We are always going to be
dependent upon airplanes because the Congress in its wisdom
withdrew a lot of Alaska this way and that way. We cannot have
north and south roads. We cannot have east-west roads. We are
linked to aviation forever. So I would urge you to come up. As
a matter of fact, I might take you fishing if you want to come
up.
Mr. Mead. I will take you up on that.
Senator Stevens. Ms. Blakey is a damn good fisherman. She
finds occasion to come up at the right time of the year, which
is a very intelligent use of the taxpayers' money as far as I
am concerned.
Mr. Mead. I will take you up on that, sir.
Senator Stevens. Well, I congratulate you very much and I
appreciate that this is a sea change, even for you. I remember
sitting here when you were mostly critical. I like the fact
that you are now mostly analytical--where we are going and what
is causing the problems as we proceed along this path. That is
a good partnership you have there, Ms. Blakey. You are part of
it, too, and I congratulate you very much.
Thank you, Mr. Chairman.
REVIEW OF BUSINESS CASE ANALYSIS
Senator Shelby. Thank you, Chairman Stevens.
Madam Administrator, as a major acquisition program
experiences cost growth or schedule delays or capability
reduction, does your agency review and update the business case
analysis and how often?
Ms. Blakey. We do. We have a variety of mechanisms in which
we do a close analysis, in fact, of our major acquisition
programs. I can tell you that----
Senator Shelby. How do you validate the assumptions and
conclusions in these analyses? What method do you use? Is the
Inspector General aware of them?
Ms. Blakey. I think he is aware of a lot of them. I will
tell you, we have relied very significantly on some independent
analysis that has certainly helped us out. For example, on our
baselining of our STARS program and what we can expect there,
we asked Mitre to take a look at all of the cost assumptions,
to really go through the business case and to provide us with
an independent analysis because we felt that was important. We
are going to be doing more of that as time goes on because I
think it does help to have someone who is not as connected with
these programs and who has frankly more financial and economic
horsepower to do it.
But we do have a Joint Resources Council that meets and has
to approve these. I am told when there is any significant
variance off of the projected schedule, and the projected cost.
We are monitoring that--it depends on what level you are
talking about--on a weekly to monthly basis and anything that
begins to deviate immediately throws up a major red flag. It
does not always fix it when we see the red flag, but we know at
that point we have a problem.
Senator Shelby. Was the process you are referring to
applied uniformly to determine whether to continue funding
programs with major problems--that is, WAAS, STARS, ATOP, and
so forth?
Ms. Blakey. I cannot speak historically because, as you
know, I have been at the FAA----
Senator Shelby. Could you get back with us on that?
Ms. Blakey. I would be happy to and I certainly will give
you more detail on exactly how we are applying this for the
current programs.
[The information follows:]
Yes. The FAA has incorporated a series of management control
processes and tools to improve reporting and evaluation of costs,
schedule, and technical performance for major acquisition programs.
Internal processes used to monitor acquisition programs and inform
senior management include:
Monthly reporting by program offices of baseline status and
variance using an automated desktop tool called Simplified Program
Information Reporting and Evaluation (SPIRE).
Monthly reporting to the Air Traffic Services Board on cost,
schedule, requirements stability, and earned value status.
Quarterly reporting to the Joint Resource Council (JRC) members on
the status of all baselined programs.
Administrator notification whenever variances to baseline
parameters exceed 10 percent.
Semi-annual acquisition reviews to examine programs progress and
issues towards completion of acquisition goals including cost,
schedule, and performance. May be held more or less frequently as
needed.
Public Law 104-264 gave the FAA Administrator the authority to
terminate any acquisition program that breaches a baseline element by
more that 50 percent. If the Administrator determines to continue the
program, this determination must be provided to Congress. Public Law
104-264 also authorized the FAA Administrator to consider terminating
any acquisition program that breaches it cost, schedule, or performance
baseline by more than 10 percent.
Mr. Mead. A problem has developed here and I could use
STARS as an example. It has been a fiction for some time,
probably for nearly 3 years running, where the costs of this
program were represented to be around $1.69 billion. People
inside FAA knew that that figure was not realistic for what the
program was supposed to do and time marched on. A big change
from this time last year is that FAA is putting a can opener on
all these major programs. I think STARS was one of the first
because that is some decisions that need to be made on in the
very near future. So it takes a while but I can assure you that
there is a recognition inside FAA that this list of programs,
that the baseline estimates need to be revisited and that
process is ongoing. I am very encouraged.
OCEANIC AIR TRAFFIC CONTRACTOR COST
Senator Shelby. Administrator Blakey, in 2001 the FAA
awarded a fixed-price contract of $218 million to develop a
replacement system to control oceanic air traffic. As a result
of the contract, the contractors had to bear software
development cost overruns. This has been touted as a new
approach for managing contracts at the FAA.
I have learned that FAA recently agreed to pay the
contractor $11 million for work it was already contractually
bound to perform and FAA agreed that taxpayers would bear all
future cost overruns after February 2005. How do you justify
this $11 million for work that the contractor was already
obligated to perform?
Ms. Blakey. Well, this is exactly the dilemma you get into
with a fixed-price contract because the contractor in this
regard, Lockheed-Martin, had sunk considerable costs for
unanticipated problems in terms of software development and
technology development. Again you are going where no one has
gone, and they bore a lot of those costs. It is very critical
that we field our oceanic technology in the very near future.
In fact, we expect to see our system in Oakland go live in
June.
We could not let those schedules just go way out because
the contractor was in the red and no longer making money and
the schedules were slipping. It is in the taxpayers' best
interest to address the issues and the problems. We felt it was
equitable to go ahead and fund, in this case another $11
million, on the contract to bring it in in a timely fashion and
get service going.
There are competing providers out there for oceanic air
traffic. We believe we are doing an excellent job and have the
best system, but we need to field that system.
Mr. Mead. Mr. Chairman----
Senator Shelby. Do you agree with that?
Mr. Mead. Largely. If it stops at $10 million, that
certainly is dwarfed by some of these $900 million increases in
these other programs. So if it stops there, I think that is
fairly modest and we could almost----
Senator Shelby. It is still a lot of money to us.
Mr. Mead. It is. The big date to watch is February 28
because after February 28, 2005, FAA has basically agreed to
pay for any problems that are identified. So they had better
make sure they identify all the problems before February 28,
2005 or that $11 million figure will go up.
Senator Shelby. It could be a huge underwriting mistake.
Mr. Mead. That is right.
LABOR DISTRIBUTION
Senator Shelby. Regarding labor distribution, CRU-X was
supposed to be a system that would allow FAA to accrue credible
workforce data about controller staffing, overtime cost, and
workload issues. Madam Administrator, why has not this system
been employed as designed and why was the functionality of it
limited?
Ms. Blakey. The system initially was developed in a very
collaborative fashion with our workforce and with NATCA. We do
believe that the functionality that it has is going to be very
useful to the FAA. There has been a dispute over the specific
detail that the system collects in terms of the duties and
hours that are being spent on them, and we have been in
negotiations with NATCA over this. We would like to bring those
negotiations to an end. We would like to fill all of the
functionality of the system. We are working very hard to do it.
This is a matter, though, that is subject to negotiation with
our union, and we are working through it at this point.
Senator Shelby. Mr. Mead.
Mr. Mead. I have a suggestion for you. What the
Administrator says is correct but these negotiations have
dragged on and on and on. Senator Murray pointed out how
important----
Senator Shelby. Negotiations generally bring more costs, do
they not?
Mr. Mead. Yes, they do. Senator Murray pointed out the
controller retirement bubble. This is the part that controllers
need to help us with because this will give you a sense of
where they need the people and why you have disparities between
facilities that handle similarly complex levels of traffic.
The suggestion I have is that we make any increases in
staff to be done on the condition that we get a labor
distribution system in place because that will be a central
issue for us for the next 8 or 9 years. You are going to be
facing increases in the controller workforce and you are going
to want to know where and when they are needed and a system
like this would help measurably in that task.
ACCOUNTABILITY
Senator Shelby. Bringing more accountability to FAA is a
top priority of this committee--it has to be--and we are
pleased to see that the FAA now has a chief operating officer
whom you introduced, Mr. Russ Chew. The transition to a
performance-based organization called the Air Traffic
Organization, while it is not complete, may also be a step
forward if implemented correctly. It has to be implemented
correctly. What additional steps are you taking to bring more
accountability to FAA? And how long will it take to change the
agency's culture? First you, Ms. Blakey, and then Mr. Mead.
Ms. Blakey. Well, I will tell you. I think that culture
change is a multi-year activity. It will not happen overnight,
but I am pleased to say that Russ Chew and his team are moving
with remarkable speed. They have already worked to flatten our
management layers so that we bring headquarters much closer to
the field and have much fewer people in that interface of our
management bureaucracy.
They have also instituted an activity value analysis, which
I think is going to be remarkably interesting. I look forward
to sharing the results with this committee because essentially
what we are doing is having Booz Allen Hamilton help us go out
and analyze what exactly are the services we are producing at
the individual levels of the organization and are they
important? Are they being well done? Do our customers value
them? And as a result of that, we will be able to determine
much better what are the activities that we can do without,
what are areas that we should be doing more of, and therefore
have our resources, both personnel and others, devoted to where
we are getting the value. So that process is ongoing. We expect
to have the first results of it by June. We will certainly be
looking at that as a way to make this work more efficiently.
Senator Shelby. Mr. Mead.
Mr. Mead. I think there are already some early signs that
the direction is changing in making the ATO a performance-based
organization. I think the proof will be in the pudding and it
is probably 2 or 3 years down the road. I think at this time
next year----
Senator Shelby. Two or 3 years will be here before we know
it, though.
Mr. Mead. Yes, sir, it will be.
Senator Shelby. I know from being on this committee.
Mr. Mead. I think the big barometers right now are how we
handle the workforce issues involving the air traffic
controller retirements, STARS, getting our terminal
modernization on the right track, and this big acquisition they
are just starting called ERAM.
Another big-ticket item, although compared to billion-
dollar systems is not that big financially, is that oceanic air
traffic control system. Some big dates are coming up this year
on that in June. It is supposed to be in Oakland. That program
is already late. I think they are paying a lot of attention to
it. So it takes a while to turn around the ship. I will
withhold judgment until I see the pudding.
FLIGHT DELAYS
Senator Shelby. You know, the summer months are coming on
us fast here. The air traffic is probably going to rebound as
people start traveling more; we hope so. What are the top three
or four actions that you are taking that will help meet the
growing demand for air travel and prevent gridlock during the
busy summer travel season?
Ms. Blakey. Well, certainly we have been looking at the
question of what we can do very immediately to relieve
congestion. The conference I mentioned in March really was a
ground-breaking activity where we asked everyone to sit down in
the same room and say now look, for the good of the system, not
just a single airport or parochial interest of an airline, how
can we make the system work more efficiently? And we came out
with a number of procedural changes which we have already begun
implementing in the way we are looking at the upper level air
space and the way we are establishing express lanes.
The agreement is that if we are experiencing 90 minutes or
more in taxi-out and hold at airports, we can start flushing
those airports and asking others to hold back. Let us get the
delay out of wherever we have it so that it does not overwhelm,
not only the passengers in those places that are congested, but
also begin to ripple through the entire system.
Just yesterday Secretary Mineta and I took specific steps
to deal with O'Hare, which I do not have to tell this
subcommittee O'Hare has a huge effect on the system. We had
realized back in the fall that the scheduling at O'Hare was
beyond the capacity of the airport. You know, 2 pounds in a 1-
pound bag does not work. Therefore, we began in the winter,
early part of this year to talk with the two airlines which are
the primary airlines at O'Hare, American and United, about
drawing down their schedule. They drew it down 5 percent in the
critical hours between 1 p.m. and 8 p.m. We tried to see if
that was going to be enough during the month of March. It
proved that it was not enough. We still were experiencing
significant delays at O'Hare and again this ripples through the
whole system. You know, if O'Hare sneezes everybody gets a
cold. So we then asked again that the airlines look at their
schedules and yes, just yesterday the Secretary and I announced
an agreement that each airline is going to take down their
schedule further, American and United, another 2.5 percent at
O'Hare.
Now this is not something we like. We certainly would
prefer that the market work and not have to put any
constraints, but these are voluntary measures. We are very much
looking at this to make sure that we are doing everything
possible to address schedules and delays.
Senator Shelby. Mr. Mead.
Mr. Mead. We all remember the summer of 2000. Everybody
talks about the summer of 2000. That is a reference to the
worst gridlock year. I think we all remember that. Two big
things are different, maybe three things are different now.
There are more runways out there.
In the summer of 2000 and the aftermath there was extreme
reluctance for the regulatory authorities to put the brakes on
airline scheduling practices. You remember we had all kinds of
examples where you had more aircraft leaving at a specific time
of day than could possibly leave and Chicago O'Hare was one of
the poster children for that. I think that the Secretary and
the Administrator have shown a willingness to tackle that
issue.
Secondly, one of the things that we learned from the summer
of 2000 was the need for the airlines and FAA to talk to each
other on a daily basis, in the morning, about what things were
looking like that day from the standpoint of weather or flight
patterns, and so forth. So that is different.
Another fact that I think is a little bit scary that we
have not had a lot of experience with is the regional jet
growth, which carry less passengers. As traffic rebounds and--
--
Senator Shelby. Less traffic and fewer passengers.
Mr. Mead. Yes, and I mentioned Dulles. I think we see some
danger signs at Dulles for this summer. I mean it is a huge
growth balloon if you believe the airlines about what is going
to happen and I think right now is the time to start planning
for that.
Senator Shelby. Senator Murray, thanks for your patience.
SAFETY
Senator Murray. Thank you, Mr. Chairman.
Mr. Mead, in the area of safety, a continuing concern is
the fact that the aviation industry is out-sourcing an
increasing percentage of their aircraft maintenance work. In
fact, almost half of their maintenance costs were out-sourced
in 2002. The US Airways Express crash in Charlotte last year I
think is a tragic example of what happens when there are
performance deficiencies on the part of third-party maintenance
contractors.
When your office looked into this issue last year you
reported that the FAA's inspection efforts were primarily
focused on in-house maintenance programs. The FAA agreed to
develop a program to target inspector resources toward the out-
sourced facilities. In your view how well is the FAA now
targeting those facilities?
Mr. Mead. We need to do a follow-up effort. Let me give you
a good answer to that question. I can tell you what I have been
told is that they are in the process of implementing our
recommendations. For example, the problem you alluded to was
where United Airlines' principal inspector would not know much
about what was going on at the repair stations and there is all
this maintenance being done at this repair station and the
repair station person would not know what was going on inside
of United Airlines, just to use the one airline as an example.
FAA is piloting a process with one airline--I think it is
Delta--where the principal maintenance inspector for Delta is
expected to be on top of all of their maintenance. That is, I
think, the essential design of their program. I think FAA is
impressed with the results of that and wants to consider
expanding it to the other carriers. I think that is the current
status.
On the foreign repair stations, FAA agreed that they needed
to step up their oversight there. You will recall that the
problem we identified there was FAA would certificate the
repair station but not necessarily know--they would delegate a
lot of the oversight responsibility. We have not followed up to
check to see how that was implemented. Maybe the Administrator
is more current than I am on that.
Senator Murray. Ms. Blakey.
Ms. Blakey. Well, certainly we have just instituted, in
fact, new rules, new regulations governing repair stations
across the board, both foreign and domestic. We have evened out
much more so the requirements that we are placing on foreign
repair stations are equivalent to those in the United States
except that they must be recertificated every 1 to 2 years. So
I think at this point from that standpoint we are working very
hard to make sure that those requirements, for example for FAA-
certified training, et cetera, will be carried through.
The second thing is we are adapting our own oversight, just
as the Inspector General pointed out, and we are working with
the carriers so that they see the integration of oversight of
repair work----
Senator Murray. Can you give us any specific examples?
Ms. Blakey. I can probably do that better in a written
response to the committee if you would like, just to give you
more detail on that.
Senator Murray. All right.
Ms. Blakey. But Mr. Mead is correct. We are very encouraged
by the fact that the inspectors should look at this as a unit
for a carrier, not as we look at these repair stations who are
doing six carriers and over here we are only focusing on what
Delta does in-house.
Mr. Mead. I think just a footnote to this, I think the
domestic situation is easier to fix than the foreign situation.
In the foreign situation, we found cases where the FAA person
that was supposed to certificate was presented with materials
that were in a foreign language that he or she did not
understand. So the problems in foreign repair stations and the
FAA oversight I think are of a different type and maybe a bit
deeper.
Senator Murray. Well, if both of you could follow up with
the committee in response to that, I would appreciate it. It
remains a significant concern.
[The information follows:]
The FAA has taken numerous actions to address changes in repair
station oversight. Many of these actions address concerns raised by the
OIG in the Air Carriers Use of Repair Stations audit published in June
2003.
In October 2003, FAA formed working groups to respond specifically
to the OIG report. This working group will:
--Identify repair stations that perform safety critical repairs for
air carriers;
--Improve databases to capture results of foreign aviation authority
inspections;
--Develop new comprehensive repair station oversight organizations
and concepts to oversee aviation article repairs from start to
finish.
FAA increased the sampling inspections performed by FAA inspectors
for inspections performed by foreign aviation authorities on FAA
requirements.
Implemented the final Part 145 rule on Repair Stations (January
2004).
In collaboration with Duncan Aviation and TIMCO, the FAA is
initiating a prototype program to develop new oversight systems and
techniques to oversee large, complex repair stations. This system will:
--Standardize FAA oversight of repair stations located in multiple
FAA regions;
--Increase the quality of surveillance by assigning a dedicated team
of inspectors experienced and knowledgeable in the practices
and procedure of the repair station;
--Increase the quality of surveillance by allowing inspectors to
retarget their oversight to areas of risk.
On going efforts in changing foreign and domestic repair station
oversight:
--Enhance the FAA inspector repair station certification and
surveillance course and give priority to inspectors assigned
oversight responsibilities for repair stations. (Must be done
to comply with the requirement of new rule).--June 2004.
--Develop a repair station prototype program that incorporates a
certificate management team structure to enhance oversight of
large repair stations or companies that own multiple repair
stations and satellite repair stations.--October 2004.
--Develop and publish a notice of proposed rulemaking that revises
the rating system, adds a quality assurance requirement, and
further clarifies rule language.--October 2004.
--Develop the 145 Surveillance and Evaluation Program by revising the
Surveillance and Evaluation Assessment Tool to target
identified risks and incorporates the system safety approach
into repair station oversight.--October 2006.
The fiscal year 2004 activities are focused on developing new
processes and procedures to identify risks and target FAA inspector
resources to resolve those risks. The completion of these activities
and implementation of the new programs will not be accomplished until
the fiscal year 2007 timeframe.
Senator Murray. Ms. Blakey, as you will recall, the only
reason the conference report on the FAA bill was allowed to
pass the Senate and go to the President was because you
provided a letter to the Senate Commerce Committee promising
that you would not contract out any additional air traffic
control functions to the private sector during fiscal year
2004. This could very well become a contentious issue for our
bill this year if we do not have a similar commitment from you
for fiscal year 2005. Are you prepared to submit to this
subcommittee at this time that the FAA will not be contracting
out any current air traffic control jobs during 2005?
Ms. Blakey. You know, the letter that you are referring to
was one that was prompted, as you say, by what, to me, was a
surprisingly intense debate over this issue of contracting out,
out-sourcing, privatization, all sorts of things being batted
about. And it did prove important to have the debate set aside
and be able to get what was a very important 4-year
reauthorization bill completed.
I think it is a very different thing, though, if you are
suggesting that on an annual basis the FAA Administrator should
provide a guarantee that there would not be any kind of out-
sourcing for the following year. Historically, since the FAA
has been here, that has never been done. It has never been
necessary, and I do not understand that there is a necessity
for it now. And the reason I say that is I have already said
and I have said repeatedly that on the issue of our contract
towers that we have no intention of converting further towers
any time in the foreseeable future. There are no plans on the
table. I have no additional A-76 plans for studies right now.
We do, however, have an important A-76 study under way, which
this subcommittee is very well aware of, focusing on our flight
service stations. As you know, we have the Inspector General's
report and recommendation and that of others. We have looked at
the question of can this be done by the private sector. And, in
point of fact, everything points to the fact that this is an
important area to have looked at from the standpoint of ``Can
private or public sector accomplish this best?''
No matter whether our own employees, who are bidding in
this process, no matter whether they win or whether others win,
we know that we will have very considerable cost savings to the
taxpayers, about a half billion dollars over a 5-year period.
We also know we will have better service at the end of this. So
that is important and we expect to award that contract in
fiscal year 2005.
So I mention those things by way of saying that it would
seem both unnecessary and an impediment to the kind of
flexibility that may be important down the road if all of a
sudden there becomes some annual expectation that guarantees
have to be provided.
SEATAC
Senator Murray. I do know what the annual expectation is. I
can just tell you it will be an issue this year.
Let me turn to another topic. Ms. Blakey, your testimony
does mention that last year was what you called a banner year
for new runways. It will not surprise you when I tell you it
was not a banner year for SeaTac International Airport's third
runway project. Unfortunately, as you well know, SeaTac is kind
of the poster child project for the need to streamline the
environmental review process for new runways. And, as you know,
we have been trying to complete construction of the third
runway I think it is for my entire life but it has only been 16
years.
The added costs for complying with those environmental
rules for the construction of that runway, as well as the
associated cost of delays for a great deal of time now, have
grown by almost $200 million just in the last 4 years. As you
can well imagine, this has put an incredible amount of pressure
on the ability of the airport authority to finance the
completion of that project. The Port of Seattle, as you know,
is currently pursuing an amendment to the airport's existing
Federal commitment to ensure that there is adequate financing
to meet all of those new environmental costs. Do you believe it
is reasonable for us to pursue an additional Federal commitment
for this project, given the fact that these added costs are
associated with the need to comply with Federal environmental
laws?
Ms. Blakey. Although I have not been as long on this
project as you have, I do share your frustration about it. We
see the third runway at SeaTac as being a very important part
of the national aviation system. So successful completion of
that runway is a big goal for all of us. No question about it.
What we are doing right now, because I think this is the
most intelligent thing from our standpoint, is we have hired
again an independent contractor to look at the financials that
SeaTac has provided. As you know, they came in only a month or
so ago, but we are trying to get through this very quickly. It
is a very complicated analysis, but we need to understand a
variety of the cost justification there, as well as things like
what will that do for the cost per enplaned passenger, what
will be the impact on the airlines, et cetera?
What I can definitely tell you is that we are committed to
working through that. We will be as supportive of SeaTac as is
possible, with the understanding that this is an unprecedented
request. A request of this magnitude and taking up the Federal
share to the degree this would, it certainly raises policy
issues as well as understanding the financial needs.
Senator Murray. Well, I appreciate that very much and want
to work with you on that. Do you have any sense of the time
line that we will be getting a response back?
Ms. Blakey. Boy, I would like this get this done by
sometime in June. I will keep you posted, if I might.
Senator Murray. Thank you very much.
Ms. Blakey. And by the way, congratulations on the
commissioning of the tower. I know that is coming up on the
24th and cutting that ribbon will be great.
[The information follows:]
The FAA timeline to reach a decision on the SeaTac application to
increase the LOI by $198.1 million follows:
March 8, 2004.--Application received.
May 19, 2004.--FAA receives the independent financial analysis from
Reed & Associates, LLC.
May 30, 2004.--Complete agency financial analysis and review of the
application.
Mid-June 2004.--Final agency decision on the application.
Senator Murray. Good. One other question, Mr. Chairman, and
I know we have a vote coming up.
Ms. Blakey, in my opening statement I talked about how
essential it is that the United States maintain its
international leadership in aviation for the second century of
flight. Part of my dismay over the proposal to cut $400 million
from your procurement budget is that it will slow down our
ability to modernize the current air traffic control system.
Beyond just replacing the aging equipment that your agency is
operating on today, we have to be thinking about the next
generation of air traffic control equipment and begin planning
for deployment of that system.
GLOBAL COMMUNICATION, NAVIGATION, AND SURVEILLANCE SYSTEMS
As you know, for the past couple of years, I have secured
about $45 million for the Global Communication, Navigation and
Surveillance Systems program and I am very pleased that the
first phase of that contract was awarded to the Air Traffic
Management division at Boeing. And I really want to commend you
for extending their contract so they can stay on the job until
you have awarded the phase two contract portion of that. What
can you tell this committee about the accomplishments of that
initiative to date?
Ms. Blakey. Well, I think in terms of satellite navigation
and the way we see our system developing over time, certainly
the program has given us important information about how
satellite navigation can function, particularly in areas like
the Gulf where you really do not have radar control and you
have therefore big challenges involved. It also points in the
direction of what we will do from the standpoint of digital
communications, what we will do from the standpoint of looking
at investments internationally because we do see this as being
the wave of the future. So we are still both analyzing the
results and, of course, looking at what is proposed for the
next stage as a part of a contract extension. I think the
results so far have certainly been promising.
Senator Murray. Is there any doubt in your mind that the
next generation of air traffic control will be satellite-based?
Ms. Blakey. No. It certainly will be heavily satellite-
based; let me put it that way. And we are very much of the view
that our standing internationally is going to depend on
continuing U.S. leadership in that regard.
ADDITIONAL COMMITTEE QUESTIONS
Senator Murray. Well, we want to be there.
Thank you very much, both of you, and thank you, Mr.
Chairman.
[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 Federal Aviation Administration
Questions Submitted by Senator Richard C. Shelby
FAA ACQUISITION POLICY
Question. Earlier in the hearing, I asked if FAA reviews and
updates accordingly the business case analysis if a major acquisition
program experiences cost growth or schedule delays, or capacity
reductions. How does the FAA validate the assumptions and conclusions
in such analyses?
Answer. Under the FAA's acquisition policy, the program office is
responsible for preparing cost, schedule and performance estimates for
review when these commitments change. Before approval by the Joint
Resources Council, the Office of Operations Planning and Finance is
responsible for business case analysis, and reviews the revised
estimates. The reviews include an audit of the estimates and
examination of the underlying ground rules, assumptions and models.
Reviewers determine differences between revised estimates and previous
estimates. The reviewers use historical results from similar FAA
programs, other government programs, and industry to validate the
estimates. In some instances, the reviewing division may develop their
own estimates for comparison purposes. Risk assessments are usually
performed. Together with program office analysts, the reviewers ensure
that estimates are adjusted to account for risks, risk mitigation
strategies and uncertainties. An opinion is made available for
consideration during Joint Resources Council deliberations and
decisions.
Question. What process does the FAA use to determine whether to
accelerate, maintain, decelerate or terminate an ongoing program?
Answer. FAA acquisition policy requires cost, schedule and
performance baselines for each major acquisition program at the time of
initial program approval by the Joint Resources Council. If baselines
are breeched, revised baselines are subject to review and approval by
the Joint Resources Council, revisiting the rationale for continuing
the program and the terms under which the program may proceed. The
Administrator reviews programs that exceed their baseline by more than
10 percent.
Under the Air Traffic Organization (ATO), performance is defined in
terms of service delivery targets and published in the FAA Flight Plan
and upcoming ATO Business Plan. Decisions to accelerate, maintain,
decelerate or terminate an ongoing program will be based on its
contribution to meeting service delivery targets and business
objectives, such as targets for reduced operating costs. The ATO
reviews the costs and benefits of programs to ensure there is an
economic return on the capital investment.
ADVANCED TECHNOLOGIES AND OCEANIC PROCEDURES
Question. When and at what cost can we expect to have fully
functional ATOP systems replace the obsolete technology in Anchorage,
New York, and Oakland Centers?
Answer. The approved acquisition program baseline for the Advanced
Technologies and Oceanic Procedures (ATOP) system calls for Build 1 to
achieve Initial Operational Capability (IOC) at Oakland Center in June
2004 (which occurred on June 30), at New York Center in March 2005, and
Build 2 IOC at Anchorage Center in March 2006, with the final ATOP
system IOC in 2008. The FAA is working toward a more aggressive
schedule with contract incentives to deliver Build 1 IOC at New York
Center in December 2004 and Build 2 at Anchorage Center in May 2005.
Build 1 delivers a fully operational ATOP system with integrated
decision making tools, enabling ``off-the-glass'' operations and
providing the flexibility needed to entertain more requests for in-
flight altitude changes. Build 2 delivers integrated radar data
processing functionality and the enhanced conflict probe required to
reduce aircraft separation from 100 nautical miles to 30 nautical
miles. The total Facilities and Equipment cost of the program is $548.2
million.
STANDARD TERMINAL AUTOMATION REPLACEMENT SYSTEM
Question. It seems as if the Standard Terminal Automated
Replacement System (STARS) procurement is through the most difficult
phase of the procurement cycle and your testimony indicates that the
anticipated resources for this program will decline in the coming
years. How do you compare the relative risk remaining in the program
compared to other major FAA programs such as WAAS, ASR-11, or ERAM?
Answer. The STARS program has completed core baseline development
and is well into the production, deployment, and sustainment phase. As
of May 26, 2004, 21 STARS sites are fully operational in the National
Airspace System, along with 15 separately funded systems operating at
DOD military (Air Force, Army, and Navy) installations worldwide. All
operational STARS systems have exceeded their requirements for system
reliability and availability.
The remaining STARS risks are primarily programmatic and budgetary.
The FAA Joint Resources Council (JRC) recently approved STARS for full
production and deployment to the remaining 31 of its 50 most critical
terminal locations as part of Phase I of the Terminal Automation
Modernization Program.
When compared to Wide Area Augmentation System (WAAS), Airport
Surveillance Radar--Model 11 (ASR-11), and En Route Automation
Modernization (ERAM), STARS is in the lower risk phase of the standard
program life cycle. The life cycle starts with high risk during the
development phase, decreases through deployment, is at lowest risk
during the years of sustainment, and eventually increases during the
end of life phase prior to replacement. STARS is deploying full
production configuration systems and sustaining those systems. ERAM is
in the higher risk area of development while WAAS and ASR-11 are
nearing the end of development.
GLOBAL POSITIONING SYSTEM
Question. It is my understanding that the Department of Defense
appears to be increasing their requirement for Global Positioning
System (GPS) IIF satellites. I am told that L5 signal coverage is on
the horizon and that GPS accuracy will get even better than it already
is. Given the difficulty that everyone anticipates for WAAS equipage,
the accuracy improvement of the GPS system, and the success that GPS
already enjoys in the general aviation and commercial fleets, I'm
wondering what benefits we derive from continuing to pour more
resources into WAAS when most, if not all, of the capability that WAAS
offers is likely to be offered by this next generation of GPS
satellites. Would we be better off focusing on how to leverage GPS in
our Required Navigation Performance, or RNP, efforts and by taking
advantage of the installed base of GPS receivers?
Answer. The Department of Defense is adding an additional civil
frequency called L5 to the next generation of GPS satellites. This
frequency will provide additional capability for all users of GPS and
will enhance accuracy. WAAS presently achieves an accuracy of 1.5 to 2
meters.
WAAS receivers for aviation use are currently available by a
limited number of manufacturers and we expect that over the next year
this number will grow significantly. GPS provides significant benefits
for pilots, and today many are taking advantage of the capabilities of
GPS. However, GPS alone, even with the L5 signal, does not meet all the
needs for our customers. Specifically, GPS alone does not meet aviation
safety requirements to virtually never fail to warn pilots of
misleading information and to be available all the time. Meeting these
requirements improves safety while enhancing capacity within the
National Airspace System (NAS). For this to occur, capability beyond
GPS alone is needed, and WAAS meets this need. The WAAS will utilize
the GPS L1 and L5 frequency to enable pilots to fly precision
approaches to Category I levels. Precision approach utilizing WAAS will
be fully compatible with the FAA Required Navigation Performance. The
WAAS program has recently undergone program re-planning to leverage the
investment the Department of Defense is making to modernize GPS when it
adds the L5 frequency.
There are three issues regarding the modernization of GPS by adding
L5 that need to be addressed. The first is the schedule of when L5 will
be available. Although the first L5 satellite is scheduled for launch
in 2006, it will not begin broadcasting the L5 signal until 2009. In
addition, in order to utilize the capability of the GPS constellation,
many satellites with L5 must be operating. Based on the current
schedule, it is possible that L5, with acceptable availability of its
signal, will not be available until 2015 or later. WAAS is providing
service to customers now. With the additional L5 frequency provided by
GPS, WAAS capabilities will improve. The second issue is that even when
modernization is completed, there may not be a sufficient number of
satellites available to provide precision approach capability to all
users, at all locations in the NAS. Analysis shows that the modernized
GPS will still need to be augmented to provide service to all users, at
all needed locations, at all times. The third issue is that current GPS
receivers are not capable of receiving and processing the L5 signal.
New equipment or upgrades to existing equipment will be necessary to
receive and process the L5 signals.
FAA is committed to working with our customers to enable RNP
capability. WAAS allows more aircraft to achieve the most stringent RNP
by providing high capability RNP-capable receivers at modest costs
available to all users. GPS alone cannot meet the most stringent RNP
capabilities.
CONTROLLER RETIREMENTS
Question. How the controller workforce changes over the next
several years will be a critical issue for the FAA. FAA has reduced
staffing levels for air traffic controllers from 15,613 in fiscal year
2003 to 15,333 in fiscal years 2004 and 2005. And, FAA is not
requesting additional controllers in fiscal year 2005. What is your
plan for addressing the retirement surge?
Answer. Controller retirements are a critical issue for FAA. We are
in the process of developing a plan to prepare the agency. We are also
developing a plan to address controller retirements, as required by
Vision-100, which will be submitted to Congress at the end of calendar
year 2004.
CONTROLLERS-IN-CHARGE
Question. What are you doing about the practice of air traffic
controllers acting as controllers-in-charge and the rising number of
operational errors occurring under their watch?
Answer. To date we have not identified any direct correlation
between the use of air traffic controllers acting as controllers-in-
charge (CIC) and the number of operational errors. Following any
operational error, the FAA conducts a detailed review of the
circumstances surrounding the error to identify causal factors. The
current data indicates that approximately 23 percent of the errors
reported for fiscal year 2004 occurred while CIC's were on duty in
comparison to approximately 21 percent during fiscal year 2003.
The agency is moving forward with plans to bring the supervisory
level up to 1,726 by the end of fiscal year 2004.
CONTRACT TOWERS
Question. The subcommittee supports the FAA contract tower program
as a way to provide cost-effective ATC services in a proven and safe
manner at over 200 smaller airports across the country. Without this
program, many of these smaller communities would lose the significant
safety benefits a tower provides. Can you tell us the plans to spend
the $80.3 million provided by Congress in fiscal year 2004 for the
baseline program and your projections for funding the program in fiscal
year 2005?
Answer. In fiscal year 2004, the FAA will maintain 219 contract
towers and provide funding for 10 new starts. For fiscal year 2005,
$79.2 million is included in the President's budget request to run
contract towers.
BALANCING INVESTMENTS
Question. FAA modernization plans have suffered from a number of
redirections over the past several years. The U.S. aerospace industry
continues to make early investments in the technologies supporting
these plans with returns on these investments delayed or eliminated
when the FAA's plans change. What is the FAA doing to ensure that
future modernization plans are clearly defined, achievable, and
supported by the aviation community?
Answer. Modernization efforts with links to avionics investments
are heavily dependent on high levels of equipage to achieve customer
benefits. When the benefits are overwhelming, such as with domestic
reduced vertical separation minima (DRVSM), a rule can be made and a
date certain for implementation set. When the modernization effort
depends on voluntary equipage, the economic ability for a predominate
portion of the fleet to equip to achieve additional flight efficiencies
or economies is a major factor in achieving the modernization benefit.
Since investments that include voluntary equipage are more uncertain,
the FAA continually works with the aviation community through its
Federal advisory committees (in particular, RTCA) to coordinate FAA and
community investments, and to identify initial applications and target
locations for which the benefit is overwhelming and the investment
clear.
Question. As the airline industry and the economy recover from the
September 11 terrorist attacks, airspace and airport capacity will once
again become a significant concern. While it's reasonable to expect
that some of the recent and pending system improvements will support
the demand for the next couple of years, more significant technology
insertion will be needed to ensure unconstrained aviation growth for
the future. Near term spending on key technologies like LAAS, CPDLC,
and ADS-B appears insufficient to ensure these technologies will be
ready to deploy when they're needed. How are you balancing your
investments between near-term, mid-term, and long-term modernization
initiatives?
Answer. Balancing near-term, mid-term and long-term modernization
initiatives is based on providing services that have the greatest value
for our customers according to schedules that are mutually compatible.
As an example, the Operational Evolution Plan includes modernization
investments that produce significant value for our customers over the
next several years.
Longer-term investments will provide a higher capacity, flexible
infrastructure to accommodate new operational concepts that will be
needed to meet future traffic growth. In many cases, longer-term
services may require significant development before new concepts and
systems can be implemented.
In today's business environment, aircraft equipage schedules have
been delayed or canceled due to the number of cash-limited airlines.
Also, practical limits exist in the rate and number of major changes
that can be accommodated in operational facilities.
Finally, modernization investments need to be balanced against
investments needed to safely and reliably provide existing services.
All of these factors are considered in consultation with our
customers as our investments are balanced and reflected in the National
Airspace System Architecture and our Capital Investment Plan.
HARMONIZATION OF U.S. AND EUROPEAN MODERNIZATION PLANS
Question. The United States has long been regarded as the global
leader in aviation. Close cooperation between U.S. industry and the FAA
has resulted in the aircraft and ATC technologies that shaped the first
century of flight. In recent years, Europe has focused their efforts to
modernize their aviation infrastructure. Projects like Galileo and the
Single European Sky are positioning Europe to define the technologies
that will shape the next century. What steps are you taking to
harmonize U.S. and European modernization plans, ensuring U.S.
interests are appropriately represented in future aviation solutions?
Answer. FAA continues to engage in bilateral, regional, and
multilateral support activities to promote the improvement of safety
worldwide, including the implementation of U.S. safety technologies,
system safety concepts, and air traffic management procedures and
practices as the foundation for global aviation safety standards. FAA
international leadership is one of the four main goals included in the
FAA Flight Plan for 2004-2008, and as such, will continue to be a top
FAA priority.
FAA accomplishes this mainly through its participation in, and
support of the International Civil Aviation Organization (ICAO) and its
numerous technical panels, regional implementation groups, and higher-
level policy meetings. Within these activities, FAA works very
diligently to develop and obtain approval of global standards and
recommended practices (SARPs), and guidance materials based primarily
on U.S. systems and solutions to ensure that new globally adopted
procedures and technologies will not be detrimental to the collective
interests of the U.S. civil and military government, industry, and user
communities.
Within the global aviation community, the United States and Europe,
from the service provider perspective, are viewed as the two major air
navigation service providers in the world that can ultimately determine
the success or ineffectiveness of new technology, procedures and air
traffic concepts. As such, cooperation between the FAA and its European
counterparts has been viewed as imperative to the creation of truly
seamless air transportation system. The FAA and EUROCONTROL have been
cooperating for years through a Memorandum of Cooperation (MOC) and
related technical annex agreements that outline our joint cooperation
on air traffic management (ATM) research on new technologies and
concepts, strategic ATM system analysis, harmonization of ATM
enhancement programs and plans, ATM development and operation, and
safety management and regulation. Between our respective support to
ICAO global programs and our bilateral cooperative projects under the
stated MOC, the FAA and EUROCONTROL continue to successfully harmonize
and align related programs, to the extent practicable to ensure
interoperability of air transportation systems and procedures between
the United States, Europe, and neighboring airspace.
Through our ongoing cooperative relationships with the EUROCONTROL
and European States, FAA is keeping abreast of the new Single European
Sky Initiative (SESI) to be able to assess any aspects of the program
that may be detrimental to United States policies or initiatives.
One of the most visible areas of U.S. and European cooperation is
in satellite navigation system implementation. Since the release in
1996 of the United States Presidential Decision Directive (PDD)
promoting the proliferation and use of the U.S. GPS and its civil wide
and local area augmentations, the FAA has been encouraging its
international counterparts, as individual States and as regional
communities, to approve the use of the basic GPS signal for use in
certain oceanic, en route, and non-precision approach operations. As a
result, we have seen the number of States approving the operational use
of GPS double since 1998.
For the last couple of years, the FAA has supported the U.S.
Department of State's ongoing negotiations with the European Commission
(EC) on overall operating principles of the planned European Galileo
satellite constellation and its full interoperability with the already
established and globally accepted U.S. GPS. As a result of this U.S.
initiative, a joint statement was signed on February 25, 2004 between
the EC and the United States stating that both parties were able to
reach agreement on most of the overall principles of GPS/Galileo
cooperation, and both parties will continue to work diligently to
resolve the few remaining outstanding issues which concern primarily
some legal and procedural aspects. This cooperation should minimize the
negative implications to United States GPS interests worldwide (civil
government, military, industry, and user community) as a result of the
potential future implementation of the European Galileo satellite
system.
On a more technical level, FAA has been managing a satellite based
augmentation system (SBAS) technical interoperability working group
since 1996 with participation by Europe and Japan to collectively
ensure that technical interoperability issues are solved prior to the
operational implementation of the United States (WAAS), European
(EGNOS), or Japanese (MSAS) systems. FAA is also providing support to
regional projects in South America and Southeast Asia to implement GPS
augmentation system prototype capabilities. Successful results from
these projects will influence the adoption of U.S. GPS and augmentation
systems that will ultimately increase international flight safety for
the U.S. aviation community.
GLASS BEADS
Question. On March 6, 2001, the Engineering and Specifications
Division, FAA, requested the Office of Aviation Research to analyze
glass beads ``to determine if the new Visibead or Megalux bead are a
viable alternative to the 1.9 or 1.5 IOR glass beads.'' (Project Number
2000-589.) The FAA issued a Final Report in early 2003 that found the
Visibead and Megalux bead to be acceptable. Given the cost savings
associated with the use of these glass beads, why has the FAA waited
over 12 months to certify the use of these glass beads as required for
airport managers/engineers to use Visibead and Megalux beads on airport
runways?
Answer. The referenced study confirmed the acceptability of
existing reflective glass beads and the newer Visibead and Megalux
reflective glass beads, as well as newer formulations of water-borne
paints. A draft change to the FAA paint specification has been
initiated. In the meantime, an airport may ask for FAA approval on a
project basis. The revised specification will contain generic language
that both manufacturers of the newer glass beads can meet along with
paint application rates specific to these newer beads. With the
addition of these beads, three reflective media options will be
available to an airport. In order of increasing initial cost, they are:
1. Type I beads, commonly referred to as ``highway-grade'' beads.
2. Type IV beads, the nomenclature used to refer to the Visibead
and Megalux beads.
3. Type III beads, commonly referred as ``airport-grade'' beads.
Question. Can you assure the subcommittee that the FAA will certify
the use of these glass beads on airport runways before the end of the
current fiscal year?
Answer. A new paint specification will be issued prior to the end
of the fiscal year. It contains generic language that will allow
contractors to use Visibead and Megalux reflective glass beads.
RELIABLE COST INFORMATION
Question. There has been much discussion about the transition to
the air traffic organization and the need to get good, reliable cost
information. It is my understanding, however, that this information is
not available, and it will take some time to do so. How long will it
take to get this information?
Answer. Since the FAA switched to the new Department of
Transportation financial system (DELPHI) in November 2003, we have been
working on reconciling and cleaning up the financial information for
all organizations, including the ATO. In addition, we have been working
to interface this new financial information into our Cost Accounting
System (CAS). We plan to re-establish the CAS interface and begin
producing cost reports with the first 8 months of fiscal year 2004 data
in August 2004 and all fiscal year 2004 data in October 2004. We expect
to get back to routine monthly CAS reporting in November 2004 with
fiscal year 2005 data.
Question. What stands in your way?
Answer. This fiscal year, the FAA implemented new financial
(DELPHI) and procurement (PRISM) systems. These systems were necessary
for the FAA to address long-standing weaknesses in these areas.
Improving these systems is the foundation on which we can implement a
more business-like approach to running the agency. As with any major
system changes, there were backlogs and interface problems that have
taken several months to resolve. One of the interface problems we
experienced is between DELPHI and the existing Cost Accounting System.
Our first priority was to ensure that DELPHI provides accurate and
timely financial information. DELPHI data must be accurate for cost
accounting data to be accurate. We dedicated significant resources to
clearing up DELPHI and PRISM backlogs through June 2004. In July 2004,
we changed our focus to cleaning up some remaining issues with DELPHI
data in support of the clean audit effort and to improving financial
and acquisition business processes.
Our second priority is to complete the DELPHI interface that
supports the Cost Accounting System. We completed testing the interface
in March 2004 and will complete the processing of the first 9 months of
fiscal year 2004 cost accounting data in early September 2004. All
fiscal year 2004 cost data will be processed by late October 2004. In
fiscal year 2005, we plan to return to monthly processing of the cost
accounting data. We also continue to improve our labor distribution
reporting for our Air Traffic Organization.
______
Questions Submitted by Senator Sam Brownback
CENTER WEATHER SERVICE UNITS (CWSU)
Question. I understand you are in the process of modernizing the
FAA's air traffic operations and that updating and improving the Center
Weather Service Units (CWSU) is part of that plan. I see many positive
things in this plan that will enhance safety such as improved training,
standardization among units, and instituting 24-hour operations.
However, some of my constituents who are members of the National
Weather Service (NWS) Employees Organization are concerned that a
portion of this plan would no longer require a CWSU meteorologist at
each of the 21 Air Route Traffic Control Centers (ARTCC). Would this
plan leave some air traffic controller and management personnel without
immediate, on-site meteorologist assistance? If so, how would this
impact safety?
Answer. There are several different configurations for
restructuring the CWSU under consideration. The FAA and the NWS are
collaborating to come up with a configuration and placement of
personnel that will improve safety. Further, we intend to take full
advantage of revolutionary improvements in communications technology
that have been developed since the CWSUs were first put in place more
than 25 years ago (1978).
We recognize the concept of ``on-site meteorological assistance''
as essential for the safe, efficient management of air traffic.
Frankly, that is why the NTSB has also been concerned that weather
support be available at TRACON facilities and airport traffic control
towers--as well as at the CWSUs--at all times when significant weather
is forecast.
Partly in response to these NTSB recommendations, we intend to
design a system where all FAA field facilities get on-site weather
assistance on a 24-hour basis, 7 days a week. The foundation of modern
weather services is electronic and automated, rather than human. We
recognize the impossibility of putting a meteorologist into every field
facility of the FAA: air route traffic control centers (ARTCC),
TRACONs, ATCTs and flight watch facilities of the automated flight
service stations.
Thus, I can assure you that the improvements that we are planning
for the CWSU will not leave air traffic controller and management
personnel without immediate, on-site meteorological assistance. As an
example, the service they now receive from the on-site meteorologist
will improve immediately by 50 percent simply by operating 24 hours a
day, rather than the present two shifts a day. However, this does imply
the assistance that all facilities receive (including the ARTCCs) will
be electronic and automated. This design is not only economical, but
will be a great improvement in services compared with current level of
operations.
Of course we are planning several sites where human weather support
is always available 24 hours a day in case human intervention or
consulting on critical weather problems is needed. However, their
support will cover a regional domain, rather than just meeting local
needs. This is the most economical use of trained meteorologists.
Further, the NWS has proposed to train and reward these forecasters
consistent with their larger responsibilities.
We recognize the employees union of the NWS, the National Weather
Service Employees Organization, is concerned about changes. The NWS is
a full partner in these plans.
GENERAL AVIATION
Question. General aviation is very important to Kansas, given the
presence of airplane manufacturers, avionics manufacturers, and the
6,000 pilots across the State. What steps are being taken to ensure
that general aviation pilots have access to the latest technology?
Answer. The FAA has worked in partnership with the general aviation
(GA) industry to promulgate standards and guidance material to ensure
that GA pilots have access to the latest technology.
The FAA recently published Technical Standard Order (TSO) C-145 and
C-146 for WAAS for the Global Positioning System (GPS). This TSO allows
avionics companies, such as Garmin and Honeywell, to self-certify WAAS
equipment for installation in the GA fleet.
The FAA's Wichita Aircraft Certification Office has recently
approved several new technology projects for use in the GA fleet. Both
projects are navigation equipment and flight deck weather display
applications.
The FAA has also published guidance material in the form of an
Advisory Circular (AC) that considerably simplifies the requirements
for GPS equipment installation. Due to the wealth of experience gained
by FAA and industry in installing GPS equipment, this AC removes many
of the burdensome requirements formerly associated with a GPS
installation. The FAA has worked with avionics companies to streamline
installation requirements for many GA operators.
Question. For example, the President's budget calls for GPS landing
systems nationwide--a move that would greatly improve the safety of
flying in difficult weather conditions. With precision satellite
signals now available, how is the implementation of this system
progressing?
Answer. The FAA commissioned WAAS in 2003. The WAAS system provides
greatly improved accuracy, integrity and continuity for aircraft during
precision approach operations.
The FAA published TSO C-145 and C-146 as minimum design standards
for WAAS avionics. The FAA evaluated the potential of the new GPS L5
signals and has approved a new WAAS acquisition program baseline that
exploits these signals to improve the reliability of operations in the
presence of interference and severe atmospheric conditions. It
introduces a new Category I precision approach capability.
The FAA has also chartered the Required Navigation Performance
(RNP) program. The program is a combined effort of Air Traffic, Flight
Standards, and Aircraft Certification. The RNP program exploits the
navigation capability of present aircraft to use precision approaches
at many airports.
______
Questions Submitted by Senator Patty Murray
ADVANCED TECHNOLOGIES AND OCEANIC PROCEDURES
Question. Ms. Blakey, the Inspector General's status report points
out that the FAA's operating cost estimates for Advanced Technologies
and Oceanic Procedures (ATOP) are almost 3 years old and that there are
remaining challenges associated with controller and technician training
and acceptance of the technology. Do you agree with the Inspector
General's assessment of the cost and schedule of the ATOP program?
Answer. The Inspector General's status report points out that the
FAA's operating cost estimates for ATOP are almost 3 years old and that
there are remaining challenges associated with controller and
technician training and acceptance of the technology. The FAA is
currently revalidating its operating cost estimates. Both controllers
and maintenance technicians have also been involved in numerous
validation and testing activities, and have been deeply involved in the
development and review of the vendor's training materials. ATOP
training is ongoing and to this point has received positive feedback
from the user community.
Question. What can you tell us about the comfort level of the
controller workforce in using this system?
Answer. Controller and maintenance personnel were members of the
ATOP evaluation team prior to contract award and have been heavily
involved in the program for the last 4 years, from design to on-site
operations. The site product teams have also been involved in numerous
validation and testing activities.
The ATOP Build 1 system test program successfully used a systematic
approach to evaluate the ATOP system under a range of simulated and
live operational conditions that were representative of those found at
the Oceanic facilities. System test was conducted through a semi-
structured exercise that permitted field participants to perform
typical and non-typical assessments and evaluations to determine the
operational suitability of the ATOP system.
The field believes that the ATOP system is operationally suitable
contingent on the resolution of the issues documented. All issues are
tagged according to their specified completion timeframes (e.g., by
Site Acceptance Test (SAT), Field Familiarization (FF), First Course
Conduct (FCC), and Initial Operating Capability (IOC). The ATOP team
continues to verify software fixes, conduct regression testing, and
monitor system changes and the resulting impacts to operational
suitability. Any issues that may emerge or re-emerge in subsequent
testing or validation activities will be evaluated for their
operational impact.
Question. As for training, have the training materials been fully
developed and will you have to expedite the training process to meet
the June deployment date in Oakland?
Answer. Training materials have been fully developed for both
controllers and maintenance technicians. Both groups' personnel have
been deeply involved in the development and review of all training
materials. The first training course is now underway for maintenance
technicians and has received positive feedback. ATOP went live in
Oakland on June 30, 2004.
REVENUE DIVERSION
Question. The Inspector General's office has put a spotlight on the
issue of airport revenue diversion with your recent report on San
Francisco International Airport and your current review of potential
revenue diversion at Los Angeles International Airport. Mr. Mead's
testimony suggests that the FAA is not exercising adequate oversight in
this area. Ms. Blakey, what additional steps is the FAA taking to make
sure that airport revenues are not being diverted to other activities?
Answer. Unlawful revenue diversion generally occurs when an airport
sponsor, usually a city or county, overcharges its airport for
services, thereby diverting revenue from airport use. Revenue diversion
is more likely to be a problem at larger airports and at city- or
county-owned airports rather than independent airport authorities.
FAA has a number of different ways to detect unlawful revenue
diversion. First, the agency reviews the annual financial reports that
all commercial use airports are required to file with the FAA as a
result of the 1994 FAA Reauthorization Act. Second, we review the
findings of audits of airport revenue under the Single Audit Act, and
have issued new guidance to the field offices to ensure they correctly
analyze those findings. Third, FAA receives complaints of revenue
diversion filed by companies and individuals doing business with an
airport. Fourth, when the Office of the Inspector General (OIG) reports
audit findings of unlawful revenue diversion by an airport operator,
the agency investigates and requires corrective action to resolve the
findings.
When we identify a potential unlawful revenue diversion, we contact
the airport and require an explanation. When we conclude that airport
revenue has been improperly used, we require the diverted revenue to be
refunded to the airport with interest.
Recently, in coordination with the OIG, we have taken the
additional steps of identifying airports at higher risk of revenue
diversion and focusing spot checks on financial transactions at those
airports.
BASELINE REVIEW OF WAAS AND STARS
Question. Ms. Blakey, last year, Chairman Shelby asked you to name
the three modernization projects that were most important to the future
of the aviation system. Two of the programs you named, STARS and WAAS,
are being rebaselined. When can we expect to see the details of your
request for STARS and WAAS?
Answer. STARS--FAA has modified its strategy for Terminal
Automation Modernization into a three-phased approach, starting with
the most critical Terminal Radar Approach Controls (TRACONs.) This
approach breaks large, complex terminal modernization acquisitions into
phases that mitigate Government, vendor, and deployment costs and
risks. This three-phased acquisition approach allows FAA to select a
``best value'' system and pace the automation system replacements and
upgrades to fit within the FAA's capital investment program and meet
critical National Airspace System requirements.
Terminal Automation Modernization was re-baselined on April 20,
2004. We have just recently provided the details for fiscal year 2005
to the subcommittees. In the re-baseline, Terminal Automation is
requesting $113.9 million for Facilities and Equipment in fiscal year
2005 for Phase 1 of the modernization program.
The terminal automation baseline, approved by the Joint Resource
Council (JRC), is for the Full Production and Deployment to the
remaining 31 of its 50 most critical Terminal locations (Phase 1). In
accordance with Congressional direction, the option to Phase 1
(Chicago's Common ARTS IIIE and the two Common ARTS IIEs) will only be
implemented after the Department of Transportation (DOT) Inspector
General (IG) reviews and validates the life cycle costs and performs
other relevant analysis. Phases 2 and 3 will be priced and presented
separately at JRCs in future years. For the follow-on phases, FAA is
developing a business case considering STARS and all other viable
terminal modernization alternatives and will provide comparative cost/
benefit data to the DOT IG for their review before awarding a contract
for Phase 2 or 3.
Since FAA is the acquisition lead for the joint DOT and DOD STARS
program, in accordance with Title 31, USC 1535, the Economy Act of
1932, rebaselining the FAA portion of the STARS program directly
affects deployment of STARS at DOD sites within the Continental United
States (CONUS) and outside the CONUS. The goal of the agreement is to
avoid Departmental duplications of independent acquisitions, life
cycles, and system-unique training of air traffic controllers and
technicians. A joint DOT and DOD platform avoids duplicate civil and
military development and sustainment expenditures.
WAAS was re-baselined on May 3, 2004. We recently provided the
details of the request for fiscal year 2005 to the subcommittees. In
the re-baseline, WAAS is requesting $100.03 million for Facilities and
Equipment in fiscal year 2005.
Question. How, if any, have the plans and capabilities of these two
systems changed from last year?
Answer. STARS--The Terminal Automation Modernization plan has
changed to a multiple-phased approach, starting with the most critical
TRACONs. This reflects the FAA's changing processes and philosophies to
demonstrate a consistent and continuous business approach. A key
element of this approach breaks large, complex modernization
acquisitions (i.e., STARS) into phases that mitigate Government,
vendor, and deployment costs and risks. This three-phased acquisition
approach allows the FAA to select a ``best value'' system and will also
use mostly fixed-price arrangements as opposed to cost-plus contracts.
The FAA Joint Resources Council approved STARS for full production and
deployment to its 50 most critical terminal locations (Phase 1) on
April 20, 2004.
The STARS national baseline continues to evolve to meet National
Airspace System requirements. Additional functionalities have been
added to incorporate site-specific local patches, NTSB and Homeland
Security enhancements, mirror Common ARTS developments, and satisfy DOD
requirements for their worldwide operation. For all follow on phases
and systems (Common ARTS IIIE and STARS), additional capabilities will
be added for in later phases. Each phase will be priced and presented
separately at future JRCs.
WAAS will provide full Category One precision approach capability
when it is completed. It will do this by using the new capabilities of
the GPS satellite constellation when they become available. WAAS is now
providing a near Category One capability over most of the United
States. WAAS will be incrementally improved between now and 2008 to add
additional ground hardware and system software to provide this near
Category One capability over the entire continental United States and
Alaska at all times. When the modernized GPS provides sufficient
numbers of new satellites with the L5 signal capability, WAAS ground
receivers and system software will be modified to use it. WAAS will
then provide full Category One capability.
THE NEW SEATAC TOWER
Question. Ms. Blakey, as you are aware, we are about to commission
a brand new air traffic control tower at Seattle-Tacoma International
Airport. Certain offices of the FAA are now maintaining that your
agency located this tower in the wrong location. How was it that the
FAA built a brand new air traffic control tower, but put it in a less-
than-ideal location?
Answer. The Seattle Air Traffic Control Tower (ATCT) siting study
was completed in April 1997. The final location and height
recommendation was based on meeting the FAA's existing siting criteria
standards. These include providing a clear and unobstructed view of all
controlled aircraft movement surfaces, adequate depth perception and
perspective, and minimum desired look down angle to provide a clear
line of site to furthest operational areas. In addition, an analysis
was performed to understand the impact of applying Terminal Instrument
Approach Procedures (TERPS) that were current at the time to determine
any impacts to the IFR capabilities of the airport. The potential
impact created by the height of the new ATCT on Runway 16L during
periods of poor weather (CAT II/III operations) was raised during the
siting process. When the TERPS analysis indicated that the decision
height (DH) for CAT I operations on runway 16L would be raised, a
determination was made by the FAA that the criteria at the time allowed
for CAT II/III operations with a CAT I Decision Height in excess of the
standard.
The new ATCT was designed and sited at the preferred location at
the lowest optimum height. After construction on the new ATCT was
substantially complete (end of 2002), the FAA revised its procedures
and no longer permitted CAT II/III operations when the landing minimums
for CAT I approach have been raised.
Because the new ATCT was almost complete, we established a cross-
organizational working group to determine mitigation strategies. The
team has been working on developing strategies that will provide the
safe operation of the CAT I approach procedures while meeting the
planned capacity of the airport. These potential strategies include
radar-monitored final approach aid, redirecting slower speed category
aircraft, advanced avionics, policy changes, special procedures and
improved radar surveillance systems. FAA is currently conducting
modeling and analysis to evaluate the feasibility and determine the
full impact of implementing the preferred mitigation strategy. The
analysis was completed in June 2004. A report of the study's outcomes
will be published in August.
Question. The Port of Seattle is still waiting to hear how the FAA
plans to address this concern about the location of the tower. Is there
any risk that the FAA's remedy for this situation could result in there
being a diminished number of takeoffs or landings allowed by any types
of aircraft at SeaTac International?
Answer. In August 2003, the FAA Northwest Mountain Regional
Management Team chartered a cross-organizational regional working group
to develop a proposal that mitigates the ATCT height, ensures an
equivalent level of safety, and meets the planned capacity at SeaTac.
The working group evaluated eleven potential mitigation strategies
and ranked them with regard to the potential of ensuring an equivalent
level of safety, maintaining current and planned capacity at SeaTac,
and the feasibility of effecting the strategy. The strategies include
radar-monitored final approach aid, redirecting slower speed category
aircraft, advanced avionics, policy changes, special procedures, and
improved radar surveillance systems.
The FAA Flight Technologies and Procedures Division is conducting
modeling and analysis to evaluate the feasibility and to determine the
full impact of implementing the mitigation proposals. This analysis is
expected to be completed this month, and should allow for
implementation of a strategy well in advance of the September 2006 date
when Runway 16L is scheduled to become an ``all weather'' runway.
JOINT PLANNING AND DEVELOPMENT OFFICE
Question. I believe that the subcommittee is now prepared to
approve your reprogramming request to launch the Joint Planning and
Development Office (JPDO). I support this initiative and the
interagency efforts that are supposed to be brought together by DOD,
NASA, the White House and the Departments of Commerce, Defense and
Homeland Security. Are you at all concerned that you will not gain the
level of cooperation from the other Federal agencies that you need in
order for the JPDO to fulfill its mandate?
Answer. The subject of our Air Transportation System is no longer
solely an FAA interest. All six members of the JPDO recognize the need
for close cooperation in this area. We have formed the JPDO and have
representatives and principals, from all six members actively engaged
in JPDO activities and working to develop the first edition of the
national plan. This year's plan will provide the foundation for the
following years' plans. We are also developing an MOU that will further
define responsibilities and resources necessary to make the JPDO
successful.
Question. I understand your budget is allocating only $5 million a
year to this initiative. Do you think that level of funding will
demonstrate a strong enough commitment on the part of the FAA to bring
all of the other agencies to the table in a meaningful way to develop
the next generation of our aviation infrastructure?
Answer. Basic financial support for the JPDO in fiscal year 2004
came from both FAA and NASA. The FAA contribution was $4.4 million and
NASA's was $5.38 million. Other members of the office contributed
employees and some contractors. The fiscal year 2005 FAA budget will
allow the office to hire 3 FTE and expand our work to begin limited
integration. The office will rely on NASA to support the needed
research for the program. Several interested groups, including our own
Executive Advisory Committee, have recommended that we rapidly expand
our systems integration activity. We are now studying this
recommendation. If we decide that it is necessary to move more quickly
in the systems integration area, it will cause us to modify our
request.
The FAA continues to strongly support the formulation of a national
plan for the next generation air transportation system. The $5 million
is for the support of the JPDO office itself. The national plan will
encompass significant resources throughout the participating
organizations of the Department of Transportation (FAA), Defense,
Homeland Security, Commerce, and NASA.
TERMINATION OF LONG-TERM PROCUREMENT PROJECTS
Question. Ms. Blakey, when you look at the projects that you have
shelved because of the need to cut $400 million out of your procurement
budget, they appear to be those projects that were scheduled for
deployment in the more distant future. However, they also represent
some of the most critical projects necessary for taking the technology
of our air traffic control system to the next level. For example, your
agency is pulling the plug on its so-called Data Link Communications
System, where aircraft sends a stream of data to air traffic
controllers so that all that information does not need to be
communicated by voice. This subcommittee has made significant
investments in your Free Flight initiative and, by your agency's own
admission, the full deployment of data link is essential to getting the
maximum utility out of your Free Flight initiative. Part of the
rationale that you have given as to why we can set these projects aside
is because the financially strapped airlines are not yet in a position
to equip their aircraft with this most up-to-date equipment. Isn't it
true, however, that the FAA has not customarily waited to modernize the
system until the airlines are ready, willing and enthusiastic about
deploying new equipment?
Answer. The FAA has always considered our partners in the airlines
when making major investment decisions, particularly those that require
reciprocal equipage on their part in order to achieve real operational
improvements. When there is a commitment to equip on their part, the
FAA has moved out smartly to invest in the ground infrastructure and
procedure development side. A case in point is Domestic Reduced
Vertical Separation Minimum (DRVSM). Alternatively, when an equipage
commitment from the airlines is less firm, the FAA has adopted a
rational ``go slow'' approach wherein the FAA has developed the
technology and fielded it in a limited number of locations. In cases
where the airlines need to defer investments, it is prudent for FAA to
do the same. Two cases in point are Controller-Pilot Data Link
Communications (CPDLC) and the Local Area Augmentation System (LAAS).
Question. Is not there a real risk that we will dramatically slow
the advancements that we make in modernizing our air traffic control
system if we wait and wait and wait until the airlines say that they
are ready to make the investment?
Answer. Capital investments that do not achieve improvements in
operational efficiency due to airline non-equipage simply increase the
FAA's costs without improving performance. In business terms, there is
no return on the investment. Such investments should be eliminated. On
the other hand, investments that modernize our system, but do not
require airline equipage (e.g., ERAM and Terminal Modernization) will
continue because they will achieve operational efficiencies and
performance.
RULEMAKING AUTHORITY
Question. Your agency has the authority to require safety
improvements to aircraft when you believe that they are beneficial for
safety and the most efficient use of the air space. Have you given up
on using that tool to advance improvements in our aviation system?
Answer. The FAA has rulemaking authority. The FAA ranks each
proposed rule in terms of its safety effect. The FAA then does a cost-
benefit analysis to make sure the proposed rule is worth its cost,
which is ultimately borne by the flying public.
A recent example of the FAA's use of rulemaking authority to
require safety improvements to the aircraft is the insulation
flammability rule which was issued on July 14, 2003, which is designed
to reduce the flammability of aircraft insulation (and thereby prevent
the spread of fire). This rule requires manufacturers of new airplanes
that enter service after a phase-in period to equip them with
insulation that passes improved flammability test and requires air
carriers, operating under Part 121, to use insulation meeting the new
flame propagation requirements when they replace insulation.
SECURITY AT THE AUBURN TRACON
Question. In the age of heightened security, it has become even
more important that we make sure that our air traffic control
facilities have sufficient security measures in place. It was reported
a few weeks ago that the TRACON facility in Auburn, Washington that is
about to be completed would not be provided security guards even though
the FAA built a guardhouse at the facility. Ms. Blakey, can you explain
to us why you decided to forego security at this particular air traffic
facility in Auburn?
Answer. FAA considers a number of factors when determining security
requirements for its facilities. These include employee population,
physical size, and the criticality of the facility to the National
Airspace System. When developing security requirements for an
individual facility, these factors plus an evaluation of local area
risk and geography are used.
When the Seattle Terminal Radar Approach Control (TRACON) facility
was designed and built, guards were required by FAA policy. Since then,
FAA has migrated away from using guards at this type of facility. The
main reason is our analysis of the security risks to these facilities,
as well as the maturing of other aspects of FAA's Facility Security
Management Program. In short, FAA determined that sufficient safeguards
exist at facilities of this type, making a guard force unnecessary.
Existing security measures at the Seattle facility include an extensive
camera system that monitors key areas, and a secure access system for
the property and building. In addition, the facility meets the
security-required setbacks and has security fencing.
The policy change that removed the requirement for guards was put
into effect in August 2003. We now reserve guard use at TRACON
facilities that are significantly larger than the Seattle TRACON.
Even though the national policy shifted, with designs completed and
construction underway, it was prudent to continue with the planned
security measures. The guardhouse will provide us with future
flexibility without incurring additional cost. We will provide guard
services if the TRACON meets the established criteria for such measures
in the future.
______
Questions Submitted by Senator Herb Kohl
LORAN
Question. In recent years, this subcommittee has provided nearly
$120 million to the FAA and the Coast Guard to modernize the LORAN
infrastructure through an existing Memorandum of Agreement between the
agencies and DOT that was last updated in 2003. This work continues to
be one of my important priorities. Repeated technical and economic
studies by government, academics, industry and others provide
convincing evidence of the need for and benefits of LORAN as a cost-
effective national asset to back up satellite navigation technology.
Numerous infrastructure safety and efficiency improvement projects have
already been completed and many other projects necessary to complete
the modernization effort are already underway. LORAN is United States
technology that is among the most widely used radio navigation systems
worldwide and, aside from satellite technology, it is the only other
multi-modal navigation system available to meet our national
transportation system safety and security objectives. Over the past
several years, DOT has promised to formulate a policy dealing with the
long-term future of LORAN. What is the status of such a policy?
Answer. The FAA, in conjunction with Coast Guard, academic, and
industry team members, delivered a technical report to DOT on March 31,
2004. This report evaluated whether LORAN could satisfy the current
non-precision approach (NPA), harbor entrance approach (HEA), and
timing and frequency requirements, and its capability to mitigate the
impact of GPS outage on GPS position, navigation, and time
applications. Similarly, the Volpe National Transportation System
Center delivered their independent LORAN Benefit/Cost analysis to DOT
on the same date. The administration will make a policy decision on
LORAN following review of these reports.
Question. What is the FAA doing to ensure the continuation of a
modern and secure LORAN system?
Answer. The FAA has utilized the funding provided by the
subcommittee to significantly modernize the LORAN system
infrastructure. Working closely with the United States Coast Guard, the
three aging tube transmitters have been replaced with modern, state-of-
the-art solid state transmitters, new timing and frequency equipment
has been installed, and each LORAN station has been supplied with three
new cesium clocks. LORAN stations have also installed uninterruptible
power supplies to preclude even momentary outages during power outages.
The FAA has also conducted significant research in modern LORAN
receiver technology and has developed prototypes for aviation and
maritime users and for other potential markets. It should be noted that
the administration does not support funding for LORAN in DOT. Funding
for LORAN should be provided to the Coast Guard since it is primarily a
maritime system.
FAA POLICY ON AIRSPACE VIOLATIONS
Question. On January 15, a pilot of a small Cherokee airplane took
a 4-hour flight that took him through the approach path of Philadelphia
International Airport, buzzed commercial airliners and the Philadelphia
Naval Shipyard, and came within a quarter-mile of the cooling towers of
the Limerick nuclear power plant. When the small plane finally landed,
the pilot's blood alcohol level measured 0.15. While the pilot could
face charges of risking a catastrophe and reckless endangerment, the
incident also highlighted an important deficiency in the FAA's ability
to deal with such situations. While air traffic controllers and
supervisors followed required protocol, it's clear that the current
system is lacking in terms of both prevention and enforcement of
airspace violations. What is the FAA policy on dealing with airspace
violations?
Answer. The FAA's policy is to administer enforcement action on
airspace violations. The FAA takes seriously the willful violation of
Federal Aviation regulations. The range of enforcement sanctions can
include warning letters, fines or certificate action, such as
revocation. In the case mentioned, the pilot's license was revoked
within 7 days of the incident.
Question. What would the FAA need in order to develop a quicker
response system, one that could account for any such airspace
violations in the future?
Answer. Aircraft that are flying in Visual Flight Rules (VFR) mode
are required to display a beacon code of ``1200,'' however, aircraft
flying outside of controlled airspace (i.e., outside the Philadelphia
International Airport Class B), have no requirement for the pilot to
talk to air traffic controllers or file a flight plan. This VFR mode
allows pilots a great deal of freedom in operating their aircraft,
while reducing the burden on the National Airspace System of
identifying and talking to every aircraft. On a clear weather day, VFR
aircraft can be counted in the hundreds, especially in large
metropolitan areas of the country. It would be an overwhelming burden
on air traffic controllers to identify and separate these aircraft from
one another.
When the identity of an aircraft is known and the air traffic
controller has the ability to talk to that aircraft, the pilot is given
instructions to avoid a restricted area. When a violation has occurred,
the pilot is advised of the error and instructed to call the
appropriate FAA facility for a briefing and follow-up with the Flight
Standards District Office (FSDO), which can take place immediately or
several hours after the incident.
In the January incident, air traffic controllers were able to
observe the aircraft's target on the radar scope for a portion of its
flight, but never communicated with the pilot; many attempts to contact
the pilot on ``Guard frequency 121.5'' were unsuccessful. To prevent
situations like this, it would be necessary to change the rules for
flying in VFR conditions by requiring two-way communications with air
traffic controllers, discrete beacon code assignment, and mandatory
filing of flight plans. The NAS is not capable of handling these
capabilities at this time.
Question. Would you agree that we should strengthen Federal law as
it applies to airspace violations?
Answer. The FAA does not believe that any changes to Federal law
are necessary to address airspace violations. The current sanctions
that we have available, i.e., suspending or revoking pilot certificates
and imposing civil penalties, have proven to be sufficient. The agency
rarely sees reckless violations of the sort committed by the pilot in
Philadelphia. That pilot's certificate was revoked on an emergency
basis. In addition, he was charged with State criminal violations for
his conduct.
______
Questions Submitted by Senator Richard J. Durbin
CHICAGO O'HARE INTERNATIONAL AIRPORT
Question. How do you expect to proceed on addressing aviation
congestion and flight delays at Chicago O'Hare International Airport in
addition to the temporary, voluntary flight reductions during peak
hours? When will data on the flight reductions be available?
Answer. In Vision-100, Congress gave the FAA a number of new tools
to use when demand exceeds capacity at an airport. Under Section 422,
the FAA can schedule delay reduction meetings, under Section 423, we
can engage in collaborative decision making.
United Airlines, Inc. (UAL) and American Airlines, Inc. (AAL),
agreed to an order cutting peak hour operations by 7.5 percent--5
percent in March and 2.5 percent starting in June. The Department of
Transportation and the FAA deferred convening a schedule-reduction
meeting under Section 422, in order to allow the operational limits to
take effect and assess the impact on congestion and delay. The orders
currently expire on October 31, 2004.
To augment these reductions, on June 13, 2004, FAA adopted new air
traffic procedures for use under certain runway combinations at O'Hare
that increases capacity and efficiency, especially for departing
flights, by several operations each hour when conditions permit. The
FAA is currently monitoring the results of the recent changes in
schedules and procedures. We will analyze the operation under various
weather conditions over the coming weeks before determining whether
additional action is required.
The total daily flight reduction as a result of the 7.5 percent
reduction by UAL and AAL has been 91 total flights during the most
congested hours of 12 noon until 8 p.m. Many of these flights have been
shifted to other hours. These are all short-term methods, with the
long-term goal of addressing congestion by gaining additional capacity
at the airport and throughout the National Airspace System. This
administration is committed to addressing aviation congestion in both
the short and long term and working with the carriers and local
authorities.
Question. Can you explain the time line, including the EIS, for the
O'Hare modernization project?
Answer. The City of Chicago is proposing a substantial
reconfiguration of O'Hare International Airport under an initiative
called the O'Hare Modernization Program (OMP). The city submitted a
draft Airport Layout Plan (ALP) depicting the OMP proposal to FAA in
December 2002 and a Master Plan document in February 2004. FAA comments
on the ALP were provided to the city in mid-2003. Based on those
comments, the city presented a revised ALP to FAA in October 2003. The
FAA is also reviewing the Master Plan and preparing an Environmental
Impact Statement (EIS) regarding the OMP proposal. Ultimately, the FAA
must issue a favorable EIS Record of Decision and subsequently approve
the ALP before the City of Chicago can begin construction.
The ALP and Master Plan review are ongoing at this time, and the
EIS process is underway. On April 15, 2004, the FAA issued a letter to
the City of Chicago outlining FAA's projected EIS schedule. The
projected schedule reflects availability of a Draft EIS in February
2005 and an EIS Record of Decision in September 2005.
The EIS schedule was developed after extensive coordination between
the FAA, its EIS contractor, and all involved subcontractors. The FAA
sees the projected EIS schedule as an aggressive but achievable
schedule, with significant effort having been devoted to streamlining
the EIS process while simultaneously assuring the thoroughness and
integrity of the process. FAA's efforts in regard to process
streamlining include the development of written agreements with other
involved government agencies that will yield efficiencies in our
collective effort to complete an environmental assessment of the OMP
proposal.
The City of Chicago projects the commissioning of its first new
runway approximately 30 months after receipt of FAA approval.
Approximately 2 years thereafter, the city projects the commissioning
of its second new runway as well as the extension of one of O'Hare's
existing runways. In total, the city projects a 10-year time frame for
full implementation of the OMP. Throughout this period, substantial FAA
work will be required to support the numerous National Airspace System
changes necessitated by the OMP. The FAA is currently engaged in
planning work associated with these NAS changes so as to be prepared
for implementing the changes should the OMP be approved.
CHICAGO MIDWAY AND O'HARE AIRPORTS
Question. I would like to ask you to look into two Chicago Airport
System projects that were included in the fiscal year 2004 Omnibus
Appropriations conference report (Transportation-Treasury title), at my
request. First, $4 million for various improvements at Midway Airport
related to capacity expansion. And second $1.5 million for CAT II/III
instrumentation for Runway 27L and Runway 27R at O'Hare. It is my
understanding that the FAA has not yet released funding. Please explain
any outstanding issues within the FAA related to these projects and
give me an estimate as to when the funding will be released?
Answer. Regarding the $4 million for airport improvements at
Midway, the airport originally desired to use the Airport Improvement
Program discretionary funds to help finance expansion of passenger
screening capacity in the terminal. Terminal work of this kind cannot
be funded with discretionary funding. Working with the airport, FAA has
identified other projects of high priority for the airport and FAA that
can be financed with discretionary funds. We are in the process of
increasing the airport's existing Letter of Intent by $4 million to
include these items. We expect to notify Congress of our intention to
issue the grant for these funds within 30 calendar days following
completion of all environmental documentation.
The upgrade of Runway 27L and Runway 27R at Chicago O'Hare is an
on-going FAA project with $4 million of fiscal year 2003 funding
already obligated on the National Construction Contract to do the work.
The FAA is currently conducting the environmental assessment and
engineering design. The ILSs and ALSF-2s have been purchased. The $1.5
million in fiscal year 2004 funding completes the estimated $5.5
million project. FAA plans to obligate the remaining funds by October
2004 to start construction activities.
______
Questions Submitted to the Office of the Inspector General
Questions Submitted by Senator Richard C. Shelby
Question. What do you believe is the most significant safety
concern facing FAA?
Answer. As air traffic operations increase and the demand for air
travel rebounds, there are two safety indicators to watch--runway
incursions (potential collisions on the ground) and operational errors
(when air traffic controllers allow planes to come too close together
in the air). Runway incursions and operational errors pose a
significant safety risk. We have seen some progress on runway
incursions, with the number of incidents decreasing in fiscal year 2003
and continuing to decline during the first 8 months of fiscal year
2004; however, the most serious runway incursions increased. In
addition, operational errors increased in fiscal year 2003 with an
average of three operational errors each day and one serious error
(those rated as high risk) every 7 days. Although operational errors
decreased marginally during the first 8 months of fiscal year 2004,
they are still much too high.
In addition, while FAA and U.S. air carriers have maintained a
remarkable safety record, a significant emerging issue for FAA will be
to adjust its safety oversight to changing trends in the aviation
industry. For example, in response to record-breaking monetary losses,
major air carriers are making unprecedented changes, such as
outsourcing more of their aircraft maintenance. While major air
carriers outsourced 37 percent of their aircraft maintenance expense in
1996, the amount spent on outsourced maintenance increased to 50
percent in 2003.
Another trend FAA will need to monitor is the growth of low-cost
and regional air carriers. While network air carriers have been losing
money and restructuring their operations, low-cost air carriers have
experienced phenomenal growth and have increased their market share of
passengers from 17 to 22 percent. This trend is projected to continue
with FAA forecasting that low-cost and regional air carriers will
account for more than 50 percent of the passenger market share in 2015.
Question. What progress is the FAA making on addressing the long-
standing problems in its procurement process? Has procurement authority
that Congress gave the FAA improved or hindered the FAA's ability to
deliver capital programs?
Answer. First, with respect to acquisition reform, Congress gave
FAA two powerful tools in 1996 by granting relief from Federal
personnel and procurement rules, both of which the agency believed were
hindering its ability to modernize the National Airspace System. FAA
has not taken full advantage of this flexibility. Our work shows
procurement reform at FAA has produced mixed results. While contracts
are awarded faster, there has been little bottom line impact on cost
and schedule problems with major acquisitions. For example, last year
we analyzed 20 major acquisitions and found that 14 of these projects
experienced cost growth of over $4.3 billion, which represents
considerably more than 1 years' annual appropriation for modernizing
the National Airspace System.
Administrator Blakey and her team are well aware of the problems
with major acquisitions, such as entering into long-term cost plus
contracts before requirements are understood, unreliable cost and
schedule baselines, and poor contract management, that have led to
significant cost growth and schedule slips. FAA now has a chief
operating officer and is transitioning to a performance-based
organization for air traffic, and plans to change how the agency
procures new air traffic control equipment. The key will be follow-
through.
Question. When and at what cost do you expect the FAA to have fully
functional ATOP systems replace the obsolete technology in Anchorage,
New York, and Oakland Centers?
Answer. FAA's schedule calls for completing the installation of the
last ATOP facility, Anchorage, in March, 2006. FAA's cost estimate to
develop and field ATOP is $548 million (from the Facilities and
Equipment Account) with an additional $1.06 billion to maintain and
operate the system over its useful life (which is paid for through the
Operations Account).
ATOP is approaching a key milestone at the end of June 2004--
completing site testing at Oakland. If FAA can successfully complete
site tests, necessary training, and satisfy any last minute needs of
Oakland users, agency officials believe that the program will probably
move forward within its cost and schedule goals and deploy ATOP as
planned to New York (March 2005) and Anchorage (March 2006). However,
if Oakland experiences significant delays to the current schedule, or
unforeseen defects are uncovered, the entire ATOP program will be
vulnerable to additional cost growth and schedule delays.
Question. It seems as if the STARS procurement is through the most
difficult phase of the procurement cycle and your testimony indicates
that the anticipated resources for this program will decline in the
coming years.
How do you compare the relative risk remaining in the program
compared to other major FAA programs such as WAAS, ASR-11, or ERAM?
Answer. Unfortunately, STARS is not past the point where
procurement no longer presents difficult issues, and it is unclear what
budgetary resources FAA will need to finish terminal modernization.
Questions continue to persist about how much STARS will cost to
complete and what capability it will actually provide. As described
below, all four of these programs contain significant risk with respect
to cost, schedule, and performance.
FAA has changed its terminal modernization strategy significantly.
As a result, the cost assumptions that drove STARS are no longer valid.
For example, the STARS 1996 baseline estimated a cost of $940 million
for 172 sites with a completion date of 2005. Due to cost and schedule
concerns, FAA recently limited approval to 50 sites at a cost of $1.45
billion. However, the total cost and timeframe for completing the
entire terminal modernization program remains uncertain. Beyond 50
sites, FAA estimates STARS funding (assuming a full STARS solution)
will peak at $270 million in 2008. This funding estimate is only a
placeholder until FAA decides in 2005 how it will complete terminal
modernization and how much it will cost overall.
WAAS, like STARS, has experienced considerable cost growth and
schedule slips and was pursued under a cost-plus contract. FAA believes
much of the developmental risk is behind WAAS but, unlike STARS,
airspace users must equip with new avionics to obtain benefits. Now,
the risks for WAAS focus on (1) effectively managing a contract for
obtaining geostationary satellites (to broadcast the WAAS signal), (2)
how quickly airspace users will equip with WAAS avionics, and (3)
developing and publishing procedures for pilots to use WAAS approaches
to airports.
Since we testified before the subcommittee, we learned that FAA
intends to pursue Category I performance for WAAS in the 2007 timeframe
to take advantage of the Department of Defense's plan to modernize the
GPS constellation (with a second civil frequency). This presents a
number of issues that must be resolved. For example, there is a great
deal of uncertainty about how quickly the Department of Defense will
modernize GPS and what will happen with the Local Area Augmentation
System (a precision landing system for Category I, II, and III that
recently slipped back into development). Unresolved issues also focus
on concerns about user equipage and procedure development. As a result,
consideration should be given to withholding funds for the pursuit of
Category I until these issues have been resolved.
In comparison to STARS, the ASR-11 program faces lower performance
and cost risks. This is because the ASR-11 needs little additional
development work to deploy to its remaining sites. However, the program
does face cost risks in two areas. Because development was delayed,
procurements have been pushed into the future. This has caused prior
cost estimates to grow. Also, the contract, which is administered by
the Department of Defense, will expire before FAA will finish procuring
all of the needed sites. If the Department of Defense terminates the
contract or does not extend the production timeframe, FAA will not have
a contract in place to complete the program. In either case, new, and
probably higher, costs will have to be negotiated with Raytheon.
At this time, it is difficult to compare the relative risks of
STARS to the $2.1 billion ERAM effort because it is too early to
determine if FAA can manage ERAM risks. In contrast to STARS, which has
been underway for 8 years, ERAM is just getting started, and major
design and development issues are not settled. FAA is less than 18
months into an ERAM program that will span over 7 years. FAA plans to
rely on a phased approach to deliver hardware and software with reduced
risk. Cost control will be essential because ERAM is being purchased
through a cost-plus contract but the contract (currently worth $1.2
billion) is not fully definitized. We plan to issue a report on ERAM
this year.
Question. Do you believe that FAA is prepared to address a
potential retirement surge of air traffic controllers in 2007?
Answer. FAA is just beginning to address a likely surge in
controller retirements over the next several years. In our opinion,
there are three key issues the Agency needs to focus on in order to
effectively address the expected increases in attrition. Those are:
--developing better attrition estimates by location;
--assessing newly hired controllers' abilities before they are placed
at facilities; and
--determining ways to reduce the time and costs associated with
controller on-the-job training while still achieving results.
FAA has agreed with the recommendations in our June 2004 report and
is taking steps to address them; the key now will be follow-through. An
important milestone is December 2004 when FAA plans to release a
detailed human capital plan for addressing controller retirements as
required under FAA's Reauthorization--Vision-100.
Question. The subcommittee remains concerned over the use of air
traffic controllers acting as controllers-in-charge and the rising
number of operational errors under their watch. Mr. Mead, you testified
last year that there is a statistical correlation between operational
errors and the controller-in-charge program.
What conclusions can you draw from the data a year later?
Answer. Since we testified in 2003, the number of operational
errors that occurred while a controller-in-charge (CIC) was supervising
an area has continued to increase. In fiscal year 2003, operational
errors that occurred while a CIC was supervising an area increased 43
percent to 248 from about 174 in fiscal year 2002. Further, during the
first 8 months of fiscal year 2004, preliminary data indicates that
operational errors that occurred while a CIC was supervising an area
increased slightly to 161 compared to 155 during the same period in
fiscal year 2003. In our April 2003 report we recommended that FAA
conduct detailed evaluations of those facilities that have significant
increases in operational errors while CICs are on duty to determine the
cause of the increases. FAA agreed with our recommendation and
committed to conduct detailed reviews of operational errors to identify
causal factors. This analysis will include monitoring the impact the
expanded CIC program has on operational errors. FAA stated that if the
CIC actions result in an operational error, steps will be taken to
ensure that only qualified controllers are performing CIC duties. We
will continue to monitor this important matter.
IS THE FAA'S OCEANIC PROGRAM IN TROUBLE?
Question. Mr. Mead, at the end of March, your office released a
status report on your agency's ongoing review of the FAA's Advanced
Technologies and Oceanic Procedures (ATOP) program. Your review
uncovered serious software problems with ATOP and noted that the FAA
may have shifted some of the risk of additional cost growth from the
contractor to the government. This was one project where the FAA seemed
to have had costs under control because they had a firm fixed contract.
Why in your view, did the FAA add $11 million to this contract if
the government had the contractor under a firm fixed contract?
Answer. Facing growing risks that ATOP would not meet its June
schedule for starting operations at Oakland Center, FAA decided to add
$11 million to the fixed-price contract to meet ATOP's schedule. This
allowed the contractor to focus additional resources to fix software
development problems at the government's expense. The contractor had
staff working on a later and more advanced software version of ATOP
even though the first software version was experiencing problems. In
essence, the modification allowed FAA to shift resources to help get
the basic ATOP system to Oakland as planned.
Question. Mr. Mead, are you concerned that the FAA will continue to
expose the government to higher costs in this program even though this
project is under a firm fixed contract?
Answer. Although the increase of $11 million is modest when
compared to increases we have seen with other programs, we are
concerned FAA has shifted the risk of additional cost growth from the
contractor to the government. The critical issue is what happens with
ATOP between now and February 2005. This timeframe is important because
the recent contract modification limits the contractor's responsibility
for paying to fix software problems FAA finds in ATOP after February
28, 2005. According to FAA, after work on the initial version of ATOP
software (required for Oakland) is completed, the Agency will test the
more advanced version at its Atlantic City Technical Center by the end
of this year. After February 2005, FAA must pay to fix software
problems that are found. Given the change in the contract and the tight
timeframe, it will be critical for FAA to identify all software
problems before that date.
Question. Given the problems to date, how confident are you that
this program will continue to stay on schedule and within budget?
Answer. FAA built additional time into the ATOP schedule to handle
unanticipated problems, but most of this schedule reserve was consumed
resolving problems discovered during factory acceptance testing
(completed in July 2003), which took much longer than anticipated. FAA
is fast approaching another key program milestone for ATOP that will
determine if it will stay on track. If ATOP can successfully pass site
acceptance tests at Oakland in June 2004, FAA's ability to stay within
schedule and budget will be strengthened.
Question. Mr. Mead, do you have any concerns that the FAA might
rush to deploy the Oakland system before the FAA workforce is fully
prepared to operate and maintain the system?
Answer. While we do not believe that FAA will deploy an air traffic
control system to Oakland that the workforce could not safely operate
and maintain, we are concerned that the ATOP program has become
schedule driven. As we saw with STARS, as the pressure builds to meet
the scheduled milestone, FAA might defer needed work just to stay on
schedule. For example, FAA said it would install the nationally
deployable version of STARS at Philadelphia in November 2002, but the
agency made a number of trade-offs to meet the schedule. FAA estimates
now show that 2 more years and $59 million are needed to complete the
development of a STARS system that can be deployed nationally. After
FAA deploys ATOP to Oakland, and once the system is fully operational,
the agency needs to communicate to the Congress and other key
stakeholders any trade-offs or deferments made to maintain schedule.
AIRPORT REVENUE DIVERSION
Question. Mr. Mead, your office has put a spotlight on the issue of
airport revenue diversion with your recent report on San Francisco
International Airport and your current review of potential revenue
diversion at Los Angeles International Airport. Your testimony suggests
that the FAA is not exercising adequate oversight in this area.
How rampant is the problem of airport revenue diversion?
Answer. The problem of airport revenue diversion has been
extensive. Between 1991 and 2000, our audits disclosed over $344
million in diverted revenue. The problem, however, has not subsided.
Last year, we reported on revenue diversions at five large airports,
including one airport whose sponsor, a local government agency,
diverted about $40 million to other projects not related to the
airport. We also just completed an audit at San Francisco International
last month which disclosed about $12 million in diverted revenue.
Our work shows that FAA's oversight of revenue diversions is
limited. In the past, FAA has maintained that it did not have the
resources to devote to this issue. We met with the Associate
Administrator for Airports and members of her staff in May 2004 to
discuss FAA's specific plans to increase the agency's oversight of
revenue diversions. FAA is currently working on a plan that is designed
to identify airports with the highest risk of diverting revenue. We
recently provided the agency with our methodology for determining
whether or not airport revenues have been diverted. We will continue to
monitor this issue and work with FAA.
EXPLANATION FOR INCREASE IN OPERATIONAL ERRORS
Question. Mr. Mead, according to your testimony, in fiscal year
2003 the number of operational errors increased 12 percent.
To what extent do you believe this spike in operational errors is
attributable to the vacant positions that the FAA has at many of its
air traffic control facilities?
Answer. We have not performed work to determine if there is a
correlation between air traffic control staffing and operational
errors. However, it is important to note that although fairly accurate
at the national level, FAA's staffing standards for each field location
are not precise. The National Academy of Sciences reviewed FAA's
staffing standards in 1997 and found that they cannot be used to
provide highly accurate estimates of requirements for individual
facilities. We have seen, however, indications that staffing workload
can increase operational errors. Our analysis found that as air traffic
operations decreased nationwide, operational errors decreased.
Conversely, as operations increase nationwide, more opportunities
existed for operational errors to occur.
Question. A small part of the pay raise that would be granted to
air traffic controllers is dependent on a reduction in operational
errors and yet operational errors have increased.
Mr. Mead, what are the reasons that you believe that operational
errors have increased, and what is your assessment of FAA's efforts to
reduce them?
Answer. As we noted in our April 2003 report there are a number of
factors that contribute to the cause of operational errors and whether
FAA is successful at reducing these incidents. Specifically, we found
that (1) FAA needed to provide stronger national oversight of regions
and facilities that were not making progress in reducing operational
errors, (2) FAA procedures did not require training when controllers
had multiple operational errors or for controllers who had errors that
posed a moderate or high safety risk, and (3) FAA's expanded
controller-in-charge program may have had a negative impact on
operational errors. While FAA has made some progress in reducing these
incidents during the first 8 months of fiscal year 2004, operational
errors are still too high with three operational errors occurring each
day and one severe error every 9 days.
In response to our report, FAA established a permanent national
program manager for quality assurance responsible for the overseeing
regional and facility efforts to reduce operational errors. Under FAA's
new Air Traffic Organization structure, this manager (Director of
Safety Evaluations) reports directly to FAA's Vice-President for
Safety. This group plans to conduct 161 air traffic facility safety
evaluations during fiscal year 2004, including no-notice reviews.
FAA also revised its training requirement so that controllers with
multiple operational errors can be trained. However, FAA did not
mandate that controllers who make operational errors that posed a
moderate or high safety risk receive training. Finally, FAA agreed with
our recommendation to monitor the impact of the CIC Program at the
national level.
IS THERE ADEQUATE SECURITY AT THE AUBURN TRACON?
Question. In this age of heightened security, it has become even
more important that we make sure that our air traffic control
facilities have sufficient security measures in place. It was reported
a few weeks ago that the TRACON facility in Auburn, Washington that is
about to be completed will not be provided security guards even though
the FAA built a guardhouse at the facility.
Mr. Mead, do you have any views on the overall security of the air
traffic control facilities?
Answer. Security is important for all DOT personnel and equipment;
this is especially true for critical facilities such as FAA air traffic
control facilities. We are aware of reports that air traffic
controllers moving into the new TRACON in Washington will not have
armed security guards, because there will not be a sufficient number of
employees at the facility to justify security guards based on FAA
regulations. The new TRACON contains a guardhouse specifically built so
two guards could monitor the 16 remote-controlled cameras and other
security equipment. We plan to begin an audit this fall, which will
assess FAA's Internal Security Program and whether FAA is ensuring
adequate protection of FAA property, personnel, and operations against
criminal and terrorist acts.
CONCLUSION OF HEARINGS
Senator Shelby. I want to thank both of you on behalf of
the subcommittee for the work you are putting in and we hope
you are going to continue down that right road that you are
going. Thank you.
The subcommittee is recessed.
[Whereupon, at 11:45 a.m., Thursday, April 22, the hearings
were concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND
RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005
----------
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 Departments of Transportation, Treasury and General
Government, and Related Agencies did not appear before the
subcommittee this year. Chairman Shelby requested these
agencies to submit testimony in support of their fiscal year
2005 budget request. Those statements submitted by the chairman
follow:]
SAINT LAWRENCE SEAWAY DEVELOPMENT CORPORATION
Prepared Statement of Albert S. Jacquez, Administrator
The U.S. Saint Lawrence Seaway Development Corporation (SLSDC or
Corporation), a wholly owned government corporation and an operating
administration of the U.S. Department of Transportation (DOT), is
responsible for the operations and maintenance of the U.S. portion of
the St. Lawrence Seaway between Montreal and Lake Erie. This
responsibility includes maintaining and operating the two U.S. Seaway
locks located in Massena, NY, and vessel traffic control in areas of
the St. Lawrence River and Lake Ontario. In addition, the SLSDC
performs trade development functions designed to enhance Great Lakes
St. Lawrence Seaway System utilization.
Since its opening in 1959, the binational St. Lawrence Seaway has
been a vital transportation corridor for the international movement of
bulk commodities such as steel, iron ore, grain, and coal, serving a
North American region that makes up one quarter of the U.S. population
and nearly half of the Canadian population. The binational waterway
serves as a deep draft waterborne link between major U.S. and Canadian
agricultural, manufacturing, and industrial cities, including Chicago,
Detroit, Toronto, Cleveland, Duluth, Toledo, Milwaukee, Montreal, and
Green Bay, and European, South American, and North African markets.
The SLSDC coordinates its activities with its Canadian counterpart,
The St. Lawrence Seaway Management Corporation (SLSMC), particularly
with respect to rules and regulations, overall day-to-day operations,
traffic management, navigation aids, safety, environmental programs,
security, operating dates, and trade development programs. The unique
binational nature of the Seaway System requires 24-hour, year-round
coordination between the two Seaway entities.
The SLSDC's principal performance goal is to provide a safe,
secure, reliable, and efficient U.S. portion of the St. Lawrence Seaway
to its commercial users. Since its opening in 1959, more than 2.3
billion metric tons of cargo has been transported through the combined
sections of the St. Lawrence Seaway (Montreal-Lake Ontario and Welland
Canal) with an estimated value of more than $400 billion.
The navigation season typically runs from late March to late
December. During the 2003 navigation season, the availability of the
U.S. sectors of the Seaway, including the two U.S. locks maintained and
operated by the SLSDC, was 98.9 percent; the annual goal is 99 percent.
Weather and vessel incidents were the causes for all delays in 2003. Of
the remaining factors that cause lockage shutdowns, the one that the
SLSDC has the most control over is the proper functioning of lock
equipment. During the 2003 navigation season, there were no system
delays due to malfunctioning lock equipment.
FISCAL YEAR 2005 BUDGET ESTIMATE
The SLSDC's fiscal year 2005 budget request provides the agency
with the funding necessary to provide a safe, secure, reliable, and
efficient waterway system for the movement of commercial goods to and
from the Great Lakes region of North America.
The SLSDC fiscal year 2005 proposed level of $16,800,000, includes
an appropriation request from the Harbor Maintenance Trust Fund of
$15,900,000 and an estimated non-appropriated $900,000 in non-Federal
revenues. This proposed level will allow the agency to fund its 157
Full-Time Equivalent (FTE) staff and continue the day-to-day
operational and maintenance programs for the U.S. portion of the St.
Lawrence Seaway between Montreal and Lake Erie. These programs include
managing vessel traffic control in areas of the St. Lawrence River and
Lake Ontario, maintaining and operating the two U.S. Seaway locks, and
continuing increased security-related activities that were initiated as
a result of the terrorist-related events of September 11, 2001. In
addition, the SLSDC performs trade development activities designed to
enhance Great Lakes St. Lawrence Seaway System awareness and
utilization.
The request also directly supports four of the five President's
Management Agenda (PMA) initiatives (budget and performance
integration, strategic management of human capital, financial
performance improvement, and electronic government expansion; the SLSDC
is exempt from competitive sourcing as a government corporation), the
Department's strategic goals of Global Connectivity (efficient cargo
movement) and Security (transportation system recovery), as well as the
SLSDC's internal strategic goals. These agency goals include: safety,
security, and the environment; reliability and availability; trade
development; and management accountability. The request, separated by
Departmental strategic goals and performance measures, includes
$15,650,000 in appropriated funds directed at maritime navigation
programs and personnel, and $250,000 towards the SLSDC's security and
infrastructure protection activities.
The SLSDC's budget request also includes funding for the Seaway
Automatic Identification System (AIS) and the agency's financial
management system, both of which support the PMA. The AIS system, which
serves as one of the agency's ``Expanding E-Government'' PMA
initiatives, utilizes Global Positioning System (GPS) to allow the
SLSDC to more efficiently manage vessel traffic control and vessel
transits at the U.S. Seaway locks. Implemented at the start of the 2003
navigation season, the Seaway became the first inland waterway in the
western hemisphere to implement an operational AIS vessel traffic
services system.
The SLSDC's financial management system supports the President's
``Improving Financial Management'' initiative and includes nine
subsystems that allow Corporation officials to track all financial-
related information and meet all independent auditor reporting
requirements. The SLSDC has received 40 consecutive unqualified or
``clean'' financial audits since its first audit in 1955, a major
achievement under the PMA initiative of financial performance
improvement. The AIS system and the financial management system
represent $70,000 of the fiscal year 2005 budget estimate. This amount
is consistent with the fiscal year 2004 request for operating and
maintaining these two programs.
CONCRETE REPLACEMENT PROJECT
The fiscal year 2005 appropriation request is $1.627 million above
the fiscal year 2004 enacted level and is principally attributable to
the planned start of a $6 million concrete replacement project at the
two U.S. Seaway locks ($1.5 million each year in fiscal years 2005-
2008). The Eisenhower Lock has a history of concrete problems, caused
by the use of natural cement in the mix composition during the
construction of the lock. Due to the amount of concrete in need of
replacement, the difficulties associated with accessing these areas of
deteriorated concrete, and the need for in-house maintenance crews to
focus on other essential non-concrete lock maintenance projects, it is
more efficient and cost effective for outside contractors to complete
this project. The SLSDC's Office of Engineering has researched other
solutions to the concrete deterioration problem and found that there
are no other substances as effective as concrete in protecting the
structural integrity of the lock chambers.
The concrete replacement work to take place in fiscal years 2005-
2008 includes areas identified by the U.S. Army Corps of Engineers
(Corps) in its 1991 lock survey and evaluation of the two U.S. Seaway
locks (Corps Technical Report ITL-91-4, November 1991). The report
concluded, ``It is important for the SLSDC to maintain an aggressive
maintenance program of replacing deteriorated concrete. In the near
future, attention should be given to the repair of deteriorated
concrete near the bottom of the lock walls at Eisenhower Lock.''
Since 1991, the SLSDC has made in-house repairs to the most
critical areas identified by the Corps, but further deterioration and
harsh winter conditions have caused additional damage to the lock walls
at Eisenhower Lock and newly-identified problems at the Snell Lock have
also been targeted for replacement. In addition to concrete
deteriorating along the lower portions of the lock walls, freeze-thaw
damage is significant in the lock walls at high and low pool levels at
both locks. As it deteriorates, pieces of concrete become dislodged and
fall into the lock chambers. This poses a risk to people on the decks
of commercial vessels and pleasure boats.
Due to the amount of concrete in need of replacement, the
difficulties associated with accessing these areas of deteriorated
concrete, and the need for in-house maintenance crews to focus on other
non-concrete lock maintenance projects, it is more efficient and cost
effective for outside contractors to complete the project than in-house
personnel.
Between 1959 and 2003, the SLSDC expended more than $25 million on
concrete replacement at the two locks during the off-season winter
months, with the majority of work taking place at the Eisenhower Lock.
Most of the work over that time was completed with in-house labor. The
last major concrete replacement projects that utilized contractors were
completed in fiscal years 1986 and 1987, at a total cost of $4.3
million. The Seaway is a single-lock system, consisting of 15
individual U.S. and Canadian locks; a delay/shutdown to any one of the
locks would cause a delay/shutdown of the entire waterway. Although the
SLSDC has never experienced a major lock failure, the Canadian Seaway
agency suffered a lock failure at the Welland Canal in 1985, which
trapped 53 vessels above the Canal for 24 days at a cost to the
carriers of $24 million.
ENHANCED SEAWAY INSPECTION PROGRAM
The SLSDC and the U.S. Coast Guard (USCG), in conjunction with
Transport Canada and the SLSMC, signed a Memorandum of Understanding in
March 1997 to develop a program of coordinated vessel inspection and
enforcement activities to expedite the safe transit of shipping through
the Great Lakes Seaway System. The principal goal of the Enhanced
Seaway Inspection (ESI) program is to inspect all ocean vessels for
safety and environmental protection in Montreal, Quebec, before they
enter U.S. waters. Starting in 2002, security-related risk assessment
inspections have been conducted concurrent with the ESI, further
improving transit times for Seaway users. In 2003, the SLSDC continued
this program and met its internal performance goal of inspecting 100
percent of all ocean vessels in Montreal (208 total inspections).
The ballast water exchange program continues to be an important
function of the ship inspection program. These inspections are carried
out concurrently with the ESIs, by Corporation personnel in Montreal.
In 2003, 56 ballast water examinations were conducted in Montreal on
ocean vessels transiting the Seaway. The SLSDC performed 31 ballast
water examinations for subsequent trip vessels and eight follow-up
examinations in Massena.
Prior to the inception of the ESI program, foreign flag vessels
experienced numerous delays at the U.S. locks to accommodate USCG-
required safety-related inspections, as well as ballast water
management activities. Inspection in Montreal eliminates duplicative
inspections, allows for a seamless and efficient transit of the Seaway,
and provides a better location for repair resources, if required. This
improved inspection regime has saved each vessel, on average, 4 hours
per transit and ensured that any safety or environmental issues are
addressed prior to entering U.S. waters. As a result, ocean carriers
using the Seaway saved more than $500,000 in operating costs during the
2003 season. Seaway customers have responded favorably to the ESI
program through annual customer surveys.
CRITICAL INFRASTRUCTURE AND NAVIGATION SECURITY MEASURES
The SLSDC has been proactive in implementing increased security
measures following the events of September 11, 2001. Within days of the
terrorist attacks, risk assessment inspections of all foreign flagged
vessels were conducted in Montreal, prior to their entry into U.S.
waters. This protocol was developed with the full cooperation of the
Canadian SLSMC, as well as U.S. and Canadian law enforcement and Coast
Guard personnel. The protocol was further refined in March 2002 when
the risk assessment inspection was combined with the existing Enhanced
Seaway Inspection (ESI) program. By combining the two inspections into
a single process, foreign-flag vessels are not unnecessarily delayed
for security screenings, unless the initial risk assessment compels an
additional examination. During the 2003 navigation season, SLSDC
inspectors completed 216 risk assessment inspections in Montreal.
Security procedures, both maritime and internal, were developed to
ensure that security was enhanced while minimizing any impacts on the
efficiency of Seaway operations. In late 2001, SLSDC inspection
personnel logged substantially more staff hours in carrying out the
risk assessment protocol than normally projected. However, when the
protocol was refined in 2002 and merged with the existing ESI program,
this impact was ameliorated.
Another major security milestone for the SLSDC was the expansion of
the U.S. and Canadian Seaway mandatory Notice of Arrival requirement
for all foreign commercial vessels. With the start of the 2002
navigation season, all foreign ships entering the St. Lawrence Seaway
are required to give 96-hour advance notification of arrival in
Montreal, Quebec. Ships failing to give complete notice are prohibited
from entering the Seaway.
The notification requirement on the St. Lawrence Seaway is unique
because it mandates 96 hours notice prior to arrival in Montreal, as
opposed to all other U.S. waterways which require the notice prior to
reaching the first U.S. port of call. This modified requirement was
needed due to the geography of the key U.S. ports on the Great Lakes
Seaway System, which are several hundred miles into U.S. waters and, in
many cases, require transit of all 15 Seaway locks before reaching the
port. The Seaway's 96-hour notification requirement provides SLSDC
officials, as well as law enforcement and intelligence agencies, even
more advance notice (approximately 10 additional hours) to review
vessel crew lists and manifests before the vessel enters U.S. waters.
The SLSDC immediately sends the pre-entry information it receives to
the USCG, which in turn submits the information to its National Vessel
Movement Center for screening through various law enforcement
databases.
Other U.S. and Canadian agencies involved in the development of
both the risk assessment inspection program and 96-hour notification
requirement included Transport Canada, Citizenship and Immigration
Canada, Canadian Navy, Royal Canadian Mounted Police, U.S. Customs,
U.S. Immigration and Naturalization Service, and the U.S. Consul
General's Office in Montreal.
In February 2002, the SLSDC contracted for services to assess the
physical security for SLSDC infrastructure and workplace assets in
Massena. This assessment was intended to supplement and enhance an
initial security assessment that was conducted immediately following
September 11. The assessment focused on the two U.S. Seaway locks, the
Eisenhower Lock Visitors' Center, and the SLSDC's marine base/
maintenance facility. In addition, another contractor conducted a
detailed blast analysis of the highway tunnel under the Eisenhower
Lock. Based on the contractor's recommendations, the SLSDC has made and
continues to make several security enhancements and improvements to the
lock infrastructure and other workplace assets. It is estimated that
the SLSDC will expend more than $2.2 million in other-than-personnel
security enhancements and improvements during fiscal years 2002 through
2005.
Significant security-related enhancements and improvements made to
date include:
--Installation of approximately 4,400 feet of additional 8-foot-high,
chain-link fencing and various slide and swing gates. Gate
controllers will not be installed until the fiber optic system
is installed.
--Purchase of a Nasatka portable vehicle barrier to shut down or
control access, as needed, to our facilities, particularly the
Eisenhower Lock highway tunnel. This vehicle barrier has been
deployed during elevated threat level conditions.
--Construction of approximately 61 concrete ``jersey barriers''
topped with a 4-foot-high section of chain-link fence to keep
vehicles and pedestrians in the Visitors' Center parking lot
from approaching too close to the lock structure. These
barriers, built at a considerable cost savings with in-house
labor, will also be used in conjunction with the Nasatka
portable vehicle barrier to shut down or control vehicular
traffic.
--Completion of several improvements at the Eisenhower Lock Visitors'
Center, including (a) fencing of both ends and the lock side of
the lower and upper observation decks, (b) closure of some
ground level observation area to visitors, (c) movement of
visitor parking areas further away from the lock chamber, and
(d) setup of a security checkpoint at the Center entrance with
a security guard on duty during operating hours.
In fiscal year 2003, the SLSDC contracted with the firm of Edwards
and Kelsey to conduct an engineering plan for the implementation of
other security-related enhancements recommended in the previous
assessments. At the end of fiscal year 2003, the SLSDC finalized plans
to install a fiber optic network necessary for the electronic-based
security enhancements. In fiscal year 2004, the fiber network will be
installed and the purchase and installation of video cameras and smart
card/EZ pass systems for access to gates and buildings will be
finalized. The SLSDC will contract with an ``8-a, small business'' firm
for the installation of the security enhancements. In fiscal year 2005,
the SLSDC will continue to aggressively pursue the objectives of its
security program, which includes greater protection of SLSDC
facilities, new and improved measures for employee and visitor entry
into facilities, and planned contingencies for facilities/
infrastructure in the event of a heightened security alert.
The SLSDC fully participated in the U.S. Department of
Transportation's role in the TOPOFF 2 weapons of mass destruction
response exercise mandated by the U.S. Congress and conducted in May
2003. The agency is currently participating in several preparatory
exercises that will culminate in ``Exercise Forward Challenge '04''--
the government-wide continuity of operations exercise that is scheduled
for May 12-13, 2004.
In addition, the SLSDC will continue to work cooperatively with
security and intelligence officials at both the Departments of
Transportation and Homeland Security to ensure that the St. Lawrence
Seaway, and its navigation assets, is protected to the maximum extent
possible. This relationship was highlighted by the General Accounting
Office's Top Fiscal Year 2004 Management Challenges for the Department
of Transportation (Establishing and Managing an Ongoing DOT/Department
of Homeland Security (DHS) Programmatic Relationship).
The SLSDC has worked closely with DHS and the Transportation
Security Administration (TSA) since their inception. In February 2002,
the Corporation contacted officials in the TSA Explosives Unit to
request its consultation on security concerns regarding the Eisenhower
Lock highway tunnel. Additionally, SLSDC security and emergency staff
have also conducted a series of informational meetings with TSA
officials from its Office of Maritime and Land Security to educate them
on those same issues. To date, SLSDC/TSA interactions have proven to be
informative, constructive, and useful.
TRADE DEVELOPMENT INITIATIVES
Since 1985, the SLSDC has performed trade development and
promotional activities geared at generating trade to and from North
America via the Great Lakes Seaway System. Program-wide activities
include hosting overseas trade missions that promote the entire Seaway
System at maritime and trade-related exhibitions, developing commodity-
specific marketing plans, and working directly with ports, carriers,
terminal operators, labor, and importers/exporters in the development
of promotional materials and initiatives. Overseas trade missions,
which include U.S. and Canadian maritime, government, industry, and
labor delegates, have led to the development of new international cargo
movements into the System. Since 1985, the SLSDC has sponsored 26 trade
missions to 56 cities in 37 countries. In October 2003, the SLSDC led a
23-member delegation of U.S. and Canadian Great Lakes executives to
Belgium and The Netherlands, two of the Seaway's largest trading
partners.
In addition to overseas trade missions, the SLSDC is working with
various Great Lakes Seaway System port authorities, the Great Lakes
Cruising Coalition, the Great Lakes Waterways Management Forum, State
and local governments, and tourism associations, to attract cruise
vessels into the Great Lakes. Also, the SLSDC is working on joint trade
development initiatives with the Canadian SLSMC to maximize the use of
waterborne transportation as North American highways become more
congested, including the examination of the Seaway System for short sea
shipping movements and niche container trade as well as exploring
partnerships with other inter-modal connections in an effort to
generate new business for the Seaway System.
In an effort to provide its global customers with a single portal
for news and information related to the Great Lakes Seaway System
commercial navigation, the SLSMC and SLSDC developed and launched a
binational Internet web site (www.greatlakes-seaway.com) in 2001 that
has been extremely well received domestically and internationally from
the maritime and trade communities. In 2003, average monthly site page
hits grew from 70,000 in 2002 to more than 120,000 hits. The site
recorded an all-time high in December 2003 with 153,000 page hits, and
received more than 1.4 million hits for the year from viewers in more
than 110 countries.
U.S. ARMY CORPS OF ENGINEERS' GREAT LAKES ST. LAWRENCE SEAWAY STUDY
The Water Resources Development Act of 1999 directed the Corps, in
consultation with DOT (through the SLSDC), to undertake the Great Lakes
St. Lawrence Seaway Study (Study) to examine improvements to the
commercial navigation infrastructure of the Great Lakes St. Lawrence
Seaway System. Since January 2001, the Corps has partnered closely with
DOT/SLSDC to carry out the Study's reconnaissance phase.
The Corps completed a 2-year reconnaissance study in February 2003
and concluded that more analysis was needed to determine if a Federal
interest exists to improve the commercial navigation infrastructure on
the Great Lakes and Seaway. The current scope of the Study is to
establish a 50-year baseline for the current infrastructure to analyze
the engineering, economic, and environmental consequences of
maintaining, and not maintaining that infrastructure at its current
level of reliability. The Study is primarily a commercial navigation
study, but as evidenced by the composition of the Steering Committee,
it will include environmental considerations.
On May 1, 2003, the U.S. Department of Transportation and Transport
Canada signed a Memorandum of Cooperation that established the intent
of each agency to work together to ensure the future viability of the
Great Lakes Seaway System as a commercial navigation waterway.
Memorializing this intent in the MOC document cleared the way for
Canada to work together with the Corps and DOT on the Study.
Currently, all projects related to the revised scope of the Study
are underway (engineering, economics, and environmental), along with
meetings of the Study Steering Committee. The Steering Committee is
made up of the senior level officials from Corps, DOT, Transport
Canada, SLSDC, Canadian SLSMC, as well as representatives from the U.S.
Fish and Wildlife Service and Environment Canada.
SEAWAY AIS/GPS PROJECT
Since 1992, the SLSDC has worked with the U.S. Department of
Transportation's Volpe National Transportation System Center and
Canadian partners to design and implement state-of-the-art AIS/GPS
navigation technology.
On March 31, 2003, with the start of the navigation season, the
U.S. and Canadian Seaway agencies began enforcing mandatory AIS use on
commercial vessels entering the waterway in North America to employ
this technology as a requirement for transit. The AIS/GPS project
represents a major step forward in marine navigation technology. In
fact, the Seaway is currently the world leader in developing shore-side
applications for AIS/GPS.
AIS technology uses data from ship-to-ship, ship-to-shore, and
shore-to-ship, thereby enabling a constant two-way communication
between mariners and the three Seaway vessel traffic control centers.
Originally developed primarily for safety reasons, AIS has become
increasingly of interest to maritime security officials in the post-9/
11 environment as it offers the ability for them to track any vessel
carrying a transponder with great precision.
In the near future, permanent installation of AIS equipment will be
required onboard commercial vessels in the entire Great Lakes St.
Lawrence Seaway System from the Lakehead in Duluth, MN, to traffic
entering the Gulf of St. Lawrence on the Atlantic. Adoption of the
technology, which has been approved by the International Maritime
Organization, was embraced early on by the Canadian Shipowners
Association and the Shipping Federation of Canada, both of which
provided technical and financial assistance. The Department's Volpe
National Transportation Systems Center served as technical contractor
for development of the AIS project, which began almost a decade ago.
AIS will soon be required internationally on commercial vessels and
will be mandatory throughout the Great Lakes Seaway System by December
2004.
2003 NAVIGATION SEASON OVERVIEW
The estimated tonnage for the combined sections of the St. Lawrence
Seaway in 2003 was 40.9 million metric tons. This was 500,000 metric
tons or 1 percent below the 2002 total (a decrease of 1 percent). The
decrease can be attributed, in large part, to higher global freight
rates, weaker U.S. dollar valuation, the continuation of grain export
reductions (7 percent decrease) due to lower European grain imports,
and significant reductions to general cargoes, including iron and steel
products (38 percent reduction). The reduction of import steel also had
a secondary effect on export grain. It is estimated that approximately
20-30 percent of ocean-going vessels exporting grain from the Great
Lakes Seaway System enter the waterway carrying steel. The final weeks
of the navigation season did result in high levels of grain movements
on Canadian lakers as the Canadian Wheat Board began moving more grain
exports via the St. Lawrence Seaway. In addition to cargo movements,
estimated total commercial transits through the St. Lawrence Seaway
were on par with 2002 levels at 3,886 transits.
Several commodities posted increases in 2003: iron ore (up 10.5
percent to 10.7 metric tons); coal (up 33 percent to 4.1 million metric
tons); petroleum products (up 2 percent to 1.8 million metric tons);
salt (up 17 percent to 2.3 million metric tons); stone (up 8 percent to
800,000 metric tons); potash (up 48 percent to 144,000 metric tons);
ores and concentrates (up 68 percent to 357,000 metric tons); and
gypsum (up 25 percent to 652,000 metric tons).
CONCLUSION
The SLSDC's fiscal year 2005 budget request reflects the agency's
ongoing commitment of providing a safe, secure, reliable, and efficient
waterway and lock transportation system for the movement of commercial
goods to and from the Great Lakes region of North America. Maritime
commerce on the Great Lakes Seaway System is vitally important to the
Great Lakes regional economy, annually supports more than 150,000 U.S.
jobs, $4.3 billion in personal income, $3.4 billion in transportation-
related business revenue, and $1.3 billion in Federal, State, and local
taxes.
Since 1959, the SLSDC has played a significant role in not only the
operations and maintenance of the U.S. Seaway assets, but also in the
promotion and development of new business for the waterway in concert
with its North American stakeholders. As the St. Lawrence Seaway nears
its 50th year of operation, the SLSDC remains committed to working with
its customers and stakeholders to ensure the waterway's reliability and
competitiveness for its next 50 years.
______
MERIT SYSTEMS PROTECTION BOARD
Prepared Statement of Neil Anthony Gordon McPhie, Acting Chairman
Chairman Shelby, Ranking Member Murray and members of the
subcommittee, thank you for the opportunity to submit this statement
for the record on the fiscal year 2005 appropriations request for the
U.S. Merit Systems Protection Board (MSPB or ``the Board''). This year
is particularly significant for the Board, as 2004 marks the agency's
Silver Anniversary. Over the course of the Board's 25-year history, its
Chairmen, Board members and staff have held steadfast and true to the
agency's mission: to serve as guardian of Federal merit systems. In
those 25 years, the Board has issued decisions in over 239,000 cases.
The Board has issued over 80 reports of studies of the Federal merit
systems and the degree to which employees are managed free from
prohibited personnel practices. In addition, the Board has conducted
outreach activities on its findings on appeals and studies to promote
the improved application of merit principles. I am pleased to take this
opportunity to explain to the subcommittee the basis for the
President's appropriations request on behalf of the Board and its
importance in enabling the Board to continue to fulfill its statutory
missions during fiscal year 2005.
OVERVIEW OF THE REQUEST
The President is requesting $35,303,000 in appropriated funds to
support the operations of the Merit Systems Protection Board. This
request represents a $1,800,000 increase over the fiscal year 2004
appropriations request. This increase covers the $1,501,000 in
additional expenses resulting from the January 2004 and 2005 pay raises
that were included in the President's budget. However, because Congress
approved a higher pay raise for fiscal year 2004 than the President
recommended, MSPB needs an additional $375,000 to cover the difference
between the President's recommended raise and the amount that was
ultimately approved by Congress. This request also covers the increase
in commercial rent charges for fiscal year 2004 ($183,000), the $78,000
necessary to provide for inflationary costs increases in other non-
personnel costs and the $38,000 necessary to cover the cost of Workers
Compensation Programs in fiscal year 2005.
At the request of the Office of Management and Budget (OMB), the
Merit Systems Protection Board is not requesting that funds be
transferred from the Civil Service Retirement and Disability Trust Fund
for fiscal year 2005. Instead, at OMB's request, the funding previously
supplied from the Trust Fund for adjudication of Civil Service
Retirement appeals is being requested as part of the regular
appropriation total of $37,303,000.
fiscal year 2003 and fiscal year 2004 accomplishments with fiscal year
2005 OUTLOOK (BY BUDGET ACTIVITY)
ADJUDICATION
The bulk of the Board's resources are dedicated to processing our
appellate workload; 192 FTE--or 84 percent of the 228 FTE estimated for
fiscal year 2004 and fiscal year 2005--will be used for adjudication.
During the last several years, we have maintained an average processing
time of approximately 3 months for appeals and other cases processed in
our regional and field offices. However, the average case processing
time at headquarters increased slightly because the Board functioned
with only one member for approximately 6 weeks in fiscal year 2003.
We estimate that in each of the next 2 years the administrative
judges will process approximately 7,300 appeals and other cases in our
regional and field offices, and the Board members will adjudicate
approximately 1,300 cases at headquarters. In fiscal year 2003, the
Board decided 8,416 cases: 7,227 in the regional and field offices and
1,189 in the headquarters office. The average processing times were 94
days in the regional and field offices and 295 days for headquarters.
Of the Board's final decisions that were appealed to the U.S. Court of
Appeals for the Federal Circuit, the Court left 94 percent of the
Board's decisions unchanged.
This case workload is determined by factors beyond our control, as
it results from the number of appealable actions taken by Federal
agencies, the number of employees who decide to challenge those
actions, and from legislative changes that affect our jurisdiction. Two
such changes are enactment of the Homeland Security Act of 2002 and the
National Defense Reauthorization Act of 2004. Under these statutes, the
Department of Homeland Security (DHS) and the Department of Defense
(DOD), respectively, were granted authority to establish their own
appeals process.
The Department of Homeland Security has decided to retain MSPB
appeal rights for its employees at the regional and headquarters
levels. DHS issued proposed regulations establishing an expedited
appeals processing system which requires the Board to process employee
appeals using shorter timeframes at the headquarters level. As required
by statute, DHS officials consulted with MSPB prior to issuing those
regulations.
These expedited procedures might well require an increase in our
adjudication staff in the headquarters office. Further, while DOD
employees' MSPB appeals rights are currently limited by statute to the
petition for review (PFR) level, it is still possible that DOD will
also decide to provide first-level MSPB appeals rights for its civilian
employees by regulation. If DOD does not provide first-level MSPB
appeal rights for its employees, we expect the number of PFR's to
increase, as this avenue of appeal will present DOD employees with
their first opportunity for an independent review of the agency's
employment action. This increase in PFR's will likely require
additional Board staff to review the PFR's at MSPB headquarters.
Notwithstanding the new DHS appeals procedures or the changes to
DOD's appeals procedures, the Board will still hear DOD and DHS appeals
under the Whistleblower Protection Act, the Uniformed Services
Employment and Reemployment Rights Act, and the Veterans Employment
Opportunities Act. Thus, the Board is seeking the level of funding
reflected in its fiscal year 2005 budget request because we do not
anticipate a decrease in the Board's caseload or staffing needs.
It is important to note that even a small increase in workload per
administrative judge could cause a significant increase in processing
times. MSPB needs the requested funds in order to maintain the
adjudication staff and to continue technological improvements that will
facilitate case processing and avoid escalation of costs to the
government as a whole.
Achievement of the Board's performance goals related to the
adjudication of cases at headquarters depends on having a quorum of
Board members. When the Board has a full complement of three members,
cases at headquarters are closed by a unanimous vote or a majority vote
of the Board. When the Board has only two members, there is a quorum,
but no majority is possible unless both members agree. If the two
members cannot agree, the Board's regulations permit the issuance of a
``split-vote'' order, which makes the initial decision under review
final but not precedential. When the Board has only one member, as it
did for almost 2 months during fiscal year 2003, no decisions can be
issued.
I am serving under the recess appointment I received from the
President in April 2003. On December 10, 2003, the President designated
me as Vice Chairman of the Board. Because the position of Board
Chairman was vacant, I became the Board's Acting Chairman pursuant to
the Board's operating statute, 5 U.S.C. 1203(b). Unless confirmed, my
appointment to the Board will end when Congress adjourns sine die at
the end of the 108th Congress. The term of the current Board member,
Susanne T. Marshall, ended on March 1, 2004. However, Ms. Marshall has
exercised her option to continue to serve in this position for up to 1
additional year if no successor is named. While the President has
recently submitted a nominee to the Senate for confirmation to fill the
one remaining vacancy on the Board, this position has been vacant since
December 2001. The Board has not had its full complement of three
members since then.
During fiscal 2003 MSPB implemented an electronic appeals process
(e-Appeal) that allows appellants to file an initial appeal using the
Internet.
The Board's new alternative dispute resolution pilot program,
called the Mediation Appeals Program (MAP), became fully functional in
fiscal year 2003 with the completion of mediation training by 15 Board
employees. As part of the training, these employees completed three to
five co-mediations with dispute resolution experts. Fifty percent of
the completed co-mediations resulted in settlements of pending appeals.
MERIT SYSTEMS STUDIES AND OVERSIGHT
The MSPB has the statutory responsibility to conduct studies of the
civil service and other merit systems in the Executive Branch. Our goal
is to support strong and viable merit systems that ensure the public's
interest in a high quality, professional workforce managed under the
merit principles and free from prohibited personnel practices. In
fiscal year 2005, the MSPB will increase its program of in-depth,
timely analysis of major merit and human capital management issues. In
fiscal year 2005 we expect to issue at least six reports and a
quarterly newsletter, ``Issues of Merit.'' This function will use
approximately 13 FTE, or about 4 percent of the approximately 228 FTE
the Board is projected to use in fiscal year 2005.
The Board makes reports of our studies available to a wide
audience, including the President, members of Congress, Federal policy
officials, managers, employee groups, academicians and others with an
interest in the merit systems and Federal human resources management.
Reports address policy issues as well as issues that affect the
operation and practice of merit in the workplace. In fiscal year 2005,
we will continue our efforts to work with organizations such as the
Federal Executive Boards, the Senior Executive Association, and the
Federal Managers' Association.
The President's Management Agenda item on Human Capital Management
and GAO's rating of human capital management as high risk influence our
report topics. Alternative systems, such as those authorized by the
Homeland Security Act of 2002 and the National Defense Reauthorization
Act of 2004, are covering larger and larger portions of the workforce.
Our charter to examine the policies and implementation of traditional
and alternative personnel systems and their impact on merit principles
and prohibited personnel practices is more important than ever.
We are working closely with other research groups from the General
Accounting Office, the Office of Personnel Management, the National
Academy of Public Administration, and the Partnership for Public
Service to include a sharing of research agendas and an expansion of
peer reviews of our respective work products. These other groups have
either a constituency group funding them or are direct agents of the
administration. Accordingly, their clients' interests shape the views
they express on an issue. MSPB is distinct in its statutory mission to
provide an independent, unbiased perspective. Our clients are the
American people and our responsibility to them is to protect the
public's interest in a viable, merit-based system.
In fiscal year 2003, the MSPB released three major studies and
three editions of the newsletter. The major studies were, The Federal
Selection Interview: Unrealized Potential, which makes recommendations
to improve this important part of the selection process, Help Wanted: A
Review of the Federal Vacancy Announcements, which makes
recommendations to make vacancy announcements more useful in the
recruitment process, and The Federal Workforce for the 21st Century:
Results of the Merit Principles Survey 2000, which addresses employees'
concerns before September 11, 2001. We are also planning our largest
Merit Principle Survey ever using electronic web-based methodology.
This electronic survey capability will be a centerpiece of our research
agenda.
MANAGEMENT SUPPORT
The management support function, which uses approximately 26 FTE,
or 11 percent of the 228 estimate in fiscal year 2004 and fiscal year
2005, provides the necessary management support for information
resources management, human resources management, budget, finance,
procurement, equal employment opportunity, travel, space and property
management. The management support function, which uses approximately
26 FTE, or 11 percent of the 228 estimate in fiscal year 2004 and
fiscal year 2005, provides the necessary management support for
information resources management, budget, finance, procurement, equal
employment opportunity, travel, space, and property management.
Fiscal year 2003 was the first year that we were required to have a
financial audit pursuant to the Accountability of Tax Dollars Act of
2002. We received a clean audit opinion. An additional important
administrative accomplishment was the development and implementation of
the Continuity of Operations Plan.
The Board determined that a restructuring of its regional and field
office configuration was necessary in order to consolidate resources
and to allow for the most efficient management of case processing.
After evaluating workload shifts, costs, economies of scale, changes in
the Federal workforce, and the flexibility needed to adjust to civil
service reform, Board management determined that it was necessary to
close two of these offices to enable the Board to further its mission
more efficiently and effectively.
Effective March 31, 2004, the Board closed its field offices in
Seattle, Washington and Boston, Massachusetts. This action affected a
total of 12 employees in these two offices (four in the Boston office
and eight in the Seattle office). The Board received authority to grant
voluntary early retirement and voluntary separation incentive payments
to affected employees. The Board will continue to operate five regional
offices (Philadelphia, Washington, Atlanta, Chicago, and San Francisco)
and three field offices (New York, Dallas and Denver).
The restructuring was accomplished without a reduction in force.
Every employee in the affected offices was offered a reassignment to an
equivalent position within the Board. These reassignments were made
without loss of pay or grade for the affected employees. Additionally,
the Board will pay all required and most optional relocation expenses
for employees who are reassigned. Eligible employees who declined the
reassignment were offered the option of taking voluntary early
retirement or the voluntary separation incentive payments. Under these
arrangements, only five employees are separating from the Board; three
are retiring and receiving voluntary separation incentive payments, one
employee transferred to another Federal agency and one employee is
serving in a temporary assignment, while seeking other employment.
We believe that the restructuring will have a neutral budgetary
impact. The annual rent on the Seattle field office is approximately
$150,000 and the rent on the Boston field office is approximately
$100,000 annually. As of April 1, 2004, the Board will cease to pay
rent on the Seattle office. We are tied to a lease agreement that will
obligate the Board to pay some amount for the Boston property through
the end of the lease term, which is February 14, 2005. However, we are
currently negotiating with the management company in an effort to pay a
lesser amount from April 1, 2004, through the end of the lease period.
We anticipate that any savings in rent expenses will be offset by an
increase in expenses associated with the additional staff needed to
meet the challenges presented by the new Department of Homeland
Security and Department of Defense appeals systems.
In fiscal year 2004, the Board implemented a new case management
system. This system replaces a 13-year-old case management system,
whose major components had long become obsolete. Two of the features of
this new system that will improve the overall efficiency of the
adjudicatory process include: (1) interfaces between the Board's Case
Management System, Document Management System, and Document Assembly
System to reduce duplicative data entry and to automate the use of data
from CMS to produce standard case documents; and (2) use of off-the-
shelf software as the basis of the system, which will allow more
frequent upgrading of other software.
Additionally, in fiscal year 2004, the Board expects to replace all
of the agency's personal computers (PC's) in accordance with our policy
of replacing PC's every 4 years. As part of that upgrade, we will
update word processing and other desktop software, and we will
investigate the feasibility of installing a wireless network within our
building.
Finally, the Board's information resource management office will
continue to enhance information technology security for the Board's IT
systems. These enhancements will follow up on the recommendations of
the independent auditor which were included in the agency's fiscal year
2003 Federal Information Security Management Act report.
In fiscal year 2005, we will implement a pilot program to evaluate
the cost and feasibility of scanning case documents received from the
parties. This is another phase of the e-Filing initiative which would
permit documents that we do not produce or receive in electronic form
through e-Appeal to be made part of the electronic case file
nonetheless.
CONCLUSION
I am honored to serve as Acting Chairman of the Merit Systems
Protection Board. The Board and its staff continue to work diligently
to maintain the reputation for efficiency, effectiveness and fairness
it has earned over its 25-year history. I have enjoyed serving the
Board as a member and now as Acting Chairman. I welcome the opportunity
to lead the organization as it builds upon its legacy of excellence for
service in the public interest.
______
U.S. ACCESS BOARD
Prepared Statement of Lawrence W. Roffee, Executive Director
INTRODUCTION
The Access Board is requesting a total budget authority of
$5,686,000 for fiscal year 2005. The proposed budget is a 5.3 percent
increase over the amount appropriated for fiscal year 2004. The Board
is not planning new costly initiatives in fiscal year 2005 but will
continue with the programs started in fiscal year 2004, and has
followed the directives issued by the Office of Management and Budget
for the preparation of the fiscal year 2005 budget.
GOVERNMENT PERFORMANCE AND RESULTS ACT ANNUAL PERFORMANCE PLAN
Following the Government Performance and Results Act (GPRA), the
Board has established long-range goals and annual objectives that
describe the strategies it will implement to achieve the long-range
goals. The objectives are described in terms that permit future
assessment regarding whether the objectives were achieved. To satisfy
the requirements for an annual performance plan and review, this budget
justification presents information under each of the Board's program
areas regarding the long-range goals, reports on the results of the
fiscal year 2003 activities, reviews the planned fiscal year 2004
activities, and presents the fiscal year 2005 objectives.
The Board was established by section 502 of the Rehabilitation Act
and is the only Federal agency whose primary mission is accessibility
for people with disabilities. The Board is responsible for developing
guidelines under the Americans with Disabilities Act, the Architectural
Barriers Act, and the Telecommunications Act for ensuring that
buildings and facilities, transportation vehicles, and
telecommunications equipment covered by these laws are readily
accessible to and usable by people with disabilities. The Board is also
responsible for developing standards under section 508 of the
Rehabilitation Act for accessible electronic and information technology
used by Federal agencies, and for providing training under the
Assistive Technology Act to Federal and State employees on obligations
related to section 508 of the Rehabilitation Act.
In 2002, the Board was given new responsibilities under the Help
America Vote Act to serve on the Board of Advisors and the Technical
Guidelines Development Committee that will assist the new Election
Assistance Commission in developing voluntary guidelines and guidance
for voting systems, including accessibility for people with
disabilities.
The Board also enforces the Architectural Barriers Act and provides
training and technical assistance on each of its guidelines and
standards, and on a variety of other accessibility issues.
Additionally, the Board maintains a small research program that
develops technical assistance materials and provides information needed
for rulemaking.
The Board has adopted this mission statement to guide its programs:
The Board is the catalyst for achieving an accessible America. The
statement recognizes that achieving an accessible America requires
bringing together public and private sectors. The Board has established
three long-range goals for its programs:
--Take a leadership role in the development of codes and standards
for accessibility;
--Work in partnership with agencies and others to make the Federal
Government a model of compliance with accessibility standards;
and
--Be known as the leading source of information about accessibility
and disseminate that information to customers in effective
ways.
In developing objectives and strategies for achieving the long-
range goals, the Board seeks to work together with its stakeholders
toward common objectives. The Board's plan is simple: work with its
stakeholders to establish consensus-based guidelines and standards that
are fair, reasonable, and acceptable to all interests; where the Board
has enforcement responsibilities over Federal agencies, assist those
agencies to achieve full compliance; and involve its stakeholders in
developing and disseminating materials and manuals that will help them
understand and comply with our guidelines and standards.
The Board's programs will result in accessible buildings and
facilities, transportation vehicles, telecommunications equipment, and
electronic and information technology across our country and,
ultimately, the full economic and social integration of people with
disabilities into our society. Achieving these results will depend not
only on the Board's activities, but also on the level of commitment and
action taken by other Federal agencies, State and local governments,
and businesses who are required to comply with or enforce the various
laws that guarantee the civil rights of people with disabilities.
ACCESSIBILITY GUIDELINES AND STANDARDS
The Board will continue to develop and update accessibility
guidelines and standards and to work cooperatively with organizations
which develop codes and standards affecting accessibility through
fiscal year 2005 and beyond. The status of current guidelines and
standards efforts is presented below.
ADA and ABA Accessibility Guidelines
This rule will revise the accessibility guidelines for the
Americans with Disabilities Act (ADA) and the Architectural Barriers
Act (ABA), and include new guidelines for accessible housing covered by
both of these laws. Through this rulemaking, the Board will ensure
consistency and coordination in the development of guidelines
applicable to the public and private sector, as well as the Federal
Government. A notice of proposed rulemaking (NPRM) was published for
public comment in November 1999. The NPRM consisted of separate scoping
parts for each law. The ADA scoping part was based on the
recommendations of the Board's ADAAG Review Advisory Committee and
covers private facilities, such as places of public accommodation and
commercial facilities, and State and local government facilities. The
ABA scoping part applies to Federally financed facilities and is based
on the ADA scoping part, with a few changes due to differences in the
coverage of the two laws. For example, the ABA scoping part covers
facilities leased by Federal agencies. The NPRM contained a single set
of updated technical requirements based on the recommendations of the
ADAAG Review Advisory Committee. Both the ADA and ABA scoping parts
reference these common technical requirements. The comment period for
the proposed rule closed in May 2000 and over 2,500 comments were
received. The Board held two public hearings on the proposed rule. The
Board also held informational meetings in Washington, DC in October
2000 to hear from industry associations and disability groups on issues
regarding automated teller machines, reach ranges, and captioning
equipment for movie theaters. The Board required further information on
these issues before deciding how to address them in the final rule.
In April 2002, the Board placed in the docket for public review a
draft of the final guidelines to promote harmonization of the Board's
guidelines with the International Code Council (ICC)/American National
Standards Institute (ANSI) A117.1 Standard on Accessible and Usable
Buildings and Facilities and the International Building Code. The ICC/
ANSI A117 Committee and the ICC were in the process of revising the
private sector codes and standards. This provided another opportunity
to harmonize the Board's guidelines with those of the private sector.
The Board's final rule will be published in fiscal year 2004.
Outdoor Developed Areas
The Board's Outdoor Developed Areas Regulatory Negotiation
Committee presented its report to the Board in September 1999. This
committee developed new sections for parks, trails, and camping and
picnic areas. In October 2001 the Board sponsored an information
meeting on the final report of the Outdoor Developed Areas Regulatory
Negotiation Committee. The meeting was attended by about 50 individuals
and was held in Denver, CO during the annual meeting of the National
Recreation and Park Association. The meeting was informal and provided
an opportunity for a dialogue with Board members about the report.
In September 2003, the Board decided to develop an NPRM on Outdoor
Developed Areas using only its rulemaking authority under the
Architectural Barriers Act. Taking this approach will help move this
rulemaking forward and allow the Federal Government to take the
initiative of addressing accessibility in this area before applying
requirements to State and local governments or private entities. Future
rulemaking under the ADA would be enhanced by the experience of
implementing accessibility guidelines at Federal facilities. The
Federal Government would gain experience in implementing the guidelines
and this experience should prove important before applying them to
other entities. A proposed rule will be published for public comment in
fiscal year 2004.
Passenger Vessels
In September 1998, the Board convened a 21-member Passenger Vessel
Access Advisory Committee to develop accessibility guidelines for
cruise ships, ferries, excursion boats, and other vessels covered by
the Americans with Disabilities Act. The committee presented its report
with recommendations to the Board in November 2000. The Board created
an ad hoc committee of Board members to begin developing a proposed
rule on access to passenger vessels.
Standard means of boarding passenger vessels and the interaction
between vessels and shoreside facilities present unique challenges to
accessibility. It is a major issue the Board will address in guidelines
it is developing for passenger vessels. The Board held public meetings
in New Orleans (August 2003) and Seattle (September 2003) to gather
information and input on viable access solutions that will allow
persons with disabilities independent access onto and off of large
vessels such as cruise ships, dinner boats, ferries, and gaming boats.
Over 150 vessel designers and operators, pier operators, persons with
disabilities, and others attended the meetings. A notice of
availability (or draft rule) is expected to be published in fiscal year
2004.
Public Rights-of-Way
In October 1999, the Board created a 32-member Public Rights-of-Way
Access Advisory Committee to assist it in developing new guidelines for
access to sidewalks, street crossings, and related pedestrian
facilities. The committee presented its report with recommendations to
the Board in January 2001. The committee is continuing to meet to
develop recommendations for a technical assistance manual for agencies
and practitioners to support implementation of the future guidelines.
In June 2002, the Board released draft guidelines on accessible public
rights-of-way for public comment. The draft guidelines were made
available for public review and comment prior to issuing a notice of
proposed rulemaking. Written comments were accepted until October 28,
2002; we received approximately 1,400 comments--all of which are
available on our website.
A public meeting on the draft guidelines was held in Portland, OR
on October 8, 2002. The meeting provided an opportunity for industry
groups, persons with disabilities, civil engineers, local governments,
and other interested parties to comment on the published draft. Over
100 people attended the meeting, and approximately 40 people provided
testimony. Comments focused on the impact of various provisions in the
guidelines. A proposed rule is expected to be published in fiscal year
2004.
Fiscal Year 2003 Results--Rulemaking
In fiscal year 2003, we did not issue any guidelines.
Fiscal Year 2003 Results--Codes and Standards
Our long-range goal is to take a leadership role in the development
of codes and standards for accessibility. The Board works with model
code organizations and voluntary consensus standards groups that
develop and periodically revise codes and standards affecting
accessibility. We have voting membership in several codes and standards
organizations, and monitor or are actively involved in the development
or revision of dozens of other codes and standards affecting
accessibility.
We believe this goal enhances the Board's credibility as a
knowledgeable source of information regarding technical aspects of
accessibility. Additionally, by working cooperatively with codes and
standards-setting bodies, Federal and private codes and standards will
be more similar, or harmonized, and the Board will be more alert to
non-Federal influences affecting its constituencies. Harmonization
between Federal and private requirements will make it more likely that
buildings and facilities will be accessible, thus reducing the
necessity for complaints and litigation. Some highlights of
accomplishments in fiscal year 2003 include:
--The parent of a child with a hearing loss petitioned the Board to
include new provisions in ADAAG for acoustical accessibility
for individuals who are hard of hearing because the acoustical
environments found in many schools today are barriers to
communication and therefore to learning for children with
hearing impairments. Rather than initiating rulemaking, the
Board collaborated with an existing Acoustical Society of
America (ASA)/American National Standards Institute (ANSI)
Working Group on Classroom Acoustics to develop private sector
technical and scoping standards. The standard was recently
adopted by ANSI. The approved standard, Acoustical Performance
Criteria, Design Requirements, and Guidelines for Schools (ANSI
S12.60-2002), sets specific criteria for maximum background
noise and reverberation.
--Currently, the Board is finalizing revisions to the ADA and ABA
accessibility guidelines. A key goal of this revision is to
make the guidelines more consistent with model building codes
and industry standards, particularly those issued by the ICC/
ANSI A117 Committee. The ICC/ANSI A117.1 standard is referenced
by the International Building Code and various State codes,
among others. While the Board's guidelines derive from earlier
versions of the ICC/ANSI A117 standard, significant differences
between the documents have remained. From the outset of its
rulemaking to update the ADA and ABA guidelines, the Board has
sought to reconcile these differences. The ICC/ANSI A117
Committee is in the process of updating the A117.1 standard and
is working to harmonize the new edition with the Board's
upcoming guidelines. In April 2002, the Board released a draft
of the final ADA and ABA guidelines to facilitate this effort.
Later, the ICC/ANSI A117 Committee completed a series of
hearings on changes to the standard to make it more consistent
with the Board's draft final guidelines.
Fiscal Year 2004 Plans--Rulemaking
In fiscal year 2004, we will issue one final guideline and three
proposed guidelines:
--Final rule on revisions to the ADA and ABA accessibility guidelines
--NPRM on outdoor developed areas
--Notice of availability (draft rule) on access to passenger vessels
--NPRM on access to public rights-of-ways
Fiscal Year 2004 Plans--Codes and Standards
The Board will be assisting the new Election Assistance Commission
in the development of voluntary voting system guidelines under the Help
America Vote Act. Among other things, the legislation requires the new
Election Assistance Commission to develop voluntary voting system
guidelines, including accessibility for people with disabilities. The
voting system guidelines are to be developed with the assistance and
input of a Technical Guidelines Development Committee and Board of
Advisors. The legislation requires that the Access Board be represented
on both groups.
As a result of the September 11, 2001 attacks on the World Trade
Center, code provisions for emergency egress from tall buildings are
being re-examined. There is renewed interest in the use of elevators
for both occupant egress and fire fighters access. Therefore, a
workshop on the Use of Elevators in Fires and Other Emergencies will be
held on March 2-4, 2004, in Atlanta, GA. This workshop is being co-
sponsored by the Access Board, the American Society of Mechanical
Engineers, National Institute of Standards and Technology,
International Code Council, National Fire Protection Association, and
the International Association of Fire Fighters.
Fiscal Year 2005 Objectives--Rulemaking
In fiscal year 2005, we will issue three final guidelines:
--Final rule on outdoor developed areas
--NPRM on access to passenger vessels
--Final rule on access to public rights-of-ways
Fiscal Year 2005 Objectives--Codes and Standards
In fiscal year 2005, the Board will continue efforts to harmonize
its guidelines with model codes and standards, including the ICC/ANSI
A117.1 Standard for Accessible and Usable Buildings and Facilities.
TECHNICAL ASSISTANCE
The Board provides technical assistance to a wide variety of people
regarding the accessibility guidelines and standards it issues. The
Board's customers include architects, builders, designers,
manufacturers, people with disabilities, State and local governments,
and Federal agencies. The Board's technical assistance program has four
components:
--Responding to customer inquiries. The Board responds to about
13,000 customer inquiries each year. We have four toll-free
telephone lines for customers to call with questions. Customers
also e-mail and fax us questions. Many literally are sitting at
a drawing table with a design problem. They want accurate,
reliable, and timely advice. Our customers value being able to
discuss their questions directly with our accessibility
specialists who developed the guidelines and standards.
--Developing and disseminating bulletins, manuals, and other
publications. The Board maintains about 30 publications on
accessibility issues. These range from short bulletins
responding to frequently asked questions about specific issues
such as accessible parking, to manuals on the Board's
guidelines and standards. We send out about 12,000 publications
each year in print and alternate formats.
--Providing training. The Board conducts about 100 training sessions
each year. Training usually is provided at conferences and
seminars sponsored by other organizations. Training sponsors
generally reimburse us for travel expenses.
--Maintaining the Board's website. The Board's website (http://
www.access-board.gov) has become a very effective way to
distribute information to the public. Customers can download
many of our publications and view our accessibility guidelines
and standards from our website. We received over 12 million
``hits'' on our website in fiscal year 2003.
The Board also has established partnerships with other
organizations such as the American Institute of Architects, the
National Association of ADA Coordinators, the Disability and Business
Technical Assistance Centers, and the Information Technology Technical
Assistance and Training Center (ITTATC) to disseminate information
about the Board's programs. The ITTATC, which is funded by the National
Institute on Disability and Rehabilitation Research, collaborates with
stakeholders to improve the awareness and availability of accessible
electronic and information technology and telecommunication products
and services and disseminates information, training, and technical
assistance. Many of the Board's guidelines and publications are
available through these organizations' on-line networks. The Board also
provides training for these organizations. The Board's long-range goal
is to be known as the leading source of information about accessibility
and to disseminate information to our customers in effective ways. As
we revise the guidelines for the Americans with Disabilities Act and
the Architectural Barriers Act and develop guidelines for new areas
such as outdoor developed areas, passenger vessels, and public rights-
of-ways, there will be increased demands for technical assistance from
existing and new customer groups. There also will be opportunities to
use existing partnerships and establish new partnerships with customer
groups to disseminate information about the Board's guidelines and
standards.
Fiscal Year 2003 Results--Leading Source of Information
As a result of our expertise in accessibility issues, many
government agencies and private organizations ask for our assistance in
ensuring access at their facilities. During fiscal year 2003, we met
with staff from the General Services Administration (GSA) on the design
of a new courthouse annex in Washington, DC and plans for a new
courthouse in Eugene, OR and we visited an existing courthouse in Upper
Marlboro, MD with GSA staff. We also reviewed accessibility issues for
the planned new Department of Transportation headquarters building.
Many foreign government agencies also ask for our assistance in
promoting access in their countries. In fiscal year 2003, we met with
the Chairman of the Disability Rights Commission from the United
Kingdom. The Disability Rights Commission helps implement the
Disability Discrimination Act of 1995. We also met with a researcher
from Sweden regarding accessible design and provided information on
model building codes and met with Japanese researchers regarding
Japanese initiatives on ``talking signs'' and detectable warnings. We
also met with an Australian company representative to provide feedback
on a new pocket Braille writer and with staff from the Royal National
Institute for the Blind (England) to discuss United States and European
cooperation on accessibility standards for information technology. We
also hosted an architect from Portugal who is in the United States
through the Fulbright Visiting Scholar Program. Recognizing the
international interest in access to information technology, we recently
posted translations of the section 508 standards in Spanish and
Japanese on our website.
Each year the Board meets outside of Washington, DC to encourage a
more direct and open dialogue with members of the public about
accessibility and the work of the Board. These visits outside the
Washington beltway substitute for one of the Board's regular meetings,
which are held every other month in the Washington, DC area. In
September 2003, the Board held a meeting in Seattle, WA. During its
stay in Seattle, the Board explored accessibility as it pertains to
information technology and outdoor environments such as parks and
trails. In a visit to Microsoft headquarters, the Board was briefed by
representatives from Microsoft, Hewlett Packard, Cingular Wireless, and
NCR Corporation on industry efforts to improve access to information
technology. Presentations included information on how accessibility is
mainstreamed into operating systems, other software, hardware and
telecommunications products and services. The Board also toured several
area parks to learn more about ways of providing access to campgrounds,
picnic areas, trails, and other outdoor sites.
The Board also held public meetings in Seattle and New Orleans to
gather information and input on viable access solutions that will allow
persons with disabilities independent access onto and off of large
vessels such as cruise ships, dinner boats, ferries, and gaming boats.
Over 150 vessel designers and operators, pier operators, persons with
disabilities, and others attended the meeting. In advance of the
meetings, the Board toured vessels and boarding facilities at area
ports.
Digital wireless phones present significant compatibility and
interference problems for people who use hearing aids and cochlear
implants. The Board assumed a lead role in organizing a conference on
the subject held in September 2003 at Gallaudet University in
Washington, DC. Sponsored by the Interagency Committee on Disability
Research (ICDR), the ``Summit on Interference to Hearing Technologies
by Digital Wireless Telephones'' explored compatibility issues and
potential solutions. Digital wireless phones, unlike analog wireless
phones, can emit interference caused by radio frequency from the
antenna and magnetic interference from the battery leads and other
electronic components. Noises resulting from such interference, which
were simulated at the conference, make them virtually unusable by
people who use hearing technologies. Participants included
representatives from the digital wireless phone and hearing
technologies industries, disability organizations, research centers,
and Federal agencies such as the Federal Communications Commission
(FCC) and the Food and Drug Administration (FDA).
In fiscal year 2003, the Board responded to 12,193 customer
inquiries; distributed 1,673 information packets; and conducted 90
training sessions which were attended by 8,414 people. An information
packet usually contains several publications. Since we do not collect
data on publications disseminated through partner organizations, the
actual number of publications disseminated to our customers is greater
than our current data indicate. Technical assistance, research, and
training projects funded in fiscal year 2003 include:
--Recreation Technical Assistance with the Marina Operators
Association of America. This project will develop technical
assistance and training materials and conduct training sessions
for marina operators on the requirements of the new guidelines
for marinas and boating facilities.
--Maintenance and Weatherability of Detectable Warnings with the
Transportation Research Board. The Board has contributed to a
larger project funded by several transportation industry
organizations to collect and report on detectable warnings
testing undertaken by several State departments of
transportation. The Board will be a member of the project
advisory committee.
--Curb Ramp Directionality Workshop with the Institute of
Transportation Engineers. This project will bring together
highway engineers, orientation and mobility specialists, and
consumers in a 2-day workshop to consider possible changes to
roadway design that can facilitate wayfinding.
--Passenger Vessels Coaming Research with the Volpe Transportation
Research Center. This project will investigate current and
possible approaches to shipboard coaming treatments for
accessibility.
We use existing partnerships with organizations and will be
establishing new partnerships to develop training and technical
assistance materials. We have used our website to provide copies of the
Board's guidelines and answers to frequently asked questions about the
guidelines so that more customers can get the information they need.
The number of user sessions on our website continues to grow. There
were approximately 1,423,465 user sessions in fiscal year 2003, nearly
200,000 more than the previous year. Due to the increasing use of the
Board's website, we are focusing on web-based dissemination of
information since this allows a variety of options for speedy
distribution at a low cost to the Board. We also published and
distributed six issues of Access Currents, a free newsletter the Board
issues every other month by mail and e-mail. In addition, we responded
to press inquiries from:
--National and syndicated newspapers, magazines and radio and
television shows such as: Houston Chronicle; Los Angeles Times;
and the Washington Post.
--Government related newspapers and journals including: Government
Computer News and Federal Computer Week.
--Disability related newsletters including: Report on Disability
Programs and the Disability Compliance Bulletin.
--Trade association periodicals such as: Transit Access Report; Land
Development Today magazine; Buildings Magazine; States News
Service; and the International Council of Cruise Lines
newsletter.
--Local newspapers, television, and radio stations such as: Orange
County Register; Nashville City Paper; Daily Times (Merryville,
TN); Canyon Current (Canyon City, CO); El Nuevo Dia (The New
Day), a newspaper in Puerto Rico; and the Daily Camera
(Boulder, CO newspaper).
We also wrote an article on section 508 for Telecommunications for
the Deaf, Inc. (TDI) and developed an article on the Board's section
508 standards for the Information Technology and Disabilities Journal,
a new, quarterly electronic journal.
We added to our growing inventory of technical assistance materials
by creating new brochures on the Board and the Architectural Barriers
Act. We also posted several new documents on the Board's website,
including a research report on play surfaces, a new report on audible
pedestrian signal products and their interface with traffic signal
controllers, and a summary on ADAAG's detectable warning requirements.
We also updated the on-line version of ADAAG including the requirements
for children's elements, prisons and courtrooms, play areas, and
recreation facilities into one integrated document.
Last September, the Board issued new guidelines that address access
to various types of recreation facilities covered by the ADA. These
guidelines, which supplement the Board's ADA Accessibility Guidelines,
specify access to amusement rides, boating facilities, fishing piers
and platforms, golf courses, miniature golf courses, sports facilities,
and swimming pools, wading pools, and spas. The guidelines are one of
the first of their kind in detailing access to these environments. To
help users become familiar with the Board's new recreation facility
guidelines, including the meaning and intent of specific provisions, we
developed seven supplementary guides on each of the facility types
covered. The guides summarize and explain requirements for each
facility type.
Fiscal Year 2004 Plans--Leading Source of Information
The upcoming publication of the new ADA and ABA Accessibility
Guidelines offers a timely opportunity to develop and implement an
accessible web-based technical assistance and training strategy to
augment current Board publications. Completion of the revised and
reformatted ADA and ABA Accessibility Guidelines will necessitate a
review of the Board's many technical assistance manuals and
publications. Many documents will need revision; others may no longer
be required, and some new publications may be indicated.
The redesign of our agency graphic identity has provided us with a
coordinated range of new templates for the layout of reports,
bulletins, our internet presence, and other print and electronic
materials. We developed this new and more appropriate graphic
expression, including both logo and text, for our family of print
materials. We did this to reflect the Board's professionalism and to
communicate that we are the only Federal agency devoted to
accessibility in the built environment and in communications and
electronic technologies.
Also, in a few years we will be largely finished with our planned
rulemaking activities. It is an opportune time to share our
accomplishments and insights with the rest of the world and encourage
them to look at some of the access issues we have explored such as
access to electronic and information technology, playgrounds, and
recreation facilities. To do this will require that our documents
become available in other languages. In fiscal year 2004, we will
redesign most of our publications as well as our website using the
Board's new graphic identity and will translate the ADA and ABA
Accessibility Guidelines into other languages.
Fiscal Year 2005 Objectives--Leading Source of Information
In fiscal year 2005 and beyond, we will develop training and
information materials on our planned final rules on outdoor developed
areas, access to passenger vessels, and access to public rights-of-
ways. As we publish final rules, we make every effort to ensure that
training and technical assistance materials will be available to
organizations and individuals that must apply the new requirements.
Additionally, we plan to further our outreach activities to foreign
government agencies who ask for our assistance in promoting access in
their countries. In recent years we have hosted numerous delegations
from other countries who are interested in learning more about our
experiences with the Americans with Disabilities Act and other laws, as
well as to discuss general accessibility issues. We plan to share our
accomplishments and insights with the rest of the world by translating
many more of our documents and guidelines into other languages and by
looking for opportunities to work collaboratively with international
entities on accessibility issues. With this new material we can more
effectively encourage others to look at some of the unique access
issues we have addressed.
ARCHITECTURAL BARRIERS ACT COMPLIANCE AND ENFORCEMENT
The Board enforces the Architectural Barriers Act (ABA), which
requires that most buildings designed, constructed, altered, or leased
by the Federal Government and certain other Federally financed
facilities be accessible to people with disabilities. Complaints
received by the Board concern post offices, national parks, military
facilities, veterans hospitals, subway stations, and a variety of other
facilities. When the Board has jurisdiction and finds that the
applicable accessibility standards were not followed, we request a
corrective action plan and monitor the case until the barrier is
removed. Even when the Board does not have jurisdiction or no violation
is found, we attempt to negotiate voluntary barrier removal.
The Board's long-range goal is to work in partnership with Federal
agencies and others to make the Federal Government a model of
compliance with accessibility standards. The Board's experience with
resolving complaints is that most violations are not intentional. When
violations are found, it is usually because the people responsible for
designing buildings, reviewing plans, and on-site construction did not
have a good understanding of the accessibility standards and how to
apply them. People responsible for building planning and design at
headquarters, regional and field offices, and local sites must have a
working knowledge of the accessibility standards if compliance is to be
achieved. As Federal agencies are reorganized and personnel assignments
and responsibilities change, it is important that agencies have
effective systems for training new people responsible for applying the
accessibility standards and for monitoring compliance with the
Architectural Barriers Act. Training will be even more important when
the accessibility guidelines and standards for the Architectural
Barriers Act are revised.
Fiscal Year 2003 Results--ABA Compliance
In fiscal year 2003, the Board received 140 written complaints.
These included complaints investigated under the Architectural Barriers
Act, and also those concerning facilities not covered by that law but
potentially covered by other laws, such as the Americans with
Disabilities Act and the Rehabilitation Act. Of the 140 complaints, we
opened 83 as new Architectural Barriers Act cases. Although the Board
did not have authority under the Architectural Barriers Act in the
other 57 complaints, we responded to the complainants, usually by
referring them to the appropriate enforcement agency. In addition, we
referred another 37 complainants to other agencies for action when our
investigations revealed there was no violation of the Architectural
Barriers Act or we did not have jurisdiction. The Board receives many
comments from its customers, indicating they are pleased that we make
this extra effort to ensure that their complaints are addressed. The
Board continued its high rate of successful complaint resolution in
fiscal year 2003. Of those cases closed where the Board had
jurisdiction and a violation of applicable standards was found, 100
percent resulted in the successful removal of barriers. Additionally,
in those instances where the Board did not have jurisdiction over the
facility or no violation was found, we negotiated voluntary barrier
removal in 21 percent of the cases.
The Board responds quickly to all new complaints and contacts
complainants frequently to update them on the status of their
complaints. In fiscal year 2003, the Board sent initial letters to
complainants acknowledging receipt of their complaint or began an
investigation of the issues they raised within an average of 4 days.
The Board's customers regularly say they are pleased to hear from a
Federal agency so promptly. It is Board practice to keep complainants
informed on a regular basis throughout the course of our
investigations. In fiscal year 2003, we contacted 116 complainants to
provide updates on the status of their complaints.
Fiscal Year 2003 Results--Working in Partnership with Agencies
During fiscal year 2003 we continued ongoing actions under our
long-term goal of working in partnership with agencies and others to
make the Federal Government a model of compliance with accessibility
standards. Under our partnership with the National Institutes of Health
(NIH), we completed a series of training sessions on accessibility
requirements under the Americans with Disabilities Act Accessibility
Guidelines and the Uniform Federal Accessibility Standards.
We completed our partnership with the General Services
Administration (GSA) resulting in its development of a comprehensive
desk guide of GSA policies and procedures regarding accessibility for
use by GSA personnel to assist in implementing its National
Accessibility Program. We also continued working in partnership with
the Smithsonian Institution, Kennedy Center, and Library of Congress to
develop a resource tool that organizations can use as guidance in
evaluating and improving their emergency evacuation plans for persons
with disabilities.
Fiscal Year 2004 Plans--ABA Compliance
In fiscal year 2004, the Board will continue to investigate
complaints under the Architectural Barriers Act. At the beginning of
fiscal year 2004, the Board had 104 active cases. We expect to receive
145 new complaints in fiscal year 2004. Of this total, we estimate that
85 will be opened as new Architectural Barriers Act cases and 60 will
be referred to other agencies for enforcement under other laws, such as
the Americans with Disabilities Act and the Rehabilitation Act. The
Board anticipates responding to complaints in an average of 3 or fewer
business days and will continue to provide periodic updates to
complainants on the status of their complaints. We also will evaluate
and refine our electronic complaint-filing system and the compliance
and enforcement information presented on our website.
Fiscal Year 2004 Plans--Working in Partnership with Agencies
In fiscal year 2004, we will continue working with agencies to
assist in development of ways to assess and improve plans for emergency
evacuation of persons with disabilities. We will continue efforts to
learn about plans or actions being developed by the standard-setting
agencies with regard to implementation of the new ABA standards.
Fiscal Year 2005 Objectives--ABA Compliance
In fiscal year 2005, the Board will continue to investigate
complaints under the Architectural Barriers Act. We estimate that we
will have 105 active cases at the beginning of fiscal year 2005 and
will receive 145 new complaints. We expect to open 85 new Architectural
Barriers Act cases and refer 60 complaints to other agencies for
enforcement under other laws. We will continue to provide good customer
service.
Fiscal Year 2005 Objectives--Working in Partnership with Agencies
Once new ABA standards are issued by the standard-setting agencies,
our objective will be to work with the agencies on the development of
web-based training or other interactive methods to ensure their
effective implementation. In addition, we will continue our efforts to
work with agencies to identify and publicize best practices for
ensuring ABA compliance.
______
OFFICE OF PERSONNEL MANAGEMENT
Prepared Statement of Kay Coles James, Director
Mr. Chairman and members of the subcommittee, I am pleased to have
this opportunity to submit for the record a statement discussing the
appropriations request for the Office of Personnel Management (OPM) for
fiscal year 2005 and the relationship between that request and the
implementation of the President's Management Agenda and other critical
administration initiatives.
Before reviewing the President's request for appropriations for
OPM, I would like to provide some context by outlining briefly the
significant strides we have made and the tremendous challenges we face.
Consistent with our objective of shaping a Federal workforce that
honors the President's commitment to the taxpayers for citizen-
centered, results-oriented, market-based government, we have made the
President's Management Agenda the cornerstone of our corporate
management. We are proud to note that the Office of Management and
Budget cited us as one of the two most improved agencies, based on our
rating on the Executive Branch management scorecard. Our employees have
embraced the agenda and work as a team to identify and solve management
problems. Since September of 2002, under the competitive sourcing
initiative, OPM employees have aggressively competed and won all 11
competitions undertaken.
Given the government-wide nature of our responsibilities, we have
focused on improving the strategic management of human capital in all
agencies in many ways. We have analyzed the human capital efforts of
agencies and shared our insights and guidance by providing agencies
with workshops, tools, and information on specific human capital
topics.
Perhaps our most groundbreaking achievement was our joint effort
with the new Department of Homeland Security (DHS) in creating a human
resources management (HRM) system that provides the flexibility to
manage more than 180,000 employees in a manner consistent with the
unique mission requirements of that Department. The pioneering
development of such a system through a joint regulatory process was
unique. The collaborative and inclusive nature of the process involved
employees, managers, the Department's largest labor unions, and a broad
array of stakeholders and experts from the Federal sector and private
industry. Currently, we are reviewing the many comments submitted in
response to the publication of draft regulations on February 20, 2004.
In addition, in conjunction with DHS and other agencies, OPM
assisted Federal employees with safety planning, both at work and at
home. Our efforts involved producing a series of publications to
educate Federal workers and their families on dealing with emergency
situations and providing training for employees in both security and
emergency procedures. Further, we have conducted, for the past 2 years,
surveys on emergency planning in the agencies and have worked to
highlight areas of improvement to ensure better safety for employees.
Beyond DHS, OPM is now working in a total partnership, as
prescribed by law, for the standup of the new National Security
Personnel System at the Department of Defense (DOD). OPM and DOD are
pursuing a similar process to that used during the DHS process, with
joint agency staff teams, meetings with unions and stakeholders, and,
ultimately, joint signoff of implementing regulations by Secretary
Rumsfeld and me.
In fiscal year 2005, our appropriations request will build on those
achievements in several ways. First, it will help us to continue to
focus on the strategic use of human resources flexibilities tailored to
each agency's unique requirements.
Second, it will enable us to build the capacity to hold agencies
accountable for using tools effectively, as well as sustaining the core
values of Federal service. Third, OPM's budget request includes funding
for security and emergency action programs to support increased
outreach efforts designed to ensure the safety and security of the
Federal workforce. OPM's efforts are being conducted in conjunction
with the DHS and the General Services Administration.
A significant highlight of our request is the support for OPM to
continue our critical work as the managing partner for e-Government
projects. For example, our request for $6.615 million will allow us to
complete the Federal payroll enterprise architectural model and
recommend a technology solution to replace legacy systems following the
consolidation of payroll providers. We project that this investment
will help yield over $1 billion in cost savings and avoidance through
the project's life cycle. Also, with $3 million in base funding and
$3.9 million from our revolving fund, we will continue our recruitment
one-stop initiative to operate and enhance the USAJOBS Federal
employment information system, increasing usage and satisfaction for
Federal job seekers. Since launching new technology in August of 2003,
the USAJOBS website has been used by job seekers to log more than 53
million visits; and more than 483,000 new resumes have been created by
Americans interested in public service careers. Through the USAJOBS
website, this initiative is delivering to Federal agencies a greater
number of highly-qualified candidates in a more efficient and cost-
effective manner.
While the requests for other e-Government initiatives are somewhat
smaller, they are no less crucial. The $2 million requested for the
Enterprise Human Resources Integration effort will enhance the
capability of agencies to submit timely and accurate data
electronically to OPM's data warehouse. This data warehouse will help
improve decision making and policy development through comprehensive,
accurate, and efficient transfer of data, as well as by allowing
improved analytics. Additionally, with our requested $2 million in
salaries and expenses funding for e-Clearance, we will promote
reciprocity of security clearances among agencies. Expanding
reciprocity can save money and improve efficiency without adverse
consequences to security.
Our $800,000 request for the e-HRIS initiative will enable us to
research, plan, and develop a project plan to establish standardized
and integrated human resources information systems across the Federal
Government, and the $685,000 sought for e-training will facilitate the
transformation of the Go.Learn.gov site to a fully reimbursable
activity that increases economies of scale and, through shared
solutions, reduces duplicative investments.
In addition to the innovative approaches taken in our e-Government
initiatives, the establishment of the Human Capital Performance Fund is
a major step toward transforming Federal employment by creating a pay-
for-performance culture. This Fund is an important tool for use by
Federal agencies in rewarding high-performance employees. It points the
way toward greater emphasis on employee performance contributions to
mission accomplishment, rather than longevity. By requiring robust
performance management as a criterion for funding, it would also
provide an incentive for agencies to improve their performance
management systems and human capital strategies and align them more
closely with their missions and goals.
As you are aware, the establishment of this Fund has not affected
the operation of the General Schedule pay system itself. Individual
employees remain at their existing grades and steps and continue to
receive annual across-the-board pay adjustments, locality payments, and
periodic within-grade increases. However, if the request for $300
million for the Human Capital Performance Fund is granted, high-
performing employees will be rewarded with additional payments that
will be treated as basic pay for the purposes of retirement and other
benefits and will stay with the employees in the future.
OPM will administer the Fund to ensure that agency plans for the
distribution of payments from the fund are predicated strictly on
appropriately assessed employee and/or organizational performance.
Full funding of this request is essential to the progress of
meaningful pay reform for the benefit of dedicated employees,
critically challenged agencies, and taxpayers.
Of course, beyond the e-Government initiatives and the Human
Capital Performance Fund, OPM is requesting funding for the ongoing
operation of our transformed agency. Our focus will be to build the
government's capacity for human capital flexibility, accountability,
and national security. With the funding we have requested for our new
organizational framework--called Team OPM--we will concentrate on
developing strategic human resources flexibilities through approaches
tailored to each agency's unique requirements. We will also build the
capacity to hold agencies accountable for using tools effectively, as
well as sustaining the core values of Federal service. Also, as noted
earlier, we will devote additional resources to the support of
government-wide disaster and emergency action working groups.
Turning to our request for resources to support these priorities,
it is important to note that the total OPM fiscal year 2005 budget
request of slightly more than $35 billion, an increase of nearly $1.4
billion, includes appropriations that are 98 percent mandatory and only
2 percent discretionary.
OPM's general fund request for basic operating expenses totals
$131.3 million and covers 831 full-time equivalent (FTE) employees.
This includes $114.9 million in annual funds, $11.4 million in no-year
funds for the e-Government projects discussed earlier (excluding
recruitment one-stop), and $5 million in 2-year funds to coordinate and
conduct program evaluation and measurement.
The annual funds include an increase of slightly more than $3
million and 24 FTE to increase the human capital support to agencies,
to develop hiring solutions, to provide enhanced information technology
support, to conduct competitive sourcing studies, and to support
homeland security and emergency response needs.
With regard to the transfers from benefits trust funds, OPM is
requesting a total of nearly $128.5 million to support 1,151 FTE in the
administration of the employee retirement and insurance programs. This
includes more than $100.8 million in annual funds, representing an
increase of almost $2.2 million from fiscal year 2004. These resources
will be devoted to retirement benefits calculation, increased call
center support during peak season, telephone system upgrades, and
contract cost increases. The total also includes more than $27.6
million in no-year funds for the retirement systems modernization
effort.
It is important to note here that a significant portion of the
funding for the Office of the Inspector General in OPM is derived from
trust fund transfers, too. That request will be discussed in greater
detail by that office in a separate statement, but it should be
mentioned that the overall request totals $18.1 million dollars and 140
FTE. Of that total, $1.6 million would come from general funds, while
$16.5 million would represent transfers from the trust funds. Of
course, we strongly support the important work of Inspector General Pat
McFarland and his fine staff. OPM maintains an independent relationship
with the IG, but on issues of common concern, such as the maintenance
of employee and retiree confidence in the trust funds and the Combined
Federal Campaign, the teamwork and professionalism of the IG and his
staff are outstanding.
In addition to the 141 FTE financed by reimbursements from other
agencies for the provision of HRM technical assistance and from OPM
programs for the provision of agency-wide services, it is also worth
noting that OPM provides a variety of services that are financed by
payments from other agencies through our revolving fund.
For ongoing revolving fund programs, the fiscal year 2005 budget
includes slightly more than an estimated $1 billion in obligations and
2,601 FTE to be financed by payments from other agencies for OPM's
services.
These services include professional development and continuous
learning for Federal managers and executives; providing one-stop access
to high-quality e-training products and services; testing potential
military personnel for the Department of Defense in those locations
where it is cost-effective for OPM to do so; providing employment
information and assessment services; automating other agencies'
staffing systems; providing examining services when requested by an
agency; providing technical assistance and consulting services on all
facets of HRM; coordinating the selection and development of
Presidential Management Fellows; and, through contracts with private
companies, conducting suitability and security investigations.
As always, the OPM budget request includes mandatory appropriations
to fund the government contributions to the health benefits and life
insurance programs for Federal annuitants. This is because OPM serves
as the ``employing agency'' for these individuals relative to these
benefit programs.
Given the mandatory nature of these payments, we are requesting a
``such sums as may be necessary'' appropriation for each of these
accounts. We estimate that, for the 500,000 annuitants under age 65 who
elect post-retirement life insurance coverage and for whom we are
responsible, $35.0 million will be needed, while an appropriation of
about $8 billion will be required to pay the government's share of the
cost of health benefits coverage for the 1.9 million annuitants who
participate in that program. That represents an increase of $688
million over fiscal year 2004.
In addition, as mandated by the financing system established in
1969 by Public Law 91-93, liabilities resulting from changes
(principally pay raises) since that year which affect retirement
benefits must be amortized over a 30-year period. We are requesting a
``such sums as may be necessary'' payment to the Civil Service
Retirement and Disability Fund for that purpose. We estimate the amount
needed to be $26.4 billion, an increase of $402 million to cover this
service cost that is not funded by and for active employees under the
Civil Service Retirement System.
Finally, the President's budget for fiscal year 2005 proposes a pay
increase for white-collar workers of 1.5 percent, to be distributed
between an across-the-board raise and locality pay as determined by the
President later in the year. In addition, funding in the amount of 0.2
percent has been included in agency budgets for use in addressing
specific recruitment and retention needs. When combined with the basic
pay adjustment and the $300 million request for the Human Capital
Performance Fund, the overall amount available for a pay adjustment
amounts to 2.0 percent.
Once again, we have included in the government-wide general
provisions in the budget the appropriate legislative language to ensure
that blue-collar Federal employees receive pay adjustments up to the
amount received by their white-collar colleagues if warranted by local
private sector market rates.
Thank you for the opportunity to discuss OPM's request for the
record. I would be pleased to provide any additional information the
subcommittee may require.
______
Prepared Statement of Patrick E. McFarland, Inspector General
Mr. Chairman and members of the subcommittee, thank you for
providing me with this opportunity to discuss the President's fiscal
year 2005 request for appropriations for the Office of the Inspector
General (OIG). The total request for the Office of the Inspector
General is $18,088,000, which is an increase of $2,257,000 above the
amount appropriated in fiscal year 2004. Of this amount, $1,627,000 is
from the salaries and expenses/general fund, and $16,461,000 is from
the trust funds. The additional resources are requested to:
--Increase criminal investigative oversight of the Office of
Personnel Management (OPM) administered trust fund programs;
--Conduct audits of pharmacy benefit managers participating in the
Federal Employees Health Benefits Program (FEHBP);
--Expand the scope of audit for the largest community-rated health
maintenance carriers;
--Further develop computer assisted audit tools and techniques to
ensure effective audits of the FEHBP;
--Increase the number of health carrier information systems audits;
and
--Provide pre-award contract audit support.
The Office of the Inspector General recognizes that oversight of
the retirement and health and life insurance trust funds administered
by OPM is, and will remain, its most significant challenge. These trust
funds are among the largest held by the United States Government. Their
assets totaled $650.0 billion in fiscal year 2003, their revenue was
$78.2 billion, and their annual program and operating expenses were
$164.1 billion. The amounts of their balances are material to the
integrity of the government's financial position. I continue to
allocate the vast majority of the Office of the Inspector General's
efforts and resources to trust fund oversight, and we remain fully
committed to trust fund activities.
OPM makes outlays from the retirement trust funds in the form of
payments to millions of annuity recipients. The health insurance trust
fund provides payments to approximately 260 health insurance plans
nationwide. In turn, the health insurance carriers pay millions of
claims for services filed by their enrollees and health care providers.
We have shown through our investigations and audits that such health
insurance payments may be at risk through improper, inaccurate or
fraudulent claims.
We are obligated to Federal employees and annuitants to protect the
integrity of their earned benefits. Our audit and criminal
investigative work reduces losses due to fraud and otherwise improper
payments and recovers misspent funds whenever possible. We have a
special obligation to the Federal agencies and the American taxpayers
who provide the majority of the funding.
The Office of the Inspector General has achieved an impressive
record of cost effectiveness. Audits and criminal investigations of the
OPM administered trust fund programs have resulted in significant
financial recoveries to the trust funds and commitments by program
management to recover additional amounts. Since fiscal year 1992, these
recoveries and commitments have exceeded $1 billion which is
approximately $10 of positive financial impact for each direct program
dollar spent. In addition, we believe that Office of the Inspector
General audits and criminal investigations provide a significant
deterrent against future instances of fraud, waste, and abuse.
The Office of the Inspector General's fiscal year 2005 request
includes additional resources totaling $2.25 million. Of this amount,
$0.6 million will be used to increase criminal investigative oversight
of the Federal Employees Health Benefits Program and the Civil Service
Retirement/Federal Employees' Retirement programs.
These additional criminal investigative resources will be dedicated
to speed the handling of our current inventory of criminal
investigative cases and also increase our ability to handle the growing
number of referrals we have been receiving because of past success. As
a result of this additional oversight, we expect to increase the number
of arrests, indictments and convictions by approximately 60 percent, as
well as increase financial recoveries by $5 million for the trust funds
from criminal investigations. We are particularly concerned with the
extent to which health care fraud puts the health and safety of current
Federal employees, annuitants, their survivors, and eligible family
members at risk.
An additional $0.7 million will be used to conduct audits of
pharmacy benefit managers (PBMs). It is estimated that $6 billion will
be paid during 2004 in prescription drug premiums by the Office of
Personnel Management and Federal employees. This represents
approximately 26 percent of total premiums paid for health benefits
coverage for Federal employees and annuitants. The premiums paid for
prescription drug coverage have risen exponentially over the last 10
years. However, Federal prescription drug benefits have never been
audited because the FEHB Program historically has defined health care
providers and suppliers as other than Federal subcontractors. Since
health care providers and suppliers, including PBMs were not
subcontractors, they were not subject to our audits. In light of
increasing expenditures on prescriptions and allegations against PBMs,
the FEHB Program has amended its carrier contracts to define PBMs as
Federal subcontractors subject to our audits.
By performing these audits, we will help the FEHBP recover
inappropriate costs charged to it in previous years, negotiate more
favorable contracts, and positively affect the future costs and
benefits provided to program enrollees. Ultimately, these audits will
reduce health care costs while improving the quality of health care for
FEHBP enrollees.
An additional $0.5 million will be used to expand the scope of
audits for the largest community-rated health maintenance organization
carriers participating in the FEHBP. During fiscal year 2002, $4.9
billion of FEHBP premiums were paid to community-rated carriers. Of
this amount, $3.4 billion was paid to 25 carriers most of whom use some
sort of experience-based rating to set premiums. The additional
resources will enable us to expand the audit testing to include reviews
of this information to identify overpayments charged to the FEHB
Program which will result in increased financial recoveries to the
Program totaling approximately $5 million.
An additional $0.3 million will be used to increase the efforts of
our office's information systems audit program. The purpose of this
program is twofold: (1) to perform information systems audits of Office
of Personnel Management systems, including computer security, and (2)
to develop computer-assisted audit tools and techniques (CAAT) such as
computer claims analysis applications that our auditors use while
conducting carrier audits. These new computer-related resources will be
used primarily to increase the number of information systems audits we
conduct on providers participating in the FEHBP.
Also, we will further our development of a data warehouse of health
benefit claims. A data warehouse offers the best opportunity for
detecting erroneous health benefit payment transactions by medical
providers, insurance carriers and subscribers by accumulating all
benefit claims for all fee-for-service insurance carriers in a single
data repository. This effort will enhance our current claims reviews by
enabling the auditors to target certain types of potential claim
payment errors on a program-wide rather than on a plan-by-plan basis.
This will provide a significant improvement in our audit efficiency and
effectiveness by offering us the opportunity to address significant
issues one time only, instead of multiple times per year and to recover
overcharges to the program when appropriate.
The data warehouse will provide information enabling our criminal
investigative staff to react quickly to criminal investigative leads.
For example, the OIG investigators will be able to determine the
potential program risks associated with an identified provider or
subscriber fraud allegation, and take appropriate action in a matter of
hours instead of the days or weeks currently required.
The remaining $0.1 million increase will be used to obtain
technical expertise in the field of pre-award contract auditing. We
will perform audits of selected bid proposals before OPM enters into
large contracts with vendors.
I would also like to bring to your attention the significant
progress we have made in implementing Public Law 105-266, the Federal
Employees Health Care Protection Act of 1998. Final regulations
necessary to implement the financial sanctions authorities provided in
this legislation were published in the Federal Register in March 2004.
These financial sanctions, in the form of civil monetary penalties and
monetary assessments, provide OPM the ability to recover, through
administrative action, FEHBP funds lost to provider misconduct. In
addition, we believe they will serve as a deterrent against FEHBP
program violations.
Also, OPM is now using new suspension and debarment regulations
that went into effect during fiscal year 2003, to process actions. To
date over 3,400 debarments under the new authorities have been issued.
These new authorities are more efficient to administer and are designed
specifically to address health care provider integrity concerns within
the FEHBP. They have largely supplanted the previous regulations which,
although we have used them to issue over 24,000 debarments and
suspensions since 1993, are relatively inefficient to operate and,
since they were dependent on Medicare or other agency debarments, were
not tailored directly to the health, safety, and integrity issues that
are most significant in the FEHBP.
Thank you for this opportunity to present my resource request for
fiscal year 2005.
______
GENERAL SERVICES ADMINISTRATION
Public Buildings Service
Prepared Statement of F. Joseph Moravec, Commissioner
As Commissioner of the Public Buildings Service of the U.S. General
Services Administration, I am pleased to present a statement for the
record regarding our fiscal year 2005 budget request.
There are three primary programs within the Federal Buildings Fund
(FBF)--New Construction, Leasing, and Asset Management.
NEW CONSTRUCTION
We construct new buildings when our agency customers have a need
for specialized space. The majority of our newly constructed buildings
are courthouses, border stations, laboratories and highly specialized
facilities like the U.S. Mission to the United Nations and the National
Oceanic and Atmospheric Administration, (NOAA) Weather Satellite
control center. The courthouse construction program has a fewer number
of projects this year due to the large investment required to construct
the Los Angeles, CA Courthouse. This project is the No. 1 priority on
the Judiciary's 5-Year Plan, which reflects priorities approved by the
Judicial Conference.
As part of our performance-based budget, we have committed to
completing 85 percent of our new construction projects on schedule, and
within 1 percent of the original appropriation by fiscal year 2005. PBS
is undertaking many initiatives to keep projects on schedule and within
budget. Project status is being closely monitored throughout design and
construction to alert us to any emerging issues in a timely manner. For
projects over $25 million, evaluations are scheduled at 15 percent, 60
percent and 100 percent of the design process. In addition, a new
performance measurement tool has been developed and implemented. This
tool allows comparison of a project's construction schedule and outlays
to standards and reports variances for both measures.
LEASING
GSA has a total leased inventory of over 160 million square feet
located in 6,200 buildings across the United States and its
territories. Our leasing program is an important tool for managing our
portfolio because when clients' space requirements cannot be met with
available Federal space, we lease space from the private sector. This
program area has been undergoing significant expansion due to the
growth of Defense, law enforcement, and security-related agencies. The
decision to lease space is part of a coherent overall local Portfolio
Strategy. Our strategies to keep leasing costs at or below market
levels include comparing lease offers to comparable industry
benchmarks, using market surveys to comparison shop for best prices,
using published market sources to gain a better understanding of area
markets and partnering with the private sector for brokerage services.
We are very proud that our vacant space within our leased inventory is
1.4 percent. The top priority within the Leasing Program is
implementing the National Broker Contract. Analysis has indicated that
``no cost'' contracts and limited fee-based broker contracts will help
meet future capacity needs, lower leasing costs and provide a higher
level of customer service and satisfaction. GSA has taken the first
steps toward implementing this important initiative.
ASSET MANAGEMENT
Repairs and Alterations
Our inventory of owned buildings contains more than 100 million
square feet of space where the design and physical condition of the
space make it very difficult to meet modern day needs. This space
typically has inefficient energy systems, lacks the flexibility to
readily provide state-of-the-art information technology features to
occupants and--for those buildings constructed during the 1960's and
1970's--have exterior materials which have outlived their useful lives.
To address many of these issues we have instituted a portfolio
restructuring and reinvestment strategy that uses private sector
techniques to tier our owned properties, remediate those that can still
cost-effectively contribute to the overall financial strength of the
FBF, and reshape other parts of the portfolio to include disposal of
some properties. GSA measures the percentage of government-owned assets
with a Return on Equity greater than 6 percent to gauge progress in
this area. For each of the past several years, we have directed nearly
$1 billion toward the reinvestment in the modernization of our
inventory, with on-time, on-budget completion a program priority.
Within government owned space, the vacancy rate is 8.3 percent with 35
percent committed to tenants and 25 percent currently under
construction or alteration. That makes the amount of vacant available
space in the owned inventory 5.0 percent.
Operations
The most critical initiative affecting the Asset Management program
is the Human Capital Strategy. The Human Capital Strategy/Workforce
Transformation project is primarily driven by the following factors:
--An aging workforce and previous inability to replenish talent lost
through attrition;
--Customer demands for more complete real estate services; and
--Skills needed to focus PBS business priorities on customer
relationships.
PBS is currently engaged in implementing a comprehensive Human Capital
Strategy that will guide the recruiting, training, management and
deployment of our most important asset in the years ahead.
For GSA to meet our customers' expectations and remain cost
competitive with the private sector, we must maintain below-market
operating costs and reduce energy consumption, while simultaneously
maintaining a high level of customer satisfaction. Our strategy is to
leverage buying power through better planning, using national tools
like the Federal Supply Schedule, and holding contractors accountable
for performance. We must leverage our workforce via user-friendly
contracting vehicles, multi-regional operations/maintenance and energy
contracts, electronic data systems, contractual data sharing, workload
visibility, and national vendor alliance management and acquisition.
Because many operational services are readily available from the
private sector, and to obtain the best possible value for the taxpayer,
we are subjecting many of the activities we currently perform with in-
house staff to the rigorous analysis required by the A-76 process.
I am willing to answer any questions you or other members of the
subcommittee may have on the President's fiscal year 2005 budget
request for the General Services Administration.
______
GENERAL SERVICES ADMINISTRATION
Prepared Statement of Stephen A. Perry, Administrator
Mr. Chairman and members of the committee, the General Services
Administration (GSA) budget request for fiscal year 2005 reflects our
strong commitment to fulfilling our mission, which is: ``to help
Federal agencies better serve the public by offering, at best value,
superior workplaces, expert solutions, acquisition services and
management policies. All areas of GSA, including the Public Buildings
Service, the Federal Technology Service, the Federal Supply Service,
our Office of Governmentwide Policy and our Office of Citizen Services
are working together to efficiently and effectively meet the
requirements of our Federal agency customers and the public.
Americans demand that the Federal Government show results.
Accordingly, President Bush has challenged GSA and all Federal agencies
to improve performance through the use of good management practices as
outlined in the President's Management Agenda. In striving to achieve
improved performance results, Federal agencies often rely upon GSA to
provide the property management and acquisition services they need for
successful operation. Additionally, each Federal worker relies upon
GSA's assistance in creating a productive work environment by providing
the appropriate facilities, equipment, supplies and services they need.
GSA is committed to achieving our critically important mission in an
efficient and effective manner that yields best value for the American
taxpayer.
In the last few years, GSA has strengthened its Performance
Management Process to document customer-focused goals, action plans and
performance measures to enhance our achievement of high performance
results and accountability. Our fiscal year 2005 budget request will
provide the resources needed to achieve these high priority goals in
support of Federal agencies, including our support of the U.S.
Military, Homeland Security, the Judiciary and other law enforcement
and security related agencies.
As you know, GSA offers its core expertise in acquisition services
to Federal agencies on a ``non-mandatory'' basis. Therefore, agencies
can decide to devote their own resources directly to the acquisition
process or they can use GSA to provide this service. Where GSA provides
the most efficient and effective approach, agencies are increasingly
deciding to use GSA and thereby reducing the overall cost to the
government. Further, this enables the customer agency's personnel to
avoid duplication of effort and focus on their core missions. GSA
charges fees to cover its costs and most of GSA's resources come from
these customer payments. In fact, only a relatively small amount of GSA
resources, close to 1 percent of funding, is from direct
appropriations.
FISCAL YEAR 2005 BUDGET REQUEST
The total GSA budget for fiscal year 2005 budget is $24.3 billion.
This is a 3.0 percent increase over fiscal year 2004, representing
increased business in revolving funds (i.e., the General Supply Fund
and the Information Technology Fund). Approximately 1 percent, or $218
million, of this amount is for funding GSA's appropriated activities.
The volume of services that GSA provides to other Federal agencies
has increased each year because of our successful efforts to make GSA a
more timely and cost-effective source for property management and
acquisition services. At the same time, we have made process
improvements and significantly streamlined our organization. Our
employment level of 12,508 for fiscal year 2005 is 26 percent below the
fiscal year 1995 levels. Lower employment levels mean that only 5.0
percent, or $1.2 billon, of our budget is expended for salaries and
benefits and that 95 percent of GSA's funding is spent directly with
private sector firms for goods and services procured on behalf of
Federal agencies.
For fiscal year 2005, although our overall net request for budget
authority is down $225 million from fiscal year 2004, given the
increased income level there is a robust construction and repair and
alteration program. In addition, our request also funds modest spending
increases to support our E-Government component of the President's
Management Agenda. The fiscal year 2005 budget does not include a
request for an appropriation to the Federal Buildings Fund (FBF). The
FBF New Obligational Authority request is funded entirely from rent
revenue and other income to the Fund.
Public Buildings Service
GSA's Public Buildings Service (PBS) has reinvigorated the process
for carrying out its responsibility to maximize the value of GSA's
portfolio of government-owned buildings. The government-owned
facilities under GSA's stewardship represent a real estate portfolio
with a replacement value of approximately $34.7 billion. For fiscal
year 2005, we are requesting $7.2 billion in New Obligational Authority
(NOA) to spend available resources in the Federal Buildings Fund. Of
this amount, $980 million is for our Repairs and Alterations program.
One of GSA's biggest financial challenges is funding the large
backlog of deferred maintenance and repair work at its government-owned
facilities. To address this challenge, we have taken steps to transform
our owned portfolio into one comprised of well-maintained, modernized,
functional assets with positive cash flows. We have determined that in
order to better allocate our funds for capital investment, we must
redeploy our non-performing assets so that those properties that remain
in our portfolio will provide appropriate workplaces for Federal
workers.
PBS has begun to implement the policy of Executive Order 13327 on
Federal Real Property Asset Management. GSA already ``promotes the
efficient and economical use of America's real property assets.'' We
use asset management principles to allocate the limited resources of
the Federal Buildings Fund to address the backlog of Repairs and
Alterations projects. These asset management principles were applied to
develop our $980 million Repairs and Alterations program for fiscal
year 2005. The program includes:
--$394 million for basic (non-prospectus) Repairs and Alterations
--$473 million for prospectus Repairs and Alterations
--$50 million for design
--$13 million for chlorofluorocarbons program
--$30 million for energy conservation program
--$20 million for glass fragmentation retention program
There is $650 million for Construction and Acquisition of
Facilities in GSA's fiscal year 2005 budget request. It includes the
following projects:
--$381 million for construction for U.S. Courthouses in Los Angeles,
CA and El Paso, TX; and design of a U.S. Courthouse in San
Diego, CA
--$89 million for FDA Consolidation in Montgomery County, MD
--$14 million for FBI Facility in Los Angeles, CA
--$2 million for Southeast Federal Center Site Remediation,
Washington, DC
--$53 million to purchase 10 West Jackson Blvd., Chicago, IL
--$91 million for 12 Border Stations
--$10 million for non-prospectus construction and acquisition
--$10 million for repayment to the Judgment Fund
Government-owned space represents approximately half of our
inventory, however, today we are continuing to secure leased space to
meet general-purpose office and special space needs. For fiscal year
2005 we project adding 2.6 million rentable square feet of leased space
to our inventory. Under the Federal Buildings Fund operating programs,
the $3.7 billion budget for Rental of Space is based on projections of
known requirements such as (1) leases already in the inventory and the
scheduled cost increases associated with these leases and (2)
identified expansion and cancellation projects.
The $1.7 billion budget request for Building Operations funds
essential building services provided by PBS for facilities occupied by
our Federal Government customers, including cleaning, maintenance,
minor repairs, utilities, space management and other building services.
The following performance measures illustrate some of our
successes.
--Costs for leased space are 7.4 percent below the industry average.
--Operating costs are 14.8 percent below industry benchmarks.
--Energy consumption has been reduced by 19 percent from the fiscal
year 1985 baseline. PBS plans to reduce energy consumption by
an additional 11 percent by the end of fiscal year 2005.
--PBS has improved the percentage of Repairs and Alterations projects
completed on time from 75 percent in fiscal year 2001 to 78
percent in fiscal year 2003.
Electronic Government
Expanding the scope and level of the Federal electronic government
(E-Gov) program is a major focus of the President's Management Agenda.
Through E-Gov initiatives GSA is transforming the way information is
disseminated to the American people. By leveraging Internet
technologies, GSA is building a more citizen-centric and results-
oriented Federal Government. In support of E-Gov initiatives, our
budget request includes $23.4 million in Operating Appropriations for
select E-Gov initiatives led by GSA, $5 million for the E-Gov Fund, and
$40 million in the General Supply Fund for government-wide initiatives.
To provide much needed resources for E-Gov projects, GSA is
proposing a new general provision that would amend existing law to
permit the Administrator, after consulting with the Office of
Management and Budget, to retain surplus funds generated by the
operation of the General Supply Fund in an amount not to exceed $40
million in any given fiscal year and use those funds for E-Gov
initiatives. These funds would be used for government-wide E-Gov
projects for purposes authorized under the E-Gov Act of 2002 (Section
3604 of Title 44). The fiscal year 2005 budget anticipates $40 million
in funding from the GSA General Supply Fund.
GSA realizes that common solutions shared by agencies are
absolutely critical to the effective and secure operations of the
government. The $23.4 million requested in the fiscal year 2005 budget
will be used to provide standardized Federal approaches to electronic
government. GSA will provide a leadership role to customer agencies by
integrating key E-Gov initiatives into the daily business of
government. For example:
--USA Services, one of the President's E-Gov initiatives, is part of
GSA's Office of Citizen Services and Communications. USA
Services seeks to make government more citizen-centric by
providing a front door where citizens can get answers to their
questions about the Federal Government by phone, on line, by e-
mail, or by print publications. At the same time, USA Services
seeks to improve citizen customer service government-wide. We
are requesting $1.5 million to establish government-wide
standards in customer service, performance benchmarking, and
best practices for Federal contact centers responding to
citizen inquiries.
--A component of USA Services is the internet site FirstGov.gov, the
official web portal of the U.S. Government. We are requesting
$17.3 million, an increase of $3.7 million, to maintain and
enhance FirstGov.gov by further leveraging Internet technology
and by providing a highly secure environment. And by sharing
the FirstGov technology and infrastructure, we are helping the
government reduce costs. In fiscal year 2003, there were 580
Federal web sites using FirstGov.gov search services as their
primary search engine mechanism, equating to a savings of $21
million from avoiding the need to purchase search engine
software for each individual web site.
--GSA is playing a key role in setting standards for identity
management and electronic authentication. In order for the
Federal e-Government initiatives to be successful, the Office
of Governmentwide Policy is working towards establishing a
cross-agency governance structure and process for e-
Authentication and identity management in order to unify
Government systems. GSA is requesting $4.6 million to support
this effort, an increase of $0.57 million.
Another key E-Gov initiative led by GSA is e-Travel. In 2003, the
Office of Governmentwide Policy (OGP) and our partner agencies
established a standard booking engine as well as a consistent travel
and voucher system for the Federal Government. As the e-Travel service
becomes operational, management of the e-Travel contracts will transfer
from the Office of Governmentwide Policy (OGP) to the Federal Supply
Service (FSS) in fiscal year 2005. FSS will integrate e-Travel with
GSA's other travel service offerings. GSA will provide an additional
$9.9 million to this E-Gov project in fiscal year 2005 through the
General Supply Fund.
We believe these and other E-Gov initiatives are critical to
becoming a citizen-centric government. These projects provide
government-wide solutions to meet common needs across agencies, thus
eliminating redundancies and duplicate spending.
APPROPRIATION REQUEST
While only about 1 percent of the total proposed budget is funded
through direct appropriations, our Operating activities are a vitally
important part of GSA's total program. These funds support our Office
of Governmentwide Policy function, the Office of Citizen Services and
Communications, the E-Gov Fund, the Office of Inspector General, Former
Presidents, the Presidential Transition, and various other operating
programs. The $218 million requested is $15 million above fiscal year
2004 levels. Approximately half of this increase, $7.7 million, is for
Presidential transition.
Our request is shown by account in the following table:
THE FISCAL YEAR 2005 BUDGET IN SUMMARY
[In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
2003 Actual 2004 Current 2005 Request
----------------------------------------------------------------------------------------------------------------
TOTAL OBLIGATIONS
Operating Accounts (Appropriations)............................. $853,133 $206,550 $218,682
Federal Buildings Fund Direct (Including Appropriations)........ 6,546,606 7,100,494 7,313,195
Reimbursable Programs........................................... 1,245,899 1,014,798 1,155,694
Real Property Relocation........................................ .............. 6,050 6,000
General Supply Fund............................................. 4,066,351 4,896,773 5,130,708
Information Technology Fund..................................... 10,034,941 9,970,687 10,071,313
Working Capital Fund............................................ 316,914 347,877 357,698
Federal Citizen Information Center Fund (Reimb.)................ 2,650 3,901 4,353
Permanent Appropriations........................................ 15,928 29,493 34,926
-----------------------------------------------
Subtotal.................................................. 23,082,422 23,576,623 24,292,569
===============================================
REQUIRING APPROPRIATIONS ACTION
Operating Appropriations:
Office of Governmentwide Policy............................. 55,569 59,669 62,100
Operating Expenses, GSA..................................... 81,089 83,971 82,175
Electronic Government Fund.................................. 4,968 2,982 5,000
Election Reform Payments.................................... 650,000 0 0
Election Reform Reimbursements.............................. 14,903 0 0
Office of Inspector General................................. 37,270 38,938 42,351
Federal Citizen Information Center.......................... 13,356 13,917 14,907
Presidential Transition..................................... 0 0 7,700
Former Presidents........................................... 3,156 3,373 3,449
-----------------------------------------------
Subtotal Budget Authority/Appropriation................... 860,311 202,850 217,682
===============================================
Federal Buildings Fund New Obligational Authority:
Construction & Acquisition of Facilities.................... 734,868 745,314 650,223
Repairs and Alterations..................................... 985,009 1,002,997 980,222
Installment Acquisition Payments............................ 178,897 169,677 161,442
Rental of Space............................................. 3,381,265 3,551,032 3,672,315
Building Operations......................................... 1,546,514 1,608,064 1,709,522
-----------------------------------------------
Subtotal FBF New Obligational Authority................... 6,826,553 7,077,084 7,173,724
FBF Net Budget Authority.................................... 463,347 254,194 15,447
FBF Appropriations.......................................... 375,711 459,669 0
-----------------------------------------------
TOTAL, Transportation/Treasury Appropriation Action (BA/ 7,673,508 7,266,017 7,376,499
NOA).....................................................
===============================================
Budget Authority............................................ 1,310,302 443,127 218,222
Appropriations.............................................. 1,222,666 648,602 202,775
Total, VA/HUD Appropriations Action (BA): Federal Citizen 13,356 13,917 14,907
Information Center (Direct)....................................
----------------------------------------------------------------------------------------------------------------
Mr. Chairman, this concludes my formal statement, and I look
forward to continuing to discuss our fiscal year 2005 budget request
with you, members of the committee and your staff.
______
DEPARTMENT OF TRANSPORTATION
Federal Motor Carrier Safety Administration
Prepared Statement of Annette M. Sandberg, Administrator
OVERVIEW: SAFETY, SECURITY, PRODUCTIVITY
People depend on motor carriers for the safe, reliable, and
efficient movement of the goods they use everyday. The trucking
industry comprises almost 650,000 motor carriers operating in
interstate commerce and some 7.9 million large trucks. Trucks account
for most of the freight movement in our Nation's transportation system.
Approximately 80 percent (by value) of all domestic commodity movements
are carried by truck. The trucking industry also employs approximately
9.9 million people in jobs related to trucking activity, including
several million drivers. People rely on motor coaches for safe and
secure transportation. Commercial motor coaches traveled 2.4 billion
miles in 2001, carrying more than 500 million passengers. Clearly, both
the trucking and motor coach industries contribute to competitiveness
and a robust economy.
Mobility, as crucial as it is to our economic well-being, presents
significant hazards in terms of safety on our highways. Trucks and
buses share roadways with passenger vehicles and pedestrians. Over the
last several years, approximately 5,000 people have died annually in
crashes involving a truck. This is unacceptable. Truck transportation
of hazardous materials presents even greater potential safety
consequences. And, there is increasing recognition and appreciation
that there can be no safety without security. In most cases, there is a
close connection between safety and security, and strategies designed
to mitigate one often impact both.
FMCSA has defined five strategic goals linking to Department of
Transportation and national objectives, illustrated in Figure 1 below.
Among these, safety is FMCSA's primary mission. At the same time, the
agency looks to employ a coordinated strategy that balances the inter-
relationships between these missions and leverages solutions that
achieve the greatest overall public good.
The agency's $455 million request for fiscal year 2005 will fund
programs and activities supporting all five agency strategic goals.
Figure 2, below, illustrates the allocation of funds by agency
strategic goal in our fiscal year 2005 budget request.
CMV SAFETY
Safety is the capstone of this agency's strategic hierarchy. The
FMCSA safety vision is to develop and promote, in coordination with
other Departmental modes, data-driven, analysis-based, and innovative
programs to achieve continuous safety improvements in the Nation's
highway system, intermodal connections, and motor carrier operations.
Saving lives and reducing crashes involving trucks and motor coaches on
our highways is the agency's primary mission, and our fiscal year 2005
budget request allocates approximately 86 percent of the agency's
resources to 10 performance segments in support of this strategic goal.
Figures for 2002 show a reduction in truck-related fatalities of 4.2
percent from 2001, despite a projected increase in truck vehicle miles
traveled (TVMT). This decrease extends to five consecutive years (1998-
2002) the trend of improved commercial motor vehicle safety. We may be
beginning to realize the results of agency regulation and safety
interventions undertaken since the establishment of the agency in 1999,
enabling us to pursue with greater confidence our coordinated safety
strategy.
With the encouragement of Secretary Mineta, FHWA Administrator
Peters, NHTSA Administrator Runge, and I are coming together for
safety. Improving highway safety is an administration and national
goal. All highway fatalities are unacceptable. If we are to stem the
tide of this terrible loss of life on our Nation's highways we all must
play a role, combine our knowledge and expertise, and coordinate our
program delivery. My colleagues and I share the belief that our
programs are complementary rather than competing. So, FMCSA will work
together with FHWA and NHTSA to pool and focus our effort, energy, and
resources where they will have the greatest impact on safety. Our new
CMV safety goal, harmonized with the DOT Highway Safety performance
goal and FHWA and NHTSA measures, evinces our intermodal approach.
Encouragingly, FMCSA achieved its fatality rate performance target for
2002.
Enforcement is FMCSA's primary safety mitigation strategy and the
agency's core competency. Appropriately, it is the focus of the
greatest share of program resources. FMCSA conducts enforcement
operations and provides grants to support State enforcement efforts. To
the extent possible, we look to increasingly align Federal and State
enforcement operations in mutually-reinforcing ways. The effectiveness
of enforcement interventions in reducing crashes, fatalities, and
injuries is borne out by findings of the CR Impact Assessment Model and
the Roadside Inspection and Traffic Enforcement Intervention Model. We
propose to expand the toolbox of enforcement techniques, close
loopholes permitting unsafe practices, and improve our penalty
structure. We look to implement a balanced enforcement model--an
approach that balances and capitalizes on prevention (compliance
reviews, safety audits), deterrence (inspections, traffic enforcement),
and remediation (sanctions and penalties) interventions. New entrant
safety audits will broaden our enforcement regime.
Information is a high near-term priority. As a data-driven
organization, information is the essential backbone for all major FMCSA
operational and support programs and activities. To ensure our maximum
operational effectiveness and efficiency, we need to base our decisions
on the highest quality data possible and sound statistical analysis of
that data. A highlight for fiscal year 2005 will be issuing the results
of the Large Truck Crash Causation Study. Information initiatives are
addressed in the respective performance segments and the cross-cutting
Information Management proposal for fiscal year 2005 is attached as an
Appendix.
States play essential partnership roles in highway safety,
providing critical safety data and extending regulation and enforcement
reach. The Motor Carrier Safety Assistance Program, which provides
(MCSAP) grants to State highway safety authorities, is the primary
means we have of moving our goal of safety advocacy from focus to
action.
HM SAFETY
FMCSA authority extends to enforcing compliance with the Federal
Hazardous Materials Regulations (FHMRs) to provide adequate protection
against the risks to life and property inherent in the highway
transportation of hazardous materials in commerce. The agency's goal is
to reduce serious reportable hazardous materials incidents involving
trucks. This links to and supports the DOT hazardous materials
performance goal. Approximately 5 percent of the agency's fiscal year
2005 budget request is attributed to 3 performance segments
contributing to achievement of this goal. A priority initiative is the
institution of a grant program to extend safety inspection by States of
HM carriers crossing the borders.
HM SECURITY
Continued emphasis on commercial carrier, driver, vehicle, and
cargo security, and particularly hazardous materials operations is
required, supporting the DOT Security strategic goal and administration
priorities. Following the successful transfer of the Transportation
Security Administration (TSA) to the Department of Homeland Security,
FMCSA will continue to work in concert with TSA and other agencies to
establish the protocols ensuring the security of commercial motor
vehicle transportation. To this end, FMCSA has designated approximately
2 percent of the fiscal year 2005 budget request to two performance
segments aimed at heightening the awareness of hazardous materials
carriers to security threats.
CMV PRODUCTIVITY
The efficient movement of goods is a critical component of a
healthy economy. FMCSA's authority extends to ensuring compliance of
household goods carriers with the Federal Motor Carrier Commercial
Regulations (FMCCRs). Judging by complaints received on our hotline,
and more recently on the new website we have established for this
purpose, closer scrutiny of and attention to the responsibilities of
carriers and the rights of consumers is needed. Reducing the cycle time
for response to complaints is a priority. Our fiscal year 2005 budget
request includes approximately 1 percent for two performance segments
supporting CMV productivity and the integrity of goods movement. Our
aim is to provide informative and timely responses to all household
goods complaints and HHG Congressional inquiries. We will track our
progress toward accomplishment of this goal by the following two new
performance metrics: percent of HHG consumer complaints receiving an
initial response within 72 hours of the complaint, and percent of HHG
Congressional inquiries receiving an initial response within the DOT
time limit.
ORGANIZATIONAL EXCELLENCE
At the core of organizational excellence are our strategies for
developing, acquiring, and sustaining the components of capability to
perform our safety, security, and productivity missions: people,
information, and financial resources. The President's Management Agenda
(PMA) frames our agency efforts to ensure we put the right capability
in the right place, at the right time, and at the right cost. Our five
Organizational Excellence performance segments align with the PMA
initiatives. We aim to sharpen our resource effectiveness and have
allocated 6 percent of our fiscal year 2005 budget request in support
of these performance-accelerating strategies.
In addition to the PMA, we are increasingly integrating findings
and recommendations of the Government Accounting Office (GAO), DOT
Office of the Inspector General (OIG), and the National Transportation
Safety Board (NTSB) as integral components of our agency strategy and
operational guidance. Our activities supporting these recommendations
are addressed in our performance budget narrative. As a result of these
efforts, we are pleased to have closed numerous recommendations in
fiscal year 2002.
Strategic Management of Human Capital and Competitive Sourcing.--We
will soon complete our agency-wide competency survey, and the priority
objective will be the completion of the agency's Human Capital Plan.
The Human Capital Plan will provide baseline information about the
competencies of our workforce relative to our mission and performance
targets; projections of potential competency gaps; and strategies for
preventing those gaps. Competitive Sourcing is one approach in a
coordinated strategy for managing human capital effectively and
efficiently, along with hiring, learning and development, the use of
personnel flexibilities, restructuring and reorganization of work, and
contracting new work to result in best-value service to our customers.
Budget and Performance Integration and Financial and Procurement
Performance.--Our agency's initial performance budget effort 1 year ago
provided the framework for a more performance-based approach to
formulation of this year's request. Agency senior leadership met and
reviewed cross-cutting performance implications in the allocation of
program resources in this performance budget request for fiscal year
2005. To advance our resource-to-results linkage, we have integrated
our grant programs into our program logic, the better to track and
discern the contribution of complementary Federal and State program
efforts. We are also piloting FMCSA Division Administrator annual State
plans to further increase the linkage between Federal and State plans,
and to strengthen alignment with national goals. Our alignment and
attribution of resources by performance segment also supports our
advances in managerial cost accounting.
E-Government.--FMCSA is a data-driven and citizen-centered
organization. The agency looks to increasingly capitalize on
information and IT to streamline internal processes, and to increase
public accessibility to programs and information. Our e-Gov initiatives
include advances in e-grants, business compliance one-stop, e-
rulemaking, and others.
FMCSA ADMINISTRATOR'S IMPERATIVES
My priorities for fiscal year 2004-2005 include:
--Full implementation of the New Entrant Program as mandated by MCSIA
--Reauthorization of FMCSA safety programs
--Improved safety data to inform targeting of enforcement operations
--Reduction in the backlog of rulemakings
--Improving the credibility and integrity of the CDL program
--Improving cycle time for response to household goods complaints.
______
Bureau of Transportation Statistics
Prepared Statement of Richard Kowalewski, Deputy Director
Mr. Chairman, Ranking Member Murray, members of the subcommittee,
thank you for the opportunity to discuss the Bureau of Transportation
Statistics' fiscal year 2005 budget request.
The Bureau of Transportation Statistics (BTS) proudly joins other
agencies in our Federal statistical system to provide the unbiased data
that drive planning, projections, and policies at the Federal, State,
and local levels. Those decisions in turn determine the course of
countless business and civic initiatives that support our prosperity,
quality of life, and well-being as a Nation. In the transportation
arena, BTS is committed to helping ensure the health and growth of
efficient, safe, and environmentally sound infrastructure and
operations across the various transportation modes.
The availability and use of BTS data support each of Secretary
Mineta's Strategic Goals of safety, mobility, global connectivity,
environmental stewardship, security, and organizational excellence.
While our data are critical for decision making, they also provide an
important, unbiased report card. The success of government programs
cannot be simply proclaimed; it must be objectively measurable by the
people those programs serve. Thus, BTS plays a critical role at both
ends of the policymaking process: we fuel transportation decisions and
help provide critical performance benchmarks. Operating under the
strict guidelines that apply to any Federal statistical agency, and in
line with congressional intent in creating BTS, we do our work
objectively, free of bias toward any one mode of transportation.
RECENT ACCOMPLISHMENTS
BTS has accomplished much in the past year and has set its sights
on doing fewer things better in the budget year to come. Our fiscal
year 2005 budget request of $32.2 million from the Highway Trust Fund
reflects critical information needs and incorporates decisions we have
made internally to further the work that supports our mandate. In
addition, as authorized in the VISION 100 aviation legislation, we
propose that $4.045 million in reimbursable funding from the Airport
and Airway Trust Fund be used to cover direct costs of our air
transportation statistics program, which produces our most-requested
and closely watched data.
BTS's air transportation statistics program is relied upon for
decisions with far-reaching economic implications. Our data on
passenger enplanements drive the Federal Aviation Administration's
(FAA) distribution of Airport Improvement Grants, and our data on
flight delays and their causes help in FAA's decisions about
infrastructure and operational investments, as well as decisions by the
airlines and the traveling public. We have worked with Alaskan carriers
to improve the quality of the monthly traffic data that they report to
BTS and which the U.S. Postal Service uses to decide which carriers are
eligible to receive mail contracts for intra-Alaskan mail under the
Rural Service Improvement Act. We provided airline financial and
operating information for decisions on post-9/11 grants and loan
guarantees to passenger and freight carriers. Our aviation data assist
the Transportation Security Administration in decisions regarding the
allocation and deployment of resources across the country, and support
the Office of the Secretary in making decisions about service to
underserved communities and on international routes.
For more than 11 years, Congress also has turned to BTS for both
in-depth and quick turn-around answers, briefings, and visual
presentations of data. We have analyzed the impact of railroad
rationalization in the upper Great Plains, compared the costs of
highway and rail construction, and assessed the impact of international
trade on highway demands in our border States. We have prepared maps
showing structurally deficient and functionally obsolete bridges in
each State and congressional district so that members of Congress can
be better informed in setting priorities on infrastructure needs.
As the smallest of the Federal statistical agencies, BTS has always
worked hard to maximize available resources, matching the right
expertise to the job at hand and tuning our programs based on
customers' feedback. That feedback has helped us determine the most
effective approach in doing fewer things better.
In 1997, for example, we developed an innovative survey design that
allowed us to cut the size of the Commodity Flow Survey in half,
reducing its budgetary cost and burden on respondents, without
compromising data quality. Between 2001 and 2003 we replaced a 30-year-
old patchwork mainframe computer system that had been running our
aviation data programs and replaced it with a modern mid-tier computer
platform to increase our efficiency and the data's usability. Our work
in helping to develop, validate, and verify performance measures for
DOT contributed toward the high ranking of the Department's fiscal year
2003 performance report by the Mercatus Center of George Mason
University--DOT's performance report tied for number one in the Federal
Government.
BTS is working to improve its operations through initiatives of the
President's Management Agenda, and to reorganize our lines of business
to be simpler, more easily managed, and more results-oriented. As
envisioned in the Administration's Safe, Accountable, Flexible, and
Efficient Transportation Equity Act (SAFETEA) legislation and our
budget, BTS proposes to sharpen its focus around five core data
programs and two cross-cutting research programs. The core data
programs are freight, travel, transportation economics, air
transportation, and geographic information systems. The cross-cutting
programs assess overall transportation system performance and improved
statistical methods to address transportation-specific problems.
In the freight and travel areas, this past year saw the release by
BTS of the full datasets from our two major survey activities, the
National Household Travel Survey, collected in 2001-2002 with the
Federal Highway Administration (FHWA), and the Commodity Flow Survey,
collected in 2002 with the Census Bureau. Analysis of each of these
datasets will play a critical role in driving Federal, State, and local
transportation planning and investment for the next 5 to 10 years.
BTS is especially pleased to have unveiled two new economic indices
that for the first time provide a comprehensive picture of
transportation activity, help us to analyze its economic impact, and
provide better information on what passengers pay for airline service:
--The monthly Transportation Services Index (TSI) measures outputs in
the for-hire movement of freight and people and is a new
leading economic indicator, better clarifying our understanding
of transportation's relationship to the economy.
--The quarterly Air Travel Price Index (ATPI) illustrates the rate of
national and local market fluctuations in the price of air
travel. The ATPI yields greater understanding of the cause and
effect relationship between airline industry market decisions,
external market factors, and the affordability of travel.
These indices provide new insight into interrelationships and
potential macro-economic impacts of changes in transportation activity.
This, in turn, helps economists better anticipate turning points in our
Nation's economy. We are also working, consistent with the late Senator
Moynihan's original vision for BTS, on improving our measures of the
productivity of the Nation's transportation sector.
In fiscal year 2004, BTS also released an innovative product called
GeoFreight, an intermodal freight planning tool on CD-ROM that
graphically displays the geographic relationship between freight
movements and infrastructure. Developed jointly with FHWA, the tool was
designed to aid the planning of State and local governments and augment
their ability to anticipate demands on capacity.
Our work on improved statistical methods has led to the adoption of
a new method to protect the confidentiality of statistical data that
responds to customer demands to make more data available while
preventing the disclosure of confidential data. We also led the
development of Information and Dissemination Quality Guidelines for the
Department, as required by recent data quality legislation.
We have also worked at increasing the accessibility of our data.
Our Web-based data platform, TranStats, has won several awards as an
exemplary e-government initiative, including the Industry Advisory
Council/Federal CIO Council Excellence.Gov Award (Top 5 Winner), the
Sun/Computerworld iForce Excellence Award for Business Intelligence,
and the Computerworld Honors Program Award. Along with our other web-
based information services, we serve an estimated 3.7 million users per
year, allowing users to analyze data on-line and access electronic
copies of the documents of the National Transportation Library.
CHALLENGES THAT REMAIN
While BTS has made good progress in many areas of our statistical
programs, challenges remain that need to be addressed to improve BTS's
performance, such as BTS's freight flow data for imports and exports,
geolocation data on the Nation's transportation network, and exposure
data for general aviation operations.
Recently, the Transportation Research Board has called upon BTS to
fill gaps in our freight data program. The modest budget increase we
have requested for fiscal year 2005, along with our refocusing of
effort on core programs, will allow us to increase sample sixes on our
key freight and travel data, improving the quality of data available to
our users.
BTS has much to accomplish at a time when our Nation has a new
level of interest in and understanding of how the interconnectedness of
our transportation system affects global competitiveness and national
security. We need to develop a more timely and complete understanding
of freight flows, as our economy moves increasingly to a just-in-time
rhythm. We need a more comprehensive overview of our Nation's mobility
and connectivity by collecting data that link transit trips, passenger
terminal information, highway usage and capacity, and levels of
commercial service. We also need improved highway safety exposure data,
allowing improved analysis of the area where most of our transportation
deaths occur. Possession of these data would reveal areas of economic
opportunity, help us set our course more precisely, and help us to
better predict the potential transportation impacts of terrorist
attacks.
We look forward to working with the committee to meet the Nation's
needs for reliable, accurate transportation data, so that our
policymaking can be well-informed and our transportation planning can
make accurate assessments of the Nation's transportation needs. We will
continue to seek out innovative data collection strategies that provide
better data quality at lower cost.
______
Research and Special Programs Administration
Prepared Statement of Samuel G. Bonasso, Deputy Administrator
Chairman Shelby, Ranking Member Murray, and members of the
committee, on behalf of the Research and Special Programs
Administration (RSPA), thank you for the opportunity to address the
important safety, environmental and other performance goals supported
by the President's fiscal year 2005 funding request for RSPA. With the
active participation of our State, local, private sector and university
partners, RSPA has made significant advances in meeting our performance
goals, and we are looking forward to working with the members of this
committee and with the Congress in continuing to reduce deaths,
injuries, property damage and economic consequences resulting from
hazardous materials, pipeline, and other transportation incidents.
Working together, we need to develop and implement the programs and
systems America needs to meet the important transportation safety
challenges facing the Nation.
Effective fulfillment of RSPA's safety responsibilities is critical
to both the transportation and economic needs of the Nation.
Approximately 28 percent of America's freight ton-miles involve
transportation of hazardous materials, regulated by RSPA. The safe and
secure movement of hazardous materials is fundamental to America's
economy and industry, delivering much of the petroleum products and raw
materials that fuel American business. Hazardous materials are also
fundamental to everyday personal needs--for example, chlorine treats
our water, making it safe to drink; anhydrous ammonia fertilizes our
fields, allowing America to feed our Nation and some of the world. The
volume of hazardous materials regulated by RSPA is substantial:
--The Office of Pipeline Safety regulates 2.3 million miles of
pipeline that move 63 percent of America's consumed energy--
they are literally the arteries of our way of life. On a ton-
mile basis, pipelines carry 21 percent of the Nation's freight.
--The Office of Hazardous Materials Safety regulates over 800,000
daily shipments of hazardous materials--working with all modes
of transportation on packaging and handling to help assure safe
movement through America's transportation system. Hazardous
materials outside of pipelines account for 7 percent of the
freight ton-miles transported annually in the United States.
--The Transportation Safety Institute conducts cutting-edge training
in hazardous materials safety, as well as safety, security and
environmental stewardship training in all modes of
transportation for State and local first responders, public and
private sector engineers, inspectors, and other employees.
Equally important to the efficient operation of America's
transportation systems are RSPA's emergency transportation and research
activities. Through RSPA:
--The Office of Emergency Transportation manages the DOT Crisis
Management Center, a 24/7 operations center to track and
respond to natural and human-caused transportation incidents;
and coordinates continuity of operations and emergency
transportation planning for all Department of Transportation's
(DOT) operating administrations and in direct coordination with
all other Federal departments.
--The Office of Innovation, Research and Education leads DOT's
involvement in the President's Hydrogen Fuel Initiative,
coordinating with all DOT administrations, the Department of
Energy and other Federal agencies in conducting research and
development and standards-setting activities to ensure the
safety of hydrogen-fueled vehicles and the infrastructure to
support them.
--The Office of Innovation, Research and Education manages 26
University Transportation Centers that conduct research in all
areas of transportation engineering and management, advancing
the state of the practice and preparing students to be the
transportation systems leaders of tomorrow.
--The Volpe National Transportation Systems Center provides technical
systems expertise to all DOT agencies and non-DOT clients in
all areas of transportation systems, including safety, homeland
and national security, mobility, environmental stewardship,
systems engineering, navigation, operator performance, and
economic analysis.
Implicit in all of these regulatory, technical, research and
training activities supporting safety is a significant concern for
national and homeland security. Our overall focus on safety supports
administration and Congressional goals for improving transportation
security. All of RSPA's offices work closely with the Department of
Homeland Security to ensure that our program activities keep security
as an important focus, an integral part of providing safe
transportation systems.
RSPA's budget is performance-based, keyed to DOT's six strategic
goals, rather than to specific ``budget line activities.'' RSPA strives
to deliver the results that Congress expects in all six DOT strategic
areas:
--Safety.--Enhancing public health and safety by working toward
elimination of transportation-related deaths and injuries.
--Mobility.--Advancing accessible, efficient intermodal
transportation for the movement of people and goods.
--Global Connectivity.--Facilitating a more efficient domestic and
global transportation system that enables economic growth and
development.
--Environmental Stewardship.--Promoting transportation solutions that
enhance communities and protect the natural and built
environment.
--Security.--Balancing homeland and national security transportation
requirements with the mobility needs of the Nation for personal
travel and commerce.
--Organizational Excellence.--Advancing the Department's ability to
manage for results and achieve the goals of the President's
Management Agenda.
The President's total budget request for RSPA in fiscal year 2005
is $137.3 million, an increase of $11.7 million (9.0 percent) over the
fiscal year 2004 enacted level. Seventy-five percent of the President's
fiscal year 2005 budget request for RSPA is dedicated towards achieving
results supporting the DOT safety strategic goal. Another 16 percent
supports the environmental stewardship strategic goal, reducing
environmental damage from pipeline incidents, with the remaining 9
percent supporting the other goals. The additional resources requested
will primarily support efforts to reduce hazardous materials incidents
and to advance preparation for emergency transportation response.
RSPA sets performance goals to implement the DOT strategic goals.
Some of those goals, and the funding requested to achieve them,
include:
--Safety.--RSPA requests $103.3 million, an increase of $7.6 million,
to meet our three critical safety performance goals:
--Reduce deaths, injuries, property damage and economic
consequences resulting from hazardous materials
transportation incidents.
--Reduce death, injuries, and property damage resulting from
pipeline incidents.
--Promote the safe transport of hydrogen fuels and fuel systems so
that alternative fuel vehicles can be developed as a safe
alternative to petroleum-fueled vehicles.
--Mobility/Security.--RSPA requests $5.7 million, an increase of $2.0
million, in order to prepare our Nation's transportation
system--in advance--to aid people and property harmed by
natural and terrorist disasters.
--Environmental Stewardship.--RSPA requests $22.5 million, an
increase of $1.7 million, to reduce the amount of oil or other
hazardous liquids released from pipeline systems.
--Organizational Excellence.--RSPA requests $5.9 million, an increase
of $0.4 million, in order to improve our operating efficiencies
in all programmatic areas.
RSPA is achieving results in all of our critical areas, and is
committed to continuing improvements in transportation safety. For
example:
--The number of serious hazardous materials incidents in
transportation has dropped by 18.5 percent since 2000.
--RSPA's Office of Pipeline Safety has addressed most of a 12-year
backlog of outstanding Congressional mandates and
recommendations from oversight agencies.
--RSPA is ensuring that pipelines are tested and repaired according
to higher integrity management standards, and RSPA is working
with our Federal partners to expedite the repair permits.
--Hazardous liquid pipeline incidents have decreased by 28 percent
and the volume of oil spilled has been significantly reduced.
--Third party excavation accidents have decreased by 59 percent over
the past 10 years, even while housing starts were on the rise,
which brings construction risk near pipelines by encroachment
on rights-of-way.
--RSPA's Transportation Capability Assessment for Readiness (TCAR)
scores continue to improve annually.
--The Transportation Safety Institute trains over 50,000 students
annually, graduated its 650,000th student in 2003, and recently
acquired university credit for various courses.
--The University Transportation Centers continue to graduate over
1,500 students with advanced degrees annually.
--RSPA's Hazardous Materials Emergency Preparedness Grants program,
which prepares communities to respond to hazardous materials
incidents, received a ``moderately effective'' score of 83
percent on a Program Assessment Rating Tool (PART) analysis
conducted for the fiscal year 2005 budget cycle. We are working
to remedy implement the recommendations resulting from the PART
analysis.
In conclusion, RSPA's requested $11.7 million increase will be
invested in improving our performance, further reducing death,
injuries, property damage and economic consequences resulting from
transportation incidents.
Again, Mr. Chairman, thank you for the opportunity to testify
before you today. I look forward to responding to any questions you may
have.
______
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
Prepared Statement of William J. Fox, Director
Chairman Shelby, Senator Murray, and members of the committee,
thank you for the opportunity to submit my statement for the record on
the President's fiscal year 2005 budget request for the Financial
Crimes Enforcement Network. This $7.271 million request reflects the
important role FinCEN plays in the United States government's efforts
to understand, detect, and prevent terrorist financing.
On December 1, 2003, I became FinCEN's fourth director. Prior to
coming to FinCEN, I was working as the principal assistant to the
General Counsel of the Treasury Department on issues relating to
terrorist financing, which were issues that occupied a great deal of my
time. Coming from the Department, I understood, to a large extent, the
nature of FinCEN's responsibilities and what it was doing to carry out
the obligations imposed by these responsibilities. In these 5 months, I
have done a great deal of listening and learning from inside and
outside of FinCEN. I have met extensively with the law enforcement and
intelligence communities that we serve and the financial industry that
we help regulate. I also have met with some of my counterparts in
foreign governments and communicated with many more and I have met with
and listened to the staffs of interested committees in the Congress--
including this subcommittee.
In this short time, I have found an organization populated with
employees with diverse and highly specialized talents, who are
extremely dedicated to the agency and its mission. I have found an
agency that is a good steward of the human and capital resources that
have been provided by the Congress. However, I have also found an
agency facing many important challenges--challenges relating to the
effective and efficient management of the extremely sensitive data
collected under the Bank Secrecy Act; challenges relating to its
analytic staff and the analytic product they produce; challenges
relating to the administration of its regulatory programs under the
Bank Secrecy Act; challenges relating to refocusing its important
partnerships with financial intelligence units around the world--the
Egmont Group; and, challenges relating to the agency's present
organizational structure.
My statement will address how FinCEN is going to meet these
challenges and then it will focus on our fiscal year 2005 budget
request.
BACKGROUND
FinCEN's mission is to help safeguard the financial system of the
United States from being abused by criminals and terrorists. FinCEN
works to accomplish its mission through: (1) administration of the Bank
Secrecy Act--a regulatory regime that provides for the reporting of
highly sensitive financial data that are critical to investigations of
financial crime; (2) dissemination of the data reported under the Bank
Secrecy Act to law enforcement and, under appropriate circumstances,
the intelligence community; (3) analysis of information related to
illicit finance--both strategic and tactical analysis; and, (4) the
education and outreach provided to law enforcement and the financial
industry on issues relating to illicit finance. FinCEN has many
attributes that are key to understanding the agency and how it works to
achieve its mission:
--FinCEN is a regulatory agency.--FinCEN has an obligation to
administer the Bank Secrecy Act, the principal regulatory
statute aimed at addressing the problems of money laundering
and other forms of illicit finance, including terrorist
financing. It is responsible for shaping and implementing this
regulatory regime and, in concert with the functional banking,
securities, and commodities regulators and the Internal Revenue
Service, for ensuring compliance with that regime. The agency
is also charged with protecting the integrity and
confidentiality of the information collected under the Bank
Secrecy Act.
--FinCEN is a financial intelligence agency.--While not a member of
the intelligence community, FinCEN, with the help of the
Internal Revenue Service, collects, houses, analyzes and
disseminates financial information critical to investigations
of illicit finance.
--FinCEN is a law enforcement support agency.--While FinCEN has no
criminal investigative or arrest authority, much of our effort
supports the detection, investigation and successful
prosecution of financial crime.
--FinCEN is a network.--We are not directed to support one agency or
a select group of agencies. We make our information, products
and services available to all agencies that have a role in
investigating illicit finance. In fact, we network these
agencies. Our technology tells us when different agencies are
searching the same data and we put those agencies together--
avoiding investigative overlap and permitting the agencies to
leverage resources and information.
Given this important mission, FinCEN fits perfectly in the
Department of the Treasury; possibly even more so after the Homeland
Security reorganization rather than before that reorganization. The
creation of the Office of Terrorism and Financial Intelligence within
Treasury only enhances that fit. FinCEN will be able to help
``operationalize'' Treasury's policy priorities on these important
issues and our operational analytic work will complement the analysis
that will eventually be done in the newly created Office of Financial
Intelligence. I believe this coordinated effort will lead to a greater
emphasis and understanding of money laundering, terrorist financing and
other forms of illicit finance not only at Treasury, but within the
United States, and that will make us all safer. FinCEN will also
benefit from the Department-wide, policy-coordinating role this office
will provide.
FINCEN'S COUNTER-TERRORISM STRATEGY
The single, most important operational priority for FinCEN is
counter-terrorism support to law enforcement and the intelligence
community. To emphasize the importance of this work we have improved
and are now implementing a comprehensive counter-terrorism strategy
that draws from our analytic support to law enforcement, our regulatory
tools and expertise, and our international networking capabilities. We
believe the implementation of this strategy will strengthen our focus
and ensure that FinCEN is more active and aggressive rather than
reactive on issues relating to terrorism. The strategy has five basic
components.
Analysis of Terrorist Financing Suspicious Activity Reports
FinCEN analyzes suspicious activity reports for both tactical and
strategic value. At the tactical level, we are implementing a program
in which every report that indicates a connection to terrorism is
immediately reviewed and validated and then analyzed with other
available information. This information will be packaged and referred
to the Terrorist Threat Integration Center (TTIC), FBI-TFOS, and other
relevant law enforcement. Moreover, this information will be stored in
a manner that facilitates its access and availability for analysis. We
have already had success with this process resulting in important
information being passed along to law enforcement agency.
At the strategic level, we are also devoting analysts to study Bank
Secrecy Act data and all other available information to gain an
increased understanding of methodologies, typologies, geographic
patterns of activity and systemic vulner-abilities relating to
terrorist financing. These analysts will focus on regional and systemic
``hot spots'' for terrorist financing, studying and analyzing all
sources of information. Such focus, which produced the study mandated
by the Congress on Informal Value Transfer Systems, can significantly
add to the knowledge base of law enforcement. For example, we have
begun a process to comprehensively study illicit trade in diamonds and
other precious stones and metals and the links to terrorist finance.
Although this initiative is currently underway, in order to fully
implement it, we will need to upgrade analysts' security clearances and
obtain additional equipment appropriate for the handling and processing
of national security information.
USA PATRIOT Act Sections 311 and 314 Implementation
Some of the new tools afforded us through the USA PATRIOT Act are
proving to be invaluable in the war against terrorist financing,
particularly Section 314 of the Act. FinCEN also has initiated a
program to provide the analytic, regulatory and legal resources needed
to support effective implementation of Section 311 by the Treasury
Department. I have directed my staff to give priority to the pro-active
targeting of those financial institutions and jurisdictions that are
involved, wittingly or unwittingly, in the financing of terror. This
prophylactic measure goes to the very heart of FinCEN's mission--to
safeguard the financial system of the United States from money
launderers and the financiers of terror.
Building on a successful pilot program that we began with the
Bureau of Immigration and Customs on a 314(a) money-laundering request,
FinCEN is now dedicating several analysts to apply this program to all
314(a) terrorism requests. Specifically, the analysts will run all
314(a) terrorism-related requests against Bank Secrecy Act data
concurrent with these requests being sent to financial institutions.
Based on this initial data review, the law enforcement requester will
then be able to request a more in-depth analysis if desired.
International Cooperation and Information Sharing
FinCEN will increase the exchange of terrorist financing
investigative and analytical information with other foreign financial
intelligence units around the world. We are implementing a program by
which FinCEN will automatically request information from relevant
financial-intelligence-unit counterparts as part of any terrorism
related analysis project. As part of this program, we are also
upgrading our response to incoming requests for information from
financial intelligence units by providing appropriate information and
analysis from all sources of information.
Terrorism Regulatory Outreach
We will continue our work in improving our ability to provide
information to the regulated community to better identify potential
terrorist financing activity. One area of particular focus will be
money services businesses. Money services businesses continue to
require more attention and resources, and FinCEN will undertake an
initiative to educate segments of the industry most vulnerable to
terrorist abuse. These segments include small businesses that typically
offer money remittance services, check cashing, money orders, stored
value products and other informal value transfer systems. As we learned
from the attacks of September 11, funds used to finance terrorist
operations can be and have been moved in small amounts using, for
example, wire transfer, traveler's check and automated teller machine
services. I have directed FinCEN's Office of Regulatory Programs and
Office of Strategic Analysis to enhance our outreach program that will
include training on how terrorists have used and continue to use money
services businesses; the reason for and importance of the registration
requirement for money services businesses; and the importance of
complying with the reporting requirements of the Bank Secrecy Act,
especially suspicious activity reporting. We are planning to streamline
suspicious activity reporting for small money services businesses with
a simplified form.
Analytic Skill Development
As a general matter, I have directed that FinCEN make training of
personnel the highest human resource management priority. The top
priority of this new program will be analytic skill development
relating to terrorist financing. We plan to begin by seeking reciprocal
opportunities for terrorist finance analytic skill development within
law enforcement, the Egmont Group, the intelligence community and the
financial industry. This initiative is intended to build a foundation
for continuous improvement of our analytic assets through cross
training and diversification; production of joint terrorist financing
threat assessments and other reports; understanding of intelligence
processes; the international context of terrorist financing; and the
financial industry perspective. In addition, we will need to support
training focused on financial forensics, language skills, and
geographically targeted studies that focus on culture, infrastructure
and other unique aspects of a particular region.
I believe the full implementation of this strategy will materially
assist the Department of the Treasury and the United States in
addressing the financing of terror. Approaching this problem in a
systemic way with dedicated resources is, in our view, the best way to
make this strategy a success.
FINCEN'S NEAR TERM CHALLENGES
As I mentioned before, FinCEN is facing a number of significant
challenges. Because each of these challenges affects FinCEN's
effectiveness, I feel it is important to raise these challenges with
the subcommittee.
Security and Dissemination of Bank Secrecy Act Information
As the administrator of the Bank Secrecy Act, there is no duty I
view as more critical then the effective collection, management and
dissemination of the highly sensitive and confidential information
collected under that Act. If FinCEN does nothing else, it must ensure
that such data are properly collected, are secure and are appropriately
and efficiently disseminated. This is FinCEN's core responsibility.
FinCEN must modernize the way it houses and provides access to
information collected under the Bank Secrecy Act. Currently, our data
are accessed by most of our customers through an outmoded mainframe
system. This system does not have the robust data mining capabilities
or analytical tools we should be providing. This has led many of our
customers to ask for wholesale copies of the data, or direct access to
the data in a way that will not permit us to perform our
responsibilities relating to the administration and management of the
data. Accordingly, we must create a system that provides robust data
mining and analytical tools to our customers in law enforcement and
that preserves our ability to: (1) effectively administer and secure
and audit use of the information; (2) network those persons who are
querying the data to prevent overlapping investigations and encourage
efficient use of law enforcement resources; and, (3) develop and
provide adequate feedback to the financial industries we regulate,
which will ensure better reporting. That system is called ``BSA
Direct.''
When fully implemented, BSA Direct will make available robust,
state-of-the-art, data mining capabilities and other analytic tools
directly to law enforcement. We plan to provide all access to these
data through BSA Direct, working with our law enforcement customers to
ensure that their individual systems will be able to extract the
maximum value from the Bank Secrecy Act reporting. We will be exploring
ways to enable these agencies to integrate the Bank Secrecy Act
reporting with their other systems while maintaining, and even
improving our ability to audit and network the use of the data and
obtain feedback concerning their value. This new system will provide us
with the capability to discharge our responsibilities relating to the
administration of these sensitive data: security and access control,
networking, and feedback. This system will also significantly enhance
our coordination and information sharing abilities, as well as our
ability to safeguard the privacy of the information and monitor BSA
compliance. We have already started work on this system and its
deployment is crucial to FinCEN moving forward and meeting its various
challenges. We have requested in our fiscal year 2005 budget a transfer
of $2.5 million from the Internal Revenue Service for this system.
Enhancing FinCEN's Analytical Capabilities
Another challenge FinCEN is facing relates to its analytic
capabilities. In my view, FinCEN must move away from its current
emphasis on data checks and data retrieval, and move its analytic
resources toward more robust and sophisticated analysis. FinCEN had
moved to data checks and data retrieval in response to criticisms about
lag time in responding to simple requests for information. Now, as our
systems improve, our customers will be able to retrieve data
themselves, which will give FinCEN more time and resources for analysis
of data.
I believe that FinCEN can and must provide value through the
application of our focused financial analytic expertise to mining
information and providing link analyses that follow the money of
criminals and terrorists, or identify systemic or geographic weaknesses
to uncover its source or the existence of terrorist networks. For
example, in addition to providing geographic threat analysis for law
enforcement, FinCEN has been studying systemic trends in money
laundering and terrorist financing. We were instrumental in bringing
the black market peso exchange system to the forefront of policy
decisions, and we are focusing on other trends and patterns that we now
see emerging in the global market. I recently made a trip to Dubai to
participate in the growing dialogue on the potential use of diamonds
and other commodities for illicit purposes, including money laundering
and terrorist financing. We recently developed cases from Bank Secrecy
Act data involving foreign gem companies with links to the United
States and referred this information to law enforcement authorities.
This is part of our focus on and study of what may be another iteration
of money laundering and terrorist financing--commodity-based systems.
In my view, while FinCEN still has some of the best financial
analytic talent in the United States government, the challenges we face
require us to further develop that talent to enable the full
exploitation and integration of all categories of financial
information--well beyond Bank Secrecy Act information. I have directed
FinCEN's managers to concentrate on training, as well as the hiring of
new, diverse financial analytic expertise.
Enhancing FinCEN's Technology
As I have mentioned, information sharing is critical to our
collective efforts to detect and thwart criminal activity and that is
why I believe enhancing our technological capabilities is extremely
important. Section 314(a) of the USA PATRIOT Act allows law enforcement
to query United States financial institutions about suspects,
businesses and accounts in money laundering and counter terrorism
investigations. FinCEN facilitates this interaction between the
financial industry and law enforcement by electronically sending law
enforcement requests to various banks that, in turn, check their
records and relay the information back to FinCEN to then provide to the
requestor. This saves law enforcement time and resources. We are
currently enhancing the Section 314(a) electronic capabilities to allow
for the originating request to be made to FinCEN via a secure website.
This system is an example of how critical technology is to our law
enforcement counterparts.
We must continue to work to enhance the development of the PATRIOT
Act Communications System, a system that permits the electronic filing
of reports required under the Bank Secrecy Act. This system was
developed and brought on-line under a very tight legislative deadline.
FinCEN received the E-GOV award for its work on this system. Filing
these forms on-line is not only more efficient; it will help eliminate
some of the data errors and omissions.
As of April 19, 2004, 1.2 million Bank Secrecy Act forms had been
electronically filed through this system. We now support nearly 1,100
users, which include 15 of the top 25 filers of Bank Secrecy Act
information. These top 25 filers accounted for approximately 50 percent
of all Bank Secrecy Act forms filed in fiscal year 2003. While this is
all good news, the bad news is that the current number of forms filed
electronically remains quite small on a percentage basis. The forms
being filed through the PATRIOT Act Communications System represents
only approximately 5 percent of the universe of all Bank Secrecy Act
reports filed. I have directed our PATRIOT Act Communications System
team to reach out to the financial industry and determine what more
needs to be done to convince them to file electronically. As we learn
about what is holding institutions back from filing, I have directed
our team to work closely with system developers to build the system
stability and tools necessary to improve the overall percentage of
filing.
FinCEN presently lacks the capacity to detect Bank Secrecy Act form
filing anomalies on a proactive, micro level. As I mentioned earlier,
BSA Direct will integrate Bank Secrecy Act data into a modern data
warehouse environment and it will include tools to flag Bank Secrecy
Act form filing anomalies for action by FinCEN and/or referral to
appropriate authorities. In the meantime, FinCEN is developing a
request to the Detroit Computing Center to provide periodic exception
reports on financial institutions whose Bank Secrecy Act form filing-
volume varies beyond prescribed parameters during prescribed time
frames. While we will not be able to conduct the sophisticated
monitoring that will be available with BSA Direct, this interim step
should produce an alert in the event of a catastrophic failure to file
forms, as was experienced in the Mirage case in which the Mirage Casino
in Las Vegas failed to file over 14,000 currency transaction reports in
an 18-month period.
Enhancing FinCEN's Regulatory Programs
The administration of the regulatory regime under the Bank Secrecy
Act is a core responsibility for FinCEN. Given the nature of our
regulatory regime--a risk-based regime--our partnership with the
diverse businesses in the financial services industry is the key to our
success. I must tell you that it is my perspective that the financial
industry is generally a model of good corporate citizenship on these
issues. The industry's diligence and commitment to the recordkeeping
and reporting requirements of the Bank Secrecy Act is by and large
outstanding. The industry's cooperation with FinCEN in implementing
many of the provisions of the USA PATRIOT Act has strengthened the
foundation of our efforts to safeguard the financial system from
criminal abuse and terrorist financing. I have met with many of our
industry partners in the last several months, both old and new, and I
have been struck with how concerned they are that the information they
provide be of value to the fight against terrorist financing and other
financial crimes. In turn, FinCEN is committed to enhancing the
guidance they need as they strive to meet the requirements and
objectives of new regulations.
The challenge before FinCEN on this issue is simple: we must ensure
the remaining regulatory packages required by the USA PATRIOT Act are
completed and implemented. Moreover, as we work with our regulatory
partners to implement this regulatory regime, we must provide constant
feedback and guidance. We have asked the industry to create anti-money
laundering programs that are risk-based--custom tailored to each
institution based upon the business in which that institution engages
and the customers that institution has. We must find ways to help the
industry define that risk. Development of secure web-based systems that
will foster the communication discussed above is a step in the right
direction. But we must continue to find new and better ways to reach
out to the industry. They understand the threat money laundering and
illicit finance poses to our financial system and they are willing to
help.
Perhaps our most significant challenge lies in ensuring that
financial institutions are appropriately examined for compliance with
the Bank Secrecy Act and its implementing regulations. As you know, we
have issued and will continue to issue anti-money laundering program
regulations that will bring new categories of businesses under this
form of Bank Secrecy Act regulation for the first time.
We have and will continue to rely on the judgment, expertise, and
resources of the Federal banking, securities and commodities
regulators. But the expansion of the anti-money laundering regime comes
with the additional responsibility and challenges of examining
thousands of addresses and businesses for compliance. We have relied on
the Internal Revenue Service to examine those non-bank institutions.
The addition of the insurance industry and dealers in precious stones,
metals, and jewels, two categories of financial institutions for which
we will shortly issue final anti-money laundering program regulations,
will themselves stretch the resources of agencies responsible for
examination. We must find ways to ensure that these regulatory programs
are implemented in a fair, consistent and timely manner that is focused
on achieving the goals of the Bank Secrecy Act. Although difficult,
this is an issue that must be resolved.
Finally, we intend to take even a more active role in working with
our regulatory partners to ensure the effective examination of
financial institutions. We will find appropriate ways to enhance our
ability to provide prompt, interpretive guidance to examiners, obtain
consistency in the application of the regulations across industry
lines, and identify and address compliance issues as they arise.
Enhancing FinCEN's International Program
FinCEN's international initiatives and programs are driven by a
stark reality: finance knows no borders. Next year will mark the tenth
anniversary of the founding of the Egmont Group--a milestone event that
FinCEN will host in Washington, DC next June. The Egmont Group is an
international collection of ``financial intelligence units''--entities,
which, like FinCEN, are charged with the collection and analysis of
financial information to help prevent money laundering and other
illicit finance. The Egmont Group has achieved remarkable growth since
its inception in 1995. Membership has risen from 6 charter members to
84. This membership number will rise to 92 this year and is expected to
top 100 by the time of the June 2005 Plenary.
The Egmont Group serves as an international network, fostering
improved communication and interaction among financial intelligence
units (FIUs) in such areas as information sharing and training
coordination. The goal of the Group is to provide a forum for FIUs
around the world to improve support to their respective governments in
the fight against financial crimes. This support includes expanding and
systematizing the exchange of financial intelligence information,
improving expertise and capabilities of personnel employed by such
organizations, and fostering better and more secure communication among
FIUs through the application of technology.
Egmont's secure web system permits members of the group to
communicate with one another via secure e-mail, and to post and assess
information regarding trends, analytical tools, and technological
developments. FinCEN, on behalf of the Egmont Group, maintains the
Egmont Secure Web. Currently, 76 of the 84 members (90 percent) are
connected to the secure web site. I am very pleased to announce that
FinCEN will launch a new and more efficient secure web site for Egmont
in June. We expect this new site will generate more robust usage, which
will enhance international cooperation among Egmont members.
FinCEN has played a significant role in the growth and health of
the Egmont Group and it maintains bilateral information sharing
agreements with financial intelligence units around the world. However,
in my view, this program has not received the priority it should have
in recent times. Merely because of the simple statement I made
earlier--that finance knows no borders--we must step up our
international engagement with our counterparts around the world. Our
plan is to do three principal things:
--Lead the Egmont Group to begin focusing on actual member
collaboration. Egmont members should be collaborating in a more
systemic way to address issues relating to terrorist financing,
money laundering and other illicit finance at both a tactical
and strategic level.
--Enhance the FinCEN analytical product we provide to our global
counterparts when we receive requests for information. Today,
we principally provide the results of a data check. We think we
owe our colleagues more in-depth analysis of the information we
provide. As noted before, we will also be making more requests
for information and analysis from our partners--particularly
when the issue involves terrorist financing or money
laundering.
--Foster exchanges of personnel with financial intelligence units
around the world. We have already begun discussions with
certain counterparts about such an exchange and we are hopeful
we can begin this program soon. The benefits of this type of
exchange are obvious. It is the best way we can learn together
how to address a truly global problem.
FinCEN will also enhance its support for Treasury policy officials'
work in the Financial Action Task Force (FATF) and FATF regional
bodies. We will continue our work with the State Department in the
drafting and editing of the ``International Narcotics Control Strategy
Report.'' Finally, we will continue our important efforts on financial
intelligence unit outreach and training. Presently, we are working with
the United Arab Emirates on a South Asia FIU Conference for
Afghanistan, Bangladesh, India, Maldives, Pakistan and Sri Lanka.
Additionally, FinCEN has given its support and participation to the
``3+1'' Working Group on terrorist financing in the Tri-border Area.
The issues of information sharing and the bolstering of FIUs in the
participating states of Argentina, Brazil and Paraguay are critical
issues for the U.S. delegation to the ``3+1'' Working Group led by the
Department of State's Office of Counter-Terrorism.
FinCEN's Organizational Structure
We have been working closely with Treasury on our efforts to more
effectively marshal our resources at FinCEN. As a result, I recently
proposed a realignment of FinCEN that reflects my priorities to enhance
FinCEN's analytical component and improve its focus and services
devoted to outreach, education and technology on behalf of both its
clients and the financial services community. We have briefed your
staff on this proposal and, just last week; have received approval from
the Department to go forward with this realignment.
Essentially, the realignment provides the ability to pull out the
non-analytical functions presently entangled in FinCEN's analytical
unit so that those managers and analysts can focus exclusively on
analysis. We are also combining all client services and systems under a
single manager in order to ensure that our technology is coordinated
and better focused on serving its users. Similarly, I want this
organizational structure to highlight the importance of education and
training of our law enforcement clients and the regulated community.
Only by working closely and cooperatively with these groups can FinCEN
truly understand what services it must provide and what requirements it
must meet to assist in the detection, prevention and dismantling of
terrorist financing.
FISCAL YEAR 2005 BUDGET REQUEST
The proposed fiscal year 2005 budget is designed to assist in
strengthening our role in the United States Government's efforts to
understand, detect, and prevent terrorist financing. I also believe it
will allow us to begin to meet the challenges that I have outlined
above. The President's fiscal year budget request would provide
$64,502,000 and 291 full-time equivalents for FinCEN. This request
includes:
--$1.533 million and 4 FTE for program increases to:
--(1) enhance regulatory support to newly covered industries as
required under the USA PATRIOT Act ($0.278 million and 2
FTE);
--(2) enhance access to Bank Secrecy Act information by putting
information technology aids in place to the Gateway system
to increase the current 1,000 law enforcement users to
3,000 users by fiscal year 2008 ($1.055 million and 2 FTE);
and,
--(3) procure financial and administrative services which would
enable FinCEN to consolidate its accounting and financial
reporting by using a Treasury franchise service provider,
assuring continued submission to TIER and other accounting-
related reporting in the Treasury format ($0.200 million
and FTE).
--$2.5 million transfer from the Internal Revenue Service for the
Bank Secrecy Act (BSA) Direct System. See infra.
--$3.238 million and 10 FTE for adjustments necessary to maintain
current levels ($1.716 million) and program annualizations for
fiscal year 2004 initiatives ($1.522 and 10 FTE).
CONCLUSION
The fiscal year 2005 budget request for FinCEN supports the
President's fight against terrorism, and continues to build the
framework necessary for accomplishing our complex mission of protecting
the United States financial systems from abuses imposed by criminals
and terrorists and assisting law enforcement in the detection,
investigation, disruption and prosecution of such illicit activity
through our role as the administrator of the Bank Secrecy Act.
I look forward to continuing to work with you to meet these
challenges and enhance our contributions to the war on financial crime
and terrorist financing.
Mr. Chairman, this concludes my statement.
______
Alcohol and Tobacco Tax and Trade Bureau
Prepared Statement of Arthur J. Libertucci, Administrator
Mr. Chairman, Senator Murray, and members of the subcommittee, it
is my pleasure and honor to have the opportunity to highlight the
Alcohol and Tobacco Tax and Trade Bureau's (TTB) accomplishments for
the past year and discuss our fiscal year 2005 budget submission.
The Alcohol and Tobacco Tax and Trade Bureau was established
January 24, 2003, as a result of the Homeland Security Act of 2002. The
Act authorized the transfer of all of the firearms, explosives, and
arson functions of the Bureau of Alcohol, Tobacco and Firearms (ATF) to
the Department of Justice and established TTB within the Department of
the Treasury. While the agency was given a new name, the history of
TTB's regulatory responsibilities dates back to creation of the
Department of the Treasury and the first Federal taxes being levied on
distilled spirits in 1791.
The mission of TTB is to collect alcohol, tobacco, firearms and
ammunition excise taxes, to ensure that alcohol beverages are labeled,
advertised, and marketed in accordance with the law, and to administer
the laws and regulations in a manner that protects the revenue,
protects the consumer, promotes voluntary compliance, and facilitates
import and export trade in beverage and industrial alcohols.
Not since the late 1940's has there been such a large overhaul and
reorganization of the government and its agencies. The challenges in
standing up a brand new bureau were many, but the men and women on
board at the time of the transition understood and were ready for the
challenging job that lay ahead. When we began, we only had about half
of our projected FTE on board. Most of fiscal year 2003 and part of
fiscal year 2004 were dedicated to hiring personnel in all of our
offices in Washington, DC, and around the country, and finding
appropriate office space for field personnel.
Late in 2003 we began the move to our new headquarters location,
two blocks from the Department. This was accomplished in two phases. A
majority of the offices located in Washington, DC, which include
Headquarters and Field Operations staff, moved September 2003. My staff
and the Office of Chief Counsel moved April 2004. Our goal in both
moves was to continue with business as usual, carrying out our mission,
and have as seamless a transition as possible.
AUTHORITIES
TTB oversees the regulation of alcohol under the Federal Alcohol
Administration Act (FAA Act) and the Internal Revenue Code of 1986
(IRC). Under the FAA Act, TTB regulates the authorized operations,
labeling, advertising, and trade practices for those engaged in the
alcohol beverage industry. This includes trade practice provisions,
which regulate such practices as exclusive outlets, tied house
arrangements, commercial bribery, and consignment sales. These
provisions are intended to ensure fair dealing within the industry and
to protect the consumer by prohibiting sales arrangements that result
from anti-competitive practices.
We also administer the IRC provision relative to the qualification
and operation of distilleries, wineries, breweries, and industrial
alcohol producers and users. Under this authority, we administer
classification and collection of tax on alcohol products, and the
collection of various occupational taxes from alcohol dealers. TTB's
responsibilities under the IRC cover the production, packaging,
bottling, labeling, and storage requirements related to alcohol
products.
With respect to tobacco, TTB work involves chapter 52 of the IRC,
relating to the manufacture, importation, exportation, and distribution
of tobacco products. Specifically, we examine applications and issue
permits for tobacco manufacturers and importers, and export warehouses,
and oversee their operations. TTB classifies a wide variety of tobacco
products for tax purposes, and collects the tax on such tobacco
products, as provided under the statute and implementing regulations.
Finally, TTB also administers the excise tax on firearms and ammunition
pursuant to its authority under the IRC.
MISSION
TTB administers Federal tax laws on alcohol, tobacco, firearms, and
ammunition, and ensures that the alcohol and tobacco commodities TTB
regulates are lawfully sold in the United States. In carrying out its
mission responsibly, TTB must be sensitive to the industry's concerns
as the government's customers, by reducing delays and regulations that
impede business while also providing a tangible benefit to the American
public. TTB's history indicates that an appropriate regulatory presence
provides a deterrent against tax evasion schemes. TTB is committed to
carrying out its responsibilities in a manner that makes effective and
efficient use of the public resources entrusted to us. We carry out our
mission without imposing inappropriate or undue burden on those whom we
regulate and from whom we collect taxes. At the same time we maintain
an aggressive enforcement program that deters violations by industry
members and promotes voluntary compliance.
The split from our predecessor agency has enabled TTB to return to
its roots and focus on collecting the revenue and protecting the
public. In the year since our inception, we have returned to that core
mission, and we have proven that despite myriad administrative details,
we have been able to focus on excise tax collection. Allow me to
explain some of our highlights of the past year.
TTB created a Field Operations Directorate that includes the pre-
established National Revenue Center in Cincinnati, Ohio, which
reconciles returns, reports, and claims; screens applications and
issues permits; and provides expert technical assistance for industry,
the public, and government agencies to ensure fair and proper revenue
collection. The NRC is currently undergoing a business process
reengineering study in order to maximize customer service and
efficiency, while allowing TTB to handle an ever-increasing workload
with existing staff.
The Trade Investigations Division (TID), staffed with
Investigators, has seven field groups located across the country
dedicated to ensuring that only qualified applicants are granted
permits to engage in the production and distribution of alcohol and
tobacco products. Field investigations of industry members are
conducted to help promote voluntary compliance with the laws and
regulations enforced by TTB and prevent misleading labeling and
advertising of alcohol beverages.
Investigators also respond to credible information suggesting a
health-related contamination of an alcohol or tobacco product. In
addition, TID conducts trade practice and Certificate of Label Approval
(COLA) fraud investigations. Some investigations over the year have
resulted in revocations of permits or in the applicant withdrawing the
permit as it is unable to meet the government requirements to operate.
The work done by Trade Investigations is not only about educating our
customers, but showing our presence and clearly helping carry out our
unique and necessary mission.
Because of a greater field presence, in fiscal year 2003 we
accepted 13 Offers-in-Compromise (OIC) for a total of $1.162 million.
In fiscal year 2004, we have so far accepted 12 OICs for a total of
$270,086, and we have an additional 7 cases pending for $176,472. As an
example, we collected a $35,000 OIC from a company who was found to
have been receiving and shipping product without proper label approval.
Investigators also conducted a product integrity investigation into a
winery in the Southwest and found numerous label, record keeping, and
administrative violations. We have also participated in counterfeit
alcohol and tobacco investigations along the border in Texas and New
Mexico.
TTB's Tax Audit Division and program was first established in late
fiscal year 2003 as part of TTB's strategic plan to collect the revenue
that is rightfully due from the alcohol, tobacco, and firearms and
ammunitions industries because in the past, ATF's program priorities
and investigations were placed primarily on firearms and explosives.
The division was established to provide a systematic approach to
safeguard over $14 billion in annual revenue collected by TTB.
The Tax Audit Division verifies the proper payment of tax and
ensures compliance with the laws and regulations that protect the
revenue and promote voluntary compliance. TTB Tax Audit uses a risk-
based approach to target non-compliant industry members. A goal in 2004
is to establish a baseline for measuring tax revenue audited in a 5-6
year period and the industry compliance rate (percentage of taxpayers
audited with no material findings, thereby validating the amount of tax
paid was accurate and rightfully due).
TTB's accomplishments in Tax Audit include establishing 10 audit
offices across the country and recruiting and hiring 80 audit staff.
The average staff person has 10 years of previous audit experience and
holds one audit certification (i.e. Certified Public Accountant). TAD
also established a formal industry-training program: 75 percent of the
workforce has been trained in three or more industries (Distilled
Spirits Plants, Beer, Wine, Manufacture of Non-beverage Products, and
Firearms). They also implemented an automated audit documentation tool
to facilitate a standard audit approach and create efficiencies, and
developed an audit work plan scheduling 110 taxpayers for review in
2004.
I am pleased to report that initial audit findings have identified
approximately $4.7 million in additional tax revenue due, and to date,
these audits have resulted in approximately $500,000 in additional
revenue collected by TTB. Further, these audits have identified an
additional $523,000 in revenue due to the governments of Puerto Rico
and the Virgin Islands for taxes collected on articles (i.e. rum)
produced in Puerto Rico or the Virgin Islands (also called cover over).
These divisions work hand in glove with the Risk Management Staff
who develop, implement, and maintain programs that ensure TTB is
collecting all the revenue due and protecting the public. Divisions
within Headquarters Operations often support the work done by TTB
Auditors and Investigators in the field.
The Regulations and Procedures Division (RPD) drafts new and
revised regulations under the Internal Revenue Code and the Federal
Alcohol Administration Act. They issue rulings, procedures, and
informational documents to clarify the law and regulations. Most
notably, they evaluate important policy issues before TTB and write
proposed regulations and Treasury Decisions for publication in the
Federal Register and the Code of Federal Regulations.
In 2003, much attention was placed on the issuance of limitations
set for health claims related to consumption of alcoholic beverages. On
March 3, 2003, TTB, along with the Treasury Department, issued final
regulations to prohibit the appearance on labels or in advertisements
of any health-related statement that is untrue or tends to create a
misleading impression. The regulations require that specific health
claims must be truthful, adequately substantiated by scientific or
medical evidence, disclose the health risks associated with both
moderate and heavier levels of alcohol consumption, and outline the
categories of individuals for whom any alcohol consumption poses risks.
The new rules took effect June 2, 2003.
In addition, in March 2003, TTB and the Treasury Department issued
proposed regulations that would clarify the status of flavored malt
beverages by refining the regulatory definitions of ``beer'' and ``malt
beverage.'' The proposal would limit the amount of alcohol added to
beer or malt beverages through flavors use. It would also require
display of alcohol content on flavored malt beverage labels, and would
prohibit references to distilled spirits on all malt beverage labels.
The proposal garnered a considerable amount of congressional interest
and TTB received over 16,000 comments from the public; the norm is 10-
20 comments per Notice of Proposed Rulemaking. In the weeks and months
following the closure of the comment period, staff catalogued and
reviewed the comments. A decision will be published once Treasury
completes the review.
This past year brought the opening of the new laboratory facility
that TTB's Scientific Services Division shares with the ATF. This
state-of-the-art facility, which was dedicated in June 2003, in
Ammendale, Maryland, provides chemists and support staff an optimum
working environment in which to process samples for its customers. The
Laboratory supports TTB by providing expertise in the analytical
analyses of distilled spirits, wines, malt beverages, specially
denatured alcohol, non beverage alcohol, and tobacco products. TTB has
a second lab in Walnut Creek, California, known as the Compliance
Monitoring Laboratory that primarily conducts tests of alcohol
beverages. In this regard, TTB uses a market basket sampling approach
as well as other methods to evaluate products on the market and ensure
that products are properly labeled, do not contain prohibited
substances, and that the products do not impose a health hazard to
consumers.
An important component of TTB's external relations are its
partnerships in the international arena. The International Trade
Division (ITD) acts as TTB's liaison on issues related to alcohol
beverages, and facilitates the trade of alcohol beverages by serving as
an advisor to industry members, various U.S. Government agencies and
embassies. In this capacity TTB is represented at international trade
meetings and participates in international trade negotiations,
primarily working with the Office of the United States Trade
Representative (USTR).
Again, through ITD, TTB contributed to the World Wine Trade Group's
(WWTG) progress toward a labeling agreement designed to facilitate
trade in wine among the member countries. The WWTG is an informal group
of seven countries who have a common interest in exporting wine
worldwide. The United States, Canada, Chile, Argentina, South Africa,
New Zealand and Australia are members of this group.
Also, in the international trade arena, TTB continues to work with
USTR in crafting a Memorandum of Understanding (MOU) with Mexico to
clarify requirements for U.S. bottlers who receive bulk tequila. The
United States has worked hard to convince the Mexican government to
reconsider their proposal to ban the exportation of bulk tequila.
Mexico cited failures by other countries in protecting the standard of
tequila as a reason for suggesting the ban. Such a ban would adversely
impact the U.S. distilled spirits industry's ability to profitably
continue to sell and distribute tequila in the United States and all
over the world, and, in turn, cause Mexico to inadvertently hurt one of
their own most profitable exports. TTB participated in several meetings
this year in Mexico, the United States, and Canada and played a key
role in delaying the implementation of the bulk shipment ban by
describing to the Mexican government our past efforts in enforcing the
integrity of tequila and by stressing our continued commitment to
protect this beverage and demonstrating how the TTB enforcement
mechanism makes such a ban unnecessary. The MOU seeks to both clarify
and prevent undue extraterritorial requirements on U.S. bulk tequila.
One of the largest components of Headquarters Operations is the
Advertising, Labeling and Formulation Division. This division carries
out TTB's statutory mandate to prevent consumer deception and ensure
that alcohol labels provide the consumer with adequate information as
to the identity and quality of the product.
In fiscal year 2003, ALFD's staff of nine label specialists
reviewed 101,000 Certificate of Label Approval (COLA) applications and
issued nearly 75,200 certificates. Four formula specialists reviewed
over 1,800 domestic beverage alcohol formulas, and approximately 1,500
pre-import applications.
In May 2003, ALFD launched an electronic filing system for use by
industry members and third parties to file applications for COLAs. This
new web-based system, known as COLAs Online, provides industry members
with a streamlined, more expedient and paperless means of obtaining a
COLA. COLAs Online allows industry members to submit COLA applications
via the Internet, as well as provides a way for ALFD employees to
review the application electronically. Submitted applications are
electronically approved, returned for correction, or rejected. The
system also provides an online capability for industry members to
obtain the status of electronically filed forms and the Public COLA
Registry section of COLAs Online allows the public to view approved
COLAs, including images of the alcohol labels. We currently receive
approximately 15 percent of all COLA applications electronically and we
expect that amount to steadily increase with time.
In addition to these divisions, TTB is supported by a world class
cadre of attorneys and Office of Management personnel. Often these are
the employees who serve as the glue to the functions we perform as a
Bureau. Further, a majority of services we use are contracted out and
managed though a Memorandum of Agreement with ATF. This arrangement
facilitates TTB becoming a stand-alone Bureau within the Department of
Treasury. The memorandum will be renegotiated, but TTB continues to
search for, and has found, many new ways to less expensively outsource
required services including moving many management functions to the
Bureau of Public Debt.
FISCAL YEAR 2005 APPROPRIATIONS REQUEST
The funding request for fiscal year 2005 is $81.9 million and 544
FTE, a $2.4 million increase over fiscal year 2004. This increase
represents adjustments necessary to maintain current levels of
operations. It supports TTB's core mission to protect the public and
collect the revenue. The request is fiscally sound, and I believe that
we have proven that while we are a small Bureau, we are focused and
effective, providing results-driven service to America.
One of our priorities for fiscal year 2005 is to be completely
separate from ATF's Information Technology services. ATF is not a
service provider and is part of the Department of Justice. At this
time, ATF has given written notice that beginning in fiscal year 2006,
it will no longer service TTB's information technology needs. Also, ATF
may not be able to provide administrative and other management services
to TTB. We have formulated a plan that will help us cover services
internally and externally by outsourcing from the public and private
sectors. As resources become available, we believe we can judiciously
acquire the services needed to run our Bureau, although much work needs
to be done to complete this task by fiscal year 2006.
CONCLUSION
Through the judicious and responsible use of the resources Congress
provides, we look forward to continuing to provide services that are
not only unique in American Government, but provide a clear service to
America by collecting taxes and protecting the public. It is not only
my honor to lead the men and women of this Bureau, but I appreciate
your support of this new Bureau and our wholehearted efforts to carry
out our mission. Thank you.
______
U.S. OFFICE OF SPECIAL COUNSEL
Prepared Statement of Scott J. Bloch, Special Counsel
I am pleased to present testimony on behalf of the U.S. Office of
Special Counsel and our fiscal year 2005 budget request. As the new
Special Counsel, I look forward to working with the U.S. Senate in my
role as independent guardian of the merit system of civil service by
protecting Federal employees from unfair workplace discrimination or
mistreatment, including reprisal for whistleblowing, as well as
imposing corrective action to protect those employees and bringing
disciplinary action against negligent supervisors.
GOALS
My goals for the agency are twofold: (1) to continue to strengthen
the civil service merit system by vigorously enforcing the three
statutes for which the Office of Special Counsel bears responsibility:
the Civil Service Reform Act, the Whistleblower Protection Act, and the
Hatch Act; (2) to provide an intense, more visible level of enforcement
of the Uniformed Services in Employment and Re-Employment Rights Act
(USERRA).
GUIDING PRINCIPLES FOR ACHIEVING THESE GOALS
The integrity of the civil service merit system depends on the
alertness and effectiveness of its watchdogs. The most significant
challenge we face into next year is to eliminate our pending case
backlog and to develop methods to make the agency more efficient and
effective in its main mission, while at the same time assuring
complainants a fair review. No Federal employee should have to wait
years, in some instances, for a valid complaint or situation to be
addressed or an offending supervisor disciplined.
We will accomplish this by asking for great energy and focus of the
current staff, and by bringing on new talent, skilled at locating
issues and understanding problem solving, keen on protecting rights and
mindful of the need to address cases that lack jurisdiction or do not
meet the requisite thresholds. In all of this, we will be guided by the
understanding that this is being done so that we can better service the
merit system and protect whistleblowers. If we can do all of that, then
we can institute a mode of operation that prevents us from allowing
such a backlog of cases to surface again.
During this challenging time in our Nation, the security of the
country depends on our armed forces. And our armed forces depend as
never before on the vital roles played by national guardsmen and
reservists. Every reservist and guardsman must know that the United
States stands fully behind them, and will investigate and fight for
justice on their behalf regarding their employment and re-employment
after active service deployments. Without extremely strong enforcement
in this area, serving in the guard and reserves becomes less
attractive, and the entire military system currently in use becomes
weakened.
The teeth behind our effectiveness in enforcing each of our
mandates lie in our ability to litigate in pursuit of justice. To
become a more effective enforcer implies an increase in meritorious
litigation, which I hope to pursue.
Finally, I know that Congress also shares our desire to protect
Federal whistleblowers; however, the protection does not occur if
Federal employees do not know about the existence and purpose of the
Office of Special Counsel. Therefore, a critical function is our
extensive outreach and training efforts so that Federal employees know
they can call us when they have a complaint or problem within their
agency.
RELEVANT FUNDING FACTORS
For fiscal year 2005, the OSC is requesting $15.449 million, in
order to fund approximately 113 full-time employees (FTE) and related
non-personnel costs.
The purpose of this requested increase is to manage and process the
agency's steadily increasing workload since fiscal year 2000 of
prohibited personnel practice complaints, whistleblower disclosures,
and Hatch Act matters, and to reduce persistent case processing
backlogs--including serious backlogs in the processing of whistleblower
disclosures. Given the increasing workload of OSC, 113 FTE is a modest
request.
Looking at the data for the past several years, I believe several
factors account for or contribute to this workload increase. They
include: publicity about an increased number of high-profile cases
handled by the OSC, including whistleblower disclosures, and four
Public Servant Awards issued to whistleblowers by the OSC; heightened
awareness and concern over national security disclosures after the
events of September 11, 2001; increased public interest in elections
since the 2000 presidential election, and the start of the 2004
campaigns; the OSC's 2302(c) Certification Program; and significant
improvements in OSC's web site, increasing awareness by government
employees and others of the OSC and its functions.
I will highlight specific areas that I believe warrant an increase
in staffing:
--In April 2004, soon after I became the new Special Counsel, I
established a new Special Projects Unit (SPU) specifically to
examine the organization's system for handling cases, to handle
the pending backlogs, and to consider and experiment with new
methods for increasing the efficiency and effectiveness of all
other aspects of the OSC. Several of the most experienced OSC
attorneys are now assigned to the unit to help remove the
current backlog of cases and to prevent such problems in the
future. This includes a careful look at the agency's web site
and methods of electronic filing.
--Given the increasing numbers of complaints and cases in all units
of the agency, increased levels of labor and staff costs are
required to ensure no backlogs will build up again.
--Regarding prohibited personnel practice complaints, increased staff
costs are also required for higher compliance with the 240-day
prosecution deadline currently required by statute.
--I am confident of our ability to fulfill our stated goal of
providing a more visible level of enforcement of USERRA, even
in (and especially in) the midst of one of the largest-ever
demobilizations of reservists from overseas in the coming year.
In conjunction with other Federal entities, we will
aggressively prosecute USERRA claims. But this may require a
higher number of staff focused in the USERRA area.
--Public awareness of the OSC's Disclosure Unit (DU) has grown in
recent years and the greater awareness of national security
issues, following the terrorist attacks of September 11, 2001,
and subsequent events, have also caused a record number of
whistleblower disclosure filings with the OSC. During fiscal
year 2002-2003, for example, the DU received 535 or more
disclosures each year--compared with 380 disclosures in fiscal
year 2001 and an average of 360 in the preceding 4 fiscal
years. Many of the disclosures filed after fiscal year 2001
have dealt with national security issues (some involving
complex and sensitive classified material) that have required
the work of more than one DU staff attorney.
As of September 30, 2003, the total number of cases pending in
the DU was a record 690 (up drastically from 556 at the end of
fiscal year 2002, and 287 at the end of fiscal year 2001). A
significant number of these cases were more than a year old,
including matters designated after initial review as the
highest priority disclosure--an allegation of a substantial and
specific danger to public health and safety likely to merit
referral to the head of the agency involved for investigation.
The OSC is requesting additional FTE allocation to DU backlog
reduction efforts (i.e., to provide timelier resolutions of
whistleblower disclosures filed with the OSC).
By law, the OSC has 15 days to review a disclosure and to
determine whether there is a substantial likelihood that the
information provided discloses any violation of law, rule, or
regulation; gross mismanagement; gross waste of funds; abuse of
authority; or a substantial and specific danger to public
health or safety. Given the increasing numbers and complexity
of disclosures in recent years, as well as the time required to
contact whistleblowers, examine information submitted, perform
necessary analysis, and draft required correspondence, this
timetable has, in reality, proven to be unattainable in most
cases. This has resulted in a persistent backlog.
While the OSC is fully committed to directing whatever resources
are required to immediately process and refer critical national
security disclosures, additional resources (not only in staff
but in facilities and other resources needed to properly handle
such critical matters) are needed.
The Disclosure Unit backlog has become an issue of understandable
concern to Congress. It has also been a pressing concern to the
OSC, which has implemented several measures in recent years in
efforts to improve upon its timeliness in processing
whistleblower disclosures. For example, the DU has implemented
a priority system for matters received; those priorities are
tracked using the agency's automated case tracking system;
additional employees have been detailed to DU work; and, as
funds have permitted, a limited number of additional staff has
been allocated to the unit.
--In response to recent calls for the OSC to attack the problem more
aggressively, the OSC has begun the process of applying more
intensive and focused strategic workforce planning to that
problem, as part of a comprehensive strategy to address all
areas of backlog in the agency. No strategy can succeed,
however, without adequate funding to support additional staff
and associated resources. The OSC's fiscal year 2005 budget
request will provide funding for the additional staff needed to
more adequately comply with the 15-day time limit for DU
decisions, and to make progress toward the goal of reducing the
Unit's backlog.
--The increased amount of litigation necessary to strongly enforce
adherence to the statutes also has a cost in terms of employee
resources.
--Next, in this busy election year, we expect our Hatch Act
complaints and cases to increase as they always do during the
national election cycle. The unit has received a significant
increase in the number of complaints alleging Federal, State,
and local Hatch Act violations, and a steadily growing number
of requests for advisory opinions on the Act. Between fiscal
year 2001-2003, the Hatch Act Unit received an average of 198
complaints per year, compared to 84 complaints on average in
each of the previous 3 fiscal years. Likewise, there has been a
significant increase in the number of alleged Hatch Act
violations referred for field investigation--i.e., 35 in fiscal
year 2003, compared to 8 in fiscal year 2002, and 10 in fiscal
year 2001.
Hatch Act enforcement spawned lengthy and resource-intensive MSPB
litigation activity by OSC in fiscal year 2003.
The OSC's fiscal year 2005 budget request will provide funding
for the staff resources needed to handle increasing numbers of
Hatch Act complaints, opinions, and enforcement efforts,
including litigation.
--As mentioned, outreach within the Federal workforce is critical to
the mission of OSC. Success in outreach obviously generates a
greater numbers of complaints, whistleblower disclosures,
allegations and requests for assistance than in previous years.
I believe our excellent professional staff will rise to the
occasion, but the agency needs an increase in FTEs and an
increased travel budget to keep up with those demands.
--Higher labor funding is also required to better address Freedom of
Information Act (FOIA) processing, investigations, and
enforcement.
--The OSC's fiscal year 2004 funding was intended to pay for the cost
of 113 FTE, but the agency has incurred several unfunded
mandates: increased benefit costs (transit subsidy increases),
new requirements for financial statements and audits,
significant increase in costs under an interagency agreement
for receipt of administrative services, and unanticipated real
estate taxes for its D.C. office. Salaries and benefits make up
approximately 83 percent of OSC's operating expenses for fiscal
year 2004, so the agency has little ability to reprogram funds
when salaries and benefits for authorized FTE exceed
appropriations. While these types of costs may be easily
absorbed by most agencies' budgets that dwarf OSC's, these
types of expenses can easily swamp a relatively tiny agency
like ours, materially having an impact on achieving goals and
even core missions.
--To be successful in meeting our goals of vigorously enforcing the
statutes for which we are responsible, with the least possible
headcount, we are moving to further automate several steps
within our processes, which also bears costs in equipment and
development resources.
PROGRESS MADE
As noted earlier with respect to prohibited personnel practice
complaints, the OSC's ongoing and intensive efforts to improve upon its
responsiveness began to yield results in fiscal year 2003. The agency
processed 85 percent of those complaints within the 240-day timetable
established by Congress. The OSC intends to build on these results, and
achieve close to 100 percent success in this regard--all the while
avoiding any backlogs.
SUMMARY
The largest part of the requested increase in the fiscal year 2005
budget, therefore, is for the full cost of the fiscal year 2004 FTE
increase. The capacity to fund 113 FTEs is needed to properly manage
OSC's statutory responsibilities and to reduce, if not eliminate,
processing delays.
Our office exists to ensure good government. When people behave in
ways that do not promote good government, or jeopardize safety and
health in the Nation, we must take corrective and disciplinary action.
We exist to promote good, efficient, fair government, and integrity for
the Nation among the Federal workforce. The fiscal year 2005 budget
request will enable OSC to reach its mission to promote good government
in an expeditious way.
Thank you for your interest in the Office of Special Counsel.
______
FEDERAL ELECTION COMMISSION
Prepared Statement of Ellen L. Weintraub, Vice Chair
Mr. Chairman, Ranking Member Murray, and members of the committee,
it is my privilege to present the Federal Election Commission's (FEC's)
fiscal year 2005 appropriation request. To begin, on behalf of the
agency, I thank you for last year's appropriation. Your bipartisan
support of the FEC budget has enabled us to continue to implement the
Bipartisan Campaign Reform Act of 2002 (BCRA), which amended the
Federal Election Campaign Act of 1971.
Our fiscal year 2005 appropriation request is for $52,159,000, an
increase of $2,016,596 or 4.02 percent, and for 391 FTE, the same as
our fiscal year 2004 FTE level. This year, as last year, the FEC is
seeking only a modest increase over the fiscal year 2004 budget of
$50,142,404 (less the government-wide across-the-board 0.59 percent
rescission) and 391 FTE. I am pleased to report this request conforms
to the President's fiscal year 2005 budget request for the FEC.
Additionally, last year Congress appropriated $800,000 (less the
0.59 percent rescission) to the Commission for the operations of the
Office of Election Administration (OEA), with the understanding that
any remaining funds and other assets of the OEA would be transferred,
pursuant to section 801 of Public Law 107-252, to the Election
Assistance Commission (EAC) once the EAC was constituted. We are
pleased to report, effective April 1, 2004, the OEA and all of its
assets (including $500,527 in unobligated funds, property and records),
personnel and liabilities, were transferred to the EAC.
The fiscal year 2005 request represents a continuation of fiscal
year 2004 funding levels, adjusted for inflation, and salary and
benefit increases ($1,744,700--a 4.85 percent increase). As such, it
represents a Current Services request for fiscal year 2005, with no
additional funds or staff for new programs or initiatives by the FEC
and represents an overall increase of only 1.92 percent for non-
personnel costs. These minimal increases are detailed in our fiscal
year 2005 Budget Justification.
In its annual review of legislative recommendations, the Commission
has submitted 12 recommendations for legislative action. Four of those
were unanimously endorsed as priority recommendations; the remaining 8
as non-priority. The 4 priority recommendations, in brief, are that
Congress: (1) allow as a permissible use of Federal campaign funds
donations to State and local candidates and for any other lawful
purpose that does not violate subsection (b) of section 439a; (2)
increase the amount that authorized committees may give to authorized
committees of other candidates; (3) modify terminology of ``reason to
believe'' finding; and (4) require mandatory electronic filing of
Senate reports. The remaining 8 recommendations, while placed in the
non-priority category are, nonetheless, supported unanimously by the
Commission as substantive or technical in nature. We are confident
these legislative changes will result in efficiencies, not only for the
FEC, but also for the regulated community.
Over the past few years, the FEC has achieved major successes,
including meeting statutory and court deadlines for the BCRA
implementation and legal challenges to the BCRA, as well as the
expansion of the compliance program. These successes are the result of
FEC efforts and support from our Congressional oversight committees. In
addition, two programs have received accolades from the regulated
community--the Administrative Fine Program and Alternative Dispute
Resolution (ADR) Program. With the addition of these two programs, we
have been able to successfully streamline the enforcement process.
I now will provide a brief overview of the FEC's three core program
areas and relate those areas to the agency's fiscal year 2005 budget
request.
DISCLOSURE PROGRAM
The FEC's disclosure program includes not only the review and
placement of information on the public record, but also educational
outreach, including campaign finance workshops and seminars, a toll-
free line for consumer requests, and automatic fax transmission of our
publications 24 hours a day, 7 days a week. FEC meeting agendas and
related documents also are available on our web site. Our disclosure
program accounts for over a third of the agency's staffing (137 FTE),
distributed among the Public Records Office, Information Technology
Division, Reports Analysis Division, Press Office, Information Office
and those sections of the Office of General Counsel that formulate
proposed regulations and draft responses to advisory opinion requests.
Improvements in productivity, aided by IT enhancements, generally
have enabled the FEC to keep pace with the large increases in Federal
campaign finance activity during recent election cycles, activity which
has nearly doubled in the last 12 years. Total disbursements for a non-
Presidential election cycle have increased from $1.1 billion in 1986,
to $3.8 billion for the 2000 presidential and 3.1 billion for the 2002
congressional cycle--a 282 percent increase. We anticipate $4 billion
in total disbursements for Federal campaigns in the 2004 cycle, from
about 8,000 committees filing over 90,000 reports and generating 3
million itemized transactions. The 2006 cycle, a congressional cycle,
should be slightly lower in volume than the 2004 presidential cycle.
Every election cycle since 1992 has seen a new record in total spending
in Federal elections for Congressional and Presidential elections. With
your help, we are building an impressive communications system capable
of handling our Information Technology (IT) needs well into the future.
This system offers the capability of instantly updating our database
and expanding the types of information collected. As you are aware,
however, this system is expensive. The average annual cost is about $1
million to maintain the electronic filing system.
With the passage of mandatory electronic filing, we are beginning
to see the benefits of timeliness and work process improvements such a
sophisticated system affords. Since the institution of electronic
filing, median time to process all documents has improved from 10 to 11
days to 5 to 6 days.
COMPLIANCE PROGRAM
Obtaining voluntary compliance is the foundation of the FEC's
strategic and performance plans, and is at the core of our mission
statement. A credible enforcement program, however, is necessary to
provide sufficient incentive to the regulated community to achieve this
voluntary compliance. In fiscal year 2005, we anticipate assigning 189
FTE to the compliance function, including enforcement, supervisory and
support staff from OGC, Information Technology and the Audit Division.
In the audit track of the compliance program, we are pleased to report
sufficient resources have been provided to allow the Commission to
initiate 40 to 45 audits ``for cause'' for the 2004 election cycle, as
opposed to 25 in the 1998 cycle. Details on the compliance program are
contained in the fiscal year 2005 Budget Justification.
The first major overhaul of the FEC's enforcement program occurred
in May 1993. Faced with a large number of complex cases the Commission
developed the Enforcement Priority System (EPS), to prioritize cases
for substantive enforcement action. This system is designed to provide
a consistent and impartial ranking of cases based on the relative
seriousness of the alleged violations, and gives us a tool to match the
seriousness of a particular case to the resources available to
undertake the investigation. We use the EPS in conjunction with the
case management system, which enables the Commission to measure
performance with regard to the substantive resolution of cases by issue
and to measure timeliness of enforcement actions. Under EPS, the
Commission has activated more cases, closed more cases with substantive
action, and resolved some cases that would otherwise have been
dismissed.
The EPS has enabled the Commission to focus limited enforcement
resources on the more important enforcement actions and to close low-
rated and stale cases. The increased level of civil penalties assessed
by the Commission following implementation of the EPS has demonstrated
the benefits of pursuing more substantive cases. In 1991, there were
262 cases closed with civil penalties totaling $534,000; in 1995, there
were 229 cases closed with $1,967,000 in civil penalties. By fiscal
year 2003, there were 377 cases closed with civil penalties and fines
totaling $2,774,603.
Before 2000, the FEC's enforcement program was administered
entirely by the Office of General Counsel. Two new components of the
Commission's enforcement efforts--the Administrative Fine Program and
the ADR program--are administered by the Staff Director. The goal of
the ADR Program is to resolve matters quickly and effectively through
bilateral negotiations. Both the ADR and Administrative Fine programs
are designed to expand the FEC enforcement presence and resolve certain
types of cases without resorting to the more lengthy traditional
enforcement process. The Commission has met its compliance goals.
Today, the Commission focuses its legal resources on the more complex
enforcement matters, while using administrative processes to handle
less complex matters. For example, from fiscal year 1995 through fiscal
year 2000, the FEC closed an average of 197 cases each fiscal year. In
fiscal year 2001, with the addition of the Administrative Fine and ADR
programs, the FEC closed 518 cases, a 163 percent increase over the
fiscal year 1995-2000 annual average of 197 cases. In fiscal year 2002,
the FEC closed 229 cases, including enforcement, ADR and administrative
fine cases. The total in fiscal year 2003 was 535 closed cases. We are
confident the figure for fiscal year 2004 will be higher.
PUBLIC FUNDING PROGRAM
The Commission also administers the program providing a public
subsidy to Presidential election campaigns. During fiscal year 2005,
approximately 64 FTE from the Audit Division, Office of General
Counsel, and Information Technology Division, will be directly involved
in this program, which will entail audits of the seven candidates
receiving matching funds for the 2004 election. In addition, two
general election candidate committees will be audited, as will two host
committees and two convention committees, for a total of 13
Presidential audits in fiscal year 2004 and 2005. This program began
certifying eligible primary candidates for matching funds and
processing submissions for funding awards on January 2, 2004.
On a related matter, we believe it is appropriate to bring to your
attention the potential shortfall in the Presidential Public Funding
Program. There was a brief shortfall with the February primary matching
payments for the 2004 Presidential election, which was restored with
the February deposits to the Fund. This is the only anticipated
shortfall for the 2004 cycle. We did not experience a major shortfall
for the 2004 Presidential election because several major candidates
decided not to take Federal matching funds for the 2004 primaries;
however, this may change in future elections. The Treasury Department
maintains the matching fund account which is comprised of money derived
from a taxpayer check-off system. Shortfalls in 1996 and 2000 occurred
for several reasons. First, the eligibility requirements for receiving
matching funds have not been adjusted for inflation since 1974, thus
allowing more candidates to qualify for matching funds. Second, the
``front-loading'' of the primary and caucus nominating process which
puts a premium on ``early'' fundraising for Presidential candidates,
resulted in a high volume of funds being raised in 1995 and 1999 that
were eligible for matching payments in January of 1996 and 2000. Absent
legislative action, the Public Funding Program faces potential
shortfalls because of declining participation in the check-off program,
and the failure to index contributions to inflation while the pay-outs
are indexed.
The foregoing summarizes the FEC's fiscal year 2005 budget request.
For a more detailed review of this request, I would urge members of the
committee to consult our more detailed Budget Justification, which
includes charts delineating how our budget request would be allocated
and how it compares to previous years. It also demonstrates how the FEC
has developed and used strategic and performance planning.
Again, I thank you, Mr. Chairman and the committee, for your
continued support and the opportunity to present our fiscal year 2005
budget request.
______
OFFICE OF NATIONAL DRUG CONTROL POLICY
Prepared Statement of John P. Walters, Director
I am pleased to set forth the fiscal year 2005 budget request for
the Office of National Drug Control Policy (ONDCP). I want to thank the
subcommittee for its strong bipartisan commitment to our shared
national goal of reducing drug use in America, especially among our
youth. This subcommittee provides critical funding to support ONDCP's
programmatic, policy, and budget development functions.
Your support of ONDCP's $510.959 million budget request permits
ONDCP to continue fulfilling our dual mission of serving as the
President's primary Executive Branch support for counter-drug policy
and program oversight and simultaneously managing our own programmatic
responsibilities. We continue to work to achieve results of our stated
goals and we are meeting those goals. For example, in February 2002,
President Bush unveiled his goal of reducing youth drug use by 10
percent in 2 years in the National Drug Control Strategy. That goal has
been exceeded. The 2003 Monitoring the Future Study confirms that
current use (past 30 days) of any illicit drug between 2001 and 2003
among students declined by 11 percent. Similar declines were seen for
past year use (11 percent) and lifetime use (9 percent).
ONDCP takes seriously its primary statutory responsibility to
develop national drug control policy and a supporting budget, to
coordinate and oversee the implementation of that policy and budget,
and evaluate drug control programs to ensure that our efforts are
coordinated and focused on obtaining measurable results. In addition to
our policy role, ONDCP is responsible for managing and evaluating four
key programs: The National Youth Anti-Drug Media Campaign, the Drug-
Free Communities Support Program, the High Intensity Drug Trafficking
Areas Program (HIDTA) Program, and the Counterdrug Technology
Assessment Center (CTAC).
ONDCP is requesting $510.959 million in budget authority for fiscal
year 2005. The fiscal year 2004 enacted level is $522.247 million. The
budget request reflects four program accounts: Salaries and Expenses;
the Counterdrug Technology Assessment Center (CTAC); Other Federal Drug
Control Programs; and the High Intensity Drug Trafficking Areas (HIDTA)
program.
A. Salaries and Expenses: $27.609 million
In fiscal year 2005, ONDCP is requesting $27.609 million for
Salaries and Expenses to support a full complement of 125 Full-Time
Equivalents (FTEs) and a pay raise. The request reflects a decrease of
$222,321 below the fiscal year 2004 enacted amount. This request is
essential if ONDCP is to carry out its policy, budget, and programmatic
responsibilities in a manner consistent with achieving measurable
results. This includes:
Operational Request: $26.259 million
Will provide compensation and benefits for all authorized FTEs
including a full complement of Executive Level (EX) positions; contract
services; rental payments to the General Services Administration;
travel and transportation; communications and utilities; printing and
reproduction; supplies, materials and equipment.
Includes resources to support 125 FTEs, an increase of 5 FTEs over
the fiscal year 2004 enacted level. This FTE increase is requested to
offset the loss of many of the 30 military detailee positions the
Department of Defense has supported at ONDCP since 1996. Increasing the
staff level to 125 FTEs will enable ONDCP to assess and respond to the
drug threat facing the Nation. ONDCP will be able to monitor agency
implementation of the National Drug Control Strategy programs and
improve interagency coordination. ONDCP will be able to evaluate
programs and identify those that work. Additionally, ONDCP will be able
to provide policy guidance and oversight to the Counterdrug Technology
Assessment Center (CTAC), High Intensity Drug Trafficking Area (HIDTA)
Program, and Other Federal Drug Control Programs.
Provides for two new initiatives: High Speed TS Communication Line
Costs and Communication Line Costs for DOD Intel-Link computers on-
site. ONDCP will need to assume these costs because of budget
realignments within the DOD Counterdrug budget.
Policy Research Request: $1.350 million
This request will continue and expand ONDCP's policy research
program, an increase of $7,965 over the fiscal year 2004 enacted
amount. ONDCP conducts research to develop and assess drug policy,
identify and detail changing trends in the supply of and demand for
illegal drugs, monitor trends in drug use and identify emerging drug
problems, assess program effectiveness, and improve the sources of data
and information about the drug situation. The requested funding will
support a wide range of new and continuing policy research projects.
B. Counterdrug Technology Assessment Center (CTAC): $40 million
In fiscal year 2005, ONDCP is requesting $40 million to support the
Counterdrug Technology Assessment Center (CTAC). The fiscal year 2004
enacted level is $41.752 million. The aggregate request includes
funding for two distinct components: Research and Development Program
($18 million) and the Technology Transfer Program ($22 million).
Technology Research and Development: $18 million
Demand Reduction R&D Program: $12 million.--CTAC's Demand Reduction
Initiatives, in conjunction with the National Institute on Drug Abuse
(NIDA), will continue to improve upon existing technology available for
substance abuse, dependence, and addiction research. CTAC has
established a ``niche'' in developing and installing advanced
neuroimaging instrumentation at drug abuse research facilities
operating under grants from NIDA. The Demand Reduction Technology
Review Committee (DRTRC) has been established in conjunction with NIDA
to address and prioritize research initiatives with which CTAC can
assist in the future.
Supply Reduction R&D Program: $6 million.--This funding will
provide for developing technology for use by Federal, State, and local
law enforcement agencies in reducing the supply of illegal drugs by
developing technologies that satisfy identified law enforcement
requirements for increased investigative capability. Once tested and
evaluated, developed technologies become available either through the
Technology Transfer Program or through independent purchase. Sponsored
R&D items in fiscal year 2004 include a panoramic 360-degree video
surveillance camera, a Project 25 digital audio body-wire, and a Title
III telephone intercept expansion capability.
Technology Transfer Program (TTP): $22 million
The Technology Transfer Program (TTP) relies on technical and
operational performance testbed evaluations and outreach to industry to
acquire additional items for law enforcement. The TTP makes available
state-of-the-art, affordable, easily integrated, and maintainable tools
to enhance the capabilities of State and local law enforcement agencies
for counterdrug missions. TTP is not a grant program; rather, it
provides drug crime fighting information technology and analytical
tools, communications interoperability, tracking and surveillance, and
drug detection devices from a catalog of items proven to be
operationally effective by Federal, State, and local law enforcement.
Hands-on training and maintenance support are provided to all
recipients, and TTP maintains extensive records of State and local
applications and jurisdiction statistics on every aspect of the program
including the status of deliveries, departments receiving equipment,
and training records.
C. Other Federal Drug Control Programs: $235 million
In fiscal year 2005, ONDCP is requesting $235 million for the Other
Federal Drug Control Programs. The fiscal year 2004 enacted level is
$227.649 million. This account provides funds to a diverse group of
ongoing programs: the National Youth Anti-Drug Media Campaign, the
Drug-Free Communities Support Program, World Anti-Doping Agency (WADA)
Membership Dues, the U.S. Anti-Doping Agency, Counterdrug Intelligence
Executive Secretariat, National Drug Court Institute, and Performance
Measures Development.
The National Youth Anti-Drug Media Campaign: $145 million
In fiscal year 2005, ONDCP is requesting $145 million for the
National Youth Anti-Drug Media Campaign. The fiscal year 2004 enacted
level is $144.145 million. The Media Campaign uses multi-media
advertising and public communications strategies aimed at youth and
parents to promote anti-drug attitudes and behavior. The Campaign is a
comprehensive national effort that integrates paid advertising at
national and local levels with Web sites, clearinghouses, media events,
outreach to the entertainment industry, and strategic partnerships that
enable messages to resonate in ways that generate awareness and
ultimately change beliefs and intentions toward drug use by teens.
Recently, ONDCP released results from the Monitoring the Future
(MTF) Survey, which revealed that current use of illicit drugs among
8th, 10th, and 12th graders was down a statistically significant 11
percent from 2001. This reduction surpassed the President's ambitious
goal of reducing youth drug use by 10 percent in 2 years. Moreover, MTF
revealed that exposure to anti-drug advertising had an effect on
improving youth anti-drug attitudes and intentions.
While these results are promising, each day 4,800 kids try
marijuana for the first time and more adolescents continue to enter
treatment for marijuana dependence than for all other drugs combined,
demonstrating the need for continued funding. Therefore, this request
continues funding for ONDCP's Media Campaign, an integrated effort that
combines paid and donated advertising with public communications
outreach.
In January 2004, the Media Campaign launched a new effort to urge
friends and parents of teenagers to take early action against drug use.
This new effort targets those closest to the user--friends and
parents--and encourages them to intervene at an early stage. Giving
friends and parents of teens the skills necessary to recognize symptoms
of drug use and underage drinking, and to take action to stop it, can
make a difference in the futures of young people at an important
crossroads in their lives, before they need addiction treatment and
before they encounter life-altering or deadly consequences.
The Drug-Free Communities Support Program: $80 million
In fiscal year 2005, ONDCP is requesting $80 million for the Drug-
Free Communities Support Program (DFCSP). The fiscal year 2004 enacted
level is $69.587 million. The DFCSP provides a competitive process to
award matching Federal grants of up to $100,000 per year directly to
local community anti-drug coalitions for the purpose of supporting
local efforts to prevent or reduce drug use among youth. The program
currently supports over 600 community coalitions in all 50 States, the
District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
Together, these community anti-drug coalitions serve a national network
of local citizens, community leaders, and key professionals working
daily to help keep young people free of the well-known dangers of drug
use, including the underage use of alcohol and tobacco. Approximately
30 of the DFCSP grants have been awarded to communities where American
Indian or Alaskan Native youth are the majority of young people served.
Approximately 40 percent of DFCSP grants go to communities in small
towns and rural areas.
Of the total amount of $80 million that ONDCP is requesting for
this program in fiscal year 2005, $74.2 million will be awarded in
grants to as many as 750 community anti-drug coalitions. An additional
amount of $1 million is requested to continue support for the National
Community Anti-Drug Coalition Institute to provide much-needed training
and technical assistance to the growing number of coalitions around the
country. An amount of $4.8 million is requested to support all other
costs associated with grants management, program evaluation, and
program administration.
World Anti-Doping Agency Membership Dues: $1 million
In fiscal year 2005, ONDCP is requesting $1 million for World Anti-
Doping Agency (WADA) Membership Dues. The fiscal year 2004 enacted
level is $0.795 million. The dues assessment is formula driven and
accounts for the increase from fiscal year 2004. WADA receives its
funding in equal amounts from the International Olympic Committee and
world governments. Governments are divided into six geographic regions.
The United States, along with Canada, Central America, the Caribbean,
and South America, are part of the Americas region. The Americas region
is required to contribute 29 percent of the governments' funding. As of
fiscal year 2004, the regions dues are based upon the relative
contribution levels to the Organization of American States.
Created in 2001, WADA is a partnership among world governments,
intergovernmental organizations, the Olympic movement, athletes, and
other entities concerned about the consequences of doping and drug use
in sport. WADA's mission is to promote healthy, doping free sport at
the international level. WADA's doping-control program is key to
upholding the fundamental rights of athletes to participate in doping-
free sport through an effective detection and deterrence program,
promoting consistency and ensuring an independent, quality-controlled
process seeking equity for all athletes in all sports in all countries.
In addition to drug testing, WADA's budget funds education and
prevention programs for athletes at all age and levels (with a
particular emphasis on youth) and research related to drug use in
sport.
United States Anti-Doping Agency: $1.5 million
ONDCP is requesting $1.5 million to support the United States Anti-
Doping Agency (USADA). The fiscal year 2004 enacted level is $7.158
million. Since fiscal year 2002, funding to support USADA has been
passed directly from ONDCP to USADA. USADA is a non-profit entity under
the leadership of an independent board of directors. USADA began
operations October 1, 2000, with full authority for drug testing,
education, research, and adjudication for U.S. Olympic, Pan Am Games,
and Paralympic athletes. Congress and the President have subsequently
recognized USADA as the official anti-doping agency for the above-
stated purposes (Public Law 107-67). Since its inception, USADA has
received worldwide acclaim for its effective and innovative testing and
education initiatives.
The $1.5 million request would support USADA's ongoing drug testing
regime that includes management, sample collection, and testing
procedures. The fiscal year 2005 request considers the adjudication
costs as the result of increased testing and the implementation of
blood testing, which is more costly (and accurate) than urine drug
testing. The request would also fund drug-related research, educational
programs aimed at school-aged athletes and coaches, efforts to inform
athletes of the rules governing the use of performance enhancing
substances, and the ethics of doping and its harmful health effects.
The public awareness efforts will be particularly important since the
World Anti-Doping Agency adopted a new universal Code in March 2003
that will govern U.S. amateur athletes.
Counterdrug Intelligence Executive Secretariat: $4.5
million
In fiscal year 2005, ONDCP is requesting $4.5 million for the
administration and operations of the Counter-drug Intelligence
Executive Secretariat (CDX). The fiscal year 2004 enacted level is
$2.982 million. The CDX staff was established to coordinate the
implementation of the General Counterdrug Intelligence Plan (GCIP)
established in February 2000 and revalidated in May 2002. Fiscal year
2005 funding of CDX will ensure that the action items established by
GCIP, as well as additional projects requested by the interagency
Counterdrug Intelligence Coordination Group, can be accomplished.
National Drug Court Institute: $1 million
In fiscal year 2005, ONDCP is requesting $1 million for the
National Drug Court Institute (NDCI). The fiscal year 2004 enacted
level is $0.994 million. Due to the fact that nearly 50 percent of the
Nation's drug courts have only been in operation for the last 4 years,
the Institute's education, research, and scholarship programs request
these funds to continue the expansion of its discipline-specific and
topic-specific drug court training programs for practitioners; to
convene regional evaluation trainings in order to provide a forum for
practitioners and researchers to enhance drug court evaluation
techniques; to continue to publish and disseminate monographs on
important and timely drug court issues; to continue to publish and
disseminate the National Drug Court Institute Review; and to continue
to publish and disseminate best practices fact sheets for drug court
practitioners.
Performance Measures Development: $2 million
In fiscal year 2005, ONDCP is requesting $2 million for Performance
Measures Development. The fiscal year 2004 enacted level is $1.988
million. ONDCP will use the requested funding to develop and implement
data sources to monitor illegal drug use and supply for national
policy-makers. Projects funded with these resources will include
efforts to work with selected programs to develop and/or improve needed
data sources. In recent years, ONDCP has worked with the National
Institute of Justice to redesign and expand the Drug Use Forecasting
program into the Arrestee Drug Abuse Monitoring program. ONDCP has also
worked with the DEA to improve the methodology of the Heroin Signature
Program and the Domestic Monitoring Program. The requested funding will
continue this collaborative interagency effort to develop and implement
programmatic performance measures.
D. High Intensity Drug Trafficking Areas (HIDTA): $208.35 million
In fiscal year 2005, ONDCP is requesting $208.35 million for the
operations of the High Intensity Drug Trafficking Area program ($206.3
million for grants and Federal transfers and $2.050 million auditing
for services and associated activities, including development and
implementation of a data collection system to measure program
performance). The fiscal year 2004 enacted level is $225.015 million.
Each HIDTA has an Executive Committee (EXCOM) that serves as the
governing body for the individual HIDTA. The EXCOM consists of an equal
number of representatives from local/State and Federal agencies. The
EXCOM is responsible for the development and implementation of the
HIDTA Strategy and the attendant initiatives and budgets, as well as
for the fiscal operations of the HIDTA.
The HIDTA mission includes coordination efforts to reduce the
production, manufacturing, distribution, transportation, and chronic
use of illegal drugs, as well as the attendant money laundering of drug
proceeds. In addition, HIDTAs assess regional drug threats, develop
strategies to address the threats, integrate initiatives, and provide
Federal resources to implement initiatives. These resources are
allocated to link local, State, and Federal drug enforcement efforts
and to optimize the investigative return on limited fiscal and
personnel resources. Properly targeted, HIDTAs offer greater efficiency
in countering illegal drug trade in local areas by facilitating
cooperative investigations, intelligence sharing (coordinated at HIDTA
Investigative Support Centers), and joint operations against drug-
trafficking organizations.
Since fiscal year 2002, in addition to recurring HIDTA funding,
ONDCP has provided additional funds to HIDTAs that have developed and
conducted investigations against major drug trafficking organizations
with connections to the Consolidated Priority Organization Target
(CPOT) list. (The CPOT list, developed in 2001 by key Federal law
enforcement entities, with input from the Intelligence Community and
other Federal agencies, is comprised of the drug trafficking
organizations generally agreed to represent the most significant drug
threat to the United States. The list, which is maintained by the
Justice Department, is updated periodically and is not public.) In
fiscal year 2004, ONDCP has proposed to make approximately $16 million
available to generate and advance investigations of domestic targets
with a nexus to or affiliation with major drug trafficking
organizations on the CPOT list. ONDCP hopes that continued
discretionary funding will be available for HIDTAs through the CPOT
Initiative in fiscal year 2005.
At present, 406 United States counties (about 13 percent of the
total) in 43 States, Puerto Rico, the United States Virgin Islands, and
the District of Colombia are designated as part of 28 HIDTAs. Since
January 1990, counties in the following 28 areas have been designated
as HIDTAs: Houston, Los Angeles, South Florida, New York, and the
Southwest Border, which includes partnerships in South Texas, West
Texas, New Mexico, Arizona, and Southern California (in 1990);
Washington/Baltimore, and Puerto Rico/U.S. Virgin Islands (in 1994);
Atlanta, Chicago, Philadelphia/Camden (in 1995); Gulf Coast (Alabama,
Louisiana, and Mississippi), Lake County, Indiana, the Midwest (Iowa,
Kansas, Missouri, Nebraska, North Dakota, and South Dakota), Northwest
(Washington), Rocky Mountain (Colorado, Montana, Utah, and Wyoming) (in
1996); Northern California (San Francisco Bay Area) and Southeast
Michigan (in 1997); Appalachia (Kentucky, Tennessee, and West
Virginia), Central Florida, Milwaukee, and North Texas (Northern Texas
and Oklahoma) (in 1998); and Central Valley California, Hawaii, New
England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island, and Vermont), Ohio, and Oregon (in 1999); Northern Florida and
Nevada (in 2001). The HIDTAs nationwide contribute significantly to the
removal of drug traffickers and the trafficking organizations that
drive the illegal drug market and also to the elimination of tons of
illegal drugs that flow each year through high intensity drug
trafficking areas to other American communities.
conclusion
Thank you for the opportunity to provide this formal statement for
the record. I will be happy to address any questions you may have and I
look forward to working with this subcommittee as we work to meet the
goal of reducing drug use in America, especially among our youth.
______
SURFACE TRANSPORTATION BOARD
Prepared Statement of Roger Nober, Chairman
Chairman Shelby and members of the subcommittee, I am Roger Nober,
Chairman of the Surface Transportation Board (Board). I thank you for
the opportunity to submit this statement setting forth the Board's
budget request for fiscal year 2005.
BACKGROUND ON THE BOARD
The Board is a three-member, bipartisan, decisionally independent
adjudicatory body organizationally housed within the Department of
Transportation (DOT) with jurisdiction over certain surface
transportation economic regulatory matters.
The rail oversight of the Board encompasses rate reasonableness,
car service and interchange, mergers, line acquisitions, line
constructions, and abandonments. The jurisdiction of the Board also
includes certain oversight of the intercity bus industry and pipeline
carriers; and rate regulation involving noncontiguous domestic water
transportation, household goods carriers, and collectively determined
motor carrier rates. The Board is statutorily empowered, through its
exemption authority, to promote deregulation administratively.
The Board's Section of Environmental Analysis performs
environmental reviews on the Board's construction, abandonment, and
merger matters as required by the National Environmental Protection
Act. These reviews have become more complex and require significant
resources.
THE BOARD'S FISCAL YEAR 2005 BUDGET REQUEST
In fiscal year 2005, the Board requests budget resources totaling
$21,283,000. This budget request mirrors the Board's fiscal year 2004
budgetary authority approved by Congress, adjusted for the fiscal year
2005 pay raise and some program increases. In this budget request, the
Board also seeks resources and authority to operate at 150 FTEs, or
five more FTEs than the current level.
The Board would use the additional funds to address two primary
costs. First, the additional resources are requested to cover salary
and employee benefit costs associated with the fiscal year 2004 and
fiscal year 2005 pay increase. Unlike many agencies, there is little
room at the Board's current budget level to absorb a pay increase
without the additional resources, because fixed costs, including salary
and rent, comprise about 95 percent of the agency's expenses. Absorbing
even a small amount of the pay increase impairs the Board's ability to
perform its statutory mission.
Second, the Board would use most of the additional resources to
implement initiatives to expedite resolution of rail rate disputes
between railroads and their largest customers and to offer a meaningful
forum for the railroads' smaller customers. In fiscal year 2003, the
Board adopted new rules to streamline the rail rate process, and it now
provides for mediation and for technical conferences among the parties
and Board staff that have produced agreements on numerous discovery and
technical issues, thereby resolving matters that in the past would have
taken months to litigate before the Board. Nevertheless, the press of
large rate cases will continue, and we also expect parties will file
small rate cases once new procedures for such cases are in place.
Therefore, one of the additional FTEs would be to implement the
congressional desire that the agency have an Administrative Law Judge,
who would assist in fostering agreements among the parties in various
agency proceedings and would expedite the resolution of small rate
matters. Additional FTEs would provide the Board with another 3-person
rate team for fiscal year 2005 to continue to resolve rate cases within
their statutory deadlines.
The requested authorization for 150 FTEs also will provide the
Board with the discretion to hire staff to replace tenured, retirement-
eligible staff prior to their anticipated retirement date. Several
retirements can be expected in the near future, and having the
flexibility to hire qualified people when they are available is
particularly important for a high-rated agency that must hire economic
and technical expertise when they are available in the labor market.
Consistent with appropriation acts for past fiscal years, the Board
requests a provision allowing user fee collections to be credited to
the appropriation as offsetting collections and used for necessary and
authorized expenses, to the extent that they are collected. The overall
budget request reflects the workload that is expected and the statutory
and regulatory deadlines associated with the resolution of the cases
filed.
RECENT DEVELOPMENTS THAT IMPACT THE BOARD'S BUDGET REQUEST--YUCCA
MOUNTAIN
Under the Interstate Commerce Act, the Board must authorize the
construction of new rail lines that are part of the national rail
system. Since the Board submitted its budget request for fiscal year
2005, it has been named a cooperating agency in the environmental
review associated with building a rail line to the repository at Yucca
Mountain, in Nye County, Nevada. The Department of Energy (DOE) has
been working for years on a program to use Yucca Mountain as a
repository for spent nuclear fuel and high-level radioactive waste that
would be transported there from throughout the United States.
On April 2, 2004, DOE announced that its preferred mode to
transport the radioactive materials from throughout the United States
to Yucca Mountain was ``mostly rail,'' and it selected as its preferred
corridor for a new rail line to Yucca Mountain one beginning near
Caliente, Nevada. Then on April 8, 2004, DOE announced its intent to
prepare an Environmental Impact Statement (EIS), as required by the
National Environmental Policy Act, for construction and operation of
this rail line.
On May 5, 2004, DOE formally requested that the Board, along with
the Bureau of Land Management and the Air Force, become a cooperating
agency on the environmental review of the Caliente Corridor leading to
the Yucca Mountain facility. DOE made this request due to the Board's
statutory authority to review rail construction projects and its
expertise in doing so.
Our responsibilities as a cooperating agency have already begun.
The Board's Section of Environmental Analysis attended the opening
meetings to determine the scope of the environmental review for this
project. Three meetings were held in Nevada over 3 days the week of May
3rd in Armagosa Valley, Goldfield, and Caliente. A meeting was also
held the week of May 10th in Reno, and another is scheduled for May 17
in Las Vegas. Additional meetings are planned for this month and there
will be numerous meetings this year and throughout the EIS process,
which the DOE expects to last at least 2 years.
DOE has not yet determined whether it will structure the line in a
way that would trigger Board review. While the Board receives many
applications to build new rail lines that are subject to the Board's
jurisdiction, not every rail line construction project requires Board
approval. The Board has jurisdiction over and must approve the
construction of any common carrier rail line--a rail line on which the
railroad must provide service to any shipper who requests it. However,
the Board does not license the construction of a private rail line--a
line over service is not available to the general public.
When the Board receives an application to build and operate a new
rail line, it conducts the required environmental review of these
projects and, unless the project is not in the public convenience and
necessity, licenses the project. In the typical case, the Board is the
lead agency for any necessary environmental review.
In conducting the environmental review, the Board is usually able
to accept certain services that are paid for by the project proponent.
For example, to complete the environmental review of a rail
construction project, the applicant selects a third-party contractor
from the Board's list of pre-approved contractors and retains it.
Although the contractor works at the direction of the Board's Section
of Environmental Analysis, the project proponent pays the contractor.
The Board is not reimbursed for its staff time or travel.
In discharging our duties as a cooperating agency, the Board will
require a third party contractor who will assist the Board by attending
meetings regarding the EIS, evaluating the environmental concerns, and
providing the specialized, technical expertise concerning issues
affecting the rail line construction that would supplement the work of
the Board's Section of Environmental Analysis. The Board is working
with DOE for DOE to reimburse the Board for the costs associated with
this contractor.
However, it would be difficult for the Board to accept any offer
for DOE to pay for Board staff and travel since, as discussed, in the
future DOE may seek Board approval for this line.
Since DOE may become an applicant before the Board, the Board does
not want to risk compromising its independence in considering the
merits of a DOE application by accepting financial support from DOE for
additional salary and travel costs. The Board's review of such a
proposal must be independent. Otherwise, if the Board issued a license,
that issuance could be subject to challenge in court on grounds that
the agency's independence was jeopardized by its acceptance of
reimbursements beyond those reimbursements that are ordinarily
permissible in any rail construction case. A successful challenge could
be costly to the taxpayers and delay the project.
The Yucca Mountain EIS process will require the resources for two
full-time staff and travel costs for the biweekly participation
meetings. The Board's participation in the Yucca Mountain EIS will
require 25 percent of the Board's current environmental staff, which
would adversely affect the Board's ability to conduct the environmental
reviews required for abandonment and rail line construction cases
currently pending before the Board and those that may be in the
pipeline awaiting formal filing. In order to fully participate, the
Board would need an additional 2 FTEs and $250,000 above what it has
requested for fiscal year 2005.
OVERALL GOALS OF THE BOARD
In the performance of its functions, the objective of the Board is
to ensure that, where regulatory oversight is necessary, it is
exercised efficiently and effectively, integrating market forces, where
possible, into the overall regulatory model. In particular, the Board
seeks to resolve matters brought before it fairly and expeditiously.
Through use of its regulatory exemption authority, streamlining of its
decisional process and the regulations applicable thereto, and
consistent application of legal and equitable principles, the Board
seeks to facilitate commerce by providing an effective forum for
efficient dispute resolution and facilitation of appropriate business
transactions. The Board continues to strive to develop, through
rulemakings and case disposition, new and better ways to analyze unique
and complex problems, to reach fully justified decisions more quickly,
and to reduce the costs associated with regulatory oversight.
To be more responsive to the surface transportation community by
fostering governmental efficiency, innovation in dispute resolution,
private-sector solutions to problems, and competition in the provision
of transportation services, the Board will:
--Continue to strive for a more streamlined process for the
expeditious handling of rail rate reasonableness and other
complaint cases, in an effort to provide additional regulatory
predictability to shippers and carriers;
--Continue to process diligently cases before the Board and to ensure
that appropriate market-based transactions in the public
interest are facilitated;
--Continue to develop new opportunities for the various sectors of
the transportation community to work cooperatively with the
Board and with one another to find creative solutions to
persistent industry and/or regulatory problems involving
carriers, shippers, employees, and local communities; and
--Continue to work to ensure the provision of rail service that is
responsive to the needs of customers.
fiscal year 2004 and 2005 activities of the board
Building upon the Board's success in fiscal year 2003--including
issuing 890 decisions in fiscal year 2003, developing regulations to
expedite the resolution of large rate cases,\1\ investigating ways to
improve the process for small rate cases,\2\ and informally resolving
disputes between railroads and between railroads and their customers--
the Board will continue to look for ways to streamline or otherwise
improve applicable regulations and the regulatory process and to
promote private-sector resolution of problems. In this regard, the
Board will entertain any proposed exemptions from regulation that might
be appropriate and resolve as expeditiously as possible petitions for
rulemaking filed by parties. The Board will also continue to look
independently for ways to shorten and streamline its procedures for
bringing and prosecuting both large and small rate cases, and to make
the environmental review process for new rail line construction cases
more streamlined as well. And it will continue to use its processes to
encourage private-sector dispute resolution.
---------------------------------------------------------------------------
\1\ Ex Parte No. 638, Procedures to Expedite Resolution of Rail
Rate Challenges to be Considered Under the Stand-Alone Cost
Methodology.
\2\ Ex Parte No. 646, Rail Rate Challenges in Small Cases.
---------------------------------------------------------------------------
As noted, the Board is requesting resources for 5 additional staff
positions in fiscal year 2005. In particular, the Board would use those
resources to establish a new rate team, to hire an administrative law
judge, and to add additional staff to its office that handles consumer
complaints. Although the Board has attempted to use retirements within
the agency to begin to realign its resources for its future needs, it
cannot complete that realignment through retirements alone.
The Board is seeking staff resources for three rate team personnel,
who will help move the rate docket forward. The workload involving rail
rates and services is expected to increase in fiscal year 2004 and
remain stable through fiscal year 2005, particularly given the likely
continuing expiration of long-term coal transportation contracts.
Currently, the Board has 5 coal rate complaint cases at various States
of adjudication and 5 petitions to reopen and reconsider in former coal
rate complaint cases, for a total of 10 rate cases under review. These
proceedings will require significant staff attention and additional
resources, given the complex nature of the cases, the numerous steps
such as motions and discovery resolution, and the tight 9-month
statutory timeframes for completion once the record is closed. Indeed,
the bulge in rate cases is already producing a strain on our resources,
which have historically been geared to handle two rate cases at a time.
(It is for this reason that we are requesting additional resources from
Congress for one additional 3-person rate team for fiscal year 2005.)
Additionally, the Board will continue to handle rail cases involving
questions of whether certain rail activity cannot be regulated at the
State or local level because such regulation is preempted by Federal
law.
In July and August, 2003, the Senate Committee on Commerce, Science
and Transportation considered and reported S. 1389, The Surface
Transportation Board Reauthorization Act of 2003. S. 1389 is a bill to
reauthorize the Surface Transportation Board for 5 years, beginning in
fiscal year 2004. Section 4 of S. 1389 addressed the small rate case
issue, and directed the Board to modify its small rate case procedures
to address many of their identified problems within 180 days.
Subsection 4) of that bill specifically directed that, when revising
its small rate case procedures, the Board ``may provide for an initial
determination of such [small] rate challenges by an administrative law
judge, with an opportunity for appeal of such determination by the full
Board[.]'' At a subsequent hearing on rail regulatory matters held in
October 2003, several Senate Commerce Committee members again noted the
benefits of the Board having an Administrative Law Judge to consider
small rate cases in the first instance, oversee discovery, and issue
preliminary decisions in matter of months compared to years with large
rate cases. The Administrative Law Judge would decide the cases under a
clear standard with cases being appealable to the full Board and
ultimately to the courts.
The final additional staff position would provide the Board
expertise on passenger rail service and would coordinate and resolve
scheduling and operational issues between freight railroads and between
those railroads and their customers. The Board's Rail Consumer
Assistance Program is an informal mechanism for resolving disputes that
has proven very effective, but additional resources will help it
address the increasing number of inquires that result from it becoming
more widely known.
With respect to rail carrier consolidations, we are not aware of
any major rail mergers in the immediate future. Therefore, the workload
in this category is expected to remain somewhat stable through fiscal
year 2005 because this category includes a broad array of control
transactions among larger railroads and smaller railroads. Of course,
it is impossible to know whether a major merger may be proposed during
fiscal years 2004 or 2005. As noted, the Board continues to resolve
issues related to past Class I rail mergers. Also, the Board will
continue to handle other rail consolidations involving smaller
railroads that are filed with it.
Concerning other rail restructuring matters, rail abandonment
decisions are expected to remain somewhat constant through fiscal year
2005. While the number of rail abandonments has remained at this level
for the past number of years, the increased complexity of abandonment
filings continues to require more than one decision in certain cases.
The Board continues to see a high volume of ``post abandonment''
activity relating to trail use, as proponents avail themselves of the
National Trails System Act, and also relating to offers of financial
assistance to continue freight rail service.
With the notable exception of the Yucca Mountain rail line
construction project, the Board projects that its line construction
docket will remain constant through fiscal year 2005. We emphasize that
demands on the Board to conduct environmental reviews for such
transactions continue to grow, and that such activities require a
significant number of resources to complete.
Other line transaction activity is expected to increase slightly
through fiscal year 2005 as more carriers continue to sell unprofitable
or marginally profitable lines as an alternative to service
abandonment, particularly in light of the recent economic downturn. In
the past few years, the Board has seen a number of line acquisitions by
both small carriers and noncarriers as rail carriers restructure their
rail systems.
SUMMARY
The Board's budget request would ensure the resources needed for
the Board to continue to implement its responsibilities expeditiously
and effectively as Congress intends. I would be happy to answer any
other questions that the Committee may have about the Board's fiscal
year 2005 budget request.
Attachment No. 1
SALARIES AND EXPENSES
[Dollars in thousands]
----------------------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year
Fiscal Year 2004 2005 Difference
2003 Actual Estimate Request From
----------------------------------------------------------------------------------------------------------------
Permanent Positions......................................... 145 145 150 5
Full-time Equivalents....................................... 137 145 150 5
Personnel Compensation and Benefits......................... $15,268 $16,025 $17,703 $1,678
Travel...................................................... $41 $80 $87 $7
Other Costs................................................. $3,998 $3,416 $3,493 $77
---------------------------------------------------
TOTAL BUDGET RESOURCES................................ $19,307 $19,521 $21,283 $1,762
----------------------------------------------------------------------------------------------------------------
CHANGES IN RESOURCES
For personnel compensation and benefits, $17,703,000 is requested
to support the Board's permanent positions. Included in this request is
$144,000 to fund the annual cost of the January 2004 pay raise and
$221,000 for the January 2005 pay raise. The request also includes
$50,000 for lump-sum leave payments to retiring employees.
A travel budget of $87,000 is requested primarily for on-site
visits to railroads to finalize audits and review public accountants'
workpapers, to physically inspect proposed rail abandonment and
construction sites, and to verify environmental data provided by
parties to proceedings, conduct operational reviews, meet with shippers
regarding rail service issues and compliance, defend the Board's
decisions in courts across the country, and generally provide
presentations, upon request, on issues within the Board's jurisdiction.
Due to the increased number of environmental reviews associated with
new rail construction cases and attendance at field hearings on high-
profiled cases, staff travel has increased and is expected to remain at
the increased level through fiscal year 2005.
Funding to cover other costs is requested at $3,493,000. Included
in this number are rental payments to the General Services
Administration (GSA) and payments for employee training, telephone
service, postage, information technology systems support and equipment,
miscellaneous services and supplies, and reimbursable services acquired
from other Federal agencies. The increase in other costs is mainly
associated with the projected increase in rental payments to GSA and an
increased level of security for all Federal agencies. The Board has
increased its level of physical security in light of recommendations by
GSA and the Department of Homeland Security and has implemented a
Business Continuity Plan along with sheltering-in-place procedures to
provide for the physical security of its employees and the continuity
planning and continuance of its statutory mission.
Attachment No. 2
FISCAL YEAR 2005 CONGRESSIONAL BUDGET JUSTIFICATION WORKLOAD SUMMARY \1\
----------------------------------------------------------------------------------------------------------------
Actual Fiscal Estimated \2\ Estimated \3\
Year 2003 Fiscal Year Fiscal Year
Board 2004 Board 2005 Board
Workload Category Decisions and Decisions and Decisions and
Court-related Court-related Court-related
Work Work Work
----------------------------------------------------------------------------------------------------------------
Rail Carrier Control Cases...................................... 52 55 55
Rail Rates and Service.......................................... 70 86 86
Rail Abandonments and Constructions............................. 512 501 501
Other Line Transactions......................................... 186 204 204
Other Rail Activities........................................... 33 51 47
Non-Rail Activities............................................. 39 51 53
-----------------------------------------------
Total..................................................... 890 948 946
----------------------------------------------------------------------------------------------------------------
\1\ At this time, the Board believes that the number of Board decisions and court-related work is the best
measure of workload at the Board. Certain activities performed at the Board that provide direct and indirect
support for rulemakings and decisions in specific cases are not reflected in these workload numbers. Such
activities not reflected include: enforcement activities; rail audits and rail carrier reporting oversight;
administration of the rail waybill sample and development of the Uniform Rail Costing System; and case-related
correspondence and informal public assistance.
\2\ Estimated workloads for fiscal year 2004 and 2005 are based on historical information regarding actual
filings and best estimates of probable future filings by parties. Because the Board is principally an
adjudicatory body, it does not directly control the level or timing of actual case filings.
\3\ Ex Parte No. 638, Procedures to Expedite Resolution of Rail Rate Challenges to be Considered Under the Stand-
Alone Cost Methodology.
______
OFFICE OF GOVERNMENT ETHICS
Prepared Statement of Marilyn Glynn, Acting Director
Thank you for the opportunity to submit a statement in support of
the request of the U.S. Office of Government Ethics (OGE) for fiscal
year 2005 resources of $11,238,000 and 80 FTEs. This request represents
an increase of $500,000, primarily to meet expected increases in
personnel costs.
The Office of Government Ethics is responsible for overseeing the
ethics program of the executive branch, a program designed to help
prevent conflicts of interest and promote integrity in Government. OGE
sets the requirements of the program, develops executive branch-wide
policies, serves as a resource/consultant to agency ethics officials
and monitors agency programs to help ensure that the agencies are
carrying out their responsibilities effectively. OGE also plays a
significant role in the review and certification of the financial
disclosure forms of nominees to positions requiring Senate
confirmation. The day-to-day activities of the program are the
responsibility of each executive branch agency. These activities
include initial collection and review of financial disclosure forms;
providing advice and training to agency employees on the criminal
conflict of interest laws and the executive branch standards of
conduct; and investigation and administrative enforcement of the
standards of conduct.
The ethics program that is directed by OGE is part of the basic
infrastructure that supports good governance within the Federal
executive branch. The resources expended by OGE to help promote
integrity and prevent conflicts of interest are small in comparison to
the resources expended by investigators and prosecutors who enforce
ethics and conflict of interest rules and laws. Moreover, our
preventive efforts help guard against the loss of resources through
inadvertent or deliberate misuse. We believe the resources we have
requested are those necessary to adequately support a strong ethics
program.
FISCAL YEAR 2005
We would like to highlight some of the major programs anticipated
for fiscal year 2005.
During any fiscal year in which a Presidential election occurs, OGE
anticipates a large influx of Presidential appointees, regardless of
the outcome of an election. OGE's role in clearing Presidential
nominees is designed to help them understand the application of the
conflict of interest requirements to their Government service and to
secure their agreement to taking the necessary steps to resolve
potential conflicts of interest. Our goal is to review nominee
statements in a timely manner to avoid any unnecessary delay in the
nomination/confirmation process. OGE's resources are shifted from other
programs during this period to handle the increased workload in our
financial disclosure review systems. Once an individual is appointed,
OGE follows through to see that any agreements made by an appointee to
address potential conflicts of interest are carried out. In addition,
during this period, OGE will continue to conduct a second level review
of over 1,000 annual and termination financial disclosure statements
filed by Presidential appointees each year.
As a part of the change that typically occurs after a Presidential
election, OGE also will provide ethics training through OPM, and the
White House if requested, to incoming Presidential appointees, new
noncareer SES and Schedule C appointees, and White House staff.
Additionally, we expect to help agencies provide accurate post-
employment advice to employees who are leaving the government.
In the education and training area, OGE will develop instructor and
participant guides to be used by departments and agencies to deliver
their annual ethics training, as well as training evaluation
instruments to measure what employees learned from various instructor-
led and web-based training courses. In training ethics officials, OGE
will develop and conduct additional instructor-led ethics training
courses for ethics practitioners, trainers, counselors, financial
disclosure reviewers, and enforcement officials in headquarters and the
regions.
To reach ethics officials outside the Washington area, OGE plans to
offer regional symposia for approximately 240 ethics practitioners in
the field. OGE maintains an e-mail list service to communicate with
2,000 practitioners and enforcement personnel world-wide. OGE also will
host the 15th Annual National Government Ethics Conference for
approximately 700 ethics practitioners in September 2005.
The Office has added an employee survey to its evaluations of
individual agency ethics programs. Begun on a more limited basis this
fiscal year, these surveys will be carried out throughout fiscal year
2005 in approximately one-third of the 35 Federal agencies evaluated.
The information gathered through the surveys helps provide OGE with a
better basis on which to judge the effectiveness of the individual
agency programs under review and the overall executive branch ethics
program.
OGE desk officers will maintain their day-to-day communications
with agencies assigned to them. This continuing liaison between OGE and
agency ethics staffs enables OGE to respond to the needs of the
agencies in a timely and accurate manner. In addition, this interaction
provides OGE with an early warning that an agency ethics program is
deficient or has problems that require specialized attention.
OGE will continue to provide international technical assistance at
the request of the Departments of State and Justice. In fiscal year
2005, OGE plans to participate in Global Forum IV, the Follow-up
Mechanism for the Inter-American Convention Against Corruption and the
evaluation mechanisms of the Council of Europe's Group of States
Against Corruption. The United States will also be reviewed under the
latter two mechanisms during fiscal year 2005.
These are just some of the programs and activities envisioned for
fiscal year 2005. We are pleased with the past success of the executive
branch ethics program and look forward to the challenge of maintaining
and enhancing the quality of the program.
NONDEPARTMENTAL WITNESSES
[Clerk's note.--The following testimonies were received by
the Subcommittee on Transportation, Treasury and General
Government, and Related Agencies for inclusion in the record.
The submitted materials relate to the fiscal year 2005 budget
request.
The subcommittee requested that public witnesses provide
written testimony because, given the Senate schedule and the
number of subcommittee hearings with Department witnesses,
there was not enough time to schedule hearings for
nondepartmental witnesses.]
Prepared Statement of the International Loran Association
On behalf of the International Loran Association (ILA), I am
writing in conjunction with your work on the fiscal year 2005
Department of Transportation, Treasury and Related Agencies
Appropriations bill. I respectfully request that this submission be
made part of your hearing record in conjunction with the subcommittee's
work.
The ILA is asking the committee to support $25 million in funding
from the fiscal year 2005 Federal Aviation Administration (FAA)
budget--the same level as requested last year--as the next increment
necessary to continue modernization and enhancement of Loran.
In recent years, the committee has provided about $120 million to
modernize and upgrade Loran because it is a multimodal navigation
system with demonstrated cost/benefits important for our national
transportation safety and security objectives. In fact, at this
juncture, it would cost about $100 million to decommission the system,
approximately the same amount that will be required to complete the
modernization. However, the most compelling reason to continue
providing resources to complete this work is because Loran is the only
multimodal system we have in the United States that can support the
global positioning satellite (GPS) system in all modes of
transportation, as well as in timing applications affecting the
majority of our population.
In previous years, our submissions for the hearing record have
documented numerous security, economic and technical issues as to why
the operation of our national infrastructure and the safety of our
citizens should not be placed at risk by depending solely on GPS for
vast transportation, timing and navigation needs. The Volpe Center's
``Vulnerability Assessment of the Transportation Infrastructure Relying
on the Global Positioning System'' in 2001 framed those issues
regarding overdependence on a single system, and an ever-growing body
of evidence continues to be amassed to validate the continuation of
Loran as the most complementary and cost effective system available to
support GPS and eliminate national vulnerabilities. Indeed, ongoing
studies have verified that not only is Loran the only other multimodal
system we have, but also that Loran is the most complementary and most
cost effective system we have.
As you and other committee members are aware, the FAA, the U.S.
Coast Guard (USCG), academic and industry experts have conducted an
active Loran evaluation program spanning several years and a final
report on that evaluation program is to be submitted to the U.S.
Department of Transportation (DOT) on March 31, 2004. There are two
major aspects to the report: one is the technical evaluation to ensure
a modern or enhanced Loran system can meet the performance requirements
of the FAA and USCG; and the other is a Loran benefit-cost study
completed by the Volpe Center in 2003. It is fair to say that the
technical evaluation section will be very positive, particularly
because virtually all of the contributing studies have been
continuously presented at numerous professional conferences and other
technical fora. In addition, previous DOT-sponsored economic studies on
Loran have been uniformly positive, and given the identified need for a
national GPS backup, it is virtually assured that the economic section
of the Loran evaluation study will be very favorable as well.
Other recent government documents also indicate there is widespread
acknowledgement that Loran is indeed the best system the country can
utilize to backup and support GPS.
For example, in April 2003, a Memorandum of Agreement (MOA)
regarding the recapitalization, modernization, and operation of Loran
was finalized and approved by the FAA, USCG, and DOT. This interagency
MOA states: ``The parties recognize the multi-modal nature of the Loran
navigation system and the necessity of managing Loran as a national
asset in a multi-modal manner. The purpose of this agreement is to set
forth terms by which the parties will provide service in order to
provide a multi-modal backup to the Global Positioning System (GPS)
based services''. In referencing the Volpe Study on GPS vulnerabilities
cited above, the MOA states: ``both the FAA and USCG acknowledged that
GPS is indeed vulnerable to intentional and unintentional interference
and that backup systems are required for both the National Airspace
System (NAS) and the Marine Transportation System (MTS) . . . The FAA
and USCG also recognize that Congress, aviation, maritime, and other
users regard Loran-C as a national asset that must be preserved as a
part of the nation's critical infrastructure''.
In January 2004, the DOT released a report for Secretary Mineta
entitled: ``Radionavigation Systems: A Capabilities Investment
Strategy,'' which also contained some important findings, even though
much of the report's information was approximately 1 year old. First,
it once again clearly identified Loran as the only multimodal backup to
GPS and the best theoretical backup to GPS. Second, although the Loran
report is less than 1 month away, it includes a recommendation to
``Complete the evaluation of enhanced Loran to validate the expectation
that it will provide the performance to support aviation Non-Precision
Approach (NPA) and maritime Harbor Entrance and Approach (HEA)
operations. If enhanced Loran meets the aviation NPA and maritime HEA
performance criteria, and is cost effective across multiple modes, the
Federal Government should operate Loran as an element of the long-term
radionavigation system mix''. In addition, the report looks forward and
identifies Loran as a backup for the new aviation Automatic Dependent
Surveillance--Broadcast (ADS-B) system and the new marine Automatic
Identification System (AIS), both of which will be widely used in the
future. Finally, the report suggests exploration of the collocation of
GPS augmentation and Loran facilities, which would not only maximize
their synergies but also optimize cost savings to the Nation.
From an international perspective, there is also recognition
regarding the need and benefits of Loran. Ultimately, that realization
will provide a major economic opportunity for U.S. technology because
of equipment standardization and market globalization, similar to what
has occurred with GPS. For example, in August 2003 the European
Maritime Radionavigation Forum published a study entitled: ``GNSS
Vulnerabilities & Mitigation Measures: A Study for the European
Maritime Radionavigation Forum,'' and among its conclusions were:
``There is a significant risk of losing GNSS for limited periods and in
limited areas . . . The consequences of losing GNSS will become greater
as reliance on it increases . . . Loran could provide an effective
backup in Europe, at a capital cost estimated at =50m''.
In addition, the ILA was invited to participate in a meeting in
Japan last fall, where representatives from Japan, China, Korea,
Russia, and the United States were asked to address the question of GPS
vulnerabilities and how to solve the problem. Virtually the entire
conference focused on one system: Loran.
In summary, recognition of the various safety, security, economic,
and political benefits that Loran can provide to the Nation has
continued to grow rapidly, based on solid scientific and economic
studies by our government, academia, industry, and other governments. A
positive Loran report will be delivered to the DOT on March 31, 2004,
and the DOT has committed to making a long-overdue Loran policy
decision. It is now a certainty that Loran provides the Nation with the
ability to mitigate GPS vulnerabilities in multimodal transportation
and timing applications that play key roles in the continuing
operations of the national infrastructure, and that the technology does
so at a remarkably low cost.
Loran's future, and its ability to complement GPS, depends on the
continuation of the modernization program, which is already well
underway. As previously documented, that modernization program will
reduce Loran's operations and maintenance costs from approximately $27
million a year to approximately $15 million annually, and enable
multimodal support at a fraction of the cost other single mode system
require. Moreover, the enhanced Loran system that will evolve from the
modernization program will provide better performance than the single
mode systems, and provide a national roadmap to future GPS-based
systems that can incorporate Loran as a backup, such as ADS-B and AIS.
As you and all committee members well understand, GPS has
recognized vulnerabilities that could potentially affect the safety of
tens of millions of Americans and the security of our critical national
infrastructure. In combination with a modernized Loran system, GPS and
Loran can together form the basis of a national infrastructure that is
extremely robust, now and well into our future.
For these reasons, we urge the committee to support fiscal year
2005 funding in the FAA budget of no less than $25 million to continue
a Loran modernization program that will help assure our Nation's
transportation safety and infrastructure security objectives are
achieved in a most cost-effective manner for government providers,
private users, and taxpayers.
______
Prepared Statement of Bernard H. Berne, M.D., Ph.D.
OPPOSITION TO BUDGET REQUEST FOR APPROPRIATION TO FEDERAL BUILDINGS
FUND FOR FOOD AND DRUG ADMINISTRATION CONSOLIDATION, MONTGOMERY COUNTY,
MARYLAND
I am a resident of Arlington, Virginia. I serve the Food and Drug
Administration (FDA) as a Medical Officer and as a reviewer medical
device approval applications. I am submitting this statement as a
private individual.
I ask your subcommittee to deny the administration's request to
provide $88,710,000 to the General Services Administration's (GSA's)
Federal Buildings Fund for the construction of a FDA Consolidation in
Montgomery County, Maryland. This request appears on page 961 of the
President's Budget for fiscal year 2005.
The General Services Administration (GSA) is now designing and
constructing this facility. GSA would use the additional funds to
continue this wasteful project in suburban White Oak, Maryland. Please
deny these funds for the following reasons:
Economic Considerations
FDA will need to pay rent to GSA if it occupies this facility. The
rents would likely be higher than rents that GSA and FDA pay to private
property owners, since GSA would not need to enter into competitive
bidding processes.
Congressional authorizing committees need to evaluate the current
costs of the consolidation and compare them to the costs of maintaining
FDA's current facilities. No Congressional committee has done this
during the past 15 years.
Lack of Need for Relocating FDA to White Oak Facility
All or nearly all of FDA's offices that would move to White Oak are
presently located in satisfactory leased facilities. Some, such as my
own, are now in excellent buildings. There is no clear need or economic
reason to relocate these offices to White Oak or to consolidate any
part of FDA at this location.
White Oak is an unsatisfactory location for FDA's headquarters
consolidation. The project would promote urban sprawl.
FDA's White Oak facility would occupy 125 acres next to a golf
course in a suburban residential neighborhood in Montgomery County,
Maryland. The FDA site is outside of the Capital Beltway on a largely
forested 750-acre property surrounded by heavily congested roads and
highways. The site is 3 miles from the nearest Metro station, and has
only infrequent bus service.
An FDA consolidation at White Oak would bring 6,000 FDA employees
to this Washington area suburb. Most would need to commute for much
longer times and distances than they presently do. White Oak is more
than 20 miles from most present FDA facilities.
I and thousands of other FDA employees presently commute to work by
Metro, as our workplaces are near Metro stations. This will be
impossible at White Oak.
FDA employees driving to White Oak will add traffic congestion and
air pollution to the Washington Metropolitan Area. This is especially
unfortunate because the Washington Metropolitan Area already has the
second worst traffic congestion of all urban areas in the United
States. The Federal Government will need to subsidize many improvements
to roads and public transit to accommodate the many FDA employees and
associated businesses that would relocate from better locations to this
distant suburb.
FDA employee surveys have revealed widespread opposition to this
relocation. Three years ago, a survey of those employees who would
relocate first to White Oak showed that 70 percent opposed the move.
Many stated that the relocation would impair FDA's ability to regulate
drugs and medical devices.
It is clear that the location of the facility will have long-
lasting adverse effects on FDA's ability to recruit and retain
qualified employees. Further, many more FDA employees will telecommute
than presently do. They will rarely work at the new facility. This will
greatly diminish FDA's efficiency and will contradict a major goal of
the FDA consolidation at White Oak.
The Washington Metropolitan area has a number of better sites at
which FDA can consolidate. Some of these, such as the Southeast Federal
Center in the District of Columbia, are near other Federal facilities
and Metrorail stations.
Legal Issues
On February 23, 2001, I and a number of other FDA employees joined
the Sierra Club and the Forest Conservation Council in a law suit that
is intended to stop the White Oak project. For a number of reasons,
FDA's occupancy of any buildings at White Oak would be illegal. The
U.S. District Court for the District of Columbia is presently
considering this suit.
The White Oak facility would house the Office of the Commissioner
of Food and Drugs, as well as most other FDA headquarters offices. This
would violate 4 U.S.C 72, which states:
``All offices attached to the seat of government shall be exercised
in the District of Columbia, and not elsewhere, except as otherwise
expressly provided in law.''
4 U.S.C. 72 is derived from the 1790 Act that established the District
of Columbia as the Nation's capital. The first Congress enacted this
law, which President George Washington signed.
There is no law that expressly provides that FDA's headquarters
offices shall be exercised outside of the District of Columbia.
The FDA Revitalization Act (Public Law 101-635; 21 U.S.C. 369b),
authorizes the Secretary of HHS to enter into contracts to acquire
property and to construct and operate a consolidated FDA headquarters
facility. This Act does not provide the location of the consolidated
facility.
I ask Congress not to appropriate funds to support an illegal
activity. The 1790 Act had the worthy purpose of ensuring that all
central offices of the Federal Government would consolidate in the
Federal capital District, and not elsewhere. The consolidated FDA
facility would be one such office that is ``attached to the seat of
government''.
Article 1, Section 8, of the Constitution gives Congress exclusive
jurisdiction over the District of Columbia. Your committee should take
no action to support the location of FDA's headquarters at a location
that is outside of the District. Any such action would tend to vitiate
this section of the Constitution, which 4 U.S.C. 72 is intended to
support.
Executive Order 12072, Aug. 16, 1978, (40 U.S.C. 490 note) states
in Section 1-1, Subsection 101:
``Federal facilities and Federal use of space in urban areas shall
serve to strengthen the nation's cities and to make them attractive
places to live and work. Such Federal space shall conserve existing
urban resources and encourage the development and redevelopment of
cities.''
White Oak is not in or near any city. An FDA consolidation at White Oak
(which is in an ``urban area'', the Washington Metropolitan Area) would
not strengthen any cities. The FDA facility would not encourage the
development or redevelopment of any cities.
Executive Order 12072, Section 1-1, Subsection 101, contains the
word ``shall'' in several locations. FDA therefore can not legally
locate its headquarters in suburban White Oak.
Executive Order 12072 and several Federal statutes require that
heads of Federal agencies consult with local city officials to obtain
their recommendations for and objections to all proposed new Federal
facilities. Neither GSA nor FDA officials ever consulted with officials
of the District of Columbia or of the City of Rockville in Montgomery
County, Maryland, concerning the White Oak facility.
This lack of consultation violated Executive Order 12072 and
several laws. It prevented District and Rockville officials from
recommending alternative sites for the consolidated facility within
their own jurisdictions and from objecting to the selection of the
White Oak site.
The Public Buildings Act of 1959, as amended, requires that the
Committee on Environment and Public Works of the U.S. Senate approve
prospectuses that describe the location and maximum costs of any large
buildings that GSA may wish to construct before Congress can
appropriate funds to design and construct such buildings. That
Committee has never approved a prospectus that describes FDA's White
Oak facility.
Paragraph 7 of Senate Rule XVI requires that committee reports on
general appropriations bills identify each provision ``which proposes
an item of appropriation which is not made to carry out the provisions
of an existing law, a treaty stipulation, or an act or resolution
previously passed by the Senate during that session.'' If your
committee proposes any appropriation of funds for an FDA consolidation,
your Committee Report needs to identify this appropriation as being one
that is not made to carry out the provisions of any existing law,
treaty, or act or resolution that the Senate has previously passed
during this session.
The Treasury and General Government Appropriations Act, 2000
(Public Law 101-58), the Consolidated Appropriations Act, 2001 (Public
Law 106-544), the Treasury and General Government Appropriations Act,
2002 (Public Law 107-67), the Consolidated Appropriations Resolution,
2003 (Public Law 108-7), and the Consolidated Appropriations Act, 2004
(Public Law 108-199) appropriated funds to GSA that could support FDA's
consolidation in Montgomery County, Maryland. However, all of these
Acts contain provisions that state:
``Provided further, That funds available to the General Services
Administration shall not be available for expenses of any construction,
repair, alteration, or acquisition project for which a prospectus, if
required by the Public Buildings Act of 1959, as amended, has not been
approved, except that necessary funds may be expended for each project
for required expenses for the development of a proposed prospectus.''
The Public Buildings Act of 1959, as amended, requires a prospectus
that describes FDA's White Oak facility because the project's cost
exceeds $1,500,000. No prospectus that described this facility had been
approved before Public Law 101-58, Public Law 106-544, Public Law 107-
67, and Public Law 108-199 were enacted into law. Therefore, GSA may
only legally use the funds appropriated in these Acts for ``required
expenses for the development of a proposed prospectus''. GSA cannot
legally use the funds to design and construct any buildings.
The report of the Committee on Appropriations of the House of
Representatives (House Report 107-152, July 23, 2001), which
accompanied the bill (H.R. 2590) that became Public Law 107-67, states
on p. 65 under the heading: ``General Services Administration''
``Federal Buildings Fund'' ``Construction and Acquisition''
``Recommendation'' the following: ``All construction projects funded in
this bill are subject to authorization by the Committee on
Transportation and Infrastructure''.
FDA's White Oak project was one of the construction projects funded
under Public Law 107-67 (H.R. 2590). Despite this, GSA is presently
designing and starting to construct the FDA consolidation without an
approved prospectus and without receiving authorization by the
Committee on Transportation and Infrastructure. GSA's actions are
contrary to the House Appropriations Committee's statement in House
Report 107-152, and, further, are illegal.
Some GSA officials claim that the FDA Revitalization Act (Public
Law 101-635) authorizes appropriations to GSA without the need for
prospectus approvals. This claim is incorrect. Public Law 101-635,
which amended the Federal Food, Drug and Cosmetic Act, authorized
appropriations that permit the Secretary of HHS to enter into contracts
to construct and operate a consolidated FDA facility.
Public Law 101-635 specifically limits the role of the
Administrator of General Services in the FDA consolidation to
consultation with the Secretary of HHS. Public Law 101-635 does not
authorize any appropriations that can permit GSA to conduct any such
activities, nor does it authorize any appropriations to GSA's Federal
Buildings Fund. Clearly, GSA will use any new funds illegally, just as
it is using the previously appropriated funds.
The National Environmental Policy Act (NEPA) of 1969 requires that
Federal agencies compare in an Environmental Impact Statement (EIS)
alternative locations for any large new Federal facility. However, the
EIS for the White Oak FDA facility did not make any such comparisons.
The EIS only compared the environmental impacts of an FDA
consolidation at White Oak with the ``no action'' alternative.
Following this legally inadequate comparison, GSA and FDA officials
selected White Oak as the location for the facility.
GSA and FDA officials therefore violated NEPA when they selected
the White Oak site. Congress should not appropriate funds to support
this illegal selection.
A Federal court may prevent FDA from consolidating its facilities
at White Oak for one or more of the above reasons. Congress should not
provide funds for FDA to occupy the White Oak facility until the
Federal courts decide whether the project can proceed.
I therefore ask that your subcommittee not provide the requested
$88,710,000 to GSA in this legislation. Thank you.
______
Prepared Statement of the American Passenger Rail Coalition
Chairman Shelby and Members of the Subcommittee on Transportation,
Treasury and General Government, thank you for the opportunity to
provide testimony on fiscal year 2005 funding for Amtrak, the Nation's
intercity passenger railroad. My name is Harriet Parcells and I am
Executive Director of the American Passenger Rail Coalition (APRC), a
national association of railroad equipment suppliers and rail
businesses.
For fiscal year 2005, Amtrak has requested $1.79 billion. Of this
total, nearly $800 million is for capital investments to continue the
work taking place under the leadership of Amtrak President David Gunn
to bring Amtrak into a state of good repair. Amtrak's request for
operations is $570 million, $11 million less than Amtrak requested in
fiscal year 2004 and an indication that Mr. Gunn's efforts to improve
efficiency, reduce costs and implement management reforms at Amtrak are
yielding positive results. APRC supports Amtrak's budget request and
asks the subcommittee to fund Amtrak at $1.79 billion. While we
recognize that funding constraints face the subcommittee, APRC believes
that funding Amtrak much below $1.79 billion would jeopardize the
substantial progress taking place at Amtrak. The administration's
fiscal year 2005 budget of $900 million for Amtrak is nearly 50 percent
below Amtrak's budget request and $318 million or 26 percent below
Amtrak's current appropriation of $1.218 billion. Funding Amtrak at
$900 million would provide virtually no funding to continue the
important capital investments identified in Amtrak's Five Year
Strategic Capital Plan and that Amtrak has been undertaking since 2003.
Amtrak President David Gunn has stated that funding at $900 million
would lead to a shutdown of the national system. APRC also supports
strong funding for the rail safety and research and development
programs at the Federal Railroad Administration.
amtrak ridership is strong on trains nationwide
Amtrak is a valued means of transportation used by million of
Americans annually. For travel in metropolitan corridors, Amtrak
provides a cost-effective, efficient alternative to congested highways
and airports. For residents of rural communities, Amtrak trains are
often the only convenient, affordable, all-weather public
transportation available. In fiscal year 2003, 24 million passengers
rode Amtrak trains, the highest level in Amtrak's history. Ridership
gains occurred on routes across the system. Each month from June-
December 2003, gains in rail ridership ranged from 7-12 percent over
levels for the same period in 2002. Amtrak ticket revenues also rose
each month from June-December 2003. Thanksgiving ridership was Amtrak's
highest ever for this holiday--Amtrak carried approximately 595,000
passengers over the 7 days from Tuesday, November 25-Monday, December
1. Ridership on Amtrak's long-distance trains was particularly strong,
with increases of 14 percent or more over last year.
Some policymakers question the need for long-distance trains, yet
the strong growth in ridership on these trains underscores the
important mobility and economic benefits they provide, especially for
America's small cities and rural communities (see table 1).
TABLE 1.--AMTRAK MONTHLY RIDERSHIP GROWTH JUNE-DECEMBER FISCAL YEAR 2003
COMPARED TO FISCAL YEAR 2002
[Amount in percent]
------------------------------------------------------------------------
Systemwide Long-distance
Month Total Trains
------------------------------------------------------------------------
June.................................... +6.8 +13.6
July.................................... +7.1 +9.4
August.................................. +7.3 +14.1
September............................... +11.4 +22.2
October................................. +10.7 +30.9
November................................ +11.7 +32.0
December................................ .............. +16.3
------------------------------------------------------------------------
Source: Amtrak and NARP News (Jan. 2004 issue).
California's Pacific Surfliner trains, operating between San Diego
and Los Angeles and Santa Barbara, continue to experience record-
breaking ridership. Two million passengers rode these trains in fiscal
year 2003, a 25 percent increase over fiscal year 2002. Ridership on
other major rail corridors in the State--the San Joaquin service and
the Capitol Corridor--also had strong ridership growth. Ridership on
the Texas Eagle rose 20 percent in fiscal year 2003 over 2002 levels.
In the Midwest, eight trains that serve the region experienced a 16
percent rise in ridership from May-December 2003 compared to 2002. In
the Northeast, Acela Regional trains carried more passengers than any
other Amtrak service in the Nation--nearly 6 million riders--up 3.7
percent over last year. The Pennsylvanian train ridership surged 64
percent, benefitting from a routing change that terminated the train in
Pittsburgh rather than Chicago.
Ridership Gains Continue in Fiscal Year 2004.--Gains in Amtrak
ridership continued in first 4 months of fiscal year 2004 (Oct. 2003-
Jan. 2004). Northeast Corridor ridership was up over 6 percent;
ridership on long-distance trains was up nearly 20 percent.
AMTRAK'S ABILITY TO CONTINUE CAPITAL INVESTMENTS IS CRUCIAL
Amtrak President David Gunn and the Amtrak Board of Directors began
implementing a program of capital investments in fiscal year 2003 that,
if sustained over the next several years, will bring the national
Amtrak system into a state of good repair. These capital investments
are essential to improving the reliability, safety and efficiency of
the national Amtrak system. Amtrak's accomplishments to date in making
capital improvements are significant. In fiscal year 2003, 147,600
concrete ties were installed in the Northeast Corridor, replacing old
wood ties. Twenty-two miles of continuous welded track were installed
and track bed was improved. These investments will provide a smoother
ride for travelers and reduce track maintenance costs. Track
improvements to a third track have increased capacity and enabled
speeds to rise from 60 to 110 mph. Thirty-three miles of signal cables
were replaced, 37 miles of electric catenary hardware renewed and 22
bridges retimbered. Substantial improvements were and continue to be
made to rolling stock. Twenty-one wrecked Amfleet and Superliner
railcars were rebuilt and 23 food service cars were remanufactured and
restored to service on routes around the country. One hundred and three
railcars and locomotives went through heavy overhauls or were
remanufactured. APRC urges Congress to provide Amtrak with sufficient
funding in fiscal year 2005 to enable the railroad to continue these
essential capital investments.
RAIL CAPITAL INVESTMENTS PRODUCE U.S. JOBS AND OTHER BENEFITS
The U.S. rail manufacturing and supply industry contributes to the
health of the U.S. economy, with over $20 billion in annual sales
(approximately $7 billion to U.S. intercity, commuter and transit
passenger railroads) and over 150,000 workers employed. Capital
investments made by Amtrak support jobs for Americans in factories and
businesses in States across the country. Investments in transportation
infrastructure are vital to the efficient movement of people and goods
and a robust, competitive economy. Every billion dollars invested in
transportation infrastructure projects creates approximately 42,000
jobs.
In the Pacific Northwest, investments in new rail infrastructure
and equipment by Washington, Oregon and public and private partners to
improve the quality and speed of rail service in the Pacific Northwest
High Speed Rail Corridor resulted in a tripling in intercity passenger
rail ridership over levels 10 years ago. With further investments, the
region anticipates rail ridership to grow to 2.2 million by the year
2018. The Midwest Regional Rail Initiative, a plan to link cities and
communities throughout the Midwest with improved passenger rail
service, is projected to stimulate substantial public and private
investment and create 2,300 permanent new rail service jobs, 6,300
construction jobs (over 10 years) and 18,200 indirect jobs. Public
investments to bring the Acela high-speed rail service to the Northeast
Corridor generated economic benefits for States and businesses around
the country. Contracts were signed with over 70 suppliers in more than
20 States.
AIR-RAIL INTERMODAL CONNECTIONS PROVIDE MANY BENEFITS
Intermodal transportation hubs that provide an easy transfer for
travelers between modes--from airplanes to intercity passenger trains
or intercity trains to local transit systems--enhance the efficiency of
the overall transportation system and provide many benefits to
travelers. While progress in developing intermodal connections has been
made since enactment of the ``Intermodal Surface Transportation
Efficiency Act of 1991'', much work remains in this area. Only a few
U.S. airports, such as Newark Airport in New Jersey and Burbank Airport
in California, provide an easy transfer between Amtrak trains and
airplanes. At Newark Airport, Continental Airlines and Amtrak have
created a code-sharing arrangement, the only one in the Nation, which
covers rail travel for Continental passengers between Newark Airport
and six cities on the Northeast Corridor. A study comparing travel by
several different modes (Amtrak, NJ Transit or by car) to Newark
Airport from nearby cities (Newark, NYC, Philadelphia, Trenton) found
that considerable time can be saved when rail transportation is used.
An added benefit is that adverse weather and road conditions which
cause great time increases for auto travel generally don't impact rail.
At Maryland's BWI Airport, travelers can easily connect between trains
and airplanes by a bus service that operates between the airport and
Amtrak's BWI train station. This service works well and is used by many
travelers. In Pennsylvania, part of the plan for the new Harrisburg
International Airport terminal is a $10 million train station, which
will connect to the new airport terminal by a glass-enclosed moving
sidewalk. A larger number of U.S. airports have convenient rail transit
connections to the airport: Atlanta's Hartsfield Airport; Chicago's
Midway and O'Hare Airports; St. Louis Lambert Field Airport; Washington
DC's Reagan National Airport and others. These types of intermodal
connections are commonplace throughout Europe and other parts of the
world where airports have become true multi-modal transportation
centers. U.S. transportation policy and funding should continue to
encourage development of intermodal centers and easy connections
between modes to boost the efficiency of the U.S. transportation system
and ease travel for passengers.
RAIL INFRASTRUCTURE BONDS TO COMPLEMENT APPROPRIATED FUNDS FOR RAIL
The need for funding to improve railroad infrastructure greatly
exceeds what is available through annual Federal appropriations. States
lack adequate funding to make these investments alone. An innovative
Federal-State partnership is needed. Several bills have been introduced
in the Senate and the House of Representatives that would fund
investments in rail infrastructure through tax-credit bonds or private
activity bonds. In the Senate, two comprehensive rail authorization
bills have been introduced. The American Rail Equity Act of 2003 (AREA)
or S. 1505 was introduced by Senator Kay Bailey Hutchison and
cosponsors. S. 1505 establishes a non-profit Rail Infrastructure
Finance Corporation (RIFCO) that is authorized to issue $48 billion in
tax-credit bonds for rail infrastructure investments over 6 years. It
also authorizes $12 billion for Amtrak over 6 years. A second bill, the
American Railroad Revitalization, Investment and Enhancement Act of the
21st Century (ARRIVE 21) or S. 1961 was introduced by Senator Ernest
Hollings and cosponsors and creates a non-profit public-private
partnership, the Rail Investment Finance Corporation (RIFCO), that is
authorized to issue $30 billion in tax-credit bonds over 6 years. S.
1961 also reauthorizes Amtrak at $1.5 billion per year for 6 years. In
the House, the Transportation and Infrastructure Committee approved
RIDE-21 (HR 2950) which authorizes $59 billion in rail infrastructure
improvements and establishes authority for States or State compacts to
issue $12 billion in tax-credit bonds and $12 billion in private
activity bonds over 10 years for investments for high-speed rail
infrastructure. APRC strongly supports enactment of legislation that
would establish a non-profit corporation authorized to issue bonds for
investments in rail infrastructure. The bonds would help address the
large unmet need for investments in rail infrastructure to improve
passenger and freight rail service and capacity and would complement
rail funding available through the annual appropriations process.
Chairman Shelby and members of the subcommittee, thank you for the
opportunity to provide testimony on the needs of our Nation's passenger
rail system.
______
Prepared Statement of the Coalition of Northeastern Governors (CONEG)
As the subcommittee begins the fiscal year 2005 transportation
appropriations process, the Coalition of Northeastern Governors (CONEG)
is pleased to share with the subcommittee testimony on the fiscal year
2005 Transportation and Treasury Appropriations bill. The CONEG
Governors commend the subcommittee for its past support of funding for
the Nation's highway, transit, and rail systems. Although we recognize
the extensive demands being made upon Federal resources in the coming
year, we urge the subcommittee to continue the important Federal
partnership role that is vital to strengthening the multi-modal
transportation system. This system is a critical underpinning to the
productivity of the Nation's economy and the security and well-being of
its communities.
First, the Governors urge the subcommittee to fund the combined
highway, transit and safety programs at levels that will continue the
progress in recent years to improve the condition and safety of the
Nation's highways, bridges and transit systems. These improvements,
documented in the U.S. Department of Transportation's 2002 Conditions
and Performance Report to Congress, were made possible by the
substantial level of investments made by the Federal-State partnership
in highway, bridge and transit infrastructure under the Transportation
Equity Act for the 21st Century (TEA21). Continued and substantial
investment in these infrastructure improvements--in both urban and
rural areas--is necessary if the Nation's surface transportation system
is to safely and efficiently move people and the substantial growth in
freight movement that is projected in the coming decade. According to
the Conditions and Performance Report, a combined Federal highway and
transit program of $53 billion annually is needed simply to maintain
our Nation's highways and transit systems in the current conditions.
Within the transit program, the Governors strongly urge the
subcommittee to provide funding levels that at least maintain the basic
program structure and address the solvency of the mass transit account.
Further, the Governors urge the subcommittee to continue the
traditional 80/20 Federal-State match for the New Start Program and the
Bus and Bus Facilities Discretionary Grant Program. These programs have
been instrumental in ensuring that needed funds are invested to improve
and extend transit services in both our urban and rural communities.
Second, the Governors strongly urge the subcommittee to provide at
least $1.8 billion in fiscal year 2005 for intercity passenger rail.
Intercity passenger rail is a vital part of the Nation's transportation
system, particularly in the Northeast and Mid-Atlantic region, where it
provides essential mobility, enhances capacity of other modes, and
provides much needed redundancy to the Nation's transportation system.
In recent years, the Congress has imposed discipline on the management
of Amtrak operations, with the result being greater financial
accountability and oversight of the Federal Government's investment in
intercity passenger rail. While the Congress, administration and States
continue to work cooperatively to determine the future of intercity
passenger rail and Amtrak in the Nation's transportation system, a
funding level of $1.8 billion in fiscal year 2005 will help provide a
period of stability for intercity passenger and commuter rail
operations. This funding level is critically needed to maintain
services and begin a program of essential investments in equipment and
infrastructure to bring the system back to a state of good repair for
reliable service. The United States Department of Transportation
Inspector General has noted that over $1 billion in capital funds is
needed annually just to sustain the current intercity passenger rail
system, regardless of who operates that system. The States are already
major investors in the current intercity passenger rail system, with
the Northeast and Mid-Atlantic States having invested over $4 billion
in intercity passenger rail operations and infrastructure since 1991.
Third, the Governors urge the subcommittee to continue funding for
investments in Intelligent Transportation Systems (ITS) that can
maintain and enhance the capabilities and security of the Nation's
transportation system. ITS helps States and communities along the
densely populated Atlantic Coast region improve the safe and reliable
operations on highway and transit systems on a daily basis. The
Northeast's rural areas and communities also benefit significantly from
ITS investments. The region's ITS systems, including those provided by
TRANSCOM and the I-95 Corridor Coalition, have demonstrated their
critical role, both in the emergency management and recovery phases,
when security demands put added pressure on the region's transportation
networks.
Fourth, safety on the Nation's highways, transit and rail systems
remains a priority of the Governors. The safety of the aging rail
tunnels along the Northeast Corridor is a particular concern, and we
urge the subcommittee to fund life safety improvements for the Amtrak-
owned Baltimore and New York tunnels. The Governors also support
maximum funding for the Section 130 Highway-Rail Crossing Program. As
part of the Federal-State partnership to correct hazardous conditions
on the Nation's highways, investments in highway-rail crossings can
reduce injuries and death from accidents even as they allow higher
train speeds and increased reliability.
Fifth, the Governors urge the subcommittee to provide sufficient
funding for border crossing and gateway infrastructure projects. A
strong program--one that invests in transportation projects addressing
both security and transportation needs--can contribute to safer, more
efficient and secure flows of people and goods across international
borders and through gateways.
Sixth, the Governors also support the President's funding request
of $20 million for the Surface Transportation Board. The Board is
essential for oversight and effective implementation of decisions
affecting the ongoing process of railroad consolidations that will
affect local and regional economies across the Nation.
Finally, the Governors support continued Federal investment in
transportation research and development programs, particularly the
Federal Railroad's Next Generation High Speed Rail program. This
program enhances safety and helps stimulate the development of new
technologies, which will benefit improved intercity rail service across
the Nation.
The CONEG Governors thank you, Ranking Member Patty Murray, and the
entire subcommittee for the opportunity to share these priorities and
appreciate your consideration of these requests.
______
Prepared Statement of the National Treasury Employees Union
NTEU represents 150,000 Federal employees in 29 Federal agencies
and departments, including the men and women who work at the Internal
Revenue Service. I appreciate the opportunity to provide the
subcommittee with comments on the IRS budget for fiscal year 2005.
There are several items in the administration's IRS budget that
NTEU believes would be detrimental to the IRS' mission. The two most
egregious items include the administration's proposal to contract out
tax collection to private tax collection agencies, and an inadequate
budget request that will prevent the IRS from continuing to improve its
customer service record while bolstering enforcement efforts.
PRIVATE TAX COLLECTION
The Treasury Department's fiscal year 2005 budget proposal to allow
the IRS to use private collection agencies to collect Federal income
taxes is risky, costly, and unnecessary. NTEU strongly opposes this
plan. This proposal would risk exposing sensitive taxpayer information,
would subject taxpayers to the abusive tactics of private debt
collectors, and would cost U.S. citizens much more money than if IRS
employees did the job.
IRS employees are the most reliable, cost-effective means for
collecting Federal income taxes. IRS employees can collect outstanding
debt more cheaply than private contractors. With an appropriation of
$296 million for compliance, the IRS could collect an additional $9.47
billion in revenue per year. That's a $31 return per dollar spent,
compared to only $3 revenue per dollar spent for private collection
agencies. Furthermore, there is the potential for abusive treatment
from private debt collectors. There is a very real risk of exposing
sensitive taxpayer information to those who might misuse it. In this
era of identity theft, I do not believe the Federal Government should
engage in practices that could needlessly expose confidential taxpayer
information.
A February 2003 Treasury Inspector General for Taxpayer
Administration (TIGTA) report faulted the IRS for failing to conduct
background checks on more than 2,100 private contract employees working
in offices in Maryland who had access to sensitive information. In 1996
and 1997 tax years, Congress authorized a pilot program to test private
tax collection. The 1996 program resulted in such egregious abuses by
private debt collectors that the 1997 program was cancelled. According
to an IRS Internal Audit Report (Ref. No. 080805, 12/19/97), the
private debt collectors under contract to the Federal Government
committed hundreds of violations of the Fair Debt Collection Practices
Act--including calling a taxpayer at 4:19 a.m.
There is widespread opposition to privatization of tax collection.
Several taxpayer advocacy groups: the Tax Executives Institute; the
National Association of Enrolled Agents; Citizens for Tax Justice;
Consumer Federation of America; Consumers Union; National Consumer Law
Center; National Consumers League; and large segments of the taxpaying
public oppose the privatization of collection duties. Specifically,
Global Strategy Group, Inc. conducted a poll last year that found 66
percent of respondents disapprove of allowing the Internal Revenue
Service (IRS) to hire private debt collection companies. When details
of the IRS's plan were provided, the number in opposition rose to 79
percent. The results of this poll strongly indicate that Americans
across all political, geographic and income lines oppose this proposal.
While the IRS is liable for damages caused by an IRS employee's
misuse of sensitive taxpayer information, taxpayers would not have
proper redress with the Federal Government for misuse of their
confidential information by contractors. Instead, taxpayers would be
left to seek damages against the private collection agency. It is plain
and simple. This plan to privatize tax collection at the IRS will hurt
U.S. taxpayers and will hurt IRS workers.
Having cited these failed attempts for private tax collection, I
would urge the subcommittee to prohibit any appropriation funds from
being used for contracting out tax collection services to recover U.S.
debt.
RIFS
While NTEU agrees with IRS' goal of enhancing tax compliance and
enforcement, we don't agree with the approach of eliminating front-line
employees in order to pay for additional compliance efforts. As the
number of tax returns continues to grow, the number of IRS employees
continues to shrink. As the IRS Oversight Board pointed out in its 2003
Annual Report, the IRS workload has increased by 16 percent while at
the same time the number of full time equivalent employees has
decreased by 16 percent from 1999 to 2002. This is caused by a number
of circumstances, including an increasingly complex tax code and an
increasing number of tax returns--paper as well as electronic returns.
This has led to a serious decline in the size of the IRS workforce as a
way to cope with increasing budgetary demands.
NTEU strongly encourages the subcommittee to increase the IRS
budget by 10 percent over fiscal year 2004, as recently recommended by
the IRS Oversight Board in its fiscal year 2005 Budget/Special Report
(March 2004). The administration expects the IRS to do more with fewer
resources and this is simply an unrealistic demand placed on the IRS
workforce. If Congress wants more out of the IRS, then they are going
to have to pay for it. The IRS Oversight Board makes a compelling case
for increasing the IRS budget because it will ultimately mean an
increase in Treasury revenues.
I would encourage Congress to work with the administration to
anticipate costly events--such as pay increases or costly changes to
the tax code--and budget accordingly. This did not happen last year.
For instance, NTEU encouraged the IRS to make a supplemental funding
request for administering last summer's child tax credit refunds to
taxpayers. To our dismay, the request was not made and IRS was forced
to do more work without any additional resources. This places a great
burden on an IRS workforce that is expected to provide business results
while improving customer service. This is unrealistic and unfair.
Improving customer service, enhancing tax return processing and
increasing tax compliance will only occur if Congress and the
administration support increased funding for staffing, advanced
technology and equipment, and better training.
The IRS is using the excuse of bolstering compliance to justify a
recently announced reduction in force (RIF) of roughly 1,600 IRS Case
Processing and Insolvency support employees in 92 locations across the
country--only to turn around and hire 1,000 new employees to do the
same work in four consolidated IRS Service Center sites. NTEU opposes
the RIF and urges the IRS to keep its employees in the field, serving
the local taxpayers. NTEU urges Congress to appropriate the needed
funding to keep these employees in the field.
Presumably, IRS intends to save money and increase efficiency with
this move, but there is no evidence of cost savings and IRS' business
case assumptions are faulty. IRS has failed to provide information on
the cost of hiring and training new employees when the current
employees already know how to do the job.
In responding to the announcement of the RIFs, former IRS
commissioner Donald Alexander was recently quoted as saying,
``Centralization is not always more efficient, especially when it moves
support people away from those they are supporting.''
As one of the rationales for the current centralization, the IRS
indicates that Case Processing had not been reorganized since the
1970's. However, several attempts have been made to centralize Case
Processing over the years, but have failed and this function has
remained in the field. In fact, Case Processing functions were located
in Service Centers until the IRS reorganized 25 years ago to locate
these functions closer to the employees who perform collection and exam
work. Reorganizing for the sake of reorganization is a waste of time
and money, neither of which the IRS can afford to squander.
Case processing support employees assist Revenue Agents and Revenue
Officers in resolving issues related to overdue taxes. One of the more
important duties performed includes releasing liens on property once
overdue taxes are paid so that a taxpayer can secure a loan and
calculate interest penalty abatements.
Insolvency employees are responsible for monitoring tax compliance
throughout the life of the bankruptcy, including trust fund taxes and
pyramiding of business taxes. Insolvency employees must adhere to
strict deadlines in order to avoid violations of the automatic stay and
possible sanctions. Failure to take timely and appropriate actions
could result in the IRS being sued for damages and/or attorney fees.
Centralizing Insolvency work means that the new employees will need to
know the local rules and standing orders of the various bankruptcy
courts that take precedence under the Bankruptcy Code. It is
unreasonable to expect employees to be able to follow the rules of
dozens of different States and courts, likely resulting in delays and
errors and a greater cost to the IRS.
The IRS has failed to provide information on how local taxpayers
will be affected by its plan. Despite a lack of information from the
IRS on the affect on taxpayers, NTEU believes that this RIF will indeed
affect taxpayers nationwide.
Federal-State disclosure agreements--and the statutes that govern
these agreements--differ by State. Centralizing the Insolvency work
will mean that employees in the centralized sites will need to be
responsible for knowing and adhering to all 50 variations. It will take
longer for cases to close if they have to be shipped to a centralized
site and this could hurt the taxpayer who is waiting for her case to be
closed.
Currently, if a taxpayer has a question about the process, she can
find one of the Case Processing employees locally and get her question
answered. If these jobs are shipped out of State, it will be much more
difficult for the taxpayer to get her question answered, or for the
cases to be resolved in a timely and complete manner.
Finally, this removes accountability at the local level. If a
member of Congress is contacted by a taxpayer constituent with an IRS
case processing problem, that member will be directed to some out of
State Service Center where the new employee has no comprehension of the
region, much less the local personnel involved in closing a case, or
the member of Congress making the inquiry.
NTEU agrees with the IRS that there is a great need to bolster
enforcement efforts, but this RIF does not guarantee new or enhanced
enforcement positions. Once again, this is a waste of time and money
for the IRS. This is unfair to the current employees who are trained
and successfully performing the Case Processing and Insolvency work;
this is unfair to the taxpayers who rely on the services provided by
their local Case Processing workers.
IRS also has plans for a RIF of approximately 2,200 employees at
the Memphis Submission Processing Center. NTEU strongly disagrees with
the IRS' decision to conduct this RIF. The IRS claims that it is taking
this action because there has been an increase in electronic filing of
tax returns, and it no longer needs employees to process paper returns.
However, according to the General Accounting Office (GAO-02-205), the
IRS has fallen far short of meeting its electronic filing goals. IRS is
using unrealistic, optimistic assumptions to project the increase in
electronic tax return filing and then using these assumptions to
justify the RIF.
I commend the House of Representatives Appropriators who recognize
the risks of reducing IRS staffing of manual submission processing. In
House Committee Report 108-243, they have asked IRS to report back
prior to ``initiating any premature and ill considered reductions in
force . . .'' (see H. Rept. 108-243, IRS MANUAL SUBMISSIONS
PROCESSING).
NTEU recognizes that electronic filing will eventually become a
reality of IRS' modernization efforts. But we strongly believe that any
resulting reorganizations should occur when there is a genuine need for
a shift to an e-filing workforce and every effort should be made to
avoid a RIF by retraining and placement of current employees.
These examples of reducing the IRS workforce demonstrates the need
for Congress to commit to funding the IRS at adequate levels so the IRS
is not made to choose between bolstering enforcement and providing the
superior service our taxpayers expect and deserve. I hope the
subcommittee will give serious consideration to the Oversight Board's
recommendation and increase the IRS fiscal year 2005 budget by 10
percent over fiscal year 2004.
PAY PARITY
The administration has proposed a completely inadequate 1.5 percent
raise for civilian Federal workers in 2005, and a 3.5 percent pay raise
for members of the military. NTEU supports the higher raise for all
employees and I applaud the Senate's budget resolution calling for
civilian-military pay parity in 2005.
This vote--and in particular, the bipartisan nature of the vote--
not only sends an important message to Federal employees that they are
valued and respected but it is another important step in the
government's continuing efforts to recruit and retain the high-quality
employees the public wants and expects in Federal agencies.
The Senate budget resolution is in step with a recently approved
House resolution, which supports the concept of pay parity between
Federal civilian and uniformed military employees. By a vote of 299-
126, the members of the House went on record in support of equal pay
raises for both groups of public employees in 2005. The House vote
reflected the importance of pay parity and signaled that members of
Congress understand the need for fair pay in the competition with
private sector employers for the most talented workers.
The vote by the full Senate on the pay issue preceded the rejection
earlier this year of language supporting civilian-military pay parity
by the House Budget Committee in its 2005 budget resolution.
Congressional action on Federal pay reflects the role that civilian
employees play not only serving the public in their specific agencies,
but in the continuing fight against terrorism. They work in a variety
of capacities that impact national security, including such roles as
helping secure the country's borders, protecting the food supply, and
much more. Again, I commend those Senators who voted for the pay parity
resolution and urge the appropriators to fund civilian pay on par with
military pay at a 3.5 percent increase for fiscal year 2005.
CONTRACTING OUT
Finally, after a bipartisan compromise was reached on the fiscal
year 2004 Omnibus Appropriations bill, the White House insisted that
the conference committee strip language that would have provided a
level playing field for Federal employees whose jobs are made available
for private competition.
One bipartisan provision that was stripped from the bill would have
required contractors to show significant cost savings (the lesser of 10
percent or $10 million) over the in-house competitor in order to be
awarded a competition. Instead, agencies will now only have to take
cost savings into consideration during public-private competitions
since the requirement was removed from the bill language. This allows
the agencies to outsource the work regardless of whether or not it
saves the Federal taxpayers money--or costs the taxpayers more money.
Another provision that was stripped from the Omnibus bill would
have provided the Federal employees an independent and impartial venue
to appeal an agency's contract award decision. Stripping this provision
sends a clear message to Federal employees that the administration
wants private contractors to retain their unfair advantage in public-
private competitions.
The administration further weakened the Omnibus bill by limiting
the guarantee that all Federal employees would have the opportunity to
submit their own best bids. The altered bill language limits the right
of employees to come up with their own cost-saving bid to those
employees in only the agencies funded by the Transportation-Treasury
bill. This means, for competitions in most agencies, contractors will
still be able to submit their best bids while Federal employees will
not be allowed to offer their best bid.
NTEU strongly encourages the appropriator to include legislative
language that will level the playing field for Federal employees who
are expected to compete against private contractors. It is simply
unfair to give private contractors an unfair advantage in public-
private competitions when Federal employees can do the same job with
better and less costly results.
CONCLUSION
On behalf of the dedicated Federal employees NTEU represents, I am
proud to submit these views for the hearing record. I encourage the
committee to make a strong investment in the Federal workforce by
appropriating the 10 percent increase as requested by the IRS Oversight
Board; preventing private tax collection; prohibiting the IRS from
moving forward with the unnecessary RIFs; providing pay parity for
Federal workers; and giving the Federal workers a level playing field
when competing for their jobs with private contractors.
Without a doubt, the frontline employees are committed to working
with management and Congress to increase efficiency and customer
satisfaction. NTEU is committed to striking a balance between taxpayer
satisfaction, business results and employee satisfaction. I encourage
Congress to join us in this commitment.
______
Prepared Statement of the Air Traffic Control Association, Inc.
INTRODUCTION--AVIATION AT THE CROSSROADS
The Federal Aviation Administration is at a crossroads--and the
future of U.S. aviation hangs in the balance.
The administration has delivered to Congress a proposed fiscal year
2005 budget that cuts $393 million (14 percent) from FAA's capital
investment account, and provides less than current services funding for
ATC system operations and maintenance. Funding for RE&D, already down
to $117 million last year, is reduced another $2 million.
The FAA and the new Air Traffic Organization (ATO) are attempting
to respond to this new funding reality in the only way possible. The
organization is getting leaner. The mantra is managing to the reduced
level of resources, rather than responding to demand with increased
service. Every modernization initiative must be justified by an
immediate and measurable payback. Projects that deliver economies and
efficiencies for the air traffic service provider will be favored over
those that offer new, improved, and/or long-term customer benefits. And
under the administration's proposal, long term investment in promising
concepts and technologies is not receiving the ``mission drive focus''
required for what FAA is predicting to be an overall increase in
passenger traffic of 4.3 percent per year (5.2 percent increase
internationally) over the next 10 years. The ATO already has deferred
to future years the digital programming and data link elements of
NEXCOM, not waiting for future funding decisions by Congress. FAA was a
leading, global proponent of this technology and yet we are deferring a
solution that only a few short years ago was deemed vital to address
the imminent dearth of available radio frequencies.
On the other hand, Homeland Security requirements and the War on
Terrorism are placing new burdens and requirements on an already
stressed air transportation system. If past is prologue, the current
downturn in passenger traffic is temporary and aviation demand will
come roaring back. Most airports already are reporting passenger
traffic increases, and many are again experiencing congestion and
delay. Earlier this year, under DOT order two hub carriers American and
United agreed to a 5 percent reduction in flight schedules in order to
cut down on delays that reached the highest level ever recorded.
Because these cuts did not improve delays enough, DOT last week ordered
the airlines to reduce flights another 2.5 percent. This is not a long-
term solution to meeting passenger and airline demand for more capacity
at one of the world's busiest airports, much less a panacea for the
entire aviation system.
The path U.S. aviation has been placed on with this proposed budget
is clear: we will limp into the future with an air transportation
system that is inefficient, at capacity, and unprepared for a tripling
of demand in the future. The weight of increasing airline operations
due to the greater usage of smaller regional jets, and the increasing
burdens on aviation from the Department of Homeland Security will
paralyze the aviation system.
If instead we dare to envision a safe, secure, efficient, and
capable air transportation system in the future, we must be bold in our
approach, and we must act now. We cannot allow terrorists to scare us
out of the skies. We must not so constrain ourselves that in seeking
safety that we harness mobility. The answer is to be found in
technology, investment, vigilance, and perseverance in the face of
uncertainty--the very attributes that have carried aviation so far in
its first century.
THE CHANGED FACE OF U.S. AVIATION
The Nation has come to view aviation in a new light over the past 3
years. No longer is air transportation predominantly about travel and
tourism. Aircraft have been used as weapons against civilians, and we
must do everything reasonably possible to prevent it from happening
again. The Departments of Defense and Homeland Security rely on civil
aviation facilities and agencies to perform their mission. Aviation is
much more critical and important for United States and world commerce
today. America's vision of a global economy is based on the ability of
aviation to serve as the bridge connecting nations, cultures and
people. This vision--that is inclusive of, but transcends security--
must be the guiding force in developing a fresh perspective, and new
principles to guide Federal air traffic control investment policy and
planning.
--We demand more of the air transportation system than ever before.--
The Nation's aviation infrastructure must meet National Defense
and Homeland Security needs while continuing to function as the
economic engine that drives the National economy. Many of the
requirements, or safety procedures dictated by the added
requirements are new, for example upgraded surveillance
systems; data collection, transmission, and sharing
capabilities; reliable high speed communications networks; and
extensive plans, procedures, and facilities for Homeland
Security and National Defense. This means developing and
implementing new and improved air traffic systems that deliver
operating benefits for users and efficiencies for FAA while
strengthening security. It also means building an air
transportation system for the future that allows passengers and
shippers to go anywhere, any time, and hassle free. All of this
is a tall order. But for the safety and security of the public,
and the viability of the National economy, we must not deliver
less.
--Regular, robust investment in aviation infrastructure is a National
imperative.--The threat of terrorism has become an unfortunate
fact of life in the world today. Continual vigilance and
preparedness are a necessity. For aviation this means regular
investment in developing and implementing equipment and
technologies that can help counter ever changing, and
increasingly sophisticated dangers. Timely, continuous
investment in the public air transportation infrastructure is
no less important for civil aviation. FAA expects air traffic
demand to grow steadily over the next 10 years, with tower
operations to increase 28 percent, instrument operations to
increase 29 percent, and air route traffic control center
operations to increase 34 percent. We will not meet the
requirements of this capacity increase sufficiently under the
administration's current budget approach.
MEETING THE CHALLENGE
The Nation's air transportation system simply cannot fulfill
National Defense and Homeland Security requirements, and accommodate
ever increasing civil aviation demand on a diet of continually
diminishing resources. Even with the improvements and efficiencies
anticipated from implementation of the new Air Traffic Organization,
the administration's funding proposal for fiscal year 2005 is
unrealistic. FAA's mission is growing, demand is growing, and the only
thing shrinking is the budget to fund new technology and equipment to
handle this growth. ATCA therefore urges Congress to act upon the
following:
--FAA's Facilities and Equipment account must be funded at the
authorized level.--ATCA urges the Congress to appropriate, at
minimum, the full, authorized amount of $2.993 billion for FAA
Facilities and Equipment (F&E) in fiscal year 2005.\1\ FAA must
equip the aviation system for the War on Terrorism and still
continue fielding needed air traffic system improvements. And
just as important, FAA must begin to lay the groundwork for a
capable future air transportation system. FAA already is behind
the power curve installing the modernized systems that deliver
on the promise of its Operational Evolution Plan--systems that
are the necessary foundation for improved functionality, safety
and efficiency. Promising projects and technologies such as
controller pilot data link communications (CPDLC), Next
Generation Communications System (NEXCOM), and the System Wide
Information Management system (SWIM) are being deferred.
Others, like the User Request Evaluation Tool (URET), the FAA
Telecommunications Infrastructure (FTI), ADS-B programs (Safe
Flight 21), and Terminal Doppler Weather Radar (TDWR) product
improvements could be completed and continue delivering cost
and efficiency benefits to FAA and users sooner if additional
funding were applied. All of these projects are necessary, and
will have to be completed eventually. Interrupting these
efforts over and over again only increases the ultimate cost,
and postpones benefits. The ATO also must have the resources to
continue a vigorous NAS System Architecture and systems
integration activity. Because the new organization is
structured according to lines of business, an overarching
planning function is necessary to assure that requirements 5 to
10 years hence are anticipated and provided for, and that new
elements being delivered into the system interface correctly
and work together. Otherwise, equipment must continually be
redesigned and retrofitted at great expense.
---------------------------------------------------------------------------
\1\ Cutting funding for FAA F&E by 14 percent in fiscal year 2005
as the administration proposes could have an unintended, fiscally
disastrous consequence of invoking application of an enforcement
provision in authorization law that prohibits funding for FAA
Operations if Airport Grants and F&E appropriations are less than the
authorized amount. Clearly, the administration's proposal is out of
step with congressional intent that air transportation system
modernization and improvement be a National Priority.
---------------------------------------------------------------------------
--Aviation capabilities and resources of related agencies must be
protected and leveraged.--NASA's Aeronautics research
capability has become essential to FAA's mission, and must be
funded adequately. DOD's $69 billion research and development
activity must be consistently mined for concepts and core
technologies transferable to the civil sector. Synergy and
cooperation between Federal and civil research organizations in
the United States, and those of friendly governments around the
world should be investigated, enabled, and encouraged. The
world is a different place today than yesterday. The United
States should not be seen as ``going it alone.'' The ATC
organizations around the world have many ideas, programs, and
procedures that merit consideration and coordination in order
to ensure everyone's stated goal of global interoperability.
--The Federal Government must prepare for large funding requirements
associated with core future technologies.--There is universal
agreement that some core capabilities are essential to meeting
future Homeland Security/National Defense requirements, and to
accommodate air transportation demand we know is coming. The
first of these key technologies is an aviation system-wide
information network, through which all stakeholders, including
the DOD, DHS, and law enforcement, can derive whatever data and
information needed for the National Defense, security, and
safe, efficient aircraft operations. The second is a capable,
reliable data communications system connecting aircraft to the
air traffic control system. The third is a sophisticated
toolset enabling collaborative decision making among
participants in the ATM system. All of these technologies are
crucial for Defense and Homeland security missions. All will
enhance aviation safety and security. And all can be used to
increase operating efficiency, and overall system efficiency
and capacity. But a clear direction to proceed with development
and implementation, and a healthy flow of resources must be
applied now, if these technologies are to be available to meet
current and future demand.
--A Federal Government-wide, aviation community-supported air
transportation system future planning activity must be
supported and adequately resourced.--Secretary of
Transportation Mineta is leading an interagency effort
(including NASA, and the Departments of Defense and Homeland
Security) to design the Next Generation Air Transportation
System. This activity will be carried out through a Joint
Planning and Development Office (JPDO), with the advice of the
FAA Research and Advisory Committee. Secretary Mineta's
initiative should be supported, with the expectation that it
will be well managed, adequately resourced, and that it will
yield a product that can be the basis of community consensus
and capable of being implemented. It is recommended that this
effort be coordinated with other future design activities
around the world, with the object of assuring global
compatibility of ATM systems and a seamless future operating
environment. The future system plan should contain a realistic
roadmap for transforming current thinking and technology into
the future air transportation system, with recommendations for
policies and programs to facilitate the transition to a new
system and equipment for all aircraft operators. ATCA urges the
entire aviation community to support the activities of the
JPDO.
--The Nation's aviation research and development capability must be
recreated and empowered.--Congress is urged to authorize and
appropriate $500 million per year for the foreseeable future to
establish and resource a bold, aggressive, well-managed Federal
aviation research and development activity. Critical National
Defense and Homeland Security needs require that FAA and NASA
continually be on the forefront in developing and implementing
cutting-edge surveillance, communications, and information
technologies. There is simply no question that break-through
concepts and technologies will be essential if we are to safely
and efficiently accommodate a tripling of civil air traffic by
the year 2020. Developments of this nature take 10 to 15 years
or more to bring to fruition, so major investments in R&D
capabilities--labs, equipment, people--must be made today.
CONCLUSION
Global aviation is facing challenges of historic proportions.
Terrorism is a constant threat. Depressed demand as a result of 9/11
and economic recession have left governments and aviation enterprises
financially debilitated, and reluctant or unable to make investments in
infrastructure and capital equipment. The U.S. aviation system has
survived and is now growing at a pace last seen pre-9/11, yet
investment in the future is being cut. An increased investment in FAA
Airport Improvement Program funding cannot be viewed as a complete
solution to addressing future capacity when the users and passengers
are measuring our system on a curb-to-curb basis.
The success of the Nation's air transportation system depends on
achieving a collective commitment to secure a reliable, robust funding
stream for air transportation system modernization, the determination
and focus to complete projects already underway, and a forward looking
vision. The aviation system requires total commitment and full funding
in order to meet tomorrow's demand, and this is a commitment we must
make today in order to be successful.
Again, we cannot allow the terrorists to scare us out of the skies
or to divert our financial resources away from building the safest and
most efficient air traffic control system to meet growing demand.
Safety and security are inextricably linked, and overcrowded skies and
airports cannot be the result of terrorist threats, or they have won
and most assuredly we have lost.
We must not so constrain ourselves that in seeking safety we
harness mobility. The answer is to be found in technology, investment,
vigilance, and perseverance in the face of uncertainty--the very
attributes that have carried aviation so far in its first century.
______
Prepared Statement of the California Government and Private Sector
Coalition for Operation Clean Air
Mr. Chairman and members of the subcommittee, on behalf of the
California Government and Private Sector Coalition for Operation Clean
Air's (OCA) Sustainable Incentive Program, we are pleased to submit
this statement for the record in support of our fiscal year 2005
funding request of $31,000,000 for OCA as part of a Federal match for
the $180 million already contributed by California State and local
agencies and the private sector for incentive programs. This request
consists of $31,000,000 from the Department of Transportation (DOT) for
alternative fuel vehicle funding.
California's great San Joaquin Valley is in crisis. Home to over
3.3 million people, its 25,000 square miles now has the unhealthiest
air in the country. Even Los Angeles, long known as the smog capital of
the Nation, can boast better air quality by certain standards. While
peak concentrations of air pollutants are still greater in Los Angeles,
for the past 4 years, the San Joaquin Valley has exceeded Los Angeles
in violations of the ozone 8-hour Federal health standard.
A combination of geography, topography, meteorology, tremendous
population growth, urban sprawl and a NAFTA corridor of two major
highways with over 5 million diesel truck miles per day, have collided
to produce an air basin in which over 300,000 people, nearly 10 percent
of the population, suffer from chronic breathing disorders. In Fresno
County, at the heart of the San Joaquin Valley, more than 16 percent of
all children suffer from asthma, a rate substantially higher than any
other place in California. The extreme summertime heat creates smog
even though smog-forming gases are less than half the amount in the Los
Angeles basin. There is no prevailing wind to flush the natural
geologic bathtub and, as a result, pollutants and particulates
stagnate, accumulate and create unhealthy air.
Degradation of human health is not the only consequence of poor
quality air. In December 2003, the San Joaquin Valley Air Pollution
Control District Board decided to become the first Air District in the
Nation to voluntarily declare itself an ``extreme'' non-attainment
area. This designation, if approved by USEPA, will defer until 2010 the
date for attainment of Federal standards of air quality, but comes at a
cost of imposing permitting on thousands of more businesses and even
further discouraging business expansion or relocation. More Valley's
businesses will be required to obtain permits and comply with
increasingly burdensome regulations imposed by Federal and State law
and the Air Pollution Control District, resulting in added cost in
compliance, reporting and record keeping. At the same time, the area is
burdened by chronic unemployment rates of nearly 20 percent.
Encouraging business expansion in or relocation to the San Joaquin
Valley to combat unemployment will be extremely difficult in the face
of such regulatory burdens.
The San Joaquin Valley is home to the most productive agricultural
land in the world. Over 350 crops are produced commercially on 28,000
farms encompassing more than 5 million irrigated acres. While the
agricultural industry has made great strides at considerable expense to
replace old diesel engines and manage fugitive dust and other
emissions, farming does contribute to the problem. However, it is a $14
billion industry that forms the backbone of the Valley's economy, and
its vitality is crucial.
Industry alone is not the source of the Valley's poor air quality.
Population growth rates exceeding those in the rest of the State and
most of the Nation, in an area without effective mass transit, where
cheap land has led to a landscape of suburbia and sprawl, results in
excessive over-reliance on the automobile. Trucking has increased
dramatically with the increase in population, and Federal free trade
policies. Other factors such as fireplace burning in the winter, open
field agricultural burning because of lack of sufficient alternatives,
and wild fires resulting from lack of controlled burning in the nearby
foothills and mountains all contribute to the problem.
Despite the challenges listed above, much progress has been made.
The State has spent nearly $80 million on improvement and compliance
programs. Local government and private industry have spent over $100
million on technology and compliance. As specific examples, over one
half of the diesel operated irrigation pumps used by agriculture have
been replaced with cleaner engines. The City of Tulare has converted
its entire fleet of vehicles to natural gas as have several other
private fleet operators. A $45 million Federally financed comprehensive
study of ozone and particulate matter is nearing completion. As a
result, the number of 1-hour EPA health standard exceedences has been
reduced by 40 percent since 1989.
But much more needs to be done. The District estimates that daily
emissions must be reduced by 300 tons to achieve attainment. There is
no single or short-term quick fix. The entire Valley (an area the size
of the State of Connecticut) is part of the problem and the entire
Valley will need to be part of the solution.
The Department of Transportation is an important partner in
achieving air quality improvement. The Federal Clean Air Act requires
that transportation plans be consistent with State Implementation
Plans. Mobile sources are the single largest contributor to the San
Joaquin Valley's air pollution problem. Depending upon the season,
mobile sources contribute up to 60 percent of the emission inventory in
the Valley. Heavy-duty vehicles make up half of these emissions.
California and the San Joaquin Valley bear the emissions burden
associated with the significant volume of goods that flow into and out
of the country through vehicular traffic. It is estimated that 6
million truck-miles a day are traveled in the Valley. The emissions
associated with these activities are projected to grow significantly
with port expansions and upcoming changes associated with the
implementation of the North American Free Trade Agreement (NAFTA) that
will allow, for the first time, foreign trucks with less rigorous
emission controls to travel through the San Joaquin Valley.
Finally, heavy-duty mobile source emissions reductions are some of
the most cost-effective emission reduction programs currently
available. The cost-effectiveness of emission reductions achieved
through clean heavy-duty projects that are requested through the
Department of Transportation is approximately $13,650/ton of emission
reduced. In many cases this is one-half of the cost associated with
similar emission reductions achieved through the regulation of
industrial sources of pollution. If our request is fully funded, it
will provide up to 11,000 tones of emissions reductions over the 12
year life of the projects.
Operation Clean Air is a coalition of business, government, health
care, and environmental groups throughout the eight county San Joaquin
Valley Air Pollution Control District. Its goal is to clean the
Valley's air and increase its economic prosperity. The coalition seeks
to catalogue efforts that have produced positive effects and identify
those strategies that could produce even greater effects if supported
by sufficient resources. At the heart of its efforts will be an array
of sustainable, voluntary practices and activities that can and will be
undertaken by all of the residents of the San Joaquin Valley, both
public and private, to improve air quality.
This unique public-private partnership has invested considerable
resources in this project to date, and will continue to do so, but
Federal funding is both imperative and justified to help address what
is essentially an unfunded Federal mandate.
For fiscal year 2004, our Coalition is seeking funding of
$31,000,000 from the Department of Transportation (DOT) for alternative
fuel vehicles throughout the San Joaquin Valley Air Basin. We are also
seeking funding for alternative fuels infrastructure through other
avenues, which will allow accelerated introduction of alternatively
fueled vehicles in municipal fleets, public school fleets, and private
fleets. The widespread use of lower-emitting motor vehicles will
provide significant improvement to air quality in the San Joaquin
Valley while furthering the goals of the Department of Transportation
to reduce emissions from public fleets. Development of alternative fuel
infrastructure will augment the low-emission vehicle program by
providing much needed compressed natural gas (CNG) and liquefied
natural gas (CNG) fueling facilities.
Thank you very much your consideration of our requests.
______
Prepared Statement of the California Industry and Government Central
California Ozone Study (CCOS) Coalition
Mr. Chairman and members of the subcommittee, on behalf of the
California Industry and Government Central California Ozone Study
(CCOS) Coalition, we are pleased to submit this statement for the
record in support of our fiscal year 2005 funding request of $500,000
from the Department of Transportation (DOT) for CCOS as part of a
Federal match for the $9.4 million already contributed by California
State and local agencies and the private sector. We greatly appreciate
your past support for this study ($250,000 in fiscal year 2004) as it
is necessary in order for the State of California to address the very
significant challenges it faces as it seeks to comply with air
pollution requirements of the Federal Clean Air Act.
Most of central California does not attain Federal health-based
standards for ozone and particulate matter. The San Joaquin Valley has
recently requested redesignation to extreme and is committed to
updating their 1-hour ozone State Implementation Plan (SIP) in 2004,
based on new technical data. In addition, the San Joaquin Valley,
Sacramento Valley, and San Francisco Bay Area exceed the new Federal 8-
hour ozone standard. SIPs for the 8-hour standard will be due in the
2007 timeframe--and must include an evaluation of the impact of
transported air pollution on downwind areas such as the Mountain
Counties. Photochemical air quality modeling will be necessary to
prepare SIPs that are approvable by the U.S. Environmental Protection
Agency.
The Central California Ozone Study (CCOS) is designed to enable
central California to meet Clean Air Act requirements for ozone SIPs as
well as advance fundamental science for use nationwide. The CCOS field
measurement program was conducted during the summer of 2000 in
conjunction with the California Regional PM10/
PM2.5 Air Quality Study (CRPAQS), a major study of the
origin, nature, and extent of excessive levels of fine particles in
central California. This enabled leveraging of the efforts of the
particulate matter study in that some equipment and personnel served
dual functions to reduce the net cost. From a technical standpoint,
carrying out both studies concurrently was a unique opportunity to
address the integration of particulate matter and ozone control
efforts. CCOS was also cost-effective since it builds on other
successful efforts including the 1990 San Joaquin Valley Ozone Study.
CCOS includes an ozone field study, data analysis, modeling
performance evaluations, and a retrospective look at previous SIP
modeling. The CCOS study area extends over central and most of northern
California. The goal of the CCOS is to better understand the nature of
the ozone problem across the region, providing a strong scientific
foundation for preparing the next round of State and Federal attainment
plans. The study includes five main components:
--Designing the field study;
--Conducting an intensive field monitoring study from June 1 to
September 30, 2000;
--Developing an emission inventory to support modeling;
--Developing and evaluating a photochemical model for the region; and
--Evaluating emission control strategies for upcoming ozone
attainment plans.
The CCOS is directed by Policy and Technical Committees consisting
of representatives from Federal, State, and local governments, as well
as private industry. These committees, which managed the San Joaquin
Valley Ozone Study and are currently managing the California Regional
PM10/PM2.5 Air Quality Study, are landmark
examples of collaborative environmental management. The proven methods
and established teamwork provide a solid foundation for CCOS. The
sponsors of CCOS, representing State, local government, and industry,
have contributed approximately $9.4 million for the field study. The
Federal Government has contributed $4,874,000 to support some data
analysis and modeling. In addition, CCOS sponsors are providing $2
million of in-kind support. The Policy Committee is seeking Federal co-
funding of an additional $2.5 million to complete the remaining data
analysis and modeling. California is an ideal natural laboratory for
studies that address these issues, given the scale and diversity of the
various ground surfaces in the region (crops, woodlands, forests, urban
and suburban areas).
There is a national need to address national data gaps and
California should not bear the entire cost of addressing these gaps.
National data gaps include issues relating to the integration of
particulate matter and ozone control strategies. In addition, new
national ambient air quality standards will require air quality
assessments for time periods of greater duration, and the impact of
weekend travel activities on air quality will play a part in the
ability to simulate air quality for longer durations. That is why,
concurrent with the CCOS air quality field study, a $600,000 traffic
activity study was conducted for the purpose of gathering detailed,
hourly travel activity patterns during the field study. It is also why
the CCOS allocated an additional $250,000 to develop a link-based
digital map of roadways throughout the domain (using state-of-science
Geographic Information System, or GIS, software) that included the
activity patterns from the traffic study on specific roadway segments.
However, due to the scarcity of weekend data in the transportation
community and travel demand models, these projects were not able to
address the spatial change in travel patterns during a weekend. In
addition to the weekend activity issue, developing mobile source
emissions inputs for longer-term air quality modeling studies will
require more efficient mobile source emissions processing, including
better use of GIS software and technology.
For fiscal year 2005, our Coalition is seeking funding of $500,000
from DOT through highway research funds. The CCOS would use the
$500,000 requested for fiscal year 2005, in conjunction with other
funding, to study and integrate travel activity patterns into modeling
inputs. The CCOS would also use a fiscal year 2005 earmark to develop
more efficient mobile source emissions processing tools and improve the
consistency and linkages between travel demand models used in the
transportation community and emissions factor models used for
conformity purposes in the air quality community. DOT is a key
stakeholder because Federal law requires that transportation plans be
in conformity with SIPs. The motor vehicle emission budgets established
in SIPs must be met and be consistent with the emissions in
transportation plans. Billions of dollars in Federal transportation
funds are at risk if conformity is not demonstrated for new
transportation plans. As a result, transportation and air agencies must
be collaborative partners on SIPs and transportation plans. These plans
are linked because motor vehicle emissions are a dominant element of
SIPs in California as well as nationwide. Determining the emission and
air quality impacts of motor vehicles is a major part of the CCOS
effort.
Thank you very much for your consideration of our request.
______
Prepared Statement of Easter Seals
Chairman Shelby, Ranking Member Murray and members of the
subcommittee, Easter Seals appreciates this opportunity to share the
successes and needs of Easter Seals Project ACTION.
PROJECT ACTION OVERVIEW
The Transportation appropriations process initiated Project ACTION
in 1988 by providing funding to the Federal Transit Administration to
undertake this effort with Easter Seals. We are indeed grateful for
that initiative and the ongoing strong support of this subcommittee in
subsequent years.
Following its initial round of appropriations, Congress authorized
assistance to Project ACTION in 1990 with the passage of ISTEA and
reauthorized the project in 1997 as part of TEA21. The strong interest
and support of all members of Congress has been greatly appreciated by
Easter Seals as it has pursued project ACTION's goals and objectives.
Since the project's inception, Easter Seals has administered the
project through a cooperative agreement with the Federal Transit
Administration. Through steadfast appropriations support, Easter Seals
Project ACTION has become the Nation's leading resource on accessible
public transportation for people with disabilities. The current project
authorization level is $3 million, and Easter Seals is pleased to
request the appropriation of that sum for fiscal 2005.
The strength of Easter Seals Project ACTION is its continued
effectiveness in meeting the congressional mandate to work with both
the transit and disability communities to create solutions that improve
access to transportation for people with disabilities of all ages and
to assist transit providers in complying with transportation provisions
in the Americans with Disabilities Act (ADA).
The activities of the project are guided by input from a 19 member
national steering committee that includes representatives from
transportation and disability organizations. Easter Seals Project
ACTION has worked effectively with the Department of Transportation
under four Presidents, and numerous Department of Transportation (DOT)
Secretaries and Federal Transit Administration (FTA) Administrators.
Today, Project ACTION is working closely with Secretary Mineta and FTA
Administrator Dorn and their teams. Secretary Mineta, who worked on the
original authorization of Project ACTION, has worked closely with us
since taking over DOT.
Easter Seals Project ACTION was also heavily featured in the
President's New Freedom Initiative Progress Report released in 2004.
This demonstrates how closely the administration is working with
Project ACTION to reach our shared goal of a safe, accessible,
reliable, efficient and affordable transportation for and by citizens
with disabilities at the local, State, regional and national levels
throughout the United States.
SUPPORT FOR EASTER SEALS PROJECT ACTION
Easter Seals Project ACTION's successes are diverse and the value
of the Project to both the transit and disability communities can be
well documented. For instance, Barry Barker, Executive Director of the
Transit Authority of River City (Louisville, KY) states that, ``Easter
Seals Project ACTION's support has enhanced our ability to maximize the
quality of service we provide to all of our customers. The project
helps us provide our customers with the mobility necessary to fully
participate in the community.''
Maureen McCloskey, National Advocacy Director of the Paralyzed
Veterans of America states that, ``The forum that Easter Seals Project
ACTION has provided has created a dynamic dialogue between the
disability and transit communities that has resulted in increased
access to transportation for people with disabilities.''
EASTER SEALS PROJECT ACTION WORKING AT THE COMMUNITY LEVEL
Among the programs pursued by the project in the recent period have
been efforts aimed at increasing community capacity to meet the
transportation needs of people with disabilities. For instance, in
2001, Easter Seals Project ACTION initiated the first Mobility Planning
Services (MPS) Institute. The latest Institute took place in November
of 2003 and approximately 25 communities took part in the 2-day event.
This was the second group of communities to go through the MPS
training. The first group of 20 communities remains active and working
with Project ACTION to continue their work at the community level. To
participate in the Institute, each community had to identify a
leadership team to attend the training. The leadership team had to
consist of representatives from transit providers, disability service
providers and disability advocacy organizations. This team approach
will assure that all stakeholders are involved in implementing MPS. The
greatest success so far of the MPS concept has been that it provides
the disability community and the transportation industry an opportunity
to develop tools for working together where in the past there had often
been a lack of communication and in some cases even animosity. By
implementing MPS, communities do a better job of meeting the
transportation needs of people with disabilities and therefore better
meet the transportation needs of all residents. Communities that
participate in MPS receive ongoing in-depth technical assistance from
Project ACTION staff ranging from access to Project ACTION materials to
on-site training and facilitation by Project ACTION staff.
EASTER SEALS PROJECT ACTION WORKING AT THE STATE LEVEL
Project ACTION is partnering with the FTA on several initiatives
designed to increase the capacity of States to support accessible
transportation for people with disabilities.
The first initiative is a series of regional dialogues being held
throughout the country. These dialogues built on the success of 2002's
successful National Dialogue on Accessible Transportation. The goal of
these events was to bring people with disabilities and transit
providers together at the regional level to foster communication that
will hopefully lead to jointly developed solutions to unique barriers
to accessible transportation identified together in each region.
Project ACTION is also working with FTA to support the success of
the multi Federal Department ``United We Ride'' initiative. Project
ACTION helped facilitate a national meeting in March of Governor
appointed representatives from State Departments of Labor,
Transportation, Education and Health and Human Services. Forty-six
States and territories participated in this forum that was one of five
elements of an FTA effort to bring together Federal and State agencies
to help identify, plan and alleviate barriers to human service
transportation coordination. Project ACTION is assisted in the
dissemination of the FTA developed Framework for Action planning
process guide to help States and communities build and operate
coordinated transportation systems and has already begun to provide
technical assistance on its use throughout the country.
EASTER SEALS PROJECT ACTION WORKING AT THE NATIONAL LEVEL
Easter Seals Project ACTION actively works with both the disability
and transit communities to determine existing needs for products and
training. Easter Seals Project ACTION also convenes special topic
meetings to address concerns and identify strategies on issues
identified by various stakeholders. This year's special topic meetings
will focus on the development of a ``One System for All'', concept that
emerged from the Project's National Dialogue conducted last Summer. The
meeting will involve a small group of disability and transit advocates
to further develop the concept and also begin to address the design and
provision of technical assistance and other resources necessary to
advance the availability of seamless community transportation systems
for people with and without disabilities. Another special topic meeting
will bring together travel trainers to develop a curriculum for the
further training of these specialists that enhance the participation of
people with disabilities using fixed route transportation. Convening
special topic meetings enable Easter Seals Project ACTION the
flexibility to address emerging issues as they arise.
Some of the materials that Easter Seals Project ACTION has
developed during the past year include:
--A collection of ``success stories'' that share, in the own words of
people with disabilities, stories about their successful use of
transportation and the positive difference it made in their
lives;
--New resources and guidance on good practices for conducting
physical functional assessments for determining paratransit
eligibility;
--A collection of innovative practices in operating paratransit;
--A redesigned resource called ``You Can Ride,'' a reference guide on
how to use public transportation for people who can't read;
and,
--All resource materials available from Easter Seals Project ACTION
activities are available free of charge through the Project
ACTION catalog.
As mentioned, Project ACTION staff also are involved in
continuously providing technical assistance to transit providers,
nonprofit human service organizations, people with disabilities, and
the general public. The forms of technical assistance provided are
provided based on the determination of what would be the most helpful
in the situation being addressed. Assistance from Project ACTION ranges
from the delivery of basic information in the form of brochures from
our national clearinghouse to telephone, e-mail, participation in the
training program and on single or ongoing on-site work.
CONTINUING NEED FOR EASTER SEALS PROJECT ACTION
Access to transportation is a vital issue for people with
disabilities. For many people with disabilities, a lack of accessible,
affordable pubic transportation is the primary barrier to employment,
education and participation in community life. In his New Freedom
Initiative, President Bush recognized the importance of accessible
transportation for people with disabilities, and has proposed an
increase in Federal support for promoting innovative and alternative
transportation solutions for people with disabilities. As these
proposals are implemented, it will become increasingly important that
the resources and skills, relationships and knowledge that Easter Seals
Project ACTION has fostered remain strong. Should the appropriations
process support this New Freedom Initiative, Project ACTION is
committed to working with DOT on implementation.
There is a growing need for outreach by Project ACTION to specific
populations. While Project ACTION has historically worked with rural
communities to help address their transportation issues, the lack of
access for rural residents with disabilities is still unacceptable.
Easter Seals national headquarters and Project ACTION are working
together to coordinate efforts to better serve rural residents with
disabilities in a variety of service areas including transportation.
Further, as the population ages, there is also a need to provide
develop and provide additional specific resources and assistance to
transit providers and older passengers. Since most people will
experience some level of disability as they age and require accessible
transportation, Project ACTION's resources will again be invaluable as
transit providers struggle to meet the needs of this new wave of
riders.
FISCAL 2005 REQUEST
In order to continue the outstanding work of Easter Seals Project
ACTION, Easter Seals national headquarters respectfully requests that
$3 million be allocated in fiscal 2005 to the Department of
Transportation for project activities.
Mr. Chairman, thank you for the opportunity to present this
testimony to the subcommittee. Your efforts have improved the
accessibility of transportation for persons with disabilities and the
ability of the transportation community to provide good service to all
Americans. Easter Seals Project ACTION looks forward to continuing to
work with you toward the pursuit of these objectives.
______
Prepared Statement of the American Public Transportation Association
Mr. Chairman and members of the subcommittee, on behalf of the
American Public Transportation Association (APTA), thank you for the
opportunity to provide written testimony on the need for investment in
Federal Transit Administration (FTA) programs under the Transportation,
Treasury and General Government Appropriations bill for fiscal year
2005.
ABOUT APTA
APTA's 1,500 public and private member organizations serve the
public by providing safe, efficient, and economical public
transportation service, and by working to ensure that those services
and products support national economic, energy, environmental, and
community goals.
APTA member organizations include public transit systems and
commuter railroads; design, construction and finance firms; product and
service providers; academic institutions; and State associations and
departments of transportation. More than 90 percent of the people who
use public transportation in the United States and Canada are served by
APTA member systems.
OVERVIEW
Mr. Chairman, the fiscal year 2005 Transportation, Treasury and
General Government appropriations bill provides an opportunity to
advance key national goals through increased Federal investment in the
Nation's surface transportation infrastructure, including public
transportation. A study conducted by Wirthlin Worldwide in February
2004, found that most Americans (80 percent) see quality of life
benefits from increased investment in public transportation, and 76
percent of those surveyed support public funding for the expansion and
improvement of public transportation. Clearly, Americans support
Federal policies that create good, high-paying jobs, especially U.S.
jobs that cannot be exported. Investment in our national public
transportation and highway systems creates jobs--47,500 per $1 billion
of Federal investment. This investment does more than create jobs, it
helps improve the economy by reducing congestion, promoting energy
conservation, and providing transportation options to workers and tens
of millions of other Americans.
As a Nation, we need to maintain and improve the transportation
system that has served this country so well. Congress has made a
substantial investment in public transit systems around the country,
and those systems serve tens of millions of customers each day; but
much needs to be done to maintain and increase the return on that
investment. With ridership at record levels, the American Association
of State Highway and Transportation Officials (AASHTO) estimates that
an annual capital investment of more than $44 billion is needed to
adequately maintain, improve and expand public transportation across
America.
Demand for surface transportation options--including modern, safe,
and efficient public transportation service--is at an all-time high.
New transit service is being added in areas around the country,
including Houston, Minneapolis, Phoenix, and Charlotte. More and more
communities are voting for new and expanded transit service every year.
Demand for transit options is a product of growing frustration with
increased congestion that negatively affects our quality of life by
wasting time and money, and a desire for mobility options. The Wirthlin
Worldwide poll also demonstrates that voters support public
transportation regardless of whether they live in urban, suburban,
small urban or rural communities, and that they are more likely to vote
for Congressional candidates who support such investment.
Similarly, as the population ages, older Americans will need more
and better transit service. As driving becomes less of an option for
many older Americans, they as well as persons with disabilities are
seeking good public transportation options so that they can continue to
fully participate in society. Yet many older Americans and people with
disabilities live in areas where public transportation services are
limited or non-existent, despite the fact that access to good transit
service can mean the difference between living independently and moving
into assisted living. Nearly two-thirds of residents in urban, small
urban and rural communities have few if any transportation options--41
percent have no access to transit, another 25 percent live in areas
with below-average transit services. Clearly, our Nation's small-town
and rural areas have real and growing transportation needs.
FISCAL YEAR 2005 TRANSIT INVESTMENT
APTA believes it is crucial to provide significant investment in
the Nation's transit and highway infrastructure in the fiscal year 2005
appropriations process. That investment advances key national goals by
producing jobs, providing more mobility options to all Americans,
improving the environment and reducing dependence on foreign oil, and
by providing a solid return on the investment.
APTA's recommendations for reauthorization of the Transportation
Equity Act for the 21st Century (TEA21) propose to grow the transit
Federal transit program to $14 billion by fiscal year 2009. The Senate
has passed a TEA21 reauthorization bill that would authorize $8.65
billion for transit in fiscal year 2005, and we urge the subcommittee
to invest no less than that amount for the Federal transit program in
fiscal year 2005.
Mr. Chairman, in that regard we thank you for your outstanding
leadership as chairman of the Senate Banking Committee in crafting the
transit portion of that legislation, which addresses critical public
transportation investment needs.
PUBLIC TRANSPORTATION INVESTMENT CREATES JOBS AND GROWS THE ECONOMY
Americans are growing increasingly concerned about jobs. An
Associated Press poll taken March 19-21 showed that 35 percent of
Americans view economic conditions as the most important factor on
which they will vote. A Washington Post poll taken April 15-18 shows
that the economy and jobs are the most important issues that 26 percent
of voters want to hear about in the upcoming election, more than any
other topic. Polls by Newsweek and Harris this year have produced
similar results for the last several months. Jobs are the No. 1 concern
of Americans.
Policy makers know that increased investment in our Nation's
transit and highway transportation infrastructure will help the economy
and will produce jobs. The Department of Transportation has
demonstrated that for every $1 billion in Federal highway and transit
investment, 47,500 jobs are created or sustained. This view is shared
by Senate Environment and Public Works Committee Chairman James Inhofe
(R-OK), who stated upon passage of SAFETEA that the bill ``will create
nearly 2.8 million job opportunities for the American people.'' He went
on to call TEA21 reauthorization the ``biggest job creation bill of
this Congress.''
The jobs that investment in public transportation can create are
high-paying, stable, and cannot be exported. The jobs created are not
just those needed to operate new and expanded transit service, which
are significant; but also in the private manufacturing sector, which
supports and supplies the public transportation industry. For instance,
transit buses are built in, among other places, Anniston, Alabama;
Wichita, Kansas; Brownsville, Texas; Lamar, Colorado; St. Cloud,
Minnesota; Hayward, California; Imlay City, Michigan; Pembina, North
Dakota; and Oriskany, New York. Engines for those buses may be built in
Detroit or Columbus, Indiana. Spending on transit also benefits
hundreds of other private sector companies around the United States
that build rail cars, fareboxes, vehicle parts and equipment or provide
software, engineering, and construction services for the transit
industry. According to a Cambridge Systematics Inc. study, for every
$10 spent on transit capital projects, $30 in business sales is
generated. Every $10 invested in transit operations results in $32 in
private business sales.
Mr. Chairman, public transportation serves another important
economic purpose: alleviating highway congestion. According to the
Texas Transportation Institute's ``2003 Urban Mobility Report'',
congestion costs $69.5 billion annually--more than 3.6 billion hours of
delay and 5.7 billion gallons of excess fuel consumed. The report says
without public transportation, there would be 1 billion more hours (30
percent) more delay. The average driver is losing more than 1\1/2\
weeks of work (62 hours) each year sitting in gridlock. The average
cost of congestion per peak road traveler is $1,160 a year. All of that
congestion holds up more than 64 percent of the Nation's freight that
moves by truck on highways, which represents annual value to the
economy of more than $5 trillion. As the Free Congress Foundation's
Paul Weyrich and Bill Lind demonstrate in their study, ``How Transit
Benefits People Who Do Not Ride It'', public transportation, by
alleviating congestion, brings real benefits not just to those who use
it, but also to those who do not use it.
But public transportation does not just improve the economy by
taking cars off the road--it provides transportation options to low-
income workers who cannot afford to drive to work. According to the
Surface Transportation Policy Project, the proportion of household
expenditures devoted to transportation has grown from 14 percent in
1960 to almost 20 percent today. A recently published Bureau of
Transportation Statistics Issue Brief found that Americans who commute
by car or truck spent about $1,280 per year in 1999, while those who
were able to use public transportation to get to and from work spent
just $765 per year. Clearly public transportation provides real and
needed savings for the many entry-level workers coming into the
workforce who are so critical for the Nation's economy.
PUBLIC TRANSPORTATION IS IN DEMAND
Last November voters in several communities, including Denver,
Houston, Grand Rapids and Kansas City, approved by large margins new
local taxes to provide new and expanded public transportation services.
These were just a few of efforts across the country to increase funding
for transportation infrastructure, and follows successful actions in
other cities over the past 5 years to expand transit service, including
Phoenix, Charlotte, Dallas and Minneapolis.
That these referenda have been approved should come as no surprise.
Polls have consistently shown that the American public not only
supports increased public transportation services but also supports
providing the resources to pay for it. As mentioned earlier, the recent
Wirthlin Worldwide study showed that 80 percent of Americans surveyed
see quality of life benefits from increased investment in public
transportation; 76 percent support public funding for the expansion and
improvement of public transportation; two-thirds support pro-public
transportation Congressional candidates; and a majority (52 percent to
41 percent) of Americans believe transportation investment is
preferable to tax cuts to stimulate the economy. These findings hold
true across areas of all sizes--urban, suburban, small town and rural.
A poll taken in spring 2003 by APTA and the American Automobile
Association (AAA) showed that 95 percent of those surveyed said traffic
congestion, including commutes to and from work, had grown worse over
the last 3 years, with 92 percent believing it was either very
important (71 percent) or somewhat important (21 percent) for their
community to have both good roads and viable alternatives to driving.
The Wirthlin Worldwide poll demonstrates that support for public
transportation has increased dramatically not only in our biggest
cities, but in smaller urban communities and rural areas as well, where
40 percent of America's rural residents have no access to public
transportation, and another 28 percent have substandard access. It is
estimated that rural America has 30 million non-drivers, including
senior citizens, the disabled and low-income families, all of whom need
transportation options. According to a survey of APTA members, bus
trips in areas with populations less than 100,000 increased from 323
million to 426 million in a recent 5-year span.
While demand for new and expanded service is increasing, the
resources required to simply maintain the present level of service are
immense. A 2002 AASHTO report estimates that $44 billion is needed
annually to meet current transit capital needs for new projects and
improvements to existing systems as well to expand the availability of
transit service to more Americans.
PUBLIC TRANSPORTATION PROVIDES MOBILITY OPTIONS
Public transportation provides mobility options to persons who
choose not to, or cannot, drive because of age or a disability. For
many in this population, public transportation may be the only option
to living a fully independent and productive life. For many Americans,
public transportation can be the difference between staying in their
own homes or moving into an assisted living community.
According to the AARP's Beyond 50.03: A Report to the Nation on
Independent Living and Disability, released in August 2003, as people
move from their 70's into their 80's, the percentage of licensed
drivers falls to 50 percent from just over 90 percent. With the baby-
boom generation approaching retirement age, this means the population
of elderly Americans who do not have a driver's license will soon grow
significantly.
Persons with disabilities face similar mobility problems. Many
cannot drive or afford vehicles that are fitted to their needs. Public
transportation can provide them the options they need to stay active
and independent. However, according to AARP's report, 32 percent of
people with disabilities over 65 report that inadequate transportation
is a problem. The report states further that while public
transportation is more economically efficient in areas with high
population density, many older Americans with disabilities live
``outside of central cities in communities where public transportation
is found least often.'' This is becoming a growing problem, and it is
clear that we need to begin to address the important transportation
needs in these areas.
PUBLIC TRANSPORTATION PROVIDES GOOD VALUE
Unlike other modal transportation projects funded through the
Department of Transportation, major capital transit projects funded by
the FTA are subject to a rigorous Federal review process. A
comprehensive alternatives analysis process is undergone, with various
transportation alternatives weighed and considered. The overall review
process typically involves 5 or more years of planning, environmental
studies and technical analysis. The projects must be included both in
State and local transportation programs and plans. To qualify for
project approval and a full funding grant agreement, project sponsors
must demonstrate not only financial capacity to construct the project
but also to maintain and operate the service once put in place. Much of
the process turns on ridership and project cost estimates. In that
regard, we are pleased to note that ridership and project cost and
benefit estimates for recent new start and bus rapid transit projects
have been very accurate, and we will continue to work with the FTA and
our members to make sure that forecasting is as accurate as possible.
The result of this rigorous process is that the completed transit
projects provide real value and an excellent return on the dollar,
often in areas not typically recognized: increased value and income for
property owners; expanded markets, rising productivity and increased
revenues for business and commercial owners/occupants; and enhanced tax
revenues for local governments--from rising land values, expanded
development and an upsurge in business transactions. While we support
this rigorous review process and the excellent projects that result
from it, we remain concerned that it does not apply to other
transportation projects under the jurisdiction of the Department of
Transportation. We think it would be good public policy to have all
major Federally funded transportation projects subject to similar
Federal review processes.
PRESIDENT'S BUDGET PROPOSAL
The President's fiscal year 2005 budget proposal proposes to freeze
funding for Federal transit programs at the fiscal year 2004 level of
$7.266 billion. In its proposal for a 6-year authorization bill, which
was submitted to Congress 9 months earlier, the administration had
proposed to fund Federal transit programs at $7.369 billion in fiscal
year 2005, $103 million more than the amount for transit in the fiscal
year 2005 budget proposal.
Mr. Chairman, now is not the time to shortchange investment in
public transportation! While the administration continues to advocate
for policies that will support a healthy economy and produce more jobs,
its budget proposal for transit does not adequately address the need to
improve our Nation's transit systems, and create jobs in the process.
We again emphasize the 47,500 jobs created by every $1 billion invested
in the public transportation infrastructure or the $30 million in
private business sales that are generated for every $10 million
invested in transit.
Mr. Chairman, we strongly believe that growth of the Federal
investment in public transportation can help advance many of the
Nation's key goals, and that freezing Federal funding for transit
simply defers the growing backlog of unmet transit capital needs. We
urge the subcommittee to fund the Federal transit program in fiscal
year 2005 at no less than $8.65 billion, the amount provided in SAFETEA
(S. 1072), the Senate-passed TEA21 reauthorization bill.
CONCLUSION
Public transportation should and can play a key role in meeting the
goals of the administration and Congress in providing jobs and economic
development, energy independence, and mobility options for millions of
American. Mr. Chairman, we look forward to working with the
subcommittee as it takes up the fiscal year 2005 appropriations bills,
and urge you to invest in surface transportation programs at the
highest levels possible.
______
Prepared Statement of the National Association of Railroad Passengers
Thank you for the opportunity to submit this statement. We support
the Amtrak request for $1.798 billion. We also support efforts to make
the Federal Government a true funding partner with States to permit
development of high speed rail corridors, for which many States already
have well-advanced plans. Finally, we strongly favor Federal support
for the CREATE/Chicago Project to modernize Chicago's railroad
infrastructure, and we support continuing efforts to bring to fruition
a North Station/South Station Rail Link in Boston.
$900 MILLION IS A SHUTDOWN BUDGET FOR AMTRAK
Secretary of Transportation Norman Y. Mineta has made clear his
agreement that $900 million would be a shutdown budget. At his
interest-group budget briefing on February 2, I asked him about a
seeming disconnect between the administration's budget recommendation
and Amtrak President & CEO David L. Gunn's statement last fall that
$900 million is a shutdown budget that ``won't work.'' Mineta
responded, ``Gunn is right on the numbers'' but we are sending a
message about the importance of our reforms. The following table
illustrates the problem with $900 million:
[In millions of dollars]
------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
Operating...................................................... 570
Debt Service................................................... 262
Environmental.................................................. 22
--------
Total.................................................... 854
------------------------------------------------------------------------
NOTE.--Amtrak has taken on no new commercial debt since David Gunn's
May, 2002, arrival, and has no plans to. The cost of debt service
peaks in Fiscal 2005 and declines thereafter. Most of the
environmental portion of Amtrak's capital budget involves work that
Amtrak is legally obligated to undertake, so could not be set aside in
favor of fleet or infrastructure work that otherwise would be
considered more vital to the system's continued, viable operation.
Gunn in February said Amtrak has ``a strategy of moving resources
from emergency repairs to programmed maintenance.'' This obviously
makes for more reliable service, while maximizing revenues (fewer en-
route problems means satisfied customers) and reducing maintenance
costs. However, much of the programmed maintenance is considered
capital, so a maintenance budget at or close to zero forces either an
immediate shutdown or an immediate downward spiral in service quality.
But this means the system would collapse on zero capital, and 2,000
employees would be let go. That's essentially what the administration's
$900 million would require.
PASSENGER RAIL SECURITY
We agree that rail security has been underfunded and join with
those noting the huge gap between Federal spending on aviation security
and on railroad security--$11 billion versus $115 million, according to
one representative at today's House subcommittee hearing. We understand
that the Bush Administration's Transportation Security Administration
request for fiscal year 2005 is $5.3 billion, of which all but $147
million is for air security.
The most obvious needs in rail security relate to infrastructure--
especially bridges, tunnels, stations and yards--and training for
front-line personnel.
Infrastructure.--Issues in the Northeast Corridor are well-known.
At major stations nationwide, items for consideration include: an
increased police presence with K-9 units, video surveillance at key
points of entry and exit, vapor detectors, coordinated plans for first
responders in case of an event.
Attention must also be paid, as Amtrak notes, to ``non-public
locations, such as loading docks, adjacent yards and buildings.''
Consider this recent news item regarding a major commuter railroad:
``Train yards in New Haven and Bridgeport have major security
problems 2 months after Federal Homeland Security chief Tom Ridge asked
rail operators to be on a heightened state of alert following the Spain
train bombings that killed 191 people, WTNH-TV reported Thursday. A
reporter and cameraman walked into the New Haven rail facility at 3
a.m. on a recent day and found no security or police guarding the
Metro-North trains that carry nearly 40,000 Connecticut commuters into
New York each weekday.
``No one stopped the news team, which was able to walk around the
rail yard for about two hours, the station reported. The reporter, Alan
Cohn, climbed aboard one of the engines . . . The television station
found a similar lack of security at the Bridgeport rail yard . . . It's
the job of Metro-North and Metropolitan Transit Authority police to
patrol [these] rail yards. Metro-North President Peter Cannito promised
that changes would be made.''
This report raises the obvious question: how secure are other rail
yards?
There is also a Federal interest in the security level of the
Nation's vast, privately-owned railroad system which is important both
to Amtrak's national network and to freight transportation. For
example, loss of major Mississippi River bridges, especially south of
Memphis where the number of crossings is small, could wreak havoc with
freight commerce.
Personnel.--Our understanding is that Israel, the U.K., and Germany
are nations where training front line staff has actually deterred
bombers and saved lives. This has been a sensitive issue in the United
States. Their approach needs to be studied to see what aspects of this
work could usefully be transferred. This does not mean ``pre-boarding''
interviews; that is not feasible for reasons discussed below. But
Amtrak's on-board employees in many cases have several hours or more of
intermittent contact with passengers and thus the possibility--with the
right training--of identifying potential wrongdoers.
What is not realistic.--Many Americans begin their thinking about
rail passenger security by citing baggage (and shoe!) X-ray procedures
they experience at airports but obviously not at train stations. Amtrak
(and most commuter railroads) have two extremes: places like New York's
Pennsylvania Station where passenger volumes and proximity to commuter
trains would make anything approaching airline-style security both
impractical and largely ineffective. Conversely, many small stations
have such small passenger volumes as to make any security equipment
seem wasteful. As Mesa Airlines CEO Jonathan Ornstein recently noted
(in a March 9 Washington Post report about holes in security at small
airports), ``When there are more TSA people than passengers, you have
to ask yourself, does that make sense?''
We note with approval that TSA seems to agree. For example, TSA
Undersecretary Asa Hutchinson said that the device that sniffs for
explosives and is in a month-long test at New Carrollton, Maryland, is
not permanent but simply to gain knowledge for TSA ``so that in the
event there is a specific threat or a specific need, we have the
knowledge, the capability to put inspections in place in a particular
threat environment.''
THE PUBLIC WANTS THE RAIL CHOICE
Amtrak's ridership reports starting around May show strong
increases--a further sign both that Gunn is succeeding in stabilizing
the railroad, and that people want the service. For the first 5 months
of fiscal year 2005 (October-February), ridership increases on the
long-distance trains ranged from 6 percent to 34 percent, with only two
routes below 10 percent. Short-distance route changes ranged from -3
percent to +22 percent, with 7 of 16 routes showing double-digit
percentage increases. (Actually, the New York-Pittsburgh route was up
104 percent but this is not exactly an apples-to-apples comparison.)
Two routes showed slight declines.
In March, systemwide ridership was up 3.2 percent and revenues were
up 5.8 percent versus 1 year ago.
THE NATIONAL NETWORK
We reiterate our strong belief that funding Amtrak's national
network is a Federal responsibility, and that implementation of any
``reform'' which requires a multiplicity of States to provide operating
grants is tantamount to shutting down the system. The suggestion--heard
more than once from Secretary Mineta--that a train could run ``closed
door'' through non-paying States is not workable because, almost
without exception, revenues lost from skipping any State would far
exceed the negligible cost savings. The Empire Builder in crossing the
thin northern tip of Idaho might conceivably skip Sandpoint, Idaho,
with minimal damage but it's hard to think of any other benign example.
Similarly, we do not believe a ``route closing commission'' could
shed any significant new light. The system is already so skeletal that
deletion of any surviving route would mean wholesale elimination of
service to major cities and States. Indeed, as we have testified
previously, we favor an expansion of the network.
Amtrak's Sunset Limited is often cited by Amtrak's critics as
wasteful because it would be cheaper to fly passengers from Orlando to
Los Angeles. However, relatively few passengers travel that entire
distance. Other city-pairs the route serves do not have direct flights,
or affordable flights, or in some cases any flights. In addition, some
passengers are physically unable to fly. And elimination of the Sunset
Ltd. would create a domino effect as the loss of connecting passengers
and ability to share facility costs with the Sunset would unravel the
economics of the Texas Eagle, City of New Orleans, and Crescent.
The large subsidy-per-passenger figures sometimes cited for given
Amtrak long-distance routes include ``fully allocated'' costs. These
are misleading because they often are interpreted to mean that
discontinuance of a given route would reduce Amtrak's operating grant
requirement by the product of the number of passengers times the fully
allocated loss per passenger. Using the Silver Star fiscal year 2002
figures at page 471 of the House subcommittee's April 10, 2003, hearing
record, the math would be $189 times 252,240.
The product does not represent an avoidable cost, since many
allocated costs will not disappear but simply get re-allocated to
surviving routes. Obvious example: a share of the Amtrak president's
salary. Also, a high proportion of long-distance-train passengers make
connections with other trains, so discontinuing one train negatively
impacts revenues on other trains.
This helps explain why ``FRA-defined train contribution'' figures
were developed, by Federal Railroad Administration working with Amtrak
when they were implementing the agreements under which DOT approves
funds before Amtrak gets them. In the case of the Silver Star, the FRA
defined contribution is actually positive: $12 per passenger or 2 cents
per passenger-mile. (Measures stated in terms of passenger-mile are
normally used in intercity travel statistics because they take into
account the dramatic variations in trip lengths.)
Thank you for considering our views. Please let us know if we can
provide further information that would be helpful to the committee's
work.
Prepared Statement of Signature Flight Support
THE EFFECTS OF CLOSING DCA TO GENERAL AVIATION
Ronald Reagan Washington National Airport was closed to general
aviation (``GA'') on September 11, 2001 and has not reopened since. It
is the only airport in the country that has been shut down to general
aviation. Following the September 11 attacks, the FAA also closed the
three small general aviation airports within 15 miles of Washington:
Potomac Airfield, Washington Executive Airport and College Park Airport
(``DC-3 airports''). Although the DC-3 airports have been allowed to
re-open, they are subject to unique tight restrictions and cannot land
any incoming traffic. No other airports in the country are subject to
comparable restrictions.
General aviation businesses that were operating at Reagan National
and the smaller DC-3 airports have suffered substantial losses as a
result of these closures and restrictions, which is entirely the result
of government edicts. The use of their property has been ``taken'' by
the Federal Government. They should be compensated for these losses.
Prior to 9/11, as the sole provider of ground support services for
general aviation at Reagan National, Signature Flight Support handled
an average of 175 flights per day, and employed 55 aviation service
professionals. Two employees now handle approximately 20 flights per
month. During the last 6 months, virtually all of these flights have
been government officials. The flights primarily are aircraft belonging
to the Bureau of Immigration and Customs Enforcement, the Drug
Enforcement Agency, the FBI, NASA, and miscellaneous dignitaries.
Although Signature's rent has been abated by the Metropolitan
Washington Airports Authority, Signature has suffered substantial
losses to revenues and workforce. In the 2\1/2\ years since closure,
Signature Flight Support alone has lost after tax profits, offset by
modest gains at our Washington Dulles and Baltimore facilities, in
excess of $10 million.
COMPENSATION IS NEEDED AND APPROPRIATE
The Fifth Amendment to the Constitution provides that no ``private
property shall be taken for public use without just compensation.'' The
closure to general aviation and its effect on Signature is legally
known as a regulatory taking. The general aviation shutdown has left
Signature with a facility and a business that cannot possibly be used
for any other purpose. Given this situation, the Federal Government
should compensate Signature and other similarly affected business for
the losses that have resulted. Compensation should be paid for the lost
profits and actual losses incurred since the closure of Reagan National
to general aviation.
Congress immediately recognized the need for compensation in the
wake of 9/11, when it passed the 2001 Emergency Supplemental, which
included $40 million to the Metropolitan Washington Airports Authority
to compensate its concessionaires for the temporary closure and reduced
commercial flight schedule at Reagan National immediately after 9/11.
However, this fund compensated businesses only for the period
immediately following 9/11; no funds were made available to businesses
that continued to suffer substantial losses at Washington area
airports. These losses were uniquely suffered at these airports. This
failure can and should be addressed this year. Funding for these losses
has now been fully authorized.
Last year, Congress recognized the importance of compensating
businesses for the significant losses suffered post 9/11 as a result of
the closure of general aviation. The FAA reauthorization bill, The
Vision 100--Century of Aviation Reauthorization, provides for the
reimbursement of losses incurred by general aviation entities. The bill
was enacted last December.
The compensation provision specifically states, ``the Secretary of
Transportation may make grants to reimburse . . . general aviation
entities for the security costs incurred and revenue foregone as a
result of the restrictions imposed by the Federal Government following
the terrorist attacks on the United States that occurred on September
11, 2001.\1\ Item 1 is ``general aviation entities that operate at
Ronald Reagan Washington National Airport.'' \2\ The statute authorizes
that $100,000,000 to be appropriated for reimbursements to carry out
the section. This year, Congress should follow through by making this
authorization a reality, particularly for the highest priority
category, which is the only category where general aviation has been
totally banned since 9/11.
---------------------------------------------------------------------------
\1\ Public Law No. 108-176 (H. Res. 2115) (December 12, 2003).
\2\ Public Law No. 108-176 (H. Res. 2115) (December 12, 2003).
---------------------------------------------------------------------------
A provision should be included in the Fiscal 2005 Transportation
Appropriations legislation that compensates those businesses that have
suffered losses as a result of the termination of general aviation
activity at Reagan National Airport. This provision should provide for
a minimum of $10 million, the approximate amount lost by Signature
Flight Support since the closure of Reagan National on 9/11.
LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS
----------
Page
Air Traffic Control Association, Inc., Prepared Statement of the. 555
American:
Passenger Rail Coalition, Prepared Statement of the.......... 548
Public Transportation Association, Prepared Statement of the. 564
Bennett, Senator Robert F., U.S. Senator from Utah:
Questions Submitted by.....................................106, 377
Statements of................................................7, 282
Berne, Bernard H., M.D., Ph.D., Prepared Statement of............ 545
Blakey, Marion C., Administrator, Federal Aviation
Administration, Department of Transportation................... 397
Prepared Statement of........................................ 406
Statement of................................................. 402
Bloch, Scott J., Special Counsel, U.S. Office of Special Counsel,
Prepared Statement of.......................................... 524
Bonasso, Samuel G., Deputy Administrator, Research and Special
Programs Administration, Department of Transportation, Prepared
Statement of................................................... 511
Brownback, Senator Sam, U.S. Senator from Kansas, Questions
Submitted by................................................... 461
Byrd, Senator Robert C., U.S. Senator from West Virginia,
Questions Submitted by.......................................151, 393
California:
Government and Private Sector Coalition for Operation Clean
Air, Prepared Statement of the............................. 559
Industry and Government Central California Ozone Study (CCOS)
Coalition, Prepared Statement of the....................... 560
Coalition of Northeastern Governors (CONEG), Prepared Statement
of the......................................................... 550
Dorgan, Senator Byron L., U.S. Senator from North Dakota:
Questions Submitted by.....................................111, 394
Statements of..............................................283, 401
Durbin, Senator Richard J., U.S. Senator from Illinois:
Prepared Statement of........................................ 402
Questions Submitted by................................110, 269, 469
Easter Seals, Prepared Statement of.............................. 562
Everson, Mark O., Commissioner, Internal Revenue Service,
Department of the Treasury..................................... 155
Prepared Statement of........................................ 163
Statement of................................................. 161
Federal Aviation Administration, Questions Submitted to the...... 456
Fox, William J., Director, Financial Crimes Enforcement Network,
Department of the Treasury, Prepared Statement of.............. 513
Gardiner, Pamela J., Acting Treasury Inspector General for Tax
Administration, Department of the Treasury..................... 155
Prepared Statement of........................................ 174
Statement of................................................. 172
Glynn, Marilyn, Acting Director, Office of Government Ethics,
Prepared Statement of.......................................... 539
Internal Revenue Service:
Oversight Board, Prepared Statement of the................... 203
Questions Submitted to the................................... 210
International Loran Association, Prepared Statement of the....... 543
Jacquez, Albert S., Administrator, Saint Lawrence Seaway
Development Corporation, Prepared Statement of................. 477
James, Kay Coles, Director, Office of Personnel Management,
Prepared Statement of.......................................... 495
Kohl, Senator Herb, U.S. Senator from Wisconsin, Questions
Submitted by................................................... 467
Kowalewski, Richard, Deputy Director, Bureau of Transportation
Statistics, Department of Transportation, Prepared Statement of 509
Libertucci, Arthur J., Administrator, Alcohol and Tobacco Tax and
Trade Bureau, Department of the Treasury, Prepared Statement of 520
McFarland, Patrick E., Inspector General, Office of Personnel
Management, Prepared Statement of.............................. 498
McPhie, Neil Anthony Gordon, Acting Chairman, Merit Systems
Protection Board, Prepared Statement of........................ 483
Mead, Ken, Inspector General, Office of the Inspector General,
Department of Transportation:
Prepared Statement of........................................ 415
Statement of................................................. 411
Mineta, Hon. Norman Y., Secretary, Office of the Secretary,
Department of Transportation................................... 1
Prepared Statement of........................................ 9
Statement of................................................. 7
Moravec, F. Joseph, Commissioner, Public Buildings Service,
General Services Administration, Prepared Statement of......... 500
Murray, Senator Patty, U.S. Senator from Washington:
Prepared Statements of..................................5, 120, 159
Questions Submitted by......................148, 249, 271, 377, 463
Statements of......................................3, 119, 279, 399
National:
Association of Railroad Passengers, Prepared Statement of the 568
Treasury Employees Union, Prepared Statement of the.......... 552
Nober, Roger, Chairman, Surface Transportation Board, Prepared
Statement of................................................... 534
Office of the Inspector General, Department of Transportation,
Questions Submitted to the..................................... 470
Perry, Stephen A., Administrator, General Services
Administration, Prepared Statement of.......................... 501
Potter, John, Postmaster General and CEO, United States Postal
Service........................................................ 115
Prepared Statement of........................................ 123
Statement of................................................. 121
Reid, Senator Harry, U.S. Senator from Nevada:
Prepared Statement of........................................ 159
Statement of................................................. 158
Roffee, Lawrence W., Executive Director, U.S. Access Board,
Prepared Statement of.......................................... 487
Sandberg, Annette M., Administrator, Federal Motor Carrier Safety
Administration, Department of Transportation, Prepared
Statement of................................................... 505
Shelby, Senator Richard C., U.S. Senator from Alabama:
Opening Statements of...................................1, 115, 277
Prepared Statement of........................................ 118
Questions Submitted by.............32, 142, 210, 270, 311, 456, 470
Signature Flight Support, Prepared Statement of.................. 571
Snow, Hon. John, Secretary, Office of the Secretary, Department
of the Treasury................................................ 277
Prepared Statement of........................................ 285
Statement of................................................. 283
Stevens, Senator Ted, U.S. Senator from Alaska:
Prepared Statement of........................................ 133
Statements of...............................................29, 133
Treasury Inspector General for Tax Administration, Questions
Submitted to the............................................... 270
Walters, John P., Director, Office of National Drug Control
Policy, Prepared Statement of.................................. 530
Weintraub, Ellen L., Vice Chair, Federal Election Commission,
Prepared Statement of.......................................... 527
SUBJECT INDEX
----------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Page
Accuracy of Tax Return Preparation............................... 180
Actuarial Software Program....................................... 247
Additional Committee Questions................................... 210
Addressing:
Fraud at All Income Levels................................... 187
Non-compliance............................................... 162
Background....................................................... 252
Bank Secrecy Act Enforcement..................................... 238
Board Cites Complexity as Fundamental Flaw....................... 207
Business Systems Modernization (BSM)......................157, 166, 195
At the IRS................................................... 171
Cost Overruns................................................ 198
Management.................................................199, 247
Commitment to Enforcement Funding................................ 192
Competitive Sourcing............................................. 261
Corporate Tax Shelters........................................... 181
Customer:
Account Data Engine (CADE)................................... 200
Cost Overrun (From the Original Estimate)................ 201
Service...............................................178, 264, 274
Days of ``Outmanned and Outgunned'' IRS Must End................. 204
Delinquent Tax Inventory......................................... 193
Earned Income Tax Credit......................................... 185
Certification Pilot.......................................... 186
Effective Enforcement............................................ 169
Electronic Filing................................................ 253
Enforcement Priorities........................................... 182
Failure To Collect Delinquent Taxes............................249, 273
Fuel Tax Evasion...............................................188, 229
Future Staffing Requirements..................................... 246
Health Insurance Tax Credit Administration....................... 166
Improving:
Accuracy of Return Preparation............................... 180
Service...................................................... 167
Information Systems.............................................. 166
IRS:
Actions in Regard to the PRIME............................... 202
Enforcement:
Activities............................................... 162
Funding.................................................. 156
Priorities............................................... 183
Must Stay the Course on Customer Service..................... 204
Reorganization............................................... 256
Service and Staffing Levels.................................. 190
Staffing..................................................... 183
Modernization..................................................270, 271
Critical to Tax Administration............................... 206
Performance of the Contractor.................................... 203
Phase:
I of Consolidation Strategy.................................. 253
II of Consolidation Strategy................................. 254
President's Fiscal Year 2005 Budget Seeks Increase in Enforcement 163
Problems with IRS Business Systems Modernization (BSM)........... 259
Processing:
Assistance, and Management................................... 164
Paper Returns................................................ 253
Program Performance.............................................. 167
Questions Submitted to the:
Internal Revenue Service..................................... 210
Treasury Inspector General for Tax Administration............ 270
Report........................................................... 252
Resources:
For Tax Administration....................................... 192
Necessary to Complete Modernization.......................... 197
Return on Enforcement Investment................................. 191
Systems Modernization............................................ 175
Tax:
Assistance Program--Illinois................................. 269
Cheating: Alarming Trends.................................... 205
Evasion/IRS Collection....................................... 269
Gap.......................................................... 187
Law:
Accuracy................................................. 194
Enforcement.............................................. 164
Budget Priorities and Resource Allocation............ 246
Funding.............................................. 190
Taxpayer Impact.................................................. 254
The:
Administration's Fiscal Year 2005 Budget Request............. 206
IRS Oversight Board Budget Recommendation.................... 203
2004 Filing Season............................................... 171
Workforce:
And Facility Realignment..................................... 245
Impact....................................................... 254
Realignment................................................189, 193
Office of the Secretary
Access to Overseas Markets....................................... 296
Additional Committee Questions................................... 310
Administration of EITC........................................... 306
Alcohol and Tobacco Tax and Trade Bureau......................... 375
Are There More Riggs Banks Out There?............................ 386
Competitive Sourcing............................................. 378
Coordination with Homeland Security............................293, 303
Departmental Offices............................................. 311
Designation:
Information.................................................. 309
Of Charities................................................. 308
DSCIP............................................................ 320
Earned Income Tax Credit (EITC).................................. 304
Economy and Jobs................................................. 290
Ensuring Professionalism, Excellence, Integrity and
Accountability in Management of Treasury....................... 288
Fighting the War on Terror and Safeguarding our Financial Systems 287
FinCEN........................................................... 339
Foundation for Success--The President's Management Agenda........ 289
Has Progress in Saudi Arabia Triggered Progress in Other Arab
Nations?....................................................... 382
IRS:
Enforcement Increase......................................... 390
Information Technology Investment............................ 298
Staffing Reductions.......................................... 387
Is Treasury Requesting Enough Foot Soldiers in the War on
Terrorist Financing?........................................... 384
Licensing Information Resources.................................. 301
Maintaining Public Trust and Confidence in our Economic and
Financial Systems.............................................. 286
Mint/BEP Merger Proposal......................................... 353
Newly-Created Jobs Will Not Go To Those Who Are Being Laid-Off/
Job Training................................................... 377
Office of:
Foreign Assets Control (OFAC)..............................299, 391
Resources................................................ 301
Terrorism and Financial Intelligence......................... 321
Outsourcing...................................................... 293
And Job Displacement......................................... 295
Private Collection Agencies...................................... 306
Progress on Stemming the Use of Charities to Funnel Cash to
Terrorist Organizations........................................ 380
Promoting Prosperous and Stable U.S. and World Economies......... 286
Proposed Merger of the U.S. Mint and the Bureau of Engraving and
Printing....................................................... 392
Protection of Taxpayer Rights.................................... 307
Public Policy on Tax Code........................................ 303
Resource Information............................................. 301
Return on Investment............................................. 298
Tax Code Definitions............................................. 305
Terrorist:
Financing..................................................291, 327
Use of Charity Organizations................................. 308
The President's Six-Point Economic Growth Plan................... 289
Treasury Budget Increase......................................... 297
Treasury's Terrorist Financing Initiative Needs Deadlines and
Milestones..................................................... 386
What Accomplishments Are Hoped For in Next G-8 Summit?........... 387
Will:
The Budget Boost Actually Improve Financial Crimes Network
Enforcement's (FinCEN's) Performance?...................... 385
Treasury Ban Non-Cooperating Nations From the Banking Sector? 384
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
Additional Committee Questions................................... 456
Advanced Technologies and Oceanic Procedures...................456, 463
Air Traffic:
MOU's........................................................ 404
Organization................................................. 404
Aircraft Maintenance............................................. 401
Balancing Investments............................................ 458
Baseline Review of WAAS and STARS................................ 464
Capacity.......................................................405, 408
Center Weather Service Units (CWSU).............................. 461
Chicago:
Midway and O'Hare Airports................................... 470
O'Hare International Airport................................. 469
Chief Financial Officer (CFO).................................... 404
Contract Towers.................................................. 458
Controller Retirements........................................... 458
Controllers-in-charge............................................ 458
Cost:
Accounting................................................... 404
Control...................................................... 410
FAA:
Acquisition Policy........................................... 456
Policy on Airspace Violations................................ 468
Flight:
Delays....................................................... 399
Plan......................................................... 403
General Aviation................................................. 462
Glass Beads...................................................... 460
Global Positioning System........................................ 457
Harmonization of U.S. and European Modernization Plans........... 459
International Leadership and Global Harmonization................ 409
Joint Planning and Development Office............................ 466
LORAN............................................................ 467
Organizational Excellence........................................ 409
Pay Performance.................................................. 398
Pay-for-performance.............................................. 404
Problems with Modernization...................................... 398
Reliable Cost Information........................................ 461
Repair Stations.................................................. 405
Revenue Diversion................................................ 463
Rulemaking Authority............................................. 467
Safety.........................................................405, 406
Security at the Auburn Tracon.................................... 467
Standard Terminal Automation Replacement System.................. 457
Termination of Long-term Procurement Projects.................... 466
The:
FAA's Flight Plan, 2004-2008................................. 406
New SeaTac Tower............................................. 465
Office of the Inspector General
Abating a Trend of Operating Cost Growth......................... 421
Accountability................................................... 449
Acquisition Program.............................................. 414
Additional Committee Questions................................... 456
Airport:
Funding Issues............................................... 430
Revenue Diversion............................................ 473
Airports.......................................................415, 420
Aviation Safety Issues........................................... 420
Being Positioned for a Rebound in Air Traffic.................... 432
Bringing Fiscal Discipline and Accountability to FAA
Modernization Efforts.......................................... 425
Capital Account.................................................. 414
Career Staffing Problem.......................................... 444
Controller Retirements....................................413, 441, 442
Cost Accounting.................................................. 414
Explanation for Increase in Operational Errors................... 474
F&E.............................................................. 438
FAA's Operations Account......................................... 435
Fixed Price...................................................... 438
Flight Delays.................................................... 450
Global Communication, Navigation, and Surveillance Systems....... 455
Is:
The FAA's Oceanic Program in Trouble?........................ 473
There Adequate Security at the Auburn TRACON?................ 474
Labor Distribution............................................... 448
Laser Runway Lighting............................................ 443
Maintenance Workforce............................................ 440
Major Acquisitions............................................... 418
Modernizing NAS.................................................. 437
MOU's..........................................................413, 436
Network of Systems............................................... 439
Oceanic Air Traffic Contractor Cost.............................. 447
OJT Training..................................................... 414
Operating Costs.................................................. 417
Passenger Enplanements........................................... 412
Personnel Costs.................................................. 436
Review of Business Case Analysis................................. 446
Safety...............................................412, 416, 435, 451
And Capacity................................................. 439
SeaTac........................................................... 454
Training of New Controllers...................................... 444
Office of the Secretary
Accessibility for All America Program............................ 72
Additional Committee Questions................................... 32
Air Traffic Control:
Maintenance Staffing Levels.................................. 27
Training..................................................... 112
Airline Stabilization Act........................................ 105
Amtrak.................................................23, 25, 110, 112
At the:
Contractor's Facility........................................ 22
Fleet Anchorage.............................................. 21
Attorneys in DOT................................................. 70
Authorization of DOT Programs and Fees........................... 104
Aviation:
Data Systems................................................. 68
Delays....................................................... 110
Board of Contract Appeals........................................53, 73
Charges to the Modes by OST...................................... 48
CIO Charges to the Modes......................................... 90
Commercial Driver's License Program.............................. 23
Common Access Architecture....................................... 77
Competitive Sourcing............................................. 92
Contracting Out:
FAA Functions................................................ 19
Federal Jobs................................................. 26
Critical IT Systems.............................................. 89
Decision of the Federal Arbitrator............................... 27
Delphi...........................................................88, 91
Details to the Office of the Secretary........................... 47
Disadvantaged Business Enterprise................................ 90
DOT:
Investment Review Board...................................... 81
Rent......................................................... 103
During Tow Preparations & Tow Evolutions......................... 22
E-Government..................................................... 85
Electronic:
Business Practices........................................... 93
Grants....................................................... 92
Rulemaking................................................... 93
Employee Training and Development................................ 69
Enterprise Architecture.......................................... 79
Environmental Reviews for Alaskan Highway Projects............... 29
Essential Air Service............................................ 67
Cost-sharing................................................. 111
Funding...................................................... 111
Federal:
Personnel Payroll System..................................... 74
Transit Administration:
Administrative Expenses..................................12, 32
Reorganization........................................... 32
Full Funding Grant:
Agreement Commitment Authority............................... 38
Agreements................................................... 20
Funding:
For:
Air Traffic:
Control Modernization................................ 16
Controllers.......................................... 12
FAA Capital Programs..................................... 22
Railroads and Amtrak..................................... 8
Surface Transportation................................... 8
The Federal Aviation Administration...................... 9
Levels for OST Offices....................................... 47
Highway:
Funding...................................................... 19
Safety....................................................... 18
Human Resources Information System............................... 94
Immediate Office of the:
Deputy Secretary............................................. 50
Secretary.................................................... 49
Impaired Driving................................................. 14
Intelligent Transportation Systems Advisory Committee............ 39
IT:
Capital Planning............................................. 82
Consolidation................................................ 84
Modernization................................................ 86
Procurement.................................................. 87
Security.....................................................76, 83
Leveraged Lease Transactions..................................... 111
Maritime Guaranteed Loans (Title XI)............................. 40
Minority Business Outreach....................................... 99
Motor:
Carrier:
Compliance Reviews....................................... 38
Safety:
Audits............................................... 38
Compliance Reviews................................... 24
Fuel Tax Evasion.............................................13, 33
NATCA: Pay for Performance....................................... 32
Need for Full Complement of Technicians.......................... 27
New DOT Headquarters Building.................................... 101
Office of:
Civil Rights................................................. 95
Intelligence and Security....................................54, 73
Public Affairs............................................... 61
Small and Disadvantaged Business Utilization................. 53
The:
Assistant:
General Counsel for Aviation Enforcement and
Proceedings........................................ 69
Secretary for:
Administration...................................60, 95
Aviation and International Affairs............... 74
Budget and Programs.............................. 59
Governmental Affairs............................. 57
Chief Information Officer................................56, 75
Executive Secretariat.................................... 51
General Counsel.......................................... 58
Under Secretary for Transportation Policy................ 52
OST:
Safety Performance Goals..................................... 63
Staffing..................................................... 45
Travel Costs................................................. 47
Overflight Fees.................................................. 65
Oversight of:
Highway Construction Projects................................ 15
Mega-projects................................................ 37
Presidential and Political Appointees............................ 40
Programmatic Priorities.......................................... 22
Proposals to:
Consolidate OST Budget Activities............................ 48
Reorganize:
Modal Offices............................................ 48
OST Offices.............................................. 48
SAFETEA Funding Levels........................................... 17
Safety Belt Laws................................................. 15
Section 508 Compliance........................................... 83
Ship Disposal....................................................21, 39
Short Sea Shipping............................................... 31
State Support for Passenger Rail Service......................... 13
TCI Response Center.............................................. 88
Third Runway at SeaTac International Airport..................... 28
Transportation:
Of Diagnostic and Infectious Medical Specimens............... 106
Planning, Research and Development........................... 63
Workforce Recruitment............................................ 91
Working Capital Fund............................................. 103
UNITED STATES POSTAL SERVICE
Additional Committee Questions................................... 142
Appropriations Request........................................... 129
Biohazard Detection Systems...................................... 130
Civil Service Retirement System................................135, 138
Competition: E-Commerce.......................................... 134
Consolidation of Rural Post Offices and Closure of Small Post
Office......................................................... 148
Consumer Access.................................................. 138
Cost Reductions................................................128, 143
Delivery Growth.................................................. 140
Detecting Biohazards in the Mail................................. 142
E-commerce Initiatives........................................... 144
Emergency Preparedness........................................... 125
Expenses..................................................... 147
Facility Issues.................................................. 136
Financial Transparency........................................... 139
Performance Goals................................................ 127
Post Office Consolidation........................................ 131
Postal:
Facility Construction........................................ 148
Reform/Regulatory Board Issues............................... 149
Postmaster Vacancies............................................. 151
Public-Private Partnership....................................... 146
Retail Stores Revenue............................................ 146
Revenue:
Forecast..................................................... 145
Foregone..................................................... 135
Reimbursement............................................ 150
Sponsorships..................................................... 140
Universal Service................................................ 141
Vertical Improved Mail........................................... 131