    [Senate Hearing 108-776]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-776

                                                            Senate Hearings

                                     Before the Committee on Appropriations

    _______________________________________________________________________

                                            Departments of Veterans Affairs

                                                      and Housing and Urban

                                                Development and Independent

                                                    Agencies Appropriations

                                                                Fiscal Year
                                                                       2005

                                             108th CONGRESS, SECOND SESSION

                                                          H.R. 5041/S. 2825

          AMERICAN BATTLE MONUMENTS COMMISSION
          CONSUMER PRODUCT SAFETY COMMISSION
          CORPORATION FOR NATIONAL AND COMMUNITY SERVICE
          DEPARTMENT OF HEALTH AND HUMAN SERVICES: AGENCY FOR TOXIC
            SUBSTANCES AND DISEASE REGISTRY
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
          DEPARTMENT OF THE ARMY--CIVIL
          DEPARTMENT OF VETERANS AFFAIRS
          ENVIRONMENTAL PROTECTION AGENCY
          EXECUTIVE OFFICE OF THE PRESIDENT: OFFICE OF SCIENCE AND
            TECHNOLOGY POLICY
          FEDERAL DEPOSIT INSURANCE CORPORATION: OFFICE OF INSPECTOR
            GENERAL
          GENERAL SERVICES ADMINISTRATION: FEDERAL CITIZEN INFORMATION
            CENTER
          NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
          NATIONAL CREDIT UNION ADMINISTRATION
          NATIONAL SCIENCE FOUNDATION
          NEIGHBORHOOD REINVESTMENT CORPORATION
          NONDEPARTMENTAL WITNESSES
          SELECTIVE SERVICE SYSTEM
          U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD
          U.S. COURT OF APPEALS FOR VETERANS CLAIMS

                                                            S. Hrg. 108-776

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT 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. 5041/S. 2825

     AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF VETERANS AFFAIRS
    AND HOUSING AND URBAN DEVELOPMENT, AND FOR SUNDRY INDEPENDENT AGENCIES,
      BOARDS, COMMISSIONS, CORPORATIONS, AND OFFICES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2005, AND FOR OTHER PURPOSES

                                   __________

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

                                   __________

            Printed for the use of the Committee on Appropriations

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

                                   __________

                        U.S. GOVERNMENT PRINTING OFFICE
    92-167                      WASHINGTON : 2005
    _____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
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                          COMMITTEE ON APPROPRIATIONS

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

               Subcommittee on VA, HUD, and Independent Agencies

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

                               Professional Staff

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

                             Administrative Support

                               Jennifer Storipan

                                C O N T E N T S

                                  ----------

                          Thursday, February 26, 2004

                                                                       Page
    Executive Office of the President: Office of Science and
      Technology Policy..............................................     1
    National Science Foundation......................................     1

                            Thursday, March 11, 2004

    National Aeronautics and Space Administration....................    77

                            Thursday, March 25, 2004

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

                            Thursday, April 1, 2004

    Department of Housing and Urban Development: Office of the
      Secretary......................................................   197

                             Tuesday, April 6, 2004

    Department of Veterans Affairs...................................   315

                            Thursday, April 8, 2004

    Corporation for National and Community Service...................   381
    Material submitted by agencies not appearing for formal hearings:   431
        American Battle Monuments Commission.........................   452
        Consumer Product Safety Commission...........................   473
        Department of the Army--Civil................................   431
        Department of Health and Human Services: Agency for Toxic
          Substances and Disease Registry............................   456
        Federal Deposit Insurance Corporation: Office of Inspector
          General....................................................   443
        General Services Administration: Federal Citizen Information
          Center.....................................................   475
        National Credit Union Administration.........................   435
        Neighborhood Reinvestment Corporation........................   462
        Selective Service System.....................................   441
        U.S. Court of Appeals for Veterans Claims....................   470
        U.S. Chemical Safety and Hazard Investigation Board..........   476
    Nondepartmental witnesses........................................   485

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                          THURSDAY, FEBRUARY 26, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.

        Present: Senators Bond, Mikulski and Johnson.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    STATEMENT OF JOHN H. MARBURGER, III, DIRECTOR

                          NATIONAL SCIENCE FOUNDATION

    STATEMENT OF ARDEN L. BEMENT, JR., ACTING DIRECTOR
    ACCOMPANIED BY:
            WARREN M. WASHINGTON, CHAIR, NATIONAL SCIENCE BOARD
            MARY E. CLUTTER, ASSISTANT DIRECTOR, BIOLOGICAL SCIENCES
            CHRISTINE C. BOESZ, INSPECTOR GENERAL

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski [presiding]. In the spirit of
    bipartisanship, which is a characteristic of this subcommittee,
    I will start the hearing while we await the arrival of Senator
    Bond. Senator Bond is at the Banking Committee hearing to
    introduce the nominee for the Secretary of HUD and will be
    joining us shortly. We expect Senator Bond shortly, but if not,
    we will go ahead with our witness testimony. We do expect a
    vote between 11:00 and 11:30.
        I want to welcome Dr. Marburger, Dr. Bement, and Dr.
    Washington to today's hearing. This is a very important
    hearing. We are tremendously interested in the issues to be
    presented by our panel; from the National Science Foundation,
    as well as the Chairman of the National Science Board, and, of
    course, the president's science advisor.
        In terms of the National Science Foundation, it is my
    belief that the NSF is absolutely critical to our economy. The
    future technologies and future jobs depend upon National
    Science Foundation research. I believe that America needs to be
    safer, stronger, and smarter, and if we want safer, stronger,
    and smarter, there is no other agency than the National Science
    Foundation who can make such a tremendous contribution to our
    country.
        NSF must lead the way in developing new technology, new
    thinking, new ideas, and new science to strengthen both our
    national security and our economic security. This is not just
    my view. Carly Fiorini, the Chair of Hewlett Packard, said,
    ``We must focus on developing the next generation industries
    and the next generation talent and fields like biotech,
    nanotech, digital media distribution, around issues like IT
    security, mobility, manageability, that is going to create
    long-term growth here at home, while raising our living
    standards in the process. These will be the new ideas, for the
    new products, for the new jobs that won't be on a fast track to
    Mexico or a slow boat to China.''
        Twenty years ago, President Reagan created the President's
    Commission on Industrial Competitiveness. We were then facing
    other kinds of challenges to our economy. The Commission
    offered three recommendations on how to make sure America
    continued to lead the way in terms of economic competitors.
    First, promote research and development of new ideas and new
    technologies, improve education and training, and lower budget
    deficits. That triad, for the future of this country, is as
    relevant today as it was when the Commission made its report.
        Following this simple formula, 35 million new jobs were
    created from the late 1980's until the late 1990's, the longest
    period of economic expansion in history. During the 1990's, I
    wrote my own vision of how we could cooperate with the
    Commission's recommendation. I proposed an idea that we should
    use both basic and other applied research. I talked about
    strategic application of our research, not that we pick winners
    or losers, not that we have a European industrial policy, but
    that we organize our thinking in the way NIH does, like you do
    not have a national institute of microbiology, you have a
    national institute of heart, or the national institutes of
    viruses and allergies, and so on.
        I am so proud that we win the Nobel Prizes, but I want to
    make sure we win the markets at home. That is why we believe we
    must focus our efforts on, first of all, basic science, in
    developing the new talent in the fields of basic science, and
    then also to promote cutting-edge technologies, like nanotech
    and biotech and info-tech. But in order to find that next
    generation of talent, we have to strengthen our educational
    system, K through 12, undergraduate, graduate, and post-
    doctoral.
        We need to strengthen the role of our community colleges.
    We were so pleased the President talked about it in the State
    of the Union. It is the training ground for a high-tech
    workforce, but unfortunately, the budget that has been sent to
    this committee falls short in these very noble goals.
        The proposed National Science Foundation budget is
    extremely disappointing. It is only 3 percent above last year.
    This is not satisfactory to this subcommittee, who, again,
    working on a bipartisan basis, said that we wanted to double
    the National Science Foundation's budget the way Congress has
    been working towards doubling the National Institutes of
    Health's budget.
        The increase barely accounts for inflation. I believe that
    it's not a National Science Foundation budget. I believe it's
    an OMB budget. In the omnibus bill last year, Senator Bond and
    I gave NSF a 4 percent increase over fiscal year 2003. We,
    again, will continue to work to double the National Science
    Foundation's budget. In order to meet that goal, we will need
    to have almost a 30 percent increase over the next few years.
        A year ago, the President signed the NSF reauthorization
    act. It authorized the doubling of the NSF budget over 5 years.
    Under the authorization, we should be funding NSF at $7.3
    billion, but the 2005 budget provides only $5.7 billion. If
    ever there was a call, because of the crisis that our Nation
    could face in the need for talent and the need for the basic
    ideas that are being developed, I believe that we need to treat
    this as a crisis.
        Every major report on long-term economic growth cites the
    need for increases in scientific research and a smarter
    workforce. Strategic research is the foundation of future
    economic growth. The jobs of tomorrow will come from the
    research of today, but not with a 3 percent increase.
        Nanotechnology is a good example. It could be the next
    breakthrough. We are already seeing it in carbon nanotubes and
    nanocircuits. Nanotech offers the ability to rejuvenate our
    manufacturing sector and create new high-paying quality jobs. I
    want to know, of course, in our conversation, where we stand
    with nanotech.
        Let us move on, though, to education. I was so troubled to
    see that the education component was cut by 18 percent,
    compared to last year. This is the time we should be increasing
    our commitment to education, not cutting it, and not
    rearranging programs between NSF and other agencies. Graduate
    enrollment in science and engineering is down 50 percent over
    the past 10 years. Well, where is this new talent going to come
    from? Fifty percent of all graduate students are foreign
    nationals. That is not being prickly about them. It is being
    alarmed about ourselves.
        Two years ago, again, working with my colleague, Senator
    Bond, at the suggestion of Dr. Colwell we increased the
    stipends for graduate research to $30,000. We understand that
    has made a tremendous difference. Many often, those foreign
    nationals come with huge subsidies from their own country to
    learn in America, but America needs to learn that it has to do
    the same thing for our own kids right here.
        While we are making progress with graduate students, we are
    losing ground with undergraduates. The biggest cut seems to
    come in the tech talent program, which Senator Bond and I
    created 2 years ago to get more undergraduate students in math,
    science, and engineering programs. We need a strong, steady,
    consistent level of support. We also need to support our K
    through 12 students and other informal education programs that
    get kids involved.
        I also want to talk about the community colleges. Yes, we
    need to focus on wonderful academic centers of excellence. Two,
    Maryland and Hopkins, are in my own State, but we also have to
    focus on the community college. I believe NSF can do more to
    help our community colleges educate and train the high-tech
    workers we need.
        While we are working on the PhD students, and we should,
    there is this whole other group of people who can go into the
    tech fields, forensic tech, biotech, lab tech that we can focus
    on. In my own home State, Capital College, in Prince George's
    County, trains technicians who work at Goddard, operating
    satellite and communication systems. This marvelous school is a
    commuter school. It is a day-hop school. But I will tell you,
    for a lot of the young men and women in my own community who
    cannot or would not want to go to Maryland or one of the other
    schools, this is the gateway to opportunity, and boy, does
    Goddard need them.
        There are many other things that we can talk about in
    informal science and in workforce readiness, but I believe that
    you know kind of the issues we are talking about. The other
    issue is to make sure that just as we want no child left
    behind, we need to make sure that the historically black
    colleges are, again, really strengthened and supported,
    because, again, this offers a cornucopia of talent for our
    country if we then get behind them.
        So I know that this is what we want to talk about with the
    National Science Foundation. To the Board, Dr. Washington, I
    look forward to hearing your comments to know what the Science
    Board's vision is for the National Science Foundation, what you
    think about the world in which we find ourselves, and the world
    we want to live in. We have great respect for you, sir, and
    look forward to hearing from you.
        Dr. Marburger, we are also very pleased to always hear from
    the President's science advisor on what are the
    administration's priorities. And we know that there have been
    some very troubling accusations about the administration
    engaging in junk science, and we would like to hear your views
    on that today and give you the opportunity to talk about how we
    are going to keep sound science as part of every agency.

                               PREPARED STATEMENT

        Having said that, again, I want to welcome you on behalf of
    myself and Senator Bond. Know that we view this hearing as a
    very cordial and collegial dialogue. America is counting on us
    to not play politics with science and not play politics with
    the future of our competitiveness in the world. Senator
    Johnson.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        Welcome Dr. Marburger, Dr. Bement and Dr. Washington.
        The National Science Foundation is critical to our economy. Future
    technologies and future jobs depend upon NSF research. I believe in an
    America that is safer, stronger and smarter. NSF must lead the way in
    developing new technologies to strengthen our national security and our
    economic security.
        This is not just my view. In a recent Wall Street Journal article,
    Carly Fiorina, the Chairman of Hewlett-Packard, said: ``We must focus
    on developing next generation industries and next generation talent--in
    fields like biotechnology, nanotechnology and digital media
    distribution; around issues like IT security, mobility and
    manageability that will create long term growth here at home while
    raising our living standards in the process.''

                                      JOBS

        Almost 20 years ago, President Ronald Reagan created the
    President's Commission on Industrial Competitiveness. This Commission
    offered three recommendations on how to improve America's economic
    competitiveness: (1) promote research and development of new
    technologies; (2) improve education and training; and (3) lower budget
    deficits.
        Following this simple formula, 35 million new jobs were created
    from the late 1980's through the late 1990's--the longest period of
    economic expansion in history.

                                   PRIORITIES

        In the early 1990's, I offered my own vision of what government's
    role in research should be. I proposed the radical idea that we should
    support both basic and applied research. I believed we needed to start
    focusing on the strategic application of our research. We win the Nobel
    Prizes and they win market share.
        That's why I believe we must focus our effort on promoting cutting
    edge technologies like nanotechnology, information technology and
    biotechnology.
        We have to strengthen our educational system--all the way from K-
    12, undergraduate, graduate and post-doctoral. We need to strengthen
    the role of our community colleges, which have become the training
    ground for the high tech workforce.
        Unfortunately, the budget that has been sent to this Committee
    falls short in many of these areas.

                                 BUDGET SUMMARY

        The proposed NSF budget for 2005 is just 3 percent above last year.
    The research budget--the very core of NSF's budget--is increased by
    just 3 percent over last year. This barely accounts for inflation.
        A year ago, I was disappointed with the NSF budget. I am still
    disappointed. This is not an NSF budget. It's an OMB budget.
        In the Omnibus, Senator Bond and I gave NSF a 7 percent increase
    over last year. Senator Bond and I are committed to doubling NSF's
    budget. It's bi-partisan and bi-cameral. But we cannot do it alone. In
    order to meet that goal, we will need a 20 percent increase this year.
        Just over a year ago, the President signed the NSF Authorization
    Act. It authorized the doubling of NSF's budget over 5 years. Under the
    NSF Authorization, NSF should be funded at $7.3 billion for fiscal year
    2005. But the fiscal year 2005 budget provides only $5.7 billion for
    NSF--$1.7 billion less than was promised in the authorization.
        We need to do more than just keep up with inflation.
        Senator Bond and I have led a bi-partisan effort to double NSF
    research but we can't do it alone.

                                    RESEARCH

        Every major report on long-term U.S. economic competitiveness has
    cited the need for a major increase in scientific research. Basic
    research (physics, chemistry, etc.) and strategic research (nano, bio
    and info) are the foundations of future economic growth. The jobs of
    tomorrow will come from the research of today. But not with 3 percent
    increases.
        More funding for basic and applied scientific research means more
    jobs for our economy. Our competitors are not waiting. We cannot afford
    to lose our advantage in science and technology.

                                 NANOTECHNOLOGY

        Nanotechnology could be the next industrial revolution. We are
    already seeing breakthroughs in carbon nano-tubes and nano-circuits.
    The potential to transform our economy is almost limitless.
        Nanotechnology offers us the ability to rejuvenate our
    manufacturing sector and create new high paying, high quality jobs. I
    want to know where we stand with Nano and where we are going. What
    industries and sectors are we focusing on and what goals are we
    setting?

                                   EDUCATION

        The education budget is cut by 18 percent compared to last year.
    This is the time we should be increasing our commitment to education,
    not cutting it. Our economy needs more scientists, engineers and
    researchers. Graduate enrollment in science and engineering is down 50
    percent over the past 10 years. Fifty percent of all graduate students
    are foreign nationals.

    Stipends
        Two years ago, I led the effort to increase graduate stipends. At
    that time, stipends were $18,500. Now, thanks to Senator Bond and I,
    stipends are $30,000. Since we began raising the stipends, NSF has seen
    a significant increase in graduate fellowship applications.
        While we are making progress with graduate students, we seem to be
    losing ground with undergraduates. The budget proposes to cut
    undergraduate education. The biggest cut is in the Tech Talent program.
    Senator Bond and I created this program 2 years ago to get more
    undergraduate students interested in math, science and engineering.
        This cut is the wrong approach.
        We need a strong, steady and consistent level of support for
    education starting with K-12, undergraduate, graduate, post-graduate.

    Community Colleges
        This is where our community colleges can play a role. NSF can't
    just focus on the Johns Hopkins and the Marylands. It must also focus
    on the Anne Arundel Community Colleges of this country. NSF can do more
    to help our community colleges educate and train the high-tech workers
    we need. Whether part time or full time, community colleges are the
    main source of higher education for large segments of our society.
        Technicians of all kinds are in high demand and our community
    colleges are the training ground for these technicians. For example, in
    Maryland, Capitol College in Prince George's County trains technicians
    who work at Goddard operating satellites and communications systems.
    They offer a variety of programs to meet Goddard's needs and the needs
    of local contractors who work with Goddard.
        Our community colleges are not only training grounds for technical
    skills, they are also stepping stones for higher education and lifetime
    learning.

    Informal Science (Science Museums)
        Senator Bond and I have been major supporters of NSF's informal
    science program. We increased this program from $50 million to $62
    million because of its value to education. Supporting our science
    museums and science centers have been very successful as a teaching
    tool for kids.
        There is no reason to cut this program as the budget proposes.
        This program has been a great vehicle for translating and teaching
    the lessons from Hubble, Mars and the other successful science programs
    that we have seen. NASA has had 8 billion hits to its website since
    January 2--all because of Mars and Hubble.
        Informal science brings these magnificent discoveries directly to
    kids and gets them excited about science. It also brings parents and
    children together. Parents and children can go to the science centers
    and science museums and learn together.

                              WORKFORCE READINESS

        We do not have a jobs shortage in this country. We have a skills
    shortage. Almost every job today requires a working knowledge with
    technology. We have heard from numerous CEOs about the lack of
    technical skills in our workforce.
        Math and science test scores show that U.S. 8th grade students
    finish behind students in Singapore, Japan, South Korea and five other
    countries.
        The Labor Department estimated that 60 percent of the new jobs
    being created in our economy today will require technological literacy.
    Yet, only 22 percent of the young people entering the job market now
    actually possess those skills.
        Women and minorities are the fastest growing part of our workforce,
    but represent a tiny fraction of our science and technology workforce.
        We need more support for our Historically Black Colleges and
    Universities. The HBCU THRUST program and the Louis Stokes Alliance are
    a critical part of this effort and need more support, not less.
        We have annual discussions about visas for foreign students and
    workers to fill high tech jobs in the United States. I welcome foreign
    students and workers to the United States. But there should be
    sufficient U.S. workers filling these jobs.
        NSF needs to be the leader in creating more science and engineering
    students and more science and engineering workers.

                 OFFICE OF SCIENCE AND TECHNOLOGY POLICY (OSTP)

        We look to the Office of Science and Technology Policy to set
    national policy guidance across scientific disciplines. I want to know
    about the White House policy on balancing the competing needs of the
    various scientific disciplines--the life sciences versus the physical
    sciences.
        We have doubled funding for NIH--what about funding for NSF? Is
    there a long term vision? What is the plan to integrate science policy
    with economic policy? How do we stack up compared to our international
    competitors?

    National Science Board
        And finally, I'd like to know from Dr. Washington what the Science
    Board's vision is for NSF's future. Where do we go from here and how do
    we get there?
        I hope OMB will someday get the message. NSF has broad bi-partisan
    support to double its funding. It's critical to our future, to our
    economy and to our security. Without a significant increase in NSF
    funding, we will continue to win the Nobel prizes while our competitors
    win market share.
        This is about jobs and our economy and our Nation's future. It's
    about economic security and national security.

                        STATEMENT OF SENATOR TIM JOHNSON

        Senator Johnson. Thank you, Senator Mikulski. I share your
    very able observations that you have shared here today, and I
    am very appreciative of your leadership and Senator Bond's
    leadership on this committee. I will be very brief, but I do
    have a few thoughts that I would like to share on the record.
        I strongly support efforts to increase funding for the
    National Science Foundation, and I commend the Chairman and the
    ranking member for their extraordinary leadership and
    dedication to double NSF's annual budget. NSF is critical to
    support scientific exploration and science education, and to
    preserve our Nation's status as an economic and technological
    force in the world.
        The EPSCoR program, for example, is critical to enhance the
    capacity of small States to contribute to our technological
    achievements and innovation. I am enthusiastic that the NSF has
    selected Dr. Sherry Farwell to lead the Foundation's EPSCoR
    program.
        Dr. Farwell has been a great asset in his current position
    at the South Dakota School of Mines and Technology. And while
    we are sad to see him leave South Dakota, we acknowledge that
    our loss is our Nation's gain. I will continue to be a strong
    supporter of EPSCoR, and I am confident that Dr. Farwell will
    serve the NSF with distinction in the coming years.
        Secondly, the NSF has recently announced that it will
    conduct meetings in March with scientists from around the
    Nation to evaluate the merits of establishing a national
    underground science program. Such a program has far-reaching
    opportunities to unlock many existing mysteries about the
    origins of the universe. Successful deep experiments at the
    Homestake Mine in South Dakota, for example, have already
    contributed to the award of a 2002 Nobel Prize for physics to
    Dr. Ray Davis of the University of Pennsylvania.
        I congratulate the NSF for the deliberate and thoughtful
    science approach to consider developing such a program. There
    appears to be strong support within the science community that
    such a program will contribute significant opportunities to
    advance numerous disciplines in science. I support the NSF's
    efforts to thoroughly peer-review the science as well as
    various proposals to establish the most beneficial research
    facilities. As the NSF and the science community review the
    merits of the science and specific proposals, I hope that you
    will keep us informed of your findings and intentions.
        Thirdly, lastly, I want to raise for Dr. Marburger my
    concern that we develop a more coordinated Federal policy
    towards remote sensing technologies. Last May, a malfunction
    aboard the LANDSAT-7 satellite resulted in significant
    degradation of the image data that the satellite may collect.
    The LANDSAT program has collected and distributed a 32-year
    continuous record of the land surfaces of the world. This data,
    which is collected and distributed by the U.S. Geological
    Survey, is a significant resource for applications by various
    entities throughout the Federal Government, including the
    USAID, the Department of Agriculture, the Department of
    Defense, Homeland Security, and Environmental Applications.
        In fact, the program has become so successful that a
    significant portion of the program's budget is recovered
    through outside data sales, but currently, there appears to be
    no real plan in place to replace this critical hardware. It is
    critical that we take all necessary actions to restore the full
    capabilities of the program and recapture the markets for this
    valuable data.
        The current difficulties we are experiencing, however, are
    exasperated by what appears to be a lack of clear remote
    sensing mission. Over the last 32 years the responsibilities
    over the program have been shifted between several agencies,
    and this has led to some confusion and lack of consistent
    leadership. I believe that we need to establish a clearly
    defined remote sensing mission. The U.S. Geological Survey is,
    I believe, uniquely positioned to work with all the various
    Federal and private entities which utilize this data, and that
    we should provide the USGS the task and responsibility of
    coordinating and implementing that process. I hope that the
    Office of Science and Technology Policy will support this
    important goal.
        So Mr. Chairman, Madam ranking member, thank you for your
    leadership. I also thank the distinguished panelists for their
    leadership on the critical areas of science. And I look forward
    to working with Senator Bond as he chairs this committee and we
    commence on what no doubt will be a difficult fiscal year, but
    one where science should continue to play a very leading role.
    Thank you, again.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond [presiding]. Thank you very much, Senator
    Johnson, and I think you were the master of understatement when
    you said it is going to be a difficult fiscal year. I just came
    with mixed emotions from a hearing where I did something that
    causes me qualms. I recommended my very good friend, Alfonso
    Jackson, to be Secretary of HUD. Given the fiscal problems he
    faces, I hate to do that to a friend and a good man.
        We are here today to talk about the National Science
    Foundation, the Science Board, and the Office of Science and
    Technology Policy. I welcome Dr. Marburger, Dr. Bement, and Dr.
    Washington. Thank you very much for joining us today. I know
    that Dr. Bement has recently come into the temporary position.
    I am interested in hearing your first impressions of the
    Foundation, and in understanding how you are going to handle
    your responsibilities as both acting director of NSF and as
    director of NIST. It sounds like more than a 40-hour-a-week
    job.
        As many of you know, Senator Mikulski and I have been, and
    we will continue to be extremely strong supporters of the NSF
    and a robust budget for the NSF. As a result, this is an
    important hearing, because it gives us an opportunity to talk
    about the critical role that NSF plays in the economic,
    scientific, and intellectual growth of the Nation.
        Science and technology is our future, make no mistake about
    it. When we talk about jobs, we will not be talking about the
    manufacturing of T-shirts and sneakers. We will be talking
    about the development of cutting-edge technologies that should
    speed the flow of information, which will improve the quality
    of crops and food to feed the world, and which will make the
    quality of life for people everywhere better.
        This vision of the world is what NSF is all about, the
    strategic Federal investment in scientific research,
    particularly the funding and support of NSF has directly led to
    innovative developments in scientific knowledge and
    dramatically increased the economic growth of this Nation.
    Unfortunately, while Federal support in life sciences continues
    to receive significant increases, the combined share of the
    funding for the physical sciences and engineering has not kept
    pace. I am alarmed by this disparity, because the decline in
    funding for physical sciences has put our Nation's capabilities
    for leading the world in scientific innovation at risk, and
    equally important, at risk of falling behind other advanced
    nations.
        Most experts believe that investment in the physical
    sciences and engineering not only benefits specific industries,
    but all major research areas. A scientist working on basic
    research in all disciplines makes new discoveries and better
    understands the world around us. Their research can cross
    disciplines and have decisive impacts on many scientific areas,
    including biomedical research.
        In the words of Harold Varmus, the former director of the
    National Institutes of Health, ``Scientists can wage an
    effective war on disease only if we harness the energies of
    many disciplines, not just biology and medicine.'' To put it
    plainly, supporting NSF supports NIH, and I believe that
    funding for NSF should keep pace with funding for NIH. But
    unfortunately, this is not happening.
        Senator Mikulski and I have led an effort in Congress to
    double NSF's budget. We were pleased with the PCAST, when it
    recommended to the President, ``Beginning with the FY04 budget
    and carrying through the next four fiscal years, funding for
    physical sciences and engineering across all relevant agencies
    be adjusted upward to bring them collectively to parity with
    the life sciences''. I am sorry that the memo did not get to
    OMB.
        I was very disappointed that the budget request only
    provided NSF with $5.75 billion for 2005, an increase of only
    $167 million, or 3 percent over the 2004 level. I am not great
    at math, but I believe about a 14.7 percent increase is what is
    needed to get you to doubling of the budget in 5 years. This is
    even less of an increase as proposed in last year's budget.
        OMB's budget request for NSF is especially disappointing,
    given the scientific, economic, and educational importance of
    its programs. However, with major funding shortfalls throughout
    the VA-HUD accounts, it is going to be a major and perhaps
    impossible challenge to find any additional funds for NSF for
    2005.
        I remain committed to NSF, but this year's budget is the
    most difficult we have seen in years. I want to work with the
    administration, but we need to find ways to increase the NSF
    budget as we move forward, if not this year, at least next
    year. Maybe, Dr. Marburger, you can hand-carry the PCAST
    recommendation to OMB.
        It is a tight budget year. Tough choices will have to be
    made. I acknowledge Dr. Bement's testimony, stating that in a
    year of tight budgets, it was necessary to set priorities and
    make informed, but tough choices. I could not agree more with
    that statement. But looking at the priorities made in the NSF's
    budget, I must disagree with the choices made even within the
    budget.
        The most troubling choices in the budget request are cuts
    to programs that support smaller or under-represented research
    institutions. OMB proposes only $84 million for EPSCoR, a
    program cut by 11 percent from the 2004 level. It is key to the
    continued growth of science research in underserved States.
    Minority programs at NSF are another example. The Lewis-Stokes
    Alliance for Minority Participation is flat-funded, and the
    HBCU Undergraduate's Program, historically black colleges and
    universities, is cut by $4 million, or 16 percent.
        Further, the administration cuts $4 million from the CREST
    program, supporting centers for research at minority
    institutions. These cuts are unacceptable. Our lack of new
    scientists and engineers is becoming a national crisis, and we
    are not attracting young students, especially minorities, into
    these disciplines. In the past, we relied on foreign students
    to stay in the United States and fill the gap created by
    retiring engineers and scientists. This is no longer the case.
    We need to grow new engineers and scientists, and these
    minority NSF programs represent a tremendous opportunity to
    develop these new engineers and scientists.
        Informal Science education takes a cut in this budget
    request of $12 million, or 20 percent. Very troubling. The
    program has been highly successful. And the programs receiving
    funding have received national recognition, including an Emmy,
    for their efforts to reach the public and engage them in
    science. I have seen firsthand the value of informal science
    education at the St. Louis Science Center, where children of
    all ages are able to receive hands-on experience in scientific
    activities.
        The cut to the Tech Talent or ``STEP'' program, also
    disappoints me. At a time where the number of U.S.
    undergraduates in engineering and math is declining, a 40
    percent reduction in this program is puzzling.
        I also have a strong interest in nanotechnology. The fiscal
    year 2005 request provides an increase of $52 million over the
    2004 level. There is a tremendous amount of excitement about
    nanotechnology, because of its far-reaching benefits, from
    computers, to manufacturing processes, to agriculture, to
    medicine. As NSF is the lead agency in Federal nanotechnology
    research, I am encouraged to see the request reflect the
    importance of this emerging research field.
        Despite the promises of nanotechnology, there is a growing
    ``public anxiety and nascent opposition'' to nanotechnology,
    according to a recent Washington Post report. I agree with the
    view that nanotechnology is the foundation for the next
    industrial revolution. I am troubled with the Post's view that,
    ``[i]f nano supporters play their cards wrong by belittling
    public fears, the industry could find itself mired in a costly
    public relations debacle, even worse than the one that turned
    genetically engineered crops into Frankenfood''.
        I think it is critical that the Federal Government and the
    research community act together in educating the public about
    science. We cannot afford public fears to go unaddressed. This
    pseudoscience, this hysteria fawned by groups with their own
    agendas, is unacceptable.
        As everybody knows, I am a big supporter of plant
    biotechnology, because it is generating exciting possibilities
    for improving human health and nutrition. Impressive research
    is being done with plant genomics, which can eventually be a
    very powerful tool for addressing hunger in many developing
    countries, such as those in Africa and Southeast Asia.
        The 2005 budget request provides $89 million for the NSF
    plant genome program. This keeps the funding level with the
    amount appropriated in fiscal year 2004. I am pleased that at
    least one of my priorities is not cut. Nevertheless, the level
    of funding is not enough to meet the goals of the National
    Science and Technology Council's report, which recommends the
    Federal Government invest $1.3 billion over the next 5 years on
    plant genome research.
        In addition to my concerns about funding, I have a couple
    of policy and programmatic areas of concern. I am interested in
    the National Science Board's operations, now that the Board has
    had a year to operate with its own budget to meet its statutory
    responsibilities. With its own budget and authority to hire its
    own staff, I want to know how the Board is making its statutory
    responsibility to provide the Congress and President with
    independent science policy advice and oversight.

                               PREPARED STATEMENT

        Lastly, there are some points about the National Academy of
    Sciences' report on large facility projects. The Foundation's
    process for prioritizing its large facility projects has been a
    concern to me. As a matter of fact, I have wondered whether
    there is a process. At my request, along with Senator Mikulski
    and the chair and ranking member of the Senate authorizing
    committee, we asked the NAS to set forth criteria to rank and
    prioritize large research facilities supported by NSF. The
    Academy presented their recommendations to the NSF last month.
    I support the recommendations and expect NSF to implement them
    as soon as possible and to present the Committee with a revised
    MREFC request based on these criteria. NSF must have a
    priority-setting process that is credible, fair, rational, and
    transparent. Until we get that, it is going to be difficult for
    me to support any new MREFC proposals.
        I look forward to hearing the testimony of all the
    witnesses today, and I thank you for giving me the time to
    express some of my views and concerns.
        [The statement follows:]

               Prepared Statement of Senator Christopher S. Bond

        The subcommittee will come to order. This morning, the VA-HUD and
    Independent Agencies Subcommittee will conduct its budget hearing on
    the fiscal year 2005 budgets for the National Science Foundation, the
    National Science Board, and the Office of Science and Technology
    Policy. I welcome back Dr. John Marburger from OSTP, and Dr. Warren
    Washington from the National Science Board to our subcommittee. I also
    want to welcome Dr. Arden Bement, the acting director of NSF to today's
    hearing. I know that you have recently come into this temporary
    position, and I am interested in hearing your first impressions about
    the Foundation. I am especially interested in understanding how you are
    handling your responsibilities as both acting director of NSF and as
    director of NIST.
        As many of you know, I have been and will continue to be a strong
    supporter of NSF and a robust budget for NSF. As a result, this is a
    very important hearing because it gives me the opportunity to talk
    about the critical role NSF plays in the economic, scientific and
    intellectual growth of this Nation. Science and technology is the
    future. When we talk about jobs, we will not be talking about the
    manufacturing of t-shirts and sneakers; we will be talking about the
    development of cutting edge technologies that will speed the flow of
    information, which will improve the quality of crops and food to feed
    the world, and which will make the quality of life for people
    everywhere better. This vision of the world is what NSF is all about.
    The strategic Federal investment in scientific research, and
    particularly the funding support at NSF, has directly led to innovative
    developments in scientific knowledge and dramatically increased the
    economic growth of this Nation.
        Unfortunately, while Federal support in life sciences continues to
    receive significant increases, the combined share of the funding for
    the physical sciences and engineering has not kept pace. I am alarmed
    by this disparity because the decline in funding for the physical
    sciences has put our Nation's capabilities for leading the world in
    scientific innovation at risk and, equally important, at risk of
    falling behind other industrial nations. Most experts believe that
    investment in the physical sciences and engineering not only benefits
    specific industries, but all major research areas. As scientists
    working on basic research in all disciplines make new discoveries and
    better understand the world around us, their research can cross
    disciplines and have decisive impacts on many scientific areas,
    including biomedical research. In the words of Dr. Harold Varmus, the
    former Director of the National Institutes of Health, ``scientists can
    wage an effective war on disease only if we . . . harness the energies
    of many disciplines, not just biology and medicine.'' To put it
    plainly, supporting NSF supports NIH. And I believe that funding for
    NSF needs to begin to keep pace with the funding for NIH.
    Unfortunately, this is not happening.
        My good friend and colleague Senator Mikulski and I have led an
    effort in Congress to double NSF's budget. We were pleased when PCAST
    recommended to the President, ``beginning with the fiscal year 2004
    budget and carrying through the next four fiscal years, funding for
    physical sciences and engineering across all relevant agencies be
    adjusted upward to bring them collectively to parity with the life
    sciences.''
        With this in mind, I was disappointed that the budget request only
    provided NSF with $5.75 billion for fiscal year 2005--an increase of
    only $167 million or 3 percent increase over the fiscal year 2004
    enacted level. This proposed increase is even less than the increase
    proposed in last year's budget request.
        OMB's budget request for NSF is disappointing given the scientific,
    economic, and educational importance of its programs. However, with
    major funding shortfalls throughout the VA-HUD account, it is going to
    be a major and perhaps an impossible challenge to find additional funds
    for NSF for fiscal year 2005. I am committed to NSF, but this year's
    budget is the most difficult I have seen in years. I want to work with
    the Administration, but we need to find ways to increase NSF's budget
    as we move forward, if not this year, next year.
        This is a very tight budget year and tough choices will have to be
    made. I acknowledge Dr. Bement's testimony where you state, ``in a year
    of very tight budgets, it was necessary to set priorities and make
    informed, but tough choices.'' I could not agree with that statement
    any more. However, looking at the priorities made in NSF's budget, I
    strongly disagree with some of the choices.
        The most troubling choices in the budget request are the cuts to
    programs that support smaller or underrepresented research
    institutions. For example, the Administration proposes only $84 million
    for the EPSCoR program--a cut by 11 percent from the fiscal year 2004
    level of $95 million. This program is key to the continued growth of
    science research in underserved States.
        Minority programs at NSF are another example. The Louis Stokes
    Alliances for Minority Participation program is flat funded in the
    request, and the HBCU Undergraduates Program is cut by $4 million, or
    16 percent. Further, the Administration cuts $4 million from the
    ``CREST'' program that supports centers for research at minority
    institutions. These cuts are unacceptable to me. Our lack of new
    scientists and engineers is becoming a national crisis, and we are not
    attracting young students, especially minorities, into these
    disciplines. In the past, we relied on foreign students to stay in the
    United States and fill the gap created by retiring engineers and
    scientists. This is no longer the case. We need to grow new engineers
    and scientists and these minority NSF programs represent a tremendous
    opportunity to develop these new engineers and scientists.
        Informal Science education receives a cut of $12 million, or 20
    percent. Again, very troubling. This program has been highly successful
    and the programs receiving funding have received national recognition,
    including an Emmy, for their efforts to reach the public and engage
    them in science. I have seen first hand the value of Informal Science
    Education funding at the St. Louis Science Center where children of all
    ages are able to receive hands-on experience in scientific activities.
        The cut to the tech talent or ``STEP'' program also disappoints me.
    At a time where the number of U.S. undergraduates in engineering and
    mathematics is declining, a 40 percent reduction in this program is
    puzzling.
        I also have a strong interest in nanotechnology. The fiscal year
    2005 request provides an increase of $52 million over the fiscal year
    2004 level for this important program. There is a tremendous amount of
    excitement about nanotechnology because of its far-reaching benefits
    from computers to manufacturing processes to agriculture to medicine.
    As NSF is the lead agency in the Federal nanotechnology research
    effort, I am encouraged to see the request reflect the importance of
    this emerging research field.
        Despite the promises of nanotechnology, there is growing ``public
    anxiety and nascent opposition'' to nanotechnology, according to a
    recent Washington Post article. I agree with the view that nano is the
    foundation for the next industrial revolution. However, I am troubled
    with the Post's view that ``if nano's supporters play their cards wrong
    . . . by belittling public fears . . . the industry could find itself
    mired in a costly public relations debacle even worse than the one that
    turned genetically engineered crops into Frankenfood.'' It is critical
    that the Federal Government and the research community act together in
    educating the public about the science. We cannot afford public fears
    to go unaddressed.
        As everyone knows, I am a big supporter of plant biotechnology
    because it has generated exciting possibilities for improving human
    health and nutrition. The impressive research being done with plant
    genomics can eventually be a very powerful tool of addressing hunger in
    many developing countries such as those in Africa and Southeast Asia.
    The fiscal year 2005 budget request provides $89 million for the NSF
    plant genome program. This keeps the funding level with the amount
    appropriated in fiscal year 2004. I am pleased that at least on of my
    priorities is not cut. Nevertheless, level funding is not enough to
    meet the funding goals of the National Science and Technology Council's
    report, which recommends the Federal Government to invest $1.3 billion
    over the next 5 years on plant genome research.
        In addition to my concerns about funding, I have a couple of policy
    and programmatic areas of concern. First, I am interested in the
    National Science Board's operations now that the Board has had a year
    to operate with its own budget to meet its statutory responsibilities.
    With its own budget and authority to hire its own staff, I would like
    to know how the Board is meeting its statutory responsibility to
    provide the Congress and the President with independent science policy
    advice and oversight.
        Lastly, I would like to raise a few points about the recent
    National Academy of Sciences report on Large Facility Projects. The
    Foundation's process for prioritizing its large facility projects has
    been a concern to me. At my request, along with Senator Mikulski and
    the Chairs and Ranking Members of the Senate authorizing committees, we
    asked the National Academy of Sciences to develop a set of criteria to
    rank and prioritize large research facilities supported by NSF. The
    Academy presented their recommendations to the NSF last month. I
    support the Academy's recommendations and expect NSF to implement them
    as soon as possible and to present the Committee with a revised MREFC
    request based on the Academy's criteria. NSF must have a priority-
    setting process that is credible, fair, rational, and transparent.
    Until then, it will be difficult for me to support any new MREFC
    proposals.
        I look forward to hearing the testimony of all the witnesses today
    and I will now turn to my colleague and ranking member, Senator
    Mikulski, for her statement.

        Senator Bond. We will start first with Dr. Marburger.
    Welcome, Doctor.

                      STATEMENT OF JOHN H. MARBURGER, III

        Dr. Marburger. Thank you very much, Chairman Bond. It is a
    pleasure to be here. Ranking Member Mikulski. I welcome the
    opportunity to present important highlights from the
    President's fiscal year 2005 Federal research and development
    budget, including the request for NSF, which we are all looking
    forward to hearing more detail about from its new acting
    director, Dr. Bement.
        I very much appreciate the productive relationship with
    this committee and look forward to its continuation. Your
    continued support of the Nation's research enterprise is
    critical to maintaining U.S. leadership in science and
    technology, and I certainly agree with the very positive
    comments about the importance of science and technology to our
    Nation's economic well-being and competitiveness.
        This budget, the President's budget, focuses on winning the
    war on terrorism, securing our homeland, and sustaining the
    economic recovery now under way. But it also focuses, as you
    have noted, Mr. Chairman, on controlling and reducing the
    deficit, while implementing pro-growth policies.
        When national and homeland security needs are excluded from
    this budget, all other discretionary spending growth amounts to
    less than a one-half percent increase. This necessarily
    restricts funding available to R&D programs. The overall
    picture for fiscal year 2004 R&D investment, however, is
    positive, in my opinion, and reflects the administration's
    conviction that science and technology is basic to our three
    primary goals.
        With this budget, total R&D investment during this
    administration's first term will be increased 44 percent, to a
    record $132 billion in 2005. The non-security portion of R&D
    growth from fiscal 2004, from last year to this year, is 2.5
    percent. The non-defense R&D share of total discretionary
    outlays is 5.7 percent, which is the third highest level in 25
    years.
        This budget reflects input from numerous expert sources,
    including the President's Council of Advisors on Science and
    Technology, which you mentioned, and from the science agencies,
    through an extensive interagency process, with which this
    committee is fully familiar.
        In my oral testimony, I am simply going to touch on
    highlights. There is more detail in my written testimony, and
    I, of course, will be prepared to answer questions about any
    aspect of it. But let me draw attention to some priorities that
    cut across all agencies, particularly education and workforce
    development, not confined solely to the National Science
    Foundation. A cluster of programs fostering innovation has
    received priority, including manufacturing R&D, networking, and
    information technology, and, of course, the National
    Nanotechnology Initiative.
        Physical sciences and engineering enhancement, which you
    mentioned in your opening remarks, Mr. Chairman, which includes
    many programs at the National Science Foundation and NASA, does
    receive some priority emphasis in this budget, and finally, a
    better understanding of the global environment and climate
    change. These are all designated as priorities in a memorandum
    from the Office of Management and Budget and my office, earlier
    in 2004, and I believe those priorities are reflected in this
    admittedly difficult budget year.
        This committee also appropriates the budget for OSTP, my
    office.
        Senator Bond. That is why you are here.
        Dr. Marburger. I am grateful for that. It is a very
    important reason. There are bigger fish. The National Science
    Foundation obviously plays a very important role, and the other
    agencies for which you appropriate, but I am pleased to have
    the responsibility in the White House for prioritizing and
    recommending Federal R&D programs, and for coordinating
    interagency research initiatives.
        The 2005 request for OSTP is $7.081 million, which is a 1.4
    percent increase from the previous year's, or current year's,
    enacted level. We have modest increases for the usual things--
    personnel, rental payments to GSA, and our supplies, materials,
    and equipment needs. The request also contains a decrease of
    $48,000 in communications due to a realignment of
    telecommunications infrastructure costs to the Office of
    Administration.
        We do operate as efficiently as we can. We also are
    participating in the President's management agenda, and we are
    confident that we can fulfill our obligations to Congress and
    the administration to provide high-quality science advice and
    coordination within this requested budget.
        So let me hit some agency highlights. I will be brief about
    the National Science Foundation budget, because you will hear
    more about it from other panelists. This budget does provide
    $5.75 billion for NSF, which is a 3 percent increase over the
    2004 enacted level, considerably more, I might add, than the
    less one-half percent increase for the entire non-security
    discretionary budget. Since 2001, with the assistance of this
    committee, which we gratefully acknowledge, the National
    Science Foundation budget has increased by 30 percent during
    this administration.
        The budget provides over a billion dollars for NSF awards
    that emphasize the mathematical and physical sciences. These
    programs have increased 31 percent in this administration.
        NSF participates strongly in the administration's cross-
    agency priority programs that I mentioned earlier in info,
    nano, and biotechnology, climate science, and education. The
    budget provides $761 million for NSF's role in the National
    Information Technology R&D Initiative, and $210 million for
    climate change science, $305 million for NSF's lead role in the
    National Nanotechnology Initiative, which is a 20 percent
    increase in that initiative from this current year level.
        Science and math education is strongly supported in this
    budget, with funds for 5,500 graduate research fellowships and
    traineeships, an increase of 1,800 in this administration.
    Annual stipends in these programs have increased to a projected
    $30,000, compared with $18,000 in the 2001 budget. We are quite
    grateful for your support and leadership in these issues.
        Science infrastructure funding, which is an investment in
    the future, is provided to initiate construction in several
    important projects within the major research equipment area.
        Let me just say a few words about other important agencies.
    The National Aeronautics and Space Administration. I recently
    testified before the House Science Committee on the President's
    vision for a sustainable, affordable program of human and
    robotic exploration of the solar system, and will be glad to
    answer further questions about it here, if you have them.
        The budget requests $16 billion for NASA, $16.2 billion in
    2005, and $87 billion over 5 years, going forward, which is an
    increase of a billion over the fiscal year 2004 5-year plan for
    NASA. NASA will reallocate $11 billion within this 5-year
    amount toward new exploration activity.
        The budget does also include continued growth in space
    science, which is a very important mission for NASA, with a
    request for $4.1 billion in fiscal year 2005, an increase of
    $1.5 billion over the 4 years of this administration, a 50
    percent increase in space science.
        This budget supports the next generation of space
    observatories that will be used to better understand the
    origin, structure, and evolution of the universe. I might add
    that the National Science Foundation contributes significantly
    to that mission as well, and I am pleased with the cooperation
    between NSF and NASA, particularly on planning for deep space
    observations.
        Within the Environmental Protection Agency, this budget
    provides nearly three-quarters of a billion dollars for EPA
    science and technology. We believe EPA is enhancing its overall
    scientific program to ensure that its efforts to safeguard
    human health and the environment are based on the best
    scientific and technical information.
        In my written testimony, I described an important
    memorandum of understanding that was recently executed between
    EPA and the Department of Energy, which sets a very positive
    pattern of interagency cooperation for the future. It is a move
    that I am very pleased to see.
        Within the Department of Veterans Affairs, the fiscal year
    2005 budget provides approximately three-quarters of a billion
    dollars, $770 million, for science and technology at the VA.
    After taking into consideration the significant funding the
    Department receives from other government agencies and private
    entities to support VA-conducted research, the total VA R&D
    program resources are at $1.7 billion. It is a significant
    amount of research for that agency.
        The VA will soon begin to use increased funding from
    private companies for the indirect administration costs of
    conducting research in VA facilities. The 2005 budget also
    reflects a restructuring of total resources in the research
    business line, as first shown in the current year budget.

                               PREPARED STATEMENT

        I mentioned earlier a set of cross-agency priorities that
    are described in detail in my written testimony. I will not
    mention them further here. I would be very glad to answer
    questions about them, but I do want to end by saying that this
    administration is taking pains to ensure that funds
    appropriated for science are wisely expended. There is a
    description of the President's management agenda, as applied to
    science, in my written testimony.
        I will be glad to answer questions about it. Thank you, Mr.
    Chairman.
        Senator Bond. Thank you very much, Dr. Marburger.
        [The statement follows:]

                  Prepared Statement of John H. Marburger, III

        Mr. Chairman and members of the Subcommittee, I welcome the
    opportunity to present important highlights of the President's fiscal
    year 2005 Federal research and development budget, including the
    request for the Office of Science and Technology Policy (OSTP).
        I have appreciated my close and productive relationship with this
    Subcommittee and look forward to working with you again this year as
    you make important choices to optimize the Federal R&D investment. Your
    continued support of our country's research enterprise is yet another
    reason why the U.S. Government leads the world in science, engineering,
    technology, and productivity.
        No Federal budget is ever ``business as usual''--the stakes are
    simply too high. Yet, as we look together at the fiscal year 2005
    budget, we should pause to consider the truly unique global forces
    shaping today's budgetary priorities. In his State of the Union
    address, the President reminded us that ``our greatest responsibility
    is the active defense of the American people.'' This includes winning
    the war on terrorism, and securing our homeland. The President's budget
    focuses on these important goals and reinforces another critical
    priority, the economic recovery now underway. The Administration is
    also determined, without compromising the above priorities, to control
    and reduce the deficit, as we continue to implement pro-growth
    policies. The President has proposed a fiscally responsible budget that
    meets the Nation's expanding national and homeland security needs while
    limiting all other discretionary spending growth to less than 0.5
    percent. This necessarily leads to smaller increases, and even
    decreases, for some categories, including some R&D programs.
    Nevertheless, the overall picture for fiscal year 2005 R&D investment
    is quite positive, reflecting the Administration's strong support for
    science and technology.
        With the President's fiscal year 2005 budget, total R&D investment
    during this Administration's first term will be increased 44 percent,
    to a record $132 billion in 2005 as compared to $91 billion in fiscal
    year 2001. That equates to increases of nearly 10 percent each year.
    Significantly outpacing the fiscal year 2005 overall ``non-security''
    discretionary spending growth of 0.5 percent, the non-security R&D
    growth rate is 2.5 percent. Science and technology drive economic
    growth. They help improve our health care, enhance our quality of life,
    and play an important role in securing the homeland and winning the war
    on terrorism. These increases reflect the Administration's appreciation
    of the importance of a strong national R&D enterprise for our current
    and future prosperity. The President's budget, as in years past, also
    continues to emphasize improved management and performance, to maintain
    excellence and sustain our national leadership in science and
    technology.
        In my prepared statement I will review the broad goals of the
    President's budget, provide detail on OSTP's budget, and give an
    overview of the request for Federal research priorities that cut across
    multiple agencies and research disciplines.

                  THE PRESIDENT'S FISCAL YEAR 2005 R&D BUDGET

        The President's fiscal year 2005 budget request commits 13.5
    percent of total discretionary outlays to R&D, the highest level in 37
    years. Not since 1968, during the Apollo program, have we seen an
    investment in research and development of this magnitude. Of this
    amount, the budget commits 5.7 percent of total discretionary outlays
    to non-defense R&D, the third highest level in 25 years.
        Clearly demonstrating the President's commitment to priority
    investments for the future, Federal R&D spending in the fiscal year
    2005 Budget is the greatest share of GDP in over 10 years. In fact, the
    last time Federal R&D has been over 1 percent of GDP was in 1993. And
    even more noteworthy, fiscal year 2005 non-defense R&D is the highest
    percentage of GDP since 1982.
        Not all programs can or should receive equal priority, and this
    budget reflects choices consistent with recommendations from numerous
    expert sources. The priority programs in the Federal R&D budget build
    upon exciting areas of scientific discovery from hydrogen energy and
    nanotechnology to the basic processes of living organisms, the
    fundamental properties of matter, and a new vision of sustained space
    exploration. In particular, this budget responds to recommendations by
    the President's Council of Advisors on Science and Technology (PCAST)
    and others about needs in physical science and engineering.
        The budget also reflects an extensive process of consultation among
    the Federal agencies, OMB, and OSTP, to thoroughly evaluate the agency
    programs and priorities, interagency collaborations, and directions for
    the future. The National Science and Technology Council (NSTC)
    continues to provide a valuable mechanism to facilitate this
    interagency coordination. This process of collaborative review resulted
    in guidance to agencies issued by OSTP and OMB last June, concerning
    their program planning, evaluation, and budget preparation, and
    culminating in the budget you see before you today.
        An important component of this budget is an increase in funding for
    education and workforce development, which are essential components of
    all Federal R&D activities and continue to be high priorities for the
    Administration. As President Bush has stated, ``America's growing
    economy is also a changing economy. As technology transforms the way
    almost every job is done, America becomes more productive, and workers
    need new skills.''
        As in previous years, this R&D budget highlights the importance of
    collaborations among multiple Federal agencies working together on
    broad themes. I will describe three high-priority R&D initiatives for
    fiscal year 2005: (1) a cluster of programs fostering innovation, which
    includes manufacturing R&D, networking and information technology, and
    the National Nanotechnology Initiative; (2) physical sciences and
    engineering enhancement, which includes many programs at the National
    Science Foundation and NASA; and (3) a better understanding of the
    global environment and climate change.
    Office of Science and Technology Policy (OSTP)
        The Office of Science and Technology Policy, which I lead, has
    primary responsibility in the White House for prioritizing and
    recommending Federal R&D, as well as for coordinating interagency
    research initiatives. The fiscal year 2005 request for OSTP is
    $7,081,000, which is a 1.4 percent increase from the fiscal year 2004
    enacted level. Some of the changes for this fiscal year include
    increases for personnel, rental payments to GSA, and supplies,
    materials, and equipment. The budget request also contains a decrease
    of $48,000 in communications due to a realignment in telecommunications
    infrastructure costs to the Office of Administration.
        The estimate for fiscal year 2005 reflects OSTP's commitment to
    operate more efficiently and cost-effectively without compromising the
    essential element of a top-caliber science and technology agency--high
    quality personnel. OSTP continues to freeze or reduce funding in many
    object classes, such as travel and printing, to meet operating
    priorities. OSTP will continue to provide high quality support to the
    President and information to Congress, as well as to fulfill
    significant national and homeland security and emergency preparedness
    responsibilities.

                            AGENCY BUDGET HIGHLIGHTS

    National Science Foundation (NSF)
        The 2005 Budget provides $5.75 billion for NSF, a 3 percent
    increase over the 2004 enacted level. Since 2001, the NSF budget has
    increased by 30 percent.
        The budget provides over $1 billion for NSF awards that emphasize
    the mathematical and physical sciences, including mathematics, physics,
    chemistry, and astronomy. These programs have increased by 31 percent
    since 2001.
        NSF participates strongly in this Administration's cross agency
    priority programs in information- and nano-technology, climate science,
    and education. This budget provides $761 million for NSF's role in the
    National Information Technology R&D initiative, focusing on long-term
    computer science research and applications; $210 million for climate
    change science; and $305 million for NSF's lead role in the National
    Nanotechnology Initiative, a 20 percent increase from the 2004 level.
        Science and math education is strongly supported in this budget,
    with funds for 5,500 graduate research fellowships and traineeships, an
    increase of 1,800 since 2001. Annual stipends in these programs have
    increased to a projected $30,000, compared with $18,000 in 2001.
        The redirection of the Math and Science Partnerships (MSP) in the
    Department of Education reflects a desire to focus the program on
    integrating research-proven practices into classroom settings. The
    Budget requests $349 million total for the joint MSP program in 2005, a
    $61 million increase over the 2004 level. This increase in the MSP
    program is a key component of the President's Jobs for the 21st Century
    Initiative. This initiative will better prepare high school students to
    enter higher education or the workforce since 80 percent of the
    fastest-growing jobs in the United States require higher education and
    many require math and science skills. Eighty million dollars of the
    overall program remains in NSF to continue ongoing commitments.
        Science infrastructure funding, an investment in the future, is
    provided to initiate construction for the National Ecological
    Observation Network (NEON), the Scientific Ocean Drilling Vessel, and a
    set of experiments in fundamental physics called ``Rare Symmetry
    Violating Processes'' (RSVP).

    National Aeronautics and Space Administration (NASA)
        The President has committed the United States to a sustainable,
    affordable program of human and robotic exploration of the solar
    system. This vision supports advanced technology development with
    multiple uses that will accelerate advances in robotics, autonomous and
    fault tolerant systems, human-machine interface, materials, life
    support systems, and spur novel applications of nanotechnology and
    micro-devices. All of these advances, while pushing the frontiers of
    space, are likely to spur new industries and applications that will
    improve life on Earth.
        To support this and other NASA missions, the Budget requests $16.2
    billion in fiscal year 2005 and $87 billion over 5 years, an increase
    of $1 billion over the fiscal year 2004 5-year plan. NASA will
    reallocate $11 billion within this 5-year amount toward new exploration
    activities. Robotic trailblazers to the Moon will begin in 2008,
    followed by a human return to the Moon no later than 2020. The pace of
    exploration will be driven by available resources, technology
    readiness, and our ongoing experience.
        The 2005 Budget supports a variety of key research and technology
    initiatives to enable the space exploration vision. These initiatives
    include refocusing U.S. research on the International Space Station to
    emphasize understanding and countering the impact of long-duration
    space flight on human physiology. In addition, the agency will pursue
    optical communications for increased data rates throughout the solar
    system, space nuclear power to enable high-power science instruments,
    advanced in-space propulsion technologies, and systems that enable
    robots and humans to work together in space.
        The Budget continues the growth in space science with a request for
    $4.1 billion in fiscal year 2005, an increase of $1.5 billion, or over
    50 percent, since 2001. This budget supports the next generation of
    space observatories that will be used to better understand the origin,
    structure, and evolution of the universe.
        Although exploration will become NASA's primary focus, the agency
    will not forsake its important work in improving the Nation's aviation
    system, in education, in earth science, and in fundamental physical
    science.

    Environmental Protection Agency (EPA)
        The fiscal year 2005 budget provides nearly three-quarters of a
    billion dollars for EPA science and technology. The EPA is enhancing
    its overall scientific program to ensure that its efforts to safeguard
    human health and the environment are based on the best scientific and
    technical information.
        One example of this enhancement was announced February 18 by
    Administrator Leavitt when he signed a Memorandum of Understanding with
    Energy Secretary Abraham. The purpose of the MOU is to expand the
    research collaboration of both agencies in the conduct of basic and
    applied research related to: (1) environmental protection, environment
    and energy technology, sustainable energy use, ecological monitoring,
    material flows, and environmental and facilities clean-up; (2) high-
    performance computing and modeling; and (3) emerging scientific
    opportunities in genomics, nanotechnology, remote sensing,
    bioinformatics, land restoration, material sciences, molecular
    profiling, and information technology, as well as other areas providing
    promising opportunities for future joint efforts by EPA's and DOE's
    research communities.
        Two particular areas of note in the EPA request are homeland
    security research and water quality monitoring. EPA's homeland security
    research program will result in more efficient and effective threat
    detection and response for water systems. Additionally, EPA will
    develop practices and procedures that provide elected officials,
    decision makers, the public, and first responders with rapid risk
    assessment protocols for chemical and biological threats. On water
    quality, EPA will address the integration of different scales and types
    of monitoring to target effective water quality management actions and
    document effectiveness of water quality management programs.

    Department of Veterans Affairs (VA)
        The Fiscal Year 2005 Budget provides approximately three-quarters
    of a billion dollars ($770 million) for science and technology at the
    VA, a 9 percent increase since fiscal year 2001. After taking into
    consideration the significant funding the Department receives from
    other government agencies and private entities to support VA-conducted
    research. Total VA R&D program resources are $1.7 billion.
        The proposed budget provides for clinical, epidemiological, and
    behavioral studies across a broad spectrum of medical research
    disciplines. Some of the Department's top research priorities include
    improving the translation of research results into patient care,
    special populations (those afflicted with spinal cord injury, visual
    and hearing impairments, and serious mental illness), geriatrics,
    diseases of the brain (e.g. Alzheimer's and Parkinson's), treatment of
    chronic progressive multiple sclerosis, and chronic disease management.
        VA will soon begin to use increased funding from private companies
    for the indirect administration costs of conducting research in VA
    facilities. The 2005 Budget also reflects a restructuring of total
    resources in the Research Business Line as first shown in the 2004
    Budget.

                              PRIORITY INITIATIVES

        The 2005 budget highlights high-priority interagency initiatives
    described briefly below. These initiatives are coordinated through the
    National Science and Technology Council (NSTC) for which my office has
    responsibility for day-to-day operations. The Council prepares research
    and development strategies that cross agency boundaries to form a
    consolidated and coordinated investment package.
        Innovation.--The Fiscal Year 2005 Budget calls for research and
    development investments to promote technological innovation in high-
    priority areas including manufacturing technology; information
    technology, and nanotechnology; the creation of incentives for
    increased private sector R&D funding; and stronger intellectual
    property protections. These investments will stimulate innovation and
    enhance U.S. competitiveness.
      --Manufacturing Technology.--The President's Budget requests
            increased funding for a number of programs that strengthen
            manufacturing innovation, including those within the National
            Science Foundation's Design, Manufacture and Industrial
            Innovation Division--up 27 percent since 2001 to $66 million--
            and the Manufacturing Engineering Laboratory at the National
            Institute of Standards and Technology (NIST)--up 50 percent
            since 2001 to $30 million. The Fiscal Year 2005 Budget sustains
            funding for the Manufacturing Extension Partnership at the
            Department of Commerce at the 2004 level and proposes to
            implement reforms to improve the efficiency and effectiveness
            of the program.
      --Networking and Information Technology.--Since 2001, funding for
            Networking and Information Technology R&D (NITRD) has increased
            by 14 percent to over $2 billion, and the R&D funded by this
            effort has laid the foundation for many of the technological
            innovations that have driven the computer sector forward. The
            President's Fiscal Year 2005 Budget sustains this significant
            investment. One half of the NITRD budget is controlled by this
            Subcommittee and you have increased the funding of that part of
            the program by 26 percent since fiscal year 2001.
      --Nanotechnology.--The President's Budget includes $1 billion in
            funding to increase understanding, and develop applications
            based upon, the unique properties of matter at the nanoscale--
            that is, at the level of clusters of atoms and molecules.
            Funding for nanotechnology R&D has more than doubled since
            2001. Nearly 35 percent of the President's request for funding
            of the National Nanotechnology Initiative is within this
            Subcommittee's purview. I want to thank this Subcommittee for
            its recognition of the importance of the nanotechnology R&D
            under your jurisdiction, which has increased by 67 percent
            since fiscal year 2001.
        Physical Sciences and Engineering.--Research in the physical
    sciences and engineering is an essential component of space
    exploration, nanotechnology, networking and information technologies,
    biomedical applications, and defense technologies. Physical science
    research leads to a better understanding of nature and, indeed, our
    universe. Research in this area also complements a number of critical
    investments in other areas such as those being made in the life
    sciences. The 2005 Budget strengthens our Nation's commitment to the
    physical sciences and engineering, devoting significant resources to
    this priority area. The policy priority regarding the physical sciences
    responds to input and recommendations from PCAST.
        Key activities in the physical sciences may be seen in selected
    programs in NSF, NASA's Space Science Enterprise, DOE's Office of
    Science, and the National Institute of Standards and Technology and
    National Oceanic and Atmospheric Administration in the Department of
    Commerce. Using these activities as a barometer of the health of
    physical science funding, the 2005 Budget requests $11.4 billion, $2.6
    billion more than the fiscal year 2001 funding level. That's a 29
    percent increase under this Administration. Within this total, Space
    Science grows 56 percent, from $2.6 billion to $4.1 billion over the
    last 4 years. And within NSF, the Mathematical and Physical Sciences,
    Geosciences, Computer and Information Science and Engineering, and
    Engineering Directorates rise 31 percent, from $2.3 billion to over $3
    billion.
        Climate Change and Global Observations.--For fiscal year 2005, the
    Administration is proposing to maintain funding at approximately $2
    billion for the Climate Change Science Program to increase our
    understanding of the causes, effects, and relative impacts of climate
    change phenomena. Nearly three-quarters of this climate change research
    money is allocated to NASA, NSF, and EPA, which are all agencies within
    this Subcommittee's jurisdiction. The Administration considers the
    development of an integrated, comprehensive, coordinated, and sustained
    global Earth observation system to be of high importance for numerous
    activities such as improved weather forecasts, improved land and
    ecosystem management, and improved forecasts of natural disasters such
    as landslides, floods, and drought; which all have high impact on
    national economic security and public health. Accurate and sustained
    global observations are critical for understanding our climate and how
    climate changes on various time scales. Environmental observations are
    also a critical component in an effective national response strategy
    for natural and terrorist incident management.
        The Administration's 2005 Budget has accelerated by $56.5 million
    the research on aerosols, oceans, and carbon cycle to contribute to
    filling knowledge gaps identified in the U.S. Climate Change Science
    Program Strategic Plan, which last week received high marks after a 6-
    month review from an independent committee convened by the National
    Research Council. Global observations of vertical distributions of
    size, composition, physical and optical properties of aerosols will
    help determine whether and by how much the overall effect of aerosols
    enhances heating or cooling of the atmosphere. With new observations
    from satellite, ships and land stations, the uncertainty about the role
    of aerosols in climate science is expected to be halved in 10 years.
        Knowledge of regional sources and sinks of the global carbon cycle,
    essential for long term predictions of climate, require innovative new
    observations. Measurements of vertical profile of carbon dioxide in
    North America will be enhanced from land-based towers and aircraft.
    Additionally, the vast expanse of the world ocean is highly under
    sampled. The Administration will accelerate deployment of moored and
    free-drifting buoys to measure ocean temperature, salinity and other
    variables to observe the unsteady characteristics of ocean circulation.
    These measurements and the Administration's other observational assets
    contribute to the global Earth observation system.

                      MANAGING THE FEDERAL RESEARCH BUDGET

        Research and development are critically important for keeping our
    Nation economically competitive, and will help solve the challenges we
    face in health, defense, energy, and the environment. Recognizing this,
    the Administration is investing in R&D at a rate of growth
    significantly greater than most other domestic discretionary spending.
    We all share the responsibility for ensuring the American people that
    these funds are invested wisely. Therefore, consistent with the
    Government Performance and Results Act, every Federal R&D dollar must
    be evaluated according to the appropriate investment criteria.
        As directed by the President's Management Agenda, the R&D
    Investment Criteria were first applied in 2001 to selected R&D programs
    at DOE. Through the lessons learned from that DOE pilot program, the
    criteria were subsequently broadened in scope to cover other types of
    R&D programs at DOE and other agencies. To accommodate the wide range
    of R&D activities, a new framework was developed for the criteria to
    address three fundamental aspects of R&D:
      --Relevance.--Programs must be able to articulate why they are
            important, relevant, and appropriate for Federal investment;
      --Quality.--Programs must justify how funds will be allocated to
            ensure quality; and
      --Performance.--Programs must be able to monitor and document how
            well the investments are performing.
        In addition, R&D projects and programs relevant to industry are
    expected to meet criteria to determine the appropriateness of the
    public investment, enable comparisons of proposed and demonstrated
    benefits, and provide meaningful decision points for completing or
    transitioning the activity to the private sector.
        OSTP and OMB are continuing to assess the strengths and weaknesses
    of R&D programs across the Federal Government in order to identify and
    apply good R&D management practices throughout the government.

                                   CONCLUSION

        Mr. Chairman and members of the Subcommittee, I believe this is a
    good budget for science and technology. It is based on well-defined,
    well-planned, collaboratively-selected priorities. In a difficult
    budget year, this Administration remains committed to strong, sound
    research and development as the foundation for national security and
    economic growth and jobs. I would be pleased to respond to questions.

        Senator Bond. I hope that next year if you are working on a
    budget that you can take your opening statement to OMB. You are
    preaching to a choir up here. We need to have some funds.
        Dr. Bement.

                       STATEMENT OF ARDEN L. BEMENT, JR.

        Dr. Bement. Thank you, Chairman Bond, Senator Mikulski,
    members of the Committee. I am pleased to appear before you
    today, my fourth working day since becoming Acting Director of
    NSF. I want to provide for you a quick overview of the NSF
    budget request for fiscal year 2005 and then find out what
    issues are of great concern to the Committee, which you have
    already provided.
        As you undoubtedly know, NSF works hard to open new
    frontiers in research and education. And we have our eye on the
    biggest prize, namely, economic and social prosperity, and very
    importantly, security benefitting all citizens.
        The most powerful mechanism for keeping our Nation
    prosperous and secure is keeping it at the forefront of
    learning and discovery. That is NSF's business, to advance
    fundamental research in science and engineering, to educate and
    train scientists and engineers, and to provide the tools to
    accomplish both of these.
        First, the big picture. This year, NSF is requesting $5.745
    billion. That is an increase of $167 million, or 3 percent more
    than last year. In spite of the significant challenges facing
    our Nation in security, defense, and the economy, NSF is,
    relatively speaking, doing well. An increase of 3 percent is a
    wise investment that will keep us on the right path. NSF is
    grateful for the leadership and the vision of this committee in
    that effort.
        Having said that, in a year of very tight budgets, it was
    necessary to set the priorities and make informed, but tough,
    choices; never an easy job, and particularly difficult when
    opportunities to make productive investments are as plentiful
    as they are today in research and education.
        The largest dollar increase is in the Research and Related
    Activities account, $201 million, or 5 percent above the fiscal
    year 2004 level. The largest decrease in the budget will be in
    the Education and Human Resources Directorate, with the major
    share of the decrease due to the consolidation of the Math and
    Science Partnership at the Department of Education.
        Nevertheless, NSF is increasing its investments in people,
    science and engineering students and researchers, as well as
    public understanding and diversity participation in science and
    engineering throughout all the directorates.
        I will begin with the investment of Organizational
    Excellence. This investment will streamline and update NSF
    operations and management by allowing us to address mounting
    proposal pressure, add new skills to the workforce, and improve
    the quality and responsiveness for our customers. In fiscal
    year 2005, an increased investment of $76 million in this area
    will ensure continued productive investments and continually
    improved performance in the future.
        Today's science and engineering challenges are also more
    complex. Increasingly, they involve multi-investigative
    research, as well as strong emphasis on interdisciplinary
    research. Increasing award size and duration across-the-board
    therefore remains one of NSF's top long-term priorities. NSF
    will make additional progress in fiscal year 2005 with an
    increase in the average annual award. That brings the total
    increase from $90,000 to $142,000 since 1998, an increase of 58
    percent.
        Attracting the Nation's best talent into science and
    engineering fields will be facilitated by increasing the level
    of graduate stipends from a base of $15,000 in 1999, to $30,000
    today. In fiscal year 2005, the number of fellows will increase
    from 5,000 to 5,500 for NSF's flagship graduate education
    programs.
        NSF's five focused priority areas are slated to receive
    more than $537 million in 2005. As the lead agency in the
    administration's national nanotechnology initiative, support
    for Nanoscale Science and Engineering will increase by 20
    percent, to $305 million. Support for Biocomplexity in the
    Environment and the Mathematical Sciences will continue at 2004
    levels.
        The Human and Social Dynamics priority area will receive
    $23 million to investigate the impacts of change on our lives
    and the stability of our institutions, with special emphasis on
    the way people make decisions and take risks. The budget
    includes $20 million to start NSF's Workforce for the Twenty-
    First Century priority area, critical, because it focuses on
    U.S. citizens and broadening participation.
        Researchers need access to cutting-edge tools to tackle
    today's complex and radically different research. The fiscal
    year 2005 investment in tools is $1.5 billion, an increase of
    $104 million. It continues an accelerated program to revitalize
    and upgrade the Nation's aging research infrastructure through
    investments in cutting-edge tools of every kind. Nearly $400
    million of the fiscal year 2005 investment in tools supports
    the expansion of state-of-the-art cyber infrastructure.

                               PREPARED STATEMENT

        Mr. Chairman, although I have been at NSF only a matter of
    days, as a former member of the National Science Board, I am
    very familiar with the agency, its history, and its goals. I
    recognize the need to identify clear priorities in a time of
    tight budgets, and, therefore, to make tough choices. NSF's
    fiscal year 2005 investments will have long-term benefits for
    the entire science and engineering community, and contribute to
    security and prosperity for our Nation.
        Mr. Chairman, I would be happy to respond to any questions.
        [The statement follows:]

                   Prepared Statement of Arden L. Bement, Jr.

        Chairman Bond, Senator Mikulski, and Members of the Committee, I am
    pleased to appear before you today. For more than 50 years, the
    National Science Foundation (NSF) has been a strong steward of
    America's science and engineering enterprise. Although NSF represents
    roughly 3 percent of the total Federal budget for research and
    development, it accounts for one-fifth of all Federal support for basic
    academic research and 40 percent of support for basic research at
    academic institutions, outside of the life sciences. Despite its small
    size, NSF has an extraordinary impact on scientific and engineering
    knowledge and capacity.
        During NSF's five decades of leadership, groundbreaking advances in
    knowledge have helped reshape society and enabled the United States to
    become the most productive Nation in history. The returns on NSF's
    strategic investments in science, engineering, and mathematics research
    and education have been enormous. Much of the sustained economic
    prosperity America has enjoyed over the past decade is the result of
    technological innovation--innovation made possible, in large part, by
    NSF support for fundamental research and education.
        In our 21st century world, knowledge is the currency of everyday
    life, and the National Science Foundation is in the knowledge business.
    NSF's investments are aimed at the frontiers of science and
    engineering, where advances in fundamental knowledge drive innovation,
    progress, and productivity.
        The surest way to keep our Nation prosperous and secure is to keep
    it at the forefront of learning and discovery. That is NSF's business--
    to educate and train scientists and engineers, advance fundamental
    research and engineering, and provide the tools to accomplish both. The
    NSF fiscal year 2005 budget request aims to do that, and I am pleased
    to present it to you today.
        Let me begin with the big picture. This year the National Science
    Foundation is requesting $5.745 billion. That's an increase of $167
    million, or 3 percent more than in the fiscal year 2004 enacted level.
        In light of the significant challenges that face the Nation--in
    security, defense, and the economy--NSF has, relatively speaking, fared
    well. An increase of 3 percent, at a time when many agencies are
    looking at budget cuts, is certainly a vote of confidence in the
    National Science Foundation's stewardship of these very important
    components of the Nation's goals.
        Nonetheless, in a year of very tight budgets, NSF has had to set
    priorities and make informed choices in a sea of opportunity and
    constraint. That is never an easy job, but it is particularly difficult
    when opportunities to make productive investments are as plentiful as
    they are today in research and education.
        The NSF Fiscal Year 2005 Budget Request addresses these
    opportunities and challenges through an integrated portfolio of
    investments in People, Ideas, Tools, and Organizational Excellence. The
    NSF budget identifies what we see as NSF's most pressing needs during
    the coming year:
      --Strengthen NSF management to maximize effectiveness and
            performance.--The Fiscal Year 2005 Request assigns highest
            priority to strengthening management of the investment process
            and operations. The budget request includes an increase of over
            $20 million to strengthen the NSF workforce and additional
            investments of over $50 million to enhance information
            technology infrastructure, promote leading-edge approaches to
            eGovernment, and ensure adequate safety and security for all of
            NSF's information technology and physical resources. It's a
            sizable increase, especially in a constrained environment, but
            it's really the minimum needed to keep pace with a growing
            workload and expanding responsibilities.
      --Improve the productivity of researchers and expand opportunities
            for students.--Boosting the overall productivity of the
            Nation's science and engineering enterprise requires increasing
            average award size and duration. The recent survey of NSF-
            funded principal investigators provides convincing evidence
            that an increase in award size will allow researchers to draw
            more students into the research process, and increasing award
            duration will foster a more stable and productive environment
            for learning and discovery. The level proposed for fiscal year
            2005 represents a 58 percent increase over the past 7 years in
            average annual award size.
      --Strengthen the Nation's performance with world-class instruments
            and facilities.--In an era of fast-paced discovery and
            technological change, researchers need access to cutting-edge
            tools to pursue increasingly complex avenues of research. NSF
            investments not only provide these tools, but also develop and
            creatively design the tools critical to 21st Century research
            and education. Consistent with the recent recommendations of
            the National Science Board, investment in infrastructure of all
            types (Tools) rises to $1.47 billion, representing 26 percent
            of the Fiscal Year 2005 Budget Request.
        Targeted investments under each of NSF's four strategic goals will
    promote these objectives and advance the progress of science and
    engineering.
    nsf strategic goals: people, ideas, tools and organizational excellence
        The National Science Foundation supports discovery, learning and
    innovation at the frontiers of science and engineering, where risks and
    rewards are high, and where benefits to society are most promising. NSF
    encourages increased and effective collaboration across disciplines and
    promotes partnerships among academe, industry and government to ensure
    that new knowledge moves rapidly and smoothly throughout the public and
    private sectors.
        NSF's investment strategy establishes a clear path of progress for
    achieving four complementary strategic goals: People, Ideas, Tools and
    Organizational Excellence. ``People, Ideas and Tools'' is simple
    shorthand for a sophisticated system that integrates education,
    research, and cutting-edge infrastructure to create world-class
    discovery, learning and innovation in science and engineering.
    Organizational Excellence (OE)--a new NSF strategic goal on a par with
    the other three--integrates what NSF accomplishes through People, Ideas
    and Tools with business practices that ensure efficient operations,
    productive investments and real returns to the American people.
        People.--The rapid transformations that new knowledge and
    technology continuously trigger in our contemporary world make
    investments in people and learning a continuing focus for NSF. In our
    knowledge-based economy and society, we need not only scientists and
    engineers, but also a national workforce with strong skills in science,
    engineering and mathematics. Yet many of today's students leave
    secondary school without these skills. Fewer young Americans choose to
    pursue careers in science and engineering at the university level. Of
    those that do, fewer than half graduate with science or engineering
    degrees. The Fiscal Year 2005 Request provides $1.065 billion for
    programs that will address these challenges.
        To capture the young talent so vital for the next generation of
    discovery, we will increase the number of fellowships from 5,000 to
    5,500 for NSF's flagship graduate education programs: the Integrative
    Graduate Education and Research Traineeships (IGERT), Graduate Research
    Fellowships (GRF), and Graduate Teaching Fellows in K-12 Education (GK-
    12).
        Ideas.--New knowledge is the lifeblood of the science and
    engineering enterprise. Investments in Ideas are aimed at the frontiers
    of science and engineering. They build the intellectual capital and
    fundamental knowledge that drive technological innovation, spur
    economic growth and increase national security. They also seek answers
    to the most fundamental questions about the origin and nature of the
    universe, the planet and humankind. Investments totaling $2.85 billion
    in fiscal year 2005 will support the best new ideas generated by the
    science and engineering community.
        Increasing grant size and duration is a fundamental, long-term
    investment priority for NSF. Larger research grants of longer duration
    will boost the overall productivity of researchers by freeing them to
    take more risks and focus on more complex research goals with longer
    time horizons. More flexible timetables will also provide researchers
    with opportunities to provide expanded education and research
    experiences to students. Investments in fiscal year 2005 bring NSF
    average annual research grant award size to approximately $142,000, an
    increase of $3,000 over fiscal year 2004--a 58 percent increase since
    1998. Average annual award duration will continue at approximately 3.0
    years.
        Tools.--The fiscal year 2005 request for Tools totals $1.47
    billion, an increase of $104 million over the Fiscal Year 2004
    Estimate. The increase continues an accelerated program to revitalize
    and upgrade the Nation's aging infrastructure through broadly
    distributed investments in instruments and tools. Progress in research
    and education frequently depends upon the development and use of tools
    that expand experimental and observational limits. Researchers need
    access to cutting-edge tools to tackle today's complex and radically
    different avenues of research, and students who are not trained in
    their use are at a disadvantage in today's technology-intensive
    workplace.
        Organizational Excellence (OE).--With activities that involve over
    200,000 scientists, engineers, educators and students and with over
    40,000 proposals to process each year, NSF relies on efficient
    operations and state-of-the-art business practices to provide quality
    services and responsible monitoring and stewardship of the agency's
    investments. NSF's Request includes $363.05 million to support
    Organizational Excellence (OE). This represents an increase in the
    share of the total NSF budget for OE from 5 percent in fiscal year 2004
    to 6 percent in fiscal year 2005.
        A number of considerations have elevated the Organizational
    Excellence portfolio in NSF's Fiscal Year 2005 Request. For 20 years
    NSF staffing has remained level as the total budget and workload
    increased significantly, and the work has become more complex.
    Proposals increasingly involve large, multidisciplinary and
    interdisciplinary projects and require sophisticated monitoring and
    evaluation. NSF is also committed to maintaining its traditional high
    standards for stewardship, innovation and customer service. Key
    priorities for fiscal year 2005 include award monitoring and oversight,
    human capital management and IT system improvements necessary for
    leadership in eGovernment, security upgrades and world-class customer
    service.
        It is central to NSF's mission to provide effective stewardship of
    public funds, to realize maximum benefits at minimum cost and to ensure
    public trust in the quality of the process. The fiscal year 2005
    investment in Organizational Excellence will streamline and update NSF
    operations and management by enhancing cutting edge business processes
    and tools. It will also fund the addition of 25 new permanent employees
    to address mounting workplace pressure, add new skills to the workforce
    and improve the quality and responsiveness of customer service.

                                 PRIORITY AREAS

        Before providing a few highlights of the budget, it should be noted
    that the priority-setting process at NSF results from continual
    consultation with the research community. New programs are added or
    enhanced only after seeking the combined expertise and experience of
    the science and engineering community, NSF management and staff, and
    the National Science Board.
        Programs are initiated or enlarged based on considerations of their
    intellectual merit, broader impacts of the research, the importance to
    science and engineering, balance across fields and disciplines, and
    synergy with research in other agencies and nations. NSF coordinates
    its research with our sister research agencies both informally--by
    program officers being actively informed of other agencies' programs--
    and formally, through interagency agreements that spell out the various
    agency roles in research activities. Moreover, through the Committee of
    Visitors process there is continuous evaluation and feedback of
    information about how NSF programs are performing.
        Producing the finest scientists and engineers in the world and
    encouraging new ideas to strengthen U.S. leadership across the
    frontiers of discovery are NSF's principal goals. NSF puts its money
    where it counts--94 percent of the budget goes directly to the research
    and education that keep our knowledge base strong, our economy humming
    and the benefits to society flowing.
        America's science and engineering workforce is the most productive
    in the world. To keep it that way, we have to attract more of the most
    promising students to graduate-level studies in science and
    engineering.
        Since its founding in 1950, NSF has supported 39,000 fellows. Next
    year NSF will increase Fellowships from 5,000 to 5,500 for NSF's
    prestigious graduate education programs: the Integrative Graduate
    Education and Research Traineeships (IGERT), Graduate Research
    Fellowships (GRF), and Graduate Teaching Fellows in K-12 Education (GK-
    12).
        Attracting the Nation's best talent has been facilitated by
    increasing the level of graduate stipends from a base of $15,000 in
    1999 to $30,000 in fiscal year 2004. Stipend levels will remain at the
    $30,000 level in fiscal year 2005.
        Today's science and engineering challenges are more complex.
    Increasingly, they involve multi-investigator research, as well as a
    strong emphasis on interdisciplinary research. So, increasing award
    size and duration--across the board--remains one of NSF's top long-term
    priorities. In fiscal year 2005 the average annual award will increase
    by $3,000. That brings the total increase to 58 percent since 1998.
        Opportunities to advance knowledge have never been greater than
    they are today. NSF invests in emerging areas of research that hold
    exceptional potential to strengthen U.S. world leadership in areas of
    global economic and social importance. This year, NSF is requesting
    funding for five priority areas with very promising research horizons:
    biocomplexity, nanoscale science and engineering, mathematical
    sciences, human and social dynamics, and the 21st century workforce.
        Biocomplexity in the Environment explores the complex interactions
    among organisms and their environments at all scales, and through space
    and time. This fundamental research on the links between ecology,
    diversity, the evolution of biological systems, and many other factors
    will help us better understand and, in time, predict environmental
    change. In fiscal year 2005, Biocomplexity in the Environment will
    emphasize research on aquatic systems.
        The Human and Social Dynamics priority area will explore a wide
    range of topics. These include individual decision-making and risk, the
    dynamics of human behavior, and global agents of change--from
    democratization, to globalization, to war. Support will also be
    provided for methodological capabilities in spatial social science and
    for instrumentation and data resources infrastructure.
        Mathematics is the language of science, and is a powerful tool of
    discovery. The Mathematical Sciences priority areas will focus on
    fundamental research in the mathematical and statistical sciences,
    interdisciplinary research connecting math with other fields of science
    and engineering, and targeted investments in training.
        NSF's investment in Nanoscale Science and Engineering targets the
    fundamental research that underlies nanotechnology--which very likely
    will be the next ``transformational'' technology.
        Investments in this priority area will emphasize research on
    nanoscale structures and phenomena, and quantum control. NSF is the
    lead agency for the government-wide National Nanotechnology Initiative
    (NNI). NSF is requesting $305 million, an increase of nearly $52
    million or 20 percent. This is by far NSF's largest priority area
    investment.
        To operate in an increasingly complex world, we have to produce a
    general workforce that is scientifically and technologically capable,
    and a science and engineering workforce that is world class by any
    measure.
        The fiscal year 2005 request provides $20 million to initiate the
    Workforce for the 21st Century priority area. This investment will
    support innovations to integrate NSF's investments in education at all
    levels, from K-12 through postdoctoral, as well as attract more U.S.
    students to science and engineering fields and broaden participation.

                               BUDGET HIGHLIGHTS

        In fiscal year 2005, NSF will make significant investments in NSF's
    diverse Centers Programs. Centers bring people, ideas, and tools
    together on scales that are large enough to have a significant impact
    on important science and engineering challenges. They provide
    opportunities to integrate research and education, and to pursue
    innovative and risky research. An important goal beyond research
    results is developing leadership in the vision, strategy, and
    management of the research and education enterprise. The total
    investment for NSF's Centers Programs is $457 million, an increase of
    $44 million in fiscal year 2005. Here are some highlights of the
    Centers.
      --Thirty million dollars will initiate a new cohort of six Science
            and Technology Centers. A key feature of these centers is the
            development of partnerships linking industry, government, and
            the educational community to improve the transfer of research
            results, and provide students a full set of boundary-crossing
            opportunities.
      --Twenty million dollars will continue support for multidisciplinary,
            multi-institutional Science of Learning Centers. These centers
            are intended to advance understanding of learning through
            research on the learning process, the context of learning, and
            learning technologies. The Centers will strengthen the
            connections between science of learning research and
            educational and workforce development.
      --The budget request provides for two new nanotechnology centers; two
            or three centers that advance fundamental knowledge about
            Environmental Social and Behavioral Science; three Information
            Technology Centers, and additional funding for the NSF Long
            Term Ecological Research network. An additional $6 million will
            fund a number of mathematical and physical science centers,
            including: Chemistry Centers, Materials Centers, Mathematical
            Sciences Research Institutes, and Physics Frontiers Centers.
        Today, discoveries emerge from around the world. It is essential
    that American scientists and engineers have opportunities to engage
    with the world's top researchers, to lead major international
    collaborations, and to have access to the best research facilities
    throughout the world and across all the frontiers of science and
    engineering. The fiscal year 2005 budget to carry out these activities
    through NSF's Office of International Science and Engineering is $34
    million, an increase of $6 million, or 21 percent over the fiscal year
    2004 estimate.
        Finally, NSF will initiate an Innovation Fund at $5 million. The
    Fund provides an opportunity for the Foundation to respond quickly to
    rapidly emerging activities at the frontiers of learning and discovery.

                          TOOLS--OPENING UP NEW VISTAS

        Researchers need access to cutting-edge tools to tackle today's
    complex and radically different research tasks. If students are not
    trained in their use, they will be at a disadvantage in today's
    technology-intensive workplace. The fiscal year 2005 investment in
    Tools totals $1\1/2\ billion, an increase of $104 million. This
    continues an accelerated program to revitalize and upgrade the Nation's
    aging research infrastructure through investments in cutting-edge tools
    of every kind.
        Nearly $400 million of the fiscal year 2005 investment supports the
    expansion of state-of-the-art cyberinfrastructure. New information and
    communication technologies have transformed the way we do science and
    engineering. Providing access to moderate-cost computation, storage,
    analysis, visualization and communication for every researcher will
    make that work more productive and broaden research perspectives
    throughout the science and engineering community.
        In fiscal year 2005, there are three continuing and three new
    projects funded by the proposed $213 million investment in Major
    Research Equipment and Facilities Construction.
        NEON, the National Ecological Observatory Network, is a continental
    scale research instrument with geographically distributed
    infrastructure, linked by state-of-the-art networking and
    communications technology. NEON will facilitate studies that can help
    us address major environmental challenges and improve our ability to
    predict environmental change. Funding for NEON planning activities is
    included in the fiscal year 2004 estimate.
        The Scientific Ocean Drilling Vessel is a state-of-the-art drill
    ship that will be used by the Integrated Ocean Drilling Program (IODP),
    an international collaboration. Cores of sediment and rock collected
    from the ocean floor will enhance studies of the geologic processes
    that modify our planet. Investigators will explore the history of those
    changes in oceans and climate, and the extent and depth of the planet's
    biosphere.
        The Rare Symmetry Violating Processes (RSVP) includes two highly
    sensitive experiments to study fundamental symmetries of nature. RSVP
    will search for the particles or processes that explain the
    predominance of matter that makes up the observable universe. It will
    focus on questions ranging from the origins of our physical world to
    the nature of dark matter.
        NSF plans to invest in major research equipment and facilities
    construction projects over the next several years. We expect to start
    funding for two additional projects; Ocean Observatories and an Alaska
    Regional Research Vessel in fiscal year 2006.
        In making these critical investments, NSF continues to put a very
    strong emphasis on effective and efficient management.

                                   CONCLUSION

        Mr. Chairman, the budget highlights presented above only begin to
    touch on the variety and richness of the NSF portfolio. NSF supports
    research programs to enhance homeland security. This includes the
    Ecology of Infectious Diseases program, jointly funded with NIH, and
    the Microbial Genome Sequencing program, jointly funded with the
    Department of Agriculture. NSF participates on the National Interagency
    Genome Sequencing Coordinating Committee, where programs have attracted
    a great deal of interest from the intelligence community, and have been
    touted as the best. The Critical Infrastructure Protection program, and
    cybersecurity research and education round out important contributions
    to enhancing homeland security.
        Additionally, as part of the Administration's Climate Change
    Research Initiative, NSF supports research to reduce uncertainty
    related to climate variability and change, with the objective of
    facilitating decision making and informing the policy process.
        Mr. Chairman and Members of the Committee, I hope that this brief
    overview conveys to you the extent of NSF's commitment to advancing
    science and technology in the national interest. I am aware and
    appreciative of this subcommittee's long-standing bipartisan support
    for NSF. I would be happy to respond to any questions that you have.

        Senator Bond. Thank you very much, Dr. Bement.
        Dr. Washington, welcome. It is good to have you back.

                       STATEMENT OF WARREN M. WASHINGTON

        Dr. Washington. Chairman Bond, Senator Mikulski, and
    Senator Johnson, I appreciate the opportunity to testify before
    you today in my capacity as Chair of the National Science
    Board.
        On behalf of the Board, I thank the subcommittee for its
    long-term commitment to a broad investment in science,
    engineering, math, and technology research and education.
        As part of the National Science Board's responsibilities,
    in December, the Board prepared a report to Congress with
    recommendations for the allocation of the steady and
    substantial increase in NSF's budget that was authorized as
    part of the NSF Authorization Act of 2002. The recommendations
    of this report were provided at a very broad level and assumed
    the implementation of authorized increase to $9.8 billion in
    fiscal year 2007. This funding level will significantly
    increase NSF's ability to address many unmet needs identified
    by the Board.
        For example, we have over 1,000 excellent rated proposals
    that cannot be funded, which results in lost opportunities for
    discovery. While the Board is aware of the current funding
    realities, we feel strongly that the current positive momentum
    for significant annual increases to NSF's budget should be
    maintained. The National Science Board approved the fiscal 2005
    budget request that was submitted to OMB and generally supports
    the budget request before you today. It is a step in the right
    direction for addressing important national interests
    identified by Congress.
        The Board fully supports the Foundation's integrated
    portfolio of investments in People, Ideas, Tools, and
    Organizational Excellence. The strategy, the vision embodied in
    these four broad areas, provides an effective roadmap for
    guiding NSF's future. It blends support for the core
    discipline, with encouragement for interdisciplinary
    initiatives.
        The National Science Board has carefully examined and
    endorsed five priority areas identified in the fiscal year 2005
    request: Biocomplexity in the Environment, Human and Social
    Dynamics, Mathematical Sciences, Nanoscale Science and
    Engineering, and Workforce for the Twenty-First Century.
        The Board has assessed the current state of the U.S. S&E
    academic research infrastructure. Our findings and
    recommendations are published in the ``Science and Engineering
    Infrastructure for the Twenty-First Century: The Role of the
    National Science Foundation'' report. The Board has identified
    a pressing need to address mid-sized infrastructure projects.
        The Board's recent report entitled, ``The Science and
    Engineering Workforce: Realizing America's Potential,''
    underscores that the United States is in a long-distance race
    to retain its essential global advantage in S&E human resources
    and sustain our world leadership in science and technology. A
    high-quality, diverse, and adequately sized workforce that
    draws on the talents of all of the U.S. demographic groups and
    on talented international students and professionals, is
    crucial for maintaining our leadership.
        I should point out that there was an article that came out
    yesterday in the science magazine ``Nature'', reaffirming our
    views on this.

                               PREPARED STATEMENT

        Education is a core mission of NSF. The NSF shares in the
    responsibility for promoting quality math and science education
    as intertwining objectives in all levels of education across
    the United States. NSF has the mandate, depth of experience,
    and well-established relationships to build the partnerships
    for excellence in education. The Board, therefore, strongly
    urges continued full funding of the math and science
    partnerships at NSF. Mr. Chairman, I would like to submit for
    the record a written statement from the National Science Board
    ``In Support of the Math and Science Partnership Program at
    NSF''. So you have that in your file.
        Senator Bond. Thank you very much, Dr. Washington.
        [The statement follows:]

                   Prepared Statement of Warren M. Washington

        Chairman Bond, Senator Mikulski, and Members of the Committee, I
    appreciate the opportunity to testify before you. I am Warren
    Washington, Senior Scientist and Section Head of the Climate Change
    Research Section at the National Center for Atmospheric Research. My
    testimony today is in my capacity as the Chair of the National Science
    Board.
        On behalf of the National Science Board and the widespread and
    diverse research and education communities that we all serve, I thank
    this Committee for its long-term commitment to a broad portfolio of
    investments in science, mathematics, engineering, and technology
    research and education.
        The Congress established the National Science Board (NSB) in 1950
    and gave it dual responsibilities:
      --Oversee the activities of, and establish the policies for, the
            National Science Foundation (NSF); and
      --Serve as an independent national science policy body to render
            advice to the President and the Congress on policy issues
            related to science and engineering research and education.
        As part of this latter responsibility, and as directed by the
    Congress, the Board prepared ``A Report to Congress on the Budgetary
    and Programmatic Expansion of the National Science Foundation''. The
    report received formal Board approval on December 4, 2003, and has been
    delivered to the Congress, as well as to the White House Office of
    Science and Technology Policy and Office of Management and Budget. The
    purpose of this report was to provide the Congress with recommendations
    for the allocation of the steady and substantial increase in NSF's
    budget that was authorized as part of the NSF Act of 2002.
        It is important to note that the recommendations of this report
    were provided at a very broad level and assumed full implementation of
    the authorized increase in NSF's budget to $9.8 billion in fiscal year
    2007. This funding level will significantly enhance NSF's ability to
    address many unmet needs identified by the Board. However, the Board is
    also cognizant of the current realities of the demands on a finite
    Federal budget. The present Federal budget realities will require the
    NSF and the Board to adjust the planned budget and programmatic
    expansion to fit actual yearly increments. Nevertheless, the Board
    feels strongly that the current positive momentum for annual increases
    to the NSF budget should be maintained in order to enhance NSF's
    ability to address these unmet needs, and ensure continued U.S.
    leadership in the international science, engineering and technology
    enterprise.
        I would like to provide some general comments regarding the NSF
    fiscal year 2005 budget request, then update you on National Science
    Board activities over the last year and some of our priorities for the
    coming year.

                              2005 BUDGET REQUEST

        The National Science Board has reviewed and approved NSF's fiscal
    year 2005 budget request that was submitted to OMB, and generally
    supports the budget request before you today. It is a step in the right
    direction for addressing the important national interests identified by
    Congress.
        The Board fully supports the Foundation's integrated portfolio of
    investments in People, Ideas, Tools, and Organizational Excellence. The
    strategic vision embodied in these four broad categories provides an
    effective roadmap for guiding NSF's future. It thoughtfully blends
    support for the core disciplines with encouragement for
    interdisciplinary initiatives, brings together people from diverse and
    complementary backgrounds, provides necessary infrastructure for
    research and science education, and strengthens the Foundation's
    management of the enterprise.
        The National Science Board has carefully examined the five priority
    areas identified in NSF's fiscal year 2005 budget request: Bio-
    complexity in the Environment, Human and Social Dynamics, Mathematical
    Sciences, Nano-scale Science and Engineering, and Workforce for the
    21st Century. We wholeheartedly agree that these areas represent the
    frontier of science and engineering, and hold exceptional promise for
    new discoveries, educational opportunities, and practical applications.
        The Board has assessed the current state of the U.S. S&E academic
    research infrastructure, examined its role in enabling S&E advances,
    and identified requirements for a future infrastructure capability. Our
    findings and recommendations are published in ``Science and Engineering
    Infrastructure for the 21st Century: The Role of the National Science
    Foundation''. A key recommendation is to increase the share of the NSF
    budget devoted to S&E infrastructure from 22 percent to more like 27
    percent in order to provide adequate small- and medium-scale
    infrastructure and needed investment in cyber-infrastructure. The Board
    identified a pressing need to address mid-sized infrastructure projects
    and to develop new funding mechanisms to support them. Funding could
    potentially be in a number of programs, so that NSF program officers
    can make decisions between the mid-level infrastructure and next
    individual or center research grant, based on broader research
    community input through the merit review process.
        The Board's recent report entitled ``The Science and Engineering
    Workforce--Realizing America's Potential'' underscores that the United
    States is in a long-distance race to retain its essential global
    advantage in S&E human resources and sustain our world leadership in
    science and technology. A high quality, diverse and adequately sized
    workforce that draws on the talents of all U.S. demographic groups and
    talented international students and professionals is crucial to our
    continued leadership and is a vital Federal responsibility. The Board
    has concluded that it is a National Imperative for the Federal
    Government to step forward to ensure the adequacy of the U.S. science
    and engineering workforce. But the Federal Government cannot act alone.
    All stakeholders must participate in initiating and mobilizing efforts
    that increase the number of U.S. citizens pursuing science and
    engineering studies and careers. At the same time, however, Federal
    science officials should ensure that international researchers and
    students continue to feel welcome in the United States and continue
    their partnerships in the U.S. science and technology enterprise.
        Education is a core mission of NSF. NSF not only promotes research,
    but also shares in the responsibility for promoting quality math and
    science education as intertwining objectives at all levels of education
    across the United States. NSF's highly competitive peer-review process
    is second to none for openly and objectively identifying, reviewing,
    selecting, funding and providing stewardship for the very best science,
    technology, engineering and mathematics (STEM) proposals and programs
    in research and education. NSF has the mandate, depth of experience,
    and well-established relationships to build the partnerships for
    excellence in STEM education. The Board, therefore, strongly urges that
    continued, full funding of the Mathematics and Science Partnerships
    Program at NSF be sustained over the long term as an essential
    component of a coordinated Federal effort to promote national
    excellence in science, mathematics and engineering.

                OVERVIEW OF NSB ACTIVITIES DURING THE LAST YEAR

        During the last year, the Board has accomplished a great deal in
    terms of our mission to provide oversight and policy direction to the
    Foundation. In terms of providing oversight for the Foundation, the
    Board has:
      --Reviewed and endorsed the Office of Inspector General Semi-annual
            Reports to Congress, and approved NSF management responses,
      --Approved the NSF fiscal year 2005 budget request for transmittal to
            OMB,
      --Approved the NSF Major Facilities Management and Oversight Guide,
      --Approved the Foundation's Merit Review Report, and
      --Provided review and decisions on 12 major awards or proposal
            funding requests.
        In terms of providing policy direction to the Foundation, the Board
    has:
      --Issued an official statement on role of NSF in supporting S&E
            infrastructure (NSB-03-23),
      --Reviewed and approved the NSF Strategic Plan 2003-2008 (August),
            and
      --Developed a broad set of recommendations for allocation of
            authorized increases in funding resources to the Foundation.
        In terms of advice to the President and the Congress, the Board
    has:
      --Published the Infrastructure Report (NSB-02-190),
      --Published the Workforce Report (NSB-03-69),
      --Reported on Delegation of Authority in accordance with Section 14
            of the NSF Act of 2002.
      --Developed and delivered a budget expansion report in accordance
            with Section 22 of the NSF Act of 2002,
      --Prepared and approved the 2004 S&E Indicators Report,
      --Provided testimony to Congressional Hearings,
      --Interacted with OSTP in meetings and forums on S&E issues, and
      --Responded to specific questions and inquiries from Senators and
            Representatives.
        In 2003 the Board meetings and deliberations became much more open
    in accord with the Sunshine Act. In an effort to facilitate more
    openness, we:
      --Approved new guidelines for attendance at NSB meetings,
      --Provided public notice of all our meetings in press releases, the
            Federal Register and on the NSB website,
      --Treated tele-conferences of committees as open meetings,
      --Provided much more information to the public in a more timely
            manner regarding meeting discussions and decisions, and
      --Encouraged public comment during the development of Board
            publications.
        I am pleased to report that this new openness has been embraced by
    Board Members and well received by the press and other members for
    public. The Office of Inspector General has also just completed their
    audit of the Board's compliance with the Sunshine Act, and found us
    fully compliant. We look forward to working with both the Inspector
    General and the General Counsel to further enhance our procedures and
    policies in this regard.
        During the last year, and especially since August 2003, the Board
    has made a major effort to increase and improve our outreach and
    communications with the Congress, other agencies, various interest
    groups and the outside S&E research and education community.
        During 2003 the Board initiated examination of issues related to:
      --The process by which Major Research Equipment and Facilities
            proposals are developed, prioritized and funded,
      --NSF policies for Long-lived Data Collections, and
      --The identification, development and funding of innovative or high-
            risk research.

                          FISCAL YEAR 2005 NSB BUDGET

        The administration's Fiscal Year 2005 Budget Request of $3.95
    million for the NSB will be adequate to support Board operations and
    activities during fiscal year 2005. The request seeks resources to
    carry out the Board's statutory authority and to strengthen its
    oversight responsibilities for the Foundation. We expect that the
    Foundation will continue to provide accounting, logistical and other
    necessary resources in support of the NSB and its missions, including
    expert senior S&E staff serving as a cadre of executive secretaries to
    Board committees and task forces.
        At the urging of Congress, in fiscal year 2003 the Board began
    examining options for augmenting its professional staffing levels. At
    its May 2003 meeting, the Board decided to begin a process to assess
    the feasibility of recruiting for positions that would broaden its
    policy support, provide additional legal advice, and enhance the
    Board's capabilities in advanced information technology. As an initial
    step in this process, in August 2003 the Board appointed a new NSB
    Executive Officer who also serves as the NSB Office Director. At the
    direction of the Congress, the NSB Executive Officer now reports
    directly to the NSB Chair. The Board is very pleased with this
    arrangement.
        In October 2003, I notified you, Senator Bond, that I had charged
    the NSB Executive Officer with identifying options for broadening the
    NSB Office staff capabilities to better support the broad mission of
    the NSB. The NSB Office staff provides the independent resources and
    capabilities for coordinating and implementing S&E policy analyses and
    development and provides operational support that are essential for the
    Board to fulfill its mission. By statute, the Board is authorized five
    professional positions and other clerical staff as necessary. In
    consultation with the Congress, the Board has defined these
    professional positions as NSB senior science and engineering policy
    staff, and the clerical positions as NSB staff that support Board
    operations and related activities. The full impact of increasing the
    number of professional positions closer to the statutory level is
    expected to occur in fiscal year 2005, with increased attention to
    addressing new skill requirements.
        In addition to the NSB Office's essential and independent resources
    and capabilities, external advisory and assistance services are
    especially critical to support production of NSB reports, and
    supplement the NSB staff's general research and administration services
    to the Board. These external services provide the Board and its Office
    with the flexibility to respond independently, accurately and quickly
    to requests from Congress and the President, and to address issues
    raised by the Board itself.
        Enhanced Board responsibilities established in the NSF
    Authorization Act of 2002 and directed by Congressional Report language
    include: an expanding role in prioritizing and approving Major Research
    Equipment and Facilities Construction projects; new requirements for
    meetings open to the public; and responsibilities for reporting on the
    Foundation's budgetary and programmatic expansion, with specific focus
    on the projected impact on the science and technology workforce,
    research infrastructure, size and duration of grants, and
    underrepresented populations and regions. The National Academies, in
    response to a Congressional request, recently released a report of
    their study examining how NSF sets priorities among multiple competing
    proposals for construction and operation of large-scale research
    facility projects to support a diverse array of disciplines.
    Recommendations from this study are being considered with due diligence
    by the Board as they develop and implement options for meeting their
    enhanced responsibilities.
        The Board will continue to review and approve NSF's actions for
    creating major NSF programs and funding large projects. Special
    attention will be paid to budget growth impacts on the S&T workforce,
    expanded participation in higher education, national S&T
    infrastructure, and the size and duration of NSF grants.
        This year the Board will expand its ongoing examination of its role
    and responsibilities regarding the NSF's Major Research Equipment and
    Facilities Construction (MREFC) program. We will factor into this
    examination the recommendations of the National Academies report on the
    MREFC program, and develop a process for implementing appropriate
    modifications to the Board's involvement with the MREFC program. The
    Board has just received the National Academies report and will comment
    on it directly to Congress after we have given it careful
    consideration.
        Effective communications and interactions with our constituencies
    contribute to the Board's work of identifying priority science and
    technology policy issues, and developing policy advice and
    recommendation to the President and Congress. To this end, the Board
    will increase communication and outreach with the university, industry
    and the broader science and engineering research and education
    community, Congress, Federal science and technology agencies, and the
    public. These activities will support U.S. global leadership in
    discovery and innovation based on a continually expanding and evolving
    S&T enterprise in this country, and will insure a principal role for
    NSF programs in providing a critical foundation for science and
    engineering research and education.

                                CLOSING REMARKS

        The horizon of scientific discovery and engineering achievements
    stretch far and wide, but are clouded by uncertainty and risk.
    Experience has shown us that as we reach out to the endless frontier we
    have realized benefits beyond our dreams. Together, we have confidently
    faced the uncertainties, boldly accepted the risks, and learned from
    both our victories and setbacks. But the journey is not short or cheap.
    It requires careful planning, wise investments, and a long-term
    commitment.
                                     ______

     A Statement of the National Science Board: In Support of the Math and
         Science Partnership Program at the National Science Foundation

        Education is a core mission of the National Science Foundation
    (NSF). NSF not only promotes research, but also shares in the
    responsibility for promoting quality math and science education as
    intertwining objectives at all levels of education across the United
    States. NSF's highly competitive peer-review process is second to none
    for openly and objectively identifying, reviewing, selecting, funding
    and providing stewardship for the very best science, technology,
    engineering and mathematics (STEM) proposals and programs in research
    and education.
        Science and mathematics competency is becoming ever more essential
    to individuals and nations in an increasingly global workforce and
    economy. STEM education is a special challenge for the highly mobile
    U.S. population, because it demands a sequential, cumulative
    acquisition of knowledge and skills. To raise U.S. student performance
    to a world-class level, all components of the U.S. education system
    must achieve a consensus on a common core of mathematics and science
    knowledge and skills. These core competencies must be embedded
    consistently in instructional materials and practices everywhere and at
    all levels, without precluding locally held prerogatives about the
    content of curricula.\1\
    ---------------------------------------------------------------------------
        \1\ NSB 98-154, NSB 99-31, http://www.nsf.gov/nsb/documents.
    ---------------------------------------------------------------------------
        The NSF's Math and Science Partnerships (MSPs) are important tools
    for addressing a critical--but currently very weak--link between pre-
    college and higher education. This major new national initiative,
    outlined in NSF's 2002 Authorization Act, has received strong and broad
    support from Congress and was signed into law by President Bush. It
    provides for the collaboration between pre-college and college to
    promote excellence in teaching and learning; therefore facilitating the
    transitions for students from kindergarten through the baccalaureate in
    STEM disciplines. The added benefit for our Nation is those students
    who do not choose STEM careers become the informed scientifically
    literate voting citizens we need for the 21st Century.
        We do not have the luxury of time for further political debate on
    how to bring our Nation's education system up to a world-class level in
    science and mathematics--much less to achieve world leadership in these
    critical competencies.\2\ NSF has the mandate, depth of experience, and
    well-established relationships to build the partnerships for excellence
    in STEM education. The Board, therefore, strongly urges that continued,
    full funding of the MSP Program at NSF be sustained over the long term
    as an essential component of a coordinated Federal effort to promote
    national excellence in science, mathematics and engineering.
    ---------------------------------------------------------------------------
        \2\ NSB 03-69, http://www.nsf.gov/nsb/documents.

        Senator Bond. All of the written statements will be
    included in the record as full. We are faced with a projected
    vote at 11 o'clock. I will keep my first round of questions
    short, and ask for short answers. If we have a vote at 11
    o'clock, we will come back, and I want to have an opportunity
    for Senator Mikulski and Senator Johnson to ask questions.

                    CHALLENGE OF SERVING IN DUAL CAPACITIES

        First, let me talk about the dual hat you are wearing, Dr.
    Bement, with the Director of NIST and Acting Director of NSF. I
    would like to know how you intend to balance the roles in each
    and what your plans are during your time as Acting Director at
    NSF.
        Dr. Bement. Thank you, Senator. The only way anyone could
    carry on such a prodigious challenge is to have two outstanding
    deputy directors. And I do have two outstanding deputy
    directors, Dr. Bordogna at the National Science Foundation, and
    Dr. Semerjian. Both people are highly talented, highly
    experienced, and I have known them and worked with them for
    some time.
        You mentioned 40 hours a week. Well, I work more than 40
    hours a week, but so does everyone at the National Science
    Foundation. In fact, our recent study indicates that a large
    fraction of them work 50 or 60 hours a week, and that is a
    concern, because----
        Senator Bond. We work more than that up here, but you are
    doing important work.
        Dr. Bement. The other thing I would say is that I am trying
    to limit my travel and stick to my knitting. So I will stay
    very focused.

                           GOALS AS NEW NSF DIRECTOR

        Senator Bond. Yes, but what do you want to do at NSF? I
    know the time and all that, but do you have any specific
    objective or objectives?
        Dr. Bement. Well, I could give you a fuller answer if I had
    2 or 3 more days, but----
        Senator Bond. All right. I understand you have----
        Dr. Bement [continuing]. With the 4 days that I have, I do
    feel that one of my major priorities is to deal with the staff
    issues, not only in bringing on highly talented assistant
    directors, whose positions are being vacated, but also to deal
    with the internal workload, and furthermore, to facilitate more
    E-systems within the Foundation.
        Senator Bond. I understand that you have only been on board
    4 days. Maybe after you have been there for a week or so and
    some of the discussions we have today, if you would submit----
        Dr. Bement. I would be glad to. I will have more discussion
    with you later on, but I am developing an agenda.
        Senator Bond. Send us a memo basically on what you think
    you can do.
        [The information follows:]

                    Agenda and Goals of Arden L. Bement, Jr.

        Since my appointment is acting and expected to be of relatively
    short duration, my agenda is to focus on the sustainability of current
    NSF priorities, goals, and research areas as reflected in the fiscal
    year 2005 budget submission and to address emerging needs of the
    science, technology, engineering, and mathematics (STEM) communities
    served by the NSF.
        I will also dedicate myself to being a good steward for NSF by
    focusing on near-term issues and priorities. In particular, I will work
    closely with the NSB, the Appropriations Committees, and the
    administration to achieve the following:
      --Greater transparency in MREFC management and oversight to include
            pre-construction planning and assessment, life-cycle budgeting,
            and cost and management oversight;
      --Long-term human-resource planning to assure efficiency and
            effectiveness of operations, and the further building of a
            learning organization through training and competence building;
      --Sustainable NSF budget levels to pursue the objectives of the NSF
            Authorization Act of 2002, administration priorities, and the
            needs and opportunities identified by the STEM communities
            served by the NSF;
      --Continuing close cooperation with the Department of Education to
            assure that resources flow to math and science teachers under
            the Math and Science Partnership Initiative to achieve improved
            student performance in math and science education; and
      --Pursuing programs that will increase minority STEM faculty by means
            of the ``Workforce for the 21st Century'' priority area and
            supporting EHR programs. This has been identified by the NSB as
            being paramount for increasing the numbers of STEM minority
            students who attain a degree.

                 SELECTION AND APPOINTMENT OF NEW NSF DIRECTOR

        Senator Bond. Dr. Marburger, do you know what the time is
    for announcing a new director, to allow Dr. Bement to go back
    to NIST? Do you have any idea on when that is going to work?
        Dr. Marburger. An aggressive search is underway.
    Outstanding candidates have been identified and approached. I
    am very optimistic that we are not talking about very long
    periods of time. I hesitate to give a deadline, but months
    would be an appropriate scale.

             BALANCE BETWEEN FUNDING FOR PHYSICAL AND LIFE SCIENCES

        Senator Bond. That is very good. Maybe, Dr. Marburger, you
    can tell me, in light of the PCAST report, recommending
    substantial increases, and as the co-chair of the PCAST, you
    approved the recommendation. Can you explain why the NSF budget
    request from OMB is again so inconsistent with the PCAST
    report? Is there anything you can do to reestablish or to bring
    some balance between the funding for the life sciences and the
    physical sciences?
        Dr. Marburger. Yes, sir. I believe that funding for
    physical sciences should be a priority, and I believe it is a
    priority. We are facing a difficult budget situation, and I
    believe that the 3 percent increase, as meager as it may seem
    to those used to hearing much larger numbers, is, nevertheless,
    a very significant signal in this difficult budget period, of
    the intention and priority that this administration places on
    this area. If we could find a way to get more in there, I think
    it would be very good, but I believe this budget does permit
    the United States to sustain its leadership in these vital
    areas.
        Senator Bond. Thank you, Dr. Marburger.
        Senator Mikulski.
        Senator Mikulski. Thank you very much, Mr. Chairman. I
    think one of the things Senator Bond and I are concerned about,
    Dr. Bement, is that you do have two jobs, and because the
    National Institutes of Standards, NIST, is in my State, we know
    the extraordinary work that goes on there.
        Senator Bond, you might be interested to know, they are
    doing research on why the World Trade Center collapsed, and not
    necessarily for forensic purposes, but what will we need to do
    as we build higher to make sure that buildings are safe, its
    occupants are safe, that the people who come to do rescue
    missions would be safe, et cetera. This is a big job. And then
    for you now to be doing double duty, it is like being in the
    Marines and the infantry at the same time. It is a little hard.
        Dr. Bement. Well, at least I have a common mission, in some
    respects.
        Senator Mikulski. Yes. Well, we recognize the stress on
    you. Know that this Senator is very deeply disturbed by the
    administration's proposed budget of NSF. We believe that it is
    underfunded. We believe that it resorts to gimmicks, like on
    the education front, and does not recognize the need in certain
    key areas. We know that you have been at NSF for 4 days. Know
    that as I go through this, these are not in any way meant to be
    prickly in terms of our relationship here.
        First of all, I believe that research is short-funded. A 3
    percent increase doesn't even meet locality pay standards.
    Three percent is simply not enough. We could go into that, but
    one of the areas that is of very keen interest to me, of
    course, is the field of nanotechnology. That, as we talked
    about you being the lead agency, the PCAST system, and all that
    goes on. When I talk about strategic research, again, I am not
    talking industrial policy, the Euro model, et cetera. But that
    is what I meant, the best thinking, and then also out in the
    academic world and even the involvement of the private sector.

                   ENGAGE PUBLIC IN EMERGING RESEARCH FIELDS

        This is not a question. It is a very strong recommendation
    to the people at NSF. There are those who are raising flashing
    yellow lights about nanotechnology. I agree with Senator Bond,
    which is before we get gripped into public controversy, that I
    would really encourage those working at the coordinating
    council level, engage with the critics, and not in a dismissive
    way. I am not saying that you are in any way like that, Doctor,
    but unless we understand the validity of their concerns, meet
    them head on, we get into the genome controversies. We do not
    want to go there with nanotech. I see it as a cornucopia for
    our country.
        I have lost my steel mills. Will one day we have nano mills
    making metals that are so strong and light for our automobiles,
    where we are building automobiles in our country, for whatever
    our military needs might be, for the trip that we will be
    taking into space? So let's deal with the critics head on.

                          MATH AND SCIENCE PARTNERSHIP

        We could go over the research money, but also what I am
    very troubled about is in the area of education. This is where
    I believe that the administration is really shortchanging us,
    and also resulting in the gimmicks. I was deeply disturbed
    about the fact that the administration proposes that this
    initiative, the Math and Science Partnership initiative, be
    transferred to the Department of Education.
        This was a $200 million initiative on our part, and the
    current proposal was to have $80 million in funds stay at NSF,
    but to go into research. I know you have been there for 4 days.
    What this committee would like to know is, and I do not know if
    you can answer it, but what was the thinking behind it? Was
    this a budget issue rather than an education issue, because it
    would be my intent for this year to keep this at NSF while we
    evaluate what the best way is to stimulate math and science. Do
    you have any comments on that?
        Dr. Bement. Senator, I have looked into this matter and I
    have tried to understand the rationale, but in 4 days, I have
    not really fully comprehended all the nuances behind the
    argument. I think the rationale was to take a more integrated
    approach to have the school districts integrate the types of
    activities carried under the Math and Science Partnership, and
    integrate it with some of the block grant support they get from
    the Department of Education, and for the Department of
    Education to carry this out on a competitive basis. That is
    about as far as my understanding goes at the present time.
        Senator Mikulski. Well, just know that I am very troubled
    by this, and the fact that the $80 million they leave behind
    does not stay in education. It goes into research accounts.
    That is not to acknowledge the need for the research account.
    That is my whole point, that the $80 million that stays behind
    ought to at least be used in education money, if it goes. I do
    not want it to go. No Child Left Behind is having a very
    troubled history now, as it is implemented.

     SCIENCE, TECHNOLOGY, ENGINEERING, MATHEMATICS TALENT EXPANSION (TECH
                                TALENT) PROGRAM

        Let me go then to the issue of the undergraduate tech
    talent. This was a program created on a bipartisan basis with
    Senators Bond, Lieberman, Domenici, Dr. Frist, and myself. We
    understand that this program has been cut by $10 million. What
    would be the consequences to undergraduates with that cut?
        Dr. Bement. Senator, there were some painful cuts in
    several educational programs, but I have talked with presidents
    of degree-granting, Ph.D.-granting HBCU's. I have also had a
    long-time relationship with the Science and Engineering
    Alliance. And the understanding I have from them is that they
    want to build capacity and sustainability in their ability to
    not only build on the current Ph.D. programs and attract more
    students from undergraduate ranks into the graduate ranks, but
    also to expand the number of offerings they have at the Ph.D.
    level. To do that----
        Senator Mikulski. So what does the money do? I mean
    understand our goal here.
        Dr. Bement. Well, the answer to that is not necessarily in
    the Education and Human Resources account. It is in the
    Research and Related Activities account. The amount of funding
    that is now being provided to minority-serving institutions has
    been increasing, and it is quite substantial compared with the
    targeted programs.
        Senator Mikulski. Well, remember, sir, I am talking about
    two separate programs. I am concerned that historically black
    colleges funding has been cut by almost 15 percent. So you can
    talk about building capacity and all that, if it is cut by 15
    percent, regardless of what account it is in, it has been cut.
        Then there is the Tech Talent program. As you know, we were
    trying to get our undergraduates involved in science and math
    before we even get to the graduate level. That has been cut.
    That was the Tech Talent. Let us fund it.
        Dr. Bement. Okay.
        Senator Mikulski. Let us support it. At NSF, it is referred
    to as STEP. It was funded at a very modest amount, $15 million.
    It was cut to $10 million. I wonder what are the consequences--
    --
        Dr. Bement. I understand.

                                WORKFORCE ISSUES

        Senator Mikulski [continuing]. To students, and, of course,
    our long-term national goals. I will go back to the Reagan
    Commission on Competitiveness. Control your deficits, invest in
    research and technology, and build the smartest workforce
    that--like our army, the best army that the military has ever
    seen, we need to have the best workforce.
        Dr. Bement. Yes.
        Senator Mikulski. I do not think we have a workforce
    shortage. I think we have a skill shortage. If we can meet
    that----
        Dr. Bement. Yes. I agree with that. It turns out that many
    of the jobs that are opening up in the manufacturing sector
    cannot be filled because there are not the skills.
        Senator Mikulski. What type of jobs are they, sir?
        Dr. Bement. Many of these would be operating jobs; with
    some involving more sophisticated manufacturing equipment,
    information technology, the ability to make measurements, and
    quality engineering on the shop floor. These are the types of
    jobs that require technical training.

                           ROLE OF COMMUNITY COLLEGES

        Senator Mikulski. That takes me to another issue, which is
    community colleges. What a great social invention.
        Dr. Bement. Yes. We are in violent agreement on that. They
    are very essential. Very essential.
        Senator Mikulski. How do you see community colleges fitting
    in this year's budget request, and in your world, what you
    would recommend? Dr. Washington, I know you are interested in
    this topic. For many people, it is the gateway. For some first-
    time people, some of our new legal immigrants, for people of
    modest means, or people who are just trying to get started part
    time, the community college is it. For the mid-career person,
    the community college, it is the gateway to being able to make
    it in our society. Where----
        Dr. Bement. Senator, I know that the administration is very
    much interested in this issue and is developing a major effort
    in this area of workforce training, including the community
    colleges. NIST, for example, has a part to play through our
    Manufacturing Extension Partnership.
        If I were to look into the National Science Foundation
    budget, I would find that there is probably not as much as we
    could do. It is something we have to pay attention to.
        Senator Mikulski. Would you please, again, knowing that you
    have just been briefed, and we recognize the circumstances,
    would you please look at this whole focus on making use of not
    only our traditional academic centers, but of the unique
    institutions in our country. The community college is one. The
    historically black colleges are another as well as some of our
    women's colleges. Looking at them, they are also pools of
    talent. I hear back home, we have a nursing shortage. We have a
    lab technician shortage, a radiology technician shortage. I
    could elaborate, but a 2-year program at a community college
    could get you right into the marketplace in a very different
    way than retail sales----
        Dr. Bement. Yes.
        Senator Mikulski. I believe all work is honorable, but this
    could give you the opportunity to pursue a 4-year program later
    on.
        Dr. Bement. I think a partial answer to that may come
    through our Workforce for the Twenty-First Century priority
    area, which is one of our major initiatives this year. There
    are two elements of that program that are intended to
    accomplish much of what you are talking about. One is to better
    integrate the pipeline so that we can extend the pipeline all
    the way from K to 12, all the way up through post-doctorate
    training.
        Senator Mikulski. Well, I know the vote has started and
    there are many questions that we could ask. What I would like
    to know is, what are the consequences of some of these
    decisions, and then look at what we need to do. One is, of
    course, this whole transfer to the Department of Education, and
    $80 million going into research rather than staying in
    education.
        Second, what can we be doing to look out for our community
    colleges? This also presumes we are looking out for the land
    grant colleges, as well as the Ivy League-type schools that are
    so important. Dr. Washington, do----
        Dr. Washington. Well, I was just going to say----
        Senator Bond. Dr. Washington wanted to add something.
        Dr. Washington. Yes, sir.
        Senator Bond. I just wanted to join in here----
        Senator Mikulski. Good, please.
        Senator Bond [continuing]. With Senator Mikulski. I
    believe, No. 1, you had some questions, Dr. Washington, about
    the transfer of math and science, and I could not agree more
    with Senator Mikulski. Also, the emphasis on community
    colleges. We happen to have an advanced technical center in my
    home that trains nurses, and they have a new photonics optics
    laser lab for training people. They do some wonderful things
    there.
        We are going to have to go for a vote in a few minutes, but
    I wanted to have Dr. Washington have an opportunity to respond
    to several of these points. I think, Doctor, you had a number
    of things you might want to add.
        Senator Mikulski. Good. That is exactly where I was headed.
    Yes, sir.
        Dr. Washington. Okay. I know that you are very short on
    time. I will certainly bring your concerns to the full Board
    for us to take a look at some of the concerns that you have
    expressed, and especially those dealing with the community
    colleges. We understand already that we are not putting enough
    emphasis on the science and math in those schools, so that we
    will just sort of take a look at that and get back to you.
        Senator Bond. Senator Mikulski, do you have--I am going to
    come back, and----
        Senator Mikulski. No, Mr. Chairman. I think after the vote,
    I will try to come back, but I am not sure.
        Senator Bond. All right. Well, do you have any other
    questions that you wish to ask?

                           INFRASTRUCTURE INVESTMENTS

        Senator Mikulski. Right now, I have one more for Dr.
    Washington. This goes to the facilities and the whole size mid-
    size recommendations. Could you elaborate on why you made that
    recommendation, so we could grasp that?
        Dr. Washington. Well, I think that we are seeing the
    investment in infrastructure, especially in terms of equipment,
    is going to be a more important part of NSF's future. In fact,
    we have already recommended that the investment be changed from
    essentially 22 percent up to a 27 percentage. We are also
    seeing----
        Senator Mikulski. Why mid-size?
        Dr. Washington. What?
        Senator Mikulski. Why mid-size?
        Dr. Washington. Well, we are seeing that in addition to the
    big things that we fund, the telescopes, and the airplanes, and
    so forth, that there is a great increase in interest by groups
    of scientists in the mid-range. In other words, things that may
    cost maybe a few million dollars, up to maybe $20 million.
        Senator Mikulski. What would be some examples of that, Dr.
    Washington?
        Dr. Washington. I think we are seeing augmentation of
    capability on existing facilities. We are also seeing smaller
    groups doing, for example, field studies, doing experiments
    in----
        Senator Mikulski. So are you talking about research, or are
    you talking about mid-sized projects and facilities?
        Dr. Washington. Yes. I am talking about research
    instruments and facilities. In other words, these are things
    that are not extremely expensive, but they are beyond what you
    can do----
        Senator Mikulski. Like Senator Bond talking about that
    advanced school in technology that is training nurses----
        Dr. Washington. Yes.
        Senator Mikulski [continuing]. Which would be a mid-size
    procurement, but for that school, was a pretty big buck
    investment, given its stresses, am I correct?
        Dr. Washington. They are scraping to try to get the----
        Senator Mikulski. Right, but in the scheme of things, that
    would be viewed as mid-size----
        Dr. Washington. Yes.
        Senator Mikulski [continuing]. But the consequences both to
    the school, its productivity, in terms of what it can do for
    students, and then nurses coming out with the latest training,
    that is the kind of thing you are talking about?
        Dr. Washington. Yes. But it is actually a very broad
    spectrum, but I think----
        Senator Mikulski. Oh. I got it.
        Dr. Washington [continuing]. That is an example.
        Senator Mikulski. I got it. Well, thank you.

                 CONSOLIDATION OF MATH AND SCIENCE PARTNERSHIP

        Senator Bond. Dr. Washington, let me go back to the point
    that Senator Mikulski raised about the transfer of math and
    science. I understand the Board disagrees with that. Could you
    give us briefly the reasons they disagree?
        Dr. Washington. Well, I think it is fundamentally a program
    that is a partnership between school districts and academic
    institutions. In that partnership, we feel, through a peer-
    review system, that we have built an excellent program. It has
    just gotten started, actually.
        The Board did have a lengthy discussion of this and has
    issued a statement essentially saying that we think it is best
    if it remains in the National Science Foundation.
        Senator Bond. I would wholeheartedly concur with that. I
    think there are many needs in education. I think it is going to
    be swallowed up, and it is going to disappear.
        Well, with that, I will be back with a number of questions.
    I am delighted to see Dr. Clutter is here. We will have, as you
    might guess, some biotechnology questions when I come back.
        The hearing will stand adjourned, I hope for no more than
    about 10 minutes. Thank you very much.

                                 SOUND SCIENCE

        Dr. Marburger, I recently saw a group of scientists
    accusing the administration of systematically distorting
    scientific facts to manipulate policy goals. I was very
    concerned to hear these accusations. I believe very strongly
    that science should be based on facts, not political or
    partisan, and given the serious nature of these accusations, I
    think it would be appropriate if you would respond to those,
    please.
        Dr. Marburger. Thank you, Mr. Chairman. I am delighted to
    have an opportunity to address that issue. We did receive a
    letter statement signed by a number of prominent scientists
    that made a number of representations. I believe that the
    incidents that are listed in that document have alternative
    explanations, and they do not justify the sweeping conclusions
    of either the document that accompanied the statement, or the
    statement itself. I believe the document has methodological
    flaws that undermine its own conclusions, not least of which is
    the failure to reflect responses or explanations from
    responsible government officials.
        From my personal experience and direct knowledge of the
    incidents in question, I can state unequivocally that this
    administration does not have a policy of distorting,
    manipulating, or managing scientific processes or technical
    information to suit its policies. President Bush believes that
    policies should be made with the best and most complete
    information possible, and he expects his appointees to conduct
    their business in a way that fulfills that expectation.
        I would be glad to give more detail, which would be tedious
    to go into in this hearing, probably inappropriate, but I do
    appreciate the opportunity to get it on the record, and I would
    respond to questions regarding it.
        Senator Bond. Dr. Marburger, I think we have more important
    things to do in this hearing, but I think given the serious
    nature of the charges, I appreciate your personal affirmation
    and strong statement. I think that is very important. But for
    the record, it would be helpful if you would present us with a
    copy of whatever response you have made to the charges so that
    they will be available in a public record.
        Dr. Marburger. Thank you.
        [The information follows:]

      Statement by John Marburger on Allegations Contained in a Document
                 Released by the Union of Concerned Scientists

        ``I do not agree in any way with the statement or supporting
    document that were released by the Union of Concerned Scientists. I
    believe the discussion of the allegations in the document is
    incomplete, and does not justify the sweeping conclusions of either the
    document or the accompanying statement. I also believe the document has
    methodological flaws that undermine its own conclusions, not the least
    of which is the failure to reflect responses or explanations from
    responsible government officials.
        ``President Bush believes policies should be formed with the best
    and most complete information possible and expects his appointees to
    conduct their business in a way that fulfills that belief. From my
    personal experience and direct knowledge, I can state unequivocally
    that this Administration applies the highest scientific standards in
    decision-making.
        ``I look forward to discussing the issues directly with the
    signatories to help bridge any misunderstandings and disagreements.''

        Senator Bond. I thank you very much for that.
        Dr. Marburger. Thank you.

                             PLANT GENOME RESEARCH

        Senator Bond. Now, I want to turn to, not surprisingly,
    biotechnology. Dr. Marburger, I was pleased to read in the
    January 2004, National Plant Genome Initiative Progress Report
    that the Federal Government is expanding its research with
    scientists in developing countries. As you know, I have been
    interested in expanding the plant biotechnology, especially in
    places in Africa. And I have met with scientific, agricultural,
    and human health officials from African countries, as well as
    Southeast Asian countries, who look forward to the
    opportunities that plant biotechnology will provide them.
        We find that much of the opposition, and I believe it is
    unfounded, unscientific, and based on hysteria, comes in
    countries where they are well fed. Hungry countries in the
    world are looking for better technology to provide the food
    that they need, with less reliance on chemical pesticides. And
    I believe that the future is bright if we can continue to work
    with these countries.
        Would you give me an overview of the government's work in
    developing countries and how you plan to deal with the public
    perception problems that have plagued other countries? I have
    denoted it as Euro-Sclerosis, and I would appreciate how you
    may be responding to that particular affliction.
        Dr. Marburger. Thank you, Mr. Chairman. This is an area
    where I think the United States has considerable to offer other
    countries. It certainly comes up in ministerial meetings that I
    attend with other science ministers from other countries.
    Within the United States, my office coordinates a very large
    interagency process to make sure that the United States is
    effective in all of its interactions with other countries, as
    well as internally.
        There was an interagency working group that was established
    in 1987, due in large part to the interest of this
    subcommittee. Since then, we have coordinated the plant genome
    activities of the National Science Foundation, the U.S.
    Department of Agriculture, the Department of Energy, and
    recently expanded to include USAID, which is important to the
    international component, and NASA. NIH is also an active member
    of this group, providing member agencies with insights gained
    through the human genome program, which was also an
    international program.
        This group released its second 5-year plan in January of
    this year. We still are interested in obtaining additional
    sequences. It has been very successful, for example, with the
    rice genome, whose completion was celebrated more than a year
    ago. But other priorities related to the application of these,
    as to how do we use them, especially in these developing
    country situations, are now included in that plan, which I
    would be glad to make available as part of this record.
        This working group that we sponsor just published their
    annual report in January of this year, this past month, and we
    will make that part of the record as well.
        [Clerk's Note.--The annual report has been retained in
    committee files.]
        Senator Bond. Thank you. I might ask Dr. Clutter if she
    would come to join us at the table. I would like to ask her to
    share with us her thoughts and ideas on the National Science
    Foundation's efforts in expanding the plant genome program to
    developing countries.
        Welcome, Dr. Clutter.

                          STATEMENT OF MARY E. CLUTTER

        Dr. Clutter. Thank you very much, Senator Bond. It is
    always a pleasure to appear before this committee. I think that
    what I would like to bring up is just sort of a status report
    on where we are. Not just looking to 2005, but also to 2004.
    Dr. Marburger has told you about the interagency working group
    and their work, and it includes all the science agencies. So
    this year we were joined by NASA and USAID. So there is an
    opportunity there to put together a very powerful program that
    will be of benefit to the developing world.
        But thinking about 2004, we decided that we would take some
    of the money in the plant genome program and make it available
    to scientists at universities in this country who are working
    with that program, to work with scientists in developing
    nations. And the goal there is to bring the power of genomics
    and Twenty-First Century Science to the developing world. We
    would like to work with scientists there on crops that grow
    locally, not to introduce some crops that they are not
    interested in, but to improve the nutritional quality, the
    resistance to drought, the resistance to disease, to bring
    those traits to the local crops. So that is starting in 2004.
        In 2005, what we want to develop is a joint program,
    especially involving USAID, to cooperate with the developing
    world.
        Senator Bond. I trust that the cooperation is not limited
    to universities, that it might include science centers.
        Dr. Clutter. Absolutely.

                         DANFORTH PLANT SCIENCE CENTER

        Senator Bond. I raise that, because I know that the
    Danforth Plant Science Center is sending 120 genetically
    modified casava plants, I believe, to Kenya----
        Dr. Clutter. That is right.
        Senator Bond [continuing]. And they are on the way now to
    be field tested in a controlled circumstance, and I believe
    they are looking at other countries which have sought
    assistance. If we can genetically engineer the indigenous
    plants so that they are resistant to viruses, other diseases,
    pests, and in some instances, perhaps more drought tolerant----
        Dr. Clutter. Exactly.
        Senator Bond [continuing]. We will have an opportunity to
    grow for the people in those countries the vegetables and the
    other nutrition that they want. So I think that is very
    important, and I look forward to following that. Do you have
    any further thoughts on the----
        Dr. Clutter. I would just like to say that part of what we
    are doing in 2004 is to support some of the efforts of the
    Danforth Center. I think they are receiving some supplemental
    funds to carry out that program with cassava.
        Senator Bond. Thank you. That is your judgment, and I am
    delighted to hear about it. Any other comments on plant
    biotechnology, genomics?

                         MANAGEMENT OF LARGE FACILITIES

        Well, thank you again for your attention to it.
        I want to talk about large research facility management,
    and I would like to invite Dr. Boesz, NSF's Inspector General,
    to join us at the table.
        Dr. Boesz, your office has identified problems with NSF's
    large research facility management and other management issues.
    Could you give us an update on how NSF has responded to the
    problems, and in your opinion, has NSF made adequate progress
    in addressing the problems?

                        STATEMENT OF CHRISTINE C. BOESZ

        Dr. Boesz. Good morning, Senator.
        Senator Bond. Good morning.
        Dr. Boesz. It is good to see you again. I will be happy to
    give you an update. First, with respect to the management of
    large facilities, and the construction and operation of them.
    NSF has made some progress. Last June, they were able to bring
    on board a qualified individual to serve as the deputy in this
    position, to give some oversight and guidance to the general
    process. However, the progress has been, in my opinion, and the
    opinion of my staff, somewhat slow. We are still waiting to get
    the various modules that flesh out this general guidance that
    has been developed, and we have received two of these modules
    in draft, but there are at least maybe about a dozen total that
    need to be done.
        Now, the importance of this is that this is the how-to
    manual, so that people in the field as well as people within
    the Foundation will know exactly what to do. So while there has
    been some progress, there is still a lot of work that remains
    to be done.
        Senator Bond. Are the guidelines or criteria outlined by
    the NSF and are those good criteria?
        Dr. Boesz. For setting the priorities?
        Senator Bond. Yes.

                               PREPARED STATEMENT

        Dr. Boesz. We actually have--are only beginning to look at
    that with respect to the Board. We had focused more on the
    management, cost accounting----
        Senator Bond. I see.
        Dr. Boesz [continuing]. Life-cycle costs. I might add that
    we are waiting, also, from NSF to look at how they are going to
    track life-cycle costs for both construction and operation.
    That is a big piece that needs to be done. I think that is
    important information for the Board in order to help them set
    their priorities.
        [The statement follows:]

                    Prepared Statement of Christine C. Boesz

        Chairman Bond, Senator Mikulski, and distinguished members of the
    subcommittee, I am Dr. Christine Boesz, Inspector General at the
    National Science Foundation (NSF). I appreciate the opportunity to
    present to you information as you consider NSF's fiscal year 2005
    budget request. NSF's work over the past 54 years has had an
    extraordinary impact on scientific and engineering knowledge, laying
    the groundwork for technological advances that have shaped our society
    and fostered the progress needed to secure the Nation's future.
    Throughout, NSF has maintained a high level of innovation and
    dedication to American leadership in the discovery and development of
    new technologies across the frontiers of science and engineering.
        Over the past few decades, however, the nature of the scientific
    enterprise has changed. Consequently, NSF is faced with new challenges
    to maintaining its leadership position. My office has and will continue
    to work closely with NSF management to identify and address issues that
    are important to the success of the National Science Board and NSF.
    Last year, I testified before this subcommittee on the most significant
    issues that pose the greatest challenges for NSF management. This year,
    you have asked me to provide an update, from my perspective as
    Inspector General, on the progress being made at NSF to address three
    of these challenges.

                  MANAGEMENT OF LARGE INFRASTRUCTURE PROJECTS

        Throughout my tenure as Inspector General of NSF, we have
    considered management of large facility and infrastructure projects to
    be one of NSF's top management challenges.\1\ As you know, NSF has been
    increasing its investment in large infrastructure projects such as
    accelerators, telescopes, research vessels and aircraft,
    supercomputers, digital libraries, and earthquake simulators. Many of
    these projects are large in scale, require complex instrumentation, and
    involve partnerships with other Federal agencies, international science
    organizations, and foreign governments. Some, such as the new South
    Pole Station, present additional challenges because they are located in
    harsh and remote environments.
    ---------------------------------------------------------------------------
        \1\ Memorandum from Christine C. Boesz, Inspector General, National
    Science Foundation, to Warren Washington, Chairman, National Science
    Board, and Rita R. Colwell, Director, National Science Foundation (Oct.
    17, 2003) [hereinafter 2003 Management Challenges]; Memorandum from
    Christine C. Boesz, Inspector General, National Science Foundation, to
    Warren Washington, Chairman, National Science Board, and Rita R.
    Colwell, Director, National Science Foundation (Dec. 23, 2002)
    [hereinafter 2002 Management Challenges]; Memorandum from Christine C.
    Boesz, Inspector General, National Science Foundation, to Eamon M.
    Kelly, Chairman, National Science Board, and Rita R. Colwell, Director,
    National Science Foundation (Jan. 30, 2002) [hereinafter 2001
    Management Challenges]; Letter from Christine C. Boesz, Inspector
    General, National Science Foundation, to Senator Fred Thompson,
    Chairman, Senate Committee on Governmental Affairs (Nov. 30, 2000)
    [hereinafter 2000 Management Challenges].
    ---------------------------------------------------------------------------
        As I testified last year,\2\ the management of these awards is
    inherently different from the bulk of awards that NSF makes. While
    oversight of the construction and management of these large facility
    projects and programs must always be sensitive to the scientific
    endeavor, it also requires a different management approach. It requires
    disciplined project management including close attention to meeting
    deadlines and budget, and working hand-in-hand with scientists,
    engineers, project managers, and financial analysts. Although NSF does
    not directly operate or manage these facilities, it is NSF that is
    ultimately responsible and accountable for their success. Consequently,
    it is vital that NSF, through disciplined project management, exercise
    proper stewardship over the public funds invested in these large
    projects.
    ---------------------------------------------------------------------------
        \2\ Statement of Dr. Christine Boesz, Inspector General, National
    Science Foundation, before the U.S. Senate, Committee on
    Appropriations, Subcommittee on VA, HUD, and Independent Agencies (Apr.
    3, 2003).
    ---------------------------------------------------------------------------
        In fiscal years 2001 and 2002, my office issued two audit reports
    on large facilities with findings and recommendations aimed at
    improving NSF's management of these projects.\3\ Primarily, our
    recommendations were aimed at (1) increasing NSF's level of oversight
    of these projects with particular attention on updating and developing
    policies and procedures to assist NSF managers in project
    administration, and (2) ensuring that accurate and complete information
    on the total costs of major research equipment and facilities is
    available to decision makers, including the National Science Board,
    which is responsible for not only approving the funding for these large
    projects, but also setting the relative priorities for their funding.
    NSF responded that it would combine its efforts to respond to the
    recommendations made in these separate audit reports.
    ---------------------------------------------------------------------------
        \3\ Office of Inspector General, National Science Foundation, Audit
    of the Financial Management of the Gemini Project, Report No. 01-2001
    (Dec. 15, 2000); Office of Inspector General, National Science
    Foundation, Audit of Funding for Major Research Equipment and
    Facilities, Report No. 02-2007 (May 1, 2002).
    ---------------------------------------------------------------------------
        During the past year, NSF has made gradual progress towards
    completing the corrective action plans and has taken steps to address
    approximately half of the report recommendations. In June 2003, NSF
    took an important step when it hired a new Deputy Director for Large
    Facility Projects, and in July the agency issued a ``Facilities
    Management and Oversight Guide''.\4\ NSF has also begun to offer
    Project Management Certificate Programs through the NSF Academy to help
    program officers improve their skills in managing large facility
    projects.
    ---------------------------------------------------------------------------
        \4\ National Science Foundation, Facilities Management and
    Oversight Guide (July 2003) .
    ---------------------------------------------------------------------------
        However, key recommendations from both of these reports on
    developing new project and financial management policies and procedures
    remain unresolved by NSF management. Although NSF has issued a
    ``Facilities Management and Oversight Guide'', this Guide does not
    provide the detail necessary to provide practical guidance to staff
    that perform the day-to-day work, nor does it address the problem of
    recording and tracking the full cost of large facility projects. A
    systematic process for reporting and tracking both the operational
    milestones and the associated financial transactions that occur during
    a project's lifecycle, particularly those pertaining to changes in
    scope, is still needed. Finally, staff involved with large facility
    projects need to be trained on the revised policies and procedures that
    affect funding, accounting, and monitoring. NSF plans to address these
    outstanding audit recommendations by providing several additional
    modules to its ``Facilities Management and Oversight Guide'' that will
    address various topics such as risk management and financial
    accounting. My office was recently provided with drafts of two of these
    modules and is currently reviewing them to provide feedback to the
    Deputy Director for Large Facility Projects.
        While I am pleased to see that NSF is continuing to make progress
    toward addressing this important management challenge, I remain
    concerned with the level of attention afforded this issue by senior NSF
    management. The responsibility for continuing to make progress in this
    area has fallen to the Deputy Director for Large Facility Projects who
    may not have been afforded the necessary resources to complete the
    detailed modules to the ``Facilities Management and Oversight Guide''
    in a timely manner. Currently, the Deputy needs additional staff to
    assist with completing these numerous and detailed modules. Also, a
    system to identify and account for life-cycle costs is needed to
    support management, as well as the prioritization of projects.

                              AWARD ADMINISTRATION

        In addition to its management of some of its very large awards,
    another ongoing management challenge at NSF involves general
    administration of all of its research and education grants and
    cooperative agreements.\5\ While NSF has a proven system for
    administering its peer review and award disbursement responsibilities,
    it still lacks a comprehensive, risk-based program for monitoring its
    grants and cooperative agreements once the money has been awarded. As a
    result, there is little assurance that NSF award funds are accurately
    protected from fraud, waste, abuse, and mismanagement. Recent audits
    conducted by my office of high-risk awardees, such as foreign
    organizations and recipients of Urban Systemic Initiative (USI) awards,
    confirm that in the absence of an effective post-award monitoring
    program, problems with certain types of grants tend to recur.
    ---------------------------------------------------------------------------
        \5\ 2003 Management Challenges; 2002 Management Challenges; 2001
    Management Challenges; 2000 Management Challenges, supra note 1.
    ---------------------------------------------------------------------------
        In a given year, NSF spends roughly 90 percent of its appropriated
    funds on awards for research and education activities. In fiscal year
    2003, NSF reviewed 40,075 proposals--an increase of 14 percent over
    fiscal year 2002--in order to fund 10,844 awards.\6\ Given the amount
    of work required to process an award, NSF is challenged to monitor its
    $18.7 billion award portfolio (including all active multi-year awards)
    for both scientific and educational accomplishment and financial
    compliance. During the past 3 years, weaknesses in NSF's internal
    controls over the financial, administrative, and compliance aspects of
    post-award management were cited as a reportable condition in the
    audits of NSF's financial statements.\7\ What this means is that the
    bulk of staff effort is placed on moving funds out the door with little
    attention paid to how those funds are used.
    ---------------------------------------------------------------------------
        \6\ National Science Foundation, Fiscal Year 2003 Performance and
    Accountability Report (Nov. 2003) .
        \7\ Auditor's Report, Fiscal Year 2003 National Science Foundation
    Financial Statement Audit (Nov. 17, 2003); Auditor's Report, Fiscal
    Year 2002 National Science Foundation Financial Statement Audit (Jan.
    29, 2003); Auditor's Report, Fiscal Year 2001 National Science
    Foundation Financial Statement Audit (Jan. 18, 2002).
    ---------------------------------------------------------------------------
        NSF has recognized the need to create a risk-based award-monitoring
    program and has begun to address this issue. The agency has developed a
    ``Risk Assessment and Award Monitoring Guide'' that includes post-award
    monitoring policies and procedures, a systematic risk assessment
    process for classifying high-risk grantees, and various grantee
    analysis techniques. During the past year, NSF has made some progress
    towards fully addressing this management challenge and responding to
    audit recommendations. For instance, NSF issued the ``Award Monitoring
    and Business Assistance Program Guide'', developed an annual grantee-
    monitoring plan, conducted 32 site visits on selected grantees, and
    provided grant-monitoring training for its reviewers.
        While these efforts represent good first steps toward an effective
    award-monitoring program, weaknesses still exist and there are
    inconsistencies with its implementation. For example, the criteria
    developed for identifying high-risk grantees is not comprehensive and
    does not include all potential risk characteristics such as a history
    of poor programmatic or financial performance. Further, the program
    does not address medium and low-risk awards, for which NSF could
    implement a lesser degree of oversight at a minimal cost. Finally, the
    site visits that are being conducted do not necessarily follow
    consistent policies and protocols, are not adequately documented, and
    may not be followed-up on by NSF staff to ensure that corrective
    actions are taken in response to site visit recommendations.

                     STRATEGIC MANAGEMENT OF HUMAN CAPITAL

        While the previous two management challenges are of an urgent
    nature, they may be symptomatic of a larger more pressing need for
    improved strategic management of NSF's human capital. In order to fully
    address its award management challenges, NSF will need to devote more
    resources and attention to making business and process improvements,
    while at the same time, planning for its current and future workforce
    needs. Although advances in technology have enhanced the workforce's
    productivity, NSF's rapidly increasing workload has forced the agency
    to become increasingly dependent on temporary staff and contractors to
    handle the additional work. NSF's efforts in the past to justify an
    increase in staff have been impeded by the lack of a comprehensive
    workforce plan that identifies workforce gaps and outlines specific
    actions for addressing them. Without such a plan, NSF cannot determine
    whether it has the appropriate number of people and competencies to
    accomplish its strategic goals.
        NSF has recognized the seriousness of this challenge and has now
    identified investment in human capital and business processes, along
    with technologies and tools, as objectives underlying its new
    Organizational Excellence strategic goal.\8\ NSF also contracted in
    fiscal year 2002 for a comprehensive, $14.8 million, 3- to 4-year
    business analysis, which includes a component that includes a Human
    Capital Workforce Plan (HCMP). Preliminary assessments provided by the
    contractor confirm that NSF's current workforce planning activities
    have been limited and identify that specific opportunities for NSF
    exist in this area.
    ---------------------------------------------------------------------------
        \8\ National Science Foundation, Strategic Plan Fiscal Year 2003-
    Fiscal Year 2008 (Sept. 30, 2003) .
    ---------------------------------------------------------------------------
        Currently, the HCMP is a preliminary effort to develop a process
    for identifying and managing human capital needs and contains few
    specific recommendations that will have a near-term impact. In
    addition, the HCMP provides little in the way of milestones and
    accountability for the accomplishment of these early steps. According
    to that project schedule, it will be more than a year before the HCMP
    will identify the specific gaps that NSF needs for justifying budget
    requests for additional staff resources. I believe NSF faces an urgency
    with its workforce issues. If not adequately addressed, these issues
    will undermine NSF's efforts to confront its other pressing management
    challenges and to achieve its strategic goal of Organizational
    Excellence.
        Chairman Bond, this concludes my written statement. I would be
    happy to answer any additional questions you or other members of the
    subcommittee may have, or to elaborate on any of the issues that I have
    addressed today.

        Senator Bond. Dr. Bement, obviously, with 4 days of
    experience, you were talking about responding. I will gather
    this is one of the areas you are going to be looking at. Would
    you care to respond any further on that?
        Dr. Bement. Well, you asked me previously what my agenda
    would be, and when you see my agenda, this will be high on the
    list.
        Senator Bond. Thank you.
        Dr. Bement. I have read the NRC report. I find that many of
    the high-level recommendations are sensible, and things that we
    have not really waited on to begin implementing. Mark Coles,
    who is the Deputy Director for Large Facilities, is already
    hard at work at that, but we are still developing our full
    response. And I intend to work with the National Science Board
    in responding to the NRC, and also to the Committee on how we
    are going to go forward with the recommendations.

                       NANOSCALE SCIENCE AND ENGINEERING

        Senator Bond. Thank you, sir. Thank you, Dr. Boesz. We
    talked about nanotechnology. As Senator Mikulski and I both
    noted, we think that nanotechnology is extremely important, and
    NSF has the unique role of being the lead agency in the
    initiative, with a funding request of $305 million. There is a
    lot of excitement about it because of the potential of far-
    reaching benefits, but there is a growing public concern about
    this technology that has to be addressed. I would like to ask
    what are your plans for the funds, and how are you addressing
    educating the public about nanotechnology. Maybe I will start
    first with Dr. Marburger, because he has been on this case for
    a while.
        Dr. Marburger. Thank you, Mr. Chairman. In fact, the strong
    intention of the National Nanotechnology Initiative is to focus
    appropriately on social, environmental, and health impacts of
    nanotechnology. There was a workshop last winter, I believe it
    was in December, that focused on this issue and had many papers
    by people who had studied the issues. And I came away looking
    at the results of that workshop with the impression that this
    issue is being taken very seriously by the program.
        Appropriate levels of investments are being made to
    understand the social impacts of nanotechnology. But more
    importantly, I believe foundations for good framework for
    appropriate regulation and response to the potential hazards of
    nano materials exists and can be tuned up and modified to
    accommodate the needs of this emerging, exciting new
    technology.
        So I believe we are in a position to address in an
    appropriate way, with appropriate level of resources. I am very
    pleased at the visibility that social and environmental impacts
    have within the NSF's leadership of the program.
        Senator Bond. Dr. Bement, I would like you to comment on
    that, and then----
        Dr. Bement. Yes.
        Senator Bond. Obviously, you have to have the good science
    first, and how do you go about addressing the public concerns?
    That is what we would like to know, how do you intend to----
        Dr. Bement. Well, first of all, we are addressing this
    problem head on, as you recommended and as Senator Mikulski
    advocated, and we are taking it very seriously. We want to be
    ahead of the issue.
        We have a significant fraction of our investment in
    Nanoscale Science and Engineering, which is focused on societal
    and educational implications of nanotechnology. About $25
    million of our budget is focused in that area. But I think also
    in the new focused initiative of Human and Social Dynamics and
    how society copes with change, there are opportunities there
    also to try and understand what the social implications are. So
    we are going to give this very serious attention.
        Senator Bond. How do you intend to publicize your findings?
    How do you intend to reach the public with this good
    information?
        Dr. Bement. Well, I do not want to go into all the
    mechanics, but----
        Senator Bond. I just want the big picture. There are a lot
    of people who can do mechanics, and I do not do those well.
        Dr. Bement. Clearly, one way we communicate with the
    community at large is through our website. But we have many
    ways of doing op-ed pieces and communicating our science
    results, by putting it in context with the general public. We
    will use all those means.
        Senator Bond. Has anybody ever invited you to be on TV talk
    shows?
        Dr. Bement. Periodically, yes.
        Senator Bond. Dr. Marburger?
        Dr. Marburger. I would like to say a word about that. The
    fact that funds have been allocated and appropriated for the
    specific purpose of addressing this issue in a scholarly way
    really mobilizes the intellectual community in this country and
    kind of puts this issue out into the marketplace in a way that
    is guaranteed to generate interest and attention.
        I believe that engaging the science community and the
    intellectual community of the United States in a constructive
    way through programs, through the National Nanotechnology
    Initiative, and particularly through the National Science
    Foundation, will raise the visibility, not only of the issues,
    but of how we can go about addressing them and solving them. I
    think the investment in funded programs through the National
    Science Foundation particularly will help--will automatically
    generate a great deal of public interest.
        Senator Bond. I think you are going to have to be proactive
    on it. You have science education centers and partnerships,
    which I think, obviously, are going to have to be used. And you
    are going to have to look for opportunities to take on
    controversy. Controversy is not bad. That is how we focus. Take
    it on, get involved in the discussions. And if you do not get
    involved in the controversy, you are not going to get your
    point across, and controversy probably gives you an opportunity
    to get more coverage than you would. If it was plain vanilla
    and all good and low carbs, you would not have any action with
    it.
        Dr. Marburger, I am going to ask you a question, an OSTP
    question not related to the NSF. The Veterans Administration
    has expressed concerns about receiving a fair reimbursement
    from NIH for conducting NIH-sponsored research. We are
    concerned about this on this committee, because under current
    practice, research facility costs are paid out of VA's medical
    care account instead of receiving indirect cost reimbursement
    for NIH. We asked OSTP to review the issue, and I wondered if
    you could give us a status report on that review.
        Dr. Marburger. Yes, sir. We have reviewed the issue. I am
    just looking for my notes on that. I believe there is a
    reference to it in my written testimony. In my written
    testimony and even in my oral testimony, I did mention that the
    VA will soon begin to use increased funding from private
    companies for the indirect administration costs of conducting
    research in VA facilities.
        So once we started thinking about how to deal with the
    specific relationship between the National Institutes of Health
    and the Veterans Administration, we decided that we needed to
    look government-wide to understand the various relationships
    that exist between Federal intramural scientists and extramural
    funding programs. There is a generic issue here that affects
    more than the program in which you expressed interest.
        We have an arrangement with an FFRDC, Federally Financed
    Research and Development Corporation, to conduct studies for
    us. We commissioned the IDA Science and Technology Policy
    Institute to assist us in this effort. And they provided us
    with a preliminary analysis which I would be happy to provide
    to you, focusing on whether extramural funding agencies,
    including NIH, support Federal scientists in an appropriate
    way. There are lots of variations from agency to agency, and we
    are currently looking at details of how indirect costs are
    handled, how salaries are covered, and so forth.
        [The information follows:]

        Dr. Marburger. Our hope is that this analysis will be
    completed soon and that we will be able to approach this
    specific situation regarding NIH and VA in a context of an
    overall solution for all the agencies. This question stimulated
    a very important analysis that I think will help us to address
    these issues across government.
        Senator Bond. I appreciate that. I have looked at the
    comments in your written statement about funding from private
    companies and would appreciate it if your office could get back
    to us on the NIH funding, which I think definitely is a concern
    for us.
        Dr. Marburger. Will do.

                                 HOMESTAKE MINE

        Senator Bond. I have a number of other questions for the
    record, but one thing that had been brought up earlier is the
    proposal for the NSF to invest in the transformation of
    Homestake Mine, in Lead, South Dakota, into a neutrino lab. I
    understand that there are already a number of world-class labs
    and that NSF is currently spending some $300 million on Ice
    Cube, a neutrino lab currently under construction,
    appropriately at the South Pole.
        I would ask Dr. Marburger, I do not know if Dr. Bement had
    an opportunity to look at it, but either Dr. Marburger or Dr.
    Washington to comment on the Homestake proposal.
        Dr. Marburger. My comment on this is going to be really to
    praise the National Science Foundation for taking steps to look
    carefully into the technical considerations associated with
    this site.
        We agree that the area of science involved is an important
    one, that the United States has shown leadership in this area
    in the past, that there are other major investments by other
    countries, particularly Japan, in this field of science, and
    that we hope that the United States continuing participation in
    this important field can be taken into context of international
    cooperation.
        That said, we believe that the course of the NSF management
    in this area is an appropriate one. We are aware that some
    actions have been taken in the recent past regarding the
    Homestake Mine, and we are watching that situation carefully.
    But we believe it is up to NSF to decide, using the best
    science available to it.
        Senator Bond. Dr. Bement, have you had an opportunity to
    look into this question?
        Dr. Bement. I have, but I do not have a complete answer for
    you. I do know, however, that there have been several
    proposals, Homestake being one of them. Many of these, well,
    all these proposals have been unsolicited, but they have not
    been fully evaluated by the science community. And there are
    science communities other than the neutrino--those interested
    in neutrino detection that are interested in a deep underground
    research facility.
        To go to your one question, ``Why a facility like
    Homestake, compared with other neutrino facilities around the
    world?'' The one capability that is needed is to have enough
    overburden, or to be deep enough, if you will, or to have
    enough mass above you that it will screen out cosmic rays so
    that it will enhance the opportunity to measure neutrinos. Each
    of the sites that have been proposed has different advantages
    and disadvantages, and those are going to be reviewed by the
    science community to develop their requirements for the
    facility.
        Senator Bond. Dr. Washington.
        Dr. Washington. Well, it has not been brought to the Board
    yet, and we are expecting that the Foundation will carry on its
    analysis of the various options, and then present them to the
    Board. It has not been brought to the Board yet.
        Senator Bond. I very much appreciate that. We will look
    forward to receiving the information when you have developed
    it. That will be very important for us.

                         ADDITIONAL COMMITTEE QUESTIONS

        I have, as I said, a number of other questions that I will
    submit for the record. We have already discussed some. We
    welcome you, Dr. Bement.
        Dr. Bement. Thank you very much.
        Senator Bond. There is nothing like jump-starting your
    service on the NSF.
        Dr. Bement. Well, it focuses the mind.
        Senator Bond. Senator Mikulski and I have some very strong
    views, and we are united in those views. I think you may have
    gathered that. Dr. Marburger, I always appreciate it. Dr.
    Washington.
        [The following questions were not asked at the hearing, but
    were submitted to the agencies for response subsequent to the
    hearing:]

       Questions Submitted to the Office of Science and Technology Policy

               Questions Submitted by Senator Christopher S. Bond

        Question. Due to the perceived subjectivity of NSF's priority-
    setting process for large research facilities, there has been an
    increased effort by various scientific interest groups to lobby the
    Congress on their specific project. In response to this concern, we
    asked the National Academy of Sciences to develop criteria to rank and
    prioritize large research facilities and they have responded.
        Do you support the Academy study?
        Answer. Yes. The National Academies study on the criteria used to
    rank and prioritize large research facilities is well conceived and,
    when fully implemented, will bring a high level of transparency and
    integrity to the process.
        Question. When will you be able to provide the Committee with a
    prioritization of all the current, and proposed, activities in the
    MREFC account fiscal year 2005?
        Answer. It is unlikely that a new prioritization of the Major
    Research Equipment and Facilities Construction (MREFC) account
    proposals based upon the National Academies study could be completed in
    time to affect the fiscal year 2005 appropriations process. The
    National Academies report requires several elements to be in place that
    will take some time to complete. In particular, the report stresses
    that as its basis for its annual budget request, the National Science
    Foundation (NSF), with approval from the National Science Board, should
    use a facilities roadmap. The development of a roadmap for NSF
    facilities represents a significant undertaking that should not be
    rushed to completion for the purposes of a single budget year's
    request. The development of a credible scientific facilities roadmap
    will require broad input from the scientific community to serve as its
    intellectual basis.
        Question. How long will it take NSF and the National Science Board
    to implement the recommendations?
        Answer. The NSF has begun, in earnest, to look at the
    recommendations of the NAS and has begun to understand how this will
    impact its process, and there is much work to do. For example, the NSB
    will need to undertake the development of a facilities roadmap which is
    a significant undertaking. It is certainly possible that the new
    process will impact the fiscal year 2006 budget formulation process.
        Question. In the budget request for this year, there is a proposal
    to move Math and Science Partnerships to the Department of Education,
    and to take the current program obligations and move them into the
    research account. Can you please explain the rationale behind moving
    the program away from NSF as well as the transfer of the program into
    the integrative activities portion of the research account?
        Answer. The consolidation of the Math and Science Partnerships
    (MSP) program at the Department of Education is motivated by a desire
    to focus the program on integrating research-proven practices into
    classroom settings. The consolidated program will concentrate attention
    and resources in a single program for maximum benefit. The increase in
    the Department of Education's MSP program is a key component of the
    President's Jobs for the 21st Century Initiative. President Bush is
    committed to helping better prepare high school students to enter
    higher education or the workforce. This initiative is especially
    important at a time when 80 percent of the fastest-growing jobs in the
    United States require higher education and many require math and
    science skills. Moving the management of the ongoing awards to the NSF
    Director's office is intended to maximize the coordination of NSF-
    funded MSP awards across NSF and with the consolidated program at
    Education. The Department of Education and the National Science
    Foundation will work together to focus ongoing NSF efforts in
    directions that will benefit the program's shift in emphasis.
        Question. As I mentioned in my statement, the program for Informal
    Science Education is nationally recognized, and exposes millions of
    children and adults to science and science education. This is an
    excellent tool for NSF to use to encourage science literacy within the
    country, and can inspire kids to pursue science in education and as
    careers. With this in mind, why is Informal Science Education receiving
    a decrease of 25 percent from the $62.5 million that we provided in
    fiscal year 2004?
        Answer. The funding for Informal Science Education (ISE) activities
    at NSF is at the same level as the fiscal year 2004 request. At a time
    of increasing budgetary pressures, difficult decisions and priorities
    must be set. It is important to note, however, that outreach and
    educational activities that occur outside of the classroom are not
    restricted to the ISE program. All of the major center activities
    funded by NSF have as part of their responsibilities, outreach
    activities and onsite educational efforts to explain the science to the
    public. The impact of informal educational activities is not completely
    captured by looking only at those supported under the ISE budget line,
    and NSF continues to emphasize the value of having the research
    community itself directly engaged in informal science educational
    activities.
        Question. An ongoing concern of Congress is the need for making
    sure that we have enough college students with majors in science,
    engineering, and technology fields. Congress has consistently shown
    support for this program, despite the annual cutting of the budget for
    this program by the administration. Why is NSF, once again, cutting
    Tech Talent by $10 million, a 66 percent decrease?
        What are your views of NSF, the National Science Board, and OSTP,
    on the benefits of the Tech Talent program? Do you believe, as Congress
    does, that there is a strong need for this program?
        Answer. The administration strongly supports expanded opportunities
    to obtain technical training and education. In fact, the President's
    fiscal year 2005 budget request proposes several new programs and
    expands others to better prepare workers for jobs in the new
    millennium, by strengthening secondary education and job training. The
    President's budget calls for increased access to post-secondary
    education and job training through community-based job training grants
    ($250 million) and enhanced Pell Grants ($33 million) for certain low-
    income students. In addition, the President's plan calls for increases
    in high school reading ($100 million), math ($120 million), and
    advanced placement ($28 million) programs. The budget request supports
    the establishment of an adjunct teacher corps ($40 million) to help get
    individuals with more subject-matter knowledge into the classroom, and
    an expansion ($12 million) of the State Scholars program to get more
    students taking stronger courses of study.
        The Science, Technology, Engineering and Mathematics Talent
    Expansion Program--STEP--was initiated in fiscal year 2002 to support
    initial planning and pilot efforts at colleges and universities to
    increase the number of U.S. citizens and permanent residents pursuing
    and receiving associate's or bachelor's degrees in established or
    emerging science, technology, engineering and mathematics fields. In
    fiscal year 2003 the requested funding level for the STEP program was
    $2 million, growing to a request of $7 million in fiscal year 2004 and
    a request of $15 million in fiscal year 2005. Although this pattern of
    support has been augmented by Congress in the appropriation process,
    the funding pattern reflected in the requests demonstrates steady
    growth and commitment to an important program at NSF.
                                     ______

                 Questions Submitted by Senator Robert C. Byrd

        Question. In your testimony, you indicate that the administration
    is maintaining funding for the multi-agency climate change science
    program at approximately $2 billion for fiscal year 2005, much of which
    falls within the jurisdiction of the VA-HUD Subcommittee. You also
    state in your testimony that the new U.S. Climate Change Science
    Program Strategic Plan ``received high marks after a 6-month review''
    by a committee convened by the National Academy of Sciences' National
    Research Council (NRC). However, because the new 10-year science plan
    is quite broad and ambitious, the NRC also urged the administration to
    increase funding commensurate with the expansion of the program's
    stated research goals. Does the administration now plan to ask for an
    increase in funding for this expanded research agenda that will match
    the ambitious nature of the recently released strategic plan?
        Answer. The NRC also advised that, given the current budget
    outlook, prioritization would be essential for meeting the goals of the
    strategic plan. The President's budget takes steps to identify
    priorities and reallocate funding accordingly. New resources are
    proposed to advance understanding of aerosols, better quantify carbon
    sources and sinks, and improve the technology and infrastructure used
    to observe and model climate variations.
        Question. If you are not going to receive the increased funding
    needed to provide sufficient resources for the new climate change
    science plan, how will you move forward to achieve the stated goals of
    this expanded program for climate change science research?
        Answer. Congress itself plays the primary role in appropriating
    Federal funding for climate change science, and the administration will
    continue to work closely with Congress to ensure that funding for this
    research is sustained and managed in alignment with the priorities set
    forth in the strategic plan.
        The strategic plan outlines scientific goals, objectives, and
    questions, and provides guidance on near-term priorities. The Climate
    Change Science Program conducts an annual review of the ongoing
    projects and must decide which ones to expand and which ones to reduce
    in scope with the intent to initiate new endeavors. Climate change
    science is very dynamic with information continually leading to new
    ideas and to new endeavors. Much new information is obtained from
    process studies, such as the North American Carbon Program, and from
    demonstration of a new measurement concept, such as the Orbiting Carbon
    Observatory, both of which have limited durations. At the conclusion of
    a process study or demonstration project, funds become available for
    new endeavors. In addition, climate science is an international
    enterprise, as outlined in a separate chapter in the strategic plan,
    and has been for half a century. The United States partners with others
    in climate change science to leverage its investments to achieve
    synergism. For example, the 40-country intergovernmental Group on Earth
    Observations, which was established at the Earth Observation Summit in
    Washington in July 2003, is developing an implementation plan for a
    comprehensive, coordinated, and sustained global Earth observation
    system, in which a climate observing system is a major component.
        Question. Further, given the fact that this initiative falls under
    several agencies, who specifically will be tasked to make the necessary
    decisions and set priorities?
        Answer. The Climate Change Science Program is provided direction by
    a group of senior-level career officials representing all 13 agencies
    and departments involved in the program. The Office of Science and
    Technology Policy, Office of Management and Budget, Council on
    Environmental Quality, and National Economic Council provide oversight
    of the Climate Change Science Program. The Climate Change Science
    Program works by consensus and reports its decisions to the Interagency
    Working Group on Climate Change Science and Technology on a regular
    basis, usually at 2-month intervals. When the Climate Change Science
    Program directors are unable to make a decision, guidance is requested
    from the Interagency Working Group, which is composed of Under or
    Deputy Secretaries and senior Executive Office of the President (EOP)
    officials. The Interagency Working Group reports to the cabinet-level
    Committee on Climate Change Science and Technology Integration, whose
    Chair and Co-Chair rotate annually between the Secretary of Energy and
    the Secretary of Commerce.
        Question. Last week an influential and renowned group of
    scientists, including 20 Nobel laureates, issued a statement raising
    serious concerns about the Bush Administration's distortion and
    sabotage of science. Many of these individuals have served with
    distinction in former Republican and Democratic administrations.
        Solid science is a critical underpinning of constructive policy
    making. Policymakers rely upon credible, peer reviewed, objective
    scientific analysis and advice in the pursuit of good decision making
    in such fields as food safety, health care, biomedical research, the
    environment, and national security. These scientists have asserted that
    the Bush Administration is advocating policies that are not
    scientifically sound, misrepresenting scientific knowledge, censoring
    and suppressing information, and misleading the public to pursue its
    ideological agenda.
        Your agencies are seen as leading voices within the Federal
    Government with regard to the application of good science, and,
    therefore, it is incumbent upon you to ensure that scientific integrity
    is maintained. I am concerned that there is now a contemptible lack of
    oversight and that the public's trust in the Federal Government's
    scientific credibility and integrity will be undermined in the long
    term.
        What steps will you take to ensure that science and the pursuit of
    scientific reviews in the service of policymaking does not become
    overly politicized?
        Answer. President Bush believes policies should be made with the
    best and most complete information possible, and expects his
    administration to conduct its business with integrity and in a way that
    fulfills that belief. I can attest from my personal experience and
    direct knowledge that this administration is implementing the
    President's policy of strongly supporting science and applying the
    highest scientific standards in decision-making.
        Question. Are you prepared to make any specific recommendations to
    restore scientific integrity to policymaking?
        Answer. The administration's strong commitment to science is
    evidenced by impressive increases devoted to Federal research and
    development (R&D) budgets. With the President's fiscal year 2005 budget
    request, total R&D investment during this administration's first term
    will have increased 44 percent, to a record $132 billion in fiscal year
    2005, as compared to $91 billion in fiscal year 2001. President Bush's
    fiscal year 2005 budget request commits 13.5 percent of total
    discretionary outlays to R&D--the highest level in 37 years.
        In addition to enabling a strong foundation of scientific research
    through unprecedented Federal funding, this administration also
    believes in tapping the best scientific minds--both inside and outside
    the government--for policy input and advice. My office establishes
    interagency working groups under the aegis of the National Science and
    Technology Council for this purpose. In addition, this administration
    has sought independent advice, most often through the National
    Academies, on many issues. Recent National Academies reviews of air
    pollution policy, fuel economy standards, the use of human tests for
    pesticide toxicity, and planned or ongoing reviews on dioxin and
    perchlorate in the environment are examples. The administration's
    climate change program is based on a National Academies report that was
    requested by the administration in the spring of 2001, and the National
    Academies continues to review our programs and strategic research
    planning in this field. The frequency of such referrals, and the high
    degree to which their advice has been incorporated into the policies of
    this administration, is consistent with a desire to strengthen
    technical input into decision-making.
        Question. According to news reports, the Bush Administration is
    said to ``stack'' panels with members whose scientific viewpoints agree
    only with the administration's positions. Even basic science classes
    teach the importance of a broad range of sampling when trying to find
    scientific truths. How can the public have any confidence that
    scientific positions taken by this administration have any basis in
    fact?
        Answer. Suggestions of a political litmus test for membership on
    technical advisory panels are contradicted by numerous cases of
    Democrats appointed to panels at all levels, including Presidentially
    appointed panels such as the President's Information Technology
    Advisory Council, the National Science Board, and the nominating panel
    for the President's Committee on the National Medal of Science. And, in
    fact, I am a lifelong Democrat.
        Every individual who serves on one of these advisory committees
    undergoes extensive review, background checks, and is recognized by
    peers for their contributions and expertise. Panels are viewed from a
    broad perspective to ensure diversity; this may include gender,
    ethnicity, professional affiliations, geographical location, and
    perspectives.
        Question. Will you press for changes to ensure that a range of
    scientific views are included on these panels?
        Answer. I have discussed the issue of advisory committees with the
    Federal agencies mentioned in the Union of Concerned Scientists (UCS)
    document and am satisfied with the processes agencies have in place to
    manage this important function. I can say that many of the cited
    instances in the UCS document involved panel members whose terms had
    expired and some were serving as much as 5 years past their termination
    dates. Some changes were associated with new issue areas for the panels
    or with an overall goal of achieving scientific diversity on the
    panels. Other candidates may have been rejected for any number of
    reasons--this is ordinary for any administration.
        My office is involved in recommending candidates for the
    President's Council of Advisors on Science and Technology, the
    President's Information Technology Advisory Committee, and the
    nominating panel for the President's Committee on the National Medal of
    Science. I have intimate knowledge of the selection process for these
    committees. This process results in the selection of qualified
    individuals who represent a wide range of expertise and experience--the
    right balance to yield quality advice for the President on critical S&T
    issues.
                                     ______

             Questions Submitted to the National Science Foundation

               Questions Submitted by Senator Christopher S. Bond

     NATIONAL ACADEMY OF SCIENCES REPORT ON NSF PRIORITY SETTING FOR MAJOR
                              RESEARCH FACILITIES

        Question. Due to the perceived subjectivity of NSF's priority-
    setting process for large research facilities, there has been an
    increased effort by various scientific interest groups to lobby the
    Congress on their specific project. In response to this concern, we
    asked the National Academy of Sciences to develop criteria to rank and
    prioritize large research facilities and they have responded.
        Do you support the Academy study?
        Answer. Yes. The report recommends that NSF provide greater
    transparency and formality to its process of selecting large facility
    projects for funding, followed by construction with effective
    oversight. The recommendations present significant opportunities for
    NSF to enhance its capabilities, to articulate its selection of large
    projects to others in government and to the research community, and to
    provide effective management and oversight of these projects during
    their construction and operations phases.
        Question. When will you be able to provide the committee with a
    prioritization of all the current, and proposed, activities in the
    MREFC account fiscal year 2005?
        Answer. The fiscal year 2005 budget contains a prioritization for
    the three new MREFC projects that are proposed. They are, in order of
    priority, the National Ecological Observatory Network, the Scientific
    Ocean Drilling Vessel, and Rare Symmetry Violating Processes. These
    projects have been extensively peer reviewed prior to selection, and
    then were subjected to further consideration and ranking by the NSF's
    MREFC Panel, followed by further consideration and approval by the NSB,
    followed by submission to OMB.
        Question. How long will it take NSF and the National Science Board
    to implement the recommendations?
        Answer. The overall recommendations are in the process of being
    implemented. The details of how these recommendations will be
    incorporated into NSF policies will require further time and are the
    subject of ongoing discussions between NSF and the NSB. This was on the
    agenda at the March NSB meeting and will continue at the May and August
    meetings with a goal of completion in early fall.

                         MINORITY-SERVING INSTITUTIONS

        Question. Last year, this subcommittee emphasized the need for NSF
    to pay more attention to funding at Minority-Serving Institutions. We
    even required NSF to identify an individual in senior-level management
    to assist Minority-Serving Institutions in interacting with NSF.
    However, I notice in this year's budget request NSF is cutting funding
    to the Historically Black Colleges and Universities by nearly 20
    percent.
        Why is NSF not paying attention to what is clearly a priority of
    Congress?
        Answer. NSF efforts in supporting science, technology, engineering,
    and mathematics (STEM) research and education capacity at Historically
    Black Colleges and Universities (HBCUs), and other Minority-Serving
    Institutions (MSIs), are not limited to EHR programs alone. There are
    numerous efforts across the agency promoting the advancement of women
    and racial/ethnic minority students to increase their participation in
    the STEM enterprise. Agency investments in MSIs in both research and
    education have increased from $97 million in fiscal year 1998 to $148
    million in fiscal year 2003.
        NSF is focusing its efforts on assisting (MSIs) by working to
    improve diversity efforts and initiatives throughout the Foundation's
    scientific and educational programs. In fiscal year 2005, NSF research
    directorates will continue with significant investments in the Science
    and Technology Centers (STCs) where MSIs participate as collaborating
    partners. Centers bring people, ideas, and tools together on scales
    that are large enough to have a significant impact on important science
    and engineering challenges. This approach reflects NSF's efforts to
    strengthen partnerships and collaborations between NSF research
    centers, HBCUs and other MSIs.
        Question. Can you provide us with details concerning the senior-
    level position for assisting minorities called for in the conference
    report?
        Answer. NSF has filled the position. Dr. Thomas Windham took office
    on February 15, 2004, as Senior Advisor for Science and Engineering
    Workforce. Dr. Windham will serve as NSF's principal liaison to
    Minority-Serving Institutions.

                        INFORMATION TECHNOLOGY RESEARCH

        Question. Information Technology Research has been a priority for
    several years at NSF, yet it is not this year. We have provided
    significant resources in the past to ITR, but NSF has chosen to
    redistribute $40 million in funds from ITR to other computing research
    areas.
        Does this funding change signal that there is no longer support for
    ITR?
        Answer. Information Technology research continues to be a high
    priority at NSF. As a ``formal'' priority area, Information Technology
    Research (ITR) has transformed the investments NSF makes in IT,
    revealing new IT research and education challenges and opportunities.
    It has also encouraged the national science and engineering community
    to conduct research that crosses traditional boundaries between
    disciplines, universities and other sectors, thereby advancing IT
    research and applications. The agency's changes in ITR are not a sign
    of retreat, but a plan to use this knowledge and emerging IT
    opportunities to boldly address new challenges.
        To understand this next step for ITR, it helps to look back at the
    context in which ITR was begun, to consider how the ITR priority area
    fostered positive changes at NSF and in the university community, and
    how we intend to capitalize on those changes and new research and
    education opportunities.
        The most visible support for creating the ITR program came from the
    President's Information Technology Advisory Committee (PITAC). Their
    1999 report ``Information Technology Research: Investing in Our
    Future'' anticipated that information technology would be ``one of the
    key factors driving progress in the 21st century--it will transform the
    way we live, learn, work, and play.'' The committee went on to find
    that ``Federal support for research in information technology is
    seriously inadequate. The report recommended that research funding be
    increased by an additional $1.370 billion per year by fiscal year 2004
    with particular research emphasis on software and scalable information
    infrastructure''.
        The PITAC report recommended some specific strategies for best use
    of additional research funds including designating the NSF as lead
    agency for the Federal effort, diversifying the modes of research
    support to include projects of broader scope and longer duration,
    supporting research teams, and funding collaborations focused on
    application areas that drive fundamental IT research.
        NSF had also been focusing on the provision of more diverse modes
    of funding support and promoting interdisciplinary research, so these
    recommendations were used to shape a ``formal'' ITR priority area as
    well as to influence planning for NSF's other priority areas. With
    generous funding of $90.0 million for research and education and $26.0
    million for a new terascale computing system in fiscal year 2000, NSF
    launched the ITR priority area. Funding has grown to approximately $313
    million for research in fiscal year 2004.
        NSF is poised now to institutionalize the advances made in response
    to the PITAC recommendations, particularly the capability developed for
    multi-disciplinary research that addresses applications and the new
    ability of the research community to work as collaborative teams.
        The Computer and Information Science and Engineering (CISE)
    directorate has received about two-thirds of the research funds of ITR.
    Driven both by changes in the computer and information science and
    engineering disciplines as well as by the impact of the ITR priority
    area investments, CISE has reorganized to take advantage of both. CISE
    will incorporate ITR funds closely into its new divisions; the
    divisions will operate with clusters of programs that are positioned to
    operate much as ITR has operated--and will be fully capable of managing
    interdisciplinary projects, able to support multi-investigator teams as
    well as individual investigator awards, and able to work effectively
    with other disciplines. The core programs are being transformed by ITR
    as much as ITR is becoming part of the new core of CISE.
        For the science and engineering disciplines outside of CISE, ITR
    has led investigators to a much greater appreciation for the increase
    of data due to new instruments and sensors, the demands to store and
    analyze these data and the need for research to create new methods and
    capabilities for their research. ITR has supported many
    interdisciplinary projects that address the research problems ensuing
    from these trends.
        Through all of these efforts, ITR has been a successful force for
    change. The changes in how we fund IT research are not any diminution
    of effort, but are the next step in an evolution that responds to a
    changing environment, changing capabilities, new opportunities, and
    evolving national priorities.

                          MATH AND SCIENCE PARTNERSHIP

        Question. In the budget request for this year, there is a proposal
    to move the Math and Science Partnership to the Department of
    Education, and to take the current program obligations and move them
    into the research account.
        Can you please explain the rationale behind moving the program away
    from NSF as well as the transfer of the program into the Integrative
    Activities portion of the research account?
        Answer. The consolidation of the Math and Science Partnership (MSP)
    reflects the administration's desire to focus the program on
    integrating research-proven practices into classroom settings. In
    addition, it will allow the program to concentrate attention and
    resources in a single program for maximum impact.
        The President's Budget requests $269 million at the Department of
    Education for the MSP program in 2005, a $120 million increase over the
    Department's 2004 level. This additional funding will support
    competitive grants targeted at improving math skills of disadvantaged
    high school students.
        This increase in the Department of Education's MSP program is a key
    component of the President's Jobs for the 21st Century initiative.
    President Bush is committed to helping better prepare high school
    students to enter higher education or the workforce. This initiative is
    especially important at a time when 80 percent of the fastest-growing
    jobs in the United States require higher education and many require
    math and science skills.
        The fiscal year 2005 budget would begin the process of phasing out
    the NSF program, while continuing support for out-year commitments for
    awards made in the first and second grants competitions, data
    collection, and program evaluation. NSF has requested $80 million in
    fiscal year 2005 to honor outyear-funding commitments for past awards.
    Moving the management of the ongoing awards to the NSF Director's
    office is intended to maximize the coordination of NSF-funded MSP
    awards across NSF.

                           INFORMAL SCIENCE EDUCATION

        Question. As I mentioned in my statement, the program for Informal
    Science Education is nationally recognized, and exposes millions of
    children and adults to science and science education. This is an
    excellent tool for NSF to use to encourage science literacy within the
    country, and can inspire kids to pursue science in education and as
    careers.
        With this in mind, why is Informal Science Education receiving a
    decrease of 25 percent from the $62.5 million that we provided in
    fiscal year 2004?
        Answer. Through its Informal Science Education (ISE) program, NSF
    has served the Nation by providing increased opportunities for public
    understanding of science, technology, engineering, and mathematics
    (STEM). The proposed reduction in ISE funding reflects priority setting
    in a tight budget environment. Notwithstanding, NSF is committed to
    promoting informal science education not only through the ISE program,
    but also through outreach emphases in programs throughout the agency.

     SCIENCE, TECHNOLOGY, ENGINEERING, MATHEMATICS TALENT EXPANSION (TECH
                                TALENT) PROGRAM

        Question. An ongoing concern of Congress is the need for making
    sure that we have enough college students with majors in science,
    engineering, and technology fields. Congress has consistently shown
    support for this program, despite the annual cutting of the budget for
    this program by the administration.
        Why is NSF, once again, cutting Tech Talent by $10 million, a 66
    percent decrease?
        Answer. The funding requested for the Tech Talent program was $2
    million in fiscal year 2003 and $7 million in fiscal year 2004. In
    fiscal year 2005 NSF is requesting $15 million. Within this funding
    level, the Tech Talent program will improve the ability of academic
    institutions to increase the number of college students who major in
    science, engineering, and technology fields.
        Question. What are the views of NSF, the National Science Board,
    and OSTP, on the benefits of the Tech Talent program? Do you believe,
    as Congress does, that there is a strong need for this program?
        Answer. Proposal pressure to the Tech Talent program continues to
    be overwhelming and serves as an indicator of the popularity of this
    program. Although all proposals are expected to focus on efforts to
    increase the number of STEM majors, the range of activities seen in the
    proposals is extremely broad. For example, institutions are proposing
    to focus on the recruitment and retention of students from populations
    underrepresented in STEM fields; to increase exposure of students to
    academic or industrial research experiences starting during the
    students' first year of college; to make more effective linkages
    between community college courses and those at the 4-year institutions
    to which community college students transfer; to create bridge programs
    for at risk students between high school and college or between 2-year
    and 4-year institutions; to strengthen mentoring and tutoring between
    faculty and students and between students; to redesign courses that
    have proved to be major barriers to student success in STEM fields; and
    others. The NSF and the National Science Board have long advocated all
    of these efforts. The proposed reduction in budget for the Tech Talent
    program is a result of priority setting in a tight budget environment.
    Nevertheless, Tech Talent is an excellent program to help ensure the
    Nation has enough college students with majors in science, engineering,
    and technology fields.

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. One program that is very important to a number of
    Senators, particularly from less populous States, is the EPSCoR
    program, which provides a mechanism for those States to develop
    strategies to become more competitive at the National Science
    Foundation.
        Can you please explain why NSF chose to cut funding for EPSCoR by
    more than 10 percent from the $95 million provided in fiscal year 2004?
        Answer. The funding requested for the EPSCoR program was $75
    million in both fiscal year 2003 and fiscal year 2004. In fiscal year
    2005 the requested level increased to $84 million. This funding level
    will allow the program to meet its current obligations. In addition,
    this level of funding will allow continuation of EPSCoR's successful
    outreach program to acquaint EPSCoR researchers with NSF programs and
    policies. This amount is supplemented by approximately $30 million in
    co-funding from the Research and Related Activities account, a
    mechanism to leverage other NSF programs to EPSCoR States that has
    accounted for over 1,100 awards to EPSCoR States totaling $392 million
    for the 5-year period ending in fiscal year 2003.
        Question. What system does NSF have in place to track the progress
    of these smaller States in becoming more competitive for NSF grants?
    Are there any States that could soon graduate from the program?
        Answer. NSF's databases permit tracking of the numbers of proposals
    submitted, awards made, and funds obligated. The EPSCoR Office uses
    these data to track the progress of individual States and their
    competitiveness for NSF research awards. In addition, these systems
    help EPSCoR staff in their review of progress reports and results from
    site visits. NSF EPSCoR also uses these data in establishing
    eligibility for its programs and posts them on the EPSCoR website.
    Currently, eligibility for EPSCoR's Research Infrastructure Improvement
    (RII) program, as established in Public Law 107-368, is met when a
    State's institutions receive less than 0.70 percent of NSF research
    funding averaged over the 3 most recent fiscal years.
        NSF has named Dr. Sherry O. Farwell to head the Foundation's
    Experimental Program to Stimulate Competitive Research. He will serve
    in a consulting capacity immediately and assume the position full-time
    at NSF headquarters in July. One of his first tasks will be to look at
    the EPSCoR program and how well it is meeting the original goals set
    forth over two decades ago. Among the issues he will be considering is
    that of eligibility and the impact that the growth in the number of
    eligible States has had on the program.

                        INTERGOVERNMENTAL PERSONNEL ACT

        Question. NSF's budget again requests for 170 employees through the
    Intergovernmental Personnel Act (IPA). These people come from other
    agencies to work at NSF for up to 4 years, but typically 18 to 24
    months and then return to the private sector for employment.
        Can you please explain the significance of having almost 10 percent
    of the NSF workforce as temporary staff, and how this affects the
    continuity of operations at NSF?
        Answer. NSF aims to employ a mixture of permanent staff, IPAs, and
    visiting scientists, engineers, and educators throughout the agency.
    NSF's permanent staff provides the stable base of knowledge and
    expertise needed to operate efficient and productive programs within
    the Federal structure. Rotators represent nearly 10 percent of NSF's
    total staffing, and they help provide a continuous inflow of up-to-date
    information and fresh, invigorating viewpoints on needs and
    opportunities across all of research and education. NSF will continue
    to foster close ties to the research and education community through
    the use of rotators from academic and other nongovernmental
    institutions who work at NSF for 1-2 years on average and then return
    to their institutions.
        Question. Is NSF in need of more regular FTEs, beyond the 25
    additional asked for in fiscal year 2005, or is there a benefit that
    can only be achieved through IPAs?
        Answer. The Fiscal Year 2005 Request seeks funding for an
    additional 25 new permanent employees to address mounting pressures,
    and the IPA staffing level remains equal to the fiscal year 2004
    Current Plan Level of 170 FTE. We anticipate that the agency will seek
    further staffing increases in the future to address the past 20 years
    of static employment levels as well as future workload pressures.
    Additionally, it is our plan to maintain the required level of rotators
    needed to bring state-of-the-art knowledge to the agency.
        These issues are addressed in the forthcoming report from the
    National Academy of Public Administration, which committee staff has
    received in draft form. NSF expects that this report will provide an
    invaluable framework for future discussions of these issues,
    particularly since NAPA has recognized both the importance of rotators
    to NSF's mission and also the need for NSF to continue to balance the
    number of rotators and permanent employees based on the agency's past
    experience and the specific requirements of individual positions.
                                     ______

                   Questions Submitted by Senator Larry Craig

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. For fiscal year 2004, Congress appropriated $95 million
    for the NSF EPSCoR program. Another $30 million is expected from co-
    funding by the research directorates. How are you allocating these
    funds among the various EPSCoR activities?
        Answer. EPSCoR expects to allocate the fiscal year 2004 $95 million
    appropriation at approximately the following levels: $57 million for
    Research Infrastructure Improvement awards (fulfilling commitments on
    current awards and initiating four new awards), $33 million for co-
    funding, $200,000 for outreach activities, and $4.8 million for NSF
    Small Business Innovation Research (SBIR) and other activities. EPSCoR
    works closely with directorate representatives in determining annual
    co-funding priorities. For instance, first-time awardees typically have
    priority over investigators who have had previous NSF funding. As
    another example, potential awards from the NSF Faculty Early Career
    Development Program (CAREER) have high priority across NSF because of
    strong potential to influence the integration of research and education
    on EPSCoR campuses.

                   EPSCOR RESEARCH INFRASTRUCTURE INITIATIVE

        Question. Idaho is applying for a new Research Infrastructure
    Initiative (RII) award this year. Under normal circumstances, the
    solicitation would be available by now. I understand that more than 15
    States including Idaho are waiting for the solicitation. Please provide
    your schedule for issuing the solicitation as expeditiously as
    possible.
        Answer. The solicitation was issued on March 17, 2004.
                                     ______

                   Question Submitted by Senator Ted Stevens

             BARROW ARCTIC GLOBAL CLIMATE CHANGE RESEARCH FACILITY

        Question. In fiscal year 2004, $5.4 million was appropriated to the
    National Science Foundation to be used for the Barrow Arctic Global
    Climate Change Research Facility, along with additional funding from
    NOAA. This facility will help NSF and the research community better
    accomplish their mission, but to date, the NSF money has not been made
    available.
        Please explain how and when these funds will be made available to
    the project.
        Answer. The plan for SEARCH infrastructure needs, including Barrow
    research support is as follows:
    Background
        Senate Report 108-143, accompanying S. 1584, the Senate VA/HUD
    Appropriations for fiscal year 2004, contained the following provision:

        ``The Committee fully supports the Foundation's fiscal year 2004
    priority for Arctic research under its Study of Environmental Arctic
    Change [SEARCH] program. Accordingly, the Committee has provided
    $5,800,000 within NSF's Office of Polar Programs to support SEARCH
    infrastructure needs, including research support for the Barrow Arctic
    Research facility.''
    Plan for SEARCH Infrastructure Needs Including Barrow Research Support
        The general framework for these investments was set forth in the
    2002 report to the Senate entitled, ``The Feasibility of a Barrow
    Arctic Research Center.''

                Barrow Arctic Science Consortium (BASC) Information
                        Technology
        NSF is funding a significant improvement to the Barrow IT
    infrastructure to support science conducted in the Barrow area. BASC
    established an IT capability last year, and this year NSF will continue
    to support its development, operation and maintenance. Specifically,
    wireless LAN capability will be added with a 10-mile radius to support
    connectivity to tundra, sea-ice and ocean science field teams. (Cost
    estimate for fiscal year 2004: $500,000)

                North Slope Coastal Current Radar System
        NSF and the Department of the Interior's Minerals Management
    Service are considering joint funding for the acquisition and
    deployment of coastal radar systems along the North Slope, most likely
    located in or close to Barrow. The initial investment could be a high
    frequency radar for surface current mapping. This technology is well
    advanced and would provide surface current maps of high reliability. In
    addition, plans will be developed for the deployment of microwave
    radars for mapping of surface ice fields. Such radars have been
    employed along the northern coast of Hokkaido (Sea of Okhotsk) for many
    years; their use in Alaska will be discussed at a multi-agency meeting
    in Anchorage, Alaska, on March 31 and April 1, 2004. (Cost estimate for
    fiscal year 2004: $600,000)

                Study of the Northern Alaska Coastal System (SNACS): An
                        Arctic System Science and SEARCH Program
        A program announcement is currently active with a mid-April
    deadline. This solicitation seeks proposals focused on the Arctic
    coastal zone of Alaska (see below for details) addressing one or more
    aspects of two coupled themes:
      --How vulnerable are the natural, human, and living systems of the
            coastal zone to current and future environmental changes in the
            Arctic?
      --How do biogeochemical and biogeophysical feedbacks in the coastal
            zone amplify or dampen change locally and at the pan-arctic and
            global levels?
        Up to $8.0 million is expected to be used to support the
    competition and $2.0 million is set aside from the fiscal year 2004
    SEARCH infrastructure funding to support needs identified in the
    proposals; half of the infrastructure funds will likely be used to
    address Barrow infrastructure needs. These may include new laboratory,
    instrumentation and connectivity capabilities. Funding recommendations
    based on external merit review are expected to be made by July 2004.

                Toolik Field Station Winter Facilities Upgrade
        The broad nature of SEARCH requires a variety of infrastructure
    throughout the Arctic including a network of stations that can support
    scientific campaigns and long-term observation. One site identified in
    the Search implementation plan (http:
    //psc.apl.washington.edu/search/Library/ImplementOctober_R1.pdf) is
    Barrow, but Toolik also is noted as it provides the necessary
    infrastructure for terrestrial research and affords access to three
    major physiographic provinces including the Brooks Range, the Arctic
    Foothills, and the Arctic Coastal Plain. The station also serves as a
    base camp for researchers working along the ecological transect from
    tundra to taiga to boreal forest along the Dalton Highway, from Prudhoe
    Bay to Fairbanks, Alaska. The Institute of Arctic Biology at the
    University of Alaska, Fairbanks has developed a sound long-range
    development plan for Toolik Field Station that has guided development
    of the North Slope research facility over the last 4 years. The next
    significant increment is to build a winter support building that would
    significantly improve the capability to support year-round science and
    winter campaigns. (Cost estimate for fiscal year 2004: $1.0 million)

                North Pole Environmental Observatory (NPEO)
        The NPEO is in its fifth year of operation, supported mostly by the
    Arctic System Sciences program and has submitted a proposal for another
    5 years of operation. As was originally planned, the observatory has
    become a base for multiple projects in the Arctic Ocean, many of which
    are supporting the SEARCH goals. Part of the SEARCH infrastructure
    funds will be used to help continue the observations. (Cost estimate
    for fiscal year 2004: $700,000)

                Russian Meteorology Stations
        For scientists to meet the SEARCH goals they will require the
    ability to make measurements and observations throughout the Arctic,
    including areas of the vast coastal and continental shelf system of
    Arctic Russia. NSF has been working with the Russian Federal Service
    for Hydrometeorology and Environment Monitoring and a Russian non-
    profit organization, Polar Foundation, to facilitate the
    reestablishment and improvement of manned and unmanned meteorological
    observatories in the high Russian Arctic. These measurements will be
    critical to improved modeling and understanding of the changing Arctic
    environment at the broadest scales. (Cost estimate for fiscal year
    2004: $600,000)

                Summit, Greenland Observatory
        Last year NSF funded a proposal to make a basic set of
    environmental observations at the Summit, Greenland research facility.
    The site is in a unique position to make direct observations of the
    free-troposphere in a SEARCH observing network. Although this project
    requires that the facility operate on a year-round basis, the current
    power and fuel systems are not ideal for this use; SEARCH
    infrastructure funds will be used to improve the environmental systems
    related to power generation. (Cost estimate: $400,000)

                National Oceanographic and Atmospheric Administration
                        (NOAA) Collaboration
        NOAA received $8.5 million in its fiscal year 2004 appropriation
    for construction funds for ``Barrow Arctic Research Center.'' NSF has
    responded to NOAA's call for agency input on research needs in the
    Barrow area and will continue to work collaboratively with NOAA on this
    issue.
                                     ______

                 Questions Submitted by Senator Robert C. Byrd

                                 SOUND SCIENCE

        Question. Last week an influential and renowned group of
    scientists, including twenty Nobel laureates, issued a statement
    raising serious concerns about the Bush Administration's distortion and
    sabotage of science. Many of these individuals have served with
    distinction in former Republican and Democratic Administrations.
        Solid science is a critical underpinning of constructive policy
    making. Policymakers rely upon credible, peer reviewed, objective
    scientific analysis and advice in the pursuit of good decision-making
    in such fields as food safety, health care, biomedical research, the
    environment, and national security. These scientists have asserted that
    the Bush Administration is advocating policies that are not
    scientifically sound, misrepresenting scientific knowledge, censoring
    and suppressing information, and misleading the public to pursue its
    ideological agenda.
        Your agencies are seen as leading voices within the Federal
    Government with regard to the application of good science, and,
    therefore, it is incumbent upon you to ensure that scientific integrity
    is maintained. I am concerned that there is now a contemptible lack of
    oversight and that the public's trust in the Federal Government's
    scientific credibility and integrity will be undermined in the long-
    term.
        What steps will you take to ensure that science and the pursuit of
    scientific reviews in the service of policymaking does not become
    overly politicized?
        Answer. NSF leads Federal agencies in funding research and
    education activities based upon merit review. In fiscal year 2003 for
    example, NSF made roughly 11,000 new awards from more than 40,000
    competitive proposals submitted, and over 96 percent of these awards
    were selected through NSF's competitive merit review process. All
    proposals for research and education projects are evaluated using two
    criteria: the intellectual merit of the proposed activity and its
    broader impacts, such as impacts on teaching, training and learning.
    Reviewers also consider how well the proposed activity fosters the
    integration of research and education and broadens opportunities to
    include a diversity of participants, particularly from underrepresented
    groups. The merit review system is at the very heart of NSF's selection
    of the projects through which its mission is achieved.
        Question. Are you prepared to make any specific recommendations to
    restore scientific integrity to policymaking?
        Answer. This administration is committed to working with the
    science and higher education communities to increase understanding on
    issues of mutual concern, but the sweeping accusations of the UCS
    statement go far beyond reasonable interpretations of the issues it
    raises and only provides partial or distorted accounts of events. The
    President believes policies should be formed with the best and most
    complete information possible and expects his appointees to conduct
    their business with integrity and in a way that fulfills that belief.
    This administration has strongly incorporated science in its policy-
    making processes, and encourages the highest standards be applied
    through independent review bodies such as the National Academy of
    Sciences. A recent example is the National Academy of Science (NAS)
    report on the Climate Change Science Program (CCSP) Strategic Plan,
    just released, that found:

        ``In fact, the approaches taken by the CCSP to receive and respond
    to comments from a large and broad group of scientists and
    stakeholders, including a two-stage independent review of the plan, set
    a high standard for government research programs.''

        Question. According to news reports, the Bush Administration is
    said to ``stack'' panels with members whose scientific viewpoints agree
    only with the administration's positions. Even basic science classes
    teach the importance of a broad range of sampling when trying to find
    scientific truths. How can the public have any confidence that
    scientific positions taken by this administration have any basis in
    fact?
        Answer. Many of these instances raised involved panel members whose
    terms had expired; some even were serving as much as 5 years past their
    termination dates. Some involved a new direction in focus for that
    particular slot with the overall goal of achieving scientific diversity
    on the panels. Other candidates may have been rejected for any number
    of reasons--this is ordinary for any administration. This process
    results in the selection of qualified individuals who represent a wide
    range of expertise and experience--the right balance to yield quality
    advice for the President on critical S&T issues.
        Question. Will you press for changes to ensure that a range of
    scientific views are included on these panels?
        Answer. In accordance with the Federal Advisory Committee Act and
    its associated regulations (CFR Parts 101-6 and 102-3), all external
    advisory committees established by NSF, including review panels,
    Committees of Visitors, and advisory committees, seek a balanced
    membership in terms of the points of view represented. This requirement
    receives special mention in each committee's annual report, since the
    reporting template includes the question, ``How does the committee
    balance its membership?''
        Beyond these formal requirements, NSF has a longstanding tradition
    of seeking a range of views and perspectives from the external
    community to inform its decision-making processes. With hundreds of
    proposal competitions, meetings with experts, formal workshops, and
    reports from commissions throughout the year, NSF is constantly
    listening, analyzing and responding to thoughts from the research and
    education community.
                                     ______

                   Question Submitted by Senator Tim Johnson

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. Dr. Sherry Farwell from South Dakota was announced last
    week as the new EPSCoR Office Director. We in South Dakota are very
    pleased that Dr. Farwell is taking on this assignment, as EPSCoR is
    very important to our State. One matter of particular interest to us is
    how EPSCoR can be utilized as a conduit to ensure that more of the
    researchers and leaders from smaller States are included on national
    panels and committees.
        What mechanisms or approaches might be used to implement broader
    representation of EPSCoR States throughout the NSF?
        Answer. NSF and the EPSCoR Office in particular have focused
    significant efforts in broadening the participation of institutions and
    individuals from EPSCoR States in NSF's activities. EPSCoR works with
    the NSF directorates in nominating individuals from EPSCoR States to
    serve on NSF advisory committees, Committees of Visitors, etc. EPSCoR
    also makes recommendations of EPSCoR investigators to serve as
    reviewers and panelists for NSF grant competitions.
        NSF and the EPSCoR Office have used a number of other approaches to
    stimulate increased participation of EPSCoR institutions and
    individuals in NSF programs. For instance, NSF's Office of Legislative
    and Public Affairs coordinated ``NSF Days'' conferences in three EPSCoR
    States in fiscal year 2003. The purpose of these workshops is to
    highlight NSF programs, familiarize university officials and
    investigators with successful proposal writing techniques and provide
    the opportunity for one-on-one discussions between NSF Program Officers
    and interested individuals from EPSCoR institutions.
        In addition, the NSF Small Business Innovation Research (SBIR)
    office frequently hosts annual meetings in EPSCoR States, providing a
    venue for increased visibility of NSF and other agency funding for
    small businesses in EPSCoR States. NSF also conducts Regional Grants
    Conferences in EPSCoR States. These conferences draw several hundred
    participants from various regions of the country for 2 days of in-depth
    discussions of all aspects of NSF programs, funding, merit-review
    processes and grant administration. EPSCoR will continue to seek
    opportunities for involving greater numbers of individuals and
    institutions from EPSCoR States in NSF's programs and activities.
                                     ______

               Questions Submitted to the National Science Board

               Questions Submitted by Senator Christopher S. Bond

        Question. Due to the perceived subjectivity of NSF's priority-
    setting process for large research facilities, there has been an
    increased effort by various scientific interest groups to lobby the
    Congress on their specific project. In response to this concern, we
    asked the National Academy of Sciences to develop criteria to rank and
    prioritize large research facilities and they have responded.
        Do you support the Academy study?
        Answer. This year the Board will expand its ongoing examination of
    its role and responsibilities regarding the NSF's Major Research
    Equipment and Facilities Construction (MREFC) program. The National
    Academies report of their study examining how NSF sets priorities among
    multiple competing proposals for construction and operation of large-
    scale research facility projects to support a diverse array of
    disciplines has, in general, been very well received by the Board. In
    particular, we support the concept and value for developing a roadmap
    and making the MREFC priority setting process clear or transparent.
    While a roadmap would be very useful to assist in strategic planning
    and prioritization, it must be carefully structured to allow the
    flexibility required of an agency such as NSF that serves many
    disparate disciplines whose needs and opportunities change with new
    discoveries.
        Recommendations from this study are being considered with due
    diligence by the Board as we develop and implement options for meeting
    our enhanced responsibilities, as directed by the NSF Act of 2002. We
    will factor the recommendations of the National Academies report on the
    MREFC program into our examination, and develop a process for
    implementing appropriate modifications to the Board's involvement with
    the MREFC program. The Board is in the initial phase of reviewing and
    addressing the National Academies recommendation, and will provide our
    comment directly to Congress after we have given it careful
    consideration.
        Question. When will you be able to provide the Committee with a
    prioritization of all the current, and proposed, activities in the
    MREFC account for fiscal year 2005?
        Answer. The Board approved the fiscal year 2005 submission to OMB
    at its August meeting. The highest priority is assigned to ongoing
    projects (ALMA, EarthScope, and IceCube). Recommended new starts are in
    the following priority order: National Ecological Observatory Network
    (NEON), Scientific Ocean Drilling Vessel, and Rare Symmetry Violating
    Processes (RSVP).
        Question. How long will it take NSF and the National Science Board
    to implement the recommendations?
        Answer. The Board is currently working with our staff and NSF
    senior management to develop a draft document containing an overview of
    the fundamental issues surrounding the process of setting priorities
    for MREFC projects. NSF senior management is also providing the Board
    with a summary of the process and activities that NSF feels already
    address the NRC recommendations, to varying degrees. The eventual
    report that the Board will approve and send to Congress will focus on
    making the priority setting process clear or transparent to the
    communities that need to know about it, making the process more
    effective, and clearly elucidating the role of the Board in reviewing,
    prioritizing and approving facilities that address the highest priority
    research challenges and/or provide a great opportunity to move the
    frontier of research forward. Such a Board report to the Congress will
    likely take some months to complete. In the interim, however, we expect
    to be able to meet routinely with appropriate Members of the Congress
    and their Staff to provide updates on our progress.

                              SUBCOMMITTEE RECESS

        Senator Bond. There will be no further business to come
    before the subcommittee today. The hearing is recessed.
        [Whereupon, at 11:56 a.m., Thursday, February 26, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                            THURSDAY, MARCH 11, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:05 a.m., in room SD-106, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Shelby, Stevens, and Mikulski.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    STATEMENT OF SEAN O'KEEFE, ADMINISTRATOR

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning.
        This hearing of the Senate VA, HUD, and Independent
    Agencies Subcommittee will come to order.
        Today we welcome NASA Administrator, Sean O'Keefe who is
    with us today to testify on the President's fiscal year 2005
    budget for the National Aeronautics and Space Administration.
        Mr. Administrator, it has been quite a roller coaster ride
    since you joined NASA in December of 2001. We have gone from
    the tragedy of losing the Columbia, to the uncertainty and
    perseverance in its aftermath, to the renewed purpose instilled
    by the Columbia Accident Investigation Board (CAIB) report, and
    finally the excitement of a Presidential vision for the future
    that includes returning to the Moon and looking towards sending
    humans to Mars.
        This is an ambitious plan which could generate similar and
    even greater excitement to that which we are seeing with the
    current rovers, Spirit and Opportunity, that are working on
    Mars today.
        At the beginning of the year, it looked like NASA was on
    its way to a budget that would be relatively unchanged. That
    all changed on January 14 with the announcement by the
    President about a new vision for NASA which has since
    translated into a budget request for fiscal year 2005 of over
    $16 billion, an increase of nearly $900 million from fiscal
    year 2004. Unfortunately, this impressive increase raises more
    questions at this time in my mind than excitement.
        The Senate fiscal year 2005 Budget Resolution is being
    debated on the floor as we speak, and the budget numbers
    contemplated by the President's budget request and in the
    Senate Budget Resolution currently will mean unacceptable
    shortfalls for a number of key VA/HUD programs, including VA
    Medical Care and Section 8 Housing Assistance, as well as the
    EPA Clean Water State Revolving Fund.
        These shortfalls have to be addressed before we provide
    increases to new programs in other accounts. NASA better hope
    we get a good 302(b) allocation, above the funding included in
    the Budget Request. Now, I don't mean to do this to pick on
    NASA, this is the same message that you will be hearing as I
    welcome each of the agencies coming before us that administer
    VA/HUD programs.
        The funding for NASA's new Moon/Mars vision is troubling
    for a number of reasons. As a practical matter, the NASA budget
    for the fiscal year 2005 through the fiscal year 2009 time
    period for the Moon/Mars vision is $12.6 billion, of which only
    $1 billion is in new funds and $11.6 billion is from other NASA
    activities. Fortunately, many of these activities, such as the
    Space Launch Initiative, appear to be appropriate sacrifices
    for the Moon/Mars vision.
        However, as part of this redirection of funds, other
    programs and facilities projects are being deferred, the Hubble
    telescope is to be retired, and aeronautics spending will
    remain relatively flat over the next 5 years.
        I am sure my colleague from Maryland will have a few things
    to say about Hubble, but I know that world class science is
    being done, and can be done, for years to come with this famous
    telescope, and we should be sure that we are not giving up on
    it too soon.
        I also have joined my colleague in asking for a
    comprehensive review of the proposed Hubble decision before the
    implementation of a final decision is made. In the case of
    aeronautics, we made it clear in the fiscal year 2004 NASA
    appropriation that we in Congress expected a greater investment
    by NASA.
        It is not an earmark, it is a Congressional investment and
    Congressional priority. Instead, the fiscal year 2005 budget
    request proposes $919 million for aeronautics, a reduction of
    11 percent from fiscal year 2004. This is a big problem. Europe
    has declared that they are going to dominate the commercial
    market in the next decade, yet this technology driven
    manufacturing industry gets little support from the one agency
    that can help keep America competitive in this industry.
        Given the problems that we are having in the Nation, I
    don't think this is the time to be cutting back on that
    investment. It has been those who contended that the Moon/Mars
    vision is affordable, and at the outset, that could be the
    case. Yet I am concerned that this new vision will become the
    next space station, consuming resources as costs begin to rise.
        Let me assure you that I have had a little experience
    dealing with NASA and these costs will go up, and they will go
    up. Some components of this vision are already in place. Some
    of the plans for future research on Mars is already underway
    and can easily be incorporated into the vision, yet the plans
    for the human vehicle and heavy lift capabilities that will be
    needed are just now being placed on the drawing board.
        Please forgive me if I question if now is the time to begin
    the full implementation, or if it would be more prudent to wait
    a year and let NASA decide what is needed to accomplish the
    goals set out by the President.
        I know the Aldridge Commission was created to provide
    recommendations for the implementation of the Moon/Mars mission
    and that these recommendations are due in early June. This will
    be needed and valuable information, but it will, at best,
    scratch the surface of what we need to know and only begin to
    outline some of the challenges we face.
        I am especially troubled by the proposed phase-out of the
    Shuttle and the reduced attention to role of the International
    Space Station in NASA's mission. We have already spent some
    $33.5 billion on the ISS, and the redirection of space policy
    calls into question the value of this investment since the role
    for the ISS will be severely reduced under the new vision.
        In addition, the shuttle is targeted to be decommissioned
    by 2010, and the next U.S. manned space vehicle, the Crew
    Exploration Vehicle, is not scheduled for flight until 2014.
    You will have to go a long way to convince me that a 4-year gap
    in U.S. manned space flight is sound policy. More importantly,
    I am convinced that this time schedule is too optimistic, in
    which case the gap could grow significantly. This raises
    serious questions as to cost, shuttle recertification, and
    related shuttle safety issues, as well as obligations to our
    international partners.
        Let me turn now to our international partners. I am
    gratified that our partners in the international community have
    responded to the needs of the International Space Station since
    the Columbia tragedy. The international cooperation has been,
    and can continue to be, crucial to the success of the endeavors
    of the space station.
        Under the President's vision, we will be completely
    dependent on other vehicles, most likely Russian, for our human
    transport to space for at least 4 years starting in 2010. There
    is a hope that the cooperation we have enjoyed with our
    partners will continue as we prepare to negotiate the future
    plans for the space station.
        Count me as a skeptic. If we do not maintain a good
    relationship with our partners to the International Space
    Station, how can we expect the international community to join
    in future activities like the proposed missions to the Moon and
    Mars?
        Again, this raises serious questions as to how our
    obligations to our international partners have changed, how the
    costs will be borne and what it means for the use and
    maintenance of the International Space Station. What are they
    getting for what we're asking from them?
        In addition, if the shuttle cannot be certified for a
    return to flight until next year, what steps has NASA taken to
    ensure that the Soyuz meets the minimum safety requirements
    that are now expected for manned space flight since we are
    trusting our astronauts to these vehicles? Are we demanding the
    same safety standards that we would demand of the shuttle from
    the Soyuz? Has this been done? Has this been reviewed?
        I understand that there is inherent risk in all of the
    activities that NASA undertakes, and with that risk comes the
    possibility for failure or reward. Part of the difficulty
    involved is in choosing what should be done with limited
    resources. The problem is that the future budgets for this
    vision have many points where, if something does not work
    right, then there will be significant costs to keep us on the
    path that is being proposed.
        There are those who suggest that the private sector may
    step forward. Well, frankly, the experience of the private
    sector in trying to work with space has not been good. There
    have been problems. There have been failures. And I don't see
    an overwhelming cry in the commercial sector for people to step
    up and be able to participate in these adventures when past
    ones have turned out rather sour.
        Now, Mr. Administrator, since you took the helm of NASA, I
    have been impressed consistently with your efforts and
    commitment to making NASA a better agency. And any concern or
    criticism I have with regard to the NASA budget is intended as
    no reflection on the deep regard and the high confidence I have
    in your leadership. But what really bothers me is I am afraid
    you are being asked to do too much with too little, in not
    enough time. And then you have the bad luck of asking for more
    money for a new program in a time of severe budget constraints.
        Nevertheless, we commend your strong leadership and I look
    forward to working with you in the months to come. NASA is one
    of the most publicly-recognized agencies within the government.
    Everyone knows of something that is going on at NASA, be it
    stunning pictures of the universe, or the surface of a
    neighboring planet. This high visibility can be powerful in
    inspiring the future scientists and engineers of this country.
    We need new engineers and scientists. We need more young people
    in the United States choosing math, science and engineering
    curriculums, and I applaud your efforts in keeping NASA
    exciting and in attracting the young people of this Nation to
    these careers.
        I will have a number of questions on these issues and other
    concerns that I will either raise today or submit as questions
    for the record.
        Now, it is my pleasure to turn to my colleague, and close
    working partner, the Senator from Maryland, Senator Mikulski.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Senator Bond, and
    good morning, Mr. O'Keefe.
        The Committee welcomes you and I know we're going to have a
    very robust exchange today about a variety of issues.
        I so admire NASA because NASA is about discovery,
    exploration, science and technology. These are fundamental to
    who we are as a Nation. We are a nation of explorers and
    discoverers. Human space flight, scientific exploration has
    been the foundation of our space program for generations.
        My goal as the ranking member of this subcommittee is to
    maintain a balanced space program. That means striking a
    balance between safe and reliable space transportation, space
    science and human exploration. I want to congratulate NASA on
    some of its most recent successes. Certainly, we're all so
    pleased with the great job with the Mars rover and the great
    images we expect to see from your video.
        NASA has been able to confirm that water did exist on Mars
    and we've seen unprecedented photographs of the Martian
    surface, inspiring the Nation and a new generation of kids in
    science. I understand the since January 2, there has been more
    than 8 billion hits on the NASA website on this topic.
        And at the same time they have also had an enormous success
    once again with the Hubble telescope. Hubble is NASA's most
    successful program since Apollo, and in fact, many say that
    Hubble is the greatest scientific instrument since the Galileo
    telescope. Since 1993, Hubble has traveled over a billion
    miles, taken 330,000 photographs, 25,000 targets, and it
    accounted, I understand last year, for 40 percent of the NASA's
    discoveries.
        Over there is a picture from Hubble. When you look at it,
    it looks like a lot of colored dots, but it is a picture of the
    universe 13,000,000,000 years ago. It is also a picture of the
    universe with 10,000,000 galaxies, that have been discovered
    through Hubble. This is a phenomenal achievement.
        This extraordinary photograph was made possible thanks to
    the astronauts and to the space shuttle. We couldn't have
    Hubble without our astronauts and our space shuttle to make
    sure that it was launched, fitted with a contact lens, and
    service it on many occasions. Each time, though, Hubble has
    been serviced by the astronauts through the shuttle, it has
    increased Hubble's power by the factor of 10.
        There is proposed a fourth and final servicing mission
    which would extend the life of Hubble. Remember Hubble is not a
    piece of techno-junk that's creaky, tattered and worn. What it
    does need though, is like a lot of motors, new batteries and
    new gyroscopes. And if we put on it the new technology that is
    waiting to be installed, it would once again improve the factor
    of Hubble by 10. So extending the life isn't putting Hubble on
    a respirator, it is giving us a wider view of the origins of
    the universe.
        That's why when I received your call, Mr. Administrator,
    about the cancelling of the Hubble service mission, I was
    shocked and surprised. I know that you cited very clearly that
    you were concerned about the cost of Hubble servicing mission
    as well as possible danger to the astronauts.
        I want you to know that I absolutely agree with you that
    astronaut safety has to be our highest priority. It has to be
    our highest priority whether we service the Hubble or whether
    we complete the space station. We owe it to our astronauts and
    I believe that's the history of this panel. But at the same
    time the recommendation to cancel Hubble I viewed as surgery,
    irrevocable surgery. And I asked you if we could get a second
    opinion citing that any prudent person when they're facing
    major surgery that is irrevocable would seek the same.
        I want to thank you for your cooperation then to seek that
    opinion and that's why we turned then, at your request, to
    Admiral Gehman who chaired the Columbia Accident Investigation
    Board.
        Mr. Chairman, we now have the Gehman letter, and I ask
    unanimous consent that the Gehman letter be included in the
    record.
        Senator Bond. Without objection.
        Senator Mikulski. We have the letter here.
        Now, what Admiral Gehman says in the letter is no matter
    what, the use of the shuttle involves risk, whether we go to
    the station, whether we go to Hubble, whether we do both, that
    using the shuttle involves risk. He also says, that no matter
    what mission is undertaken by the astronauts on the shuttle
    there must be absolute compliance with the full implementation
    of the CAIB.
        This is, I think, a major policy and funding decision that
    I believe we're ready to commit to today, no matter what we've
    got to do, to make sure that the CAIB recommendations are fully
    implemented and fully funded, and I'll be asking you questions
    along those lines.
        At the same time, he then goes into commenting about
    Hubble. What Admiral Gehman says, is that complying with the
    CAIB return to flight, and I am quoting now, ``NASA has been
    challenged when factoring in the International Space Station.
    The CAIB allowed more latitude in complying with their
    recommendations for non-space station missions.
        He then goes on to say, that the Hubble servicing mission
    may be slightly, slightly more risky taking into account only
    the debris threat from the orbiter. He also called in his
    letter for additional study. What he says, then is fully
    implement, no matter what, the CAIB. Second, that risk is
    slightly more than other missions.
        Then he goes on to say, I suggest only a deep and rich
    study of the entire gain-risk equation can answer the question
    of whether an extension of the life of the Hubble. He says the
    life of the wonderful Hubble telescope is worth the risk. So
    essentially the Gehman report says slightly more risk and it
    needs more study.
        I really want to thank Admiral Gehman for what he's done
    both for the Columbia Accident Investigation Board, as well as
    for this. He is a man of great integrity.
        Now, I wholeheartedly concur with the Gehman
    recommendations. And when he talks about the additional need
    for more study, I reached out to my colleague, Senator Bond,
    and am asking you today to cooperate with us for asking the
    National Academy of Sciences to study the Hubble servicing
    mission. And also, we will be asking for a study from the
    General Accounting Office to look at the cost of the servicing
    mission.
        So we have got to be concerned about Hubble. We have got to
    be concerned about the astronauts, and we have to be concerned
    about the taxpayer, in order to make a prudent decision.
        The National Academy of Sciences, the most prestigious
    organization of its kind in the world. Its expertise in science
    and engineering make it uniquely qualified to study risks,
    mitigation factors, and scientific benefit.
        Let's make it clear I will stand up for the Hubble, but I
    will always place the priority of our astronauts first. At the
    same time, I want the best minds in science and engineering to
    tell us what are the risks. And at the same time, look at what
    it would cost to decommission the Hubble and not use the $167
    million worth of instruments.

                                 GEHMAN LETTER

        There are a lot of questions to be asked here, and I look
    forward to engaging in a conversation with you about this,
    about the NASA priorities as well as the future of our space
    program. As well as the use of the station, that has been
    raised by my colleague, as well as the future of the Hubble.
        Thank you very much.
        [The information follows:]
                       Letter From Harold W. Gehman, Jr.
                                                         March 5, 2004.
    The Honorable Barbara A. Mikulski,
    Suite 709, Hart Senate Office Bldg., Washington, DC, 20510.
        Dear Senator Mikulski: In his January 28th letter to you regarding
    the cancelled servicing mission to the Hubble telescope, NASA
    Administrator Sean O'Keefe indicated he had asked me to provide to you
    my views ``. . . regarding safety and risk factors identified in the
    report of the Columbia Accident Investigation Board.'' from my
    perspective as Chairman of the Board. The purpose of this letter is to
    provide you my views on this matter.
        I am pleased to undertake this task because it is fully consistent
    with the goals of the Columbia Accident Investigation Board (CAIB). At
    the very front of our report, in the ``Board Statement'', we expressed
    our belief that:

        ``The loss of COLUMBIA and her crew represents a turning point,
    calling for a renewed public policy debate and commitment regarding
    human space exploration. One of our goals has been to set forth the
    terms for this debate.''

        Whether to fly another mission to the Hubble is one of the public
    policy debates this Nation should have, thus I am pleased to add
    whatever clarity I can to the terms of the debate.
        As you are aware, the CAIB no longer exists; therefore, these views
    are my own. They are, however, based on the extensive investigation
    into the Columbia accident. Members of the Board are aware of my
    efforts, and while the Board is split on the merits of flying this
    mission, the Board's characterization of the risks as noted in our
    report are fully agreed. This letter is based on our work and insights
    gained during the most of careful study of the manned space flight
    program ever conducted, as well as recent consultations with the
    Stafford-Covey Return to Flight Task Group and others.
    How Risky Are Current Shuttle Flights?
        The introduction to Chapter Nine, Implications for the Future of
    Human Space Flight, is an excellent place to start:

        ``In this report we have documented numerous indications that
    NASA's safety performance has been lacking. But even correcting all
    those shortcomings, it should be understood, will not eliminate risk.
    All flight entails some measure of risk, and this has been the case
    since before the days of the Wright Brothers. Furthermore, the risk is
    not distributed evenly over the course of the flight. It is greater by
    far at the beginning and end than during the middle.
        ``This concentration of risk at the endpoints of flight is
    particularly true for crew-carrying space missions. The Shuttle Program
    has now suffered two accidents, one just over a minute after takeoff
    and the other about 16 minutes before landing. The laws of physics make
    it extraordinarily difficult to reach Earth orbit and return safely.
    Using existing technology, orbital flight is accomplished only by
    harnessing a chemical reaction that converts vast amounts of stored
    energy into speed. There is great risk in placing human beings atop a
    machine that stores and then burns millions of pounds of dangerous
    propellants. Equally risky is having humans then ride the machine back
    to Earth while it dissipates the orbital speed by converting the energy
    into heat, much like a meteor entering the Earth's atmosphere. No
    alternative to this pathway to space are available or even on the
    horizon, so we must set our sights on managing this risky process using
    the most advanced and versatile techniques at our disposal.
        ``Because of the dangers of ascent and re-entry, because of the
    hostility of the space environment, and because we are still relative
    newcomers to this realm, operation of the Shuttle and indeed all human
    spaceflight must be viewed as a developmental undertaking. Throughout
    the COLUMBIA accident investigation, the Board has commented on the
    widespread but erroneous perception of the Space Shuttle as somehow
    comparable to civil or military air transport. They are not comparable;
    the inherent risks of spaceflight are vastly higher, and our experience
    level with spaceflight is vastly lower. If Shuttle operations came to
    be viewed as routine, it was, at least in part, thanks to the skill and
    dedication of those involved in the program. They have made it look
    easy, though in fact it never was. The Board urges NASA leadership, the
    architects of the U.S. space policy, and the American people to adopt a
    realistic understanding of the risks and rewards of venturing into
    space.''

        In other words, for now and for the foreseeable future, by far most
    of the risk in space flight is in the launch, ascent, entry and landing
    phases, with a small portion of the total risk associated with the
    actual on-orbit mission. One could say that, within reasonable bounds,
    whatever one does once on orbit; it doesn't change the total risk
    factor very much. The conclusion from this observation, therefore, is
    to launch the fewest possible number of Shuttle missions. Indeed, the
    bottom line of the ``Future'' part of our Report is to replace the
    Shuttle as soon as possible, and to keep this risk equation in mind
    when developing the replacement system.
        It was one of the CAIB's goals to help national policy makers
    understand the risks of Shuttle flights by putting space flight as we
    presently conduct it into context. We as a Nation need to understand,
    as best we can, the amount of risk we accept while accomplishing our
    goals of space exploration. In Chapter Five, we quote the 1989 Office
    of Technology Assessment:

        ``Shuttle reliability is uncertain, but has been estimated to range
    between 97 and 99 percent. If the Shuttle reliability is 98 percent,
    there would be a 50-50 chance of losing an Orbiter with 34 flights . .
    . The probability of maintaining at least three Orbiters in the Shuttle
    fleet declines to less than 50 percent after flight 113.'' (STS-107,
    the ill-fated Columbia flight, was the 113th Shuttle mission).

        And we quote the 1990 Augustine Commission Report:

        ``And although it is a subject that meets with reluctance to open
    discussion, and has therefore too often been relegated to silence, the
    statistical evidence indicates that we are likely to lose another Space
    Shuttle in the next several years . . . probably before the planned
    Space Station is completely established on orbit.''

        To put these very accurate predictions into today's context, we
    should use figures we know are accurate. We have flown 111 out of 113
    Space Shuttle missions safely, for a 98.23 percent reliability rate.
    The chance that we will be able to fly 25 future missions using this
    reliability figure without a loss is 64 percent. The more missions we
    fly, the more that 64 percent number goes down. It is my opinion that
    implementing all the Return to Flight recommendations made by the CAIB
    raises the reliability number somewhat, although no one knows for sure
    what it is. A reliability number more like 99 percent seems reasonable
    to me, giving a 78 percent chance we will fly the 25 missions without
    loss. Once again, more missions cause that 78 percent number to go
    down. Flying one more mission, 26 in all, reduces the probability of
    series success by about 1 percentage point.
        The bottom line: Shuttle flights are dangerous and we should fly
    the minimum number necessary. Almost all the risk is concentrated in
    the front and back of the mission, where one goes on orbit makes little
    difference.
    What Can Be Done To Mitigate the Risk?
        The recommendations contained in the Columbia Accident
    Investigation Report pertaining to return to flight are specifically
    designed to break the coupling or linkage between the propensity of the
    Shuttle external tank to shed ice and debris and the loss of crew and
    vehicle. To increase the chances of mission success and decrease the
    chances that future shedding events, which are inevitable in our view,
    will result in a catastrophic outcome, four measures are required. The
    Board feels all four are required; picking and choosing from among the
    four does not meet our intent.
        First, measures must be taken to more fully understand why foam
    shedding in particular occurs and what steps must be taken to reduce
    it. This recommendation requires research and development activity as
    well as some sub-element re-design steps. NASA is well along in
    implementing this recommendation.
        Second, measures must be taken to more fully understand the true
    strength of the parts of the Orbiter that are most likely to be
    damaged. The CAIB found, for example, no agreement, backed by test
    data, on the current strength of the Reinforced Carbon-Carbon wing
    leading edge components. This recommendation will allow NASA to
    understand the true nature of the risk to the Orbiter from debris
    shedding events.
        Third, measures must be taken to image the Orbiter both during
    launch and on-orbit to characterize any hits and to essentially ``re-
    certify'' the Orbiter for entry. This recommendation includes much
    better launch complex camera systems, range imaging systems and an
    ability to thoroughly inspect the exterior TPS of the Orbiter in space
    prior to entry.
        Fourth, measures must be taken to develop and deploy a capability
    to make emergency, on-orbit repairs to the TPS to any damage that is
    deemed threatening to successful entry. This step cannot be
    accomplished unless steps two and three above are done.
        In the view of the Board, all four steps are required, and
    selecting from among them is not sufficient. While we studied and
    deliberated these Return to Flight recommendations, it became apparent
    to us that missions to the ISS had a significant advantage in
    implementing our recommendations over those that were not going to the
    ISS. Consequently we decided to differentiate RTF recommendations
    between missions to the ISS and non-ISS missions. Our report refers
    only to ISS missions or non-ISS missions. We did not specify what non-
    ISS missions might be flown (Columbia's final mission was, of course, a
    non-ISS mission). In our view, missions to the ISS allowed a more
    complete and robust inspection and repair capability to be developed.
        However, knowing that there are situations where docking to the ISS
    may not occur, we required that ultimately NASA must develop an
    autonomous on orbit inspection and repair capability. Very frankly, we
    called for a less technically challenging inspection and repair
    capability, by stating:

        ``For non-Station missions, develop a comprehensive autonomous
    (independent of Station) inspection and repair capability to cover the
    widest possible range of damage scenarios''.

        In other words: ``Do the best you can''. We knew we were
    essentially REDUCING the requirements. Reducing the rigor of our
    requirements INCREASES the risk. It cannot be seen any other way. If
    fully complying with the CAIB RTF technical requirements decreases the
    risk, complying with lesser requirements must increase the risk. The
    risk difference is probably not knowable in advance, and knowing the
    technical capabilities involved the risk difference is probably small,
    but it is not zero.
        It is important to remember the CAIB is talking about risk to the
    Orbiter from debris shedding events. There are many other factors
    involved that influence the total risk equation, sometimes very
    significantly. One of the more significant factors is the heavy cargo
    loads that are frequently carried to the ISS at high inclinations,
    which creates risk factors of their own. We did not look at total
    mission risk and I am not prepared to analyze the total risk equation
    for all possible Shuttle missions. Further, the CAIB specifically used
    the generic term ``non-ISS'' missions to avoid any judgments regarding
    the relative value of one mission over another.
        Bottom line: Complying fully with the CAIB's RTF recommendations is
    less a challenge when factoring in the ISS. The CAIB allowed more
    latitude in complying with our recommendations for non-ISS missions,
    which may be slightly more risky, taking into account only the debris
    shedding threat to the Orbiter.
        Senator, in Chapter Nine of our Report, titled: ``Implications for
    the Future of Human Space Flight'', we made the declarative statement
    that: ``It is the view of the Board that the present Shuttle is not
    inherently unsafe''. We were under no pressure to conclude either way
    on this issue. But I always like to point out that there are two
    negatives in that quote. We are not saying the Shuttle is ``safe'', it
    certainly is not by any common understanding of the word ``safe''. Nor
    are we saying it is unsafe and should be abandoned. Our study and
    report are designed to help NASA manage the substantial risks involved.
    I suggest only a deep and rich study of the entire gain/risk equation
    can answer the question of whether an extension of the life of the
    wonderful Hubble telescope is worth the risks involved, and that is
    beyond the scope of this letter. What I have attempted to do is offer a
    very frank review of the risks to all Shuttle operations, Hubble or
    non-Hubble, as we understand them.
        I hope this letter is useful, and as always, I am prepared to
    answer any questions you or your committee may have.
                Very respectfully,
                                         Harold W. Gehman, Jr.,
                                                   Admiral, USN (Ret.).

        Senator Bond. Thank you, Senator Mikulski.
        I appreciate your very thoughtful comments. I now turn to
    Senator Shelby, our colleague from Alabama.
        Senator Shelby. Mr. Chairman, first I would like to ask
    that my entire written statement be made part of the record.
        Senator Bond. Without objection.
        Senator Shelby. And I will be brief.

                     STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. Mr. Chairman, I want to associate myself
    with your remarks. I thought you, as chairman of the committee,
    laid out a lot of our concerns, as well as did the former
    chairman and now ranking Senator Mikulski. A lot of our
    concerns and a lot of our questions.
        And I had the pleasure, yesterday, of meeting with Mr.
    O'Keefe. I, like you, hold him in high regard, but there are a
    lot of serious questions that we've got to probe here. We've
    got to figure out what we can do, and why we're abandoning--or
    should we abandon some things that are very important to the
    future. And I think that Senator Mikulski's idea about dealing
    with the National Academy of Sciences and getting their opinion
    on a lot of things is very sound.
        Other than that, Mr. Chairman, I am awaiting the remarks of
    Mr. O'Keefe.
        Thank you.
        Senator Bond. Thank you very much, Senator Shelby.
        Mr. Administrator, please go ahead.

                    STATEMENT OF ADMINISTRATOR SEAN O'KEEFE

        Mr. O'Keefe. Thank you, Mr. Chairman, members of the
    Committee. It is a pleasure to be here and I thank you very
    much for the opportunity to return to very familiar grounds,
    having served on the Appropriations Committee staff in a prior
    life. I am always delighted to be back before this forum. If
    you permit me, sir, I will submit for the record my prepared
    statement and be very brief in my summary of it.
        Senator Bond. Without objection. We will be happy to have
    your comments.
        Mr. O'Keefe. Thank you, Mr. Chairman.
        First and foremost, I think the debate that was launched as
    the consequence of the CAIB report to establish a national
    vision, to have a focus and a set of objectives that would be
    articulated for the Nation's space policy, is an element that
    certainly after the CAIB report, was engaged in vigorously in
    all the appropriate oversight committees of Congress, as well
    as in broader fora within the space community. Those calls for
    a vision were answered.
        The President responded to that. On January 14, he
    established very firmly, through a long, extensive inter-agency
    process that involved many other agencies of the Federal
    Government in addition to NASA, a collaborative position, that
    he forwarded on that date, that very clearly articulated a new
    direction, a new focus, and a new strategy for our space
    exploration objectives.
        It is a destiny as explorers as opposed to about a
    destination. There is a very clear statement that he made that
    establishes that explorations are our primary focus and
    objective as opposed to trying to set individual destinations
    milestones. So when those calls for a vision were made, it was
    received and that's precisely what he ultimately stated.
        Interestingly, the National Academy of Sciences on a
    different matter entirely endorsed that particular approach in
    a study they just released here from the National Academy of
    Sciences and Engineering, through the National Research
    Council, where it very clearly articulates the proposal of a
    broader exploration and discovery agenda for the purpose of
    developing the technologies to achieve those tasks.
        In that regard, we're gratified to see the National Academy
    of Sciences' view that helps us move in the direction of
    implementing the strategy, I think in very constructive ways.
    In addition to what we will see from the Aldridge Commission,
    that as you mentioned, Mr. Chairman, will be convening and
    devising implementation strategies as well.
        Secondly, it is about the Earth. It is about the moon. It's
    about Mars. It's about beyond. It's one stepping stone at a
    time. A very specific strategy the President laid out that
    identifies the approaches on how we would achieve that by
    degrees and by increments, as opposed by destinations and by,
    you know, breakneck type of crash programs that have typified
    the approaches we have taken in the past. That's not what he
    articulated here.
        Indeed, the Mars successes you've referred to in your
    statements, are one of first steps in that direction, an
    advanced guard, if you will, that establishes those precursor
    missions necessary to inform subsequent missions that would
    follow.
        Thirdly, it is about, as he articulated, an impact to all
    of our lives here on Earth. For every dollar expended for NASA
    related activities, $7 are spun-off into the economy in a
    variety of different ways of technology developments that would
    not have occurred were it not for those approaches. They affect
    a broad range of things beyond the aerospace and aeronautics
    community, also a range of medical advances that certainly have
    benefitted as a result of those activities.
        To your point, I think raised by Senator Mikulski, people
    really care. Eight billion hits to the website in a span of no
    more than 2 months is a phenomenal testimony to the interest
    that folks have. It isn't just Mars. About 30 percent of those
    hits have been to the Mars-related kinds of websites. The other
    70 percent is the range of all other activities that we're
    engaged in. By comparison, all of last year, the websites
    received hits of 2.8 billion, all of last year. So, this has
    been a factor of 3-plus over the levels we have already seen,
    just in the span of 60 days. There is no question that the
    interest level is high. People care about what we're engaged
    in, and are excited and inspired by the notion of it.
        Finally, it is about, as has been traditionally a nature of
    the debate, not just about people, or human space flight, or
    about robotics, it is about both. It's a combination of both
    efforts. I think Senator Mikulski, you summarized that very
    well, in one of the stellar successes of how that capability
    between humans and robotic capabilities, as demonstrated by the
    Hubble Space Telescope, for example, over the years, some
    extraordinary achievements in that regard.
        It's a precursor or effort, if you will, of establishing
    how that can be done and set the precedent in so many ways of
    what the strategy that the President articulated. In this
    particular case, it would apply for each successive venture
    that we follow from here on.
        Let me just summarize and conclude by asking that the video
    be keyed-up at this point that articulates what that direction
    is. It's a short discussion, but it moves through the very
    specific objectives and agenda of what is involved in this
    strategy, in words that the President articulated and
    established on the 14 of January.
        If we could.
        Mr. Chairman, as the President summarized, it is a journey,
    not a race and we have designed the budget in order to assure
    that it is that way. The approach that we have taken to this as
    illustrated by this one graph, is based on long term
    affordability, not a balloon payment. Something that
    progressively builds on successes before we move ahead to the
    next stage.

                               PREPARED STATEMENT

        And again, I would ask your consent, sir, to insert for the
    record the National Academy of Sciences' study on these efforts
    and what these objectives should be, and we will certainly
    debate the question of how deliberately we are in the process
    of implementing it.
        I thank you, sir.
        Senator Bond. It will be accepted for the record, and I
    thank you very much.
        [The statement follows:]

                Prepared Statement of Administrator Sean O'Keefe

        Mr. Chairman and Members of the committee, thank you for this
    opportunity to appear today to discuss NASA's fiscal year 2005 budget
    request. On January 14th, the President visited NASA Headquarters and
    announced his Vision for U.S. Space Exploration. In his address, the
    President presented a vision that is bold and forward-thinking, yet
    practical and responsible--one that explores answers to longstanding
    questions of importance to science and society and develops
    revolutionary technologies and capabilities for the future, while
    maintaining conscientious stewardship of taxpayer dollars.
        The vision forms the basis of the new U.S. space exploration
    policy, ``A Renewed Spirit of Discovery,'' a copy of which is appended
    to this testimony as Enclosure 1. This policy is the product of months
    of extensive and careful deliberation. The importance of these
    deliberations increased with the findings of the Columbia Accident
    Investigation Board, which emphasized the importance of setting clear,
    long-term goals for the Nation's human space flight program. Inputs
    from Members of Congress informed the administration's deliberations.
    Many others contributed ideas for the future of the space program.
    These deliberations were also the basis for formulating the President's
    fiscal year 2005 budget request for NASA. A commission appointed by the
    President will advise NASA on specific issues for implementation of the
    policy's goals within 4 months.
        Today, I will summarize the President's fiscal year 2005 budget
    request for NASA, discuss the goals set forth in the new U.S. space
    exploration policy, outline the major implementation elements and their
    associated budget details, explain the implications of this directive
    for NASA's organization, and describe what the Nation's future in
    exploration and discovery will look like in the coming years.

                        FISCAL YEAR 2005 BUDGET SUMMARY

        The President's fiscal year 2005 budget request for NASA is $16.244
    billion, a 5.6 percent increase over fiscal year 2004, as reflected in
    Enclosure 2. The NASA budget request is designed with four key
    principles in mind:
        Compelling.--The budget fully supports the Vision for U.S. Space
    Exploration, and provides for ongoing NASA mission priorities such as
    Aeronautics and Earth Science.
        Affordable.--The budget is fiscally responsible and consistent with
    the administration's goal of cutting the Federal deficit in half within
    the next 5 years. NASA's fiscal year 2005 budget will increase by $1
    billion over 5 years, when compared with the President's fiscal year
    2004 plan; that is an increase of approximately 5 percent per year over
    each of the next 3 years and approximately 1 percent for each of the
    following 2 years.
        Achievable.--The budget strategy supporting the vision for
    sustainable exploration will not require large balloon payments by
    future Congresses and administrations. Unlike previous major civil
    space initiatives, this approach is intentionally flexible, with
    investments in sustainable exploration approaches to maintain
    affordability. After fiscal year 2009, the budget projects that the
    exploration vision can be implemented within a NASA budget that keeps
    pace with inflation.
        Focused.--The budget begins the alignment of NASA's program
    structure with the exploration vision. We now have the needed compass
    with which to evaluate our programs and make the required tough
    decisions.

                                  VISION GOALS

        The fundamental goal of this new policy is to advance U.S.
    scientific, security, and economic interests through a robust space
    exploration program. In support of this goal, NASA will:
      --Implement a sustained and affordable human and robotic program to
            explore the Solar System and beyond;
      --Extend human presence across the Solar System, starting with a
            human return to the Moon by the year 2020, in preparation for
            the human exploration of Mars and other destinations;
      --Develop the innovative technologies, knowledge, and infrastructures
            both to explore and to support decisions about destinations for
            future human exploration; and
      --Promote international and commercial participation in exploration
            to further U.S. scientific, security, and economic interests.

                 IMPLEMENTATION ELEMENTS AND BUDGET HIGHLIGHTS

        To achieve these goals, NASA will plan and implement an integrated,
    long-term robotic and human exploration program, structured with
    measurable milestones and executed on the basis of available resources,
    accumulated experience, and technology readiness. The policy envisions
    the following major implementation elements:
        Space Shuttle.--NASA will safely return the Space Shuttle to flight
    as soon as practical, based on the recommendations of the Columbia
    Accident Investigation Board. The budget includes $4.3 billion for the
    Space Shuttle, a 9 percent increase above fiscal year 2004. Included in
    this total is an estimated $238 million for Return to Flight (RTF)
    activities in fiscal year 2005. The RTF activities are under evaluation
    to confirm the estimated cost and associated out year phasing. The
    focus of the Space Shuttle will be finishing assembly of the
    International Space Station (ISS). With its job done, the Space Shuttle
    will be phased out when assembly of the ISS is complete, planned for
    the end of the decade. NASA will determine over the next year how best
    to address the issues associated with the safe retirement of the Space
    Shuttle fleet.
        International Space Station.--NASA plans to complete assembly of
    the International Space Station by the end of the decade, including
    those U.S. components that will ensure our capability to conduct
    research in support of the new U.S. space exploration goals, as well as
    those elements planned and provided by foreign partners. The budget
    provides $1.9 billion for ISS assembly and operations, a 24 percent
    increase above fiscal year 2004. This increase forward funds $100
    million in reserves to partially restore planned near-term reserve
    levels following the $200 million congressional cut to Space Station in
    fiscal year 2004 and provides $140 million in new funding for
    transportation services to the Space Station. We will separate, to the
    maximum extent practical, crew and cargo transportation for both ISS
    and exploration missions. NASA will acquire ISS crew transport as
    required and will acquire cargo transportation as soon as practical and
    affordable. NASA envisions that commercial and/or foreign capabilities
    will provide these services.
        The administration is also prepared to address issues associated
    with obtaining foreign transportation services to the Space Station,
    including provisions of the Iran Nonproliferation Act, but, until the
    ISS Partnership adopts a specific implementation strategy, it is
    premature to identify specific issues.
        U.S. research activities aboard the ISS will be focused to support
    the new exploration goals, with an emphasis on understanding how the
    space environment affects astronaut health and capabilities, and on
    developing appropriate countermeasures to mitigate health concerns. ISS
    will also be vital to developing and demonstrating improved life
    support systems and medical care. Consistent with this focus, the
    budget provides $343 million, a 61 percent increase above the fiscal
    year 2004 request, for bioastronautics research to understand and
    mitigate risks to humans on exploration missions. Over the next year,
    the Biological and Physical Research Enterprise will conduct a thorough
    review of all research activities to ensure that they are fully aligned
    with and supportive of the new exploration vision.
        New Space Transportation Capabilities.--The budget provides $428
    million to begin a new Crew Exploration Vehicle, named Project
    Constellation, which will provide crew transport for exploration
    missions beyond low-Earth orbit. The current budget planning is based
    on formulation concept studies to be conducted in fiscal year 2004,
    preliminary design activities conducted in fiscal year 2005-2006, a
    System Design Review in fiscal year 2005, and a Preliminary Design
    Review in fiscal year 2006. NASA plans to develop Project Constellation
    in a step-by-step approach, with an initial unpiloted test flight as
    early as 2008, followed by tests of progressively more capable designs
    that provide an operational human-rated capability no later than 2014.
    Project Constellation may also provide transportation to the Space
    Station, but its design will be driven by exploration requirements.
        NASA does not plan to pursue new Earth-to-orbit transportation
    capabilities, except where necessary to support unique exploration
    needs, such as those that could be met by a heavy lift vehicle. The
    budget discontinues the Space Launch Initiative, although knowledge
    gained on the Orbital Space Plane will be transferred to Project
    Constellation.
        Lunar Exploration.--NASA will undertake lunar exploration and
    demonstration activities to enable the sustained human and robotic
    exploration of Mars and other destinations in the Solar System.
    Beginning no later than 2008, NASA plans to launch the first in a
    series of robotic missions to the Moon to prepare for and support human
    exploration activities. The budget provides $70 million for these
    robotic lunar test beds, increasing to $420 million by fiscal year
    2009. The policy envisions the first human expedition to the lunar
    surface as early as 2015, but no later than 2020. These robotic and
    human missions will further science and demonstrate new approaches,
    technologies, and systems--including the use of space resources--to
    support sustained human exploration to Mars and other destinations.
        Exploration of Mars.--The stunning images we have received since
    January 2004 from Mars, and the recent findings by the Opportunity
    Rover of evidence of water on the Meridiani Planum, lay the foundation
    of the Vision for U.S. Space Exploration. NASA will enhance the ongoing
    search for water and evidence of life on Mars by pursuing technologies
    in this decade to be incorporated into advanced science missions to
    Mars in the next decade. Also starting in the next decade, NASA will
    launch a dedicated series of robotic missions to Mars that will
    demonstrate greatly enhanced capabilities and enable the future human
    exploration of the Red Planet. The budget provides $691 million for
    Mars Exploration, a 16 percent increase over fiscal year 2004, and will
    double Mars Exploration funding by fiscal year 2009. NASA will conduct
    human expeditions to Mars and other destinations beyond Earth orbit on
    the basis of available resources, accumulated experience, and
    technology readiness.
        Other Solar System Exploration.--Over the next two decades, NASA
    will conduct an increasingly capable campaign of robotic exploration
    across the Solar System. The budget provides $1.2 billion for Solar
    System Exploration missions to Jupiter's icy moons, to Saturn and its
    moon Titan, to asteroids and comets, and to other Solar System bodies.
    These missions will search for potentially habitable environments,
    evidence of life, and resources, and help us to understand the history
    of the Solar System.
        Extrasolar Planets.--NASA will launch advanced space telescopes
    that will search for Earth-like planets and habitable environments
    around other stars. The budget includes $1.1 billion for the
    Astronomical Search for Origins, a 19 percent increase over fiscal year
    2004, to support the recently launched Spitzer Space Telescope, James
    Webb Space Telescope development, as well as several future
    observatories. This funding also supports investments to extend the
    lifetime of the Hubble Space Telescope to the maximum extent possible
    without a Shuttle servicing mission and to safely deorbit the
    observatory when its science operations cease.
        Enabling Capabilities.--NASA will pursue a number of key
    capabilities to enable sustainable human and robotic exploration across
    the Solar System. Among the most important of these capabilities is
    advanced power and propulsion, and the budget provides $438 million for
    Project Prometheus to develop these technologies for future robotic and
    human exploration missions. The budget also includes $636 million in
    other Human and Robotic Technology funding to pursue sustainable
    approaches to Solar System exploration, such as reusable and modular
    systems, pre-positioned propellants, space resource utilization,
    automated systems and robotic networks, and in-space assembly. These
    technologies and techniques will be demonstrated on the ground, in
    orbit, and on the Moon beginning in this decade and extending into the
    next to help inform future exploration decisions. The budget projects
    that funding for these Human and Robotic Technology investments will
    grow to $1 billion by fiscal year 2009.
        The budget also includes innovative opportunities for U.S.
    industry, academia, and members of the public to help meet the
    technical challenges inherent in the new space exploration vision. The
    budget includes $20 million for the new Centennial Challenges program,
    which will establish competitions to stimulate innovation in space and
    aeronautical technologies that can advance the exploration vision and
    other NASA missions. The budget also provides $10 million for NASA to
    purchase launch services for its payloads from emerging launch vehicle
    providers. And as previously mentioned, the budget includes $140
    million for Space Station transportation services.
        Ongoing Priorities.--The budget supports the Vision for U.S. Space
    Exploration, while maintaining NASA commitments in other important
    roles and missions.
        NASA continues its commitment to understanding our changing global
    climate. The budget makes NASA the largest contributor to the
    interagency Climate Change Science Program with $100 million for the
    Climate Change Research Initiative. The budget includes $560 million
    for Earth System Science research, a 7 percent increase above fiscal
    year 2004, to support research on data from 80 sensors on 18 satellites
    currently in operation. Work also continues on Earth observation
    missions in development or formulation, including $141 million (a 36
    percent increase from fiscal year 2004) for the National Polar Orbiting
    Environmental Satellite System Preparatory Project, and $240 million (a
    37 percent increase from fiscal year 2004) for missions in formulation,
    such as the Orbiting Carbon Observatory, Aquarius, and Hydros, as well
    as the Landsat Data Continuity Mission.
        NASA maintains planned Aeronautics Technology investments to
    improve our Nation's air system. The budget includes: $188 million, a 4
    percent increase above fiscal year 2004, for technology to reduce
    aircraft accidents and improve the security of our Nation's aviation
    system against terrorist threats; $72 million, an 11 percent increase
    above fiscal year 2004, for technology to reduce aircraft noise and
    improve the quality of life for residents living near airports; $209
    million for technology to reduce aircraft emissions and improve
    environmental quality; and $154 million for technologies to increase
    air system capacity and reduce delays at the Nation's airports.
        NASA will continue to make fundamental advances in our knowledge of
    the Sun and the Universe. The budget provides $746 million for Sun-
    Earth Connection missions, including the Solar Dynamics Observatory and
    the Solar-Terrestrial Relations Observatory. The budget also provides
    $378 million for Structure and Evolution of the Universe missions,
    including the Chandra X-ray Observatory and three major missions
    currently under development.
        NASA maintains its role in science, engineering and math education.
    The budget includes $10 million for the newly authorized Science and
    Technology Scholarship program, which will help attract the Nation's
    best college students to NASA science and engineering careers. The
    budget also provides $14 million for the NASA Explorer Schools program,
    which seeks to attract students to mathematics and science during the
    critical middle school years. The Explorer Schools program is entering
    its third phase and will be selecting 50 new schools for a total of 150
    participating schools.
        NASA's education programs are, and will continue to be imbedded and
    directly linked to our vision for space exploration. Students now have
    unprecedented opportunities to engage in NASA flight programs, the
    observation of distant galaxies, and the robotic exploration of distant
    planets. Mission experiences link students and classrooms to NASA's
    diverse personnel, research facilities, telescopes, and planetary
    probes. Our successful efforts to ``inspire the next generation of
    explorers'' sustain a continuous pipeline of scientists, technologists,
    engineers, mathematicians, and teachers to carry forward our Nation's
    exploration goals.
        Management of Human Capital, Facilities and Institution.--NASA has
    the distinction of being the only Federal agency to earn top grades for
    the Human Capital and Budget and Performance Integration initiatives
    under the President's Management Agenda. Congress recently passed the
    NASA Flexibility Act of 2004. NASA is grateful for the hard work of
    this committee in shaping this legislation to provide the necessary
    flexibilities to better manage the NASA workforce. These flexibilities
    will be critical to implementing the exploration vision. The budget
    includes $25 million in fiscal year 2005 to begin to address critical
    workforce skill and aging issues. NASA ratings have also improved in
    the Competitive Sourcing and E-Government initiatives, resulting in
    more total improvements than in any other agency. Although we received
    a disclaimed opinion on our recent audit statement, we are determined
    to pursue the right path in Financial Management bringing on a new
    financial system that will standardize accounting across the Agency and
    provide the tools necessary for improved program management. NASA
    remains committed to management excellence and believes it is essential
    to implementing the new exploration vision.
        The budget includes funding for critical institutional
    capabilities, including $77 million for the NASA Engineering Safety
    Center and $27 million for our software Independent Verification and
    Validation facility. The budget also provides $307 million, a $41
    million increase versus fiscal year 2004, for facilities maintenance.

                           ORGANIZING FOR EXPLORATION

        To successfully execute the exploration vision, NASA will re-focus
    its organization, create new offices, align ongoing programs,
    experiment with new ways of doing business, and tap the great
    innovative and creative talents of our Nation.
        The President has issued an Executive Order establishing a
    commission of private and public sector experts to advise us on these
    issues. Pete Aldridge former Undersecretary of Defense and Secretary of
    the Air Force, is Chair of the Commission. The President has named
    eight other commissioners to join Mr. Aldridge. The commission will
    issue its report within 4 months of its first meeting, which was held
    on February 11, 2004.
        Immediately following the President's speech, we established an
    Exploration Systems Enterprise, which will have the responsibility for
    developing the Crew Exploration Vehicle and other exploration systems
    and technologies. Retired U.S. Navy Rear Admiral Craig Steidle, former
    manager of the Defense Department's Joint Strike Fighter Program, is
    heading this new organization. Relevant programs of the Aerospace
    Technology, Space Science, and Space Flight enterprises are being
    transferred to the Exploration Systems Enterprise. The Aerospace
    Technology Enterprise has been renamed the Aeronautics Enterprise to
    reflect its new focus.
        As human explorers prepare to join their robotic counterparts,
    coordination and integration among NASA's diverse efforts will
    increase. The Exploration Systems Enterprise will work closely with the
    Space Science Enterprise to use the Moon to demonstrate new approaches,
    technologies, and systems to support sustained human exploration.
    NASA's Space Science Enterprise will have the responsibility for
    implementing early robotic testbeds on the Moon and Mars, and will also
    demonstrate other key exploration technologies--such as advanced power
    and communications--in missions to Mars and Jupiter's moons. NASA's
    Space Science Enterprise will eventually integrate human capabilities
    into exploration planning for Mars and other destinations.
        Many other elements of the NASA organization will be focused to
    support this new direction. NASA's Biological and Physical Research
    Enterprise will put much greater emphasis on bioastronautics research
    to enable the human exploration of other worlds. NASA's Office of the
    Space Architect will be responsible for integrating the exploration
    activities of NASA's different Enterprises and for maintaining
    exploration roadmaps and coordinating high-level requirements.
        As we move outward into the Solar System, NASA will look for
    innovative ideas from the private sector and academia to support
    activities in Earth orbit and future exploration activities beyond.
    Many of the technical challenges that NASA will face in the coming
    years will require innovative solutions. In addition to tapping
    creative thinking within the NASA organization, we will leverage the
    ideas and expertise resident in the Nation's universities and industry.
        In his speech, the President directed NASA to invite other nations
    to share in the challenges and opportunities of this new era of
    exploration and discovery, and he directed us to fulfill our standing
    international commitments on ISS. We are discussing the impact of our
    vision implementation plans on the ISS with our partners, and as I have
    already indicated, we will complete the assembly of the ISS. The
    President called our future course of exploration ``a journey, not a
    race,'' and other nations have reacted positively to the Vision;
    several have already contacted us about joining in this journey.
    Building on NASA's long history and extensive and close ties with the
    space and research agencies of other nations, we will actively seek
    international partners in executing future exploration activities
    ``that support U.S. goals'' or ``wherever appropriate''.
        NASA will also invigorate its workforce, focus its facilities, and
    revitalize its field centers. As exploration activities get underway,
    NASA anticipates planning, reviews, and changes to align and improve
    its infrastructure. In order to achieve the exploration vision, we will
    be making decisions on how to best implement new programs. While some
    of these necessary actions will be difficult, they are essential to
    achieving the goals of the overall effort before us. I urge you to
    consider the full context of what we will be proposing rather than any
    isolated, specific action. Such a perspective will allow us to move
    forward in implementing the vision.

                        FISCAL YEAR 2003 ACCOMPLISHMENTS

        Much of the NASA's future ability to achieve the new space
    exploration vision is predicated on NASA's many previous
    accomplishments. The most visible NASA successes over the past year are
    the Spirit and Opportunity rovers currently on Mars. Already, the
    landscapes imaged by these twin rovers and their initial science
    returns are hinting at fundamental advances in our understanding of
    early environmental conditions on Mars; last week's announcement
    regarding the discovery of evidence that there was once liquid water on
    Mars' surface is a dramatic example of such an advance.
        However, Spirit and Opportunity are not the only recent NASA
    mission successes. NASA and its partners successfully launched seven
    new Space Science missions (including the two Mars rovers), three new
    Earth Science missions, one new NASA communications relay satellite,
    and completed two Space Station deployment missions. Operating missions
    have achieved a number of notable successes, including the Stardust
    mission's successful flight through the tail of Comet Wild-2, initial
    images from the recently launched Spitzer Space Telescope, a 10- to
    100-fold improvement in Earth's gravity map from the GRACE satellite,
    the most accurate maps of Earth temperatures to date from the Aqua
    satellite, and new insights into space weather and solar activity from
    Sun-Earth Connection missions.
        NASA exceeded or met 83 percent of its annual performance goals for
    fiscal year 2003. Among these accomplishments were demonstrations of
    new systems to improve air traffic control and to combat aircraft
    icing, improvements in battery, telescope sensor, and life support
    technologies; fundamental advances in understanding states of matter
    (from Space Station research); and the implementation of new remote
    sensing tools for tracking diseases and wild fires.

                THE NATION'S FUTURE IN EXPLORATION AND DISCOVERY

        As the President stated in his speech, we are embarking on a
    journey, not a race. We begin this journey of exploration and discovery
    knowing that many years of hard work and sustained effort will be
    required, yet we can look forward to achieving concrete results in the
    near term. The vision makes the needed decisions to secure long-term
    U.S. space leadership. It provides an exciting set of major milestones
    with human and robotic missions. It pursues compelling science and
    cutting-edge technologies. It invites new ideas and innovations for
    accomplishing these bold, new endeavors. And it will provide the
    opportunity for new generations of Americans to explore, innovate,
    discover, and enrich our Nation in ways unimaginable today. This
    challenging Vision provides unique opportunities for engaging students
    across the country, ``as only NASA can,'' to enter careers in science,
    engineering, technology, and math.
        I sincerely appreciate the forum that the subcommittee has provided
    today, and I look forward to responding to your questions.
                                     ______

                                  Enclosure 1
                         A Renewed Spirit of Discovery

    THE PRESIDENT'S VISION FOR U.S. SPACE EXPLORATION--PRESIDENT GEORGE W.
                              BUSH, JANUARY, 2004

    Background
        From the Apollo landings on the Moon, to robotic surveys of the Sun
    and the planets, to the compelling images captured by advanced space
    telescopes, U.S. achievements in space have revolutionized humanity's
    view of the universe and have inspired Americans and people around the
    world. These achievements also have led to the development of
    technologies that have widespread applications to address problems on
    Earth. As the world enters the second century of powered flight, it is
    time to articulate a new vision that will define and guide U.S. space
    exploration activities for the next several decades.
        Today, humanity has the potential to seek answers to the most
    fundamental questions posed about the existence of life beyond Earth.
    Telescopes have found planets around other stars. Robotic probes have
    identified potential resources on the Moon, and evidence of water--a
    key ingredient for life--has been found on Mars and the moons of
    Jupiter.
        Direct human experience in space has fundamentally altered our
    perspective of humanity and our place in the universe. Humans have the
    ability to respond to the unexpected developments inherent in space
    travel and possess unique skills that enhance discoveries. Just as
    Mercury, Gemini, and Apollo challenged a generation of Americans, a
    renewed U.S. space exploration program with a significant human
    component can inspire us--and our youth--to greater achievements on
    Earth and in space.
        The loss of Space Shuttles Challenger and Columbia and their crews
    are a stark reminder of the inherent risks of space flight and the
    severity of the challenges posed by space exploration. In preparation
    for future human exploration, we must advance our ability to live and
    work safely in space and, at the same time, develop the technologies to
    extend humanity's reach to the Moon, Mars, and beyond. The new
    technologies required for further space exploration also will improve
    the Nation's other space activities and may provide applications that
    could be used to address problems on Earth.
        Like the explorers of the past and the pioneers of flight in the
    last century, we cannot today identify all that we will gain from space
    exploration; we are confident, nonetheless, that the eventual return
    will be great. Like their efforts, the success of future U.S. space
    exploration will unfold over generations.

    Goal and Objectives
        The fundamental goal of this vision is to advance U.S. scientific,
    security, and economic interests through a robust space exploration
    program. In support of this goal, the United States will:
      --Implement a sustained and affordable human and robotic program to
            explore the solar system and beyond;
      --Extend human presence across the solar system, starting with a
            human return to the Moon by the year 2020, in preparation for
            human exploration of Mars and other destinations;
      --Develop the innovative technologies, knowledge, and infrastructures
            both to explore and to support decisions about the destinations
            for human exploration; and
      --Promote international and commercial participation in exploration
            to further U.S. scientific, security, and economic interests.
    Bringing the Vision to Reality
        The Administrator of the National Aeronautics and Space
    Administration will be responsible for the plans, programs, and
    activities required to implement this vision, in coordination with
    other agencies, as deemed appropriate. The Administrator will plan and
    implement an integrated, long-term robotic and human exploration
    program structured with measurable milestones and executed on the basis
    of available resources, accumulated experience, and technology
    readiness.
        To implement this vision, the Administrator will conduct the
    following activities and take other actions as required:
                Exploration Activities in Low Earth Orbit
                Space Shuttle
      --Return the Space Shuttle to flight as soon as practical, based on
            the recommendations of the Columbia Accident Investigation
            Board;
      --Focus use of the Space Shuttle to complete assembly of the
            International Space Station; and
      --Retire the Space Shuttle as soon as assembly of the International
            Space Station is completed, planned for the end of this decade;
                International Space Station
      --Complete assembly of the International Space Station, including the
            U.S. components that support U.S. space exploration goals and
            those provided by foreign partners, planned for the end of this
            decade;
      --Focus U.S. research and use of the International Space Station on
            supporting space exploration goals, with emphasis on
            understanding how the space environment affects astronaut
            health and capabilities and developing countermeasures; and
      --Conduct International Space Station activities in a manner
            consistent with U.S. obligations contained in the agreements
            between the United States and other partners in the
            International Space Station.
                Space Exploration Beyond Low Earth Orbit
                The Moon
      --Undertake lunar exploration activities to enable sustained human
            and robotic exploration of Mars and more distant destinations
            in the solar system;
      --Starting no later than 2008, initiate a series of robotic missions
            to the Moon to prepare for and support future human exploration
            activities;
      --Conduct the first extended human expedition to the lunar surface as
            early as 2015, but no later than the year 2020; and
      --Use lunar exploration activities to further science, and to develop
            and test new approaches, technologies, and systems, including
            use of lunar and other space resources, to support sustained
            human space exploration to Mars and other destinations.
                Mars and Other Destinations
      --Conduct robotic exploration of Mars to search for evidence of life,
            to understand the history of the solar system, and to prepare
            for future human exploration;
      --Conduct robotic exploration across the solar system for scientific
            purposes and to support human exploration. In particular,
            explore Jupiter's moons, asteroids and other bodies to search
            for evidence of life, to understand the history of the solar
            system, and to search for resources;
      --Conduct advanced telescope searches for Earth-like planets and
            habitable environments around other stars;
      --Develop and demonstrate power generation, propulsion, life support,
            and other key capabilities required to support more distant,
            more capable, and/or longer duration human and robotic
            exploration of Mars and other destinations; and
      --Conduct human expeditions to Mars after acquiring adequate
            knowledge about the planet using robotic missions and after
            successfully demonstrating sustained human exploration missions
            to the Moon.
                Space Transportation Capabilities Supporting Exploration
      --Develop a new crew exploration vehicle to provide crew
            transportation for missions beyond low Earth orbit;
        --Conduct the initial test flight before the end of this decade in
                order to provide an operational capability to support human
                exploration missions no later than 2014;
      --Separate to the maximum practical extent crew from cargo
            transportation to the International Space Station and for
            launching exploration missions beyond low Earth orbit;
        --Acquire cargo transportation as soon as practical and affordable
                to support missions to and from the International Space
                Station; and
        --Acquire crew transportation to and from the International Space
                Station, as required, after the Space Shuttle is retired
                from service.
                International and Commercial Participation
      --Pursue opportunities for international participation to support
            U.S. space exploration goals; and
      --Pursue commercial opportunities for providing transportation and
            other services supporting the International Space Station and
            exploration missions beyond low Earth orbit.
                                     ______

                                  Enclosure 2

        [Clerk's Note.--The additional information referred to has
    been retained in Committee files.]
        Senator Bond. We've been joined by the chairman of the full
    committee. Mr. Chairman, would you have any comments?

                        STATEMENT OF SENATOR TED STEVENS

        Senator Stevens. I welcome the Administrator, and I
    congratulate him on the success of his mission so far, and look
    forward to working with him in the years to come.
        Mr. O'Keefe. Thank you, sir.
        Senator Stevens. I think we ought to each put in a little
    reservation for some space on that trip in 2015.
        Mr. O'Keefe. Thank you, Mr. Chairman, it's a pleasure to
    see you.
        Senator Bond. Mr. Chairman, I would be happy to defer to
    you. You can have my slot.
        Senator Stevens. Well they sent something up. I think it
    was 80 years of age, and I think I will put in for my
    reservation when I'm 90 years of age.

                               SHUTTLE RETIREMENT

        Senator Bond. If you want to go, we will work it out.
        Mr. Administrator, at this time, the shuttle is the only
    U.S. vehicle capable of taking astronauts to and from space.
    Under the new vision for NASA, the shuttle would be retired and
    the space station constructed and completed in 2010. That's
    optimistic.
        A new Crew Exploration Vehicle (CEV) would be developed and
    fully operational for orbital missions by 2014. What will be
    the consequences of a 4-year and possibly longer hiatus, in
    U.S. flown human space flights. And how many staff will we lose
    and how will we restart the manned-space flight program after a
    4-year hiatus?
        Mr. O'Keefe. That's a fair point and one that really
    devoted an awful lot of attention during this inter-agency
    process towards that kind of gap period. Because as you recall,
    in our efforts to develop the Orbital Space Plane (OSP), last
    year, of which the Crew Exploration Vehicle, Project
    Constellation, is a natural evolution and derivative of that.
    And builds on everything we did on the Orbital Space Plane
    program.
        The earliest we could attain a full-up, human-rated system
    based on all the trade studies in the industry assessment, was
    by the 2010 time frame. So the approach that we've taken here
    with the Crew Exploration Vehicle and Project Constellation, as
    articulated in the Vision for Space Exploration, is to use the
    spiral development approach to demonstrate the capability as
    early as 2008, on the first spiral that needs to be done.
        So you would build each of the respective components and
    parts and launch as necessary, and as ready, to demonstrate
    that capability. That will give us time to assess this question
    of what kind of a gap might actually exist. It could occur, if
    it were successful, that we could move this much earlier. The
    catch is we're not building this on a success-driven strategy
    that inserts schedule pressure in that process and makes it a
    demand, so that you can't retire before the time.

                           CREW TRANSFER REQUIREMENTS

        Senator Bond. What are we going to have to pay Russia for
    taking U.S. astronauts to and from the ISS? And how is NASA
    going to pay for such services given the Iran Non-Proliferation
    Act prohibiting NASA from paying Russia for ISS related
    activities.
        Mr. O'Keefe. Well, sir----
        Senator Bond. What are they getting for it?
        Mr. O'Keefe. Sir, so far it's part of their agreement and
    so we have paid not a dime more for their efforts in the last
    year to fully complement the crew transfer requirements to the
    International Space Station, to and from, given the grounding
    of the shuttle since February 1, 2003, in the wake of the
    Columbia tragedy.
        They have fulfilled the commitment. That is due to expire
    in 2006. We're in the works of negotiating with them what
    additional challenges, among all of us as partners, of what
    those additional costs will be in expanding the number of crew
    expedition missions. Because now, at this point, we can expand
    the crew size beyond three once we reach U.S. core complete
    configuration in a year, or so, after we return to flight.
        From there, debating exactly what number of flights would
    be necessary from Soyuz vehicles, or after return to flight how
    many crew transfer requirements would be taken on the shuttle
    as part of our ongoing negotiations. So, in the course of that,
    I wouldn't want to predict right now what that may import. But
    so far it has cost nothing extra and nothing different. I
    associate myself entirely with your remarks, sir, that the
    partners have stepped up in this past year and demonstrated the
    real depth of this partnership by following through on their
    commitments and it hasn't taken any additional costs on the
    part of the United States in order to sustain the International
    Space Station capabilities thus far.

                               SOYUZ CAPABILITIES

        Senator Bond. Would the Soyuz meet the test that the Gehman
    Committee applied to the shuttle?
        Mr. O'Keefe. Yes, sir.
        Senator Bond. Has there been a similar examination of the
    safety of the Soyuz?
        Mr. O'Keefe. Yes, sir.
        Senator Bond. To make sure that we're sending them up on a
    safe vehicle?
        Mr. O'Keefe. The approach that we have used now
    consistently, and have really intensified, certainly in this
    period, that is the only means of transfer to and from the
    station, and return capability in the event of an emergency is
    by Soyuz, is to commission at every single flight a joint
    Russian-U.S. team of folks that were used.
        As a matter of fact, during the shuttle/Mir days, which was
    represented by Professor Amfimov, from the Russian
    Rosaviakosmos and Tom Stafford, an Apollo astronaut, with a
    team of folks who certify each and every flight as a prior
    flight readiness review effort, roughly a month before each of
    the expedition's crews depart.
        They come up with a comprehensive assessment of the safety
    standards that comport with that. We have insisted and the
    Russians have been extremely cooperative on this, of
    understanding the same parameters of medical, as well as
    technology standards that we adhere to, and they have been
    extremely helpful in working through that. So we have adjusted
    crews, we have made changes, and we have done all kinds of
    things as a consequence of the Stafford-Amfimov certification
    that occurs each and every flight. They will be meeting again
    here in about 3 weeks' time in preparation of the Expedition 9
    crew which is due to launch in the middle of April.
        Senator Bond. Senator Mikulski.

                            HUBBLE SERVICING MISSION

        Senator Mikulski. Thank you very much, Mr. Chairman.
        And I know my colleagues are here and so I will get right
    to my Hubble questions.
        Mr. O'Keefe, you have now received the Gehman letter
    containing his analysis of the Hubble servicing mission. Could
    you tell me your reaction to the Gehman letter, particularly
    the aspect where he recommends that we get additional advice.
    And our request to you that we go to the National Academy of
    Sciences for a more amplified analysis.
        Mr. O'Keefe. Thank you, Senator. Indeed, I associate myself
    entirely with your comments that Admiral Gehman issued a
    typical characteristically thoughtful commentary and review,
    and did in fact follow through on what I had suggested to you
    in our previous conversations, was for him to offer his unique
    view and perspective on this particular question. I think he
    offered that in addition to your comments, in a way, in which
    he said, by the changes in the non-station missions. We knew
    we're essentially reducing the requirements. Reducing the rigor
    of our requirements increases the risk and can't be seen any
    other way.
        That's in large measure looking at the Return to Flight
    challenges that we have been examining to comply with every one
    of those recommendations. Again, I am delighted to hear that
    your view, and I believe that of Congress, has been to say,
    yes, we are embracing the actions of the Columbia Accident
    Investigation Board's recommendations. It is our intent to
    implement them for each and every flight to assure that we do
    this to mitigate the risk to as low as we possibly can.
        Any further examination beyond that I think is welcomed.
    And to be sure, to the extent that on the Hubble servicing
    mission, and all of the alternatives that we have now, I think
    are excited by a Request for Information we issued in the early
    part of February, to ask what other approaches would we use to
    extend the battery life? What would we do to de-orbit in the
    early part of the next decade? What would we do to boost the
    capability, if need be?
        All of those factors, if we could include that in the
    equation--to look at what is, I believe, the broader objectives
    of what we all agree to, which is to get the maximum service
    life out of Hubble that we can--would be an acceptable approach
    to it.
        So asking the National Research Council through the
    National Academy of Sciences to examine that broader question
    of the range of alternatives and approaches that we use in
    order to maximize the service life of Hubble is something I
    have already engaged in discussions with Len Fisk, who runs the
    National Research Council, to determine their interest. They're
    very interested in pursuing that. As I understand you've done
    the same.
        We would welcome any ideas in terms of the broader scope of
    it in order to extend beyond the service life that we had
    anticipated of 2005. We're already going to exceed that. Let's
    figure out how we can do even better than that, short of
    encountering the risks that would be involved in a servicing
    mission.
        That ought to be included as well, and that's why the
    determination and judgment that I reached is that this is a
    higher risk. But if they look at the full plan and range of
    options, that's an approach that I think could be extremely
    beneficial for us all.

                              SERVICE MISSION RISK

        Senator Mikulski. First of all, that's a very constructive
    response, and I am going to thank you.
        Let's be sure that we understand the response. Number one,
    what Gehman recommended was a look at risk versus value. In
    other words, look at the value. Now what we asked for in the
    Mikulski-Bond, or Bond-Mikulski letter is for the National
    Academy of Sciences to look at the risk involved in a service
    mission, and what could make it as safe as possible, et cetera.
        What we want is, No. 1, implement what Gehman said he
    wanted studied. What you're saying, in addition to what Gehman
    wanted studied, and what I want studied on should we have a
    servicing mission, you're also wanting the National Academy to
    look at what else would be needed to extend the life of the
    Hubble. Is that correct?
        Mr. O'Keefe. Absolutely, Senator. I think that--oh, I'm
    sorry, please go ahead.
        Senator Mikulski. And then the third could be alternative
    methods for servicing. You know, there's a save the Hubble
    website. There's ideas coming in from all over the world. I am
    not asking the National Academy of Sciences to look at all of
    them. These ideas are what space scientists are all about, it
    is wild and creative. I wonder if you would also want them to
    look at alternative servicing methods, or----
        Mr. O'Keefe. Exactly. I think that's the approach. Let's
    go, and again, in the spirit of your comment, let's be sure
    that we're in full agreement on what the objectives would be
    here. The first one is, if we could fully agree that the
    objective is to comply with every recommendation of the CAIB
    for every shuttle flight, that's what NASA has embraced and
    that's what we intend to do.
        Senator Mikulski. And we're on the same broadband on that.
        Mr. O'Keefe. Yes, and I am very grateful to you, Senator,
    because that's the part that really worries me most.
        Senator Mikulski. So no matter what, because in the Gehman
    letter, he says this, the bottom line, says Admiral Gehman,
    shuttle risks are dangerous, and we should fly the minimum
    number necessary to complete mission. Almost all of the risk is
    concentrated in the front and the back of the mission. Where
    one goes into orbit makes little difference. That's one item.
        But in his final paragraph, he says, I suggest only a deep
    and rich study of the entire gain-risk equation can answer the
    questions of whether an extension of the life of the wonderful
    Hubble telescope is worth the risk. That's what I would like
    the National Academy of Sciences to look at.
        Your proposal, in addition to that, not in lieu of, would
    be to look also at should we not have a servicing mission, then
    how could we extend the life of the Hubble in its continued
    ability to discover while we're waiting. And I am now also
    wondering about your reaction to assessing alternative
    servicing methods as well.
        Mr. O'Keefe. No, as you suggested----
        Senator Mikulski. Is that----
        Mr. O'Keefe. Yes, ma'am. As you suggested, the approach we
    used in our Request for Information because of this flood of
    interest in various ways of looking at the challenge of moving
    the Hubble closer to the station, there are a number of
    different ideas that are potentially very interesting, and
    could be workable. And then there are others that are really
    kind of interesting.
        As a consequence, the approach that we took to separate the
    wheat from the chaff, I think is really critical. The two
    things that I think would really guide this approach is first
    and foremost, and inviolate, proposition that we have to comply
    with every recommendation of the CAIB report.
        So, independent of the return question, what I cannot abide
    the notion of, and what my judgment has been driven on, is the
    idea of commissioning a servicing mission that isn't in comport
    with every one of those requirements. That's the part that I
    want to be sure of that they're extremely focused on.
    Therefore, they'll have to delve into the full range of Return
    to Flight challenges, everything that we're doing in order to
    comply with every single recommendation. Because anything that
    says, it close but it's not close enough, is in my judgment not
    acceptable as a means to do this.
        The second matter would be, I think that we're all in
    agreement on, what can we do to extend the service life. And
    the ways that we can do that, beyond servicing, is to draw
    battery power at a much different rate, which therefore changes
    the operational protocols of how we utilize Hubble.

                         FINAL SERVICING MISSION STUDY

        Senator Mikulski. Mr. Administrator, the red light is
    blinking. We're going to wait for your opinions and also the
    Academy on this.
        While I would suggest that our staffs meet and make sure
    that we're all clear in the direction we're going in. And I
    believe we are.
        The last paragraph, though, to this which says, we request
    that you take no action to stop, suspend, or terminate any
    contracts or employment in connection with the final servicing
    mission until this study is completed.
        Mr. O'Keefe. Let me offer to you this proposition which
    is--I don't know what the answer to that one is. Having just
    received your letter this morning, I don't know what the result
    would be of each of those contracts.
        It falls into at least three categories that I was able to
    eyeball quickly. First, is those efforts that have already been
    completed, and therefore would naturally wind down, whether we
    had pursued a servicing mission or not. Second, category would
    be the instruments and how those would be employed for other
    purposes as well. How we could use them in the future, and
    we're committed to doing that. The third, would be to focus on
    the range of other options to extend battery power, to change
    operational protocols. To do all of those things to get the
    maximum service life we can beyond fiscal year 2005, which was
    the design date for the Hubble to begin with. Those are the
    three things that I would look to, and if you would give me an
    opportunity to go examine these----
        Senator Mikulski. Well, I think that is a fair request on
    your part.
        First of all, I want to thank you for responding to my
    initial request for a second opinion, to our request for
    additional study from the National Academy of Sciences, knowing
    that you just got our response, just as we just got the Gehman
    response.
        And we look forward to making sure that we do not lose
    time, or talent with what we have by premature cancelling of
    anybody's job or anybody's contract.
        Mr. O'Keefe. I understand.
        Senator Bond. Thank you very much.
        Mr. O'Keefe. If I could give one final comment or
    observation on this. Again, the judgment call that this turns
    on is whether or not we believe we can mitigate the risks and
    comport with all of the recommendations of the Board. And do it
    at a time that is timely enough in order to actually complete
    the servicing mission. And that's the part that's in doubt.
    Because once the batteries go, the Hubble survives for about 6
    to 10 hours and then that's it. It goes cold.
        So, as a consequence, putting all of our eggs in that one
    basket doesn't work. It is not something that I think is an
    acceptable risk. As a consequence looking at the full range of
    what we do to get the service life is what our commitment is,
    and that's what we've been pursuing. We would be delighted to
    get the Academy's view of what else they think we could be
    looking at in order to pursue that common objective in comport
    with the CAIB recommendations.
        And it's got to be done expeditiously in order to get
    through this.
        Senator Bond. Okay.
        Mr. O'Keefe. So, I am in agreement with you, and we will
    work through what the immediate challenges would be from the
    contractual standpoint in the immediate period--and that's
    something we'll get back to you very, very expeditiously in
    terms of what the combination will be.
        You know that some of it is going to wind down, because the
    work is finished. Some of its going to be towards instruments
    that we could employ for other activities. And some of it may
    well be towards other alternatives we can look to extend the
    service life.
        Senator Bond. Thank you.
        Mr. O'Keefe. All three of those would be acceptable with
    NASA.
        Senator Bond. Thank you, Mr. Administrator.
        Senator Mikulski. Thank you.
        Senator Bond. Let me turn now to----
        Mr. O'Keefe. Thank you.
        Senator Mikulski. I think our battery just ran out.
        Mr. O'Keefe. Thank you, Senator. I appreciate your
    willingness to do that.
        Senator Bond. Senator Stevens.

                         NON-SPACE NEEDS OF THE PROGRAM

        Senator Stevens. Well, Administrator O'Keefe, you make us
    all proud of the job that you're doing with NASA and I want you
    to know that I personally have great confidence in what you're
    doing. I hope you don't misunderstand my question.
        My question is, with this vision, and I appreciate that you
    brought the President's comments to us this morning. With this
    vision, what is going to happen with the other non-space needs
    of the programs that NASA is involved in during this period of
    growth?
        Mr. O'Keefe. Sir.
        Senator Stevens. Are we going to see a change in the other
    missions?
        Mr. O'Keefe. Well, if anything, one of the things that I
    have found absolutely amazing is the organizational response to
    this. This now forces us to integrate, to think about
    applications on a much broader basis than we ever did before.
        One of the absolute indictments that the Columbia Accident
    Investigation Board offered, that others have offered, and lots
    of commentators and critics have suggested, is that the Agency
    has been stove-piped. It has been looking at different
    categories and never inter-relates activities.
        So if anything, what we're seeing is a consequence of this.
    And we've been motivated to move in the direction of how do we
    apply all of those capabilities towards this central set of
    objectives and direction that the President has granted, and
    sent to us and said, that's what I expect you to do.
        Therefore, applying all of those capabilities for earth
    sciences, aeronautics, biological and physical research, space
    flight and space science, in addition to the education and
    inspiration of the next generation of explorers, this is
    something that now I think is a much more integrated
    collaborative effort in that direction.
        I don't see a big diminution. In those central mission
    objectives in what the Agency has been chartered to go do.
    There will be differences of view over whether or not we should
    do a little more or a little less in one area or another.
    That's something, I think, that's well within the range of
    manageable as a discussion.
        But for the purposes of this objective it is a central
    focus. It's a much greater level of clarity than the Agency has
    had in decades. As a consequence, that's what I think the
    enthusiasm will be rallied around. There are modifications that
    can be made as we move along, because nothing is so intractable
    as to preclude any one of those options.
        Senator Stevens. Well, I would be precluded from discussing
    some of the missions, but are there classified missions of NASA
    going to be diminished because if the activities that you have
    described?
        Mr. O'Keefe. No, sir.
        Senator Stevens. Thank you.
        Thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Stevens.
        Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman.
        Mr. Administrator, during the months of the extensive and
    careful deliberations which led to the President' new space
    vision, would you tell us what input, if any, was sought from
    industry during this process. We've been told that there was
    none sought.
        Mr. O'Keefe. Well, the process that we employ, that the
    President sent us off on, is an inter-agency process. In other
    words, public servants engaged in the activity. What we were
    all charged to do, from the Defense Department, the State
    Department, the Commerce Department, the Office of Science and
    Technology Policy, and certainly NASA, and through the process
    that was put together of the National Security Council and the
    Domestic Policy Council, was to bring in all of those external
    views that were being debated in these broader fora. Both
    within the oversight committees of Congress as well as the
    broader conferences and symposia that were conducted after the
    CAIB released its position.
        So, therefore the industry views, positions and thoughts
    were brought into that equation in order to reach the range of
    options. And at one point, we looked at so many options, we
    could hardly keep tabs on them all, in terms of which approach
    we should take. The President's engagement on this point was to
    consistently solicit that broader range of views, and that's
    where we ended out, is in concert with all of those
    perspectives as well.
        Senator Shelby. We have to use foreign launch systems now.
    The budget it seems chooses to use them in the future, which is
    troubling to some of us.
        Mr. O'Keefe. I couldn't comment one way or the other, sir.
    I understand your point, but I am not--I don't think we have
    any greater or lesser international involvement or engagement
    in the activities that the President has directed us to proceed
    with than what we have been encountering now for several years.
    So I don't anticipate or see any intensification of that
    effort.

                              EXPLORATION SYSTEMS

        Senator Shelby. Could you briefly explain the process on
    going within code ``T'' to engage industry as you formulate
    requirements, definitions and program planning decisions in the
    new space exploration program. And particularly Project
    Constellation.
        Mr. O'Keefe. Yes, sir. No, thank you for the question. The
    approach that we were taking, and the organizational code that
    you've referred to is the Office of Exploration Systems.
        Senator Shelby. Okay.
        Mr. O'Keefe. It was announced the day after the President's
    speech. The objective was, and we had been working for the
    previous few months in pulling together all of the components
    of what we do around NASA, to look at large scale systems
    integration challenges. The engineering challenges of
    delivering on a set of programs that require lots of
    integration.
        So again, in my response to Senator Stevens, this is one of
    the consequences, one of the amazing developments as the result
    of the President's charge, is to start looking at the full
    range of activities that we have in the Agency and applying
    them towards common solution.
        So what the Office of Exploration Systems is now looking to
    under Project Constellation, under Project Prometheus, and a
    number of others, is to kind of pull together all of those
    efforts to integrate independently of the mission objectives so
    that we get a common solution.
        We are out engaging the industry very actively, to look at
    a number of different approaches that would call for
    acquisition strategies like spiral development that I referred
    to earlier for the Crew Exploration Vehicle. As well as
    engagement with the broader industry community on Project
    Prometheus on how to generate power and propulsion, something
    we've never had in a spacecraft that now could be used as a
    means to inform those broader acquisition strategies.
        So, we are out there soliciting in a much broader case, as
    is Craig Steidle, our new Associate Administrator for
    Exploration Systems, to include all of those industry interests
    that were basically pulled together as the result of the
    exceptional efforts during the Orbital Space Plane effort was
    engaged in last year.

                            CREW EXPLORATION VEHICLE

        Senator Bond. Mr. Administrator, how much will the Crew
    Exploration Vehicle build on the work already done for the
    orbital space plane? And would you discuss the benefits?
        In other words, I hope that you're not going to try and
    reinvent the wheel.
        Mr. O'Keefe. No, sir. No, I think that you're right on. In
    many ways, a lot of what we engaged in a year ago for the
    Orbital Space Plane, we would have to do now, had we not
    engaged in it over the previous year. Because it really defined
    some of the fundamental requirements of what is necessary for
    developing a capability using existing launch capacity for what
    would be beyond low-Earth orbit. Because, as you know, shuttle
    is restricted to low-Earth orbit by virtue of its
    characteristics.
        Much of what we derived from that experience evolved over
    that time towards an adaptability towards capabilities that
    could go beyond low-Earth orbit. So much of what we did in the
    Orbital Space Plane, I would say, is at least two-thirds common
    with the kinds of challenges we would meet. Because much of
    what is challenging about these efforts is getting off this
    planet and going anywhere.
        The thermal protection system requirements, all of those
    things, then become gradients of that as well as the capacity
    you want to bring with you for wherever it is you want to go,
    for whatever duration or length of time.
        So, in many ways, a lot of these hard questions were very,
    very professionally run to ground during the course of that OSP
    effort a year ago. As a result, we're able to launch right from
    that to this next level. We have got a running start as a
    result of that engagement.
        Senator Shelby. I know that my time is almost up, but I
    want to ask one more question, if I could.

                FUNDING REDUCTIONS IN PHYSICAL SCIENCE RESEARCH

        Senator Bond. Without objection.
        Senator Shelby. Thank you.
        Mr. Administrator, I am concerned as a lot of other people
    are about this significant reduction in funding for physical
    science research. This is a big departure.
        Three distinguished professors in research science recently
    wrote to me to share the following sentiment regarding this
    dramatic cut to physical research.
        And I just want to share with you excerpts.
        While NASA has the mission of planetary exploration it also
    has the goal of improving life on Earth. Towards that goal it
    is the only American agency with the unique capability to
    conduct physical science research in the virtual absence of
    gravity, which we all know. Now, I'll skip on down a little
    bit.
        As you're aware, NASA since you're the Administrator, is
    planning to further reduce all physical science research on the
    ISS and the shuttle, in particular research on material
    science. It is our understanding that the already reduced
    number of materials, science flight investigations from 24 to
    12, will be further reduced to only a couple of principal
    investigators.
        And then, I'm going to turn to crew health. This is another
    excerpt of the letter. Crew health is not just biological-
    astronautics. Both Challenger and Columbia crashed due to
    materials failure, not motion sickness, bone loss or radiation
    exposure. Improvements in materials have powered all industrial
    revolutions. A balanced research portfolio will be critical to
    success in NASA's exploration thrust.
        I hope you will look at this letter. And we've talked about
    this already.
        Mr. O'Keefe. Yes, sir.
        Senator Shelby. Privately, but these are some of my
    concerns and I believe they are the concerns of a lot of people
    on the committee.
        Mr. O'Keefe. I would be delighted to take a look at it,
    Senator. And I thank you for raising the issues. It is about
    priorities. There is no question.
        Senator Shelby. Priorities.
        Mr. O'Keefe. They're very difficult to do, but in that
    respect, the President's clear direction to us is that we look
    at utilizing the capacity of the station and focus our research
    endeavor towards understanding expedition missions. That's
    largely life sciences, physiology.
        Senator Shelby. Sure.
        Mr. O'Keefe. But it also includes material sciences kinds
    of activities too, to sustain activities for long periods of
    time.
        Senator Shelby. We've got so much to learn there to benefit
    us.
        Mr. O'Keefe. Yes, sir. Without question.
        Senator Shelby. I know that Senator Mikulski and Senator
    Bond have been in the forefront of all of this. That we have
    benefitted so much from NASA back here as well as out in space.
        Mr. O'Keefe. Yes, sir.
        Senator Shelby. Mr. Chairman, I have a number of other
    questions that I want to submit for the record for the
    Administrator. And I appreciate your indulgence.
        Senator Bond. Thank you very much, Senator Shelby.
        We're going to have a number of questions for the record,
    otherwise we would be here all day.
        Mr. O'Keefe. Thank you, sir.

                              AERONAUTICS FUNDING

        Senator Bond. Mr. Administrator, following on Senator
    Stevens' question, and sort of related to what Senator Shelby
    asked, what role do you see for NASA in the vitally important
    national industry in aeronautics? Did aeronautics take a hit in
    this budget? Is aeronautics going to become a poor stepchild?
        Mr. O'Keefe. Not at all, sir. No, I think that there are
    two major areas that we need to continue to concentrate on, and
    part of what I think you're seeing in the budget projections is
    the need for greater definition as we move along and work
    through each of these successes in terms of applications.
        But the two areas that I think are most profound are, No.
    1, there are a lot of capabilities that we have seen in the
    aeronautical system side that are so important for the purpose
    of continuing our activities on shuttle, and a number of other
    space science-related activities through the NASA Engineering
    and Safety Center (NESC), which has been set up as part of the
    aeronautics enterprise, part of that function, in order to pull
    together all of those capabilities.
        This is one of the organizational legacies of the Columbia
    Accident Investigation Board report to pulling together those
    inter-disciplinary skills necessary to look and inform the
    kinds of challenges we have on trend analysis and a number of
    those kinds of things that were called out in that report. So
    there is a very dominant role in those skill areas that will
    now have applications.
        For example, it is not by accident, that now the Deputy
    Director of the Kennedy Space Center is a guy who came from an
    aeronautics background. So here he is looking at launch
    operations activities, and he has also got a tremendous amount
    of skill and background in aeronautics functions.
        Second area is to look at those kinds of things that look
    at air space management and a range of aviation security and
    safety-related activities. That is a dominant focus and
    priority of what we have now concentrated on in the aeronautics
    area.
        To your broader point, I think, in raising your opening
    statement, how we look at inter-relationships, for example,
    with the Defense Department, through hypersonics, and a number
    of other approaches of developing next generation kinds of
    propulsion power, and design requirements is what we intend to
    do very closely in comport with the Defense Department.
        So all of those factors together, I think, are guiding us,
    adjustments that may need to be made will be informed by our
    successes in all three of those areas.
        Senator Bond. I appreciate your answer. I have the feeling
    that it may be incidental for the benefit for aeronautics and I
    think we need to explore further whether there is going to be
    the kind of directed investigations that would be needed for us
    to maintain a healthy aeronautics industry, domestic and
    international civilian industry in the United States.
        What upgrades to the shuttle should NASA continue to
    pursue? And what new launch vehicle or vehicles may need to be
    developed to carry cargo up? If we're going to have the
    International Space Station, they're going to need cargo.
        And if we're going to go to the Moon and set up a launch
    facility, we've got to haul a lot of stuff. We're going to need
    some big trucks. What are your plans for those?
        Senator Mikulski. Good point.
        Mr. O'Keefe. Well, the first part of your question, I think
    relates very clearly, Mr. Chairman, and I agree with, is what
    upgrades and capabilities or modifications to the shuttle do we
    need to continue with. The focus that we're now vectoring from,
    that was a Service Life Extension Program focus prior to last
    year, is now towards how do we maintain this capability,
    upgrade it and use it with all the safety modifications
    necessary in order to mitigate risk through the end of this
    decade.
        That's how long we intend to operate shuttle. We're going
    to continue on those upgrades, and we've got two out of the
    three orbiters that are in major modification right now. So
    during this period of time while the shuttle is grounded, while
    we're implementing all of these recommendations, we want to
    include those upgrades in order to improve this dramatically.
        The second area is, I think, the requirements to Return to
    Flight--an immediate task right now. We're including those
    upgrades and, I think in your opening comments, you asked what
    are the costs and challenges of doing that. That's what is
    included in the Operating Plan that was just submitted to you,
    that can continue the activity, to incorporate those upgrades
    necessary.

                          CARGO CAPACITY REQUIREMENTS

        The third dimension is, in the latter half of your
    question, focused on what kind of cargo capacity requirements
    we're looking to. Well, there are two basic areas that we're
    looking at there.
        The first one is to develop and continue to build on the
    capabilities of our international partners, who have had the
    requirement to follow through for the International Space
    Station. It's a lot of lift, a lot of logistics requirements
    for the station, that will now be off of the space shuttle in
    the future, so that we can get the components up there and
    finish the construction of the station.
        Second area would be to look at cargo lift capacities;
    frankly, some of them will be explored as a consequence of this
    earlier understanding we've reached and discussed on Hubble
    servicing, for example, robotically, autonomously, that could
    also inform that. So I think that may be an acceleration of
    what kind of launch requirements we would need to have, for
    what kind of lift requirements, in order to install what
    autonomously, robotically, over that span of time, that will
    give us a much deeper understanding of it.
        So we will be building on existing capabilities and
    exploring other opportunities for lift capabilities for cargo
    in order to comply with the CAIB report to separate the crew
    from the cargo is our objective.
        Senator Bond. Maybe I'm not quite clear, but all of these
    things that we're exploring are assuming, No. 1, either we have
    the shuttle, and if you're going to save money by not doing the
    shuttle recertification in 2010, I am gathering that there
    won't be a shuttle after 2010 to do the heavy lift. That leaves
    us dependent upon international partners or somebody else to do
    the heavy lift after 2010?
        Mr. O'Keefe. Oh, no, sir. Not at all.
        That certainly is, there are competing options and
    alternatives there as well, within the United States, for our
    capability.
        The capabilities we have for heavy lift vehicles are
    through the EELV with the Defense Department, the Atlas and
    Titan Programs that they maintain. Plus we are looking at how
    we might employ, for example, the shuttle shack--the solid
    rocket boosters, the external tanks, all of those things give
    us some lift capacity. We may need to reassemble, short of
    including the orbiter on that. There are all kinds of
    capabilities we have and we have got to look to for launch
    capacity.
        What is important about the way and the direction the
    President has given is that it lets us look at existing
    capabilities which are right now underutilized through the
    Defense Department.
        So in working with them for launch services requirements,
    for the heavy lift, for expendable launch vehicle capability
    they have, plus what we are already using right now to lift
    shuttle are derivatives thereof, we have the kinds of existing
    capabilities that are right here in the United States, that
    certainly will have traction and capability in terms of
    whatever lift requirements we have for Project Constellation,
    as well as any cargo capacity that may be required in the
    future.
        Senator Bond. I think that we will need to be hearing more
    specifics on which options you're pursuing.
        Mr. O'Keefe. Sure.
        Senator Bond. Because I know there are a lot of
    possibilities out there.
        Mr. O'Keefe. Yes.
        Senator Bond. But facing the end of the shuttle in 2010 we
    ought to be thinking now.
        Mr. O'Keefe. Absolutely.
        Senator Bond. About how we're going to get all of this
    equipment up there.
        Mr. O'Keefe. Thank you very much, Mr. Chairman.

                     RETURN TO FLIGHT--CAIB RECOMMENDATIONS

        Senator Mikulski. Thank you very much, Mr. Chairman.
        Mr. Administrator, could you tell us, and I want to talk
    now about fully implementing the CAIB's recommendation on how
    to return to flight.
        How much do you anticipate fully implementing the CAIB's
    recommendations. And what is your timetable on doing that? Do
    you hope to be able to do this all in one year?
        Mr. O'Keefe. Okay. Thank you, Senator. That's a very--it's
    an issue----
        Senator Mikulski. Is it one orbiter a year? Or----
        Mr. O'Keefe. Yes, it is an issue that is consuming a lot of
    our focus and attention now, because again there is no day
    light on the commitment that we're going to implement those
    recommendations. Absolutely. There is not a day that goes by
    that I am not reminded of exactly what the consequences are of
    not doing that and why Columbia was lost.
        Senator Mikulski. We all feel the same way.
        Mr. O'Keefe. So we're pursuing that. There are 29
    recommendations, as you're aware, and 15 of which must be done
    before the Return to Flight.
        We have a group we assembled last summer of roughly 25 or
    30 experts in all kinds of disciplines and fields who are
    overseeing our activities in this. There is a regular update
    that we've been issuing since September, on a monthly basis, on
    every single step to comply with those 15 and that broader 29
    recommendations overall.
        That's publicly released. It's on the website, it's been
    released to all the committees of Congress, and we will
    continue to do that, not only up to Return to Flight, but
    thereafter. We're going to continue this open effort all the
    way through.

                             RETURN TO FLIGHT COST

        Senator Mikulski. Cost?
        Mr. O'Keefe. Sorry.
        Senator Mikulski. Cost?
        Mr. O'Keefe. Cost right now in 2004 is established at $265
    million, of which that has become a real serious challenge for
    us to implement this year, in light of the Congress's direction
    to reduce the International Space Station by $200 million.
    We've had to cover that reserve as a result, and we have to
    find $265 million within funds available in order to pursue
    this, because no additional funds were appropriated this past
    year. So we're scrambling to do that, in the operating plan.
    You have that. It was submitted here, identifies the kinds of
    resources to do that. A year ago, in 2003, we absorbed about
    $93 million in order to proceed with that.
        Senator Mikulski. But Mr. Administrator----
        Mr. O'Keefe. I'm sorry.
        Senator Mikulski. We're looking at how to be your partner
    to do this. So what do you need in fiscal year 2005 to do this?
        Mr. O'Keefe. Well----
        Senator Mikulski. And what we also, in addition to that,
    have to look at reprogramming in fiscal year 2004 for you to
    stay the course in fiscal year 2004.
        Mr. O'Keefe. Yes, Senator.
        Senator Mikulski. So you need more in fiscal year 2004 in
    some variation of coming up with a supplemental to implement
    this. This is the anchor from which all floats.
        Mr. O'Keefe. Okay.
        Senator Mikulski. So that's one.
        So what do we need to make sure? Do you have enough money
    in fiscal year 2004, or do we need to be ready to do something
    in partnership with you.
        And No. 2, how much will you need for fiscal year 2005 to
    continue to make, to implement the $15 million we need to
    Return to Flight, but then the other $14 million----
        Mr. O'Keefe. Yes.
        Senator Mikulski [continuing]. To make the $15 million
    workable.
        Mr. O'Keefe. Absolutely.
        Senator Mikulski. And sustainable.
        Mr. O'Keefe. Absolutely. Now, in fiscal year 2004, as I
    mentioned, $265 million is how much we're absorbing now. Your
    assistance and support of that activity through our operating
    plan would be most appreciated now while we work through that.
        In fiscal year 2005, the projections that we put in the
    budget involved here and covers about a $374 million increase
    in the fiscal year 2005 request that will implement all of
    these recommendations and continue along in that direction. It
    covers the broader area, not just the 15 recommendations, it's
    all 29 recommendations.
        For example, the costs to operate, run NASA Engineering and
    Safety Centers. It's part of the expense involved in this, and
    other organizational changes that we have advanced. So let me
    give you a complete list for the record of all of the things
    that's included in that, that's part of----
        Senator Mikulski. But, roughly, it's about $375 million to
    $400 million.
        Mr. O'Keefe. In 2004.
        Senator Mikulski. And you know how these things tend to go
    up.
        Mr. O'Keefe. In fiscal year 2005, as an increase. Yes,
    ma'am.
        Senator Mikulski. Yes.
        And do you need additional funds in fiscal year 2004?
        Mr. O'Keefe. Two hundred sixty-five million dollars is the
    amount we've proposed to reallocate and shift, and that's the
    operating plan that you have before the committee for your
    consideration.
        Senator Mikulski. I see.
        And when do you anticipate those 15 recommendations for
    Return to Flight to be done? Do you anticipate that they will
    be done in calendar 2004, or will this take us also into
    calendar 2005?
        Mr. O'Keefe. I anticipate, based on our current assessment
    of Return to Flight challenges that we should see
    implementation of all of those recommendations, 15, prior to
    Return to Flight, in this calendar year. That will be necessary
    in order to facilitate that prospect of any Return to Flight in
    the early part of next, if we're going to go the way----
        Senator Mikulski. If you could furnish to the committee
    essentially a sequencing of the calendar if you will, so that
    we can get a sense of time frame.
        Mr. O'Keefe. If I could, Senator, that's part of a last
    update that we last submitted. And we're going to update it
    again here in about 2 weeks' time. So we will positively
    provide that for you.
        [The information follows:]

                                NEW TECHNOLOGIES

        Senator Mikulski. Alright. That's terrific.
        Now, this also goes to Senator Bond. One of the things that
    I think we both admire about NASA is not only the exploration
    of what's out there, but the invention of technology, the new
    ideas that then lead to new products, that also benefit the
    larger American community. We come up with new products, we're
    more competitive, we have jobs.
        As you're looking at the development of a new vehicle,
    we'll call it the crew exploration, is that part of the intent
    to be looking at these whole new concepts like nanotechnology,
    et cetera?
        And along the way, do you anticipate that this will accrue
    to our knowledge to, No. 1, aeronautics because we're competing
    with Airbus? No. 2, new kinds of materials, because won't they
    have to be lighter, more resilient, in order to be able to go
    out there?
        Mr. O'Keefe. Absolutely.
        Senator Mikulski. Whenever we go?
        Mr. O'Keefe. Absolutely.
        Senator Mikulski. And is this part of the thinking that
    along the way to getting to Mars, when we get there, that part
    of this will be the inventing of new technologies, new
    products, new materials?
        Mr. O'Keefe. Yes, ma'am. Absolutely.
        Senator Mikulski. New ways of monitoring the health of the
    astronauts as they go?
        Mr. O'Keefe. Positively. That's precisely it. Again, so
    much of what drove the President to select this configuration
    for the vision statement, for the strategy, for the
    Presidential directive, for the first time ever it has got that
    level of detail to it, is an assumption of that technology
    development that's going to advance our capabilities to do
    this.
        Absolutely that is the intent. That's how we're proceeding.
    Part of what the Aldridge Commission is going to be working
    with is the challenge of thinking about implementation
    strategies to achieve that precise outcome. So we're looking
    forward to their input as to how they're going to do that. And
    we're due to receive that by this summer.
        Senator Mikulski. Well, Mr. Administrator, what I see is
    not competing visions. But competing demands for revenue.
        I believe the vision is an exciting one, it is what has
    excited humankind every since Icarus tried to go, and why the
    Wright Brothers got off the ground a hundred years ago. And why
    we had our first launch to the Moon in 1968, et cetera.
        So the vision is exciting. The idea of inventing new
    technologies and products which will benefit both our country
    and mankind is exciting.
        And then, we have here the challenges of completing the
    work that we have, which is specific, immediate, and
    achievable. The International Space Station, the future of
    Hubble. So we see that what we have here is not a competing
    vision, but very serious stresses on the NASA program.
        And, what concerns me with the President's recommendation
    and vision is that there is not enough money to do it. And what
    is being proposed in the President's budget would enable us to
    stay the course, and work with you for a return to flight.
        But I think this is going to have very serious challenges.
    And also, we're going to have to look at the consequences of
    deferring new space and earth science missions, freezing
    spending, eliminating research, these are pretty tough choices.
        Mr. O'Keefe. Oh, I agree, Senator.
        It is and I think that two things apply here. The first one
    is that with this strategy, it is about priorities and which
    focus do we want to take to them. That is not to say that the
    research and activities that may not be of the highest priority
    to support this are irrelevant. But it, nonetheless, has to be
    focused towards these activities, lest it becomes maintenance
    of status quo.
        Secondly, I would seek and I hope to convince you at some
    point, yes, this is affordable. Yes, what is in this resource
    base is what the President, the administration, believes is
    necessary to build on these technologies and do these things.
    Along the way, it's based on achievement of success and an
    adjustment thereafter, as opposed to some crash program that is
    designed towards some final solution at the end of the day.
        So it is an approach I think that lays out very
    methodically that journey, not the race, that's necessary in
    order to achieve these. But at the same time, our abilities to
    achieve those outcomes along the way and see the results as we
    move along, to accomplish that.
        In the process, I think it is revectoring some of those
    capabilities towards specific goals as opposed to for its own
    sake. What we're really trying to do here is put more focus to
    it.

                             SPACE SCIENCE DEVOTION

        Senator Mikulski. Mr. Chairman, I have other questions that
    I will put into the record.
        But I think we have covered a lot today. And I look forward
    to more conversations with you. And again, I want to thank you
    for the courtesies that you have extended to me, personally,
    and to all who were concerned about Hubble.
        We can't do space science without our astronauts and we
    know that. So we're always on the side of the astronauts.
        Thank you.
        Mr. O'Keefe. I appreciate that, Senator. If you would
    permit me to, Mr. Chairman, I have got a short paper, Senator
    Mikulski--we had talked about this too--that kind of outlines
    the rationale, as well as, the considerations that go into the
    servicing missions. I would like to insert that for the record,
    that does define them.
        Senator Bond. Without objection. We welcome it.
        [The information follows:]

           Cancellation of the Fifth (SM-4) Hubble Servicing Mission

                               EXECUTIVE SUMMARY

        The Hubble Space Telescope (HST) was originally launched aboard the
    Space Shuttle in 1990, with an as designed mission lifetime of 15
    years. Since then the telescope has been serviced or upgraded four
    times, each requiring a very complex, dedicated Space Shuttle mission
    and unique HST servicing support equipment. Even before its repair
    mission in 1993, the HST had generated significant scientific
    discoveries. The science return from HST has already vastly exceeded
    the original expectations.
        NASA plans continued operation of the HST until it can no longer
    support scientific investigations anticipated to occur in the 2007-2008
    time frame. The telescope's life may, in fact, be extended if NASA is
    successful in employing operational techniques to preserve battery and
    gyroscope functions. Meanwhile, NASA is aggressively investigating
    innovative ways to extend the science lifetime of the HST for as long
    as possible, including robotic servicing to provide extension of power
    storage. Current plans are to safely deorbit the HST by a robotic
    spacecraft by approximately 2013.
        Although the HST deployment mission and four subsequent servicing
    missions were successfully conducted, the Columbia tragedy underscored
    the inherent risk in each and every Space Shuttle mission and
    reinforced the need for increased ability to deal with all potential
    contingencies, particularly catastrophic damage to the Orbiter's
    thermal protection system (TPS).
        Without the benefit of docking at the ISS many new tools,
    processes, and techniques would be required for inspection and possible
    repair of the TPS. More significant would be the requirement to
    dedicate two Space Shuttles to the mission to ensure astronaut safety.
    In the event of a significant problem with no safe haven for the
    astronauts to wait as in ISS missions, a second Shuttle would have to
    be launched and employ untried and uncertified techniques to perform a
    rescue. Hence, a Shuttle based HST servicing mission presents known
    additional risks, and offers few options to respond to serious problems
    in orbit.
        Recognizing the increased risks involved in all Shuttle flights
    following the tragic loss of the Columbia and crew NASA elected to
    reduce its planned Shuttle manifest to only missions to the
    International Space Station (ISS). The decision was also made, on the
    basis of risk, to not pursue a final servicing mission to the HST, but
    instead to investigate other options to extend the life of the Hubble.

      COLUMBIA ACCIDENT INVESTIGATION BOARD FINDINGS AND IMPACT ON FUTURE
                                    MISSIONS

        The Columbia Accident Investigation Board presented NASA with 29
    recommendations, 15 of which were required to be completed before the
    Space Shuttle could return to flight. Highlights of these flight-
    critical recommendations included elimination of damaging insulation
    shedding from the external tank--the cause of the Columbia tragedy--
    ascent imaging, on-orbit inspection, and thermal protection system tile
    and Orbiter leading edge repair. NASA will satisfy all of these
    recommendations before it launches STS-114, the next Shuttle mission.
    The Board stressed that the Space Shuttle is still a developmental
    vehicle and that risk and risk mitigation must be treated accordingly.
    NASA's original vision was to fly the Shuttle to mid-decade or 2020 for
    a total of 75-80 more flights. NASA fully accepts the Board's
    recommendation and balancing mission criticality against possible loss
    of crew and vehicle, consciously decided to retire the Space Shuttle
    after the completion of the International Space Station (ISS),
    recognizing that the best risk mitigation strategy is to fly less.
        In addition, NASA realizes that a ``safe haven'' in space
    capability is required. This ``safe haven'' capability goes beyond
    compliance with the Columbia Accident Investigation Board
    recommendations and is designed to increase crew safety during the
    remaining Space Shuttle missions. Should damage occur to the Shuttle
    thermal protection system that can not be repaired and that would
    preclude safe reentry, the crew will be able to shelter at the ISS
    until another vehicle can be readied for rescue. Agency policy will
    require each Space Shuttle mission to have backup rescue capability.
    ``Safe haven'' is the ultimate recognition that, while NASA will make
    the Space Shuttle as safe as possible, the Columbia tragedy has taught
    us that there are still significant risks inherent in Space Shuttle
    launch, orbit operation, and reentry.

     UNIQUE REQUIREMENTS AND INCREASED RISK IN THE HUBBLE SERVICING MISSION

        Whereas tools, techniques, and procedures would be similar on each
    ISS mission; e.g., inspection, thermal protection system repair, safe
    haven readiness, and rescue scenario, an HST servicing mission would
    have unique requirements, both on-orbit and in ground processing.
    Options for dealing with an on-orbit emergency are reduced and
    decisions for reacting to any emergency would have to be made quickly.
    These two considerations, and the attendant schedule pressure on the
    flight crews and support teams, add considerable additional risk.

    Lack of Significant Safe Haven
        The areas of additional risk relate to the ability to provide
    ``safe haven'' while inspection, repair and potential rescue are
    undertaken, and to the procedures for inspection and repair themselves.
    It has been projected that a typical Space Shuttle flight crew of seven
    astronauts could stay aboard the ISS for up to 90 days, if warranted,
    due to an emergency situation on the Space Shuttle. This safe haven
    capability allows the flight crew and ground teams to consider all
    options, determine the best course of action, take the time required to
    understand the cause of the failure and affect repairs, or send the
    appropriate rescue vehicle with the right equipment to bring the crew
    home. Clearly, rushing this process would introduce considerable new
    risk and in the worse case result in the loss of another vehicle.
        In the case of a Hubble servicing mission, the amount of stay time
    on orbit is significantly shorter due the limited stores of cryogenic
    oxygen on the Orbiter. Therefore, other measures would be required.
    Specifically, a second Space Shuttle on an adjacent launch pad would
    have to be specially prepared, uniquely configured to launch
    expeditiously if required to perform a rescue mission. This scenario
    raises several concerns, addressed in the paragraphs below.

    Unprecedented Double Workload for Ground Launch and Processing Teams
        Two vehicles would be processed for essentially the same launch
    date. Any processing delays to one vehicle would require a delay in the
    second vehicle. The launch countdown for the second launch would begin
    before the actual launch of the first vehicle. This short time period
    for assessment is a serious concern--it would require a highly complex
    process to be carried out in parallel, and it would not permit thorough
    assessment by the launch team, the flight control team, and the flight
    crew.

    No Changes to Cargo or Vehicle Feasible
        Because of the very short timeframe between the launch of the first
    vehicle and the requirement for a rescue flight, no significant changes
    could reasonably be made to the second vehicle or the cargo. This means
    that it would not be feasible to change the cargo on the second Space
    Shuttle, to affect a repair to the first Shuttle, add additional rescue
    hardware, or make vehicle modifications to avoid whatever situation
    caused the need for a rescue attempt in the first place. Not having
    sufficient time to make the appropriate changes to the rescue vehicle
    or the cargo could add significant risk to the rescue flight crew, or
    to crew transfer. The whole process would be under acute schedule
    pressure and undoubtedly many safety and operations waivers would be
    required.

    Rescue Mission
        Space Shuttles routinely dock with the ISS; Soyuz evacuation
    procedures are well trained. These represent the normal operations mode
    today supported by extensive training, analysis and documentation. A
    rescue from the ISS, with multiple hatches, airlocks, and at least one
    other vehicle available (Soyuz), is much less complex and risky than
    that required by a stranded Space Shuttle being rescued by a second
    Space Shuttle.
        In response to a question by the Columbia Accident Investigation
    Board, NASA analyzed a hypothetical rescue mission between two Space
    Shuttles and found that the effort would have required many unproven
    techniques, such as emergency free-space crew transfer in space suits
    while performing Space Shuttle to Space Shuttle station-keeping while
    traveling 17,500 mile per hour above the earth. These major safety
    risks are not incurred during rescue from the ISS.

    Tile Survey (Expanded Inspection Requirements) and Thermal Protection
            System Repair
        The current inspection method for acreage tile, gear door seals,
    and the elevon cove is to photograph these areas from the ISS during
    rendezvous. To support an HST servicing mission, NASA would have to
    develop a new method for inspecting these critical areas using an
    Orbiter boom. Unvalidated autonomous boom operations represent an
    unknown risk. NASA's current planned TPS repair method for an ISS-based
    repair uses the ISS robotic arm to stabilize an EVA crew person over
    the worksite. These assets are not available for an HST servicing
    mission, so NASA would have to develop a single-use alternate method
    for stabilizing the crewmember. This method would have to provide
    greater stability than the current ISS option under development to
    protect both the crewmember and the other TPS areas from additional
    damage. Such a concept represents a challenging undertaking, which
    could take months or years to develop in order to meet safety and
    mission assurance standards/requirements.

              RETURN TO FLIGHT AND ISS U.S. CORE COMPLETE TIMELINE

        In the process of addressing the Columbia Accident Investigation
    Board recommendations and implementing additional improvements to
    achieve the safest flight possible, NASA has uncovered a number of
    problems that had previously gone undetected. The removal and
    replacement of unsafe hardware has deferred Space Shuttle launch
    milestones. NASA projects the first opportunity for a Space Shuttle
    launch to the ISS to be in March 2005. Eight flights are scheduled to
    meet our international commitments, the assembly of the U.S. core
    segments of the ISS. Given the ISS assembly schedule, the earliest NASA
    could launch a servicing mission to the HST, based on requirements for
    daylight launch to fully assess ascent conditions by imagery and
    thermal constraints when docked to ISS, would be Spring 2007.
        Based on the evaluation of the engineering data on the HST, the
    lifetime of the Observatory on orbit is ultimately limited by battery
    life, which may extend in to the 2007-2008 timeframe. Scientific
    operations are limited by gyroscope lifetime that is more difficult to
    predict. If all of the NASA effort is concentrated on a Shuttle
    servicing mission, every step in the process must be successful with no
    allowance for schedule slips. Before launch all of the recommendations
    of the Columbia Accident Investigation Board must be met. The launch
    conditions must be perfect, and all tailored HST mission unique
    components must be in place with very tight schedule constraints. If
    any of the many elements do not develop as planned, the telescope may
    cease operations before a successful mission could be mounted.

                   HUBBLE SPACE TELESCOPE'S SCIENTIFIC LEGACY

        Not since Galileo turned his telescope towards the heavens in 1610
    has any event so changed our understanding of the universe as the
    deployment of the Hubble Space Telescope. From its orbit above Earth's
    atmosphere, the HST is free from the atmospheric turbulence that all
    ground-based telescopes must contend. Thus, HST has been able to return
    images of astounding clarity and sensitivity. HST imaging and
    spectroscopy have resulted in remarkable scientific achievement,
    including the determination of the changing rate of expansion of the
    universe and detailed studies of forming galaxies, black holes, galaxy
    hosts of gamma-ray bursts and quasars, active galactic nuclei,
    protostars, planetary atmospheres, and the interstellar and
    intergalactic medium. Scientific results have significantly surpassed
    original expectations. By 2005, the HST will have fulfilled every one
    of its scientific objectives and top-level technical requirements.
    Moreover, the Hubble will continue to collect observations for several
    more years. Even after the HST is no longer in service, the rich
    archive of HST data (already more than 100,000 observations of 20,000
    unique targets) will continue to provide new discoveries for the years
    to come, with full support by NASA for both archive operations and
    research grants.

             FUTURE PLANS FOR HUBBLE SPACE TELESCOPE AND ASTRONOMY

        Astronomy is a critical part of the NASA's exploration initiative.
    NASA is aggressively investigating innovative ways to extend the
    science lifetime of the HST for as long as possible, including a
    possible robotic servicing option. We are receiving several responses
    to our recently released Request For Information (RFI) on HST End of
    Mission Alternatives soliciting concepts for robotically-provided
    battery power extension. Indeed, this option appears to have greater
    likelihood of success than the possibility of accomplishing all the
    recommendations of the Board in time for a successful Hubble servicing
    mission.
        HST is not NASA's only portal to the stars. It is one of many
    telescopes used by astronomers to study the universe using various
    apertures and wavelength bands. Hubble, primarily used for observations
    of visible light, is one of the four orbital ``Great Observatories''
    designed for use across the spectrum. The other three include the
    Compton Gamma-Ray Observatory (1991-2000), the Chandra X-Ray
    Observatory, and the infrared Spitzer Space Telescope. In the years
    since Hubble was launched with its 2.4-meter aperture, many new ground-
    based telescopes have been built with larger apertures that enable
    observations with increasingly higher angular resolution, though
    subject to the blurring effects of Earth's atmosphere.
        The James Webb Space Telescope (JWST) program has been strengthened
    to assure a 2011 launch date. Once on orbit, this advanced technology
    infrared telescope will provide insight into the a region of the
    spectrum where we will be able, like never before, to view the
    formation of the earliest galaxies. The JWST will build on the
    successful science of the Hubble via the most advanced instrumentation
    and a larger 6.5 meter aperture.
        The following table lists larger optical telescopes now or soon to
    be available along with Hubble and also several examples of large
    telescopes available or in development for observations at other
    wavelengths.

                           EXAMPLES OF LARGE TELESCOPE FACILITIES AVAILABLE OR IN DEVELOPMENT
    ----------------------------------------------------------------------------------------------------------------
                                                        Optical +IR
                Radio/MM                 Infrared       (aperture,      Ultraviolet         X-Ray        Gamma Ray
                                                          meters)
    ----------------------------------------------------------------------------------------------------------------
    VLA                               Spitzer         SALT (11.0)     HST              Chandra         GLAST
    GBT                               SOFIA           Keck I, II      GALEX            XTE             SWIFT
                                                       (10.0)
    ALMA                              JWST            Hobby-Eberly    ...............  XMM-Newton
                                                       (9.2)
    Arecibo                           HST             LBT (8.4 x 2)   ...............  Astro-E2
    FCRAO                             ..............  Subaru (8.3)    ...............  SWIFT
    VLBA                              ..............  VLT (8.2 x 3)
    CSO                               ..............  Gemini (N & S)
                                                       (8.1)
                                                      HST (2.4)
    ----------------------------------------------------------------------------------------------------------------

        The HST program has provided a significant amount of funding
    support for U.S. astronomers; in fact, it is currently providing
    approximately 20 percent of all direct grant support. After HST
    observations have ceased, NASA plans to continue to support ongoing
    grants and to offer new grant support for HST archival research until a
    similar grant program is in place for the upcoming James Webb Space
    Telescope program. This will ensure stability to the research community
    and full use of the rich HST data archive throughout this period of
    transition.

                                   CONCLUSION

        The cancellation of HST-SM4 was a difficult decision. HST is
    producing world-class science. However, NASA cannot justify the
    additional risk that such a unique mission would entail, based on what
    must be done to assure greatest protection to the crew. It is
    increasingly apparent that our choice is to either fully comply with
    the Columbia Accident Investigation Board report or conduct the
    servicing mission, but not both. We must be responsible on all future
    flights and be fully compliant. NASA will continue to aggressively
    pursue options to extend the science lifetime of the Hubble by means
    other than Shuttle servicing. NASA will continue to be a major
    supporter of astronomy in the future as the Agency continues to explore
    the universe.

        Mr. O'Keefe. We appreciate it very much, Mr. Chairman.
    Thank you.
        Thank you, Senator for your courtesies as well. I
    appreciate that.

                               SHUTTLE RETIREMENT

        Senator Bond. Mr. Administrator, as my colleague from
    Maryland has indicated, we're not just going to keep the record
    open for further questions. This is just the beginning of a
    dialogue because these questions are very serious, they're very
    extended.
        I want to step back. I am still concerned about the
    retirement issue. In the fall of 2002, NASA said that they were
    going to continue operating the shuttle until 2015 or perhaps
    2020. Now, with the CAIB report, saying that the shuttle must
    be recertified by 2010. And the costs there, I see this as the
    deadline to retire the shuttle.
        But I am concerned, given the reality that ambitious
    schedules are almost never met by NASA or any other entity on
    the cutting edge of technology and science.
        Are we going to be tempted to force more missions in to get
    the space shuttle, to get the International Space Station fully
    established by 2010 as the President indicated? Are we going to
    be taking or running too many missions at a risk?
        If the shuttle has to be flown past 2010, due to possible
    schedule slips, or the unavailability of either other
    international partner vehicles, or commercial vehicles, what
    would be the costs of recertification of these shuttles? What
    are the fall back numbers and prospects?
        Mr. O'Keefe. Yes. I appreciate it, Mr. Chairman. The
    approach we've taken in this strategy, which is clearly
    enunciated in the President's directive, is to complete the
    International Space Station. Senator Mikulski, both you and the
    Chairman have enunciated it here. Our objective is to minimize
    the number of flights necessary to achieve that task. Because
    that's a driving philosophy that does that. You're right, Mr.
    Chairman. The approach we used a year and a half ago, of
    looking at service life extension, was to try and operate the
    shuttle for as long as we could sustain its service life. The
    Columbia accident changed all of that.
        It opened everybody's eyes to what the risks are of doing
    this. It is not an operational vehicle. It's an experimental
    one. It will be experimental to its last flight and last
    landing when it's retired. That milestone, not date, that
    milestone will be the completion of the International Space
    Station. The President's directive is very clear on that. Our
    task is to try to achieve that by the end of this decade. Based
    on the flight manifest, if we're able to return to flight in a
    timely manner here, next year, we can achieve that without a
    break-neck schedule that would be required to do that.
        What we're working with our international partners on right
    now is developing exactly what are the modules and components
    that we absolutely intend to deploy to get the full science
    yield and research capability out of the International Space
    Station for years to come. That's what is going to drive our
    considerations rather than the calendar.
        Senator Bond. Well, will the Columbia Accident
    Investigation Board report based on 2010 as the time we needed
    the recertification, or was it based on a certain number of
    flights that the shuttle would take before it would need to be
    recertified?
        Mr. O'Keefe. Okay.
        Senator Bond. I mean, you got two different numbers.
        Mr. O'Keefe. Right.
        Senator Bond. We're going to retire it in 2010, but then
    we're not going to retire it until we complete the space
    station.
        Mr. O'Keefe. Right.
        Senator Bond. What is the driving deadline--when the
    Columbia Accident Investigation Board said we had to recertify
    the shuttle?
        Mr. O'Keefe. Thank you, Mr. Chairman.
        I am not aware of what drove the Columbia Accident
    Investigation Board to pick an arbitrary date. If anything, I
    found it kind of baffling.
        Senator Bond. Maybe we should seek some clarification on
    that, because is time wearing it out? Is the number of flights
    wearing it out?
        Mr. O'Keefe. Oh, I would----
        Senator Bond. Do we need to have more flights? I mean,
    there are some questions here that need to be addressed.
        Mr. O'Keefe. Sure. But the approach that we're using,
    rather than trying to delve into what may be in the psyche of
    13 members and why they picked that date----
        Senator Bond. No, not psyche. But what was that reason?
        Mr. O'Keefe. I understand.
        Senator Bond. Foundation?
        Mr. O'Keefe. The approach we've taken to it is what big
    milestones have driven this, and that's the completion of the
    International Space Station. We believe we can do that by the
    end of this decade.
        I will know a better answer to that once we have convened
    with our international partners to look at what that final
    configuration looks like. That then tells me how many flights
    you actually have to conduct. Based on the preliminaries here,
    we're not talking about a number that is going to surprise
    anybody. We're looking at something in the range of, certainly
    20 to 30 flights is the maximum number that could be obtained
    in that time. That outer edge is really larger than what we
    might have anticipated. So, we'll know the answer to that one a
    lot better once we get the final configuration in place. And
    that's what the President's directive is to do.
        The certification question is something that we're going to
    have to enjoin at some point to figure out whether or not that
    butts up against the milestone objective of completion of the
    station.

                              ALDRIDGE COMMISSION

        Senator Bond. We've talked about the Aldridge Commission.
    If it turns out that the Aldridge Commission has
    recommendations that contradict what NASA is asking for in
    fiscal year 2005, are you going to come back to us, or are you
    doing some back channeling? Are they going to be on target with
    your recommendations? Or what happens if we get a surprise?
        Mr. O'Keefe. I don't anticipate a surprise. In every
    discussion that I've heard that the Commission has engaged in,
    their terms of reference, if you will, the charter that the
    President gave them, is to go out and look at implementation
    strategies. One of the earliest understandings that I have had
    with all of the commission members is that the way this
    particular strategy has been developed, it gives us ample
    opportunities to make adjustments based on successes as we move
    along, rather than some finite set of goals that must be
    achieved by date certain. So I don't see a lot of daylight in
    terms of what approach they will take.
        What I do see from them is a lot of creative ideas about
    how we should go about implementing this, as it pertains to
    commercial and industry involvement, what degree of
    international participation and how we should do it,
    acquisition strategies on the spiral development that I talked
    about a little bit.
        There is a whole range of things that they've put in their
    ``to do'' list, if you will, that I think is going to help
    inform us how to implement this properly, efficiently, and at
    affordable costs. So I don't see a lot there. And we're
    spending a lot of time engaging with them on their findings
    thus far.

                          VISION FOR SPACE EXPLORATION

        Senator Bond. Okay, let me ask one last question that
    concerns all of us. I think we have touched on it a number of
    ways. Both Project Prometheus and implementing that new NASA
    vision, are going to consume lots of funds in the next 5 to 10
    years. Prometheus itself could cost $3 billion over 5 years.
        And the vision is obviously redirecting a whole slew of
    funds with large known program costs, and other costs
    uncertain. How is NASA going to fund the many opportunities
    that present themselves in the future that fall outside the
    vision. They've already been raised.
        Senator Shelby mentioned material science. Senator Mikulski
    and I are very concerned about that. We're also concerned about
    Hubble. Is NASA going to be unable to continue commitments to
    current activities to meet these goals?
        We're going to have some real squeezing out on some things
    that we think have been very vital scientific breakthroughs by
    these two major projects. What's your thought on those?
        Mr. O'Keefe. Thank you, Mr. Chairman. My thinking is that
    the President's direction and vision that he has articulated is
    completely in line with the directions we're moving, in terms
    of what our mission requirements are for the agency. If
    anything, it clarifies. It defines what it is we should be
    doing with much greater precision.
        So it is not here are all of our mission objectives and
    here is another thing glued on top of it. It is very much in
    concert with the direction we're going, and lends greater
    precision to what that result should be. In many ways his
    direction answers some of the broader questions. Part of what
    we're intent on doing is integrating those capabilities. To
    assure that it is not what is inside and what is outside the
    vision objectives. It is what is within our mission to go carry
    out this strategy. And how do we employ that best.
        So along the way, to the extent that there are adjustments
    required in order to better fulfill that objective, or to meet
    other mission requirements of the agency, we intend to do that
    full range approach of an integrated direction of where we're
    headed.
        I don't see things falling outside of it. There are
    priorities. There are going to be differences on that. On the
    sciences, for example, no question understanding the
    expeditionary nature of long term space flight, power
    generation requirements and so forth, are the kinds of things
    that we must do if we're going to obtain this broader strategy
    objective. But that's fully in concert with what the mission of
    this Agency should be, and that's greater clarity than we've
    had in at least a couple of decades.
        Senator Bond. Well, Mr. Administrator, thank you very much
    for your time and for your exposition of the vision and how
    you're going to meet it.
        I will have quite a few questions for the record about the
    cost of the Moon/Mars vision, the international partners, and a
    number of other things.
        And as I said, there are quite a few things on which we're
    going to need to follow up with you, and continue to work with
    you as we try to figure out how we can get the job done with
    what. Frankly, it looks like inadequate resources from here. I
    am hoping we can find the resources to carry out all of these
    wonderful things.
        But looking at the budget and what we're seeing, as
    available for this committee, I am very much concerned.
        Senator Mikulski, any closing thoughts?
        Senator Mikulski. I know that we're going to be having an
    on-going conversation. I'll just put out some flashing lights.
    No. 1, in terms of the replacement for the shuttle, it has
    been, and I caution you that it's been the history of NASA to
    over promise both in terms of what it can deliver, when it can
    deliver, and when it could deliver it.
        We watched the development of the shuttle. Again, it was
    going to be the answer to everything, and it's been a
    remarkable vehicle. But at the same time, it was over promised,
    over budget, et cetera. Just know that's what we worry about.
        Mr. O'Keefe. I do, too, Senator.
        Senator Mikulski. The second thing that I think that
    applies to this is that impact on personnel and morale.
        Senator Bond and I are very concerned about the fact where
    are the scientists and engineers coming from, and how to get
    young people excited in this. But if they devote their whole
    life preparing for research in a particular area, then all of a
    sudden things start to be cancelled because of budget or
    shifting priorities, that is going to have an impact.
        But we know that NASA faces aging technologies and an aging
    workforce. And we're interested in where are you going to get
    what you need when you need it, but we're concerned that
    shifting sands could have a negative impact on morale.
        These are things for additional conversations, but I think
    that we've covered the core issues today.

                         ADDITIONAL COMMITTEE QUESTIONS

        Mr. O'Keefe. If I could very quickly, Senator.
        I want to thank you and the committee and the Senate for
    enacting the Workforce Flexibility Act just here a month ago
    for NASA. That's a big advance. S. 610 is going to help us to
    achieve and conquer the kinds of challenges that you've talked
    about. That's a very, very significant move forward and we
    appreciate the support of that.
        [The following questions were not asked at the hearing, but
    were submitted to the Administration for response subsequent to
    the hearing:]

               Questions Submitted by Senator Christopher S. Bond

            IMPLICATIONS FOR TERMINATING THE SHUTTLE PROGRAM IN 2010

        Question. At this time, the shuttle is the only U.S. vehicle
    capable of taking astronauts to and from space. Under the new vision
    for NASA, the shuttle would be retired when space station construction
    is completed in 2010. A new Crew Exploration Vehicle would be developed
    and fully operational for Earth orbital missions by 2014.
        What would be the consequences of a 4-year, and possibly longer,
    hiatus in U.S.-flown human spaceflights?
        Answer. NASA expects to utilize the ISS through at least 2016.
    Following retirement of the Shuttle upon completion of ISS assembly,
    NASA envisions using a combination of vehicles from Russia, the
    European Space Agency, Japan, and potential commercial initiatives to
    deliver crew and cargo to the ISS. Currently, NASA anticipates that
    using these vehicles instead of the Shuttle will limit cargo return and
    may restrict the size of certain logistical re-supply elements. The ISS
    operators and users are currently evaluating each of these limitations
    in order to ensure ISS productivity is maintained during this U.S.
    transition period in space transportation. The retirement of the
    Shuttle fleet would allow the Shuttle's resources to be redirected to
    support other human spaceflight and exploration activities necessary to
    achieve the goals of the Vision for Space Exploration.
        Question. How much would Russia charge for taking U.S. astronauts
    to and from ISS, and how would NASA pay for such services given that
    the Iran Nonproliferation Act prohibits NASA from paying Russia for
    ISS-related activities?
        Answer. We have not discussed this issue with Russia. We are aware
    of the provisions of the Iran Nonproliferation Act, and the
    administration will work with Congress to resolve issues related to ISS
    support, as necessary.
        Question. Would China be considered as an alternative now that it
    can launch people into space?
        Answer. The new Vision for Space Exploration directs NASA to
    consider foreign and commercial options for servicing the ISS. No
    options have been selected or ruled out for either crew transfer or
    cargo at this time.
        Question. What upgrades to the shuttle should NASA continue to
    pursue? What new launch vehicle, or vehicles, may need to be developed?
        Answer. NASA will continue to pursue Space Shuttle upgrades to
    systems mitigate risks and assure safe flight as we complete assembly
    of the International Space Station. The Space Shuttle Service Life
    Extension Program (SLEP) is the current vehicle for determining these
    upgrades, and its focus will transition to safety and reliability
    initiatives. The SLEP team is currently working to review and
    prioritize upgrades in light of the Vision for Space Exploration. NASA
    will look to the Office of Exploration Systems to determine new launch
    vehicles requirements to support the Vision for Space Exploration.

                   WORKFORCE INVOLVED WITH HUMAN SPACE FLIGHT

        Question. What will happen to this skilled workforce as the shuttle
    program ends?
        Answer. NASA's contractors have the requirement to hire
    appropriately skilled personnel or train them to meet all the
    conditions of the contracts. They have been hiring or training to meet
    and maintain our skill level requirements, and this trend is
    anticipated to continue. As the Space Shuttle program nears retirement,
    we fully anticipate that aerospace technician employment opportunities
    will continue after completion of ISS assembly, with NASA, driven in
    part by the Vision for Space Exploration and the continuing need to
    support the International Space Station.
        Question. How can we guarantee that as workers begin to leave an
    ending program for other activities that the final flights will have
    the same amount of associated risk?
        Answer. NASA understands the challenges of maintaining an
    enthusiastic workforce as the Space Shuttle program phases down. We are
    beginning to develop a plan to ensure that the skills required to
    maintain a safe and reliable fleet are in place until the last Space
    Shuttle flight has completed its mission.
        Question. How will NASA retain the skills necessary for human space
    flight while the country's space program is taking a flight hiatus for
    at least 4 years?
        Answer. The retirement of the Space Shuttle is not the end of the
    space program but rather the beginning of an opportunity to transition
    a highly skilled workforce into programs requiring their skills and
    challenging their creativity. We believe, at the appropriate time,
    these workers who have Shuttle experience will be able to continue work
    with NASA on new programs requiring their unique skills.

                        FUNDING OF ISS RESUPPLY MISSIONS

        Question. What is the status of discussions with the other
    International Space Station partners regarding how to fund Russian
    production of a sufficient number of Progress cargo spacecraft to keep
    the space station operating while the shuttle fleet is grounded?
        Answer. To date, FKA has continued to fully support ISS operations
    based on additional Russian government funding. On November 13, 2003,
    Russian Prime Minister Kasyanov authorized a 1.5 billion ruble
    (approximately $50 million) budget supplement for FKA to meet ISS
    operational needs. In the context of the overall Russian Federal Space
    Budget for 2003, this supplemental was a 19 percent increase in
    spending authority. The 2004 Russian Federal Space Budget included a 20
    percent increase (over the supplemented 2003 figure) to the ISS budget
    line.
        Question. Will the other partners be able to provide the needed
    funding, or do you expect that you will need to ask for a waiver from
    or amendment to the Iran Nonproliferation Act so that NASA can provide
    some of that funding?
        Answer. We are discussing all aspects of the future configuration
    and support of the ISS with the partners at this time. No decisions
    have been reached.

                         TIMELINE FOR ENHANCE USE LEASE

        Question. In 2003, we provided NASA with the ability to enter into
    EULs. The EUL authority was an issue that NASA had wanted for all of
    the centers but was limited to two centers in order to see how NASA
    would utilize this authority. I am interested in the progress of the
    selection process, and how this new authority has been utilized.
        Can you please give me an update on the status of this program, and
    any insight as to the infrastructure needs at NASA centers that have
    become known because of the selection process?
        Answer. Public Law 108-7, the fiscal year 2003 Omnibus
    Appropriations Bill, authorized NASA to conduct a demonstration program
    for Enhanced Use Leasing (EUL). Congress limited the demonstration
    program to two (2) NASA Centers. NASA conducted a formal process to
    select the 2 demonstration sites. All NASA Centers were requested to
    submit detailed proposals to include a description of the purpose and
    marketing potential of the property(ies), a description of the lease(s)
    including the proposed term(s), and a description of the value to
    Center. The selection criteria were also sent to all NASA Centers, and
    included overall benefit to Center, overall value of the business plan
    to NASA, opportunity for success, including the readiness of the EUL
    projects, and marketability of the property(ies).
        Six NASA Centers submitted proposals. All six proposals exhibited
    significant merit and benefit to NASA. The proposals were evaluated and
    ranked by a panel consisting of NASA Headquarters planning and real
    estate specialists and a real estate specialist from the General
    Services Administration. The rankings were reviewed and approved by the
    NASA Headquarters Institutional Committee and Executive Council.
    Through this process, the Kennedy Space Center (KSC) and the Ames
    Research Center (ARC) were selected as the EUL demonstration sites in
    July 2003.
        In the period since the selection of the two demonstration sites,
    NASA Headquarters has worked closely with KSC and ARC to develop EULs.
    This is a new initiative for NASA, and we have proceeded cautiously and
    meticulously.
        As of April 2004, ARC has executed 17 small EUL agreements for an
    approximate total of $300,000 anticipated annual revenue, which
    includes monthly rent and common service charges for support services
    provided by the Center. These leases are short-term (1-5 years). They
    include a lease of the existing NASA fuel storage and distribution
    system, a lease of building space for research and development of
    commercially viable fuel cells, leases of historic buildings for
    education and research, and leases of office and laboratory space for
    nanotechnology research. KSC has developed an out lease of Center land
    for use by a telephone service provider (Verizon) to place a trailer
    and a cell tower to enhance Verizon cellular telephone service across
    the Center. This KSC lease has been approved but has not yet been
    signed.
        A summary of planned activities for ARC and KSC follows:
        ARC's NASA Research Park (NRP) is envisioned to be a privately-
    funded initiative to develop available under-utilized land at ARC into
    an active research park with tenants performing space- and aeronautics-
    related study and research. ARC completed a Final Programmatic
    Environmental Impact Statement and Record of Decision in November 2002
    including the NASA Research Park. This was finalized before EUL was
    authorized for NASA. The NRP will be executed through an EUL land-use
    agreement. Several leases have been approved and entered into for
    tenants in the first phase of the NRP. These leases are for existing
    facilities that the tenants will use in their own research and
    development activities. ARC also has a wide variety of future proposals
    under consideration for implementation in fiscal year 2004, including:
      --lease of an existing historic building with Clark University;
      --leases of existing under-utilized office and laboratory space for
            the Nanostellar Corporation, and the Northern California
            Nanotechnology Initiative; and,
      --potential long-term lease of land and existing buildings for a
            Training and Conference Center; Requests for Qualifications for
            prospective lessors was released in April 2004; response are
            due in May 2004.
        KSC is working on the development of the International Space
    Research Park (ISRP). The ISRP will be developed by the Florida Space
    Authority (FSA) through an EUL agreement and Space Act agreement. The
    ISRP will develop approximately 400 acres of under-utilized land on
    KSC. The term of the EUL agreement is envisioned to be 50 years, with a
    25-year option. The early stages of this effort have been focused on
    developing appropriate language for the operation of the EUL and
    assuring NASA receives proper fair-market consideration. KSC has also
    prepared a Draft Environmental Impact Statement (EIS), a key and
    necessary element for establishing the research park. The Draft KSC EIS
    was released for public review and comment through March 2004. NASA
    anticipates release of the Final EIS and Record of Decision later this
    spring. The EUL agreement is anticipated to be executed by December
    2004.
        KSC also anticipates a wide variety of future proposals, as
    existing leases for land at KSC expire and are converted into EUL
    agreements. These include: leases to news and wire services for areas
    used to report on launches; and, leases of Center land for use by a
    telephone and communication service providers.

                                 WEBB TELESCOPE

        Question. The follow on to the Hubble Telescope is the James Webb
    Space Telescope. While this telescope it is not a true replacement of
    Hubble, it will continue the mission of looking back in time to some of
    the early events in the creation of the universe. This is the number
    one priority in this decade for the astronomy and astrophysics
    community.
        What, if any problems are being encountered with the James Webb
    Space Telescope project that could affect its proposed launch date or
    achieving its scientific goals?
        Answer. Currently, JWST is in the preliminary design phase
    (Formulation) and it faces no significant technical or budgetary
    problems. Progress toward an August 2011 launch is on-track and
    proceeding according to plan. The program has passed independent
    reviews of its conceptual design, its top-level requirements and most
    of its lower-level requirements. While JWST is a technically
    challenging endeavor, there have been no compromises in its baselined
    scientific performance or launch date.

                              ALDRIDGE COMMISSION

        Question. As I mentioned in my statement, the President created the
    Commission on Implementation of United States Space Exploration Policy,
    or Aldridge Commission, to provide recommendations to the President on
    implementation. This commission will provide these recommendations in
    June of this year, yet NASA appears to be already making their plans
    ahead of the recommendations.
        Once the recommendations are made, how will NASA address the
    recommendations if they contradict what NASA is asking for in fiscal
    year 2005?
        Answer. NASA submitted its fiscal year 2005 Budget request earlier
    this year and took into account the President's vision in order to
    begin implementation as quickly as possible. There is sufficient
    flexibility in our planning to accommodate the advice of the Aldridge
    Commission, which we recently received.
        Question. To what extent has there been communication between the
    Commission and NASA about what recommendations can be expected?
        Answer. The Commission worked independently. NASA provided
    administrative support and responded to the Commission's requests for
    information and briefings. Some commissioners conducted fact-finding
    visits to NASA centers. The Commission did not provide recommendations
    to NASA: their recommendations were transmitted to the President as
    part of their report on June 16, 2004.

                                HUBBLE TELESCOPE

        Question. A short time after the announcement of the President's
    exploration vision, NASA indicated that it would be canceling any
    further shuttle missions to Hubble. NASA has cited safety concerns as
    the primary reason for having an early end to the life of a truly
    amazing instrument.
        In making the decision to cancel the SM4 servicing mission, did
    NASA perform a risk analysis in which the risks were quantified and
    evaluated rigorously? What tools were used to assess the risk involved,
    what were the results, and what alternatives were discussed? Aside from
    the plans for deorbiting Hubble, what are the plans for the fiscal year
    2004 funding that would have been used for the SM4 servicing mission?
        Answer. The decision to cancel the Hubble SM4 servicing mission was
    made after evaluating the requirements that came from safety
    recommendations of the Columbia Accident Investigation Board (CAIB)
    report. NASA rigorously examined the on orbit inspection techniques and
    repair methods that are required to ensure adequate mission safety.
    NASA determined that safe inspection techniques and repair methods
    could be developed for use on the Shuttle while docked at the
    International Space Station (ISS) because of the safe haven
    capabilities of the ISS and because the Space Station Remote
    Manipulator System (SSRMS) would be available to assist with inspection
    and repairs.
        For the scenario of the Shuttle in a non-Station orbit (like the
    HST servicing mission), NASA determined that it would have to develop
    unique, single use technologies and tools in order to be able to
    accomplish the needed inspection techniques and repair methods. It is
    unlikely the new technology needed to service Hubble would be ready
    before critical Hubble systems fail (Gyroscopes will probably fail by
    late 2006; the battery is expected to fall below needed capacity in
    about 2008).
        NASA would also have to dedicate two Shuttles for a servicing
    mission to comply with safety recommendations of the CAIB for a non-
    Station mission. NASA would need a second Shuttle positioned for
    launch, which would require an unprecedented double workload for ground
    crews. The rescue, if required, would involve a Shuttle-to-Shuttle crew
    transfer with unproven techniques. All this would have to be done under
    extreme schedule pressure, because Shuttle life support, food and water
    are limited. On a non-Station autonomous mission, the crew would only
    have 2 to 4 weeks before the rescue Shuttle would have to arrive.
        NASA issued a formal ``Request for Information'' (RFI) on February
    20, 2004, to solicit from industry academia or anyone who may have
    useful information bearing on how to extend the useful scientific
    lifetime of the Hubble. NASA received 26 responses, which are being
    evaluated at this time. A plan will be developed when a decision is
    made as to the approach the Agency will take to prolong the life of
    Hubble.
        NASA has also formally requested a study by the National Academy of
    Sciences to ensure we have fully considered all reasonable alternatives
    to finding the best way to extend the lifetime of the Hubble Space
    Telescope.

                           SHUTTLE RETIREMENT AT 2010

        Question. In the fall of 2002, NASA announced plans to continue
    operating the space shuttle until 2015, and perhaps to 2020 or beyond.
    Now the plan is to retire the shuttle fleet by 2010. A key component to
    making the President's vision affordable in the long term is the
    avoidance of a recertification of the fleet in 2010, which is called
    for in the CAIB report.
        If the shuttle must be flown past 2010, due to possible schedule
    slips beyond those that have already happened this year, what would be
    the cost of recertification?
        Answer. NASA is currently reassessing the ISS assembly sequence to
    ensure that the Shuttle can be safely retired following assembly of the
    International Space Station, planned for the end of the decade. To
    prepare for the contingency that the Shuttle may need to operate beyond
    2010, NASA is assessing the need to recertify Space Shuttle systems,
    subsystems, or components consistent with the Vision for Space
    Exploration and in line with the recommendations of the Columbia
    Accident Investigation Board. The technical work required to determine
    when and if recertification would be needed will continue into this
    summer. Once the technical definition of the recertification tasks is
    completed, cost estimates will be developed on the items we need to
    recertify and made available for discussion.
        Question. If the Moon/Mars goal is not adopted, or delayed
    significantly, what will the future be for the shuttle?
        Answer. NASA has adopted the goal and objectives established in the
    Vision for Space Exploration, and is transforming itself to meet those
    objectives, and the Agency has revised its program accordingly.
    Consistent with the Vision for Space Exploration, NASA intends to phase
    out Shuttle operations following the completion of the International
    Space Station, planned for the end of the decade.

                    BIG PROJECTS CROWDING OUT OTHER RESEARCH

        Question. Both Project Prometheus and implementing the new NASA
    vision are going to consume a large amount of funds in the next 5 to 10
    years. By some estimates, Project Prometheus could cost $3 billion over
    5 years, and the vision is causing a large redirection of funds for
    years to come.
        With large known program costs, and other costs currently
    uncertain, how is NASA going to fund the many opportunities that may
    present themselves in the future that fall outside the vision?
        Answer. NASA will continue to invest in priorities such as
    Aeronautics and Earth Science that may contribute to, but are not
    completely focused on, the vision for exploration. There are always
    many more opportunities than funding available, and NASA will continue
    to assess potential investments against priorities in the exploration
    vision and other important areas of our vision and mission. There is a
    natural turnover in projects as they are completed, and NASA will also
    continue to assess priorities for how to make new investments that will
    best achieve our vision and mission.
        Question. Is NASA going to be unable to continue the commitment to
    current activities in order to meet the new goals?
        Answer. No. NASA will continue to invest in current activities,
    including priorities in Aeronautics and Earth Science. We will achieve
    the goals of the exploration vision with increased funding at the
    Agency level ($1 billion over 5 years above what was planned in the
    fiscal year 2004 budget request), as well as through a realignment of
    many ongoing activities that do not support the vision.

                           FAILED FINANCIAL STATEMENT

        Question. NASA has finally achieved an integrated financial
    management system, yet NASA did not receive a clean audit on its
    financial statement. Instead, the auditors deemed the books have a
    reportable condition when faced with being handed records from two
    different financial systems for last year.
        What is the status of addressing this situation and when will we be
    able to see progress towards correcting it?
        Answer. For fiscal year 2004, NASA is operating an Agency-wide,
    single integrated core financial management system. However, throughout
    most of fiscal year 2003, NASA was implementing, in 4 separate phases,
    the new system that replaced 10 disparate accounting systems in
    operation at our Centers for the past two decades. This conversion
    effort created some complex accounting issues for fiscal year 2003,
    which significantly impacted the timeliness and quality of the
    information required in preparing NASA's interim and year-end financial
    statements.
        NASA had anticipated that fiscal year 2003, being a conversion year
    to this new Agency-wide accounting system, was going to be an
    especially challenging time for its external financial reporting
    activities. Eight of 10 Centers went through this conversion process
    during the fiscal year 2003 and, accordingly, required NASA to use
    ``blended'' data from each Center's legacy accounting system and the
    new core financial system to ultimately prepare our consolidated fiscal
    year 2003 financial statements.
        NASA expects improvements this fiscal year. There are no more NASA
    Center legacy systems in operation, and all financial data will be
    emanating from the one single Agency-wide core financial system. That
    said, there are numerous challenges ahead both in addressing the issues
    raised in the fiscal year 2003 audit as well as improving the IFM
    system based on GAO and internal working group recommendations.

                               EDUCATION PROGRAMS

        Question. It is my understanding that the NASA website has had
    nearly 8 million hits since the landing of Spirit. Ed Weiler stated
    yesterday that 20 percent of those hits are coming from children and
    young adults in the K-12 range.
        What is being done to make sure K-12, and even college age
    students, take this interest and keep the excitement going to become
    the next engineers and scientists that NASA and the country will
    continue to have a demand for in the future?
        Answer. Background.--NASA is confronted with the convergence of
    three trends that put future U.S. advancements in science, aeronautics,
    and space technology at risk: (1) reduction in the number of science
    and engineering graduates; (2) increased competition from the private
    sector and academia for technical expertise; and, (3) retirement of
    approximately 25 percent of the current science and engineering
    workforce within 5 years.
      --NASA is implementing a 5-year Corporate Recruitment Initiative, a
            collaborative effort among the offices of Education, Equal
            Opportunity Programs, and Human Resources, to focus on the
            recruitment of, and outreach to, young people from diverse
            backgrounds who are skilled in high-demand competencies
            required by NASA, including those necessary for implementation
            of the long-term Vision for Space Exploration.
      --All Education Enterprise initiatives and programs are consistent
            with NASA's Agency-wide approach to human capital management,
            and are instrumental in attracting and maintaining a workforce
            representative of the Nation's diversity to enhance NASA's
            current and future competencies.
      --NASA's commitment to workforce development and future human capital
            needs is demonstrated by four Pathfinder initiatives:
          Educator Astronaut Program.--Provides opportunities for
            outstanding teachers to become permanent members of the
            Astronaut Corps. Using the educational expertise of Educator
            Astronauts and innovative technology of our Edspace website,
            Earth Crew members from K-12 will be inspired to greater
            Science, Technology, Education, and Mathematics (STEM)
            achievement and will be encouraged to pursue STEM careers. An
            intended outcome of this program is raising the esteem of
            teachers in the eyes of the public. (Fiscal year 2005 budget
            request: $2.1 million)
          NASA Explorer School (NES) Program.--Establishes a 3-year
            partnership between NASA and school teams serving grades 4-9,
            consisting of teachers and education administrators from
            diverse communities across the country. Focusing on underserved
            populations, NES engages educators, students, and families in
            sustained involvement with NASA's research, discoveries, and
            missions to promote science, mathematics, and technology
            learning and career explorations. (Fiscal year 2005 budget
            request: $13.7 million)
          NASA Explorer Institutes Program.--Broadens NASA's reach to
            students, their families, and the general public for STEM
            learning outside of formal classroom environments through
            media, exhibits, and community-based programming. Provides
            instructional materials and resources for use by the informal
            education community (including science centers, museums,
            planetariums, libraries, parks, aquaria, nature centers,
            botanical gardens, and community-based organizations) and
            professional development opportunities for informal education
            professionals. (Fiscal year 2005 budget request: $2.1 million)
          Science and Technology Scholarship Program.--Provides college
            tuition to highly qualified students who, in return, will
            commit to work at NASA. Established by the NASA Flexibility Act
            of 2004 (Public Law 108-201). (Fiscal year 2005 budget request:
            $9.5 million)
      --While the Pathfinder Initiatives are directly related to workforce
            recruitment and the new Vision for Space Exploration, all
            Education programs support the strategic objectives of
            increasing the number of students pursuing science, technology,
            engineering, and mathematics (STEM) disciplines.

                                             BUDGET (FISCAL YEAR 2004-2009)
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                Fiscal    Fiscal   Fiscal   Fiscal   Fiscal   Fiscal
                         Budget Authority                        Year      Year     Year     Year     Year     Year
                                                               2004 \1\    2005     2006     2007     2008     2009
    ----------------------------------------------------------------------------------------------------------------
    Education Programs.......................................     230.4    168.5    169.4    170.6    169.6    170.3
    Education................................................     138.6     77.7     77.9     78.8     78.3     78.4
        Base Program.........................................      77.7     77.7     77.9     78.8     78.3     78.4
        Congressionally Directed.............................      60.9  .......  .......  .......  .......  .......
    Minority University......................................      91.8     90.8     91.5     91.8     91.3     91.9
        Base Program.........................................      90.8     90.8     91.5     91.8     91.3     91.9
        Congressionally Directed.............................       1.0  .......  .......  .......  .......  .......
    ----------------------------------------------------------------------------------------------------------------
    \1\ Represents budget as presented in NASA's Initial Fiscal Year 2004 Operating Plan.

        Additional Background.--Pathfinder Initiatives highlights for
    fiscal year 2005 budget:
      --Educator Astronaut Program.--Earth Crew allows the development of
            ongoing relationships between NASA and adult-led groups of
            students (educator/class, parent/family, etc.) for the purpose
            of exposing students to unique NASA content, careers related to
            NASA, and the people and mission of NASA. As of March 25, 2004,
            the total Earth Crew Membership was 92,487. Membership will
            likely continue to increase, especially after the formal
            announcement of the newly selected 2004 Educator Astronauts,
            scheduled for May 6, 2004.
      --NASA Explorer School Program.--School needs that will be addressed
            by this program include communication, professional
            development, partnerships, web-based education resources, and
            curriculum integration tools. Fifty 2004 NASA Explorer Schools
            were selected recently. In fiscal year 2005, an additional 50
            schools will be added, bringing the total number of partner
            schools to 150.
      --NASA Explorer Institutes Program.--Focus group conferences will be
            held to identify the needs of the informal education community.
            Plans for a national program of Explorer Institutes for all
            ten-field Centers will be completed, with 4 institutes being
            operational in fiscal year 2005.
      --Science and Technology Scholarship Program.--The first cohort of
            undergraduate students, jointly selected by Agency personnel
            and university faculty, and chosen for service in NASA, will be
            selected.

                          COST OF THE MOON/MARS VISION

        Question. According to your documents, current budget projections
    assume it would cost $64 billion to return humans to the Moon by 2020,
    not including the cost of robotic missions. The $64 billion consists of
    $24 billion to build and operate the Crew Exploration Vehicle from
    fiscal year 2004-2020, plus $40 billion for fiscal year 2011-2020 to
    build and operate the lunar lander. This is a significant investment
    and only captures the lunar portion of the vision. There is also the
    build up of additional missions to Mars.
        My question is, how much is the current estimate for implementing
    all aspects of the Moon/Mars vision in fiscal year 2005, and from 2005
    through 2020?
        Answer. The President's fiscal year 2005 budget request includes
    funding for all aspects of the vision during this time period,
    including exploration of the Moon, Mars, outer moons and beyond
    including the search for extrasolar planets that might harbor life.
    NASA is still developing architectures for human and robotic
    exploration of the Moon and Mars. Estimates that were used in the
    budget represent a bounding estimate based on experience and actual
    costs from relevant elements of the Apollo program. The estimates do
    not reflect architecture studies, design analysis, new technologies,
    and innovative approaches yet to be undertaken. They also do not
    reflect that the exploration vision, unlike Apollo, views the lunar
    landing not as an end in itself, but as one step in a sustained human
    and robotic program to explore the solar system and beyond. The lunar
    exploration will reduce the risks and prepare for Mars exploration, and
    many of capabilities developed for lunar exploration may be used for
    Mars exploration as well.
        Question. To what extent can robotic spacecraft accomplish these
    exploration goals instead of humans, at less cost and risk to human
    life?
        Answer. NASA has undertaken a recent analysis of the benefits and
    cost associated with human space flight, and this response reflects
    some of the findings of that analysis. Neither robotics nor humans
    alone could accomplish these exploration goals. Robots cannot
    discover--they are simply a smart set of sensors and effectors that act
    as surrogates for and inform human presence elsewhere. Humans cannot
    explore alone either--the space environment does not allow humans to
    operate without robotic support--this is often true today on Earth as
    well. In practice, humans and robots act symbiotically to complete
    tasks.
        Human presence for in situ exploration is both high value and high
    cost. Humans missions will occur after extensive characterization of
    the environment and areas of high interest are identified with the
    assistance of robots. Human presence will lead to huge increases in the
    speed and quality of the measurements taken, and creates unparalleled
    ability to observe and make discoveries through the unique capabilities
    of the human brain. The result is dramatic increases in the pace of
    discovery and reliability of scientific returns. This comparative
    advantage was aptly demonstrated by Apollo where human presence
    quickened the pace of discovery by producing a large quantify of high
    quality material for analysis that led to dramatic discoveries about
    the Moon.
        Finally, as the President stated on January 14, ``human beings are
    heading into the cosmos.'' One of the four primary objectives of the
    new space exploration vision is ``to extend human presence across the
    solar system.'' This endeavor, intended to improve our lives and lift
    our national spirit, cannot be accomplished using only robots.

                 INTERNATIONAL PARTNERS IN THE MOON/MARS VISION

        Question. In the President's policy directive, it states that NASA
    will ``pursue opportunities for international participation to support
    U.S. space exploration goals.'' We currently have an international
    partnership with the space station, and our own participation is taking
    a dramatic change, even before the construction is even completed.
        Will other countries be willing to participate if the United States
    does not live up to its obligations to the space station program, and
    if the United States insists on directing how the Moon/Mars program is
    to be conducted?
        Answer. The President directed NASA to fulfill our commitments to
    our partners on the ISS, and we plan to do so. Initial interest by
    other countries in the vision has been positive, and we expect there
    will be many opportunities for international cooperation over the
    course of implementation.

                            SPACE STATION CREW/CARGO

        Question. In your proposed budget, there is $140 million proposed
    for space station crew and cargo services. This funding will be for
    launch, delivery, and return services for cargo, and the purchase of
    human-rated launch and return capabilities.
        Why is this money needed at this time, when the anticipated need
    for such services will not be until 2010? Is this an indication that
    this will be a recurring cost for the next 5 years?
        Answer. NASA will retire the Space Shuttle after completing
    assembly of the International Space Station, planned for the end of
    this decade. Even prior to retiring the Shuttle, there is a need for
    additional cargo capability in order to achieve fuller utilization of
    the Space Station for conducting research. Offloading some ISS cargo
    transfer tasks onto commercial services may be key to completing the
    ISS by the end of the decade, an important step in enabling the New
    Vision for Exploration. Hence, funding to begin to acquire cargo and
    crew services is requested in fiscal year 2005. NASA is beginning to
    discuss options for meeting cargo/crew delivery and return requirements
    in both the near term and post-Shuttle. As early as fiscal year 2006,
    NASA anticipates a need to augment Shuttle and partner-provided
    services to improve utilization by purchasing cargo/crew services
    commercially using a full and open competitive acquisition process.
    Currently, no commercial capability exists that could meet the
    requirements but there appears to be commercial interest. NASA has no
    plans to fund the development of this capability and plans to acquire
    services. However, technology risk reduction demonstrations are under
    consideration to reduce the risk of development for any potential
    service provider. The phased funding plan for ISS Cargo/Crew Services
    is shown in the following table.

    ----------------------------------------------------------------------------------------------------------------
                                        Fiscal Year     Fiscal Year     Fiscal Year     Fiscal Year     Fiscal Year
        Fiscal Year 2005 Request           2005            2006            2007            2008            2009
    ----------------------------------------------------------------------------------------------------------------
    ISS Cargo/Crew Services.........    $140,000,000    $160,000,000    $160,000,000    $160,000,000    $500,000,000
    ----------------------------------------------------------------------------------------------------------------

        Question. Whom do you expect to provide these services? As you well
    know, it is currently against the law for us to provide funding to the
    Russians for vehicles that are doing this type of work for us now.
        Answer. NASA is refining projected requirements for ISS cargo and
    crew delivery and return consistent with the Vision for Space
    Exploration and existing law and policy. NASA is developing an
    integrated ISS strategy that considers the full range of domestic and
    international partner transportation options. These options include:
    U.S. commercial capability; ISS International Partner assets, such as
    the European Automated Transfer Vehicle, Japanese Transfer Vehicle, and
    the Russian Progress and Soyuz spacecraft; and, Transition to
    capability presently under definition from the NASA Constellation
    Program, when available, after the retirement of the Space Shuttle in
    2010.
        NASA recognizes there are unique challenges associated with each of
    these space access options and is committed to assuring safe, reliable
    and affordable access and operation to the International Space Station.

                 ARBITRARY DATE OF 2010 FOR SHUTTLE RETIREMENT

        Question. During the hearing, it was contended that the 2010
    recertification date mentioned in the CAIB report might have been an
    arbitrary date picked by the CAIB.
        If NASA is going to comply with the CAIB report 100 percent, as has
    been stated numerous times before this subcommittee, how can a specific
    date within the report for recertification be determined to be
    arbitrary?
        Answer. The Space Shuttle Orbiters were designed with an
    operational life of 100 flights. Given that no Orbiter in the current
    fleet has been flown more than 30 missions, the Shuttle is potentially
    capable of flying until 2020 or beyond. Mid-life certification was
    projected for approximately 2010. This target date became the logical
    point for completing recertification. Since the Space Shuttle fleet
    will now retire after completion of assembly of the International Space
    Station (ISS), currently planned for the end of the decade, NASA is
    appropriately readdressing recertification norms.
        The CAIB report was written when the Space Shuttle was expected to
    play a major role in ISS logistics, science and crew exchange following
    full assembly. Given that the Vision for Space Exploration calls for an
    end to the Space Shuttle program at the completion of ISS assembly,
    planned for the end of this decade, the purpose and need for
    recertification is less clear. The Shuttle Service Life Extension
    Program (SLEP) has been tasked to address this CAIB report
    recommendation, and reviews are currently in progress.
        Question. What documentation can you provide that indicates that
    such a date was, in fact, arbitrarily made?
        Answer. Given that the 2010 date for recertification reflects the
    projected mid-life certification date, the Orbiters' design
    certification documentation support the CAIB's decision. However, since
    the subsequent Vision for Space Exploration calls for the Space Shuttle
    to retire in this timeframe, recertification must be reevaluated.
                      heavy lift capability beyond shuttle
        Question. Assuming that the shuttle is retired in 2010, there will
    be no heavy lift capability available for NASA. The military has chosen
    to end Titan program with the final launch in early 2005, leaving
    virtually no options for the necessary cargo transport services that
    will be needed for the Moon/Mars vision.
        What is NASA doing to ensure that reliable heavy lift capability is
    available to NASA once the shuttle is retired?
        Answer. Consistent with the Vision for Space Exploration, NASA
    seeks to safely return the Space Shuttle to flight, currently planned
    for March 2005. Over the remainder of the decade, the Space Shuttle
    will be used to complete assembly of the International Space Station
    (ISS). NASA utilizes a mixed fleet launch strategy that takes advantage
    of both domestic and International Partner launch capabilities across a
    full spectrum of performance ranges.
        NASA is developing a Shuttle retirement strategy that will assure
    space access for required U.S. support to the ISS and future Space
    Exploration requirements. Ongoing NASA assessments consider use of both
    domestic Evolved Expendable Launch Vehicle (EELV) capability to meet
    higher performance requirements as well as International Partner launch
    capability. The first EELV launch of the Boeing Delta IV-Heavy vehicle
    configuration, with a similar performance capability as the Space
    Shuttle and soon-to-retire Titan IV ELV, is planned for this summer.
        In parallel with the architecture planning and requirements
    definition for space exploration, NASA has initiated a number of
    studies to evaluate future heavy lift demand and potential domestic
    capabilities beyond that of current systems, which could meet yet-to-be
    defined requirements. As the architecture planning, requirements
    definition, and study results mature, NASA will continue to evaluate
    and plan for all its launch requirements, including heavy lift, in
    coordination with the Department of Defense to assess requirements in
    this class from a National perspective.
        Question. Will NASA need to develop a new heavy lift capability
    that is not yet a part of the Moon/Mars plan, and at what cost?
        Answer. As stated above, NASA has initiated a number of studies to
    evaluate future heavy lift demand and potential domestic capabilities
    beyond that of current systems, which could meet yet-to-be defined
    requirements. As the architecture planning, requirements definition,
    and study results mature, NASA will continue to evaluate and plan for
    all its launch requirements, including heavy lift.

                              RUSSIAN SOYUZ SAFETY

        Question. NASA recently announced a further slip of the shuttle's
    return to flight until March or April of 2005. NASA should be commended
    in taking its time to ensure that all the necessary CAIB
    recommendations are implemented properly. However, in the meantime, we
    are relying on Soyuz to deliver and return crews to and from the ISS.
    This begs the question of whether the Soyuz meet the same expectations
    of safety that we now expect of our own vehicles after the tragic loss
    of Columbia.
        Can you explain what steps NASA has taken to ensure that the Soyuz
    vehicles meet the basic safety requirements that are embodied in the
    CAIB recommendations?
        Answer. NASA has significant interaction with the Russian Federal
    Space Agency (FKA) and the vehicle manufacturer (RSC-Energia) regarding
    safety of the Soyuz vehicles. On the basis of this interaction and the
    historical record of Soyuz and Soyuz-derived vehicle performance, NASA
    is confident that the Soyuz is among the safest spacecraft ever flown.
        The continued use of the expendable Soyuz spacecraft does not
    present a ``new'' certification requirement. Each vehicle is operated
    within the design, certification and experience of our Russian
    partners. Under the provisions of the Memorandum of Understanding
    between NASA and Rosaviakosmos (now the Russian FKA) concerning
    cooperation on the International Space Station (Article 10.2), FKA is
    responsible for meeting or exceeding the overall Space Station safety
    and mission assurance requirements and plans established by NASA and
    the Partnership. (``In support of NASA's overall responsibilities to
    assure safety and mission assurance, FKA will be responsible for
    certifying that the Russian Segment and the FKA-provided elements,
    including cargo, are safe and ready for operation using jointly agreed
    documentation and processes.'') The Soyuz has been certified under
    these conditions. Under the provisions of the MOU, NASA is not
    responsible for certifying Russian vehicles for flight and FKA is not
    responsible for certifying NASA vehicles for flight.
        In addition, each Soyuz mission undergoes a number of joint Russian
    and U.S. expert reviews. Prior to each mission, the U.S.-Russian
    Stafford-Anfimov Joint Commission conducts an in-depth joint assessment
    of the operational readiness of the mission. The resulting report is
    one of the inputs to the detailed NASA technical reviews that culminate
    in a Flight Readiness Review for each mission.
        The certification under the MOU, our technical and safety history
    with Soyuz vehicles, and current processes for joint Station operations
    combine to ensure the safety of future use of Soyuz.
                                     ______

                  Questions Submitted by Senator Conrad Burns

        EXPERIMENTAL PROGRAM TO STIMULATE COMPETITIVE RESEARCH (EPSCOR)

        Question. The NASA Experimental Program to Stimulate Competitive
    Research (EPSCoR) program was authorized in 1993 to help develop
    academic research in space science, aerospace technology and aerospace-
    related research in 19 States and Puerto Rico that have historically
    been less successful in obtaining NASA research funding. NASA EPSCoR
    has been extremely successful in my State of Montana. Montana and the
    other EPSCoR States are currently in the fourth year of 5-year research
    grants from NASA. Since fiscal year 1999, some $10 million has been
    available for this program annually. However, the fiscal year 2005
    budget request is $4.6 million. Without additional funding, Montana
    will not be able to complete its 5-year research program. Can you help
    us find the funding for EPSCoR, which has been so helpful to Montana?
        Answer. Awards under the current NASA EPSCoR program were granted
    in 2001 for a 3-year period with an option for a 2-year extension based
    on a competitive review of progress made. Review of those continuation
    requests will be conducted later this year. The most competitive
    programs that demonstrate successful progress will be granted
    continuation awards in accordance with the available budget.
        Question. Since fiscal year 1999, Congress had funded the NASA
    EPSCoR program at $10 million annually but each year the budget request
    seems to revert to $4.6 million. This is an on-going, authorized
    program with important results in the participating States. Why do we
    see this constant push back?
        Answer. NASA has requested funding for the program in the
    President's budget request every fiscal year since the NASA EPSCoR
    legislation was authorized and considers the program a vital part of
    the Agency's education portfolio. The NASA budget request for EPSCoR is
    at a level that reflects the importance of the EPSCoR program balanced
    against other program priorities.
        NASA is committed to the EPSCoR program. The program is a strong
    component of the Office of Education workforce development and research
    capacity building strategy. The NASA EPSCoR Program provides seed
    funding that enables eligible States to develop an academic research
    enterprise directed toward long-term, self-sustaining, nationally
    competitive capabilities in space and Earth science and applications,
    aeronautical research and technology, and space research and technology
    programs. This capability contributes not only to the State's economic
    viability but to the Nation as a whole.

                              PRIVATE CORPORATIONS

        Question. As I mentioned previously, it is critical for NASA to
    attract private sector dollars to the space field. I know that private
    corporations working in conjunction with the Inland Northwest Space
    Alliance in Missoula, Montana, have made a huge financial investment in
    expandable space structures, a technology that NASA did some work on
    under the auspices of the Transhab project. What is NASA doing to
    leverage these corporations funding of this new technology and to
    encourage other entrepreneurs to make similar investments?
        Answer. Two fundamental goals of the Vision for Space Exploration
    are to: develop the innovative technologies, knowledge, and
    infrastructures both to explore and to support decisions about the
    destinations for human exploration; and promote international and
    commercial participation in exploration to further U.S. scientific,
    security, and economic interests.
        To achieve these goals, NASA is undertaking two new approaches to
    systems and technology development: Broad Agency Announcements (BAAs),
    and a competitive prize program called Centennial Challenges. In
    addition, NASA's existing Innovative Technology Transfer Partnerships
    and Enterprise Engine programs will work to build relationships with
    private industry and NASA will ensure that open, competitive processes
    are used throughout our Human and Robotic Technology (HRT) development
    programs.
        To solicit private sector inputs on how to best frame future
    systems development and procurement decisions, NASA's Office of
    Exploration Systems is employing Broad Agency Announcements (BAAs).
    BAAs have been previously used by the Department of Defense to obtain a
    wide range of company, government lab, and university views on what
    systems, technologies, and expertise are needed to achieve a particular
    operational capability. This will be the first time that NASA has
    employed BAAs, and it should allow companies, both large and small, the
    opportunity to put forth innovative ideas that could have a profound
    impact on how NASA and the Nation implement future exploration
    activities, such as Project Constellation (the Crew Exploration
    Vehicle).
        To ensure that NASA reaches the broadest segment of innovators
    possible, NASA's Office of Exploration Systems has also started a new
    program of prize competitions called Centennial Challenges. Instead of
    soliciting proposals for a grant or contract award, NASA will set a
    challenge, the prize amount to be awarded for achieving that challenge,
    and a set of rules by which teams will compete for that prize. By
    specifying technical goals but not pre-selecting the best way to
    achieve them, NASA intends to stimulate innovation in ways that
    standard Federal procurements cannot. Centennial Challenge winners will
    be judged and earn awards based on actual achievements, not proposals.
    Using this approach, NASA's research will be enriched by new innovators
    that do not normally work on NASA issues. Through Centennial
    Challenges, NASA intends to reach new innovators and find novel or low-
    cost solutions to NASA engineering problems that would not be developed
    otherwise.
        NASA's Office of Exploration Systems has inherited NASA's ongoing
    Innovative Technology Transfer Partnerships (ITTP) program. In recent
    years, the focus of the ITTP programs has been rebalanced to include
    both ``spin-off'' (transferring NASA-developed technologies to the
    private sector) as well as ``spin-in'' (leveraging private sector
    technologies for NASA missions). Through ITTP, NASA also plans to
    undertake novel new joint research and development projects with the
    private sector.
        In addition to the programs within the Office of Exploration
    Systems, the Office of Biological and Physical Research Space Product
    Development division (SPD) manages the Research Partnership Center
    (RPC) program. This program brings industry, academia and government
    together to create new technology having application to both NASA and
    the private sector. In this way the RPCs are creating benefits to the
    public through their research directed toward NASA's needs. These
    centers are engaged in a wide range of areas of applied research,
    including advanced materials, agribusiness, biotechnology,
    communications, imaging, medical informatics, telemedicine, spacecraft
    technology and space resource utilization.
        Finally, NASA's Office of Exploration Systems will be making
    significant investments in new technologies to support the development
    of future exploration systems through the Human and Robotic Technology
    (HRT) Program. The Office of Exploration Systems is committed to
    ensuring that HRT programs use open and competitive processes for
    selecting and awarding grants and contracts. This will help ensure a
    level playing field between private sector and public sector R&D
    organizations seeking HRT awards.

                          INTERNATIONAL SPACE STATION

        Question. After the International Space Station is ``phased out''
    in 2016, what do you plan to do with the facility? Could the private
    sector potentially have a role in managing the Station?
        Answer. In the broad context of the Vision for Space Exploration,
    the ISS will be utilized through at least 2016. It will serve as a
    significant test bed for the research and technical development needed
    to fulfill the objectives of the Vision. It is premature to comment on
    any determination regarding what will happen to the ISS beyond 2016.
    While there are no specific plans for private management of the
    Station, such a proposal would have to be thoroughly evaluated at the
    appropriate time in the future. Future management of the ISS will need
    to be fully coordinated with our International Partners in accordance
    with our ISS agreements.
        There is a plan for the safe and orderly de-orbit of the Station
    when it has reached the end of its service life.

                         CREW EXPLORATION VEHICLE (CEV)

        Question. Currently, the only avenue for the private sector to
    purchase a crewed spaceflight opportunity is aboard the Russian Soyuz.
    Is NASA anticipating the development of a version of its Crew
    Exploration Vehicle that could some day carry non-NASA personnel?
        Answer. The CEV is expected to be dedicated to executing the new
    Vision for Space Exploration. It is doubtful that NASA would itself
    develop a version of the CEV to carry paying customers, since entering
    the commercial market is not an appropriate role for government.
    However, NASA will consider following the model from its aeronautical
    history, whereby the technologies developed for the CEV could be made
    available to commercial interests that could then develop a vehicle to
    meet market driven requirements.
                                     ______

                   Questions Submitted by Senator Larry Craig

                                 SPACE NUCLEAR

        Question. I am excited that the space nuclear mission for the
    production of the ``RTG''--the plutonium generators that power many
    space probes--has now been successfully transferred to Idaho--and
    production of these nuclear generators is now taking place at Argonne
    West.
        I think this work is a success. I understand that the Department of
    Energy and NASA are both happy with this work in Idaho. I hope to build
    on this mission.
        I notice that the budget request includes $438 million for Project
    Prometheus and for furthering NASA's efforts in advanced nuclear
    propulsion systems--to move beyond the RTG to actual nuclear fission
    reactors in space.
        With your Navy background, you know that the Naval Nuclear
    Propulsion program safely travels throughout the oceans and all around
    the globe--powered by nuclear reactors. This program provides a good
    analogy for the potential of nuclear in space--the ability to travel
    great distances and a long time between re-fueling. In fact, Navy
    reactor cores now last the ``life of the ship''.
        One of the reasons this is possible is because Naval Reactors has a
    large operation in Idaho--located on the Idaho National Engineering and
    Environmental Laboratory. Every element of Navy fuel, discharged from
    its ships, is sent to Idaho for destructive examination and testing.
    The Navy has developed all its fuel, based on testing done in Idaho's
    Advanced Test Reactor.
        DOE seeks to establish a nuclear energy center of excellence for
    civilian nuclear power in Idaho. I think NASA's space nuclear efforts
    and those of the Navy fit well into this center.
        Given the importance of advanced nuclear propulsion to achieving
    the new vision for U.S. space exploration laid out by the President,
    could I have your commitment to come to Idaho--to see the capabilities
    of the Idaho lab and to see the Naval Reactors work there?
        Answer. NASA has been in touch with your staff regarding this
    matter.

                           ADVANCED MICROELECTRONICS

        Question. In fiscal year 2004, Congress provided $1 million of
    additional funding for advanced work in radiation hardened, ultra low
    power micro-electronics work associated with a research center in Post
    Falls, Idaho. This additional funding was intended as an increase to
    some ongoing work that NASA Goddard was doing in Idaho--not as a
    substitute for that work--which had already been competitively awarded.
    In other words, these items were not meant to cancel each other out. I
    understand that NASA is still engaged of a review of Congressional
    earmarks and will finish that review by the end of the month.
        Could you please look into the status of release of this funding,
    and have your staff report back to my office?
        Answer. NASA has been in touch with your staff regarding this
    matter.
                                     ______

                    Question Submitted by Senator Harry Reid

                        JOINT DARK ENERGY MISSION (JDEM)

        Question. I was recently pleased to learn that NASA and the
    Department of Energy are collaborating on the Joint Dark Energy Mission
    (JDEM) in an attempt to answer the most fundamental science questions
    of the day--of what is the universe made and why is the universe
    expanding at an ever increasing rate. Unfortunately, although the
    Department of Energy requested around $7.6 million in its budget
    request for JDEM, it appears that NASA failed to meet its commitment to
    this program and did not include funding in its fiscal year 2005 budget
    submittal. What does this lack of resources mean for the program and
    for the collaboration that NASA entered into with DOE? There is wide
    agreement within the scientific community that this program is critical
    and in need of immediate funding to ensure that it remains robust and
    productive--could you please explain why NASA chose not to include JDEM
    in its budget request? Please keep the committee abreast of the
    Department's actions and intentions regarding JDEM.
        Answer. NASA has not abandoned its desire to participate in the
    NASA-DOE mission called JDEM. NASA and DOE have agreed on an outline of
    the joint mission. The principle investigator-led science investigation
    will be competitively selected jointly by NASA and DOE. The science
    investigation and mission operations will be jointly funded. NASA will
    take responsibility for the project, prime contractor, launch, general
    observer program, and data archive.
        DOE is funding research that is applicable to JDEM. NASA is funding
    mission concept studies by potential proposers ($500K/yr in fiscal year
    2004 and fiscal year 2005). NASA Centers are spending advanced project
    funds on studies as well ($800K to $1M in fiscal year 2004). NASA is
    evaluating five mission concepts (from Lawrence Berkeley Laboratory;
    JPL; GSFC; Arizona State University; and Conceptual Analytics, LLC)
    looking at a variety of architectures, instruments, and technologies.
        NASA finds the JDEM mission scientifically compelling; however, as
    an agency, we must always prioritize among competing research programs.
    Whenever possible, we enlist the aid of our advisory committees and the
    guidance of the National Research Council (as outlined the most recent
    Decadal Survey). This approach ensures that the opinions of the
    scientific community remain important considerations in NASA decisions.
        While it is true that NASA will not begin full JDEM development
    this year, important precursor activities are being undertaken to
    ensure that we will be prepared to begin, should the decision be made
    to proceed with JDEM.

                              SUBCOMMITTEE RECESS

        Senator Bond. Thank you very much, Mr. Administrator.
        Mr. O'Keefe. Thank you, sir.
        Senator Bond. The meeting is recessed.
        [Whereupon at 11:42 a.m., Thursday, March 11, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                            THURSDAY, MARCH 25, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10 a.m., in room SD-628, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Craig, Domenici, Mikulski, and
    Leahy.

                        ENVIRONMENTAL PROTECTION AGENCY

    STATEMENT OF MICHAEL O. LEAVITT, ADMINISTRATOR
    ACCOMPANIED BY:
            STEPHEN L. JOHNSON, ACTING DEPUTY ADMINISTRATOR
            BENJAMIN H. GRUMBLES, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF
                WATER
            PAUL GILMAN, ASSISTANT ADMINISTRATOR, OFFICE OF RESEARCH AND
                DEVELOPMENT
            MARIANNE L. HORINKO, ASSISTANT ADMINISTRATOR, OFFICE OF SOLID
                WASTE AND EMERGENCY RESPONSE
            PHYLLIS HARRIS, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF
                ENFORCEMENT AND COMPLIANCE ASSURANCE
            MICHAEL W.S. RYAN, DEPUTY CHIEF FINANCIAL OFFICER
            MARYANN B. FROEHLICH, ASSOCIATE CHIEF FINANCIAL OFFICER
            DAVID A. BLOOM, DIRECTOR, OFFICE OF BUDGET
            ANNA WOLGAST, PRINCIPAL DEPUTY GENERAL COUNSEL
            NIKKI L. TINSLEY, INSPECTOR GENERAL
            JUDITH AYRES, ASSISTANT ADMINISTRATOR, OFFICE OF INTERNATIONAL
                ACTIVITIES
            JEFFERY R. HOLMSTEAD, ASSISTANT ADMINISTRATOR, OFFICE OF AIR
                AND RADIATION
            SUSAN B. HAZEN, PRINCIPAL DEPUTY ASSISTANT ADMINISTRATOR,
                OFFICE OF PREVENTION, PESTICIDES AND TOXIC SUBSTANCES
            KIM T. NELSON, ASSISTANT ADMINISTRATOR, OFFICE OF ENVIRONMENTAL
                INFORMATION
            DAVID O'CONNOR, ACTING ASSISTANT ADMINISTRATOR, OFFICE OF
                ADMINISTRATION AND RESOURCES MANAGEMENT
            DONA DELEON, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF
                CONGRESSIONAL AND INTERGOVERNMENTAL RELATIONS

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning. The subcommittee will come to
    order. My apologies. Due to the elevator service around here,
    we are running a little bit late.
        Senator Mikulski has another hearing, which she has to
    attend briefly, but I am going to get started, because it looks
    like we have a number of members here. This morning, the VA-HUD
    Independent Agency Subcommittee will conduct its hearing on the
    fiscal year 2005 budget request for the Environmental
    Protection Agency.
        It is a pleasure to welcome Governor Michael Leavitt,
    Administrator of the EPA to this subcommittee to testify on the
    President's Budget request for fiscal year 2005.
        Governor Leavitt, since this is your first appearance and
    only your fourth month on the job, I look forward to hearing
    your initial impressions of the Agency and its mission.
        We thank you very much for being here today, and assure you
    that the EPA is one of the most important and difficult
    missions of all the Federal agencies. The jurisdiction ranges
    from clean up of Superfund and Brownfield sites to funding
    clean water and drinking water infrastructure programs, as well
    as the very important enforcement of environmental laws.
        A presidential directive issued in December 2003 continues
    to identify the EPA as the lead agency in protecting our
    Nation's water infrastructure from terrorist attacks. I think
    the EPA has provided strong leadership thus far within the
    Federal Government regarding critical homeland security issues.
    There is much more to be done, and we will have some ideas that
    will be considered for legislation in that area.
        Not to put a damper on this morning's proceedings, but
    before I delve into the budget request for EPA for the coming
    year, I should notify you and everybody else that we are
    operating in a very tight budget year. This subcommittee, in
    particular, faces a very steep challenge, with substantial
    funding shortfalls for a number of key programs within our
    jurisdiction, including VA Medical Care, Section 8 Housing
    Assistance, and EPA Clean Water State Revolving Fund.
        Before we get this bill off the floor, we are going to have
    to address all of those, and that means, given the tight budget
    we have, that other things are going to be very difficult to
    fund.
        The administration has asked for an almost $900 million
    increase for the NASA budget in fiscal year 2005 in order to
    implement a very ambitious and costly redirection of resources
    for future manned missions to the moon and Mars.
        It is obvious that we are going to have to make some tough
    decisions, and we look forward to working with you, as members
    of this committee, and for your findings going forward.
        The administration requested $7.76 billion total budget
    authority for the coming year. This is a $606 million decrease
    from the fiscal year 2004 enacted level.
        As with other funding shortfalls in the jurisdiction of
    this subcommittee, the 7 percent reduction in EPA funding
    concerns me greatly, particularly in places where OMB took the
    money out.
        In particular, in both my role as the chairman of the VA-
    HUD Appropriations Subcommittee and as a member of the
    Committee on Environment and Public Works, I have made
    investments in our Nation's water infrastructure a priority. I
    can assure you that my colleague, Senator Mikulski, feels the
    same way. Unfortunately, OMB, once again, didn't get the
    message. They have proposed reducing the Clean Water State
    Revolving Fund from $1.35 billion in 2004, to $850 million in
    2005, a reduction of nearly $500 million below the fiscal 2004
    enacted level. That just isn't going to work. I am pleased that
    OMB has at least maintained a level request of $850 million for
    the Drinking Water SRF in 2005.
        Eight hundred fifty million dollars for the Clean Water SRF
    is simply not enough. I cite the EPA's own document, Clean
    Water and Drinking Water Infrastructure Gap Analysis published
    in 2002, indicating a substantial gap in funding will develop
    even if the Nation's current clean water/drinking water systems
    maintain current spending levels.
        The Gap Analysis estimates that the United States will need
    to spend $450 billion--billion dollars in capital needs for
    clean water and drinking water in the next 20 years. I think we
    need to find additional resources and perhaps new approaches to
    address these important needs. Nevertheless, at a minimum, we
    need to maintain funding for both of these revolving funds, at
    least at the current year's level.
        I am also interested in the most prominent air quality
    issue in the last few months, which has been what to do about
    emissions from coal-fired electric power plants.
        The administration has proposed changes to New Source
    Review, and has asked Congress to modify the Clean Air Act
    requirements for power plants by passing Clear Skies or
    multipollutant legislation. Further, EPA proposed a rule
    permanently to cap and reduce mercury emissions from power
    plants. I congratulate the administration on submitting both
    legislation and regulations which seek to maintain the economic
    viability of U.S. energy producers, while meeting the air
    quality standards of the Clean Air Act; nevertheless, this will
    remain an area of great concern and controversy where, despite
    continued improvements to the quality of our Nation's air, as
    of December 2002, some 107 areas, with a combined population of
    almost 100 million people, were classified as non-attainment
    areas for one or more of the national ambient air quality
    standards.
        I look forward to your leadership in this area. We are
    obviously going to have to develop new technologies to deal
    with this problem, because we cannot afford misguided Federal
    policy forcing coal out of our electric generating capacity,
    using instead natural gas, because natural gas is a vital
    component. The excessive demand imposed on our natural gas
    supplies by providing new electric generating only from natural
    gas has resulted in a significant problem.
        This high price and limited supply of natural gas is
    outsourcing natural gas industry jobs from the United States.
    Make no mistake about it, we are driving jobs out of the United
    States, because natural gas is in such short supply. Industries
    are moving overseas and taking their jobs with them because
    other countries do not artificially inflate the demand for
    natural gas and constrict the supply.
        We are hearing about a number of new possible means of
    developing clean burning coal. I have been presented
    information on electrocatalytic oxidation technology, which has
    the potential for reducing all these pollutants at less cost
    and less environmental damage than the current scrubbers, but
    make no mistake about it, we have 250 years supply of coal.
    We've got to learn how best to do it.
        EPA also faces significant challenges in cleaning up the
    1,240 Superfund sites on the National Priorities List (NPL),
    and the 65 sites proposed to make the NPL.
        The administration is requesting $1.381 billion for the
    Superfund program in fiscal year 2005, which is $124 million
    above the fiscal year 2004 level. The bulk of the $124 million
    increase will be used for additional construction starts. There
    is no question, the Superfund program could use increased
    funding of clean-up sites currently on the NPL, and those
    waiting to make the list.
        Last year, I pointed out that only 16 percent of the funds
    in the Superfund program go to cleaning up sites. And I have
    asked in the last year's Senate report that the EPA find out
    how we could put more money into cleaning up. I know there has
    to be money for enforcement, and that provides money for the
    cleanup, but I look forward to working with you to find out how
    we can make sure that these dollars we appropriate for
    Superfund are actually cleaning up the Superfund sites. Failure
    to do so is causing significant problems in the Superfund
    program.
        I hope EPA will make every effort to allocate the resources
    within the Superfund program with a goal of both diminishing
    immediate health risks to the communities surrounding these
    hazardous sites, and completing construction as swiftly as
    possible.
        I note that an internal review of the Superfund program is
    taking place currently at the EPA to determine whether
    resources are being used efficiently. I look forward to being
    briefed on the results of this review. Governor, I look forward
    to working with you on ways to make this program more
    efficient.
        I plan to introduce an Environmental Enforcement and
    Security Act of 2004 within the next several days. The
    legislation is intended to address concerns raised by a recent
    EPA Inspector General report, internal EPA reviews, and
    numerous press reports that EPA is straining to meet its
    environmental enforcement duties and its new post-9/11 Homeland
    Security responsibilities.
        I think that the EPA's efforts should be funded from the
    robust Homeland Security budget, because it doesn't look like
    we're going to have the resources we need with our budget
    allocation to get the job done solely in this Committee.
        The bill would authorize additional funds to add 50 new
    criminal enforcement agents and 80 new Homeland Security
    special agents. It would authorize EPA to fund $100 million in
    grants for physical security measures to protect our Nation's
    water systems. Again, I think much more will need to be done
    but I am concerned that we first need a comprehensive
    assessment of our water infrastructure security needs, and then
    a comprehensive plan that will ensure the necessary funds will
    be used effectively and efficiently.
        Finally, I want to turn to a critical issue, to jobs, very
    briefly. Last year we had an issue, with proposed California
    air regulations to require catalytic converters on all small
    engines. This would have raised significant safety concerns,
    because the Fire Marshal's Fire Chiefs, even in California,
    said that a 1,100 degree catalytic converter on a leaf blower,
    chain saw, or lawn mower causes significant fire danger.
        We added an amendment that would say to EPA: Before you
    approve California's rule, you must take into consideration the
    safety concerns. But beyond that, and just as important, we
    believe that the EPA could achieve the goals sought by the
    California Air Regulation Board, and do it on a nationwide
    basis by proposing an effective, workable rule for all small
    engines.
        Were the California Air Resources Board regulation to go
    into effect nationwide, it would outsource 22,000 jobs that
    would be moved to China the next day as the small engine
    manufacturers had to build new plants, and they would build
    them in China, not in the United States. We don't need another
    governmental forced outsourcing of jobs.
        So, Governor, I ask that the EPA pay special attention to
    this, make sure we clean up the air, but don't drive jobs out
    of the country as we do it.
        With that, I normally would turn to my Ranking Member, and
    I would ask our distinguished Senator from Vermont if he would
    be kind enough to allow me to allow Senator Craig to go
    forward. He has another commitment. If he is brief, can you----
        Senator Leahy. First, I would be happy to say that Senator
    Craig was here earlier than I was. I would be happy to do that,
    but I do have a statement afterward.
        Senator Bond. We are looking forward to your statement. We
    don't want you to be rushed.
        Senator Leahy. The Governor is looking forward to my
    statement.
        Senator Bond. Let me turn to Senator Craig.

                        STATEMENT OF SENATOR LARRY CRAIG

        Senator Craig. Mr. Chairman, thank you very much. Governor,
    Administrator Leavitt, welcome before the committee. First of
    all, again, let me publicly thank you for taking this position.
    It is a very difficult one to have in any administration
    because of the level of expectation of the American people as
    it relates to our environment, and the reality of implementing
    those expectations. I think our chairman has just spoken to
    some of that.
        I handed him, while he was talking about gas costs and
    clean air, and driving this country to use gas generation, and
    then not allowing us to produce that gas, especially out in
    your part of the country, and in my part of the country, the
    Industrial Energy Consumers of America Report came out a couple
    of days ago.
        In the last 46 months, compared with the prior 46 months,
    because we are not producing gas, we are denying offshore
    development, onshore development all in the name of the
    environment, while demanding gas be used all in the name of the
    environment. This is an interesting statistic.
        The 46-month natural gas crisis has cost U.S. consumers
    $130 billion. How in the world can we get an economy going, and
    everybody wants that to happen, when we are sucking it dry of
    the resources necessary because we are demanding more for gas?
        And that breaks down, it is interesting, to industrial
    consumers $66 billion more, residential consumers $39 billion
    more, and commercial consumers $25 billion more.
        In your State of Utah and my State of Idaho, that means
    that the average farmer's cost of production, as an input cost,
    will go up 30 percent this year. His fertilizer has gone up 100
    percent. Production of food will drop in our country as a
    result of that.
        And guess where those farmers will come? Here, to their
    Nation's capital, to get help. I talked with a banker in Idaho
    yesterday with substantial farm loans, he has called all of his
    branch banks and said: You will need to anticipate increasing
    your lines of credit to your agricultural producers by at least
    25 to 30 percent this year just to offset the cost of energy.
        Shame on us, the Congress of the United States, for
    standing in the way of production in this country in many
    instances fallaciously in the name of the environment.
        Have you got a job to do? Oh, yes, you have, but so do we,
    and we haven't done it.
        Am I passionate about this? Yeah, when it runs people out
    of business, when we are using gas for electrical generation,
    and it ought to be used for heat, one of the most inefficient
    ways to use gas, but the Clean Air Act drove everybody there,
    and then we shut down production. Dumb us. But that is the
    reality of where we are.
        I don't know that I could get anymore passionate about it,
    and if you want to hear more, I'll be happy to deliver. Point
    made.
        Beyond that, a couple of other issues you'll face,
    Governor, as you work. They are not just Western issues, but in
    many instances, they are unique to the geology of the West.
        It's a little thing called arsenic in drinking water, and
    drinking water standards. Now, I know that these new standards
    you've inherited, but in your State of Utah, and in my State of
    Idaho, where the geology oftentimes finds itself ingrained in
    decaying granitics and granitic structures, arsenic levels are
    oftentimes extremely high.
        A little community of Castleford, Idaho, just across the
    border from Utah, is going to see its compliance costs go up
    three times its entire city budget just to comply, and it
    can't, and it won't, unless we help them. And right now with
    the budget the chairman has talked about, we can't help them.
    It just so happens the people in Castleford have one of the
    longest lifespans of any city in our State. Many live there
    into their 90's, but they've been drinking high arsenic levels
    all of their lives because it is natural in the water of that
    community.
        But we got awfully smart here in the emotional politics of
    the word ``arsenic,'' instead of the reality of the science,
    and now the science is coming in, and I would suggest that the
    science does not support the standards. But touch it
    politically, how dare us? Watch the yelling on the floor of the
    United States Senate, and the headlines if you dare touch that,
    Mr. Administrator.
        That is the reality we face, and that is true in Idaho,
    Utah, across the United States. We have asked these communities
    to do something they cannot do. And the question is do they
    need to do it?
        We have not even stopped to ask that, we've just made that
    political assumption, and not a scientific assumption.
        Lastly, the Chairman talked about Superfund. We've got a
    big Superfund site in north Idaho. We battled that issue for
    years. EPA has gone out there, and their people have taken
    residence hoping they could continue to live in that beautiful
    area where the Superfund site is until their kids graduate from
    college.
        The only problem is some of them came with 4- and 5-year-
    olds, and so they want to stay for a long time. It is the most
    beautiful part of our State, and it is unique that it is a
    Superfund site, because of the heavy metals that are a product
    of the old mining era.
        I believe they phonied the science, and as a result of that
    I got an appropriation with the help of this committee, we have
    the National Academy of Science out there now in an impartial
    way reviewing the science. Watch us. Watch the National
    Academy, Mr. Administrator. I think it might be a lesson
    learned as it relates to the application of Superfund.
        Oh, yes, we have some problems, and, oh, yes, they ought to
    be cleaned up. But largely the work is done out there, and
    Mother Nature is now doing a better job in her recuperative
    powers than is the human; but yet $400 million still wants to
    be spent by those who want to continue to work there until
    their kids are through college, $400 million of moving earth
    around, and disturbing the environment beyond what man had
    already disturbed. It really is an issue that ought to be
    addressed.
        The prior administrator, Ms. Todd Whitman, did the right
    thing, and did a unique thing, she developed with us a
    cooperative management relationship between EPA and the State
    of Idaho so that we think we can get greater efficiencies than
    if it is simply prolonged and prolonged and prolonged by the
    Federal bureaucracy.
        We hope we can accomplish that. We think we will, and will
    need your help. At the same time, goodness sakes, we need a lot
    of common sense applied to areas where it doesn't exist. That
    is why we've asked the National Academy to come in, and we
    asked EPA to stand down while we review their science to
    determine whether they are right, or whether they are wrong, or
    if it simply fits the agenda of somebody who would like to
    continue to live in that beautiful part of the country.
        Thank you. Glad to see you. Lots of challenges, little
    resource to do it with. Good luck.
        Senator Bond. Thank you very much, Senator Craig. I should
    have noted, when we were talking about natural gas, it is not
    only the cost of energy, but the first number in the three-
    number fertilizer, the end number, comes from natural gas we
    are seeing, we are seeing costs of fertilizer going up--I buy
    several hundred pounds, and it is a small amount I buy, I see
    the tremendous increase in the cost of fertilizer because of
    natural gas prices.
        And natural gas-using consumers all across the Nation are
    being hit with huge natural gas bills for heating this year
    because of the natural gas constricted supply and increased
    demand.
        But with that, now let me turn to our friend from Vermont.
    Senator.

                     STATEMENT OF SENATOR PATRICK J. LEAHY

        Senator Leahy. Thank you, Mr. Chairman, and I have--
    Governor, I have been looking forward to this hearing. I am
    sure you have, too. Thank you for coming. You probably find
    that we are not all in total agreement on this committee. You
    understand the personal friendships of those of us who are
    here.
        I do want to start off by thanking you for recognizing the
    importance of Lake Champlain by including it in EPA's budget
    proposal. Lake Champlain is the largest body of fresh water in
    this country outside of the Great Lakes. It is a beautiful
    spot. I invite you to come up and visit any time you'd like.
        Cleaning it up has been one of my top priorities and one of
    Vermont's top priorities, Governor.
        There are different political parties, but we stand
    shoulder to shoulder in our efforts to clean it up, and I think
    I could speak for him, too, and say thank you for including it
    in the budget.
        I also applaud you for the tone you set assuming your
    duties at EPA. Tones are important anywhere. For us, the actual
    notes can sometimes be even more important than the music. We
    talked about the Clean Air Act. I was here when it was first
    put together, and it was a bipartisan effort.
        You had Republicans like Senator Stafford of Vermont and
    other lead members of the Republican party, and of the
    Democratic Party working closely together on a series of
    compromises to pass the Bill. Today, I am concerned that the
    administration is trying to roll back the Clean Air Act, and to
    let large pollutants off the hook when it comes to toxic
    emissions like mercury.
        My concerns, if these rollbacks succeed, are that we will
    undermine not only decades of work restoring Lake Champlain,
    but countless other rivers, lakes and streams all over the
    country. And there is, as you have seen in the press, heard on
    the news, there is a strong bipartisan and growing outcry about
    the administration's latest retreat from the Clean Air Act in
    your mercury proposal.
        And these concerns are moving so swiftly, they may reach
    critical mass here on Capitol Hill. Let me give you this chart,
    and this is why the objections are so strong. You could see in
    the dark red, it shows mercury levels across the country.
        Now, this is an EPA chart. The top level, of course, is
    Canada. Here in Vermont, Maine, New England, you can barely see
    us. You can't even see Vermont. We, in the Northeast, have been
    a dumping ground for coal-fired power plants in the Midwest. We
    have been that way for decades.
        In drafting the Clean Air Act, the idea was to work out a
    series of grandfather clauses so that the Midwest power plants
    would have time to improve and cut down emissions. Well, now,
    we see what has happened.
        We all believe in family values, I know you do, I do, but
    it's not a family value to tell a pregnant woman that the
    mercury level may be too high for the child she is bearing. And
    for those of us who have children and grandchildren of a young
    age, they're developing their neurological systems and the
    mercury level that may possibly be safe for you or for me is
    not for them. These are not family values.
        And the EPA's new proposal to reduce mercury emissions from
    these plants was supposed to bring power plants into the 21st
    century, and clean up their emissions. It doesn't do that. It
    falls far short of what is possible and what is necessary.
    There has been a lot of public relations efforts to convince
    Americans that more mercury in their water, food and
    environment over a long period of time is the best we could do.
    That doesn't work.
        All you have to do is pick up any newspaper in this
    country, any article, or turn on the TV, turn on the radio, and
    see the concerns about mercury.
        What has come up is the fact that this administration's
    close collusion with polluting industries in devising its
    policy on mercury. This raises serious concerns. Most of these
    things happened before your tenure, but I'm raising this now.
    I'll be very blunt, I think the administration has a
    credibility problem on its approach to the Clean Air Act and to
    mercury pollution.
        Look at the new warnings about mercury risk from tuna,
    increasing numbers of pregnant women with unsafe mercury
    levels, and newborns with high mercury levels. Now, this is
    bringing about a real strong public demand for action. Mercury
    is the last major toxin without a containment plan.
        I remember back when we talked about removing lead from
    gasoline, we heard more dire predictions from energy companies,
    from everybody else involved. Well, we did it. It turns out it
    was one of the smartest environmental steps we've ever taken.
        If we don't do something now to cut mercury emissions
    quickly, we will look back years from now and ask why we let
    polluters off the hook for so long.
        I am very troubled by what has come forward now about the
    number of things in the mercury proposal that were written by
    industry, not by EPA. You've got an industry-ghostwritten,
    scientifically unjustifiable policy on mercury. Thank you, Mr.
    Chairman.
        Senator Bond. Thank you very much, Senator Leahy. Now, Mr.
    Administrator, our policy is to accept your full written
    statement for the record, which we appreciate receiving, and we
    would ask you to highlight those points that you think are
    particularly appropriate. I commend you and your administration
    for taking the steps for the first time to do something about
    mercury, and I know you have many positive thoughts to share
    with us, and we would welcome your oral testimony. Thank you,
    sir.

                        STATEMENT OF MICHAEL O. LEAVITT

        Administrator Leavitt. Thank you, Mr. Chairman, and Members
    of the committee. We are delighted to be here today to present
    the President's fiscal year 2005 budget. I will be brief,
    because I am anxious to get to the discussion. I am interested
    in pursuing the discussion that the Senator from Vermont,
    Senator Leahy, raised with respect to mercury, and there is
    some interest and passion for me as well. I'm interested to
    share my thoughts with you, and hearing more of yours.
        The President's given me a fairly direct responsibility. He
    told me to clean the air, purify the water, make certain that
    the land was better cared for, but he told me to do it in a way
    that would preserve the economic competitiveness of this
    country. I----
        Senator Bond. I think there is an old joke about the
    alternative is to build a bridge to Hawaii, and that is an
    easier task.
        Administrator Leavitt. It is not without challenges, but I
    am also persuaded that it is achievable. I have been reviewing
    recently the material that will be used in the celebration of
    this agency's 34th anniversary. It was formed on Earth Day in
    1970. Since that time, this country has seen substantial
    environmental progress and economic progress.
        The pioneers of this environmental movement used a command
    and control strategy that may have been the only way at that
    point to move the country toward environmental progress. But
    today in my testimony, you'll hear a mantra that we are using
    at the Environmental Protection Agency: to find a better way.
        We believe a better way is when we use technology to change
    the equation from what before was improbable to what now is
    possible. A better way is when we use market incentives to
    speed the acceptance of new and higher standards. We think a
    better way is when we use collaborative network building to
    solve problems, like some of those that you have spoken of
    today.
        A better way is when we focus on results, and not just
    rewarding programs. Markets, technology, building collaborative
    networks, focusing on results, that is what you'll hear from me
    today. I will use illustrations, like the Interstate Air
    Quality Rule that has been mentioned already, a 70 percent
    reduction on NOX and SOX, and I'll talk
    about the Nation's first effort ever to regulate mercury from
    power plants, the largest source, and using a better way to do
    that.

                               PREPARED STATEMENT

        Again, you'll find me today representing the Agency's
    objective to increase the velocity in environmental progress,
    but to do it in a way that will maintain our Nation's economic
    competitiveness, and I look forward to the discussion.
        [The statement follows:]

                    Prepared Statement of Michael O. Leavitt

        Mr. Chairman and members of the committee, I am pleased to be here
    to discuss President Bush's fiscal year 2005 budget request for the
    Environmental Protection Agency. The President's fiscal year 2005
    budget request of $7.8 billion provides funding necessary for the
    Agency to carry out our mission--to protect human health and safeguard
    the natural environment--efficiently and effectively. Given the
    competing priorities for Federal funding this year, I am pleased by the
    President's commitment to human health and environmental protection.
        I would like to begin, Mr. Chairman, by emphasizing that the
    President's budget request for EPA reflects the Agency's commitment to
    cleaning our air, cleansing our water, and protecting our land
    efficiently and effectively, while sustaining economic growth. The
    request promotes EPA's goals by facilitating collaboration, harnessing
    leading-edge technology, and creating market-based incentives for
    environmental protection.
        This Agency remains committed to working with our geographic and
    regional partners and focusing on our core programs to protect human
    health and the environment. Of the $7.8 billion budget, $4.4 billion--
    the highest level in EPA history--is devoted to the Agency's core
    regulatory, research, and enforcement activities, and State program
    grants. The President and I both believe that enhancing EPA's core
    programs is a vital part of effective environmental management and
    stewardship. Our budget request reflects that.
        As EPA continues to carry out its mission, I look forward to
    building upon a strong base of environmental progress. This budget, Mr.
    Chairman, will enable us to carry out our principal objectives while
    allowing us to react and adapt to challenges as they arise.

                          CLEAN AIR AND GLOBAL CHANGE

        The fiscal year 2005 President's Budget requests $1.0 billion to
    fund our clean air and global change programs, thereby helping to
    ensure that air in every American community will be clean and safe to
    breathe. The budget includes a large increase for EPA's Clean School
    Bus USA grant program to $65 million for projects that reduce diesel
    emissions from school buses through bus replacement or retrofitting.
    Clean School Bus USA helps ensure that school children have the
    cleanest transportation possible. This program is an additional tool
    for communities to develop localized solutions for environmental
    protection to meet new air quality standards for particulate matter.
        This budget also supports the President's Clear Skies initiative,
    which draws on EPA's experience to modernize the Clean Air Act. Clear
    Skies legislation would slash emissions of three power plant
    pollutants--nitrogen oxide, sulfur dioxide, and mercury--by 70 percent.
    Such emissions cuts are an essential component of improving air quality
    and thus environmental and human health. The Clear Skies initiative
    would build upon the 1990 Clean Air Act's acid rain program by
    expanding this proven, innovative, market-based approach to clean air.
    The power plant reductions required under Clear Skies and our new
    diesel engine regulations will bring most of the country into
    attainment with the new ozone and PM air quality standards: by 2020,
    only 27 counties out of 263 will need to take further steps to be in
    attainment for ozone; only 18 counties out of 111 will need to take
    further steps to be in attainment for PM. Such a program, coupled with
    appropriate measures to address local concerns, would provide
    significant health benefits even as energy supplies are increased to
    meet growing demand and electricity rates remain stable. I look forward
    to working with you, your fellow members of Congress, and the President
    on this landmark legislation. Next month, I will formally designate
    counties that will be out of attainment with the new ozone standards;
    in December, I will formally designate counties that will be out of
    attainment for particulate matter. These designations start the clock
    ticking on the often controversial and resource-intensive State
    planning process. By 2007, States must have plans to get into
    attainment approved by EPA. So, the budget would also support the
    Interstate Air Quality Rule we proposed in December and intend to
    finalize this year. This rule is similar to Clear Skies in that it
    requires an approximate 70 percent reduction in sulfur dioxide and
    nitrogen oxide from the power sector. However, due to authority under
    the Clean Air Act, its reach is limited to States in the eastern half
    of the United States that contribute pollution to neighboring States.
    Although this rule would allow us to take an enormous step forward in
    providing cleaner air across much of the country, it would not do so as
    fast or as effectively as would Clear Skies.
        EPA's request for clean air programs includes $313 million for
    clean air grants to support our collaborative network of States and
    Tribes. These resources will assist States, Tribes, and local
    governments in devising additional stationary and mobile source
    strategies to reduce ozone, particulate matter, and other pollutants.
        The clean air and global change request also includes $130 million
    to meet our climate change objectives by working with business and
    other sectors to deliver multiple benefits while improving overall
    scientific understanding of climate change and its potential
    consequences. The core of EPA's climate change efforts are government/
    industry partnership programs designed to capitalize on the tremendous
    opportunities available to consumers, businesses, and organizations to
    make sound investments in efficient equipment and practices. These
    programs help remove barriers in the marketplace, resulting in faster
    deployment of technology into the residential, commercial,
    transportation, and industrial sectors of the economy.

                              CLEAN AND SAFE WATER

        In fiscal year 2005, this budget requests over $2.9 billion for its
    water programs. EPA's fiscal year 2005 budget focuses on four
    strategies toward achieving the Nation's clean and safe water goals. To
    better address the complexity of the remaining water quality
    challenges, EPA will promote local watershed approaches to execute the
    best and most cost effective solutions to local and regional water
    problems. To protect and build on the gains of the past, EPA will focus
    on its core water programs. To maximize the impact of each dollar, EPA
    will continue to strengthen vital partnerships and collaborative
    networks with States, tribes and local governments, and others in
    working to achieve our shared goal of improving the Nation's waters. To
    leverage progress through innovation, EPA will promote water quality
    trading, water efficiency, and other market based approaches.
        The budget makes a significant investment in a new water-quality
    monitoring initiative to solve water quality monitoring problems.
    Through this investment, EPA can make the most of scarce resources
    through information-based management, using tools such as prevention,
    source water protection, watershed trading, and permitting on a
    watershed basis. Monitoring is the foundation of information-based
    management and it is imperative that the data and information gaps be
    closed as quickly as possible. The budget provides a total of $20
    million to strengthen State and tribal water quality monitoring
    programs, improve data management systems and improve monitoring tools.
    Of that amount $17 million in grants provides direct assistance to
    States and tribes. Three million dollars of this funding will provide
    technical assistance to help States and tribes develop statistically
    representative water quality monitoring programs, a tool that will
    eventually allow EPA to make a national determination of water quality
    and ensure resources target the highest priority problems.
        States are struggling with implementation of the National Pollution
    Discharge Elimination System (NPDES) permitting programs, as
    demonstrated by withdrawal petitions and permit backlogs. Compounding
    the problem is that the regulated universe increased tenfold due to new
    requirements for concentrated animal feeding operations and storm water
    runoff. The Agency requests a $5 million increase in Section 106 Grants
    to help States issue timely and effective NPDES permits. By providing
    additional resources in the form of State grants, EPA will help States
    and tribes meet obligations under the revised rule and help reduce
    pollutants and make necessary improvements in water quality.
        EPA is also advancing water quality trading in voluntary
    partnerships on a watershed basis. It capitalizes on economies of scale
    and cost differences among sources. Trading allows one source to meet
    its regulatory obligations by using pollutant reductions gained by
    another source and provides incentives for voluntary reductions at a
    reduced cost to all. It provides an opportunity for innovative
    solutions to complex water quality problems. To encourage the
    implementation of water quality trading programs, the budget includes
    $4 million in the Targeted Watersheds Grants program.
        The President's Budget continues its commitment to help provide
    affordable financing for States' water infrastructure needs. The Budget
    provides $850 million for the Clean Water State Revolving Fund, which
    will ultimately result in a $3.4 billion long term revolving level,
    helping communities across the country clean up their wastewater. It
    also provides $850 million for the Drinking Water State Revolving Fund,
    resulting in a long term revolving level of $1.2 billion and protecting
    public health. However, growing populations are increasing demands on
    water resources, and addressing these demands, along with the Nation's
    multi-billion dollar water infrastructure gap, will require creative
    solutions at the local, State and Federal level. As part of a long-term
    strategy to develop sustainable infrastructure EPA will work in
    partnership with States, the utility industry and others to enhance
    operating efficiencies and mitigate infrastructure needs by encouraging
    efforts to reduce water demand and wastewater flows, potentially
    downsizing capital needs. High priority activities in support of this
    effort include a new water efficiency labeling program and a
    sustainable infrastructure initiative that will promote best practices
    such as full cost pricing.

                       LAND PRESERVATION AND RESTORATION

        This budget continues EPA's commitment to clean up toxic waste
    sites with $1.4 billion for Superfund. This reflects a $124 million
    increase over the fiscal year 2004 appropriated level for Superfund's
    remedial program, which will allow for 8-12 additional construction
    starts in 2005 and a similar number of additional completions by 2006.
    As of January 2004, cleanup construction projects were underway or
    complete for over 93 percent of National Priority List (NPL) sites.
        The President's Budget also includes an additional $26 million to
    strengthen EPA's partnership with States to monitor underground storage
    tanks. Recognizing that States have primary responsibility for
    monitoring tanks, issuing permits, and enforcing regulations, the
    additional grant money will provide funds for States to inspect a
    larger universe of federally regulated underground storage tanks on a
    more frequent basis.

                PROTECTING AMERICA'S COMMUNITIES AND ECOSYSTEMS

        EPA is committed to building and enhancing effective partnerships
    that allow us to safeguard human populations and ecosystems across
    America. To help protect and restore land-based ecosystems, this budget
    provides $210.7 million, over $40 million more than the level provided
    in the fiscal year 2004 Consolidated Appropriations bill, for the
    Brownfields program, one of the administration's top environmental
    priorities. The Brownfields program will draw on these additional
    resources to provide grants to State and Tribal partners to fund
    cleanup of lightly contaminated sites. By protecting land and
    revitalizing contaminated sites throughout the United States, EPA
    continues to expand efforts to foster healthy and economically
    sustainable communities and attract new investments to rejuvenated
    areas.
        EPA's budget requests resources to protect individual ecosystems
    across the country, including a total of $30 million for the Chesapeake
    Bay. Ten million dollars of this total will be provided through the
    Targeted Watersheds Program for a pilot program to help municipalities
    reduce nutrient discharges to the Bay through collaboration with
    nonpoint sources. EPA's collaborative partnership in Chesapeake Bay
    protection, which serves as a model for similar endeavors, includes
    Maryland, Virginia, Pennsylvania, the District of Columbia, the
    Chesapeake Bay Commission, and participating citizen advisory groups.
        The Great Lakes are the largest system of fresh surface water on
    Earth, containing roughly 18 percent of the world's supply. The Great
    Lakes basin also is home to more than one-tenth of the population of
    the United States, one-quarter of the population of Canada, and heavy
    concentrations of industry. Over the years, industrial development has
    contaminated sediments throughout large areas of the lakes with toxics
    such as polychlorinated biphenyls (PCB's) and heavy metals, putting
    large populations and the tremendous water resource at risk. EPA's
    Great Lakes Legacy program provides funding to remediate contaminated
    sediments, keeping them from entering the food chain where they may
    cause adverse effects to human health and the environment. In 2005,
    this administration will demonstrate its commitment to the health and
    well-being of the region and its citizens by proposing to fund the
    Great Lakes Legacy program at $45 million, nearly five times greater
    than previous levels.
        To ensure that the American public will continue to enjoy one of
    the safest and most affordable food supplies in the world, the
    President's budget continues to meet implementation challenges of the
    Food Quality Protection Act (FQPA). The Agency's implementation of FQPA
    focuses on science-driven policies for pesticides review, seeks to
    encourage the development of reduced risk pesticides to provide an
    alternative to the older versions on the market, and works to develop
    and deliver information on alternative pesticides/techniques and best
    pest control practices to pesticide users. The Agency is also working
    to help farmers' transition to safer substitutes and alternative
    farming practices while minimizing production disruptions. Reassessing
    existing tolerances ensures food safety, especially for infants and
    children, and ensures that all pesticides registered for use meet
    current health standards.

                    COMPLIANCE AND ENVIRONMENTAL STEWARDSHIP

        This budget also requests $751 million to promote and insure
    compliance with environmental laws, and to foster and support the
    development of pollution prevention strategies and innovative
    approaches to environmental protection. Since EPA's inception over 30
    years ago, many environmental improvements in our country can be
    attributed to a strong set of environmental laws, and to our efforts to
    ensure enforcement of those laws. The Agency uses a ``smart''
    enforcement approach, employing a mix of compliance assistance,
    incentives and monitoring strategies, supported by strong, effective
    civil and criminal enforcement and litigation teams. This ``smart''
    approach maximizes the use of the Agency's resources and personnel, and
    allows us to quickly and effectively adapt both to emerging
    environmental threats and to changes in law and policy.
        The President's fiscal year 2005 request also continues to support
    results-based, innovative, and multimedia approaches to pollution
    prevention and natural resource conservation by government, industry,
    and the public. Increasingly, Americans are recognizing the value of
    their own pollution prevention efforts, and the contributions made
    through sustainable business practices, to the preservation and
    restoration of community and national environmental resources. In
    addition, EPA will continue to support initiatives targeted toward
    improving compliance at public and private facilities, empowering State
    and Tribal environmental programs, encouraging corporate stewardship,
    and better informing the public.

                                 STRONG SCIENCE

        Sound science is a fundamental component of EPA's work. The Agency
    has long relied upon science and technology to help discern and
    evaluate potential threats to human health and the natural environment.
    Much of our decision-making, policy, and regulatory successes stem from
    reliance on quality scientific research aimed at achieving our
    environmental goals. In fiscal year 2005 EPA will strengthen the role
    of science in decision-making by using sound scientific information and
    analysis to help direct policy and establish priorities. This budget
    request includes $572 million for the Office of Research and
    Development to develop and apply strong science to address both current
    and future environmental challenges. These resources support a balanced
    research and development program designed to address administration and
    Agency priorities, and meet the challenges of the Clean Air Act (CAA),
    the Safe Drinking Water Act (SDWA), the Federal Insecticide, Fungicide,
    and Rodenticide Act (FIFRA), the Food Quality Protection Act (FQPA),
    and other environmental statutes. The budget request includes important
    new or increased research efforts in the following areas: computational
    toxicology, data quality, and EPA's Integrated Risk Information System
    (IRIS)--an EPA database of Agency consensus human health information on
    environmental contaminants.

                     ACCELERATING ENVIRONMENTAL PERFORMANCE

        To further promote environmental stewardship with localized
    solutions, the Agency requests $1.25 billion, the highest level ever,
    for categorical grants to support core State and Tribal environmental
    programs. A new State and Tribal Performance Fund provides $23 million
    in competitive grants to develop projects with tangible, performance-
    based environmental and public health outcomes that can be models for
    implementation across the Nation. The administration believes that the
    best way to ensure strong, effective programs is to promote
    accountability, competition, and performance, and these funds will
    allow States and tribes that can link their proposed activities to
    health and environmental outcomes to receive additional assistance. EPA
    will also continue its emphasis on working with Tribal governments to
    build the capacity of their environmental programs.

                 REWARDING RESULTS AND INCREASING PRODUCTIVITY

        The President's proposed EPA budget for fiscal year 2005 fully
    supports the Agency's work. The request demonstrates EPA's commitment
    to our principal objectives--safeguarding and restoring America's air,
    water, and land resources--by facilitating collaboration, harnessing
    leading-edge technology, creating market-based incentives, and
    ultimately finding a better way for environmental protection. As we
    look to the future, I am confident that this funding will ensure the
    Agency's fulfillment of our responsibilities to the American public.
        With that, Mr. Chairman and members of the committee, my prepared
    statement is concluded. I would be pleased to answer any questions you
    may have.

                           STATE REVOLVING LOAN FUNDS

        Senator Bond. Thank you very much, Mr. Administrator, and
    let me begin with some questions. We have discussed water
    infrastructure funding. I think that funding our Nation's water
    infrastructure is one of the really pressing issues facing EPA.
    I have seen communities that don't have clean water. They
    aren't able to clean up their waste water, and I know what an
    impact that has on the health of their citizens, not just the
    environment.
        I was very disappointed in the OMB recommendation on the
    EPW panel. I have heard people complain that this
    administration has cut the SRF's. I pointed out to them that
    OMB has done this traditionally.
        We have people in OMB who apparently have never seen
    problems with waste water that is not cleaned up. I would be
    interested in any suggestions that the administration has on
    how States and localities can find resources to meet this
    country's water infrastructure needs. Are there other things
    that are in addition to SRF's? How are these SRF's being used?
    How can we deal with the arsenic problem that Senator Craig has
    raised?
        Administrator Leavitt. Senator, I feel some confidence that
    your sensitivity on this matter most likely has its root when
    you were governor. It is certainly when I learned the value of
    the State Revolving Loan funds to small communities like those
    that have been mentioned already today.
        In our States, most States, small communities, and even
    moderate to large size communities, have depended on State
    Revolving Funds. Now that I've become Administrator of the
    Environmental Protection Agency, and see the demand,
    particularly in some of our large cities for the retooling of
    their entire systems, the need has become quite evident to me.
        It is also clear that there is a gap in our approach thus
    far as a Nation in dealing with this. I've had a chance to
    study the history of this problem going back to the passage of
    the major underpinning legislation when the country at the
    Federal level made huge investments, in the neighborhood of
    $65, $70 billion to create the systems, and they've had a good
    impact. But we're now at the point where just like our
    highways, many of them are beginning to need repair.
        The question that is raised by this discussion, is what is
    the partnership? It will clearly be a partnership between the
    Federal Government, the State governments and local
    governments, and the rate payers and we are anxious to have
    that conversation. It will be a function of Federal funding. It
    will be a function of local funding and State funding, but
    there are other things we can do.
        I think the point you make about using the funds
    differently, I am very anxious to have a conversation about
    using greater leverage in the funds that we've put forward.
        How can we stretch the availability of Federal funds? How
    can we work with local water districts to employ rate systems
    that provide incentives for conservation?
        Those are all part of this bigger conversation. We do think
    that it is an important area, and look forward to having a
    discussion with you and the committee.

                                  MERCURY RULE

        Senator Bond. Governor, I may have another several
    questions pertaining to SRF's that I'll ask on the second
    round, but I thought it is important to ask this question. I
    want to hear your responses, because I know this is going to be
    a controversial area.
        This administration is the first administration to propose
    to control mercury from power plants; and that seems to be
    ignored by the critics, but there are lots of questions raised
    about the way that the regulation was adopted. I would welcome
    your comments on the Agency's commitment to reduce mercury
    exposure.
        Administrator Leavitt. Senator, I am anxious to reply, and
    am looking forward to the conversation further as we proceed.
    It is important to look at the history of this. The requirement
    for the Environmental Protection Agency to look at mercury came
    as a part of the Clean Air Amendments passed in the early
    1990's. The Agency was to study mercury from power plants and
    decide whether it was a toxin that needed to be regulated in
    the early--in the mid-1990's, I think 1994 was the deadline.
    The Agency did not meet that deadline. They were sued by an
    environmental organization.
        A consent decree was entered into in I believe, in 1996 or
    1997. That deadline was missed, and they extended it. The next
    deadline was missed, and they extended it, and then 10 days
    prior to the time this administration took office a declaration
    was made that mercury from power plants needed to be regulated.
    It was left to this administration, whoever it was that would
    be in my chair, to set the standard.
        That standard was to be proposed on December 15, 2003. That
    is an obligation that I took very seriously. Among the first
    decisions that I made as Administrator was that we would meet
    that deadline, we would establish the standard. On December 15,
    we filed a proposed rule that would outline that standard. That
    was the beginning of a conversation.
        We are in the midst now of a national comment period to
    hear from tens of thousands of people on their feelings
    regarding mercury.
        I would point out that recently, the Agency did join with
    the Food and Drug Administration to highlight the relationship
    of mercury in fish. Basically, the message was fish is good,
    mercury is bad, and we've got to do all we can to reduce it.
        The process we are in right now is to set that standard. We
    intend to set the standard as prescribed in the law, using the
    best available technology. We intend to do it in a way that is
    most efficient. We intend to do it to the furthest degree that
    we can. I feel some optimism that for the first time in this
    Nation's history, we will regulate mercury from power plants,
    and it will occur this year.
        Senator Bond. Thank you very much, Governor. We have been
    joined by my Ranking Member, Senator Mikulski. Are you ready to
    offer us your comments and first round of questions?

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. And I
    apologize both to you and to Administrator Leavitt. I was
    testifying at a flood insurance hearing discussing the need to
    both reauthorize and reform it. My State suffered terrible
    damage during Hurricane Isabel. We were doubly hit, one by the
    hurricane, and again by some of the flawed practices of flood
    insurance.

                               PREPARED STATEMENT

        Mr. Chairman, in the interest of time, I am going to ask
    for unanimous consent that my full statement go into the
    record.
        Senator Bond. Without objection, we would love to hear it,
    but we will accept it for the record.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        I would like to welcome Administrator Mike Leavitt to his first
    hearing before the subcommittee. The EPA serves the very important
    mission of protecting human health and the environment. So I am
    troubled that the 2005 budget request for the EPA is just $7.76
    billion--a $610 million cut from the 2004 level. This is a cut of 7
    percent.
        A robust EPA budget is an opportunity to make America safer,
    stronger and smarter. It makes America safer by cleaning up our air,
    water and land. It makes us stronger by creating jobs and economic
    development. And it makes us smarter by helping to develop new
    environmental technologies.
        A strong EPA budget gives us triple value for the taxpayer dollar.
    I'm concerned that this EPA budget doesn't get us there.

                                  BROWNFIELDS

        I'm pleased that Brownfields is one area in which the budget is
    strong. The budget request is $210 million--a $40 million increase over
    last year. Brownfields make our communities safer by cleaning up
    contaminated properties, stronger by creating jobs and economic
    development and smarter by using newer, better, and faster technologies
    for cleanup.
        I am pleased that the budget makes a solid downpayment toward the
    fully authorized level of $250 million for Brownfields. But I am also
    puzzled about many areas of this budget proposal.

                              WATER INFRASTRUCTURE

        I know that EPA didn't get everything it wanted from OMB, but I
    really question some of the priorities. The most glaring example is
    water infrastructure. The budget request cuts over $800 million in
    water and sewer project funding. The budget cuts $500 million from the
    Clean Water State Revolving Loan Fund and $327 million for targeted
    water projects.
        The administration says it cut earmarks. But Congress funds these
    projects because the needs are so great. There is no national framework
    that even comes close to addressing the national needs.
        Water and sewer funding makes our communities safer by cleaning up
    the environment, fixing sewer overflows and leaks, preventing pollution
    from getting into lakes, streams, rivers, and bays and by making sure
    our communities have safe drinking water by removing arsenic, lead and
    other contaminants. Water and sewer funding makes our communities
    stronger by creating jobs, businesses and economic development. And
    water and sewer funding makes America smarter by developing new
    technologies to clean our water.

                                 NATIONAL NEEDS

        The administration's cut to water and sewer funding is puzzling.
        Our communities have enormous needs. Over the next 20 years, there
    will be a funding ``gap'' for our communities of $540 billion. These
    needs have been studied and restudied.
        In April 2000, the Water Infrastructure Network reported that our
    Nation's water and wastewater systems will face a funding gap of $23
    billion a year over the next 20 years. In November 2001, the General
    Accounting Office (GAO) reported that costs could range from $300
    billion to $1 trillion over the next 20 years. In September 2002, the
    Environmental Protection Agency (EPA) reported that over the next 20
    years, demands for improved sewer and drinking water systems will
    outstrip current levels by $535 billion.
        And in November 2002, the Congressional Budget Office (CBO)
    reported that water and sewer costs could average as much as $40
    billion each year. The results are conclusive and the need is real and
    valid.

                                MARYLAND'S NEEDS

        Our Nation's Governors are struggling with tight budgets. In
    Maryland, we have $4 billion in immediate needs, but this budget would
    cut Maryland's share by over $10 million.
        Governor Ehrlich is putting a ``flush tax'' on residents to try to
    make up the gap. So when the EPA doesn't help our communities the
    entire burden falls on local rate payers. But in many urban and rural
    low-income areas, rate increases are just not affordable.

                                      JOBS

        The budget cuts to water infrastructure are also puzzling because
    water and sewer funding creates jobs. For every $1 billion we spend on
    water infrastructure up to 40,000 jobs are created.
        I thank Administrator Leavitt for responding to my request for an
    updated, comprehensive jobs study and I look forward to working with
    him on it. But I am really puzzled why the budget skimps on this
    priority.
        I know this was probably a funding decision by the OMB, but this
    cut really signals a failure in that we don't have a comprehensive
    national policy to address our communities' needs. We need new thinking
    on a new national policy to help communities pay for water and sewer.
        Last year, the EPA convened a conference on how to ``close the
    gap,'' including State and local officials, business and other experts
    to exchange ideas about how to meet water and sewer challenges. I would
    like to hear about how the EPA followed up and what the next steps will
    be. I want to know what the EPA is doing to develop new ideas to help
    communities meet these challenges. I am deeply concerned that this
    budget does not adequately address these challenges.
        What is EPA, as an advocate for the environment, doing to make this
    a national priority and develop solutions to make America's communities
    safer, stronger and smarter?

                                 CHESAPEAKE BAY

        The Chesapeake Bay is a national treasure. Each year, the VA-HUD
    Subcommittee provides $20 million for the EPA's Chesapeake Bay Program.
    The EPA is the lead among 23 Federal agencies working together with
    State and local governments to restore the Bay.
        The subcommittee also provides funding for small watershed grants:
    $2 million last year for grassroots projects to clean up the Bay. But
    the budget zeroes out these grants. The subcommittee also funds
    projects for nutrient removal from sewage treatment plants along the
    Bay. But the budget zeroes out funding for these projects. Instead, the
    EPA's budget includes $10 million for a new ``Targeted Watershed
    Initiative for the Chesapeake Bay.''

                                   BAY NEEDS

        The Chesapeake Bay Commission, made up of representatives from Bay
    States, tells us that we will need $18.7 billion by the year 2010 to
    clean up the Bay. So while we appreciate that this budget includes new
    funding, the Bay needs a more robust commitment.
        I want to hear from Administrator Leavitt today on how the EPA
    plans to make highest and best use of funding for the Bay.

                                    RESEARCH

        Another area of the EPA's budget that makes America safer, stronger
    and smarter, is research and development. For example, the EPA's
    Science to Achieve Results (STAR) program develops partnerships between
    the EPA and scientists to come up with new ideas and technology to
    prevent pollution, protect public health, reduce environmental risks,
    and get new technologies to market.
        Robust research funding makes our environment safer, helps fight
    threats against natural and man-made environmental disasters and it
    makes our communities stronger by developing new technologies for our
    communities to use. All of this makes us smarter in the way that we
    protect public health and the environment. But STAR research is cut by
    $34 million in this budget.
        Overall, the EPA science and technology budget is cut by $93
    million. Our country faces many environmental challenges and we need
    robust support for research to develop new technologies that will help
    our communities meet these challenges and protect public health. The
    budget also cuts $8 million for building decontamination research.
        The EPA has been a leader in building cleanup of anthrax and
    ricin--in our Senate buildings. The EPA's work is a model for private
    buildings. So I am troubled that this research is cut.

                       ENFORCEMENT OF ENVIRONMENTAL LAWS

        I also want to follow up on the EPA's budget to enforce
    environmental laws. Over the past few years, the subcommittee has
    rejected the EPA's proposals to reduce Federal enforcement staff. The
    subcommittee had serious concerns that reductions in Federal enforcers
    would result in more polluters ignoring the law.
        We need both a strong Federal and strong State enforcement to
    achieve compliance with our environmental laws. I would like to hear
    from Administrator Leavitt about how priorities are being set for
    enforcement.
        The VA-HUD Subcommittee will continue to stand sentry against cuts
    to Federal enforcement.

                      COMMUNITY ENVIRONMENTAL STEWARDSHIP

        I also am concerned about cuts in this budget to programs that
    don't cost much but that are very important to communities. For
    example, this budget cuts environmental justice and zeroes out
    environmental education. The subcommittee provided $10 million last
    year for these programs. These are small investments that make a big
    difference, so I am puzzled why they are cut.

                                   CONCLUSION

        Finally, I hope that we can have a VA-HUD bill this year that is
    not a vehicle for environmental riders.
        I thank Administrator Leavitt for his testimony today and I look
    forward to hearing from him about how the EPA's budget will make
    America safer, stronger and smarter.

                CLEAN WATER STATE REVOLVING LOAN FUND--REDUCTION

        Senator Mikulski. Because I know that we are under a tight
    time schedule.
        Mr. Leavitt, I know that you've just answered the questions
    on mercury, which were of very keen interest to me, but I want
    to go to another topic--water quality. The fact is that
    communities are facing very serious challenges in water, sewer,
    and treatment plants.
        Here is my question: I understand that the budget proposes
    to cut $500 million from the Clean Water State Revolving Loan
    Fund. Could you tell me what would be the consequences of this
    cut, how many projects won't be funded, and how this will
    impact public health and the environment?
        Administrator Leavitt. Senator Mikulski, we at EPA have
    done a study to determine what the gap in water infrastructure
    is now, and what we are investing as a country. The Federal
    Government clearly has a role in this partnership. It is a
    Federal, State, and local role. It is a ratepayer role. It is
    one that we all have to deal with, and we are anxious to not
    just look at what our role should be as a Federal Government,
    we are also looking to be able to add additional benefit. For
    example, to help in promotion of being able to----
        Senator Mikulski. What will be the consequences of the cut?
    How many projects won't be funded, and how it is going to
    impact the environment?
        Administrator Leavitt. Senator, I'll need to submit that
    information to the record. I don't know precisely how many
    won't be----
        Senator Mikulski. Can you tell me, though, what you
    estimate are the consequences of the cut?
        Administrator Leavitt. Well, the consequences that we find
    ourselves as a country, with far greater demands, not just for
    Federal money, but for local money, for State money, our
    Revolving Loan Funds, are not going to be sufficient to meet
    that entire need.
        Senator Mikulski. That is exactly right, what is the
    backlog of requests on the claim for a Clean Water State
    Revolving Loan Fund?
        Administrator Leavitt. I'll have to give you the specifics.
        [The information follows:]

                           Clean Water SRF: Reduction

        EPA believes that few if any projects will be impacted in fiscal
    year 2005. Federal capitalization grants are a smaller percentage of
    available Clean Water State Revolving Fund (CWSRF) as more funds are
    being derived from loan repayments, interest earnings, and issuance of
    bonds. As of June 30, 2003, the States had about $3.5 billion of CWSRF
    funds available that had not yet been committed to loans. In addition,
    annual inflows to the CWSRF from new loan repayments, bond proceeds,
    and interest earnings continue to increase.
        In 1997, the Federal Government promised to help States establish a
    $2 billion projected long-term target annual revolving level for
    funding new wastewater treatment plants and other infrastructure to
    keep our waters clean. With the funding appropriated by Congress to
    date, the $2 billion goal has been reached and, in fact, exceeded. A
    total funding level of $4.4 billion is achieved by an appropriation of
    $850 million a year from fiscal year 2004 through fiscal year 2011.
    Administration analyses using historical information indicate that, by
    extending Federal capitalization of the CWSRF program through 2011 at
    $850 million per year, the President's proposal will significantly
    increase the CWSRF program's ability to fund projects in both the near
    term and in the long-run.

        Senator Mikulski. Mr. Leavitt, I welcome you to your first
    VA-HUD hearing, but this is a pretty big deal question. If you
    can't tell me you've cut a half a billion dollars from the
    State Revolving Loan Fund, and you can't tell me what the
    backlog is, so how can we estimate what it is going to take to
    do this?
        Administrator Leavitt. Senator, I'm going to introduce you
    to Mr.----
        Senator Mikulski. Can you do that?
        Administrator Leavitt. I'll introduce you to ``Mr. Water''
    at the EPA, Ben Grumbles.

                      STATE REVOLVING LOAN FUND--REDUCTION

        Senator Mikulski. Let me tell you, while he is getting
    himself together, and we look for the answers, the subcommittee
    feels that this is one of the most important areas that we can
    pursue. No. 1 it improves the environment, and it improves
    public health.
        No. 2 it also creates jobs, and it creates jobs in the
    United States of America. So if you are building a water system
    here, or you are taking pollutants out of sewerage that goes
    into the Chesapeake Bay, you are creating jobs, from the civil
    engineers who design it, to the heavy equipment. It is a win/
    win thing, and I just cannot, for the life of me, see why we
    would cut clean water funding. You want to tell us?

                         BACKLOG OF WASTEWATER PROJECTS

        Mr. Grumbles. Senator, I am Ben Grumbles, I am the Acting
    Assistant Administrator for the Office of Water. The backlog is
    a question. What you have to do is look at the backlog in each
    of the States.
        Senator Mikulski. What does it add up to?
        Mr. Grumbles. Well, what it adds up to is, is that each
    State has an intended use plan, and I can't say what project
    each and every State has. What I can tell you is that given our
    proposed requests for the SRF, we know that the gap will
    continue. But we also know----
        Senator Mikulski. Can you tell me what the backlog is in
    American dollars? I can tell you what the backlog is in
    Maryland. We have got a $4 billion backlog. We are under a $900
    million consent decree in Baltimore City because our water
    system was built over a hundred years ago. Baltimore City
    doesn't have $900 million, neither do the ratepayers.
        Let's start there. So you have got a backlog of $4 billion
    in one State and you've got 50 States. I am very frustrated by
    the inability to tell me what is the dollar backlog. Your
    predecessor could do that.
        Mr. Grumbles. We could tell you from a national
    perspective.
        Senator Mikulski. What is it?
        Mr. Grumbles. There is a $21 billion gap in the amount of
    funding that is needed over the next 20 years, and that States
    and localities, if they relied on their current revenue
    sources, will have. We factored into this debate the reality
    that the way to close that gap is to have a long-term funding
    plan. And the 850----
        Senator Mikulski. What is it? You are starting with a $500
    million cut.
        Mr. Grumbles. Right. The problem is the $850 million a year
    from Federal funding through 2011 adds essentially $4.4 billion
    in moneys at the Federal level. But the most important aspect
    is to focus not just on the supply side, but the demand side.
    So what we are doing is accelerating the whole emphasis on
    sustainable infrastructure through different mechanisms,
    pricing mechanisms, asset management.
        There is also targeted funding, targeted watershed grants
    for the Chesapeake Bay for a new initiative to provide $10
    million to help advance innovative trading between water point
    source----
        Senator Mikulski. That is a trading thing like a commodity.
    What we need in Maryland is actual dollars to do water and
    sewer, and waste water treatment programs.
        We don't need cuts in these areas. And we could go over the
    estimates, you estimated $21 billion gap, others have different
    estimates. Well, we know we have very serious shortfalls. So do
    you think that a $500 million cut is a wise and prudent thing
    to be doing here?
        Mr. Grumbles. I can respond that the $850 million in
    funding, needs to be viewed in the context of, ``What are the
    various programs under the Clean Water Act?'' We are actually
    increasing the funding to the States, Maryland, and other
    States, for management of the Clean Water Act in general
    through the Section 106 program. We are also emphasizing
    additional funding through the Targeted Watershed Grants
    Program, and through a new $23 million results-oriented
    performance grants program.
        The point is, is that while we recognize there is a
    tremendous gap, that we can't just focus on one program, and
    one agency at the Federal level. We need to look at the other
    programs, the innovations, the grants to the State in exploring
    non-point source, as well as----
        Senator Mikulski. Weren't they cut as well? Aren't they cut
    as well?
        Mr. Grumbles. We are proud of the increases in funding for
    some of those programs, but there is----
        Senator Mikulski. I think we've covered the ground, and I
    appreciate your comments.
        But, Mr. Chairman, you and I have discussed this. I think
    this is an area of bipartisan agreement where we need more
    water and sewer dollars.
        I can't see the clock. Is my time up?
        Senator Bond. Well, Senator, you have had time as the
    ranking member, and we have a couple other members here, but if
    you want to follow up on that, I have no problem. I have made
    my views clear, and I spoke on this issue, and I thought I
    spoke for you, apparently I did, when I said that the cuts in
    the Clean Water SRF was not acceptable.
        Senator Mikulski. Well, I'll yield my time to other
    members, and then I'll come for a second round.
        Senator Bond. Thank you very much, Senator Mikulski. We
    have been joined by Senator Domenici. I'll give him an
    opportunity to make comments and questions for his time slot,
    and turn it back to Senator Leahy.
        Senator Domenici. Are we--excuse me, Mr. Chairman. Are we
    at questions? Have they spoken already?
        Senator Bond. Yes, we are well into it, so we'll give you 5
    minutes for comments and questions.
        Senator Domenici. I'm very sorry that I'm late.
        Senator Bond. We all have too much to be doing.
        Senator Domenici. To tell you the truth, I wasn't doing
    anything.
        Senator Leahy. You may not want that in the record.
        Senator Domenici. It could be on the record. I'm trying to
    get my health back, so there is no rush. Got to take it easy,
    you know.
        I thought I had some questions here, that were more
    specific, but I'm going to give this back to him and see if he
    can find them.

                     STATEMENT OF SENATOR PETE V. DOMENICI

        I first want to congratulate you and hope you like your
    job----
        Administrator Leavitt. Yes, I do.
        Senator Domenici. And compliment you on your science
    advisor, Dr. Paul Gilman. I hope he doesn't leave you, because
    he is a very good man. Lots of people want him.

                               ARSENIC STANDARDS

        Senator Domenici. One of the things we have out in our part
    of the country, and it might flow over into some other parts
    that are not just in the West, is the issue of the arsenic
    standards.
        Mr. Leavitt, I don't know if you remember when you were out
    in your State that a situation has arisen regarding arsenic. Do
    you remember?
        Administrator Leavitt. Very clearly, Senator.
        Senator Domenici. Well, we are in a jam, because we got a
    standard for arsenic that is crazy, and you have to implement
    it, I guess, in due course. But somebody got themselves in a
    position where they couldn't get out of it with further
    administrative activity on the part of your department, and
    we're stuck with a standard that is going to cost an enormous
    amount of money to small communities, and they don't have it.
        For some of us, for some of our communities, it is an
    enormous amount of money. The thing that is so peculiar is that
    in States like mine, we have lived with arsenic in the
    groundwater, and flowing in our dry rivers, which we call
    arroyos for a long, long time. We have traced back the history
    of the Spanish conquistadores who lived in this area, and the
    Indians who preceded them, and we don't have any evidence at
    all that the arsenic that was there harmed them.
        So I want to know if you are looking at some way to help
    us. There is a bill with many of us cosponsoring it, and we are
    going to pursue it, but it doesn't do any good unless we have
    you on our side.
        I know you are stuck with a budget this year. That isn't
    going to last forever. We have to have a way to either defer
    this, or find you recommending that we have to take care of
    some communities that don't have sufficient money.
        Now, there are some that have sufficient money, but it is
    just too much. Albuquerque has money. They could go out and do
    something. But it is in the few hundreds--hundreds of millions
    of dollars, which is just too much if it is not necessary.
        Would you first address it?--and then I have another
    question.

                         TECHNOLOGIES TO REDUCE ARSENIC

        Administrator Leavitt. I will invite Paul Gilman to come to
    the table and tell you specifically about some of the things
    we're doing in the technology area. While he is coming, may I
    just address this whole area generally? You've raised it,
    others have as well.
        We established a series of high standards in this country
    on water, and they are serving us in the context of clean air
    and water, and improving our public health. We do face at each
    end of the spectrum on our large systems and our small systems
    dramatic problems, systems that will require billions of
    dollars of improvement.
        We, as a Nation, have not fully wrestled with how we are
    going to pay for those. The Federal Government's role is only
    one portion of it.
        On the other end of the spectrum, we are dealing with small
    systems, like the ones that you've referred to, and that were
    referred to earlier. We are working to help communities not
    just finance those changes, but also to find technologies that
    can make it affordable, and I'd like to ask Paul Gilman to
    detail a couple of those.
        Dr. Gilman. Thank you, Senator. We have a demonstration
    program that we are actually implementing as we speak. In fact,
    one of the sites in New Mexico opened just a few weeks ago.
    That program is aimed at marrying up different technology
    companies who have technologies that they believe can be more
    cost-effectively implemented for small communities, with small
    communities who have arsenic issues with their water systems.
        Our initial phase of that is to have 12 sites up and
    running. With the funding this committee has provided, we think
    we can provide an additional 18 to 22 sites that would be doing
    it in phase two. There we've identified 148 technology vendor
    proposals, and 32 different sites. Our effort is to try and go
    to all of the different types of geological media with the
    appropriate kinds of technology so we can in fact look to the
    range of issues that different States find, so there are
    several sites in your State, there are sites in Maryland,
    Vermont, and Idaho.
        So we are trying to hit all the different geologic media,
    as well as the different community situations, and marry up
    technology to bring those costs down.
        Senator Domenici. Thank you very much.
        Administrator Leavitt. Senator, I'll also mention the fact
    that the Agency is also phasing the arsenic rule over a longer
    period of time, encouraging the States to use the exemption
    authority that has been provided them by the Safe Drinking
    Water Act. The exemption authority will allow States sufficient
    time to allot portions of their drinking water revolving funds
    obviously, which we need to build larger, to handle problems
    like this.
        Senator Domenici. Thank you very much. Thank you, Mr.
    Chairman.
        Senator Bond. Thank you, Senator Domenici. I passed over
    Senator Leahy for the first round of questions. If you want, I
    will be happy to defer from my end the second round of
    questions to you after Senator Leahy. I want to give Senator
    Leahy time. He has been here for awhile. I apologize.

                                  MERCURY RULE

        Senator Leahy. That is all right, Mr. Chairman. I
    appreciate that, and I don't have to leave. I know after some
    of the comments I made at the beginning, it is only fair that
    Governor Leavitt be given a chance to respond.
        I would point out that I keep hearing the statement the
    Bush Administration was the first ever to propose a mercury
    regulation. First, they had to under a settlement agreement.
    They had to do it by December 15 of last year. To say you've
    done something you were required to do is commendable, but you
    were required to do it.
        And of course the proposal is a 70 percent cut, not a 90
    percent cut, as the previous administration was working toward.
        This chart shows just a few examples of where you have
    language taken from industry memos. It is almost a case of you
    don't really need all the people to write things. Just take
    what you get from the industry, take the letterhead off, put
    yours on.
        In some places it is verbatim. In some cases, it has a word
    or two changed. In fact, you go down through the EPA proposal
    language and I could find about 20 places where this occurs.
        I know that Senator Jeffords called on you to seek an
    inspection by the Inspector General, and have her find out why
    it is that an independent agency like yours is having their
    regulatory work being done by the same people that are supposed
    to be regulated by it. I understand you have not made that
    request.
        Doesn't this industry influence raise some questions about
    your agency's independence, if the same people you are
    regulating are writing your independent regulations? Is this
    the fox guarding the chicken house?

                             PROPOSED MERCURY RULE

        Administrator Leavitt. Senator, let me make clear that we
    brought that allegation to the attention of the Inspector
    General. I took the mercury MACT rule home over the
    Thanksgiving holiday and spent a good chunk of that weekend
    reading about 275 pages of a regulation.
        Senator Leahy. And you stayed awake?
        Administrator Leavitt. Well, I must say they are mind-
    numbing. But what I was evaluating was a series of ideas. The
    source of the language wasn't clear to me, and as a matter of
    course, I would say I would like to know where it came from,
    but this is a proposed rule. Ideas came from lots of different
    places.
        As a matter of general course and practice, we need to know
    that, and I am not here to explain it. There is an explanation.
    That is not productive. The important thing for me is to make
    certain that--that I tell you directly that we intend to
    regulate mercury from power plants, and for the first time.
        We intend to do it as aggressively as we can to optimize
    it, given the nature of the available technology. I spent a lot
    of time in the last 3 months learning the science of mercury
    and learning the technologies that are available. There is a
    new technology called activated carbon injection that we have
    lots of optimism for. The actual amount that we can reduce
    mercury revolves in large measure around when that technology
    can be deployable. We think it is deployable.
        We think that in fact it is the way in which we'll get to a
    70 percent reduction. I can find no evidence anywhere in the
    EPA where we have proposed a 90 percent reduction. I know that
    people have talked about it, but I can find no evidence where
    the EPA has ever proposed that formally until December the
    15th, when we suggested that the proposed rule, that is now
    part of----

                   MERCURY REDUCTION--COAL-FIRED POWER PLANTS

        Senator Leahy. The technology says we could do 90 percent,
    doesn't it? I'm looking at a report from the ``American Coal
    Council'' magazine, where they talk about these things. Tests
    have shown you can go down 90 percent.
        In the industry-wide application, these technologies within
    5 years, couldn't we go 90 percent?
        Administrator Leavitt. It is our opinion that the ACI
    technology is not yet deployable to scale. Let me tell you a
    little bit of background that I have, what I learned. There are
    two ways to reduce mercury at coal-fired power plants. The
    first is by reducing NOX and SOX. That is
    what is known at that point as co-benefit, by reducing
    NOX and SOX, we get benefit of mercury
    being reduced as well.
        The second means is by controls designed to include
    mercury. This includes an activated carbon injection system.
    This essentially is to put a large charcoal filter, if you
    will, at the top of a smoke stack. The carbon molecules catch
    the mercury as it goes, and they are able to be essentially
    harvested, and cleaned, and disposed of in a different way. It
    is a technology that has been used successfully. They are using
    it to reduce mercury emissions from municipal wastes, and
    achieves over 90 percent.
        We have also begun to deploy on an experimental basis, on a
    limited number of power plants, the ACI technology, but it has
    never been put on a full scale power plant anywhere in the
    country, and run full-time for any considerable period of time.
    I have had a chance to speak with the owners of the power
    plants, and the engineers and the environmental specialists who
    are testing it.
        They have tested it, and in certain conditions, but not in
    others. This is a big investment, and one that I believe will
    be made, and that it will ultimately result in a substantial
    reduction in mercury emissions from coal-fired power plants.
    The technology needs to be deployed. It needs to be deployed as
    soon as it is reasonably possible, and we'll do it
    aggressively, and that is what ultimately will be in the final
    rule.
        Senator Leahy. Governor, I hope so, because I don't know
    what you tell mothers, fathers, and grandparents. If you have
    young children, what do you do? I'm not sure what to tell my
    pregnant daughter on these things. I look at my grandchildren,
    and I worry about them.
        I do commend you for speaking out and expressing concern
    when this came to light. But you can understand these kind of
    things taint just about any statement that comes out, because
    the people feel that the same polluting industries that are
    supposed to be regulated by this, are writing the regulations.
        The EPA's credibility is gone. Ultimately, in many ways,
    your credibility is the most important thing you have here.
    People will cooperate and work with you to clean up these
    plants, if the credibility is there.
        The credibility gets lost, even if you came out with a
    proposal that you and I would agree on. You are going to have a
    problem then getting everybody to get onto the bandwagon, spend
    the money necessary to do it, if the credibility is not there.
        I will submit other questions for the record. Maybe you and
    I will have a chance to talk more about this.

                                  MERCURY RULE

        Administrator Leavitt. Senator, I would be delighted to do
    that, as we do today on the public record. I want you to know,
    and other Members of this committee, that we intend to finalize
    the first ever rule regulating mercury from power plants this
    year, and we will do so in a way that will reduce to the
    maximum level possible under available technology. And that
    we'll be deploying technology in the future to reduce it.
        We believe it can be reduced by 70 percent. We believe that
    there are alternative ways to do it. The final rule, which will
    be final this year, will be the best of the ideas that we can
    receive from literally tens of thousands of people in written
    comments from public hearings across the country, because we
    acknowledge and recognize that this is a toxin, that it puts
    pregnant women and fetuses potentially at risk.
        We are anxious to cooperate with other governmental
    agencies, and have as recently as this week with the FDA to
    make clear to people what guidelines of their own behavior
    should be that would protect them. I look forward to more
    conversations on this matter.
        Senator Leahy. Well, as you know, that when your
    confirmation came up, there was some, some controversy, I voted
    to confirm you.
        Administrator Leavitt. Thank you.
        Senator Leahy. Many in my State were unhappy with that
    vote. I hope that you will do this the right way, and let us
    work together.
        Mr. Chairman, thank you very much.

                     MERCURY--WESTERN COAL VS. EASTERN COAL

        Senator Bond. Thank you very much, Senator Leahy. We
    appreciate it. There will be questions submitted for the
    record. Senator Domenici has questions, Senator Craig, and of
    course Senator Leahy's questions. I would just say that the
    coal that we burn in Missouri is Western coal, and there are
    real questions whether the ACI works on Western coal.
        We understand it may be more effective on Eastern coal,
    but, as I said earlier, we have got to explore the technologies
    aggressively to get these pollutants out, because you know, we
    are trapped. If we can't get the technology that allows us to
    burn the source of fuel that is abundant, that is coal, we are
    going to impact families heavily. It's not family values when
    an elderly couple can't afford to pay their heating bill and
    buy the food they need, when a young couple can't keep the
    house warm enough for their children, and still get them the
    care they need. This directly impacts us in several ways, so
    this is all connected together.
        Let me ask you a difficult question. On April 15, EPA will
    be designating additional areas as nonattainment for the ozone
    standard. How will the agency's designation protect public
    health, as well as ensuring and protecting a healthy economy?

                          INTERSTATE AIR QUALITY RULE

        Administrator Leavitt. Senator, the Agency does have an
    obligation to designate those areas in this country that are in
    attainment with our new 8-hour standard on ozone. We'll meet
    that requirement, and we'll do so in a way that will be both
    consistent and defendable, and in a way that will allow us to
    work then with communities over the course of the next several
    years to bring them into attainment.
        The most important thing we are doing to bring them into
    attainment is the Interstate Air Quality Rule, which will bring
    nearly all of the roughly 500 counties that will not be in
    attainment into attainment. The Interstate Air Quality Rule
    itself will reduce NOX and SOX by 70
    percent and will bring nearly--will bring all but 17 of those
    counties--17 to 20 of those counties into compliance.
        So we are not only putting designations on the table, but
    we are also providing a means by which they will be able to
    reach attainment within a relatively short period.

                           OZONE NON-ATTAINMENT AREAS

        Senator Bond. This might be a good opportunity to explain
    how you envision a partnership between the EPA and the States
    to assure compliance with the environmental laws.
        Administrator Leavitt. We are actually working in direct
    partnership with the States to determine the areas of
    attainment and nonattainment. The States made recommendations
    to the EPA on which areas they believed should be found in
    nonattainment. The EPA has been working to express our opinion,
    and to find ways in which to work with the States to reach
    agreement on which areas would be in nonattainment.
        Once an area has been designated nonattainment, we will
    then work with them to develop a plan. They'll have a 3-year
    period to develop a plan, and we will have 1 year in which to
    comment and accept it, and then we'll move forward to what
    would be new standards, cleaning up what is essentially smoot,
    or soot and smog, and has a substantial impact on the health of
    people in this country.
        This is a good thing, and we can do it in a way that will
    keep us competitive as a nation.

                              EN LIBRA PRINCIPLES

        Senator Bond. As governor of the State of Utah, you
    promoted the principles of en libra. What is it and does it
    apply to your work in EPA?
        Administrator Leavitt. En libra is a Latin word that means
    to move towards balance. Today we've dealt with a number of
    problems that have thorny edges. We are dealing with the need
    for cleaner power plants, and the need to keep us economically
    competitive, and en libra recognizes if we utilize markets,
    people will do things faster, and do more of it than if we
    simply use command and control.
        It acknowledges that we need strong national standards,
    that there are neighborhood solutions that we can find to solve
    those problems. It acknowledges that collaboration is always a
    better way than polarizing and litigating.
        It acknowledges that as we focus on results, we will have
    more success than if we simply focus on programs. It is finding
    the productive center. Today we talked about many problems
    where it can well be applied.

                              SUPERFUND--CLEANUPS

        Senator Bond. Final question for this round. Superfund. I
    mentioned some of the concerns I have about Superfund, and the
    small amount going to actual clean-ups. You've asked for a $124
    million increase. Right now it is very difficult to find that.
    How are you going to allocate the resources within the program?
    How is your internal review coming on the allocation of
    resources within Superfund to assure the maximum utility for
    what we appropriate for Superfund.
        Administrator Leavitt. Your request has been taken
    seriously, Senator. I'm going to ask Marianne Horinko to come
    forward to comment. While she comes forward, I would say that
    we have made requests for additional Superfund dollars, and we
    are committed to see they are used effectively, and are making
    progress on many of the sites, and want to make more. Marianne.
        Ms. Horinko. Senator, thank you. I would like to thank the
    staff for support. As we are winding up the 120-day study, we
    feel it is incumbent upon us as we ask you for the kindness of
    more funding to make sure we have taken the existing funding
    you've given and maximize the dollars towards cleanup, so we
    are about near completing that funding.
        As you can imagine, there aren't huge pockets of cash we
    discovered out there. But there are program efficiencies that
    we can undertake, and we will look forward to coming up with a
    review with your staff on some of those proposed measures to
    maximize dollars towards cleanup over the next several weeks.
        Senator Bond. Thank you very much. Senator Mikulski.

                        WATER INFRASTRUCTURE--JOBS STUDY

        Senator Mikulski. Thank you, Mr. Chairman. Let me go to one
    other question to follow up on the water issue.
        I contacted you, Mr. Administrator, about the need to have
    an updated study about what is the job impact on water
    infrastructure, which you responded to, and I appreciate that.
    In a letter to me I think just a few days ago, you said that
    you've set aside the money. It is a more complicated project
    than just giving you a 60-day report. You were now going out to
    get the right people to give us that assessment.
        I appreciate that this is complicated, but I think it would
    give us a good benchmark about where a public investment
    improves the environment, public health, and creates jobs,
    which I know would be hopefully a bipartisan agenda.
        First of all, thank you for your response. When do you
    think we could get an estimate of that, as we work for, in your
    own words, that productive center?
        Administrator Leavitt. I'll give you a direct report.
        Mr. Grumbles. Ben Grumbles again, Senator.
        Senator Mikulski. Yes.
        Mr. Grumbles. I wanted to tell you that we very much
    welcome this directive to do the study. We are in the process
    of making sure that we've got the right people to do it, to
    ensure the independence and integrity of it.
        I am not sure if it is a matter of weeks or months, but we
    are working very much to try to get this put together and
    recognize the importance of the ability to update the number of
    jobs estimated that are created by investment in
    infrastructure.
        Senator Mikulski. Do you have any idea if we'll have this
    before we conclude our appropriations process?
        Mr. Grumbles. I'm not sure when the conclusion of the
    process is, but we could some time towards the end of this
    month, or I would say into the next month is when we could----
        Senator Mikulski. When could you initiate the study? Could
    you then stay in touch with our staffs about when you think the
    study is done, I, of course want a quick case study, Mr.
    Administrator. I don't want to study it to death, but we do
    want exactly what you called for, accuracy and independence, so
    we want to press on, but also press for accuracy and
    independence. So could you let us know when you are going to
    get that?
        Mr. Grumbles. Most certainly.

                      CHESAPEAKE BAY WATERSHED INITIATIVE

        Senator Mikulski. While we're here, we talked about the
    watershed issue, the $10 million in terms of the targeted
    watershed initiative for the Chesapeake Bay, again we
    appreciate it being targeted. The Executive Director of the
    Chesapeake Bay Commission raises some flashing yellow lights
    about the language.
        She is concerned, as are the members of the Commission,
    that the current language proposed by the administration would
    tie non-point source programs to limiting the grantees to
    nutrient trading activities, yet still involving a huge and
    costly reduction in nutrients that must take place before any
    trades take place. So we still have to spend these great
    buckets of bucks on the nutrient removal before we get to the
    trade.
        We are concerned that this is a good intention that might
    not have the result. I would like to share with you Miss
    Swanson's recommendations, and to see if we could work with you
    so that we really do get the bang for the buck, and have not
    just limited it to trading activities. She has some
    constructive recommendations that we'd like to share with you,
    and see if again we can't then make maximum use of taxpayers'
    dollars, in terms of the protection of the Bay, which has been
    a longstanding bipartisan initiative supported by every
    President, and was initiated by Senator Mathias, my Republican
    predecessor. We want to stay in touch with you on that.
        I'd like to go then to enforcement. We have been concerned
    on the committee for some time about vigorous enforcement--not
    concerned about the enforcement, but is it really happening?
        Could you share with us where you are on the aspects of
    criminal enforcement? Do you have enough resources? What is the
    backlog that there might be now on criminal cases, and so on?
    Could you give us your views on that?
        Administrator Leavitt. Yes. Our Office of Enforcement is
    implementing currently recommendations of a management review
    that was issued in December of 2003. Key steps that were
    recommended included refocusing EPA's criminal investigations
    on environmental crimes, and in fact evaluating organizational
    structure, including field operations to ensure that optimal
    deployment of investigative resources were used.
        And that we were securing a separate source of funding for
    the various aspects of that, that needed to be. Despite that,
    the fact that we have limited enforcement, we have been able
    to, I think, move forward. Clearly enforcement, criminal
    enforcement and civil enforcement are clearly a very important
    part of an environmental regulatory agency.
        Our first obligation, our first desire, is to help people
    comply. But if people evade, or if they avoid, they'll feel the
    full weight of the Federal Government until they do.

                  CRIMINAL ENVIRONMENTAL ENFORCEMENT--BACKLOG

        Senator Mikulski. Well, I appreciate you drawing the
    distinction. I want to draw the distinction between civil and
    criminal activity. Civil often is not clear for a variety of
    reasons that you've just hinted at. But criminal is. When I
    talk about criminal, I'm talking about premeditated, deliberate
    desire to usurp, evade the environmental laws.
        Do you know what your backlog is on the prosecution of
    criminal cases?
        Administrator Leavitt. I'll ask the Office of Enforcement
    to give you those.

                              CRIMINAL ENFORCEMENT

        Senator Mikulski. Because one is really, as you know from
    your own background, that is different than just not knowing
    the regs, or getting bad legal advice.
        Administrator Leavitt. Indeed I do.
        Ms. Harris. Good morning. My name is Phyllis Harris, I'm
    the Acting Assistant Administrator for the Office of
    Enforcement and Compliance Assurance. I can assure you that we
    are taking very aggressive steps to deal with the entire case
    log of the criminal enforcement program, and indeed as
    Administrator Leavitt mentioned, we just undertook a study of
    the overall resource allocation of the program. Right now we
    are in the process of making adjustments to assure that we have
    adequate resources in terms of where the cases are.
        As a natural progression, I would say in the criminal
    program, we have cases in various stages of investigations, and
    we believe we are aggressively pursuing those through the
    actual partnerships that we have with our State agencies, as
    well as the U.S. Attorney's Offices. And through that
    progression, we are making very good steps, ensuring that we
    are effectively prosecuting----
        Senator Mikulski. Can you tell me what the backlogs are,
    though, and are there patterns within States or regions?
        Ms. Harris. I can follow up with you specifically on the
    backlog as to whether or not there are patterns in regions and
    States.
        Senator Mikulski. I would encourage you to look at--in
    other words, this also goes to the deployment of your
    resources. If some have a greater level of criminal activity,
    you'll of course want to deploy. I know I share this concern
    with some of my colleagues, who are also very keen on, very
    strong on enforcement of the environmental laws.
        We really do want this information from you, and we would
    like to know how many cases EPA has decided not to pursue
    because of either funding shortfalls or staff shortages,
    because you just don't have the people to do the cases.
        Ms. Harris. We'd be happy to provide that you to.
        [The information follows:]

                          Criminal Enforcement Backlog

        This table shows that a total of 1,067 criminal enforcement cases
    remain ``open'' dating from fiscal year 1991 through April 26, 2004,
    most of which have been opened since fiscal year 2001. Eight hundred
    and ninety two of these cases are at the ``pre-indictment stage''
    (i.e., they are still within EPA's investigative control). The
    remainder are either at the Department of Justice or the Federal Courts
    (i.e., at various stages of review, litigation or appeal). These cases
    represent only traditional environmental crime cases and do not include
    homeland security cases or the Administrator's Protection Service
    Detail cases.
        EPA has maintained a relatively stable number of open, active cases
    as an ongoing workload. These are cases that are receiving active
    attention by criminal investigators and/or Department of Justice staff.
    Normally, if a case remains open, exhibiting little activity, it
    usually is because of continuing legal proceedings (i.e., plea
    bargaining, litigation, appeals, etc.).

    ----------------------------------------------------------------------------------------------------------------
                                                                                      Number of Open     Number of
                               Fiscal Year                            Number of Open    Cases Pre-       Cases on
                                                                           Cases        Indictment        Appeal
    ----------------------------------------------------------------------------------------------------------------
    1991............................................................               1               0               1
    1992............................................................               4               0               2
    1993............................................................               2               0               1
    1994............................................................               3               0               1
    1995............................................................               8               1               1
    1996............................................................               9               0               5
    1997............................................................              11               3               2
    1998............................................................              23               9               3
    1999............................................................              51              22               0
    2000............................................................              83              50               4
    2001............................................................             150             121               2
    2002............................................................             221             223               1
    2003............................................................             308             282               0
    2004............................................................             193             181               0
                                                                     -----------------------------------------------
          Total Cases...............................................           1,067             892              23
    ----------------------------------------------------------------------------------------------------------------

        Administrator Leavitt. Senator, I can shed this much light.
    We opened 470 traditional environmental crime enforcement cases
    in fiscal year 2003. That will give you a sense of the
    proportion. The recent study by the Inspector General reported
    that the environmental crime investigations during the last 6
    years have been relatively stable, and that as of September of
    2003 they concluded that the Criminal Investigation Division
    was carrying out its mission to investigate environmental
    violations in the environmental statutes.
        I don't think that is a prescription for perfection, but I
    do think it is a demonstration that we are carrying that part
    of our mission out. And additional information, we will supply
    to you.
        [The information follows:]

                           Criminal Cases Not Pursued

        The Criminal Investigation Division (CID) opens criminal cases
    based on criteria in a 1994 policy memorandum on investigative
    discretion. The criteria are significant environmental harm and
    culpable conduct. Some of the CID Special Agents in Charge of the Area
    offices will not open a new case if they believe they do not have
    adequate resources to handle it. Instead, they will refer the original
    investigative leads to EPA's civil enforcement program or to State
    authorities. The disposition of leads in fiscal 2002 is summarized in
    the table below. (To reemphasize, this table refers to leads, not
    formally opened criminal enforcement cases; formally opened cases are
    almost always pursued.). CID does not have an automated tracking system
    for leads; these figures are compiled manually, and the fiscal year
    2003 figures are have not yet been compiled.

                  DISPOSITION OF LEADS RECEIVED IN FISCAL 2002
    ------------------------------------------------------------------------
                                                   Leads          Percent
    ------------------------------------------------------------------------
    Under CID Review........................             270              14
    Closed Prior to Referral................             415              21
    Referred to State/Local.................             702              35
    Referred to EPA Civil Program...........             188               9
    Referred to Other Federal...............              91               5
    Opened as a Criminal Case...............             310              16
    ------------------------------------------------------------------------

                        EPA'S ROLE IN HOMELAND SECURITY

        Senator Mikulski. I'll go to one other criminal act, which
    is the ultimate, most despicable, and heinous, which is an act
    of terrorism. As the administrator of the EPA, could you share
    with us where you are in terms of your role in Homeland
    Security, and your role in making recommendations, and having
    adequate resources for the protection of America's
    infrastructure? Could you tell us what you are doing with the
    Department of Homeland Security, and what we need to do to help
    you carry out your responsibility in that? Because to me, that
    is the ultimate crime.
        Administrator Leavitt. Homeland Security is everyone's job.
    EPA does have some specific responsibilities particularly for--
    in the area of water. It has also been quite--you've seen us in
    a prominent role with respect to clean-ups, with respect to
    anthrax, also the World Trade Center, also regarding the
    Columbia Space Shuttle and others.
        I'll ask Marianne Horinko to give you a direct report on
    many of the activities that we are undertaking on a going
    forward basis.
        Ms. Horinko. Senator, first of all, I'd like to thank you
    for your support to us over the years, and particularly in the
    anthrax and more recently the ricin. This is an unexpected role
    for all of us. We appreciate your support during these very
    challenging times. We also thank you for the resources you
    provided us in the past.
        In my own program, we've hired additional on-scene
    coordinators, opened a new emergency response team in Las Vegas
    to complement our teams in Cincinnati and New Jersey, meaning
    increased capacity for West Coast responses.
        We've worked closely with the Department of Homeland
    Security in the Biowatch Program to detect incidences of
    biological contamination, also working closely with them for
    developing protocols for responding to radiological responses,
    and have done a number of large-scale cross-agency exercises
    and training and deployments to test out how to respond to
    different types of attack.
        As we move forward, we are looking at enhancing our ability
    to work with different parts of the infrastructure, such as the
    water safety issue in the chemical industry and others to
    ensure that we have appropriate threat protection that is a
    cooperative effort with Homeland Security relief. And we are
    also working on the issue of laboratory capacity nationwide,
    making sure we add laboratory capacity in the States and
    Federal installations, and private sector to respond to an
    incident of weapons of mass destruction on a large scale.
        So as the Administrator indicated, it is an enormous job.
    Our job is a daunting task. We are working hard at it, and
    working collaboratively with the new department.
        Senator Mikulski. Do you need more help?
        Ms. Horinko. We could always use more help. We would be
    happy to sit down with you and----

                             ANTHRAX IN THE SENATE

        Senator Mikulski. Why don't we do that. Mr. Chairman, I
    know the clock is ticking. First of all, EPA did a really
    yeoman's job after we were hit by anthrax here, and also along
    with the post office at Brentwood, and some private sector
    facilities. Is your office in the Hart Building, Senator?
        Senator Bond. No.
        Senator Mikulski. I was one of the Daschle 13, meaning I
    was in the Daschle air vent system. We were out of our office
    for 6 months, but thanks to all of us working together, and I
    might say the leadership of Dr. Frist, we were able to keep the
    Senate going, but thanks to the Marine Corps Decon Unit from
    Indian Head, the very good work of your predecessor, and this
    incredible team that you've put together, we now not only could
    go back, but we could go back with confidence.
        We have pregnant women who work here, people who served
    overseas, and in some ways have compromised immune systems, we
    have people who have asthma, we have a lot of issues of our own
    staff who work for us, so we want to thank you.
        I am troubled, however, that there is a cut in building
    decontamination in the science and research account that I want
    to talk about, because I think you did a great job. I think you
    learned a lot, and I think this is another area to research. I
    am very concerned about laboratory capacity, the research
    buildings, because there might not be a big bomb, but it could
    be a bioattack within our building, it could be a dirty bomb,
    et cetera, for which we want you to have the right research.
        Mr. Chairman, I'd also like to thank EPA for the way they
    responded to the very melancholy Columbia incident. It really
    was a multi-State, multi-agency effort, and EPA's role in this
    helped. The job that you all did helped weigh in the
    professionalism, helped give consolation to the families, but
    at the same time laid the groundwork so Admiral Gehman could do
    his work, and so we could come up with lessons learned that
    would never happen again.
        So I would like to thank you, and all of the people who
    worked in very difficult circumstances.
        Administrator Leavitt. Senator, on behalf of the Agency, I
    accept your kindness. I also would reflect Marianne Horinko and
    her leadership, as she has demonstrated not just great
    leadership, but inspiring courage at some very difficult times.
        Senator Bond. Thank you very much for your questions,
    Senator Mikulski. And I, too, share your great concern about
    Homeland Security. The Senator from Maryland and I serve on the
    Intel Committee, and we are most interested in dealing with
    many of these issues.
        I think some of these discussions are probably better
    carried out not in the public eye, but do you have any ballpark
    figure of the needs you may have to do of the many tasks that
    you are assigned under Homeland Security? I have a feeling that
    we are looking at a tidal wave coming up of additional needs.
    Have you all done an assessment of those, of what you think the
    needs may be in the areas we've discussed?
        Administrator Leavitt. Senator, without giving you a
    specific number, may I reflect on my experience now as
    Administrator of the EPA and also in my previous
    responsibilities as governor.
        Homeland Security is everyone's second job. It has to be
    inculcated into our fundamental missions. And we are
    approaching it in that way at the Environmental Protection
    Agency. We recognize there will be additional resources that
    will be necessary, and we will be forthcoming in providing you
    with the specifics in appropriate venues.
        But I can also tell you that we view Homeland Security to
    be part of every office in this agency, and part of our mission
    is to contribute to the Homeland Security network of this
    country.

                           TOTAL MAXIMUM DAILY LOADS

        Senator Bond. Thank you. Total maximum daily loads, that is
    the limited pollutants in waterways. If the State fails to meet
    the requirements, EPA has been charged with carrying out the
    responsibility. Right now, despite some progress, some 39
    percent of the river and stream miles assessed by the States
    and 45 percent of the lake acres, do not meet the water quality
    standards.
        When you talk about TMDL, you strike fear in the hearts of
    agriculture, small communities. This is a huge issue, a huge
    concern. To what extent does non-point source pollution impact
    TMDL's? What steps are being taken by EPA with the States in
    things such as run-off from animal feeding operations, and are
    you looking at ways to keep the costs within reason?
        Administrator Leavitt. Again, Senator, something I have
    some direct personal experience with in my previous role.
        The whole area of non-point source pollution is the next
    opportunity for substantial progress in this country, but it
    also is one that requires a new skill, with its collaboration
    on a watershed by watershed basis. There are numerous examples
    where local communities have come together to clean up their
    watersheds, and it begins to happen when the local government,
    the local water system, the local agriculture community work
    together to do it.
        Our role at EPA is not just to create an atmosphere where
    that can happen well, but in many cases to provide best
    practices, to provide resources, provide a continued urgency
    for it to occur. We are providing all of those, but it falls
    back into the pattern I spoke of earlier, where we desire to
    have the improvement you spoke of, and to do it in a way that
    maintains our economic competitiveness as a Nation. We can have
    both. That is our objective, to clean up the streams and non-
    point sources. To do it in collaboration is the key.

                                  BROWNFIELDS

        Senator Bond. Speaking of collaboration, I would refer you
    to a bill I have been shopping around for a number of years,
    called The Fishable Waters Act, which involves collaboration on
    watershed bases, and brings together many of the cooperating
    parties. And I would tell you there is a great desire for
    cooperation, and I would say that EPA Region 7, working with
    the University of Missouri, and some work that we funded here,
    has, I think, has developed some very, very cost effective,
    desirable means of controlling non-point source pollution.
        And I think that this could be both productive for the
    landowner in planting valuable crops and using those crops to
    curb TMDL's to bring down the total daily maximum load numbers.
        Brownfields, we have a problem. One of the Cass/Bates
    Regional Planning Commission in West Central Missouri is really
    built around a very great fishable lake, great tourist site,
    but has some Brownfields in the seven-county region, and they
    haven't been successful in making it onto the EPA's scoring
    process.
        I'm concerned that rural areas are disadvantaged, but is
    there anything that needs to be done? How can we deal with
    Brownfields if they happen not to be in a metropolitan area?
        Administrator Leavitt. I'm going to ask Marianne Horinko to
    give you comments on that point.
        Ms. Horinko. Senator, we share your concern. A number of
    other Senators and Representatives from primarily Midwestern
    and Western rural areas have expressed the same concern. About
    54 percent of our grants from fiscal year 2003 have gone to
    sites in rural areas. More tend to be located in urban areas,
    as you can imagine, but we're still very concerned these
    communities have equal fair access to funding.
        What I would suggest in your specific case is that we
    follow up with your staff, and have our Region 7 Brownfield
    specialists sit down and walk them through the process, and do
    some outreach and training so they can compete in the next
    round.
        [The information follows:]
                    Brownfields Grants to Rural Communities
        The Agency did a review and determined that about half of last
    year's grants went to sites in small or rural areas. One hundred
    sixteen of the 214 grants (54 percent) announced for fiscal year 2003
    went to non-urban areas with populations of 100,000 or less. The Agency
    is concerned that these communities have equal fair access to funding,
    so we made changes to the fiscal year 2004 application guidelines and
    are funding outreach forums for small rural communities, including
    workshops in Kansas City on April 30, Idaho on June 17, and Montana on
    July 14.

                               NEW SOURCE REVIEW

        Senator Bond. We would appreciate that.
        I hate to draw this to a close, we are having so much fun,
    but I am going to ask you one final question on New Source
    Review, something of course that is not very controversial. I
    know there are lawsuits. Because of all the changes, there is a
    lot of uncertainty over how EPA treats ongoing litigation,
    which was instituted prior to EPA's issuance of the final rule
    on August 27, 2003 regarding the routine maintenance.
        How is EPA addressing this particular litigation issue, and
    the general issue?
        Administrator Leavitt. Senator, we are committed to making
    New Source Review work. We believe the rules that we have put
    forward will ultimately be put in place, despite the fact that
    there is a current stay. We are enforcing the law and moving
    forward with the cases that were filed prior. We're filing new
    cases. We are selecting new cases based on a myriad of
    different factors, among them being available resources and the
    desired environmental outcomes.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Bond. Well, thank you very much, Governor. We are
    delighted to have you before the committee. Obviously, we have
    lots of questions and follow-up. We will have additional
    questions for the record, and we appreciate you and your
    staff's prompt attention to them.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing:]

               Questions Submitted by Senator Christopher S. Bond

                                CLEAN AIR ISSUES

        Question. The most prominent air quality issue of the last few
    months has been what to do about emissions from coal-fired electric
    power plants. I applaud the administration for attacking this issue
    head on by proposing regulations on New Source Review and Mercury
    emissions. President Bush has also asked Congress to pass ``Clear
    Skies'' or multi-pollutant legislation that would reduce power plant
    emissions and encourage investment in new plants by providing certainty
    regarding future regulatory requirements.
        Governor, would you please comment on the status of both the New
    Source Review and Mercury emissions proposals?
        Answer. On October 27, 2003, EPA made final rule changes to the New
    Source Review (NSR) program. These changes focused on determining what
    activities at an industrial facility constitute Routine Maintenance,
    Repair and Replacement and are therefore exempt. The final rule is
    called the Equipment Replacement Provision. These amendments to the NSR
    rules would apply only prospectively.
        Previously EPA completed final rule changes in December 2002 that
    removed NSR's barriers to environmentally beneficial projects, created
    incentives, such as Plantwide Applicability Limits (PALs), for
    additional beneficial projects, and streamlined the NSR rules.
        Some State agencies and environmental groups have filed suit in the
    DC Circuit Court of Appeals, seeking to overturn the December 2002 and
    October 2003 rules. Other States and industry groups have intervened in
    this suit on EPA's behalf. These are complex cases and will likely not
    be resolved until 2005 or later.
        In the meantime, in response to a motion by some State agencies and
    Environmental Groups, the DC Circuit Court of Appeals stayed the
    Equipment Replacement Provision on December 24, 2003. However, the DC
    Circuit denied the petitioners' renewed motion to stay the NSR rules
    that were promulgated on December 31, 2002, and so EPA continues to
    implement these rules.
        EPA is disappointed in the ruling staying the Equipment Replacement
    Rule, but we believe that once the court has a chance to review the new
    rule on its merits, it will lift its stay and eventually uphold the
    rule.
        We are committed to following the court's direction. We believe
    that both these rules will significantly improve the effectiveness of
    the NSR program, while preserving its environmental benefits.
        In the next several months, EPA will be proposing additional
    changes to the NSR program. These include additional improvements to
    simplify the program for complex facilities and to create additional
    incentives for beneficial projects. (This upcoming package is referred
    to as the ``Debottlenecking, Aggregation, and Allowables PAL
    package'').
        EPA is offering aggressive alternatives for controlling mercury
    from power plants by proposing new environmental regulations. This
    marks the first time in United States history that power plants would
    be required to reduce mercury pollution.
        Controlling mercury from coal-fired power plants raises many
    difficult issues with respect to the availability of technology and the
    impact on our energy markets. We have tried to address those issues in
    our proposal. We extended the official comment period by 30 days, and
    the signed documents were available on our website within 48 hours of
    signature, December 15, 2003. We are now in the process of carefully
    considering all the comments, and abiding by our commitment in the
    settlement agreement with NRDC, we expect to issue a final rule by
    March 15, 2005.
        Question. Further, how would the passage of ``Clear Skies'' or
    multi-pollutant legislation contribute to EPA's ability to reduce power
    plant emissions in the next 20 years?
        Answer. Clear Skies would provide dramatic environmental benefits
    by reducing emissions from the power sector more than any legislation
    that any other administration has ever proposed. It does so while
    allowing the downward trend in energy prices to continue and while
    promoting energy independence.
        One of the most important benefits of Clear Skies is that it would
    provide both regulatory and environmental certainty. Clear Skies builds
    on the successes of the Clean Air Act and would significantly improve
    air quality across the nation by requiring power plants to reduce their
    emissions of SO2, NOX and mercury by 70 percent.
    The mandatory emissions caps at the heart of Clear Skies are a sure
    thing and guarantee that reductions will be maintained over time.
    Because cap-and-trade programs include economic incentives for early
    action, Clear Skies would begin improving public health immediately.
        Clear Skies also allows firms to make the reductions in the most
    cost-effective means possible. The statutory caps in Clear Skies would
    provide certainty of reductions that could not be delayed by
    litigation. Without Clear Skies, we also know that, under the current
    Act, EPA and States will need to develop and issue regulations to
    reduce power plant emissions, but the levels and timing of these
    regulations are unknown. Over the next 20 years, uncertainties
    regarding regulatory development, litigation, implementation time, etc.
    under the current Act compare unfavorably with the certainty provided
    by Clear Skies.

                          OZONE AIR QUALITY STANDARDS

        Question. The EPA is required by the Clean Air Act (CAA) to set
    National Ambient Air Quality Standards (NAAQS) for wide-spread
    pollutants from numerous and diverse sources considered harmful to
    public health and the environment. The EPA has set NAAQS for six
    principal pollutants--ozone is one of these six pollutants.
        On April 15th, EPA will designate areas that are in attainment and
    nonattainment of the 8-hour ozone air quality standard. There is a
    small rural county in Missouri, Sainte Genevieve, which is in danger of
    being included with St. Louis in a nonattainment area. This small rural
    county is not contributing to the region's nonattainment.
        Governor, will you please walk us through the process of
    designating an area in nonattainment of the 8-hour ozone standard? In
    the case of counties like Sainte Genevieve, how and who is making the
    final decision on which communities are really contributing to a
    region's nonattainment status?
        Answer. Area designations are required after promulgation of a new
    or revised NAAQS. The EPA works together with appropriate State and
    local authorities to establish designations. On July 18, 1997, we
    promulgated a revised ozone standard of 0.08 parts per million (ppm),
    measured over an 8-hour period, i.e., the 8-hour standard. In March
    2000 and July 2000, we issued designation guidance on how to determine
    the boundaries for nonattainment areas. In that guidance, we rely on
    the CAA definition of nonattainment as an area that is violating an
    ambient standard or is contributing to a nearby area that is violating
    the standard. If an area meets the definition, EPA is obligated to
    designate the area as nonattainment. In making designations, we use the
    most recent 3 years of monitoring data. Once we determine a monitor is
    recording a violation, the next step is to determine if there are any
    nearby areas that are contributing to the violation and include them in
    the designated nonattainment area. In making this determination, we
    review all available technical data such as air quality, source
    locations and emissions, photochemical modeling, meteorology, terrain,
    population, commuting, and growth in the area.
        On April 15, we finalized designations for all areas of the United
    States. Ozone air quality monitors in the St. Louis area are in
    violation of the ozone standard. The St. Louis nonattainment area
    consists of Franklin, Jefferson, St. Charles, St. Louis Counties and
    St. Louis City, Missouri, and Jersey, Madison, Monroe, and St. Clair
    Counties, Illinois.
        An ozone monitor is located in Ste. Genevieve County. The design
    value for this monitor was calculated to be below the standard for the
    2001-2003 ozone season. Our initial concern for this county was based
    on anticipated growth in nitrogen oxide emissions (a precursor of
    ground-level ozone) and that these emissions may be carried by the
    prevailing wind into the St. Louis area, contribute to the
    nonattainment problem, and make it difficult to attain the standard.
    The State of Missouri provided information to us on the amount of
    current emissions and the stringency of controls on newly permitted
    sources in the county. Based on this information, we concluded that the
    county is not a contributor to nonattainment in the St. Louis area and
    designated the county as attainment.

                           LEAD CONTAMINATION CRISIS

        Question. I would be remiss if I did not ask you, Governor, to
    brief us this morning on the lead contamination crisis occurring in the
    District at this moment.
        Sir, will you update the subcommittee on the agency's actions in
    the wake of discovering elevated levels of lead in the District of
    Columbia's drinking water?
        Answer. EPA is very concerned about the current situation related
    to elevated levels of lead in drinking water in many homes served by
    the District of Columbia's water system. Exposure to elevated levels of
    lead can have serious health effects, particularly for children.
    Therefore, EPA places a high priority on reducing exposure to lead from
    all sources.
        The Agency's main priority at this time is ensuring that all
    citizens in the District have access to safe drinking water and that
    citizens nationwide can be confident in the safety of their drinking
    water.
        EPA's Regional office in Philadelphia, which has oversight
    responsibility for District drinking water, has a number of actions
    underway to see that the problem is corrected at the local level. The
    Region has worked with the City to ensure that all potentially affected
    residents with lead service lines receive filters and is also ensuring
    that additional monitoring is carried out, public outreach is improved,
    and replacement of lead service lines is accelerated. The Region has
    developed a website at www.epa.gov/dclead to keep the public informed
    of the activities that are being carried out.
        Staff from EPA Regional, national and research offices are
    participating in a multi-agency technical expert working group to
    identify a technical solution to the problem. The national office has
    also facilitated an independent peer review of that group's efforts.
    Pursuant to the working group's recommendations, a partial system test
    to assess a new corrosion control treatment method will take place in
    June. Full implementation of revised corrosion control will take place
    later in the summer about July 15 if the partial test does not
    encounter problems.
        While the Agency does not anticipate that there is a serious
    problem nationally, we are collecting data to better understand the
    occurrence of elevated levels of lead in drinking water. We are also
    committed to initiating a national review of implementation of, and
    compliance with, the Federal regulations for lead in drinking water
    during 2004.
        Question. Further, how did dangerously high levels of lead in water
    being delivered to the District's residents remain overlooked for the
    past year and a half?
        Answer. The sampling results that the District of Columbia Water
    and Sewer Authority (WASA) submitted to EPA for the 2000-2001
    monitoring period indicated that neither the lead nor copper action
    level had been exceeded at the 90th percentile. The 90th percentile
    value reported for lead was 8 parts per billion (ppb).
        The optimal corrosion control treatment implemented by the
    Washington Aqueduct appeared to be effective in minimizing lead levels
    until the sampling period between July 2001 and June 30, 2002. EPA
    received a final report from WASA on August 27, 2002 indicating that
    the 90th percentile value had increased to 75 ppb during that period.
    The high level required that WASA conduct more frequent monitoring and
    carry out public education. The lead action level was also exceeded for
    subsequent monitoring periods in 2003, with 90th percentile values at
    40 ppb (January 1 to June 30, 2003) and 63 ppb (July 1 to December 31,
    2003).
        The action level exceedance for the period ending in June 2002
    triggered provisions in the Lead and Copper Rule (LCR) that required
    WASA to complete the following actions:
      --Resume full monitoring for lead and copper at the customers' taps
            by sampling a minimum of 100 customers taps during subsequent
            6-month monitoring periods.
      --Prepare and implement a public education program to advise
            consumers on how to protect themselves from exposure to lead in
            drinking water and inform them of steps that will be taken to
            reduce the lead level.
      --Develop and undertake a lead service line replacement (LSLR)
            program. The LCR requires that a system replace 7 percent of
            the lead service lines which the system owns each year until
            all of the lines have been replaced, or until tap water
            monitoring indicates that its 90th percentile lead level is
            equal to or less than 15 ppb.
        WASA began to carry out a public education program in October 2002.
    However, it is clear now that messages were not heard. Notifications to
    individual residents were often not timely and did not achieve the goal
    of getting information to those who needed to know. Mass media tools
    were not used as effectively as they could have been. There should have
    been more widespread and urgent communication of the problem District-
    wide.
        In March 2003, WASA began an expanded sampling program to evaluate
    the lead concentrations leached into water from lead service lines,
    using a protocol that differed from that used for required tap
    monitoring. The Region did not receive the sampling results from the
    lead service line testing program until October 27, 2003. EPA's review
    of this information by technical staff was focused on determining
    whether WASA had replaced or tested the required number of lines under
    their Lead Service Line Replacement Plan, and on how to address the
    underlying cause of the corrosion problem. The results of this expanded
    sampling program indicated that the lead problem was more significant
    and widespread than had been previously understood. Although WASA
    provided letters with results and instructions to customers whose lines
    were tested, those communications were not promptly delivered nor were
    they effective in informing the public of the magnitude of the problem
    or in conveying the steps families and individuals should take to
    protect themselves.
        EPA, WASA and the Washington Aqueduct continued their research plan
    to address the cause of the problem. However, WASA should have taken
    additional measures to ensure that customers were quickly informed, and
    that public education and outreach materials reflected an appropriate
    level of concern. Once it became evident that WASA's public education
    program failed to reach consumers in a way that ensured they would take
    action to reduce their risks, EPA began working with WASA to improve
    its communication to the public, and we took direct actions to
    supplement those efforts. Region III has since undertaken a more
    thorough review of WASA's public education efforts to identify specific
    recommendations for improvement, and have modified their own compliance
    review procedures to assure that the utilities' public education
    materials convey both the appropriate sense of urgency and proper,
    timely information.
        Question. What exactly is EPA's role in lead's public health
    crisis?
        Answer. EPA's Regional office has primary enforcement authority for
    the District's drinking water. The Region ensures that the District of
    Columbia's water suppliers know and understand Federal regulations,
    provides advice and technical assistance on how to comply with the
    Federal regulations, requires monitoring of the water and treatment
    processes according to the Federal regulations, and ensures that
    required monitoring results are reported. The region can also take an
    appropriate administrative or judicial enforcement action, including
    issuing notices of violation or administrative orders and seeking
    administrative and/or civil penalties.
        The Region therefore carries out the role that a State would
    otherwise carry out in implementing the Federal Lead and Copper Rule.
    The District's water utilities, the Water and Sewer Authority (WASA)
    and U.S. Army Corps of Engineer's Washington Aqueduct (Aqueduct) must
    report the results of monitoring and other activities carried out
    pursuant to the rule to the Regional office. The Regional office must
    likewise report certain information required under the rule to the
    national Safe Drinking Water Information System (SDWIS).
        The Region is responsible for evaluating the compliance of WASA and
    the Aqueduct with the Federal regulation. The Region was responsible
    for evaluating the corrosion control study presented by the Aqueduct.
    The Region approved the final treatment selection, after requiring
    several additional studies, and also approved the required water
    quality parameters that must be monitored by the Aqueduct and WASA to
    ensure that corrosion control is effective.
        The Region receives the results of required tap monitoring by WASA,
    determines if the utility is exceeding the action level, and instructs
    the utility as to the actions required to be carried out under the
    rule. The Region is currently conducting a thorough review of WASA's
    compliance with the public education, sampling and lead service line
    replacement requirements.
        With the District government, EPA has directed WASA to provide
    filters to households with lead service lines, to further expand
    sampling to assess the extent of the problem of elevated lead levels,
    to accelerate the physical replacement of lead service lines, and to
    develop a plan to significantly enhance its public education and
    outreach activities.
        Question. What was EPA's normal responsibility for water issues in
    the District?
        Answer. Nationally, EPA's role is to establish health-based
    standards that are protective of public health, develop guidance to
    assist States and public water systems, and provide oversight of State
    drinking water programs that have primary enforcement responsibility
    for public water systems in their State. Federal regulations designate
    the Regional Administrator as the entity responsible for implementing
    the Public Water System Supervision Program when a State has not been
    granted primary enforcement authority, or primacy, by EPA. The District
    of Columbia does not have primacy; therefore, the Agency's Regional
    office in Philadelphia directly implements the drinking water program
    for the District.
        EPA's role includes ensuring that the D.C. water suppliers (D.C.
    Water and Sewer Authority [WASA] and U.S. Army Corps of Engineer's
    Washington Aqueduct [Aqueduct]) know and understand Federal
    regulations; providing advice and technical assistance on how to comply
    with the Federal regulations; requiring monitoring of the water and
    treatment processes according to the Federal regulations; and taking
    appropriate enforcement actions if violations occur.
        WASA and the Aqueduct are responsible for carrying out required
    monitoring of lead. WASA is responsible for overseeing the collection
    of monitoring samples from customer taps. The Aqueduct and WASA are
    required to conduct monitoring for water quality parameters at the
    water treatment plant and in the distribution system, respectively.
    Both WASA and the Washington Aqueduct are required to report monitoring
    data and information regarding compliance with maximum contaminant
    levels, public notification and required treatment techniques to EPA
    Region III.

                   CONFINED ANIMAL FEEDING OPERATIONS (CAFOS)

        Question. What is the current policy of EPA as to discharge
    permitting for confined animal feeding operations? Are the permitting
    requirements different depending on the size of the operation?
        Answer. The majority of animal feeding operations (AFOs) are not
    concentrated animal feeding operations (CAFOs) and are thus not
    required to obtain permits. Three categories of CAFOs are recognized in
    EPA's regulations: large, medium, and small. Large CAFOs are AFOs that
    exceed certain production thresholds (e.g., 1,000 beef cattle, 700
    mature dairy cows, 2,500 swine over 55 lbs, etc.). All large CAFOs are
    required to obtain permits except in rare cases where they can
    demonstrate ``no potential to discharge.'' In some cases, medium or
    small AFOs below the production thresholds for large CAFOs may be
    either defined or designated by the permitting authority as CAFOs and
    thus be required to obtain permits, but only if they discharge directly
    to surface waters and are significant contributors of pollutants (see
    CFR 122.23 for exact definitions of medium and small CAFOs).
        EPA requires all operations that are defined or designated as
    Concentrated Animal Feeding Operations (CAFOs) to apply for NPDES
    permits. The NPDES permit requirements for all CAFOs include:
    implementation of a nutrient management plan; submission of annual
    reports to the permitting authority; maintaining current permits until
    the operation is completely closed and all manure is removed; and
    keeping records of nutrient management practices for at least 5 years.
        The permit requirements may be different depending on the size of
    the operation. Large CAFOs are subject to both the effluent limitation
    guidelines found at 40 CFR 412 and the NPDES regulations found at 40
    CFR 122. The medium and small CAFOs must meet the requirements of 40
    CFR 122 and effluent limitations based on best professional judgment
    (BPJ).

                            COMBINED SEWER OVERFLOWS

        Question. A number of communities have problems with combined sewer
    overflow where the capacity of the sewer collection and treatment
    system is exceeded due to high volumes of rainwater or snowmelt. How
    many urban areas have CSO problems and what is the extent of the
    problem? What is the Federal role versus the local or State role? What
    are the potential costs associated with addressing CSO problems?
        Answer. As of October 2003, 32 States have communities with
    Combined Sewer Systems (CSS). The approximately 750 communities with
    CSSs are concentrated in the Northeast and Great Lakes regions. Within
    these communities there are approximately 9,500 Combined Sewer Overflow
    (CSO) discharge points that are regulated by 836 NPDES permits.
        EPA's 2001 Report to Congress estimated that CSOs discharge
    approximately 1.2 trillion gallons per year. The report also estimates
    that CSO controls have resulted in an approximate 12 percent reduction
    in untreated CSO volume since 1994 (170 million gallons per year), and
    biochemical oxygen demand (BOD) loadings were reduced by 125 million
    pounds per year since 1994.
        EPA and the States implement the CSO Control Policy through the
    National Pollutant Discharge Elimination System (NPDES) permits
    program. Forty-five States have been authorized to implement the NPDES
    program. In a limited number of States, EPA is the NPDES authority.
    When the State is the permitting authority, EPA provides appropriate
    oversight in accordance with NPDES program requirements. Through NPDES
    permits or other enforceable mechanisms issued by NPDES authorities,
    communities with CSOs are required to implement the nine minimum
    controls identified in the CSO policy and to develop and implement
    long-term CSO control plans (LTCPs) to meet Clean Water Act
    requirements and to achieve compliance with applicable State water
    quality standards.
        Based on data from the 2000 Clean Watershed Needs Survey, the
    estimated total capital cost for CSO control is $50.6 billion, an
    increase of $1.0 billion from the estimated cost in the 1996 Clean
    Water Needs Survey. This estimate is based on the level of control
    presented under the ``presumption approach'' delineated in the 1994 CSO
    Control Policy (capture for treatment of 85 percent of wet weather
    flows entering the combined sewer system). Improved costs estimates
    will be available as more communities develop LTCPs.

                                      MTBE

        Question. MTBE and ethanol are used to meet Clean Air Act
    requirements that reformulated gas, sold in the Nation's worst ozone
    attainment areas, contain at least 2 percent oxygen to improve
    combustion. Recently, MTBE leaks have been implicated in many instances
    of ground water contamination. As a result, some 17 States have taken
    steps to ban or regulate its use and a number of bills have been
    introduced to address these concerns. What is EPA's current position on
    the phase-out of MTBE?
        Answer. EPA supports the energy bill that is currently pending in
    Congress and which would call for a phase out of MTBE in gasoline.
    Because actions taken by individual States to control or ban the use of
    MTBE as a fuel additive are not uniform or coordinated, they can create
    concerns about fuel distribution. The provisions in the energy bill,
    however, would help to address this situation in several ways. The bill
    would: (1) maintain the air quality benefits of the clean fuel
    programs, such as RFG; (2) remove the 2 percent oxygenate requirement
    under the RFG program; (3) phase out the future use of MTBE across the
    Nation while allowing sufficient lead time for refiners and MTBE
    producers to switch production to other gasoline blend stocks; and, (4)
    implement a Renewable Fuels Standard that encourages positive life
    cycle renewability through the use of domestically produced renewable
    fuels through a national credit averaging and trading program.

               ENVIRONMENTAL ENFORCEMENT AND SECURITY ACT OF 2004

        Question. I plan to introduce the Environmental Enforcement and
    Security Act of 2004. This legislation is intended to address concerns
    raised by a recent EPA IG report, internal EPA reviews and numerous
    press reports that the EPA is straining to meet its environmental
    enforcement duties and its new post-9/11 homeland security
    responsibilities. In particular, the bill will authorize additional
    funds to add 50 new criminal enforcement special agents and 80 new
    homeland security special agents. The EPA also would be authorized to
    fund $100 million in grants for physical security measures to protect
    our Nation's water systems. Does EPA have other needs for legislative
    authority to help the agency meet its homeland security mission?
        Answer. The Office of Enforcement and Compliance Assurance's
    (OECA's) criminal enforcement program continues to be a high priority
    for the Agency. The Agency recognizes the increased demands relating to
    Homeland Security, and has provided the program with an additional 30
    FTE. The increased resources ensure that homeland security activities
    are not being conducted at the expense of traditional criminal
    enforcement. This commitment is carried forward into the Fiscal Year
    2005 President's Budget request.
        We believe we have the tools and resources needed to continue our
    important work in enforcing environmental laws. Further, the Agency is
    currently reviewing its responsibilities under HSPD-7 and HSPD-9, and
    investigating the need for additional legislative authority.

                                   SUPERFUND

        Question. What steps is EPA taking to ensure that more funds are
    going to clean-up as opposed to administrative functions?
        Answer. This past November, the Acting Deputy Administrator
    commissioned a short-term internal study of the Superfund program to
    identify opportunities to more efficiently deploy Superfund resources
    within EPA. To that end, EPA is reviewing how Superfund resources are
    currently being used and what is being accomplished with those
    resources. An important goal is to identify how more Superfund
    resources can be dedicated to remedial action constructions by
    improving the efficiency of the program. The report on the study's
    findings was made available in late April.
        In addition to this study, the EPA Office of the Inspector General
    (OIG) has initiated its evaluation of Superfund expenditures, as
    specified in the conference report which accompanies H.R. 2673
    (Consolidated Appropriations Act of 2004). Per the conference report,
    the OIG plans to make recommendations for options to increase resources
    directed to extramural cleanup while minimizing Superfund
    administrative costs. The OIG expects to complete its evaluation and
    respond to the House and Senate Appropriations Committees in December
    2004. The OIG's recommendations will be carefully considered and
    adopted as appropriate.

                     DRINKING WATER SRF AND CLEAN WATER SRF

        Question. Provide a State-by-State assessment of the use of the
    Drinking Water and Clean Water SRFs. Are all the funds in use and are
    the funds targeted to areas with the greatest need? Are there ways to
    improve utilization of these programs?
        Answer. The attached charts provide a state-by-state assessment of
    the use of the Drinking Water State Revolving Fund (DWSRF) and the
    Clean Water State Revolving Fund (CWSRF). Through June 2003, States
    have been awarded a total of $5.5 billion in capitalization grants for
    the Drinking Water SRF. Twenty-four States are utilizing their Drinking
    Water SRF funds at or above the national average of 79 percent. As of
    June 30, 2003, 93 percent of all funds available in the CWSRF are being
    used to finance needed projects.
        States must fund DWSRF projects in accordance with a ranking system
    that gives priority to projects needed for public health protection and
    compliance with the Safe Drinking Water Act (SDWA). Forty-two percent
    of the assistance provided has been specifically for projects to bring
    water systems into compliance with drinking water standards. Many of
    the other DWSRF loans are to assure that systems currently operating in
    compliance can maintain their operations in compliance with health
    based standards. EPA, the States, and its partners provide technical
    and financial assistance to small systems where there is a great need
    for infrastructure funding. For additional information and specifics,
    refer to http://www.epa.gov/safewater/smallsys/pdfs/tfa_sdws.pdf.
        Although the CWSRF places no statutory oversight requirement for
    allotment of funds within the States based on need, it requires that
    each State have a priority list that includes environmental and public
    health criteria. All publicly owned treatment works projects proposed
    for CWSRF financing must be on a State's priority list and Intended Use
    Plan, which are reviewed annually by our regional offices. EPA is
    committed to helping the States identify and fund their highest
    priority projects. In our oversight of the CWSRF program, EPA has had
    no indication that higher priority projects are being delayed in favor
    of lower priority projects. States do have the authority to fund
    projects anywhere on their priority lists and may bypass a project if
    it is not ready to proceed.
        States are the primary managers of the SRF programs. EPA works
    directly with the State programs to continue making incremental
    improvements in the implementation of the Drinking Water SRF program.
    EPA conducts regular trainings and conferences on DWSRF program
    management and facilitates State-to-State idea exchange through
    participation in the States/EPA SRF workgroup. EPA conducts annual
    reviews of every State program including management and staff level
    discussions on best practices for DWSRF program implementation. EPA
    works with the State programs to address long-term financial
    performance planning and assists the States with continuing refinement
    of program management to yield the greatest output of program results.
        To improve utilization of the CWSRF, EPA has encouraged States to
    voluntarily develop integrated planning and priority setting systems
    which are based on the States' water quality information. So far, 25
    States have adopted integrated planning priority setting systems that
    include nonpoint source and estuary projects. This integrated planning
    helps to ensure that funding goes to each State's highest environmental
    projects.

                                    ARSENIC

        Question. What is the extent of the cost and need for communities
    to reinvest in their water infrastructure in order to comply with EPA's
    revised arsenic standards?
        Answer. EPA estimates that of the 74,000 systems subject to the new
    arsenic maximum contaminant level, only 3,000 community water systems
    and 1,100 non-transient, non-community water systems will need to
    install treatment for compliance. The total national capital costs for
    treatment technology and infrastructure to meet the arsenic standard
    are estimated to be almost $900 million. Small systems make up the
    majority of the systems affected by the rule, but the majority of the
    capital costs will be incurred by larger systems that serve more than
    10,000 people.
        While the compliance date for the revised rule is January 2006,
    States can give eligible small systems (those serving fewer than 3,300
    people) up to the year 2015 (14 years after the rule was promulgated)
    to come into compliance. This authority will allow States sufficient
    time to allot portions of their Drinking Water Revolving Fund (DWSRF)
    over the next several years to systems adding arsenic removal
    treatment. A fact sheet on the EPA website describes how the DWSRF
    program can be used to fund capital projects needed to comply with the
    revised standard. The fact sheet can be found at website http://
    www.epa.gov/safewater/dwsrf/fund-arsenic.pdf.
        In October 2001, EPA committed $20 million to research more cost-
    effective solutions for removing arsenic from drinking water. One of
    the key components of this research program is demonstration testing
    that will be conducted at very small water systems. Under the first
    round of the demonstration testing, treatment technologies are being
    installed at 12 water systems throughout the country. For most of these
    sites, the selected technology was not available at the time the rule
    was promulgated, so these technologies may be more cost-effective than
    the technologies that were considered in the rule. The results of this
    research may reduce some of the infrastructure burden, especially for
    small systems.

                                   CARRYOVER

        Question. Please provide a list of all funds by program that EPA
    expects to carry over into fiscal year 2005.
        Answer. The chart below estimates the fiscal year 2005 carryover
    levels for EPA. The estimates are based on the most recent history of
    funds carried forward by the Agency.

                      FISCAL YEAR 2005 CARRYOVER ESTIMATES
                            [In thousands of dollars]
    ------------------------------------------------------------------------
                                                                 Estimated
                          Appropriation                          Carryover
    ------------------------------------------------------------------------
    Environmental Programs and Management...................         180,000
    Science and Technology..................................         250,000
    Inspector General.......................................          14,000
    Buildings and Facilities................................           6,000
    Leaking Underground Storage Tanks.......................           5,000
    Superfund...............................................          50,000
    Oil.....................................................               4
    Federal Insecticide, Fungicide and Rodenticide Act......             500
    State and Tribal Assistance Grants......................       1,400,000
    ------------------------------------------------------------------------

                        TOTAL MAXIMUM DAILY LOAD (TMDL)

        Question. What is the current status of the Total Maximum Daily
    Load requirements?
        Answer. States and EPA are accelerating implementation of the
    regulations, promulgated in 1985, as amended in 1992. States and EPA
    have now approved or established more than 10,000 TMDLs, approximately
    6,000 of them in the last 2 years in contrast to the less than 1,000
    TMDLs established prior to 1999. EPA continues to meet consent decree
    deadlines established in court orders covering 22 States. States and
    EPA also continue to work to improve the scientific rigor of the list
    of waters needing TMDLs, the quality of TMDLs, and to ensure that TMDLs
    are used to achieve water quality goals by incorporating them in
    watershed planning processes.
        To accomplish these goals EPA has issued guidance to improve the
    listing process. The guidance recommends that two separate statutory
    requirements (sections 303(d) and 305(b)) be addressed together to
    provide an integrated and comprehensive picture of the status of a
    State's water quality; the integrated report. The guidance also asks
    States to develop and make public their water quality assessment
    methodologies. The guidance clarifies that waters do not have to be
    listed as needing a TMDL if other programs designed to achieve water
    quality standards are in place and being implemented. EPA has also
    issued guidance for use of CWA Section 319 funding to ensure that funds
    are used to develop and implement watershed plans that incorporate
    completed TMDLs.

                         NONPOINT SOURCES OF POLLUTION

        Question. What is the current status of plans to control nonpoint
    source pollution? At what point do we expect States to have plans in
    place? What are the anticipated costs to implement these plans? What
    are anticipated costs to the various industries, such as mining,
    farming, agriculture and forestry, to implement adequate plans?
        Answer. Since 1990, all States have had approved nonpoint source
    management programs in place and have received annual appropriations of
    Section 319 funds to enable them to implement their programs. Of the
    $238 million appropriated by Congress in fiscal year 2004, States are
    using $100 million of these funds to develop and implement watershed-
    based plans to restore waters that have been impaired by nonpoint
    source pollution. EPA anticipates that each year States will develop
    several watershed-based plans. States will implement the plans by using
    Section 319 funds, USDA aid, other available Federal funds State funds,
    and other resources and authorities as needed to successfully address
    the water quality problems that exist in the watershed. It is
    anticipated that it will require a number of decades to develop and
    comprehensively implement plans for all watersheds.
        Each plan will be uniquely tailored to the nonpoint source problems
    that exist in the watershed for which the plan is being developed and
    implemented. Each watershed is different, often vastly different, from
    one another, and thus the water quality problems, solutions, and the
    costs of implementing those solutions will vary widely. In the ``Clean
    Watersheds Needs Survey 2000'' published by EPA in August 2003, EPA
    used two different estimating techniques to estimate total nonpoint
    source needs. These two estimates provided cumulative national nonpoint
    source needs of $13.8 billion and $21.5 billion. For a variety of
    reasons explained in that report, both of these figures are regarded as
    under-estimates due to the unavailability of adequate data to estimate
    the costs of controlling certain nonpoint source pollution categories.
                                     ______

                Questions Submitted by Senator Richard C. Shelby

                          ANNISTON, ALABAMA: CLEAN UP

        Question. Administrator Leavitt, on January 10, 2002 I sent a
    letter to your predecessor, Administrator Whitman expressing my concern
    about the PCB pollution in and around Anniston, Alabama and in April of
    2002 the VA-HUD Subcommittee held a hearing to address the issues that
    the citizens of Anniston, Alabama were facing with respect to the
    continued pollution and clean-up efforts.
        Since that time I have worked with the community, EPA and ATSDR to
    ensure that the residents of Anniston were cared for, that the clean-up
    of their community was a priority and that the Federal Government did
    not obviate big business from its obligations to the current citizens
    of Anniston and to the future generations who will want to call
    Anniston home.
        Today, I am still concerned about the citizens of Anniston and the
    pollution that we continue to discover. Widespread PCB contamination
    remains a constant concern and since we began testing, we now
    understand that lead contamination is a significant problem in the
    greater Anniston area as well. It seems as if Anniston was a virtual
    dumping ground for all sorts of industrial pollution.
        I believe that this situation is unacceptable and today my question
    is the same that it was in April of 2002 when I first asked it--what is
    the Federal Government doing to clean up this mess and who is being
    held accountable?
        Answer. EPA continues to be actively involved in cleanup activities
    in Anniston for both polychlorinated biphenyl (PCB) and lead
    contamination.
        In March of 2002, EPA filed a complaint against Solutia, Inc. and
    Pharmacia Corporation in Federal District Court and lodged a Consent
    Decree partially settling that complaint. The Consent Decree was
    entered as an Order of the Court on August 4, 2003. The Consent Decree
    requires the Potentially Responsible Parties (PRPs), under EPA
    oversight, to conduct cleanups of residential properties and perform a
    study to determine the full nature and extent of contamination and to
    evaluate remediation alternatives at the entire Anniston PCB Site.
        Residential properties with greater than one part per million of
    PCBs are required to be cleaned up pursuant to the Consent Decree. To
    date, the PRPs, with EPA oversight, have cleaned up 27 properties in
    this condition. The work at 130 properties known to be in need of
    cleanup is progressing steadily. Additional properties will be
    identified as sampling progresses.
        Although residential cleanups will address a major source of
    exposure to the citizens, more comprehensive studies of contamination
    in the Anniston area are needed. The study to determine the nature and
    extent of contamination and to evaluate alternatives for cleanup is the
    Remedial Investigation/Feasibility Study (RI/FS). This study is
    underway. In planning the study, EPA is seeking input from all Federal
    and State stakeholders, including environmental agencies, public health
    agencies, and natural resource trustees.
        EPA has also discovered a significant number of residential
    properties contaminated with lead above acceptable levels for
    residential use. EPA has been cleaning up these properties on a time
    critical basis as they are identified through ongoing sampling and as
    resources and time permit. To date, EPA has cleaned up 86 residential
    properties contaminated with lead. An additional 206 properties
    contaminated with lead have already been identified and are awaiting
    cleanup. Enforcement efforts to identify PRPs for the lead
    contamination are underway. In the past, Anniston was a major center of
    operations for soil pipe foundries, as well as a number of other
    industries which may have contributed to widespread lead contamination
    in the area.
        Question. Administrator Leavitt, I am most interested in the
    progress that has been made to mitigate the pollution to date?
        Answer. To date, the Potentially Responsible Parties (PRPs), with
    EPA oversight, have cleaned up 27 properties contaminated with PCBs.
    The cleanup of 130 properties known to be in need of cleanup is
    progressing steadily. Additional properties will be identified as
    sampling progresses. In addition, a Remedial Investigation/Feasibility
    Study is underway to determine the full nature and extent of
    contamination and to develop cleanup alternatives for consideration.
    Experts at EPA are working with other Federal agencies (Department of
    Interior, ATSDR) and our counterparts in the State of Alabama (Alabama
    Department of Environmental Management, the Department of Conservation
    and Natural Resources, Geological Survey of Alabama), as well as
    interested member of the community, to ensure that the study satisfies
    the needs of all stakeholders.
        In addition, EPA has cleaned up 86 residential properties
    contaminated with lead. An additional 206 properties contaminated with
    lead have already been identified and are awaiting cleanup. Enforcement
    efforts to identify PRPs for the lead contamination are underway. In
    the past, Anniston was a major center of operations for soil pipe
    foundries, as well as a number of other industries which may have
    contributed to widespread lead contamination in the area.
        Question. One of the concerns originally expressed by the citizens
    of Anniston was the involvement of Monsanto in the testing and clean-up
    efforts. If I recall correctly, EPA was to handle, or shall I say
    oversee, the testing being conducted. I am interested to know
    specifically what EPA's involvement has been to date, what the current
    cost estimate of clean-up is, and how long EPA anticipates the cleanup
    will take.
        Answer. Under the Consent Decree, the Potentially Responsible
    Parties (PRPs) provide cleanup related documents, such as sampling
    plans, to EPA for review, comment, and approval. Additionally, EPA and/
    or its contractors accompany and oversee the PRPs during sampling and
    cleanup work.
        To date, the PRPs, with EPA oversight, have cleaned up 27
    residential properties contaminated with PCBs. The cleanup of an
    additional 130 residential properties known to be in need of cleanup is
    progressing steadily. Additional properties will be identified as
    sampling progresses. It is EPA's understanding that it costs
    approximately $30,000 to clean up each contaminated residence. Until
    all residences needing cleanup are identified, total costs and time
    required to complete the cleanup cannot be accurately estimated.
        To date, EPA has cleaned up 86 residential properties contaminated
    with lead. An additional 206 properties contaminated with lead have
    already been identified and are awaiting cleanup. Presently, it costs
    approximately $30,000 to clean up each residence. This is similar to
    the PCB cleanups primarily because the cleanup consists of the same
    solution; removal of contaminated soil and replacement with clean fill.
    Until all residences needing cleanup are identified, total costs and
    time required to complete the cleanup cannot be accurately estimated.
        EPA is still in the process of determining the extent of
    contamination and the time required to address the contamination. The
    study to determine the nature and extent of contamination is called a
    Remedial Investigation/Feasibility Study (RI/FS). Based upon the
    complexity and scope of the RI/FS which includes approximately 40 miles
    of creeks and waterways, the complete RI/FS may take 2 to 4 years to
    complete. It is presently envisioned that the RI/FS will be broken into
    sub-units called operable units. The RI/FS for some operable units will
    be completed within 2 years, while others will take longer to complete.
        When the RI/FS for each operable unit is complete, a remedy will be
    proposed for public comment. EPA will compile and respond to all public
    comments. After consideration of public comments, EPA will finalize the
    remedy in a Record of Decision. It will then be necessary to negotiate
    a cleanup agreement with the PRPs. Once the cleanup agreement is
    approved in Federal District Court, the remedy can be implemented. The
    total time required to complete cleanup activities in Anniston will
    depend on the remedies selected.

                      ANNISTON, ALABAMA: PCB CONTAMINATION

        Question. Following the acknowledgment that PCB contamination in
    Anniston, Alabama was a serious problem that must be addressed,
    Congress included funding for the Agency for Toxic Substances and
    Disease Registry (ATSDR) to conduct a study to determine the extent of
    the problem. Last year, ATSDR found that exposure to PCBs in Anniston
    posed a serious public health hazard. They recommended that sampling of
    properties for PCB contamination continue and that rapid clean-up
    efforts be continued.
        Administrator Leavitt, has the EPA taken action on these
    recommendations? If so, what actions have been taken and what is EPA's
    anticipated timeline for further activity? If not, why not?
        Answer. EPA is taking action on ATSDR's recommendations. Pursuant
    to the Consent Decree, the Potentially Responsible Parties (PRPs) are
    cleaning up properties known to be in need of cleanup on an expedited
    basis and are continuing to sample in an effort to identify additional
    properties for cleanup. EPA consults with ATSDR throughout the Remedial
    Investigation/Feasibility Study (RI/FS) process. EPA will provide ATSDR
    copies of all data collected in every media (air, soil, groundwater,
    sediment, surface water, and biota). EPA will work closely with ATSDR
    to get input on the most appropriate remedies to protect public health.

                            ANNISTON, ALABAMA: LEAD

        Question. As I mentioned earlier, lead is another pollutant that
    has been discovered since testing began in Anniston and surrounding
    communities. What, if anything, is EPA doing to address the lead
    problem in Anniston and how does it fit into the larger clean-up
    efforts currently underway?
        Finally, I want to acknowledge that the ATSDR is in the process of
    conducting a multi-faceted health study spanning nearly 3 years. I hope
    that the EPA will work with ATSDR to ensure that conclusions and
    recommendations from this or any other studies are quickly and
    effectively put into action.
        Answer. EPA has also discovered a significant number of residential
    properties contaminated with lead above acceptable levels for
    residential use. EPA has been cleaning these properties up on a time
    critical basis as they are identified through ongoing sampling and as
    resources and time permit. To date, EPA has cleaned up 86 residential
    properties contaminated with lead. An additional 206 properties
    contaminated with lead have already been identified and are awaiting
    cleanup. There has been some overlap between the Anniston PCB Site and
    the Anniston Lead Site. Presently, there are a significant number of
    properties which have both PCB and lead contamination.
        Enforcement efforts to identify potentially responsible parties for
    the lead contamination are underway. In the past, Anniston was a major
    center of operations for soil pipe foundries, as well as a number of
    other industries which may have contributed to widespread lead
    contamination in the area.
        As in the past, EPA will continue to work with ATSDR to ensure that
    required steps are implemented as quickly and effectively as possible.
    EPA is aware that ATSDR is working through Jacksonville State
    University (JSU) in Alabama to develop an area wide exposure registry.
    EPA is also sharing sampling data directly with the JSU.
                                     ______

                   Questions Submitted by Senator Larry Craig

                                ARSENIC STANDARD

        Question. Administrator Leavitt, given that compliance with the new
    arsenic drinking water standard will financially cripple many towns and
    small communities in the Intermountain West, what is EPA doing in the
    following three areas:
      --Research into technologies to reduce the cost of compliance?
      --Financial assistance to come into compliance? and
      --Approval of requests to delay the date of compliance or provide
            other regulatory relief?
        Answer. EPA has undertaken a number of activities to reduce the
    burden of the arsenic rule on small systems. EPA is helping States,
    Tribes, and systems prepare for implementation of the arsenic rule by
    providing training and technical assistance on State and Tribal
    requirements, treatment technologies, waste disposal, and EPA's small
    system compliance strategy.
        The State can use authority provided by the Safe Drinking Water Act
    to phase in the arsenic rule over time. This authority will allow
    States sufficient time to allot portions of their Drinking Water
    Revolving Fund (DWSRF) over the next several years to systems adding
    arsenic removal treatment. States can give eligible small systems
    (those serving fewer than 3,300 people) up to the year 2015 to come
    into compliance (14 years after the rule was promulgated). States are
    currently working with EPA on addressing several arsenic compliance
    exemption requests. For example, Idaho's fiscal year 2004 Intended Use
    Plan for the DWSRF showed that the State has $23 million available to
    provide in drinking water assistance and will receive an additional
    $8.3 from the fiscal year 2004 allotment.
        Pursuant to a Memorandum of Agreement signed in 2002, EPA is also
    working with the Rural Utilities Service (RUS) of the Department of
    Agriculture to target grants and loans for small communities for
    projects that address arsenic-related treatment upgrades. In fiscal
    year 2003, 759 water projects were funded by the RUS, which used $769
    million of the Water and Environment Program funds.
        The Agency has made a significant investment in small system
    treatment technologies by allocating $20 million to fund: (1) the
    development of small system treatment technologies, (2) small business
    grants for arsenic treatment research, and (3) the development of
    specific guidance to help systems choose, operate, and maintain
    appropriate technologies. Treatment Technology Demonstration projects
    are taking place in 8 States (Listed below). One project is in the
    state of Idaho. Additional demonstrations will be selected this year.
        The Agency has established a comprehensive research effort to
    identify new low cost arsenic treatment technologies, document their
    cost when compared to more traditional technologies and test and
    document their effectiveness. This research program consists of five
    elements:
      --Small Business Innovation Research (SBIR) and Science to Achieve
            Results (STAR).--Through this effort, the Agency has supported
            small business development of innovative arsenic removal
            technologies that could significantly reduce costs for small
            communities and grants to academic and non-profit institutions
            to perform exploratory research on arsenic treatment
            technologies.
      --Treatment Technology Demonstrations.--The Agency has initiated the
            full-scale demonstration of commercially ready arsenic
            treatment technologies at selected small water systems across
            the Nation. Twelve sites were selected for round one of the
            demonstration program and 32 additional demonstration sites are
            currently being considered under round two of the program. The
            Agency has assured that the demonstration sites are distributed
            in areas facing high arsenic levels across the Nation including
            the Intermountain West.
      --Environmental Technology Verification (ETV).--Under the Agency's
            Environmental Technology Verification Program, four
            commercially ready arsenic treatment technologies have been
            verified: (1) Hydranautics-Reverse Osmosis Membrane Element
            Module, (2) Kinetico, Inc.--Macrolite Coagulation and
            Filtration System, (3) Koch Membrane Systems--Reverse Osmosis
            Membrance Module, (4) Watermark Technologies, Coagulation and
            Filtration System. Two other adsorptive treatment technologies
            are currently being tested under this short-term testing
            program.
      --Enhanced Internal Research.--Through its in-house research program,
            the Agency is exploring new methods to identify and predict the
            occurrence of areas with high arsenic levels in ground water.
            Research studies are being conducted in Maine and Oklahoma. The
            goal of this research is to provide tools and information to
            assist communities in sighting new ground water sources in
            areas with low arsenic and to possibly re-engineer existing
            wells, thereby reducing compliance costs by avoiding the need
            for new add-on treatment.
      --Training and Technical Assistance.--As research program results are
            available, Agency scientists and engineers provide information
            to technical groups, water operators, water systems and others.
        Detailed information on the research program is available at
    www.epa.gov/ORD/NRMRL/arsenic. In addition, as directed by the
    Congressional Appropriations Committee the Agency is completing a
    report on the status of the Arsenic research program. Also, under the
    Government Performance and Results Act, the Agency will be completing
    two key reports on cost and performance of full-scale arsenic treatment
    technology demonstrations this fiscal year.

                             DEMONSTRATION PROJECTS
    ------------------------------------------------------------------------
                                                      Technology To Be
                       Site                             Demonstrated
    ------------------------------------------------------------------------
    Rimrock, AZ...............................  AdEdge Iron Media
    Valley Vista, AZ..........................  Kinetico Activated Alumina
    City of Fruitland, Fruitland, ID..........  Kinetico Ion Exchange
    Queen Anne's County, Stevensville, MD.....  Severn Trent Iron Media
    Brown City, Brown City, MI................  Severn Trent Iron Media
    Town of Climax, Climax, MN................  Kinetico Oxidation/Co-
                                                 Precipitation/Filtration
    City of Lidgerwood, Lidgerwood, ND........  Kinetico Modified Treatment
    Holiday Acres Water & Wastewater Service,   ADI Iron Adsorption/
     Allenstown, NH.                             Regeneration
    Rollinsford Water & Sewer District,         AdEdge Iron Media
     Rollinsford, NH.
    Desert Sands Mutual Domestic Water          Severn Trent Iron Media
     Consumers Association, Inc., Anthony,  NM.
    Nambe Pueblo, NM..........................  AdEdge Iron Media
    South Truckee Meadows GID, Washoe County    US Filter Iron Media
     Water Resources, Reno, NV.
    ------------------------------------------------------------------------

                        OMBUDSMAN REVIEW OF BUNKER HILL

        Question. Today, the EPA Ombudsman released its review of EPA's
    activities at the Bunker Hill Site in Idaho.
        Do you have a reaction to the Ombudsman's findings and could you
    provide a schedule for providing your response to the recommendations,
    and when any corrective actions will be implemented?
        Answer. EPA is in general agreement with the Ombudsman's findings.
    The report contained recommendations for EPA regarding dissemination of
    information on the site, the Basin Commission, and the Lake Coeur
    d'Alene Management Plan. EPA has 90 days from the report date (March
    24, 2004) to provide a written response to the report recommendations.
    We will provide a response to the specific recommendations before June
    23, 2004. We have already started to implement the report
    recommendations and expect to act on all of the recommendations by June
    2004.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                               ARSENIC STANDARDS

        Question. Mr. Leavitt, as you are aware, new EPA arsenic Federal
    drinking water regulations will take effect in 2006. The EPA estimates
    that roughly 97 percent of the systems expected to exceed the standard
    are small systems, those serving 10,000 people or less.
        The new standard is estimated to cost small communities $600
    million annually and require $5 billion in capital outlays. For some
    households, necessary infrastructure upgrades will raise water prices
    to over $100 per month.
        These small communities lack the economies of scale present in
    larger communities and are less able to spread out costs. Furthermore,
    small and rural communities have lower than median incomes. These two
    factors result in a greater per capita cost of compliance coupled with
    a decreased ability to pay for the improvements. Mr. Leavitt,
    implementing the impending EPA arsenic regulation will cause great
    financial hardship to our small and rural communities.
        Mr. Leavitt, many citizens of my home State of New Mexico live in
    rural areas and have lower than average incomes. As such, the burden
    complying with these standards is great. Implementing the new standards
    will cost rural New Mexicans between $370 and $440 million in capital
    outlays plus $18 million per year in operating costs.
        What plans does the EPA have to help small and rural communities
    pay for the billion of dollars in upgrades necessary to comply with the
    arsenic standards?
        Answer. EPA understands that many communities will face a challenge
    in carrying out the new arsenic standard. The Agency has a number of
    activities underway to provide financial, technical and compliance
    assistance and to identify new technologies that may serve to be more
    affordable for small systems.
        EPA estimates that of the 74,000 systems subject to the new arsenic
    maximum contaminant level, only 3,000 community water systems and 1,100
    non-transient, non-community water systems will need to install
    treatment for compliance. The total national capital costs for
    treatment technology and infrastructure to meet the arsenic standard
    are estimated to be almost $900 million. Small systems make up the
    majority of the systems impacted by the rule, but the majority of the
    capital costs will be incurred by larger systems that serve more than
    10,000 people.
        EPA's Drinking Water State Revolving Fund (DWSRF) program will play
    an important role in helping many systems install treatment needed to
    protect the health of their customers. State DWSRF programs are
    currently providing more than $1.2 billion per year using annual
    appropriations of $850 million, bond proceeds, repayments and
    additional funds. More than 40 percent of the funding and 75 percent of
    the loan agreements are going to small systems that serve fewer than
    10,000. The low-interest loans and disadvantaged assistance provided
    through the program will prove critical in helping States address needy
    communities. Some States, like Arizona, are already beginning to fund
    projects for arsenic. Close to one-half of the top 30 projects on the
    State's priority funding list for 2004 address arsenic treatment.
    Pursuant to a Memorandum of Agreement signed in 2002, EPA is also
    working with the Rural Utilities Service (RUS) of the Department of
    Agriculture to target grants and loans for small communities for
    projects that address arsenic-related treatment upgrades.
        States can use authority provided by the Safe Drinking Water Act to
    phase in the arsenic rule over time. This authority will allow States
    sufficient time to provide DWSRF assistance over the next several years
    to systems adding arsenic removal treatment. States can give eligible
    small systems (those serving fewer than 3,300 people) up to the year
    2015 (14 years after the rule was promulgated) to come into compliance.
        The Agency has made a significant investment in small system
    treatment technologies by allocating $20 million to fund: (1) the
    development of small system treatment technologies, (2) small business
    grants for arsenic treatment research, and (3) the development of
    specific guidance to help systems choose, operate, and maintain
    appropriate technologies. Treatment Technology demonstration projects
    are taking place in 9 States (listed below). Two sites in New Mexico
    were chosen: Desert Sands MDWCA in Anthony, New Mexico and the Tribal
    system at Pueblo of Nambe. Additional demonstrations will be selected
    this year. The table on the following page highlights some of the
    technologies being tested and their locations.
        Finally, EPA Region 6 is working through the University of New
    Mexico Environmental Finance Center to conduct pilot studies for
    arsenic removal at three small tribal New Mexico water systems. The
    technologies being tested, adsorbent media operated without pH
    adjustment or regeneration, require minimal operator training.

                   ARSENIC TREATMENT TECHNOLOGY DEMONSTRATIONS
    ------------------------------------------------------------------------
                                                      Technology To Be
                       Site                             Demonstrated
    ------------------------------------------------------------------------
    Rimrock, AZ...............................  AdEdge Iron Media
    Valley Vista, AZ..........................  Kinetico Activated Alumina
    City of Fruitland, Fruitland, ID..........  Kinetico Ion Exchange
    Queen Anne's County, Stevensville, MD.....  Severn Trent Iron Media
    Brown City, Brown City, MI................  Severn Trent Iron Media
    Town of Climax, Climax, MN................  Kinetico Oxidation/Co-
                                                 Precipitation/Filtration
    City of Lidgerwood, Lidgerwood, ND........  Kinetico Modified Treatment
    Holiday Acres Water & Wastewater Service,   ADI Iron Adsorption/
     Allenstown, NH.                             Regeneration
    Rollinsford Water & Sewer District,         AdEdge Iron Media
     Rollinsford, NH.
    Desert Sands Mutual Domestic Water          Severn Trent Iron Media
     Consumers Association, Inc., Anthony,  NM.
    Nambe Pueblo, NM..........................  AdEdge Iron Media
    South Truckee Meadows GID Washoe County     US Filter Iron Media
     Water Resources, Reno, NV.
    ------------------------------------------------------------------------

        Question. Last year, the Federal Government appropriated over $2.6
    billion for water infrastructure funding. Do you believe that the
    Federal Government should also provide funding to States and
    municipalities so that they can comply with EPA mandated arsenic
    standards?
        Answer. EPA has promoted use of the DWSRF program that, along with
    Federal funding, leverages much more investment to help States and
    communities comply with the arsenic standard and other recent rules. In
    fact, many States are beginning to fund arsenic-related projects in
    anticipation of the 2006 compliance deadline. The program has a fact
    sheet that highlights how it can be used to help systems comply with
    the revised standard (http://www.epa.gov/safewater/dwsrf/fund-
    arsenic.pdf).
        The Agency has also made a significant investment in small system
    treatment technologies by allocating $20 million to fund: (1) the
    development of small system treatment technologies, (2) small business
    grants for arsenic treatment research, and (3) the development of
    specific guidance to help systems choose, operate, and maintain
    appropriate technologies. Treatment Technology demonstration projects
    are taking place in 9 States (listed below). Two of the projects are in
    the State of New Mexico. Additional demonstrations will be selected
    this year.

                             DEMONSTRATION PROJECTS
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Rimrock, AZ...............................  AdEdge Iron Media
    Valley Vista, AZ..........................  Kinetico Activated Alumina
    City of Fruitland, Fruitland, ID..........  Kinetico Ion Exchange
    Queen Anne's County, Stevensville, MD.....  Severn Trent Iron Media
    Brown City, Brown City, MI................  Severn Trent Iron Media
    Town of Climax, Climax, MN................  Kinetico Oxidation/Co-
                                                 Precipitation/Filtration
    City of Lidgerwood, Lidgerwood, ND........  Kinetico Modified Treatment
    Holiday Acres Water & Wastewater Service,   ADI Iron Adsorption/
     Allenstown, NH.                             Regeneration
    Rollinsford Water & Sewer District,         AdEdge Iron Media
     Rollinsford, NH.
    Desert Sands Mutual Domestic Water          Severn Trent Iron Media
     Consumers Association, Inc., Anthony,  NM.
    Nambe Pueblo, NM..........................  AdEdge Iron Media
    South Truckee Meadows GID Washoe County     US Filter Iron Media
     Water Resources, Reno, NV.
    ------------------------------------------------------------------------

                            SAFE DRINKING WATER ACT

        Question. As with arsenic, small and rural communities will soon be
    required to meet Safe Drinking Water Act minimum standards for other
    contaminants. EPA promulgated minimum parts per billion (ppb) standards
    for other contaminants such as uranium, perchlorate, radon, and MTBE
    which will also be very costly to small and rural communities are just
    down the pike.
        The financial hardship borne by small communities in implementing
    the arsenic and other EPA standards will be significant. Operators of
    many rural water systems with whom I have spoken said they will not be
    able to afford these costly upgrades.
        Do you anticipate having a widely accepted and scientifically sound
    review which will justify the expenditure of billions of dollars by
    small communities before promulgating new minimum standards?
        Answer. EPA understands the challenges that small and rural
    communities face in implementing new drinking water regulations needed
    to protect public health. The 1996 Amendments to the Safe Drinking
    Water Act (SDWA) anticipated the challenge water systems would face to
    implement revised public health standards, and created a suite of
    tools, including the Drinking Water State Revolving Fund (DWSRF), to
    help systems successfully meet these challenges. Other available tools
    include varying compliance time frames through technical assistance,
    and funding through the Rural Utilities Service (RUS) of the U.S.
    Department of Agriculture. Together, the State DWSRF programs and RUS
    provide more than $2 billion to public water systems for capital
    improvements and infrastructure needs. We will use these and other
    tools to help mitigate and minimize impacts that new standards may have
    on small communities.
        With respect to the specific regulations referenced in your
    question, EPA promulgated National Primary Drinking Water Regulations
    for uranium in 2000, and arsenic in 2001. EPA has not promulgated final
    standards for radon, nor has the Agency made the determination that a
    regulation is appropriate for perchlorate or MTBE.
        Before the Agency develops a standard to limit the amount of a
    substance in public drinking water systems, EPA is required by the SDWA
    to make specific determinations about the contaminant in drinking
    water. First, EPA must determine that it occurs at both a frequency and
    level which represents a public health concern, and second, that
    regulating the contaminant represents a ``meaningful opportunity for
    health risk reduction'' for persons served by public water systems.
    Once a determination is made to regulate a contaminant, EPA develops a
    regulation using the best available, peer reviewed science in
    accordance with sound and objective scientific practices. Both the
    scientific and economic analyses underlying the rule undergo a thorough
    review.
        Stakeholder involvement and understanding is a key component of the
    regulatory development process. In addition to providing the
    opportunity for public comment in the Federal Register, the Agency
    holds stakeholder meetings to discuss EPA's plans and progress and
    makes draft documents available for comment. This includes obtaining
    stakeholder input on costs and benefits for any rule being developed.
    EPA often consults with the experts through formal and informal expert
    review processes and considers comments from these groups in the
    preparation of the final documents. In addition, major scientific work
    products supporting EPA's rules receive formal peer review to ensure
    that they are scientifically sound.
        Question. Do you believe that the Federal Government should also
    provide funding to States and municipalities so that they can comply
    with any additional drinking water standards promulgated by the EPA?
        Answer. Congress appropriated $845 million (incorporates the
    Omnibus Appropriation's 0.59 percent rescission across all budget line
    items) for the DWSRF program in the fiscal year 2004 budget. The DWSRF
    is the primary vehicle by which EPA helps States address water system
    infrastructure upgrades that are needed to protect public health and
    ensure compliance with the Safe Drinking Water Act (SDWA). Through the
    auspices of the States, the program is focused on providing low-
    interest assistance and, where appropriate, additional subsidies to
    disadvantaged communities for high priority projects. Through fiscal
    year 2003, EPA has awarded over $5.5 billion to States for needed
    drinking water system projects and, as previously mentioned, in fiscal
    year 2004, Congress appropriated $845 million for the DWSRF. The
    administration recognizes the critical role that the DWSRF plays in
    water infrastructure investment and has committed to fund the program
    at a level of $850 million annually through 2018. States are also
    coordinating funding with the Rural Utilities Service of the U.S.
    Department of Agriculture to address the special needs of smaller
    communities.
        EPA has promoted use of the DWSRF program to address new and
    existing drinking water standards. The program's website includes fact
    sheets that explain how the DWSRF can be used to address projects
    needed to comply with recent rules including the Stage 1 Disinfectants
    and Disinfection Byproducts, Long Term 1 Enhanced Surface Water
    Treatment, Arsenic and Radionuclides Rules (see http://www.epa.gov/
    safewater/dwsrf.html).

                           WATER INFRASTRUCTURE NEEDS

        Question. In many communities along the U.S.-Mexico border, the
    water infrastructure needs have reached critical levels. Rapid and
    dense population growth along the border without the installation of
    adequate water and sewage systems has resulted in contamination of
    drinking water and sewage spewing down city streets. The people
    populating these border communities are truly living in squalor.
        In order to address the chronic environmental infrastructure
    deficit that exists along the border region, Congress established the
    Border Environment Infrastructure Fund. This fund ensures that border
    communities have access to a safe and reliable water supply and do not
    face the health dangers associated with human waste.
        In recent years, funding for this program has decreased
    significantly. This has resulted in an inability of border communities
    to meet their water infrastructure needs.
        Do you believe that the Federal Government should provide our
    border communities with funding for critical water infrastructure
    through the continued funding of the U.S.-Mexico Border Infrastructure
    Program?
        Answer. The Agency's fiscal year 2005 budget request of $50 million
    reflects our continued commitment to providing funding for critical
    water and wastewater infrastructure projects along the U.S.-Mexico
    Border. This request will allow continuation of EPA participation in
    border infrastructure funding through fiscal year 2005 at roughly the
    current pace. As of fiscal year 2004, Congress has appropriated over
    $700 million to the U.S.-Mexico Border program. Projects that are
    currently under construction or are operational have a total value of
    over $1.4 billion.
                                     ______

                Questions Submitted by Senator Patrick J. Leahy

                           MERCURY RULE REQUIREMENTS

        Question. The administration has repeatedly asserted that the
    reason they have retreated from a more aggressive mercury regulation
    that is inline with the Clean Air Act MACT requirements is that the
    technology is not available to reduce mercury emissions further. This
    contradicts recent industry reports and statements where they say the
    opposite is true. Last year, the American Coal Council's magazine
    included an article talking about the effectiveness of existing
    technology in reducing mercury emissions. An industry representative
    testified before the House Energy and Commerce Committee last year that
    these technologies show ``promising results.'' The fact is that tests
    already have shown we can reach a 90 percent reduction. We can also do
    it much more quickly than the administration's proposal requires. A
    recent report in the Washington Post quotes industry experts as saying
    that there could be industry-wide application of new technologies by
    2009. Please explain why the administration chose a longer timeline.
        Answer. The Clean Air Act requires emissions limitations based on
    the average achieved by the best performing 12 percent of existing
    sources. Further, the U.S. Environmental Protection Agency (EPA) does
    not believe that electric utility, coal, and pollution control industry
    statements contradict its view that advanced mercury control
    technologies are not yet ready for commercialization. The EPA agrees
    with industry that these new technologies show great promise, but are
    not, and will not be, available within a 3- to 4-year time-frame. Our
    belief is based on the following points:
      --To date, there have been four full-scale field tests on activated
            carbon injection (ACI), the most promising mercury-specific
            control technology on the near-term horizon. These tests have
            been conducted on three bituminous-fired units and one
            subbituminous-fired unit. The longest period of continuous ACI
            operation was conducted for a 9-day period at one unit and for
            4- to 5-day periods at the other three units. The short
            duration of continuous ACI operation at this limited number of
            units is insufficient to conclude that ACI technology can be
            used to comply with a national standard that requires
            continuous compliance for the remainder of the life of the
            unit.
      --The initial four tests provided information that ACI could be
            effective on both Eastern bituminous coals and Western sub-
            bituminous coals for short periods of time, with removal
            ranging from 70 percent for Western coals to 90 percent for
            Eastern bituminous coals. To provide additional, longer-term
            information on ACI performance, the DOE has contracted with
            ALSTOM and ADA-ES (the ACI technology firm with the most
            current experience in the field) to conduct ACI tests on four
            additional coal-fired power plants over a 3-year period for
            longer duration tests. The testing will provide a better
            understanding of the performance capabilities of power plants
            that could be impacted by the pending regulations by addressing
            questions remaining following the four initial tests, such as
            the effectiveness of the technology on other coal/boiler/
            activated powdered carbon combinations, the capture of
            activated carbon in small and moderate size electrostatic
            precipitators (ESP), integrated performance with flue gas
            desulfurization (FGD), mercury removal on sub-bituminous coals
            with dry scrubbers, process and equipment costs for various
            levels of mercury removal, plant impacts such as by-product
            contamination, and the relationship between chlorine content
            and mercury removal levels.
      --One long-term ACI test was initiated in April 2003 on a bituminous-
            fired unit. This test was to evaluate the mercury removal
            efficiency of ACI over a period of several months to 1 year,
            further assess the impact of ACI on balance-of-plan operations
            (i.e., how will ACI impact maintenance frequency and costs, ash
            disposal and utilization, internal plant energy use, etc.), and
            provide additional information on design characteristics and
            costs of ACI technology for other installations. Because of
            problems encountered, this test has not been completed and thus
            the final results are not known. However, it is our
            understanding that this test has shown the ability of ACI, when
            used at a bituminous-fired unit, to average 86 percent mercury
            removal over an extended period of time but has highlighted
            design problems that must be corrected prior to full scale
            installation on other units.
      --Additional ACI testing has been conducted on less than full-scale
            operations at a limited number of other sites. However, these
            tests were also of short duration and provide little additional
            information on how ACI will perform on a long-term continuous
            basis.
      --To date, no ACI testing has been conducted on a coal-fired unit
            equipped with a wet FGD system for sulfur dioxide removal. Wet
            FGD systems are currently installed on approximately 13 percent
            of the coal-fired units in the United States; this percentage
            will increase as units are brought into compliance with the
            proposed Clean Air Interstate Rule (previously called the
            Interstate Air Quality Rule). As it is impractical to install
            ACI downstream of the wet FGD (because of the saturated flue
            gas stream), such installations would have to be installed
            upstream, where existing ESP units are now placed. It is not
            known what impact ACI will have on the operation of the wet
            FGD. (For example, no particulate control device is 100 percent
            efficient; therefore, it is likely that some activated carbon
            will enter the wet FGD system.) Tests are currently on-going on
            ACI on a wet-FGD equipped unit firing medium-sulfur bituminous
            coal with another test planned for spring 2005 on a unit firing
            high-sulfur bituminous coal.
      --On April 21, 2004, the U.S. Department of Energy (DOE) made a joint
            announcement with WE Energies about the initiation of a joint
            venture aimed at demonstrating technology that will achieve a
            90 percent reduction in mercury emissions from coal-based power
            plants. This 5-year project will involve the design,
            installation, operation, and evaluation of an integrated system
            on one coal-fired power plant to control emissions of mercury,
            particulate matter, sulfur dioxide, and nitrogen oxides.
      --The electric utility industry reportedly has had trouble obtaining
            solid, guaranteed quotes for ACI installation on coal-fired
            units. We have heard from a number of utility companies
            indicating that they have tried without success to get bids on,
            and guarantees for, ACI installations. To date, we are aware of
            only one permit, other than a federally co-funded program (on a
            unit to commence operation in 2007 and burn low-sulfur Western
            coal), that has been issued that included ACI technology
            (MidAmerican Energy Station permit issued by the Iowa
            Department of Natural Resources). The lack of additional
            examples is indicative of the lack of industry confidence in
            guaranteeing permit levels at this time.
        Thus, we conclude that 90 percent emissions reduction is not yet
    achievable on a long-term basis for all coal types, and ACI is not
    ready for wide-spread commercial installation on coal-fired electric
    utility units in a shorter time-frame than the EPA has outlined in its
    proposed regulations. We anticipate that our regulations will serve as
    a driver to ensure that ACI (and/or other hybrid sorbent technologies)
    is developed in a more timely manner than would otherwise be the case.
        Question. Also, please provide the EPA analysis that was conducted
    to determine reduction targets over the timeframe in the proposed rule
    and detail what additional analysis the Agency will do before
    finalizing the rule this year.
        Answer. As part of the analysis for the proposed rule EPA carefully
    studied the availability of various mercury-control technologies and
    the timeframe for achieving reduction targets. This analysis is
    documented in the proposed rule and can also be found at http://
    www.epa.gov/air/mercuryrule/. A detailed discussion of the Phase 1 and
    Phase 2 caps is given in proposed rule (See page 4698 and 4699 of
    Volume 69 of the Federal Register). The proposed rule reads:

        ``Our proposed 15 ton cap in 2018 is grounded largely in the
    modeling completed in support of the President's Clear Skies
    initiative. This modeling suggests that, assuming technologies such as
    ACI become available; such a cap will create an incentive for certain
    plants to install these newer technologies. It also suggests that such
    market-based controls should not have any significant impact on power
    availability, reliability, or pricing. Nor should a 15-ton cap cause
    any significant shift in the fuels currently utilized by power plants
    or in the source of these fuels. Sensitivity analyses indicate that a
    more stringent cap could have potentially significant impacts on fuels
    and/or power availability, reliability, or pricing. Less stringent caps
    do not appear warranted based on our expectations about technology
    development and our modeling analysis of the potential impacts of the
    15-ton cap.''

        This is an ongoing process and we will use the most current
    information available when working to finalize the Clean Air Mercury
    Rule, including a careful study of the information that we receive
    during the comment period for the proposed rule. Since we are still in
    the comment period, it would be premature to speculate on how new
    information received will affect our analysis prior to finalizing the
    rule in March 2005.
        Question. Recent reports from the Department of Energy estimate
    that the power industry proposes to build, and put into service by
    2010, at least 94 new coal-fired power plants across the United States.
    These power plants will generate enough energy to power 62 million
    homes, and add an additional 120 million cubic feet of emission gases.
    Based on the geographic distribution of these plants, there about 28
    plants situated in the midwest and northeast, the area from which most
    of Vermont's mercury air pollution blows in from. What requirements
    these plants will have to control mercury under the Clean Air Act and
    if any of the latest technologies--like activated carbon injection--
    will be used to control mercury emissions from these plants?
        Answer. In March 2005 EPA will issue a final regulation that will
    require reductions of mercury emissions from power plants either under
    Section 111 or Section 112 of the Clean Air Act. Depending on the part
    of the Clean Air Act chosen, the regulations will either take the form
    of a cap-and-trade program or a Maximum Achievable Control Technology
    (MACT) standard. EPA's preferred alternative is a cap-and-trade program
    under Section 111.
        One of the key advantages of a cap-and-trade program is that
    pollution is reduced even as the economy expands and new power plants
    are built. Traditional standards such as MACT standards require
    reductions in emissions at each power plant but not necessarily overall
    for a growing industry because the emissions from additional power
    plants exceed the reductions required at existing power plants. This is
    one reason why EPA prefers the cap-and-trade approach outlined in the
    proposed Clean Air Mercury Rule of 2004.
        Under either the MACT or the cap-and-trade approach EPA will not
    mandate particular technologies. The choice of technologies is best
    left to the regulated industry, provided they lead to the ultimate
    emissions reductions required by EPA. There are a number of promising
    technologies, such as activated carbon injection (ACI), which are being
    developed and tested. Based on current information it is projected that
    ACI technology will be adequately demonstrated and widely deployable
    sometime after 2010 and that removal levels in the 70 percent to 90
    percent range could be achievable. The regulated sector, not EPA, will
    make the final decision about what technologies are actually employed
    to achieve the emissions reductions that will be required.
        Question. Is the Agency preparing any new guidance for States that
    would limit their ability to require or even consider that new coal-
    fired power plants use the best available control technology, including
    advanced systems like Integrated Gasification Combined Cycle and
    fluidized-bed combustion?
        Answer. No, the Agency is not planning to prepare any additional
    guidance which would limit a State's ability to require or consider new
    coal-fired power plants use of the best available control technology.

                              SUBCOMMITTEE RECESS

        Senator Bond. We look forward to working with you on an
    ongoing basis, and we appreciate the cooperation that your
    staff has shown us in the past, and look forward to continuing
    to work with you in the future. The hearing is recessed.
        [Whereupon, at 11:44 a.m., Thursday, March 25, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                            THURSDAY, APRIL 1, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:05 a.m., in room SD-628, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                            Office of the Secretary

    STATEMENT OF ALPHONSO JACKSON, SECRETARY
    ACCOMPANIED BY:
            ROY A. BERNARDI, ASSISTANT SECRETARY, COMMUNITY PLANNING AND
                DEVELOPMENT
            MICHAEL LIU, ASSISTANT SECRETARY, PUBLIC AND INDIAN HOUSING
            JOHN WEICHER, ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING
                COMMISSIONER

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning. The Senate VA/HUD
    Appropriations Subcommittee hearing will come to order.
        We are looking forward to welcoming the newly confirmed,
    some 12 hours old, Secretary of HUD to be joining us. I
    understand he's fallen victim to the traffic. However, looking
    at what OMB presented for HUD, I would be surprised if there
    wasn't some planning on his part to miss out on it. We welcome
    FHA Commissioner John Weicher, Assistant Secretary for Public
    and Indian Housing Michael Liu, and Roy Bernardi, Assistant
    Secretary for Community Planning and Development, who will be
    answering the subcommittee's questions.
        Gentlemen, we have probably more problems with this budget
    than any budget we have been submitted. And in this
    subcommittee, we get lots of bad budgets. This one, I think,
    may take the cake. And I think that we're going to have a very
    difficult time working through it. I look forward, however, to
    working with Secretary Jackson and all of you as we try to sort
    this out.
        We have a vote at 11:30, so we will have to submit
    questions for the record. I am very concerned about HUD's
    Office of Congressional Relations, which failed to meet its
    responsibilities for this hearing. We expect the Office to be
    better prepared in the future.
        Also, Mr. Liu, I understand you requested, over the last
    several days, not to attend this hearing and, instead, send a
    subordinate. That is not acceptable, because this is an
    extremely important hearing. We not only need you to answer our
    questions, but I hope this will be an opportunity for you to
    understand issues that are important to us and our
    constituents.
        The President's budget request for HUD for fiscal year 2005
    proposes some $35.7 billion, a technical increase of $331.8
    million over fiscal year funding level of $35.4. Unfortunately,
    the 2005 funding level doesn't tell the true story about the
    administration's request, which is distorted because of how
    rescission funding and FHA receipts are treated for purposes of
    the 2005 budget. Instead, the HUD proposed budget, as we figure
    it, is actually some $1.4 billion below the amounts we
    appropriated for HUD programs in 2004. That's a substantial
    reduction, which is even more troubling in light of other
    administration budget shortfalls within the jurisdiction of
    this subcommittee. We have been shorted about $1.2 billion in
    VA medical care, and the Clean Water State Revolving Fund in
    EPA has been cut by $500 million, which Office of Management
    and Budget should know by now that Congress is not going to
    accept.
        I know HUD has an obligation to defend the budget and
    policy decision, no matter how troubling. I also understand the
    need for the administration to make difficult funding decisions
    to contain and reduce the Federal budget deficit. Nevertheless,
    this subcommittee is facing huge challenges in funding
    decisions for the entire VA/HUD bill in a very tight funding
    year, and HUD represents one of the largest challenges.
        In addition, this budget includes several substantial
    policy changes that would dramatically alter the direction of
    both Section 8 housing assistance and the FHA's single family
    housing mortgage insurance program, two of HUD's most important
    issues. These are important policy proposals that cannot be
    taken lightly and should not be considered in an appropriations
    bill without comprehensive hearings and debate. We have some
    significant questions about all of them, and, unfortunately, it
    does not look like we're going to have the luxury of the time
    to consider fully these issues.
        We'd like to welcome now, as I said, the 12-hour-ago-
    confirmed Secretary of Housing and Urban Development. I know,
    Mr. Secretary, that unless you stayed up all night preparing,
    you're not prepared for this hearing, but we do welcome you. We
    just said what a lousy hand you've been dealt, and we will ask
    your associates questions on it. But there will be a lively
    give and take. And whenever you would like to jump in, please
    feel free to do so. But we've got a lot of problems that we've
    got to deal with.

                                SECTION 8 REFORM

        The administration is proposing to restructure Section 8
    into a new block-grant program to be administered by a public
    housing agency. Two fatal flaws in that proposal; namely, a
    lack of funding and elimination of the requirements that
    Section 8 tenant-based assistance be targeted to our most needy
    families. The Section 8 voucher program currently requires that
    three quarters of all new vouchers serve extremely low-income
    families at or below 30 percent of their median income. These
    are the families with the greatest housing needs, and PHA's
    would no longer have the necessary funds to provide vouchers to
    these families, leaving them to other unsustainable rent
    burdens or homelessness.
        In particular, Section 8 assistance would be funded at
    $18.466 billion in 2005, a decrease of $791 million from the
    2004 funding level of $19.26 billion. That's not enough funding
    to meet the needs of Section 8 anticipated for 2005. CBO, in
    its most recent budget re-estimate, determined that Section 8
    will require funding of some $19.284 billion, which means that
    HUD has a funding shortfall of about $2.2 billion for Section 8
    renewals and tenant protection for 2005 just to sustain the
    program, not add incremental vouchers. It also doesn't address
    other important issues, such as proposed changes and shortfalls
    in the Section 8 administrative fees.
        I understand the administration's frustration with the
    Section 8 tenant-based voucher program, with its annual
    rescissions and poor cost projections. I assure you, we share
    that frustration. But I think this proposal is a poor
    substitute for the flaws in the program. We spent years working
    with HUD in making reforms to the program. In the last 2 years,
    making specific reforms through changes to the Section 8
    account. While we continue to have problems with excess Section
    8 rescissions, the program has become more successful with
    higher utilization rates. Unfortunately, the HUD Section 8
    proposal punishes the program for its success, with the result
    that less families will get vouchers, and, I fear, extremely
    low-income families, those with the greatest housing needs,
    will likely get almost no assistance at all. I agree the
    Section 8 program may cost too much. We should reduce the
    administrative burden, where appropriate. But I think we should
    use a scalpel, not a meat cleaver.
        Even more troubling, based on answers my staff received on
    the underlying analysis supporting the proposal, it's clear
    that HUD has not even done its homework on the proposal's
    impact on the continuing availability to the families who
    currently have vouchers.

                                    HOPE VI

        I continue to be troubled by the Department's decision to
    eliminate all funding for the HOPE VI Program. This program was
    designed primarily by this subcommittee to tear down the most
    distressed and obsolete public housing, replacing it with new
    mixed-income and public housing developments that not only
    provide good housing, but help to anchor the economic and
    physical redevelopment of many distressed communities. It's
    worked well, deserves to be funded or replaced with a program
    that is better equipped to address the remaining stock of
    distressed housing.
        I'm especially concerned over the loss of the program since
    HUD has identified some $20 billion or more in deferred
    maintenance and capital needs. These needs will only grow as
    existing PHA inventory deteriorates. I would note that it is
    always troubling to me that OMB, each year, comes back and cuts
    out programs like HOPE VI, rural housing, all of the other
    programs that Congress has added because of the need that we
    see. I don't know where the disconnect is. And if CBO wants to
    come in and testify and tell us why these programs are bad, I'd
    like hear them do it. But we've made the determination, and we
    are continually frustrated by the lack of communication when
    they want to cut out programs we've found to be very helpful.

                          ZERO DOWN PAYMENT INITIATIVE

        I'm deeply troubled by the proposed zero down payment for
    the FHA Homeownership Program. It poses substantial risk to the
    single family mortgage insurance program, because without down
    payments, new homeowners have no stake in their homes, no
    cushion to pay for any big-ticket costs such as a failed
    furnace or a leaky roof.
        From an historical perspective, FHA was almost bankrupt in
    the 1980's due to defaults from housing families with high
    loan-to-value ratios, which also helped to tip marginal
    neighborhoods where FHA foreclosures helped to drive down the
    value of other housing in the neighborhood. Sadly, some
    neighborhoods are still trying to recover from those
    foreclosures. On the human side, families who default on their
    FHA mortgages ruin their credit and likely will be unable to
    purchase housing when homeownership is more appropriate. This
    new policy recommendation seems to place homeownership above
    all other policy goals, including the financial soundness of
    FHA or the appropriateness of homeownership for a family.
        I could go over the items in the IG audit of FHA financial
    statements. Let me just summarize them to say that FHA defaults
    have risen. There is the 2002 actuarial study that projected
    the economic value of the fund at the end of 2003 would be
    $27.3 billion. But now the new estimate is it'll be $22.7
    billion. That's about a $4.6 billion gap, which raises serious
    questions over the need for new economic models.
        In addition, FHA's share of the home-purchase loan market
    fell by 16\1/2\ percent in 2003, after falling by slightly over
    1 percent in 2002, and 1 percent in 2001. In contrast, overall
    purchase loan originations by loan number went up in each of
    these years. This suggests there's growing deterioration in the
    credit quality of the FHA book of business, and FHA is
    essentially pricing itself into underwriting the highest-risk
    mortgages.

                     RURAL HOUSING AND ECONOMIC DEVELOPMENT

        I'll raise other questions in the question period, but I
    also have strong objections to the elimination of the Rural
    Housing and Economic Development Program and the lead-abatement
    grant program, which is something that Senator Mikulski and I
    have determined is a high priority. And I can assure you, in
    our communities, it is a high priority.
        Secretary Jackson, I look forward to working with you on
    reforming HUD. It's a huge task. It's a difficult
    responsibility. I think you have the requisite skills and
    expertise. HUD serves an absolutely critical role with its
    responsibility for providing a safety net of affordable housing
    for low-income and providing needed funding that's a
    cornerstone for community development efforts and for making
    the dream of homeownership a reality. I look forward to working
    with you to rebuild the public confidence in HUD, and ensure
    the HUD's housing community development programs are meeting
    the affordable housing and economic development needs of our
    communities and families. I should say, ``Harsh letter to
    follow,'' but I think we probably understand ourselves.
        I'll now turn it over to Senator Mikulski.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Good morning, Secretary Jackson, and
    congratulations on your confirmation. And, along with Senator
    Bond, I look forward to working with you.
        I want to associate myself with the issues raised by the
    Chairman. They are identical to the issues that I share about
    the challenges that we see in this year's HUD budget request.
    I, too, want to reiterate many of my own particular concerns.
    We note that the budget request is $31.3 billion. But overall
    HUD spending is cut by 3 percent since last year's levels. This
    could mean less affordable housing, more rundown public
    housing, more lead-paint-poisoned children, and more blight and
    deterioration in our communities.

                                    HOPE VI

        I'm disappointed that HUD has once again proposed to
    eliminate HOPE VI. I created HOPE VI, on a bipartisan basis 11
    years ago, to address the crisis in public housing. Public
    housing was decrepit, it was distressed. Residents were living
    in zip codes of poverty, and public housing had become a way of
    life, not a way to a better life. We wanted to get the Federal
    Government out of the slum-landlord business and into the
    empowerment business. That was the purpose of HOPE VI. And we
    can go over many of the accomplishments of HOPE VI. We need to
    look at how we can sustain HOPE VI now and look ahead to what a
    new HOPE VI needs to be in the future. I believe HOPE VI does
    need to be refreshed and reformed, but certainly this year, we
    believe, to sustain it should be one of our principles in the
    HUD budget.
        Last year, with the cooperation of the chairman, we asked
    the Urban Institute to give us the lessons learned from HOPE
    VI, what were the best practices, how we could replicate the
    successes, and also, what were the areas of reform that needed
    to be done. They have submitted a report, and we will be
    looking forward to discussions with not only how we can sustain
    the program this year and get best value for communities, as
    well as taxpayers, but also look ahead to the future.

                               AFFORDABLE HOUSING

        The other area that puzzles me is the lack of resources for
    creating affordable housing. Senator Bond and I have long
    supported new production of affordable housing. Investments in
    housing is an investment in the American economy. When you
    build a house here, it's built here; it's not on a slow boat to
    China, a fast track to Mexico, a dial 1-800-somewhere; it is
    right here in the United States. We know working families are
    squeezed and stressed. Housing in the Baltimore/Washington
    Corridor is so hot that an Anne Arundel County Police
    Department official had to move to Pennsylvania for what he
    thought was affordable housing. Well, this is unacceptable. We
    need to look at not only how are we helping the poor, but how
    are we helping the middle class--the firefighter, the police
    officer, the teacher, the call-center person that we want to
    keep here. We need to be able to do this and look at how we can
    increase production.

                          CAPITAL FUND/OPERATING FUND

        We're very concerned, too, though, in terms of our poorer
    citizens, the cuts in the public housing operating and capital
    budget. We believe that this will not only continue to cause
    greater stresses on local governments' budgets, but on the poor
    themselves.

                                LEAD-BASED PAINT

        In addition to this, I'm troubled by the elimination of the
    lead-paint elimination program. Cleaning up lead paint has
    triple value. First of all, it helps children. It makes them
    safer. It also helps them be smarter. The Johns Hopkins people
    who are leaders in this tell me that lead paint causes such
    severe neurological damage, learning disabilities, and lowered
    IQ's that the very presence of lead paint in a community
    guarantees that no one from that community will be able to move
    up and take advantage of an opportunity ladder in our country.
    We need to be able to do something about it.

                               PROPERTY FLIPPING

        A success story that we've had in working with your
    predecessor, Secretary Martinez, was in dealing with flipping
    and predatory lending, and we want to thank HUD for all of its
    cooperation and its investment and expertise, technical
    assistance, and real reform. Flipping is now down 82 percent in
    the city of Baltimore, from the time when both the taxpayer and
    the poor were being gouged. Crooked investors were buying up
    FHA foreclosed property, making cosmetic repairs, working with
    scum appraisers and lenders. Well, thanks to working together,
    we've changed that. But right now what we're looking at is,
    what are some of the other issues that we can do? Even though
    flipping is down, predatory lending still lingers in the sub-
    prime market.

                                  FHA DEFAULTS

        And also what we're concerned about is additional issues
    with FHA. We're so alarmed that the defaults in FHA-insured
    properties have increased 31 percent. We need to know: why is
    this happening? Is it because of the economy? Is it because
    people are trapped in predatory loans? What's the real reason
    here?

                       SINGLE FAMILY PROPERTY DISPOSITION

        HUD must also be in the neighborhood business.
    Homeownership is good, but it has to be sustainable. The worst
    thing that you can say in a neighborhood is, ``Oh, my God,
    we've got a HUD house.'' A HUD house is where somebody has been
    foreclosed, it's now in HUD hands, and it begins to
    deteriorate, and it creates this economic tipping that Senator
    Bond has talked about. So we have questions related to the
    single family disposition.

                           FHA MULTI-FAMILY DWELLINGS

        Then there's another issue, of FHA apartment buildings. I
    am very concerned that in many of our communities, particularly
    close to the cities, like in my own hometown, the inner-beltway
    communities, that FHA apartment buildings have become public
    housing by proxy. They have landlords who take large amounts of
    Section 8 vouchers. The apartment building itself becomes all
    Section 8. They then skimp on repairs, they skimp on
    maintenance, but they sure don't skimp on taking the subsidy.
    We have terrible problems in many of our apartments here, and
    we've dealt with this with both Secretary Cuomo and Secretary
    Martinez. There was one in eastern Baltimore County that was
    not well maintained: rodent infestation, crime rampant, and
    rundown conditions. It was a blight on the community, and
    essentially we were subsidizing all the aspects of a slum
    landlord. These cannot be tolerated.
        Now, we've worked on that together, and we want to thank
    HUD for their cooperation. But we have to make sure that
    whatever we're paying for, we're not subsidizing slums, and
    that we are in the empowerment business; we're in the
    opportunity business. And through what we do to help people
    help themselves, we're really also creating a stronger economy.
        So we look forward to discussing these issues with you. And
    I now am happy to yield the floor.
        Senator Bond. Thank you very much, Senator Mikulski.
        I'd like to welcome Secretary Jackson and call on him for
    any brief comments he wants to make. I understand you have a
    prior commitment, and you have to leave at 11:00, and we
    understand that. We'll have plenty of work for you in the
    questions for the record, so while you leave, just know that we
    won't forget you.
        Secretary Jackson. Thank you.
        Senator Bond. Again, welcome, Mr. Secretary.

                         STATEMENT OF ALPHONSO JACKSON

        Secretary Jackson. Mr. Chairman and the Ranking Member, let
    me apologize in advance for leaving. It will probably be about
    10 minutes to 11:00, Mr. Chairman.
        But let me say this, that last night I did find that I was
    confirmed by the Senate, and I would like to thank both of you
    all for the work that you all did to make the confirmation come
    to fruition.
        And, as Secretary, I think that Chairman Bond has worked
    with me, and Senator Mikulski, we've had conversations over the
    last month, I am very sensitive to the issues that you have
    raised, and we look forward to work with you to try to resolve
    these issues.
        I guess I come with somewhat of a different background, in
    the sense that I was fortunate to have ran three major housing
    authorities, so many of the issues that you have brought forth
    today are of very much concern of this Department. I don't ever
    say ``my,'' because I think ``my'' is almost like ``I.'' It
    becomes the ``I'' syndrome. I think that HUD, this committee,
    and the Senators can work together to find valid solutions to
    try to resolve many of these problems.
        Lastly, I would say this, that we have two assistant
    secretaries that will be addressing your issues today. Please
    feel free to call me. I am clearly, as the Secretary, at your
    disposal to come and discuss with you, and hopefully sit down
    and resolve many of the issues that we have today.
        I do believe, especially with my encounter with Senator
    Bond and my short encounter with Senator Mikulski, that our
    philosophical viewpoints are the same, that clearly HUD's
    mission is to address the needs of low- and moderate-income
    persons, and to address those needs sufficient enough that they
    might have the same quality of life that most of the people in
    this room have.
        Thank you.
        Senator Bond. Thank you very much, Mr. Secretary.
        And I would say only that I have had a great opportunity to
    work with the Secretary in his prior life, and my prior life,
    and I do know that he has a strong commitment. And I'm sure
    that all of the leaders of HUD do. We've got some real
    differences on how to get there.
        I believe Mr. Bernardi is going to lead off. Is that
    correct?
        Mr. Bernardi. Yes, Senator.
        Senator Bond. I thank you. If you would proceed, and
    introduce your colleagues, as needed.

                          STATEMENT OF ROY A. BERNARDI

        Mr. Bernardi. Thank you.
        Chairman Bond and Ranking Member Mikulski, thank you for
    the invitation this morning to outline our fiscal year 2005
    budget, a budget that's presented by President Bush and the
    Department of Housing and Urban Development. And I'm also
    pleased to be joined by my colleagues, to my left, Commissioner
    Weicher, and Assistant Secretary Liu, to my right.
        To ensure there's appropriate time for questions from the
    Committee, I think I'll focus just on some of the statements of
    HUD's key priorities and some of the new initiatives that we're
    proposing. And I ask that I be allowed to submit my full
    statement for the record, sir.
        Senator Bond. We'll be happy to accept all of your
    statements for the record, and we appreciate your summarizing
    from them.
        Mr. Bernardi. Thank you.
        As you indicated, the programs funded with a $31.3 billion
    budget will create new opportunities for those who seek
    affordable housing and the American dream of homeownership
    while generating stability and prosperity for our communities.
    The key priorities that address this are central to the
    President's plan to help make America a more secure, more
    prosperous, and more hopeful country. Housing, of course, is
    vital to our national prosperity, and remains the lynchpin of
    our economy. The housing market generated robust activity
    throughout the 2001 recession. And, today, housing continues to
    fuel the ongoing economic recovery.
        Homeownership last year reached an all-time high of 68.6
    percent, and fourth-quarter 2003 statistics reveal that, for
    the very first time, a majority of minority households owns a
    home of their own. HUD's 2005 budget will empower our
    Department to build on these successes as we seek to increase
    homeownership, to promote decent and affordable housing free
    from discrimination, encourage the participation of faith-based
    and community organization in HUD's programs, and embrace the
    highest standards of ethics, management, and accountability.
        Let me first discuss homeownership. In June of 2002,
    President Bush announced an aggressive plan to increase the
    number of minority homeowners by at least 5\1/2\ million by the
    end of the decade. More than 1\1/2\ million new minority
    homeowners have been created in the United States since the
    initiative was announced.
        HUD is proposing several new or expanded initiatives to
    continue to increase overall homeownership, while targeting
    assistance to help more minority families experience the
    economic and social benefits of owning a home of their own.

                           AMERICAN DREAM DOWNPAYMENT

        As a first step, HUD proposes to fund the American Dream
    Downpayment Initiative at $200 million in the coming fiscal
    year. The Congress showed great leadership in enacting the
    President's American Dream proposal last year. By fully funding
    the 2005 initiative, we will help 40,000 families across the
    country have the opportunity to come over that biggest hurdle,
    and that's downpayment and closing costs, to own a home of
    their own.

                          ZERO DOWNPAYMENT INITIATIVE

        The administration is proposing an exciting piece of
    legislation that would create a new mortgage product targeted
    to first-time home buyers and that's the Zero Downpayment
    Program. The Zero Downpayment Mortgage Program would allow
    consumers to qualify for FHA loans without having to come up
    with the upfront cash for downpayment and closing costs. And we
    estimate that that will help 150,000 families a year purchase a
    home.
        Studies show that we can further boost homeownership by
    helping families learn about the loan products and services
    that are available to them, and how to avoid abusive lenders.
    So, therefore, our 2005 budget provides a record $45 million to
    educate future homeowners.
        To promote the production of affordable single family homes
    in areas where such housing is scarce, the administration is
    proposing a tax credit of up to 50 percent of the cost of
    construction for constructing a new home or rehabilitating an
    existing home.

                                      SHOP

        Our request of $65 million for the Self-Help Homeownership
    Opportunity Program, our SHOP Program, was more than double the
    funding SHOP received in 2004, and that would help produce some
    5,200 new homes for very low-income families. And Congress
    Builds America was participating last week here in Washington,
    and I had the opportunity to join with some Senators and
    Members of Congress, and to see firsthand how those dollars are
    used through sweat equity to give a low-income individual an
    opportunity to own his or her own home.

                               SECTION 8 REFORMS

        While boosting homeownership, HUD's proposed budget also
    promotes the production and accessibility of affordable housing
    for families and individuals who rent. Three major rental
    assistance programs collectively help approximately 4\1/2\
    million households nationwide. Our major program, as you
    indicated, is Section 8, which provides both tenant-based
    funding through the Housing Choice Voucher Program, in the
    Office of Public and Indian Housing, and project-based rental
    assistance through HUD's Office of Housing. The administration
    is proposing significant reform of the Housing Choice Voucher
    Program. We need to make it more effective, more efficient, and
    better able to meet the needs of the low-income families that
    depend on it.
        Today, the Section 8 program lacks incentives for families
    to transition out of the program and to begin living
    independent lives. In addition, the program is unsustainable at
    current growth levels. Pre-voucher costs have increased at the
    alarming rate of 23 percent in just the last 2 years.
        The administration's new Flexible Voucher Program will
    serve at least as many Americans as the 1.9 million families
    currently served through the Housing Choice Voucher Program.
    More importantly, our proposed reforms will help families move
    out of assisted housing and into self-sufficiency.

                                      HOME

        The HOME program is a very key initiative for addressing
    the shortage of affordable housing in America. In the 2005
    budget, the proposed total is $2.1 billion, which includes the
    $200 million for the American Dream Downpayment Initiative that
    I mentioned earlier.

                                      CDBG

        HUD is committed to preserving America's cities as vibrant
    hubs of commerce, and making urban and rural communities better
    places to live, work, and raise a family. The 2005 budget
    provides States and localities with the tools they can use to
    improve economic health and to promote community development.
    Perhaps the greatest strength of these economic development
    tools, which includes the highly successful Community
    Development Block Grant Program, is the way that they encourage
    local decision-making to address developing priorities, having
    provided over $104 billion over the last 30 years for the
    cities, counties, and States, and non-entitlement communities
    to do the things that are necessary for a better quality of
    life.
        Through its budget, HUD will strengthen its efforts to
    promote the Nation's most vulnerable, those individuals and
    families who truly need government assistance. The budget funds
    services benefiting adults and children from low-income
    families, the elderly, those with physical and mental
    disabilities, victims of predatory lending, families living in
    housing contaminated by lead-based paint hazards, and persons
    living with HIV/AIDS.

                              SAMARITAN INITIATIVE

        The administration will continue to work to meet the
    challenges of homelessness that confront many American cities.
    The President has made an unprecedented administration wide
    commitment to eliminating chronic homelessness. This commitment
    is reflected in our budget request through proposals such as
    the Samaritan Initiative, which will provide additional housing
    options and services for homeless people, especially those that
    are chronically homeless.
        Finally, Mr. Chairman, our budget creates new opportunities
    to improve HUD's performance in its critically needed housing
    and community development programs. We know that we have work
    to do there. As Secretary Jackson indicated, we look forward to
    working on doing that together with you. I know how important
    that is to this committee. We share your concerns. We continue
    to make progress, and this will remain a top priority.

                               PREPARED STATEMENT

        I want to thank you both, and all the Members of the
    committee, for your efforts. We understand that you have many
    questions. Secretaries Liu and Weicher and myself will be happy
    to try to answer those. And we know that we'll have many more
    fruitful meetings in the future. And thank you for all that you
    do.
        [The statement follows:]

                     Prepared Statement of Roy A. Bernardi

        Chairman Bond, Ranking Member Mikulski, distinguished members of
    the committee, the programs funded within the $31.3 billion HUD budget
    will create new opportunities for those who seek affordable housing and
    the American Dream of homeownership, while generating stability and
    prosperity for our communities. The key priorities it addresses are
    central to the President's plan to help make America a more secure,
    more prosperous, and more hopeful country.
        Housing, of course, is central to our national prosperity and
    remains the lynchpin of our economy. The housing market generated
    robust activity throughout the 2001 recession, and today, housing
    continues to fuel the ongoing economic recovery. Bolstered by
    historically low interest rates, home sales and new housing
    construction have repeatedly outperformed expectations. Homeownership
    last year reached an all-time high of 68.3 percent, and fourth quarter
    2003 statistics revealed that for the first time, a majority of
    minority households own a home of their own.
        The administration's fiscal year 2005 budget request for HUD will
    empower the Department to build on these successes, as we seek to
    increase homeownership through the American Dream Downpayment
    Initiative and two new mortgage products, promote decent affordable
    housing through the newly proposed Flexible Voucher Program, end
    chronic homelessness, encourage the participation of faith-based and
    community organizations in HUD grant programs, and embrace the highest
    standards of ethics, management, and accountability.

                     INCREASING HOMEOWNERSHIP OPPORTUNITIES

        Americans place a high value on homeownership because of its
    benefits to families, communities, and the Nation as a whole are so
    profound.
        Homeownership creates community stakeholders who tend to be active
    in charities, churches, and neighborhood activities. Homeownership
    inspires civic responsibility, and owners are more likely to vote and
    get involved with local issues. Homeownership offers children a stable
    living environment that influences their personal development in many
    positive, measurable ways--at home and in school.
        Homeownership's potential to create wealth is impressive, too. For
    the vast majority of families, the purchase of a home represents the
    path to prosperity. A home is the largest purchase most Americans will
    ever make--a tangible asset that builds equity, credit health,
    borrowing power, and overall wealth.
        Due in part to a robust housing economy and Bush Administration
    budget initiatives focused on promoting homeownership, the
    homeownership rate was higher in 2003 than at any time in this Nation's
    history and, as I said earlier, a majority of minority households are
    homeowners for the first time. That fact, however, masks a deep
    ``homeownership gap'' between non-Hispanic whites and minorities; while
    the homeownership rate for non-Hispanic whites is nearly 76 percent; it
    is slightly above 50 percent for African-Americans and Hispanics, and
    55 percent for Native Americans.
        The administration is focused on giving more Americans the
    opportunity to own their own homes, including minority families. In
    June 2002, President Bush announced an aggressive homeownership agenda
    to remove the barriers that block American families from achieving
    homeownership, in the hope of creating at least 5.5 million new
    minority homeowners by the end of this decade. The administration's
    homeownership agenda is dismantling the financial barriers to
    homeownership by providing down payment assistance, increasing the
    supply of affordable homes, increasing support for homeownership
    education programs, and simplifying the homebuying process. More than
    1.53 million new minority homeowners have been created in the United
    States since the initiative was announced.
        Through ``America's Homeownership Challenge,'' the President called
    on the real estate and mortgage finance industries to take concrete
    steps to tear down the barriers to homeownership. In response, HUD
    created the Blueprint for the American Dream Partnership, an
    unprecedented public/private initiative that harnesses the resources of
    the Federal Government with those of the housing industry to accomplish
    the President's goal.
        Additionally, we propose several new or expanded initiatives in
    fiscal year 2005 to continue the increase in overall homeownership,
    which will help improve minority homeownership rates.
        As a first step, the administration proposes to fund the American
    Dream Downpayment Initiative at $200 million in fiscal year 2005.
    President Bush signed the American Dream Downpayment Act into law on
    December 16, 2003, creating homeownership opportunities for thousands
    of Americans who had been unable to cross the most significant obstacle
    to homeownership: high downpayments and closing costs. The Initiative
    will help approximately 40,000 low-income families with the downpayment
    on their first home.
        The administration is proposing a new mortgage insurance product to
    help first-time homebuyers purchase a home by allowing zero downpayment
    loans. Currently, the Federal Housing Administration (FHA) requires a
    minimum downpayment of 3 percent. To cover the higher risk involved,
    premiums will be increased in the short term for these borrowers. This
    program will be implemented at no cost to the government or the
    American taxpayer. This new Zero Downpayment program is expected to
    serve 150,000 families per year, generating about $19 billion in
    endorsements.
        The administration is also proposing a new sub-prime loan product
    called Payment Incentives to offer FHA insurance to families that, due
    to poor credit, would be served either by the private market at a
    higher cost or not at all. Borrowers would be offered FHA loan
    insurance under this new initiative that will allow them to maintain
    their home or to purchase a new home. The new Mutual Mortgage Insurance
    (MMI) mortgage loan program is expected to serve 60,000 families per
    year, and generate an additional $7.9 billion in endorsements.
        Helping families learn about the loan products and services
    available to them and how to identify and avoid predatory lending
    practices is critical to increasing homeownership. Counseling has
    proven to be an extremely important element in both the purchase of a
    home and in helping homeowners keep their homes in times of financial
    stress. The Fiscal Year 2005 Budget will provide a record $45 million
    to support 550,000 families with home purchase and homeownership
    counseling and about 250,000 families with rental counseling.
    Counseling would be required for all families buying homes through the
    Zero Downpayment insurance program.
        A new proposal for fiscal year 2005--the Flexible Voucher Program--
    will provide new flexibility to Public Housing Authorities (PHA's) by
    allowing them to offer downpayment assistance or monthly homeownership
    subsidies to families. In addition, through the Flexible Voucher
    Program, the Department will award performance-based bonuses to PHA's
    that participate in homeownership activities. The Flexible Voucher
    Program proposal calls for funding the Housing Choice program as a
    flexible voucher grant, giving a set sum of money to public housing
    authorities (PHA's), rather than promising to fund a certain number of
    units. Using a dollar-based approach rather than a unit-based approach,
    combined with performance measures, will give incentives to PHA's to
    streamline administrative costs and provide more housing opportunities
    for the money they receive. Additionally, incentives will be provided
    to PHA's to encourage work and to emphasize vouchers as a bridge to
    self-sufficiency, not an entitlement or an ongoing handout for housing
    needs.
        The Self-Help Homeownership Opportunity Program (SHOP) provides
    grants to national and regional non-profit organizations to subsidize
    the costs of land acquisition and infrastructure improvements.
    Homebuyers must contribute significant amounts of sweat equity or
    volunteer labor to the construction or rehabilitation of the property.
    The fiscal year 2005 budget request of $65 million more than doubles
    the funding received in 2004, reflecting President Bush's continuing
    commitment to self-help housing organizations such as Habitat for
    Humanity. These funds will help produce approximately 5,200 new homes
    nationwide for very low-income families.
        To promote the production of affordable single-family homes in
    areas where such housing is scarce--and to help revitalize distressed
    communities--a tax credit of up to 50 percent of the cost of
    constructing a new home or rehabilitating an existing home would be
    provided. Eligibility for this new tax credit would be limited to homes
    that are affordable to lower-income households (purchasers whose
    incomes are below 80 percent of local median income).
        The HOME Investment Partnerships program plays a key role in
    addressing the shortage of affordable housing in America. In fiscal
    year 2005, a total of $2.1 billion--which includes $200 million for the
    American Dream Downpayment Initiative--is being proposed for
    participating jurisdictions (States and local governments) to expand
    the Nation's supply of affordable housing. Participating jurisdictions
    have substantial local discretion to determine how to spend these
    funds. In addition to homeownership assistance, HOME funds can be used
    to help renters, new homebuyers, or existing homeowners through
    rehabilitation of substandard housing, acquisition of standard housing,
    new construction, or tenant-based rental assistance. To date, HOME
    grantees have committed funds to provide homebuyer assistance to more
    than 294,000 low-income households. Based on historical trends, 36
    percent of HOME funds will be used for new construction, 47 percent for
    rehabilitation, 14 percent for acquisition, and 3 percent for rental
    assistance.
        Through its mortgage-backed securities program, the Government
    National Mortgage Association--or Ginnie Mae--helps to ensure that
    mortgage funds are available for low- and moderate-income families
    served by FHA and other government programs such as those under the
    Department of Veterans Affairs and the Rural Housing Service of the
    Department of Agriculture. The fiscal year 2005 budget requests $200
    billion in new loan guarantee limitations.
        During fiscal year 2003, Ginnie Mae marked its 35th anniversary and
    guaranteed a record $215.8 billion in mortgage-backed securities. Since
    its inception in 1968, Ginnie Mae has guaranteed more than $2 trillion
    in mortgage-backed securities and helped more than 27 million families
    gain access to affordable housing or lower mortgage costs. HUD's role
    in the secondary mortgage market provides an important public benefit
    to Americans seeking to fulfill their dream of homeownership.
        The administration has proposed broad reform of the supervisory
    system for Government-sponsored enterprises (GSE's) in the housing
    market. As part of this reform, the administration has proposed that
    HUD have the ability to set an enforceable goal encouraging the
    purchase of first-time homebuyer mortgages. While part of their
    charter, the GSE's significantly lag the market for all first-time
    homebuyers regardless of race or ethnicity. This portion of the reform
    is designed to ensure that Fannie Mae and Freddie Mac lead, not lag
    behind, the market.
        In addition, the Fiscal Year 2005 Budget would assess GSE's an
    additional $6.25 million for the expected cost of the HUD Secretary's
    responsibilities under this Act and amendments as outlined in recent
    Administration proposals. These responsibilities include establishing
    and enforcing affordable housing goals for GSE's, ensuring GSE
    compliance with Fair Housing laws, and providing consultation to the
    safety and soundness regulator on the GSEs' new activities.
        HUD has taken bold steps to comprehensively reform the homebuying
    process and make it far less complicated and less expensive for
    consumers. New disclosure requirements proposed by the administration
    under the Real Estate Settlement Procedures Act (RESPA) call for full,
    upfront disclosure and explanation of all fees that buyers pay at
    settlement, making it clear to the borrower what options are available
    for financing a home and what they might cost. They also facilitate
    industry packages with a guaranteed price. This will make its easier
    for consumers to shop for mortgages. By empowering the consumer, this
    competition is expected to reduce the average initial cost of buying a
    home by $700.
        HUD's new regulations would expand homeownership by making the
    homebuying process less complicated, the paperwork less demanding, and
    the mortgage process less expensive. The Department issued a proposed
    rule covering RESPA reform in fiscal year 2002 and anticipates a final
    rule in fiscal year 2004.
        The Fiscal Year 2005 Budget supports five HUD programs that help to
    promote homeownership in Native American and Hawaiian communities.
        Native American Housing Block Grants (NAHBG) provide $647 million
    in funding to federally-recognized tribes and to tribally-designated
    housing entities for a wide variety of affordable housing activities.
    Grants are awarded on a formula basis that was established through
    negotiated rulemaking with the tribes. The NAHBG program allows funds
    to be used to develop new housing units to meet critical shortages in
    housing. Other uses include housing assistance to modernize and
    maintain existing units; housing services, including direct tenant
    rental subsidy; crime prevention; administration of the units; and
    certain model activities.
        The Title VI Federal Guarantees for Tribal Housing program provides
    guaranteed loans to recipients of the Native American Housing Block
    Grant who need additional funds to engage in affordable housing
    activities. The Department's budget proposes to continue funding this
    program at last year's level, which will provide $17.9 million in loan
    guarantee authority.
        The Indian Housing Loan Guarantee (Section 184) program helps
    tribal members and their families to access private mortgage financing
    for the purchase, construction, or rehabilitation of single-family
    homes. The program guarantees payments to lenders in the event of
    default. In fiscal year 2005, $1 million is requested in credit subsidy
    for 100 percent Federal guarantees of approximately $29 million in
    private loans.
        Under the Native Hawaiian Home Loan Guarantee Fund (Section 184A)
    program, loan guarantees will be used primarily to secure private
    financing to purchase, construct, or rehabilitate single-family homes
    on Hawaiian Home Lands. This makes possible the financing of
    construction loans and home mortgages by private financial institutions
    that would otherwise not be possible due to the unique status of
    Hawaiian Home Lands. The Fiscal Year 2005 Budget will provide $1
    million in credit subsidy to secure approximately $37.4 million in
    private loans.
        Modeled after the NAHBG, the Native Hawaiian Housing Block Grant
    program recognizes the documented housing needs of native Hawaiians who
    are eligible to reside on, or who already live on, Hawaiian Home Lands.
    Native Hawaiians experience the worst housing conditions in the State
    and constitute nearly 30 percent of the homeless population. The Fiscal
    Year 2005 Budget will provide $9.5 million. Grant funds will be awarded
    to the Department of Hawaiian Home Lands and may be used to support the
    acquisition, new construction, reconstruction, and rehabilitation of
    affordable housing. Activities include real property acquisition,
    demolition, financing, and development of utilities and utility
    services, as well as administration and planning, housing management
    services, crime prevention, and safety activities.

                       PROMOTE DECENT AFFORDABLE HOUSING

        The Fiscal Year 2005 Budget promotes the production and
    accessibility of affordable housing for families and individuals who
    rent. This is achieved, in part, by providing States and localities new
    flexibility to respond to local needs.
        HUD has three major rental assistance programs that collectively
    provide rental subsidies to approximately 4.5 million households
    nationwide. The major vehicle for providing rental subsidies is the
    Section 8 program, which is authorized in Section 8 of the U.S. Housing
    Act of 1937. Under this program, HUD provides subsidies to individuals
    (tenant-based) who seek rental housing from qualified and approved
    owners, and also provides subsidies directly to private property owners
    who set aside some or all of their units for low-income families
    (project-based). Currently, HUD subsidizes operation, maintenance, and
    capital improvement of 1.2 million public housing units. In total,
    these programs will provide approximately $23.2 billion in new funds
    each year to support rental costs for low-income individuals and
    families; total rental assistance accounts for approximately 74 percent
    of the total budget for the Department in fiscal year 2005.
        The Fiscal Year 2005 Budget continues to fund Section 8 tenant-
    based and project-based rental assistance through the Housing
    Certificate Fund. In addition, public housing is subsidized through the
    Public Housing Operating Fund and the Public Housing Capital Fund.
        HUD also helps to provide affordable rental housing through the
    HOME program, the Native American Housing Block Grant, FHA mortgage
    insurance, and the Community Development Block Grant (CDBG) program. In
    addition, HUD meets the specialized housing needs of the elderly and
    individuals with disabilities through grants for the development and
    operation of supportive housing projects for these target populations.
        The Budget includes a new Flexible Voucher Program (FVP) that would
    replace the Housing Choice Voucher Program and improve the delivery of
    rental and homeownership subsidies for low-income families. The current
    system fails to support families making the transition from public
    assistance to self-reliance and work, and in doing so reduces the
    number of families that could be helped for a given amount of money.
    Under the reform, the Voucher program would be a means for families to
    transition to a better life, and more of them will be helped. The ease
    of administration for HUD and PHA's is the means to that policy end,
    and a bonus for doing the right thing for families.
        Some of the key features of the new FVP include greater PHA
    discretion in meeting local housing needs and serving more families,
    steady and predictable funding levels, and rewards for PHA's that are
    good managers. HUD will also provide performance-based incentives to
    maximize the benefits of available funds and will hold PHA's
    accountable for poor performance. High-performing PHA's that meet
    national objectives, such as increasing the number of participants that
    use the voucher assistance on a transitional (not permanent) basis,
    increasing homeownership, and efficiently assisting families would be
    eligible for performance and incentive bonuses.
        The FVP will simplify program requirements and avoid the ``one size
    fits all'' program design. The FVP provides local and State PHA's with
    greater administrative flexibility to meet the overall program
    objective of providing temporary and transitional housing assistance
    for low-income families. As is current practice, the FVP will be
    administered by PHA's. The FVP would include administrative costs as
    part of the total grant.
        For fiscal year 2005, Project Based Rental Assistance will continue
    to provide funding for renewals of expiring project-based rental
    assistance contracts under Section 8, including amounts necessary to
    maintain performance-based contract administrators. In addition to new
    appropriations, funds existing in this account from prior-year balances
    and from recaptures will augment the amount available to meet amendment
    requirements for on-going contracts that have depleted their funding.
        It is anticipated that approximately 896,000 project-based units
    under rental assistance will require renewal in fiscal year 2005, an
    increase of about 25,000 units from the current fiscal year. This
    continues the upward trend stemming from first-time expirations in
    addition to contracts already under the annual renewal cycle.
        Public Housing is the other major form of assistance that HUD
    provides to the Nation's low-income population. In fiscal year 2005,
    HUD anticipates that there will be approximately 1.2 million public
    housing units occupied by tenants. These units are under the direct
    management of approximately 3,100 PHA's. Tenants pay 30 percent of
    their income for rent and utilities, and HUD subsidies cover much of
    the remaining cost.
        HUD is committed to ensuring that the existing public housing stock
    is either maintained in good condition or is demolished. Maintenance is
    achieved through the subsidy to PHA's for both operating expenses and
    capital needs. Through its regulatory authority, HUD will ensure that
    housing that is no longer viable will be removed from the inventory. It
    will encourage voluntary removal of decaying units when it makes
    economic sense to do so. Many of these decisions will be made at the
    local level, and HUD will work with PHA's to allow greater local
    decision-making.
        The formula distribution of Public Housing Operating Funds takes
    into account the size, location, age of public housing stock,
    occupancy, and other factors intended to reflect the costs of operating
    a well-managed public housing development. In fiscal year 2005, the
    Department's budget provides approximately $3.6 billion in funding for
    the Public Housing Operating Fund.
        This Public Housing Capital Fund program provides formula grants to
    PHA's for major repairs and modernization of units. The fiscal year
    2005 budget will provide $2.7 billion in this account. This amount is
    sufficient to meet new capital improvement needs in fiscal year 2005.
        Of the funds made available, up to $50 million may be maintained in
    the Capital Fund for natural disasters and emergencies. Up to $30
    million can be used for demolition grants--to accelerate the demolition
    of thousands of public housing units that have been approved for
    demolition but remain standing. Also in fiscal year 2005, up to $55
    million will be available for the Resident Opportunity and Self-
    Sufficiency (ROSS) program, which provides supportive services and
    assists residents in becoming economically self-sufficient.
        HUD will introduce a demonstration program in 2005 designed to
    improve public housing. The Freedom to House Initiative will maximize
    the ability of local PHA's to make decisions affecting their tenants,
    while simultaneously serving essentially the same numbers of low-income
    families. It will grant to participating demonstration PHA's the
    ability to combine the use of capital and operating funds, to set
    locally determined rent structures, and to free themselves from many of
    the administratively burdensome requirements of Federal reporting. This
    demonstration will also allow HUD and PHA's to shift to an asset-based
    management practice.
        HUD's Moving to Work Program has shown that residents and PHA's
    have benefited from increased local flexibility. These PHA's are
    convinced that their reforms have encouraged residents to seek work,
    work more hours, and pursue opportunities to increase their incomes.
    Freedom to House will continue this experiment in an environment that
    will allow for measurement and comparative evaluation.
        Up to 50 PHA's will be identified to participate in the
    demonstration, while up to 50 others will serve as a control group
    following current public housing laws and regulations. Annual
    assessment of the PHA's will be based on parameters of financial health
    and physical safety and soundness. Performance assessment results and
    other pertinent data will be provided on an annual basis and will
    provide policymakers with the ability to review current practices
    against increased PHA flexibility in order to guide future policy
    decisions.
        HUD will also continue to promote affordable rental housing through
    FHA's multifamily mortgage insurance programs. In fiscal year 2005, FHA
    will reduce the annual mortgage insurance premiums on its largest
    apartment new construction program, Section 221(d)(4), for the third
    year in a row--from 50 basis points in fiscal year 2004 to 45 basis
    points in fiscal year 2005. This is the lowest premium that FHA has
    ever charged for multifamily insurance, and we are able to do so
    because the program is being run on a financially sound and prudent
    basis. With this reduction, the Department estimates that it will
    insure $3.1 billion in apartment development loans through this program
    in fiscal year 2005, producing more than 41,000 additional new rental
    units. Most of these units will be affordable to moderate-income
    families, and most of them will be located in underserved areas.
        When combined with other multifamily mortgage programs, including
    those serving non-profit developers, health care facilities, and
    refinancing mortgagors, FHA anticipates providing support for over
    250,000 new units.
        In addition to the extensive use of HOME funds for homeownership,
    the HOME program has invested heavily in the creation of new affordable
    rental housing. Since its inception, the HOME program has supported the
    building, rehabilitation, and purchase of more than 334,000 rental
    units. Program funds have also provided direct rental assistance to
    more than 100,000 households.
        Native American Housing Block Grants provide a flexible source of
    funding to federally recognized tribes or tribally-designated housing
    entities and is used for a wide variety of affordable housing
    activities. Authorized uses include both rental housing and
    homeownership. The block grant is funded at $647 million in fiscal year
    2005.
        The Native Hawaiian Housing Block Grant is modeled on the NAHBG,
    and provides funding to the Department of Hawaiian Home Lands for a
    wide variety of eligible affordable housing activities, including the
    construction, rehabilitation, and acquisition of rental units for
    native Hawaiians who are eligible to reside on, or who already live on,
    Hawaiian Home Lands.
        Several other HUD programs contribute to rental assistance,
    although not as a primary function. For example, the flexible Community
    Development Block Grant can be used to support rental-housing
    activities. The CDBG program is celebrating its 30th year in 2004,
    having provided over $108 billion in much-needed resources to States,
    rural communities, inner cities, suburban communities, as well as
    counties to benefit low- and moderate-income persons.
        The Department believes that regulatory barrier removal must be an
    essential component of any national housing strategy to address the
    needs of low- and moderate-income families. Therefore, HUD is committed
    to working with States and local communities to reduce regulatory
    barriers to the development of affordable housing.
        In fiscal year 2003, the Department established ``America's
    Affordable Communities Initiative: Bringing Homes Within Reach through
    Regulatory Reform.'' This major new initiative is a Department-wide
    effort charged not only with developing new approaches and incentives
    that can encourage efforts at the local level, but also reviewing and
    reforming HUD's own regulations that may be barriers to expanded
    housing affordability.
        To support this effort, HUD will conduct research and dissemination
    efforts to learn more about the nature and extent of regulatory
    obstacles to affordable housing. Current research underway includes
    developing a methodology for ``housing impact'' analyses. This new tool
    will assist HUD and other Federal agencies, as well as State and local
    governments, to measure the impact of any proposed new regulation on
    housing affordability. Through such an expanded research and
    dissemination effort, HUD will develop the tools and approaches needed
    by State and local governments to address the many barriers that
    restrict the development of affordable housing.

                           STRENGTHENING COMMUNITIES

        HUD is committed to preserving America's cities as vibrant hubs of
    commerce and making communities better places to live, work, and raise
    a family. The fiscal year 2005 budget provides States and localities
    with tools they can put to work improving economic health and promoting
    community development. Perhaps the greatest strength of HUD's economic
    development programs is the emphasis they place on helping communities
    address development priorities through local decision making.
        The flagship of HUD's community and economic development programs
    is the Community Development Block Grant (CDBG) program. In fiscal year
    2005, total funding for the CDBG account will be $4.6 billion. CDBG
    funds go to 1,160 grantees in 944 cities, 165 counties, and 50 States,
    plus Puerto Rico.
        CDBG's popularity is based on the fact that funds may be used for a
    broad range of housing revitalization and community and economic
    development activities, thereby increasing State and local capacity for
    economic revitalization, job creation and retention, neighborhood
    revitalization, public services, community development, renewal of
    distressed communities, and leveraging of non-Federal resources.
        Of the $4.6 billion in fiscal year 2005, $4.3 billion will be
    distributed to entitlement communities, States, and insular areas, and
    $71.6 million will be distributed by a competition to recognized tribes
    for the same uses. The remaining $215 million is for specific purposes
    and programs at the local level and is distributed generally on a
    competitive grant basis. Principal among these initiatives in fiscal
    year 2005 are the Development Challenge Pilot Program, the National
    Community Development Initiative, the University Partnership Grant
    program, and Youthbuild.
        The Fiscal Year 2005 Budget proposes an interagency effort to test
    ways to better coordinate, target, and leverage existing Federal
    community and economic development programs. Under the $10 million
    Development Challenge Pilot Program, competitive grants will be awarded
    to a limited number of communities to develop and implement clear and
    measurable community development goals. The results of this initiative
    are intended to provide valuable information on how performance
    measurement can be made an integral part of CDBG and other community
    and economic development programs.
        HUD participates in the privately organized and initiated NCDI. The
    Fiscal Year 2005 Budget will provide $25 million for the NCDI, in which
    HUD has funded three phases of work since 1994. A fourth phase will
    emphasize the capacity building of community based development
    organizations, including community development corporations, in the
    economic arena and related community revitalization activities through
    the work of intermediaries, including the Local Initiatives Support
    Corporation and the Enterprise Foundation. In addition, the budget
    includes funding for capacity building activities for Habitat for
    Humanity ($4.5 million) and Youthbuild USA ($2 million).
        The Fiscal Year 2005 Budget provides $33.8 million through the
    University Partnership Grant program to assist colleges and
    universities, including minority institutions, to engage in a wide
    range of community development activities. Funds are also provided to
    support graduate programs that attract minority and economically
    disadvantaged students to participate in housing and community
    development fields of study.
        The Fiscal Year 2005 Budget requests $64.6 million for the
    Youthbuild program. Youthbuild is targeted to high school dropouts aged
    16 to 24, and provides these disadvantaged young adults with education
    and employment skills through constructing and rehabilitating housing
    for low-income and homeless people. The program also provides
    opportunities for placement in apprenticeship programs or in jobs. The
    fiscal year 2005 request will serve more than 3,728 young adults.
        The administration continues to work to meet the challenge of
    homelessness that confronts many American cities. The President has
    made an unprecedented, administration-wide commitment to eliminating
    chronic homelessness. The administration is also fundamentally changing
    the way the Nation manages the issue of homelessness by focusing more
    resources on providing permanent housing and supportive services for
    the homeless population, instead of simply providing more shelter beds.
        HUD is an active member of the U.S. Interagency Council on
    Homelessness in its work to coordinate the efforts of 18 Federal
    agencies that address the needs of homeless persons. HUD and its
    partners are focused on improving the delivery of homeless services,
    which includes working to cut government red tape and simplifying the
    funding process.
        The Fiscal Year 2005 Budget continues to address the housing needs
    of homeless individuals and families by funding targeted homeless
    programs at $1.5 billion. Three initiatives are being proposed that
    will provide new direction and streamline the delivery of funds to the
    local and non-profit organizations that serve the homeless population.
        The Fiscal Year 2005 Budget includes the Samaritan Initiative to
    address the President's goal of ending chronic homelessness by 2012 and
    includes $50 million for HUD and $10 million for HHS and VA. Persons
    who experience chronic homelessness are a sub-population of
    approximately 150,000 who often have an addiction or suffer from a
    disabling physical or mental condition, and are homeless for extended
    periods of time or experience multiple episodes of homelessness. These
    individuals, for the most part, get help for a short time but soon fall
    back to the streets and shelters. Thus, they continually remain in the
    homeless system.
        The Samaritan Initiative will fund promising local collaborative
    strategies to move chronically homeless individuals from the streets to
    safe permanent housing with supportive services. It will provide new
    housing options as well as aggressive outreach and services to homeless
    people living on the streets. HUD will continue other, current
    interagency efforts to end chronic homelessness including the joint
    initiative with the Department of Labor to link housing and employment
    services in local communities through One-Stop Career Centers.
        HUD proposes to consolidate its three competitive homeless
    assistance programs into a single program. The consolidation will
    provide more consistent funding from year to year, expand eligible
    activities--including prevention--across programs, eliminate multiple
    match requirements, and simplify the competition and award process.
        The administration again proposes legislation that would transfer
    the Emergency Food and Shelter Program (EFSP) from the Federal
    Emergency Management Agency to HUD. The transfer of this $153 million
    program in its current form would allow for the consolidation of
    emergency shelter assistance--EFSP and the Emergency Shelter Grants
    program--under one agency. EFSP funds are distributed through a
    National Board (a public-private partnership) which in turn allocates
    funds to similar local Boards in eligible jurisdictions. Eligibility
    for funding is based on population, poverty, and unemployment data. The
    Board will be chaired by the Secretary of HUD and will include the
    nonprofit agencies that currently constitute the National Board.
        In addition to funding homeless supportive services, the Fiscal
    Year 2005 Budget funds services benefiting adults and children from
    low-income families, the elderly, those with physical and mental
    disabilities, victims of predatory lending practices, and families
    living in housing contaminated by lead-based paint hazards.
        The Fiscal Year 2005 Budget will provide $773 million in funding
    for the Supportive Housing for the Elderly (Section 202) program. In
    the Section 202 program, funding for housing for the elderly is awarded
    competitively to non-profit organizations that construct new
    facilities. The facilities are also provided with rental assistance
    subsidies, enabling them to accept very low-income residents. Many
    residents live in the facilities for years; over time, these people
    often become frail and less able to live without some additional
    services. Therefore, the program is providing up to $30 million of the
    grants to fund the conversion of all or part of existing properties to
    assisted-living facilities, enabling these elderly residents to remain
    in their units. In addition, up to $53 million of the grant funds will
    be targeted to funding the service coordinators who help elderly
    residents obtain supportive services from the community.
        The Fiscal Year 2005 Budget proposes to fund capital advances of
    $249 million for Supportive Housing for Persons with Disabilities
    (Section 811). The Section 811 program will also continue to set aside
    funds to enable persons with disabilities to live in mainstream
    environments. Up to 25 percent of the grant funds can be used to
    provide Section 8-type vouchers that offer an alternative to congregate
    housing developments. In fiscal year 2005, up to $50 million of the
    grant funds will be used to renew ``mainstream'' Section 8-type
    vouchers so that individuals can continue to use their vouchers to
    obtain rental-housing vouchers in the mainstream rental market.
        In 2005, HUD will provide $295 million in new grant funds for
    housing assistance and related supportive services for low-income
    persons with HIV/AIDS and their families through the Housing
    Opportunities for Persons with AIDS (HOPWA) program. Although most
    grants are allocated by formula, based on the number of cases and
    highest incidence of AIDS, a small portion is provided through
    competition for projects of national significance. The program will
    renew all existing grants in fiscal year 2005 and provide new formula
    grants for an expected two additional jurisdictions. Since 1999, the
    number of formula grantees has risen from 97 to an expected 119 in
    fiscal year 2005.
        A compassionate Nation must ensure that those Americans served by
    HUD--many of whom are struggling families, or individuals facing a
    trying time in their lives--live in a healthy and secure environment
    and have access to tools and opportunities that will help them move
    toward self-sufficiency. HUD's basic programs contribute to this goal
    by providing individuals and families with the housing and services
    that allow them to focus on recovery, job-related skill development,
    and obtaining work or increasing income.
        The Voluntary Graduation Incentive Bonus recognizes PHA's that
    experience higher rates of families that transition out of the public
    housing program. This will be the first initiative in over 20 years to
    affirm that public housing's primary mission is to help low-income
    families gain access to housing for a temporary period while on the
    road toward economic freedom. Public housing should not be managed as a
    permanent housing solution for the poor. HUD will allocate $15 million
    in operating fund monies to those PHA's that exceed a baseline
    transition rate.
        In fiscal year 2005, the Department is introducing the concept of
    performance-based bonuses to PHA's in the Flexible Voucher Program.
    Potential performance standards would be successfully helping families,
    including elderly and disabled individuals, move toward independent
    living, economic self-sufficiency, and homeownership. PHA's that
    successfully achieve this goal will be awarded performance-based
    bonuses.
        The Department's objectives emphasize the outcome of the self-
    sufficiency efforts and will measure the changes in the number of
    households no longer needing assistance, with an increase in the number
    of families involved in the Family Self-Sufficiency (FSS) program whose
    predominant source of income is work. PHA's will be rewarded for
    achieving these objectives through an incentive bonus. The bonus
    funding can be used by PHA's for a variety of activities, including
    payment of FSS staff salaries to ensure coordination with State
    agencies, faith-based organizations, and other non-profit providers of
    supportive services; job training, vocational, and educational
    activities; and counseling services.
        The Department will provide $55 million in funds to support the
    Resident Opportunity and Self-Sufficiency (ROSS) program for residents
    of Public and Indian Housing. The main purpose of the funds is to
    provide a link between residents and services that can help them
    achieve self-sufficiency.
        HUD's Lead-Based Paint program is the central element of the
    President's effort to eradicate childhood lead-based paint poisoning.
    In fiscal year 2005, funding for the lead-based paint program will
    increase to $139 million from the $136 million requested by the
    President for fiscal year 2004. Grant funds are targeted to low-income,
    privately owned homes most likely to expose children to lead-based
    paint hazards.
        The program conducts public education and compliance assistance to
    prevent childhood lead poisoning. New estimates from the Centers for
    Disease Control and Prevention (CDC) show that the program has helped
    to reduce the number of children at risk by 50 percent, but that nearly
    half a million children still have too much lead in their bodies.
        Included in the request for this program is $10 million for the
    Healthy Homes Initiative, which is targeted funding to prevent other
    housing-related childhood diseases and injuries such as asthma and
    carbon monoxide poisoning. The President's Taskforce Report notes that
    asthma alone costs the Nation over $6 billion each year. Working with
    other agencies such as the CDC and the Environmental Protection Agency,
    HUD is bringing comprehensive expertise to the table in housing
    rehabilitation and construction, architecture, urban planning, public
    health, environmental science, and engineering to address a variety of
    childhood problems that are associated with housing.

                     ENSURING EQUAL OPPORTUNITY IN HOUSING

        As the primary Federal agency responsible for the administration of
    fair housing laws, HUD is committed to protecting the housing rights of
    all Americans, regardless of race, color, national origin, religion,
    sex, age, familial status, or disability. This commitment is reflected
    in HUD's budget request for fiscal year 2005.
        The goal of HUD's fair housing programs is to ensure that all
    families and individuals have access to a suitable living environment
    free from unlawful discrimination. HUD contributes to fair housing
    enforcement and education by directly enforcing the Federal fair
    housing laws and by funding State and local fair housing efforts
    through two programs: the Fair Housing Assistance Program (FHAP) and
    the Fair Housing Initiatives Program (FHIP).
        The Fiscal Year 2005 Budget will provide $27 million through FHAP
    for State and local jurisdictions that administer laws substantially
    equivalent to the Federal Fair Housing Act. The Department supports
    FHAP agencies by providing funds for capacity building, complaint
    processing, administration, training, and the enhancement of data and
    information systems. FHAP grants are awarded annually on a
    noncompetitive basis. Activities funded by this program play a pivotal
    role in increasing the overall national homeownership rate, which we
    believe will add 5.5 million new minority homeowners by the end of the
    decade.
        Targeted Education and Enforcement Follow Up on Housing
    Discrimination Studies is one of the activities supported through FHAP.
    This education campaign combats discriminatory activities, including
    those against African-Americans, Hispanics, Asians, Pacific Islanders,
    American Indians, Alaskan Natives, native Hawaiians, and persons with
    disabilities.
        FHAP also supports the Fair Housing Training Academy, which will
    serve all FHAP agencies and provide continuing professional fair
    housing training and certification for current and future FHAP staff.
    The curriculum will cover training needed to ensure quality and timely
    investigations of fair housing complaints and includes case processing,
    conciliation skills, compliance monitoring, and testing.
        The Department expects increases in discrimination cases processed
    by State and local fair housing agencies as a result of increased
    education and outreach activities. The fiscal year 2005 FHAP budget
    request supports this increase.
        The Fiscal Year 2005 Budget will provide $20.7 million in grant
    funds for non-profit FHIP agencies nationwide to directly target
    discrimination through education, outreach, and enforcement. The FHIP
    program for fiscal year 2005 is structured to respond to the finding of
    the 3-year National Discrimination Study and related studies, which
    reflect the need to expand education and outreach efforts nationally as
    a result of continuing high levels of discrimination.
        Promoting the fair housing rights of persons with disabilities is a
    Departmental priority and will remain an important initiative within
    FHIP. Fair Housing Act accessibility design and construction training
    and technical guidance are an integral part of the Fair Housing
    Accessibility First Project. Bringing about industry-wide acceptance of
    accessibility as the way to design housing will depend, to a
    significant degree, on easy access to consistently accurate and helpful
    information and guidance on compliance. An extension of the current
    program for at least an additional 1 to 3 years is necessary to achieve
    this goal.
        This project provides training to architects, builders, and others
    on how to design and construct multifamily buildings in compliance with
    the accessibility requirements of the Fair Housing Act. Therefore, the
    Department is requesting $1 million for the first year of a new 3-year
    contract to continue the Fair Housing Accessibility First education and
    outreach training. Fair Housing Accessibility First will maintain a
    hotline and a website to provide personal assistance to housing
    professionals on design and construction problems.

     PROMOTING THE PARTICIPATION OF FAITH-BASED AND COMMUNITY ORGANIZATIONS

        HUD's Center for Faith-Based and Community Initiatives (``the
    Center'') was established by Executive Order 13198 on January 29, 2001.
    Its purpose is to coordinate the Department's efforts to eliminate
    regulatory, contracting, and other obstacles to the participation of
    faith-based and other community organizations in social service
    programs.
        To help returning prisoners rebuild their lives, find work, and
    avoid crime, the fiscal year 2005 President's Budget proposes a 4-year,
    $300 million Prisoner Re-Entry Initiative to be carried out through the
    collaborative efforts of HUD and the Departments of Labor and Justice.
    Harnessing the resources and experience of faith-based and community
    organizations, the Prisoner Re-Entry Initiative will help ex-offenders
    find and keep jobs, secure transitional housing, and receive mentoring.
    HUD's Fiscal Year 2005 Budget includes $25 million for this initiative.
        The 2005 Budget also requests $5 million for a faith-based pilot
    for a multi-city program aimed at increasing the participation of
    faith-based and community-based organizations in the cities' community
    development strategies.
        The Center will continue to play a key role in fiscal year 2005 in
    facilitating intra-departmental and interagency cooperation regarding
    the needs of faith-based and community organizations. It will focus on
    research; law and policy; development of an interagency resource center
    to service faith-based and community partners; and expanding outreach,
    training, and coalition building. Additionally, the Center will
    participate in the furtherance of HUD's overall strategic goals and
    objectives--particularly as they relate to partnerships with faith-
    based and community organizations.
        On December 12, 2002, the President issued Executive Order 13279,
    ``Equal Protection of the Laws for Faith-Based and Community
    Organizations.'' The intent of the Executive Order is to ensure that
    faith-based and community organizations are not unjustly discriminated
    against by regulations and bureaucratic practices and policies.
        In fiscal year 2005, in compliance with Executive Orders 13198 and
    13279, the Center will focus its work on the following key
    responsibilities: ensuring that the new regulations on faith-based
    organizations are implemented and reflected in all HUD policies;
    outreach to faith-based and community groups through technical
    assistance, the Center's website, interagency summits, and other
    efforts; establishing innovative pilot and demonstration programs to
    increase the participation of faith-based and other community
    organizations in Departmental initiatives; and educating government
    personnel on the faith-based and community initiative.
        Progress on these efforts will be tracked as part of the
    President's Management Agenda (PMA).

       EMBRACING HIGH STANDARDS OF ETHICS, MANAGEMENT, AND ACCOUNTABILITY

        HUD is committed to improving performance in its critically needed
    housing and community development programs, and producing these
    improvements in a manner that reflects the highest standards of ethics,
    management, and accountability.
        The PMA is designed to improve the overall efficiency and
    effectiveness of the Federal Government and to address significant
    management deficiencies at individual agencies. HUD fully embraces this
    sound management agenda and is on-target with the necessary plans and
    actions to meet the challenging goals set by the President. To sustain
    the focus needed to achieve these goals, they have been engrained in
    HUD's strategic and annual performance and operating plans.
        The PMA includes five government-wide and two HUD-specific
    initiatives that are tracked and scored in terms of both baseline goal
    accomplishment and the adequacy of plans and progress towards achieving
    established goals. At HUD, these initiatives are addressing
    longstanding management problems that will require action over a period
    of years in order to achieve the President's goals.
        In addition, the Department expects to build upon its continuing
    efforts to improve field management and Headquarters support to the
    operation and management of HUD's extensive field structure. In
    particular, the Office of Field Policy and Management will continue to
    work toward the effective integration of HUD's programs at the
    community level.

    Human Capital
        After many years of downsizing, HUD faces a large number of
    potential retirements and the loss of experienced staff. HUD's staff,
    or ``human capital,'' is its most important asset in the delivery and
    oversight of the Department's mission.
        HUD has taken significant steps to enhance and better use its
    existing staff capacity, and to obtain, develop, and maintain the staff
    capacity necessary to adequately support HUD's future program delivery.
    During fiscal year 2003, HUD completed the Department's Five-Year
    Strategic Human Capital Plan with implementation plans, and in fiscal
    year 2005 will complete comprehensive workforce analyses and plans
    focusing on its core business functions. During fiscal year 2005, HUD
    will implement its comprehensive Departmental workforce plan to ensure
    its workforce is aligned efficiently, skill gaps are assessed and
    corrected, and HUD staff retiring over the next 5 years are succeeded
    by qualified staff to continue quality service and program delivery.

    Competitive Sourcing
        HUD is working to determine if competition of staff functions
    identified as commercial would result in better performance and value
    for the government. However, given HUD's significant downsizing and
    extensive outsourcing of administrative and program functions over the
    past decade, opportunities for further competitive sourcing are limited
    and need to be carefully considered in the context of program risk
    exposure. HUD's Competitive Sourcing Plan has initially focused on
    establishing an adequate capacity to support the competitive sourcing
    process, with identifications of some initial opportunities for
    consideration of possible outsourcing, or in sourcing competitions to
    realize the President's goals for cost efficiency savings and improved
    service delivery. HUD will continue to assess its activities for other
    areas where competitive sourcing studies might benefit the Department.

    Improved Financial Performance
        HUD has strived over the past 2 years to enhance and stabilize its
    existing financial management systems operating environment to better
    support the Department and produce auditable financial statements in a
    timely manner. HUD has received an unqualified audit opinion on its
    consolidated financial statements for the past 4 consecutive years, and
    has reduced the number of auditor-reported internal control weakness
    issues. In fiscal year 2005, the Department will continue making
    progress to reduce the number of material weaknesses or reportable
    conditions in its financial systems.

    Electronic Government/Information Technology
        HUD is not only pursuing increased electronic commerce and actively
    participating in all categories of the President's ``E-Government''
    initiatives, but is also focused on information technology management
    improvements and maximizing the use of Internet technologies to make
    HUD more efficient, effective, and responsive.
        In fiscal year 2005, HUD will place increased emphasis on the
    Department's E-Government, Privacy Act, Section 508 Disabilities Act,
    and Paperwork Reduction Act Programs. HUD's fiscal year 2005
    information technology portfolio will benefit from continuing efforts
    to improve the IT capital planning process, implement project
    management guidance, strengthen IT project management to achieve
    performance goals, complete major business segments of HUD's IT
    business architecture, and continue to improve systems security on all
    platforms and applications.

    Budget and Performance Integration
        HUD developed its portion of the Fiscal Year 2005 Budget with a
    focus on collecting and using quality performance information,
    utilizing full cost accounting principles, and emphasizing program
    evaluations and research to inform decision-makers and managers.
    Staffing and other resources are aligned with strategic goals,
    objectives, and accomplishments. The Department will continue to work
    hard to improve and measure program performance.

    HUD Management and Performance
        HUD is aggressively pursuing several major efforts to improve its
    management and performance by strengthening internal controls to
    eliminate material weaknesses and remove HUD programs from the General
    Accounting Office's (GAO) high-risk list.
        HUD's considerable efforts to improve the physical conditions at
    HUD-supported public and assisted housing developments are meeting with
    success. HUD and its housing partners have already achieved the
    original housing quality improvement goals through fiscal year 2005 and
    are raising the bar with new goals.
        HUD overpays hundreds of millions of dollars in low-income rent
    subsidies due to the incomplete reporting of tenant income and the
    improper calculation of tenant rent contributions. Under the PMA, HUD's
    goal is to reduce rental assistance program errors and resulting
    erroneous payments 50 percent by 2005. HUD established aggressive
    interim goals for a 15 percent reduction in 2003 and a 30 percent
    reduction in 2004. The latest study for fiscal year 2003 indicates that
    HUD exceeded its error reduction goal for that year with a 30 percent
    reduction--estimated to be approximately $600 million in reduced
    subsidy errors. Updated error measurement studies will be performed on
    program activity in 2004 and 2005 to assess the effectiveness of
    efforts to reduce program and payment errors. The Department has a
    number of training and monitoring programs in place that should produce
    additional error reductions. In fiscal year 2005, HUD will work with
    its program intermediaries to fully implement new statutory authority
    that enables more effective upfront income verifications to eliminate
    over half of the estimated erroneous assistance payments.
        FHA will continue to vigorously attack predatory lending practices
    that encourage families to buy homes they cannot afford and cause
    homeowners to lose their homes by refinancing into loans with high
    interest rates. Elderly and minority homeowners are particularly
    vulnerable to predatory lending practices, which include property
    ``flipping'' (schemes where unscrupulous lenders buy homes and quickly
    resell them at inflated prices to uninformed buyers), home improvement
    scams, unaffordable mortgage loans, repeated refinancings with no
    borrower benefit, and ``packing'' life insurance and other products
    into the loan amount.
        Since 2001, FHA has mounted a vigorous assault on predatory
    lending. FHA developed 16 rules to address deceptive or fraudulent
    practices. This includes the new Appraiser Watch Initiative,
    improvements to the Credit Watch Initiative that will identify problem
    loans and lenders earlier on, new standards for home inspectors, a rule
    to prohibit property ``flipping'' in FHA programs, and rules to prevent
    future swindles like the Section 203(k) scam that threatened the
    availability of affordable housing in New York City. These reforms, and
    the greater transparency they ensure, will make it more difficult for
    unscrupulous lenders to abuse borrowers. The HUD budget ensures that
    consumer education and enhanced financial literacy remain potent
    weapons in combating predatory lending.
        The PMA tasked HUD with streamlining the Consolidated Plan process
    to make it more useful to communities in assessing their own progress
    toward addressing the problems of low-income areas. HUD works closely
    with State and local program stakeholders on this initiative. It is
    anticipated that statutory and/or regulatory proposals to meet the
    intent of the PMA will be announced shortly. Pilot testing of a variety
    of streamlining efforts will be completed during 2004, which may lead
    to additional proposals for change. As an outgrowth of the initiative,
    HUD issued a Notice entitled ``Development of State and Local
    Performance Measurement Systems for CPD Formula Grant Programs,'' which
    provides guidance to communities on developing and implementing
    performance measurement systems.
        HUD acquires over $1 billion in contracted services and goods each
    year. As part of an overall strategy to improve HUD's acquisition
    management, actions are being taken to ensure that HUD's centralized
    contract management information system contains reliable data on the
    number of active contracts, the expected cost of the contracts, and the
    types of goods and services acquired, and that its financial management
    information systems provide complete and reliable obligation and
    expenditure information on HUD's contracting activities. Other aspects
    of HUD's acquisitions management improvement strategy are being
    addressed through the human capital management strategy, which
    incorporates actions to enhance HUD's procurement staff capacity and
    improve guidance and training for acquisition officials throughout HUD.

                                   CONCLUSION

        Our success will be judged by the lives and communities we have
    forever changed through our work: the young families who have taken out
    their first mortgage and become homeowners; the once-homeless men and
    women who now have a home; the faith-based and community organizations
    that are successfully using HUD grants to deliver social services; and
    the neighborhoods once facing a shortage of affordable housing that now
    have enough homes for all.
        Empowered by the resources provided for and supported by the
    administration's proposed Budget for fiscal year 2005, new success
    stories will be written and our communities and the entire Nation will
    grow stronger. And more citizens will come to know the American Dream
    for themselves.
        I would like to thank each of you for your support of our efforts.
    We welcome your guidance as we continue our work together.
        Thank you.

                            STATEMENT OF MICHAEL LIU

        Mr. Liu. Thank you, Senator. I will summarize and try and
    move very quickly through my testimony--and Ranking Member.
        In regards to the Section 8 Voucher Program, not wanting to
    replicate what my colleague has said on this subject, let me
    just note that many of the reforms contained in our proposal
    come from suggestions made by the public housing agencies
    themselves, as well as concepts already tested under the Moving
    to Work demonstration. It's also intended to deal with the
    growing complexity of the program.
        Here we have in front of you, sir, our rules, regulations,
    various guidances that have grown around a very well-
    intentioned program, a program whose purpose we still support,
    but which we think needs to be rationalized and made more user-
    friendly.
        Secondly, may I also mention that, in addition to making
    reforms to the program, the proposals, as a byproduct, add
    another tool to deal with some of the spiraling costs that we
    have all recognized are associated currently with the program.
        Perhaps I could have some assistance here just to show--the
    first chart here indicates the size of the Section 8 tenant-
    based voucher program relative to HUD's budget, and that's that
    magenta-colored area there, over half--just a bit over half,
    based on the 2004 enacted budget, sir.

                          PUBLIC HOUSING CAPITAL FUND

        Public housing, capital fund. The capital fund has remained
    stable since 2002, at approximately $2.7 billion, which is our
    request for fiscal year 2005, as well. This steady level of
    financing--of funding allows PHA's to pursue debt financing to
    accelerate the modernization of public housing. Rehabilitation
    that would take 10 to 20 years, using annual appropriations,
    can now be dealt with in 5 years or less. So far, the
    Department has approved over $1.4 billion in debt financing.
    There are over 40 deals in the pipeline now which might range
    anywhere from another billion to $2 billion of private-sector
    dollars into the process of modernization and rehabilitation.
    These tools continue to enhance our ability to address more
    quickly the backlog in annual accrual needs of public housing.

                                    HOPE VI

        As to HOPE VI, the Department is not requesting any funding
    for the program for 2005, because we believe the program has
    achieved one of its primary goals of demolishing over 100,000
    units of distressed public housing. However, the other primary
    goal of HOPE VI, revitalization of community, still awaits
    fruition. While this administration has made progress, with
    your assistance, in accelerating development schedules, still
    only 26 grants are completed out of close to 200, and
    approximately $2\1/2\ billion remain unexpended. In addition,
    two more rounds of new grants will be awarded. And, with that,
    we will have the program in existence, with current funding,
    well into past 2010.

                                 OPERATING FUND

        Operating subsidy. The Department estimates that the
    request for $3.6 billion for the Operating Fund in 2005 will
    fully fund PHA's according to the current formula. Currently,
    HUD is involved in a negotiated rule-making on this subject. We
    also have proposed a Freedom to House demonstration program,
    built on the Moving-to-Work Program in public housing, and we
    hope that we will get favorable consideration there.
        We are also moving toward asset-based management, which was
    recommended by Harvard in a cost study which was requested by
    the Congress.

                                NATIVE PROGRAMS

        Finally, our programs for Native Americans, Alaskan
    Natives, and Native Hawaiians are basically sustained in past-
    year levels, and we are very pleased with the success of the
    obligation and expenditure of amounts in those programs.
        Thank you, sir.
        Senator Bond. Thank you, Mr. Liu.

                           STATEMENT OF JOHN WEICHER

        Dr. Weicher. Thank you, Mr. Chairman. Good morning, Ranking
    Member Mikulski.

                               ZERO DOWN PAYMENT

        I would like to focus on the Zero Down Payment Initiative
    that you referred to in your opening remarks. As you know,
    President Bush has placed major emphasis on promoting
    homeownership, particularly for minority households. This
    initiative has contributed to the record homeownership rate
    that Assistant Secretary Bernardi mentioned a moment ago.
    Housing continues to lead the way in our rebounding economy,
    and the President's housing initiatives will help more
    Americans, particularly minorities, achieve the dream of
    homeownership.
        FHA has contributed to that record. Last year, we insured
    1,365,000 new single family mortgages, the highest total ever.
    Eighty percent of our home-purchase borrowers are first-time
    homebuyers. Forty percent of our first-time homebuyers are
    minority households.
        The fiscal year 2005 budget includes the Zero Down Payment
    Initiative as a major new proposal within our single family
    home mortgage program. First-time homebuyers will be allowed to
    finance 100 percent of the mortgage, as well as all closing
    costs. Potential homebuyers would not have to make FHA's normal
    minimum down payment or pay closing costs out of pocket. It's
    well known that the biggest hurdle to homeownership is having
    the cash for the downpayment and closing costs. Many families
    have a steady income and can afford the monthly mortgage
    payment, but don't have the up-front cash they need. We
    estimate that in the first year of the program, 150,000
    families will be able to buy their own homes.
        To compensate for the higher risk of default, the premiums
    will be higher than FHA's regular downpayment program. The up-
    front premium would be set at 2\1/4\ percent, as compared to
    1\1/2\ percent, and the annual premium would be 75 basis
    points, as compared to 50 basis points. After 5 years, the
    annual premium would be reduced to 50 basis points, the same as
    in our regular program.
        I understand your concerns, Mr. Chairman, about the risk
    FHA would incur for this new program. At the higher premium,
    FHA will more than cover our expected claims. As the
    President's budget reports, we calculate that the additional
    $19 billion in mortgage commitments will generate net revenue
    of about $190 million in the first year.
        I also want to note that the 2003 Actuarial Review of the
    MMI Fund calculates our net worth at $22.7 billion, more than
    double the reserves required under the Cranston-Gonzalez
    National Affordable Housing Act.
        It may be worth mentioning that I served at HUD when that
    Act was written, as Assistant Secretary for Policy Development
    and Research, and worked with Congress, worked with the
    authorizing committee, of which you were then a member, to
    develop the FHA reform legislation establishing the financial
    safety and soundness requirements, and reforming the 203(b)
    program.
        I take seriously the need to operate FHA on a sound
    actuarial basis. There are several reasons why the new Zero
    Down Payment Program will increase our net worth. First,
    borrowers will be held to the same underwriting guidelines as
    those who apply for an FHA standard-payment loan. They must
    meet the same payment-to-income and debt-to-income ratios, and
    the same credit standards.
        Moreover, all potential borrowers would be required to
    participate in homeownership counseling. Our program data show
    that homeowners who have pre-purchase counseling are less
    likely to default than those that haven't. This administration
    has doubled the request for counseling funds since 2001, from
    $20 million to $40 million. You have appropriated those funds.
    And this year we're requesting a further increase, to $45
    million.
        We would also require lenders to use our new FHA TOTAL
    Mortgage Scorecard to evaluate the overall credit-worthiness of
    borrowers. It allows FHA lenders to better predict which
    borrowers are good risks, and identify those that are bad
    risks. Further, our legislation would allow the Department to
    include additional requirements for borrowers, as we deem
    necessary.
        Let me finish, briefly, by mentioning, the multifamily
    side, in particular, I know that Congress is concerned about
    the suspensions of activity within the GISRI Fund over the last
    year. We believe our proposed $35 billion commitment level for
    the fund should minimize any possibility of suspension next
    year, and we are monitoring our activity every day this year.
    Secretary Jackson has said he's committed to provide
    information to you by May as to whether we felt we would need
    additional credit commitment authority this year.
        Thank you, Mr. Chairman. I'll be glad to answer any
    questions.

                           FLEXIBLE VOUCHER PROPOSAL

        Senator Bond. Thank you very much, gentlemen.
        Mr. Liu, I'd say that that stack of regs cries out for
    regulatory reform. If we do not go along with the Flexible
    Voucher Program, that should really be fun to get rid of about
    two and a half of those stacks, or more. If you need some help
    from us, we'd be delighted to do it. I came to this body as a
    regulatory reformer, and, man, what a great opportunity right
    there. So I hope that will become a project.
        Let me turn to the proposal. We've asked for analysis from
    HUD, which you've not been able to give us, on what each PHA
    receives in the current year under Section 8, and the amount of
    funds the PHA's would receive under Section 8 funding for 2005.
    If you don't have this data, I don't see how you can make this
    proposal without running models, using rent trends for each
    market in order to understand the impact of the cuts. In fact,
    HUD needs to analyze individual rents by market and possible
    increases to understand the impact of this proposal on low-
    income and extremely low-income families. If you have not run
    these models, why not? And if you have not, would you please do
    so, and provide them for the record?
        Mr. Liu. Mr. Chairman, as you know, we are still in the
    2004 year, and we are still calculating doing runs for
    individual PHA's relative to the formulas related to the 2004
    budget. Our proposal for the Flexible Voucher Program deals
    with maintaining whatever proportionate share that a housing
    authority will ultimately get in 2004, to receive that
    proportionate share in 2005. So our ability to give specific
    dollar amounts for any particular PHA is limited at this time
    because of where we are in the process of allocating our
    dollars for 2004. But we do believe that, in the aggregate,
    that allocation--again, keeping the proportionate level to
    whatever ends up being the share of the housing authority in
    2004--will permit that housing agency, under our Flexible
    Voucher Proposal, which ultimately reduces the amount of work
    significantly of what a housing authority has to do in Section
    8, to sustain?
        Senator Bond. Well, this proposal has a ticking time bomb
    in it. We think that the OMB budget is underfunded by about
    $2.2 billion, yet you say that HUD is confident it can maintain
    current levels of service, and even increase the number. But
    I'm concerned about the impact on extremely low-income
    families, those at or below 30 percent of median income. Those
    are the ones that we worked out in the 1998 agreement that we
    would serve them. But if a PHA has to maintain or increase the
    number of vouchers, it would seem to be a very strong incentive
    not to provide assistance to the low-income and, thus, the more
    expensive families needing the vouchers. And it would seem to
    me that the likely result would be a significant decline in the
    percent of low- and extremely low-income families served in the
    PHA's, because they won't be getting the money that they need,
    and yet they'll be charged with getting out more vouchers. I
    don't see how you can avoid that trap.
        Mr. Liu. Mr. Chairman, as we have examined and collected
    information over the years from CORA, with the well-intentioned
    targeting of income that you described, and what we have found
    is that that has been, in some respects, yes, very successful,
    where 80 percent, currently, of those in the program actually
    are at the extremely low-income level, 18 percent are in the
    30-50 percent of median-income level, less than 2 percent in
    the 50-80 percent level.
        The difficulty comes where we definitely do have a limited
    resource--this is not an entitlement program, as we all know--
    and where we do have these long waiting lists. And housing
    authorities don't have the flexibility now, when they have
    reached the proportion, to make accommodations for those
    families that earn 35 percent of median income, maybe are
    working; or 40 percent of median income, trying to transition,
    trying to find a way up, and get that housing assistance.
    Housing agencies today don't have that flexibility to make that
    call, make that accommodation. And that's what we are asking
    housing agencies to at least have the option for. We're not
    mandating that they make the change, but they have the option
    to deal with those difficult situations.
        Senator Bond. Thank you, Mr. Liu. I'll come back to these
    questions in my next round of questioning, but I'll turn it
    over to Senator Mikulski.

                                    HOPE VI

        Senator Mikulski. Thank you very much, Mr. Chairman.
        I'd like to go to Assistant Secretary Liu and pick up on
    HOPE VI, which, as you know, is very important. I encourage the
    others to jump in. I know, Mr. Bernardi, you were a former
    mayor of Syracuse, and you had a lot of innovative ideas on
    urban development, so you know how it all goes hand in hand.
    HOPE VI was never meant to be a real-estate development, it was
    meant to be community development. It was about a new physical
    architecture and a new social architecture.
        Now, Mr. Liu, you're talking about how we still have $2
    billion in unspent HOPE VI funds. You estimate that this is
    going to go well into the decade. At the same time, what we
    understand is that there are somewhere between 50,000 and
    80,000 severely distressed public-housing units still out
    there. Others, outside of HUD, tell me that, though there is
    the money in the pipeline, this is money that's on its way to
    being committed. This does not deal with the other issues of
    these 47,000 to 80,000. Can you tell me why we are cutting HOPE
    VI? And then, also, are you, at HUD, committed to looking at a
    reauthorization of HOPE VI and looking at lessons learned?
        Mr. Liu. Senator Mikulski, we are definitely focused in on
    attempting to get the projects promised built. Besides the
    $2\1/2\ billion, which is unexpended, there is going to be
    close to a half billion dollars after the announcements are
    made. Then there are billions more on top of that that are
    associated with these projects--some committed, some not yet
    committed, some part of these deals which have to be worked
    out. So----
        Senator Mikulski. Well, how much of what is at HUD is
    uncommitted?
        Mr. Liu. I'd have to check. I don't know the specifics----
        Senator Mikulski. Well, I think that's important to know,
    and I appreciate the promises made, promises kept, where we are
    in the process, because we commit various amounts at various
    stages of development.
        But let's go to the future of HOPE VI. We had been working
    with Secretary Martinez, who formed an internal group on HOPE
    VI to look at the future. Could you tell me where that internal
    group is? And also, using the work of the Urban Institute and
    others who have evaluated the need for this, are you all
    looking at a reauthorization of HOPE VI and what this would be,
    or do you all want to see it die?
        Mr. Liu. We're looking at different tools for the area of
    redevelopment. There are a lot of ideas, a lot of great ideas,
    out there as to how----
        Senator Mikulski. That wasn't my question.
        Mr. Liu. We can----
        Senator Mikulski. That wasn't my question.
        Mr. Liu. Would you repeat the question? I'm sorry, Senator.
        Senator Mikulski. Are you, or are you not, committed to the
    reauthorization of HOPE VI, knowing there needs to be review,
    refresh, reform, but also the restoration of HOPE VI as part of
    an authorized, funded program?
        Mr. Liu. We have submitted our proposal, which is not to
    fund HOPE VI. We are looking at----
        Senator Mikulski. Ever again?
        Mr. Liu [continuing]. Other tools for redevelopment.
        Senator Mikulski. Is the internal group on HOPE VI still at
    work?
        Mr. Liu. We're still talking to people, doing research on
    this issue with that group and others, so the work continues to
    see----
        Senator Mikulski. Work continues, but is it for the purpose
    of looking at what a 21st century HOPE VI would look like?
        Mr. Liu. It would be for the purpose of looking at what a
    21st century redevelopment program--I don't know if we'd call
    it HOPE VI, but some sort of a redevelopment program, yes.
        Senator Mikulski. Well, you know where I am, because we
    have all this distressed housing, and we have more work to be
    done.

                               GAO REPORT ON FHA

        Let me go now to FHA. First of all, Mr. Weicher, thank you
    for the work that you've done to help reduce predatory lending,
    not only in Baltimore, but all over. We understand the GAO is
    releasing a rather scathing report about HUD's disposition
    process today. We've only begun to get a preliminary look at
    it, but they're very, very critical of this, talking about
    payments for $1,500 for a small kitchen cabinet, $4,000 for an
    outdoor stoop with uneven patches. I won't go through all the
    specifics that are hair-raising examples--but could you tell us
    what is your view on the GAO report, particularly in
    implementing their recommendations for monitoring of their
    contractors, getting documentation of costs, and starting to
    take competitive work on repairs for FHA; in other words,
    getting value for their taxpayers' dollar, and ensuring that
    FHA is a good neighbor.
        Dr. Weicher. Yes, thank you, Senator Mikulski.
        We have not seen the final report, but we commented on the
    draft report. And with respect to the examples you cited, these
    all concern properties which we took title to in clearing up a
    203(k) fraud in New York, which occurred in 1999 and 2000, and
    early 2001. The GAO identified $180,000 in payments on those
    properties which they consider to be improper payments. We,
    ourselves, identified almost $900,000 in payments for bills
    from that contractor which we considered bills for work that
    had not been done.
        Senator Mikulski. Yes, but----
        Dr. Weicher. We held----
        Senator Mikulski [continuing]. The GAO report is more than
    the New York report. And I appreciate your efforts to clean it
    up. What about the recommendations on this? There are also
    those that believe that because HUD has contracted out property
    disposition, that debt has become more expensive and fraught,
    rife with waste, rather than bringing it back in-house with HUD
    people who know what to do. So where are we in cleaning up the
    overall issues? Because they cite the lack of internal
    controls, oversight of the single family and multifamily
    programs, and they go into other issues about it. I understand
    you inherited a mess in New York.
        Dr. Weicher. Well, in that vein----
        Senator Mikulski. And I would acknowledge the validity of--
    --
        Dr. Weicher [continuing]. In cleaning up that mess, we have
    terminated that contractor, we have referred that contractor to
    the Inspector General, and we held back almost $900,000 from
    the final settlement of the contract with that contractor.
    Beyond that, I can say that, in 2002, the audit done by the
    Inspector General's office indicated that single family REO was
    a reportable condition. In 2003, the audit says that that
    condition has been resolved. I would say that we have----
        Senator Mikulski. Well, that's not what they're saying.
        Dr. Weicher. That's the----
        Senator Mikulski. I really need you to read the report.
        Dr. Weicher. I----
        Senator Mikulski. They're talking about monitoring of
    contractors, getting documentation of the work done,
    competitive bids for repair work. And also: who does the
    property disposition? And there is significant material
    available that says when you contract that out, they're pretty
    sloppy about it.
        Dr. Weicher. Our----
        Senator Mikulski. And this has a lot of issues in it. And I
    know you want to----
        Dr. Weicher. No----
        Senator Mikulski. I mean----
        Dr. Weicher. I can tell you this, Senator; overall, we have
    the lowest loss rate, including the cost of maintaining
    property, that we've ever had in this program. We are losing 26
    cents on the dollar; we've traditionally lost 40 to 45 cents on
    the dollar in this property. We have an inventory of 30,000
    properties. It's down from 50,000 5 years ago. And it's come
    down straight during the recession.
        Senator Mikulski. And I appreciate that good news. But have
    you looked at the GAO report? And do you intend to implement
    their reforms?
        Dr. Weicher. We looked at the report. We looked at the
    draft report. We haven't yet seen the final. We commented on
    the draft report. We took issue with the statements about
    questionable payments, most of the statements about
    questionable payments, which they made in the report. We
    recognize that, in some locations, only two reviews of
    individual invoices were made; whereas, the rules call for
    three, and we are correcting that so that the third review
    occurs, as well. We are also in the process of re-procuring the
    M&M contracts, and we will be re-procuring 24 contracts this
    year with a focus on providing opportunities for small business
    to participate more extensively----
        Senator Mikulski. In doing what?
        Dr. Weicher [continuing]. In the program.
        Senator Mikulski. In doing what?
        Dr. Weicher. In managing--the M&M contractors are the
    management and marketing contractors for the single family REO.
        Senator Mikulski. Well, I'm sorry, I think that this is
    really rife with problems, and we want small business, but
    you've got to really look at competency.
        Dr. Weicher. I'm sorry, I didn't hear you.
        Senator Mikulski. You've got to really look at competency.
    I was appalled to read the executive summary of GAO. I know you
    haven't had a chance to read it. I know we've had other such
    constructive work, and I know you really want to be the steward
    of taxpayers' dollars, as well as a good neighbor with HUD
    property in a community. I'm asking you to look at this. And
    while you're looking at expanding opportunity, let's make good
    use of this money.
        Dr. Weicher. We intend to do that, Senator, and I will be
    happy to, at any future time, have a more extensive discussion
    with you about what we have been doing.
        Senator Bond. Mr. Weicher, following up on that, I see you
    have the report there on the table, just to Mr. Bernardi's
    right. Here is a picture of a new bathroom floor, which was
    approved for payment. You can see the holes in it, it's in
    terrible condition. This is a completed bathroom repair, which
    is a total disaster.
        Now, here on page 38 is a bathroom repair that is so bad it
    should be X-rated. You may have procedures to have people sign
    off on the invoices, but I want to know who the HUD official is
    who is supposed to go out and look at that. I can't believe
    that you approve payments if three people look at an invoice,
    without sending a live person out to see if the work's done. Do
    you do that?
        Dr. Weicher. We do send people to look at repairs in
    individual cases. In this case, all of these refer to the New
    York properties that I mentioned in responding to Senator
    Mikulski. All of these examples are within that $180,000. And
    we did, in fact, pursue those issues with the contractor, and
    we terminated the contractor, we referred the contractor to the
    Inspector General for further investigation, and we held back
    almost $900,000 when we terminated the contract.
        We have a new contractor, and the new contractor has been
    making the repairs, the needed repairs, and, by everything I
    know, doing a good job.
        Senator Bond. Okay. Well, I mean, it took 6 years to get it
    done, and it seems to me if you're going to be paying hard cash
    for somebody to do the repairs, with the wonderful, talented
    field staff you have, you ought not to pay----
        Dr. Weicher. Uh-huh.
        Senator Bond [continuing]. Until somebody goes out and
    looks and sees that the job's done. I mean, am I missing
    something here?
        Dr. Weicher. No, we have, ourselves, been following up on
    these properties ever since we began taking title to them in
    2000 and 2001. We've followed up ourselves. We have tracked the
    performance of the contractor. We have had a lot of discussions
    with that contractor. They improved their performance for a
    while, they deteriorated again, and we terminated them.
        Senator Bond. I'm not worried about the terminated
    contract. I want to make sure now when you get an invoice for
    somebody who's done repair work, does somebody from HUD go out
    and look and see if the job is done?
        Dr. Weicher. Yes. In this area in particular, we've had
    people specifically assigned to look at these properties, and
    they have come back and told us about the problems.
        Senator Bond. Well, I would think that in every area it
    would make sense, before you pay----
        Dr. Weicher. Uh-huh.

                                      FMRS

        Senator Bond [continuing]. Somebody looks at it, because
    this one, obviously the serious problem should have been
    detected. I hope that you will get some real, live HUD person
    to look at it to make sure the work's done before you pay for
    it. Otherwise, you're facing a disaster.
        Let me go back to Mr. Liu. I'm worried about redlining in
    the concentration from this flexible voucher, because you're
    going to be shorting the PHA's, they're going to have to lower
    the amount of rent payments, that there will be a concentration
    of families into poor and distressed communities. And it seems
    to me that the potential is to increase homelessness and
    increase the ``zip codes of poverty'', as my colleague
    describes it. Why is this not a valid concern?
        Mr. Liu. Mr. Chairman, as we have been collecting real
    market rent data from across the country, utilizing both our
    internal resources and those from the private sector--notably
    the Institute of Real-Estate Management, IREM, and Property
    Portfolio Research, PP&R, as well as work done by PD&R--in
    looking at the rents, we have seen that in the majority of
    areas across the country--not all, but in the majority of
    areas, the real rents have actually decreased across the
    market. And just the opposite has occurred with our FMR's,
    which are required to be set by Washington, by statute, and
    which have not been reflective of the changes in the
    marketplace in a timely fashion.
        And the bottom line is, we, in fact, in many, many areas
    across the country, are paying more than what is really needed
    to provide safe and decent housing under Section 8.
        Senator Bond. Well, No. 1, we'd like to have the data, if
    you'd provide that for us today.
        Mr. Liu. Yes.
        [Clerk's Note.--The information referred to has been
    retained in Committee files.]
        Senator Bond. No. 2, why can't you fix the FMR problem?
        Mr. Liu. The FMR problems requires us to do it from
    Washington. And over the years, we have tried--and we are
    looking at it, and we're trying to deal with the issues at the
    edges, but it is very difficult, from Washington, DC, with the
    resources that we have, to go out and do the type of market-
    data research that truly reflects where we are.
        Now, we are moving toward----
        Senator Bond. You have staff out in the heartland, don't
    you? You've got a great staff, I know, in Kansas City.
        Mr. Liu. Yes, we do, sir.
        Senator Bond [continuing]. Can't they feed back to you
    something?
        Mr. Liu. Well, we are working within that framework to do
    that, but what compounds this is the 110 percent payment
    standard, which, associated with whatever FMR we can come up
    with, has pushed the costs of the program to a very high level.
    The average payment standard now across the country is at 104
    percent, and it's increasing every year.
        Senator Bond. While you're speaking of Kansas City, we are
    hearing grave concerns that many PHA's, and specifically Kansas
    City, will have a significant shortfall. Kansas City Housing
    Authority projects it'll have a funding shortfall of over $8.7
    million. And even after using its 1 month reserve, HUD's
    formula would still leave them with a shortfall of over $5
    million to support 1,237 families.
        We included statutory language, at the recommendation of
    HUD, because HUD convinced us it was one way to assure that
    assisted-rent increases would reflect the increases of
    comparable unassisted units in the community.
        How does HUD reconcile this failure to recognize the
    problem for 2004 with HUD's proposed total rewrite of Section 8
    and the possible impact on families already receiving vouchers?
        Mr. Liu. Mr. Chairman, the per-unit costs, as you know,
    were capped at the August 1, 2003 level, by statute, in the
    2004 appropriations bill. And although Congress did add a
    billion dollars in funds to the requested amount, there was
    also a rescission of a billion dollars more than proposed by
    the President's request for 2004. So, in total, we did not get,
    you know, the increase needed, perhaps, to deal with the caps,
    which were set for 2004.
        However, the fiscal year is not yet out, and there are
    still adjustments that both we and the housing agencies, as
    directed by Congress, can and need to make. So we're hopeful
    that we do not end up in the shortfall situation, sir.

                                FLEXIBLE VOUCHER

        Senator Bond. You know, I have grave concerns that some
    areas are getting too much money, some areas are not getting
    enough.
        Let me ask one other question. If you really want to deal
    with the problems, why do you propose to maintain the current
    restriction on project-based assistance? If HUD truly wants to
    allow PHA's to meet local housing needs, where there's a
    shortage of housing, where the rents have been driven up, why
    not allow PHA's the ability to use Section 8 assistance to
    develop more low-income housing as part of their mixed-income
    housing approach?
        Mr. Liu. Well, under our flexible voucher proposal, Mr.
    Chairman, as well as under a proposed rule which is out right
    now, we move very much in that very direction, to allow much
    more flexibility on the part of housing authorities to use the
    tenant-based program for project-based reasons. For instance,
    the current cap of only 25 percent of the units in a building
    being eligible for project basing under the tenant-based
    program would be removed under our proposal, the flexible
    voucher. Both in the proposal, as well as in the Flexible
    Voucher Program, that would be listed. We are moving to take
    away site and location requirements of having to come back to
    Washington for review. We'd like to keep that in the field.
        Senator Bond. I'll turn the questioning back to Senator
    Mikulski at this point.

                                  FHA AND REAC

        Senator Mikulski. Thank you very much, Mr. Chairman. That
    was an interesting line of questions, and I support the
    direction that you're going in.
        I'd like to come back to FHA again. And it goes to
    something I call ``public housing by proxy.'' And that goes to
    FHA-insured apartment buildings. Stick with me a minute. And
    I'll use Maryland as an example. One of the lessons learned was
    that high-rise public housing didn't work. And as suburbs
    contiguous to urban areas tried to be innovative and use
    Section 8, where they welcomed Section 8, and people moved into
    apartment homes. Well, what we've seen is a pattern,
    particularly the closer you are into a city, is that apartment
    buildings or complexes have all become Section 8. So that's why
    I refer to it as ``public housing by proxy.'' You sticking with
    me on that?
        Dr. Weicher. Yes, certainly.
        Senator Mikulski. Now, what has happened, though, is that
    many of these units are older, many 40 or 50 years old. They do
    not have the oversight provided in public housing, with a
    professional housing authority, and so on.
        Now, here, then, comes my set of questions, which goes to
    the fact of getting value. Section 8 is an opportunity for the
    poor, the way Mr. Liu has talked about, that it becomes the way
    to a better life, and, at the same time, we don't want to be in
    the business of publicly held big public buildings. Well, what
    we're seeing, though, is that these FHA-insured apartment
    buildings, in many instances, have taken on all the
    characteristics of slums, that they're rundown, they're not
    being maintained, that they become concentrations of both
    poverty and crime. But, at the same time, the landlords are
    taking the subsidies.
        What is your role? First of all, I understand you have a
    REAC team that's supposed to inspect those.
        Dr. Weicher. Yes.
        Senator Mikulski. And that there are 250 of them, but
    they're private contractors. What I'm going to is the fact that
    we make sure we're getting value, both for the taxpayer and the
    empowerment aspects. How are you really standing sentry and
    ensuring that these REAC teams, which are done by private
    contractors, not by government inspectors, are really doing
    their job, No. 1, and, No. 2, avoiding cronyism, kickbacks, and
    other kinds of winking and blinking? Because that same private
    contractor might have a deal with the owner of that complex,
    because many of them own several complexes in another area. And
    I know that this is----
        Dr. Weicher. Yeah.
        Senator Mikulski. Could you share with me what your views
    on this and your operational procedures?
        Dr. Weicher. Sure. Part of this, I will refer back to
    Assistant Secretary Liu, because the REAC operation is formally
    part of public and Indian housing. But I can tell you this, we
    have looked at each of these buildings that we insure, and
    these include both the subsidized Section 8 project-based
    buildings and the insured buildings which are not subsidized,
    but which may have Section 8 voucher recipients in them, as
    well as those which have no subsidized recipients at all. We
    inspect each property. If it has a below-60 score, we inspect
    it every year. If it's between 60 and 80, we inspect it every
    other year. Above that, we inspect it every third year. We
    refer any project with a below-60 score to our Departmental
    Enforcement Center, which does its own review of the project
    and works with the owner to have the project upgraded to meet
    our standards.
        Senator Mikulski. And how often, then, would you inspect
    them, then?
        Dr. Weicher. In that situation, we inspect them every year,
    but once they're in the Enforcement Center it's an ongoing
    process of working with the owner and verifying that the owner
    is making the----
        Senator Mikulski. What happens if----
        Dr. Weicher [continuing]. Repairs.
        Senator Mikulski [continuing]. But you do monthly
    inspections, weekly inspections, and so on?
        Dr. Weicher. They're----
        Senator Mikulski. And then I want to come back. How do you
    insure the quality of the inspector? And, Mr. Liu, if you want
    to jump in so you see where I'm heading? We don't want to have
    government-subsidized slums. I like the idea that if you're a
    good-guy landlord, you don't have us running in every hour and
    a half----
        Dr. Weicher. Right.
        Senator Mikulski [continuing]. But if you're on the edge or
    really are a skimmer, we want you in there a lot.
        Dr. Weicher. May I add one thing? The owner is required to
    tell us when the owner has completed the repairs, and then we
    go out and verify that the repairs have been made.
        Senator Mikulski. And you actually go----
        Dr. Weicher. And that, of course----
        Senator Mikulski [continuing]. An onsite----
        Dr. Weicher. Yes.
        Senator Mikulski [continuing]. Repair.
        Dr. Weicher. Yes.
        Senator Mikulski. You don't just go----
        Dr. Weicher. Yes, we do that. I wanted to add that before--
    --
        Senator Mikulski. Yes. And Mr. Liu, and also, then, to
    ensure what we would call the independence and vigor of the
    REAC team contractors.
        Mr. Liu. What we have, Senator Mikulski, is--within the
    last year and a half, we had the same concern, because we had
    created a system with our contractors where they would be able
    to bid--let's say a housing authority on the public-housing
    side, or on a multifamily on a project base, without
    necessarily breaking it down on a per-unit base. So we have
    been very concerned about essentially some skimming--ability to
    get some float which is really not associated with the work
    being done.
        We have put together a quality-assurance protocol where we
    do a periodic check of a certain random sample now every, I
    think, 3 months, of the contractors that we have. Secondly, if
    there is a variance of a score, whether it's multi-family or on
    public housing, I think if it varies above 15 points over the
    prior year, we send out a REAC, a HUD team, to do what we call
    a ``confirmatory review'', to check on the work of the
    contracting inspector.
        Finally, we are now in the mode of a demonstration where we
    are working to cut out the middle person right now, because
    contractors who actually do the work are actually
    subcontractors of a few, relatively few, middle contractors, so
    that further diffuses the contact with HUD. And we are
    experimenting now with a system whereby individual contractors
    can bid on individual projects that are available for
    inspection, so that we have a closer link to the actual
    inspectors and inspections being done.

                SALE OF PROPERTY TO OWNERS WITH CODE VIOLATIONS

        Senator Mikulski. Well, I really want to support the
    momentum for reform that you have here, and oversight vigor and
    independence, at the same time, for rewarding good behavior,
    either through the person doing the inspections, or where
    they're really the good landlords, they have a cooperative
    Federal Government. So I want to support you on that.
        The other is that in last year's legislation, we talked
    about a good-neighbor policy and to ask HUD to stop or curtail
    HUD from selling foreclosed buildings to owners with serious
    records of housing-code violations. These were the ones who
    were skipping it up and I call them ``pre-predators'', or
    another kind of way to weasel in.
        Mr. Liu. Yes.
        Senator Mikulski. We won't call them ``predators'', we'll
    call them ``weasels.'' It's not a technical term found in
    regulators but it's out there in the neighborhoods and for the
    taxpayer.
        Could you tell us where you are in helping with this again
    to get value and neighborhood development, et cetera?
        Dr. Weicher. We are in the process of developing
    regulations to prevent the sale of properties to purchasers who
    have demonstrated patterns of housing-code violations. We have
    put together a term sheet for the development of that proposed
    regulation, and asked the General Counsel's office to make that
    a priority, and we will be producing it. I can't give you a
    precise schedule at this point, but we know it's a priority,
    and we will be doing it----
        Senator Mikulski. Yes, we had----
        Dr. Weicher [continuing]. As quickly as we can.
        Senator Mikulski. Yes, we had a April 22 deadline, and----
        Dr. Weicher. If we have a proposed regulation by April 22,
    it will be a substantial achievement. We will certainly keep
    you apprised. But we can't, of course, possibly get a final
    regulation in place----
        Senator Mikulski. But I think you would----
        Dr. Weicher [continuing]. In 3 months.
        Senator Mikulski [continuing]. I think we agree on the
    spirit of the----
        Dr. Weicher. Yes.
        Senator Mikulski [continuing]. Outcome.
        Dr. Weicher. We certainly----
        Senator Mikulski. And then----
        Dr. Weicher [continuing]. Do.

                             FHA FORECLOSURE RATES

        Senator Mikulski [continuing]. As well-paced of a
    implementation as we can.
        Mr. Chairman, if I could just ask, Mr. Weicher, why you got
    our FHA proposal rates up so high?
        Dr. Weicher. Sure.
        Senator Mikulski. And that will be my last question.
        Dr. Weicher. Sure.
        Senator Mikulski. Yes, sir. FHA?
        Dr. Weicher. Sure. Our foreclosure----
        Senator Mikulski. And, again, I really want to thank you
    for our tremendous inroads against predatory lending. At least
    at the FHA level. We've got a lot more to do at the sub-prime
    level. But----
        Dr. Weicher. Thank you for that. May I say, also, we
    haven't quit. We are not resting on our laurels. We have
    additional regulations to address predatory lending. And, just
    last week, we sent up, for the 15-day review period, a proposed
    regulation requiring treble damages to a lender for failure to
    engage in loss mitigation----
        Senator Mikulski. Right.
        Dr. Weicher [continuing]. Which is part of our effort.
        Let me say, with respect to foreclosure rates, our
    foreclosure rates in FHA are dropping, in fiscal year 2004, to
    where they were in fiscal year 2003. They're down nationally.
    They're down in most of the larger metropolitan areas. What we
    have seen is a typical pattern when there is a recession--
    foreclosures rise, but they keep on rising after we hit bottom
    in the recession, because people try to hang onto their house
    as long as they can, and people make the payments as long as
    they can. And it's after we've hit bottom in the recession and
    are starting up, but----
        Senator Mikulski. So you think that----
        Dr. Weicher [continuing]. Some of the people who are still
    unemployed fail.
        Senator Mikulski [continuing]. It's a temporary spike----
        Dr. Weicher. Yes.
        Senator Mikulski [continuing]. Rather than a pattern.
        Dr. Weicher. Yes. And we are seeing it start to come down.
        Senator Mikulski. Well, that's good news.
        Dr. Weicher. Our foreclosure rate last year was just over
    1\1/2\ percent of our portfolio, and it's dropping slightly
    this year.

                    THE ELDERLY AND FAITH-BASED INITIATIVES

        Senator Mikulski. Mr. Chairman, I know you want to pick up.
        Mr. Liu, are you the senior housing guy? Who's the faith-
    based senior housing, where they build senior housing only?
        Dr. Weicher. I'm responsible for 202 and 811, Senator.
        Senator Mikulski. Okay. Something that I will be putting in
    the report, but will be discussing with you at another time, is
    that we're concerned. First of all, we think it's been one of
    the greatest ways for there to be faith-based participation,
    and it's been really wonderful for communities, and it's also
    been constitutionally compliant, so we haven't gotten into the
    separation of church/State issues. What we're also noting is
    that the buildings are getting older. So many were built into
    the 1970's and the 1980's. And the people in them are getting
    old. We've got aging in place. And we're looking to HUD for
    ways for modernization, particularly where we have aging faith-
    based facilities, where they're now using philanthropic dollars
    for modernization. And, at the same, to understand that there
    needs to be a service component to it where these are faith-
    based, naturally-occurring retirement communities.
        So we're not going to go into that today, but know that I
    want to look at this so that we can continue to have a robust
    faith-based initiative for the elderly, and, at the same time,
    acknowledge that, while they're hesitant to start the new
    because they've got these aging facilities.
        Dr. Weicher. I'll be happy to discuss that with you
    further. We certainly have put in place a regulation to allow
    prepayment and refinancing of the older properties to take
    advantage of the lower interest rates and to provide funds for
    rehabilitation of properties. And we are looking to make sure
    that that program is as effective----
        Senator Mikulski. Well, I'm going to----
        Dr. Weicher [continuing]. As it can possibly be.
        Senator Mikulski [continuing]. Ask my staff to talk to
    yours in more detail.
        Dr. Weicher. I'd be happy to do that, Senator.
        Senator Mikulski. Thank you.

                                ZERO DOWNPAYMENT

        Senator Bond. Thank you very much, Senator Mikulski. We
    will want to follow up with you on the foreclosure and
    delinquency rates. We get some sense that it may be much
    higher.
        Going back to the Zero Down Payment Program, a couple of
    major problems I have with it. It seems to be a decision by FHA
    that it can afford to house as many people as possible, no
    matter the cost of the default to the fund or the impact of a
    family's credit in the future. Did you take those two things
    into account in proposing the Zero Down Payment Program?
        Dr. Weicher. We looked carefully at all aspects of the
    program. We looked at who we could be serving in that program.
    We worked with data that the Federal Reserve produces, the
    Survey of Consumer Finances, which identifies households both
    by assets and by income and by financial history, to see what
    the market could be and who would be in a position to afford
    zero down payment.
        We put in safeguards to hold the default rate down like the
    requirement for counseling, the requirement that the loans be
    scored through our total scorecard, which does a better job of
    predicting risk than anything we've seen in the FHA or the
    conventional market. And we will retain our current
    underwriting requirements on payment-to-income, debt-to-income,
    credit history, as well. We're trying to reach people who have
    good jobs, but who haven't built up the assets to enable them
    to make the down payment.
        Senator Bond. Are you sure you're not going to be
    attracting the highest-risk home buyers into this program?
        Dr. Weicher. No. Because we maintain our credit standards.
    We will serve buyers who are about as risky as the buyers we
    have now, but who have not accumulated the down payment. We
    expect that there will be more defaults in this program than
    there will be in our regular program, and that's why we have
    proposed a higher premium. But we intend to do everything we
    can to make sure that the borrowers we serve are creditworthy.
        Senator Bond. As you may recall, one of my team worked at
    HUD during----
        Dr. Weicher. Yeah.
        Senator Bond [continuing]. Your tenure as----
        Dr. Weicher. I do.
        Senator Bond [continuing]. Assistant Secretary for Policy
    Development and Research. And during that time, you were
    responsible for legislation designed to increase the actuarial
    soundness of the Fund, which included requirements that the
    home buyer have a stake in the home through reasonable down
    payment. One of the most significant concerns at that time was
    the impact of defaulted FHA housing on neighborhoods. As you
    know, through predatory lending issues, defaulted and
    distressed FHA properties, they remain a tremendous burden on
    communities, many of which are fragile.
        How is HUD going to address this issue in the FHA Zero Down
    Payment Program?
        Dr. Weicher. Well, we are addressing it partly, as I said,
    through maintaining our underwriting standards and through the
    counseling requirement. And we know counseling makes a
    difference in people's performance after they buy a home. In
    addition to that, we know something we did not know 10 years
    ago. We have the information now about the importance of credit
    history as measured in FICO scores and other techniques. And we
    know that that is a more important predictor of default than
    the initial down payment or loan-to-value requirement, and we
    will be looking at credit scores in the total.
        And what I would say also is--we were talking earlier about
    the single family side--we have worked hard to acquire and sell
    the single family properties when there is a claim--a
    foreclosure and a claim--and we are turning properties over
    faster than we have in many years. Four years ago, we would own
    a property for 7 months before we'd be able to sell it, on
    average. Now we're down to 5, and we're working to move that--
    --
        Senator Bond. Well, we commend you----
        Dr. Weicher [continuing]. Faster.
        Senator Bond [continuing]. For progress in that area. And
    as you might have gathered, I am very much concerned about
    this.
        What would you say to limiting the availability of the FHA
    zero down payment mortgage insurance to a trigger, for example,
    where HUD can only make this insurance available if FHA claims
    for their previous year do not exceed 3\1/2\ percent?
        Dr. Weicher. That would be fine. And if you felt that way--
    let me say this. Our claims last year were 1\1/2\ percent.
    There's been some confusion in the press about our defaults. I
    noticed, in the National Journal, a reporter said that 12
    percent of our loans were past due, which has been interpreted
    by some of your colleagues in the House as being in foreclosure
    or in default, but that's not the case. Our defaults have been
    running 3 percent; our foreclosures and claims, half of that.
    And as I said in response to Senator Mikulski, those rates have
    been dropping in this fiscal year.
        Senator Bond. Well, we're hearing things about different
    numbers, as well, so we'll have to do some work with you to get
    those clarified.
        Dr. Weicher. May I mention that FHA's delinquency rate is
    reported as 12 percent, but this is the rate for 30-day
    delinquencies. FHA's 90-day delinquency rates are approximately
    half this rate. And claims over the last 12 months are only
    1\1/2\ percent of the current insurance-in-force. I will be
    happy to provide the program data to anyone who you feel would
    benefit from talking with us about it.
        Senator Bond. We'd be happy to do that.
        Well, as I indicated, we do need to close this down. We do
    have a number of other questions focusing on many of the areas
    of concern.

                           CHAIRMAN'S CLOSING REMARKS

        We appreciate the progress you have made, and we've focused
    on concerns that we have with some of the proposed policies,
    which I have yet to be convinced are good changes. I continue
    to be disappointed that OMB or somebody somewhere has chosen to
    strike out the priorities that this committee and Congress have
    put in, in the past.
        Mr. Bernardi, anything you want to say in closing?

                         ADDITIONAL COMMITTEE QUESTIONS

        Mr. Bernardi. Well, Senator, thank you for the opportunity.
    The questions that you would like answered in writing, we'll
    make sure our congressional relations folks have those, and
    we'll get responses back to you as quickly as we can.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
               Questions Submitted by Senator Christopher S. Bond

                SECTION 8 CERTIFICATE FUND--UNDERLYING ANALYSIS

        Question. According to CBO estimates, HUD's proposed fiscal year
    2005 level is some $2.2 billion less than the CBO-projected needs for
    section 8 contract renewals in fiscal year 2005. This represents a loss
    of section 8 assistance for some 330,000 families.
        We asked for analysis of what each PHA receives for fiscal year
    2004 under section 8 and the amount of funds each PHA will receive
    under section 8 funding for fiscal year 2005. HUD has not been able to
    supply this information which was requested. However, I do not see how
    you seriously can make this proposal without running models using rent
    trends for each market in order to understand the impact of these
    budget cuts. In fact, HUD needs to also analyze the individual rents by
    market and possible increases to understand the impact of this proposal
    on low-income and extremely low-income families. Has HUD run these
    models and conducted this analysis? If not, why not? If not, please do
    so and provide for the record the different models and impact?
        Answer. When the Flexible Voucher Program was proposed, the
    Department did not have an appropriation for fiscal year 2004 and did
    not know the level of funding PHAs would receive in fiscal year 2004 to
    make a comparison on a PHA-by-PHA basis. The proposal submitted based
    requirements at the national level, taking into consideration the cost
    savings that could with the flexibilities that could be implemented in
    a PHA program. That information has been made available via the
    Flexible Voucher Program--White Paper of May 18, 2004 entitled ``The
    Flexible Voucher Program: Why a New Approach to Housing Subsidy is
    Needed.''

              SECTION 8 UNDERFUNDED--EXTREMELY LOW-INCOME FAMILIES

        Question. HUD is proposing to underfund section 8 by some $2.2
    billion in fiscal year 2005. However, HUD has stated that it is
    confident that it will be able to maintain current levels of service
    and even increase the number of families served in the near future. How
    does HUD know this; how does this work--serve more families with less
    funding?
        Answer. The President's Budget for fiscal year proposes to spend
    $13.3 billion on the new Flexible Voucher Program, $1.1 billion less
    than the current Housing Choice Voucher appropriation for fiscal year
    2004. This difference in cost is driven by savings from the redesign of
    the program, not from reductions in the number of families assisted. In
    fact, the Department believes that the improved design of the new
    Flexible Voucher Program can, over time, help a greater number of
    families afford decent housing.
        This is possible because of savings that will result from
    eliminating much of the current 1-month funding reserve, reducing the
    payment standard, reducing income-related errors, and permitting
    greater flexibility in income targeting. The Flexible Voucher Program
    will also trigger savings in administrative costs due to greater
    simplicity and flexibility in income determinations, reduced frequency
    of income certifications, and reduced frequency of housing quality
    inspections. The savings calculations are detailed in a HUD document
    entitled ``The Flexible Voucher Program: Why A New Approach to Housing
    Subsidy Is Needed'' that is currently on HUD's website and is attached.
        [Clerk's Note.--The document may be found at http://www.hud.gov/
    utilities/intercept.cfm?/offices/pih/programs/hcv/fvp/wponfvp.pdf.]
        Following are extracts from this document.

        ``Enactment of the Flexible Voucher Program would permit
    substantial savings. The Administration has proposed $1.1 billion less
    in subsidy payments in fiscal year 2005 than Congress appropriated in
    fiscal year 2004, and $59 million less in administrative fees to PHAs.
    However, we estimate that in fiscal year 2005 alone, Flexible Vouchers
    would save $1.804 billion in total, $1.674 billion in subsidies and
    $130 million in administrative expenses.

                        FIRST-YEAR SAVINGS SUMMARY TABLE
                            [In millions of dollars]
    ------------------------------------------------------------------------
                                                              Administrative
                                                  Program         Expense
                                                  Savings         Savings
    ------------------------------------------------------------------------
    Payment Standard........................            $815  ..............
    Income-related error....................             350  ..............
    Reserve elimination.....................             450  ..............
    Targeting flexibility...................          59-350  ..............
                                             -------------------------------
          Total.............................           1,674  ..............
                                             -------------------------------
    Income flexibility......................  ..............             $56
    Less Recertification....................  ..............              45
    Less Inspection.........................  ..............              29
                                             -------------------------------
          Total.............................  ..............             130
    ------------------------------------------------------------------------

    ``Program Savings
                ``$815 million in first-year savings and annually recurring
                        savings in excess of $1 billion due to the average
                        payment standard returning to 95 percent of FMR
        ``After the first year, savings would occur over 12 months, rather
    than 9 months, and more than $1 billion would be saved annually.
                ``$350 million in annually recurring savings from net
                        income-related error
        ``The Fiscal Year 2004 Appropriations Bill for HUD programs
    authorized HUD to have access to the Department of Health and Human
    Services' (HHS) New Hires database. One of the components of this
    database is a records system with comprehensive income source and
    earnings data reports. An income match for a sample of assisted housing
    tenants in 2000 showed that approximately $700 million in excess
    subsidy payments was paid for voucher program units because of
    intentionally and unintentionally unreported income. It is estimated
    that at least $350 million (50 percent) can be collected and will
    reduce subsidy requirements. The other thing that reduces income-
    related error is the actual subsidy calculations, which will decrease
    if not be eliminated by allowing PHAs to simplify rent policies.
                ``$450 million one-time savings from elimination of the
                        reserves
        ``The 1-month reserve will no longer be required in a dollar-based
    program. However, we plan to leave a small amount in reserves for PHAs
    in the first year of the Flexible Voucher Program to allow for some
    transition.
                ``$59 to $350 million in first-year savings from greater
                        flexibility in targeting, and out-year savings
                        significantly higher
        ``Currently 80 percent of new admissions in the voucher program are
    `extremely low-income' families, in excess of the 75 percent of
    admissions that every PHA must reserve for the extremely low-income
    (less than 30 percent of area median income). The actual savings amount
    resulting from targeting flexibility will vary depending on the income
    targeting policies adopted by PHAs. But savings are expected in all
    circumstances.
        ``For example, if PHAs reverted to the pre-QHWRA admission
    percentages of 68 percent extremely low-income, 23 percent very low-
    income, and 9 percent low-income families, at least $59 million of
    savings would still result in the first year and at least $118 million
    of savings would result in the second year. If PHAs exercise their
    targeting flexibility by admitting 40 percent extremely low-income
    families, 40 percent very low-income income (30 to 50 percent of area
    median income), and 20 percent low-income (50 to 80 percent of area
    median income) families, as much as $350 million \1\ would be saved.''

        \1\ Savings amount for Scenario 2 of Table 4 (United States
    Department of Housing and Urban Development Housing Certificate Fund
    Analysis of Potential Savings from Income Targeting Flexibility) for
    the Housing Certificate Fund, Congressional Justification for 2005
    Estimates.
    ---------------------------------------------------------------------------
        Question. I am very concerned about the impact on extremely low-
    income families--those who are at or below 30 percent of median income.
    Has HUD looked at the impact of the proposal on extremely low-income
    families--those with the greatest housing need and who are often
    elderly or disabled; esp. since the proposal would eliminate the
    requirement that three-fourths of all vouchers go to extremely low-
    income families. Please explain how these families would be protected?
        Answer. You also expressed concern about the Flexible Voucher
    Program provisions to permit greater PHA discretion concerning
    admissions and removal of the extremely low-income targeting
    requirement that was established by law in 1998. It is not true that
    the voucher program will no longer serve poor families who are in need
    of housing--eligibility for the Flexible Voucher Program is still
    restricted to low-income families.
        Like the original tenant-based certificate program, eligibility for
    the Flexible Voucher Program is intended to serve low-income families
    (80 percent of area median or less) without a requirement that 75
    percent of new admissions be families with extremely-low incomes. We do
    not anticipate that PHAs will stop admitting extremely low-income
    families. As stated above, before QHWRA was enacted in 1998 (before
    there was a voucher program targeting requirement), 68 percent of
    voucher program admissions were extremely low-income families. PHA
    admission decisions before QHWRA are the best indicators of what is
    likely to happen if the extremely low-income targeting requirement is
    removed and PHAs are allowed to serve the needs of the low-income
    families on their waiting lists.
        In addition, we do not anticipate that PHAs will stop admitting
    extremely low-income elderly and disabled families. It is noted that
    the voucher program has an outstanding track record in assisting
    disabled families, without any mandatory targeting requirements.
        There are many advantages of providing more PHA flexibility in
    admissions. PHAs will be able to address other local needs such as
    families transitioning from welfare to work, families working full-time
    yet still in need, families experiencing housing emergencies, first-
    time, low-income homebuyers, and families at 35 percent or 45 percent
    of adjusted median income who have been on the PHA waiting list for
    prolonged periods of time.
        Question. With limited funds, please provide any data that would
    demonstrate the likely treatment of extremely low-income families under
    this proposal?
        Answer. The Flexible Voucher Program permits PHAs to design
    admission policies that are appropriate based on local needs. Although
    there would no longer be a requirement that at least 75 percent of all
    admissions be extremely low-income families, eligibility for the
    program remains limited to low-income families with incomes below 80
    percent of the area adjusted median income.
        Since each PHA may adopt local admission policies, it is not
    possible to model these local decisions. It is expected, however, that
    the Flexible Voucher Program will be successful in meeting the needs of
    low-income families as has been the case with the Moving to Work
    demonstration, community development block grants, and other programs
    that have maximized local administrative flexibility.

                          REDLINING AND CONCENTRATION

        Question. Under the proposed HUD fiscal year 2005 section 8 block
    grant proposal, it would appear that many to most PHAs would have lower
    their payment standard to the extent that voucher families would be
    forced to rent housing in primarily low-income and distressed
    communities. This appears to mean that HUD would be endorsing policies
    that will effectively result in a type of redlining where low-income
    families will be concentrated into poor and distressed communities? Why
    wouldn't this happen?
        Answer. The Flexible Voucher Program will not force families to
    live in ``redlined'' poor and distressed communities. Instead, the
    Flexible Voucher Program permits maximum PHA flexibility in setting
    payment standard levels. Under the Flexible Voucher Program, PHAs will
    be able to set accurate and appropriate rents for each neighborhood,
    regardless of where the family chooses to live.
        However, HUD believes that many payment standards are now set at
    higher than necessary levels for families to rent modest housing in
    non-distressed areas, and anticipates that PHAs will lower these
    payment standards under the Flexible Voucher Program. In December 2000,
    the average public housing agency (PHA) payment standard was $648, or
    95 percent of the Fair Market Rent (FMR). By December 2003, however,
    the average PHA payment standard was $844, and was equal to 104 percent
    of FMR. During this time, the percentage of program participants with
    payment standards between 101 and 110 percent of FMR rose from 25
    percent to 50 percent of all participants. This 30.25 percent
    nationwide average increase in payment standards between December 2000
    and December 2003 is not supported by the much lower 10.5 percent
    nationwide average increase in gross rents (as measured by Consumer
    Price Index) during this same period. This cost increase has occurred
    even as markets across the country exhibited record high vacancy rates
    and PHAs from across the country report to HUD that rents in their
    markets have declined.
        Question. How does this proposal fit in with HUD's goal of ending
    homelessness by 2012 especially since by all accounts homelessness is
    increasing?
        Answer. Designing programs to effectively address homelessness is a
    difficult task made all the more so by the fact that no objective and
    comprehensive count of the number of homeless exists to help steer
    policies. As such, and setting aside anecdotal stories, HUD would
    dispute that by all accounts homelessness is increasing. Instead, the
    Department points towards an array of programs funded through HUD that
    are successfully helping homeless individuals and families transition
    from the streets into permanent housing and employment. While not a
    central component of HUD's goal of ending homelessness, the Flexible
    Voucher Program gives more flexibility to local PHAs to address
    homelessness based on local needs. One example of the flexibility that
    the Flexible Voucher Program will provide is the ability to allow PHAs
    to give priority to homeless families when vouchers become available.

                     SECTION 8 FISCAL YEAR 2004 SHORTFALLS

        Question. We are hearing concerns that HUD's implementation of how
    rent increases will be calculated under section 8 funding for this year
    will leave many PHAs with shortfalls that could result in the loss of
    affordable housing. As I understand it, the Kansas City Housing
    Authority will have a funding shortfall of over $8.7 million, and that
    even after using its 1-month reserve, HUD's formula would still leave
    them with a shortfall of over $5 million to support 1,237 families. We
    included the statutory language at the strong recommendation of HUD
    because HUD convinced us this was the way to control the spiraling cost
    of rents by ensuring any rent increases would reflect rent costs no
    greater than the rent costs of comparable unassisted units in the
    community. How does HUD reconcile these cost concerns and what is HUD
    doing to educate PHAs on how HUD will implement these rent baselines
    while ensuring that voucher families will be held harmless. Is there a
    problem? If a problem, what is the problem and what is HUD doing to
    resolve the problem?
        Answer. HUD is working diligently to implement the Fiscal Year 2004
    Act. On enacting the Act for this program, Congress has taken two
    important steps to bring the spiraling costs of the Section 8 voucher
    program under control. First, it has returned the program to a budget
    basis, in which public housing agencies (PHAs) are provided a set
    amount of funding. This is how the program operated prior to fiscal
    year 2003. Second, Congress provided the program with a 14 percent
    increase in funding over fiscal year 2003 levels to ensure that the
    transition back to a budget basis would not affect current families
    served.
        Just this week, HUD announced that it is providing funding to
    restore program reserves for approximately 500 PHAs, totally
    approximately $150 million. In addition, HUD has decided to apply the
    full AAF to each PHAs funding level for 2004, rather than phasing it in
    over the year. This will especially help PHAs that have a fiscal year
    ending in June or September of this year.
        HUD is working with PHAs on a daily basis to understand how their
    funding is being calculated as well as steps they can take if their
    voucher costs have risen faster than HUD's AAF. Also, HUD is allowing
    PHAs to appeal the AAF if their actual market rents have increased at a
    faster rate than HUD's AAF.
        The only cost and rent data available to HUD or Congress at the
    time of the Fiscal Year 2004 Act was data reported to HUD by PHAs as of
    August 1, 2003. This PHA-reported cost and rent data was much more
    recent than any data available to your committee in previous years for
    the purposes of calculating funding requirements for the voucher
    program. Not only was the data recent, it represented the highest per-
    voucher costs ever. Congress then decided to take HUD's published AAF
    inflation data for each market to adjust the August 2003 costs for
    2004. HUD believes that this was a reasonable approach to funding the
    voucher program in fiscal year 2004. This approach also provided a 14
    percent increase over fiscal year 2003 levels. Such an increase should
    provide adequate funding to support all vouchers in use in 2004,
    notwithstanding some PHAs who will likely have successful appeals for a
    higher AAF based on true rental increases in their markets.
        Question. Assuming a cost of rent problem, how does HUD reconcile
    this failure to recognize this problem for fiscal year 2004 with HUD's
    total rewrite of the section 8 for fiscal year 2004?
        Answer. The Department does not believe there is a problem. The
    Department believes that the fiscal year 2004 budget was developed
    using a reasonable approach to funding the fiscal year 2004 voucher
    program, i.e., adjusting the August 2003 costs by the published AAF
    inflation data for each market. The fiscal year 2004 approach provides
    a 14 percent increase over fiscal year 2003 funding levels. Such an
    increase should provide adequate funding to support all vouchers in use
    in fiscal year 2004, notwithstanding some PHAs who will likely have
    successful appeals for a higher AAF based on true rental increases in
    their markets. Moreover, it is well understood that budgeting and
    funding on a strict unit basis poses significant challenges and exposes
    even the best estimates to be thrown awry.

                            PROJECT-BASED SECTION 8

        Question. The administration's proposal to block grant section 8 to
    PHAs still maintains the current restriction that no more than 20
    percent of section 8 funds may be used for section 8 project-based
    assistance. If HUD truly wants to allow PHAs the flexibility to meet
    local housing conditions, why not allow PHAs unlimited ability to use
    their section 8 assistance to develop more low-income housing as part
    of mixed-income housing? Costs would be more controllable. This also
    would be particularly useful in tight rental markets and could be very
    helpful in keeping rents down over the long haul.
        Answer. In developing the Flexible Voucher Program legislative
    proposal, HUD chose to continue to apply the current statutory
    provision that caps project-basing of tenant-based vouchers to 20
    percent. This was done to preserve the core feature of the popular
    voucher program--freedom of housing choice for families. When a tenant-
    based voucher is used for project-basing, the family must live in the
    project-based unit initially and cannot select a unit of the family's
    choice. It is important to note that within the 20 percent cap of
    project-basing, PHAs will have much greater flexibility on how to
    project-base vouchers and develop additional affordable housing units.

          PUBLIC HOUSING CAPITAL FUND--FREEDOM TO HOUSE DEMONSTRATION

        Question. HUD is requesting $5 million within the Capital Fund to
    administer the Freedom to House Demonstration, which is designed to
    test new ways for PHAs to manage their assets. This new 100 PHA
    demonstration is based on the Moving to Work ``Block Grant''
    Demonstration. From reports developed by Abt Associates on the MTW
    demonstration, it appears that only a few PHAs have utilized this type
    of MTW model and the results are not all in. What have we learned from
    the MTW Block Grant demonstration?
        Answer. In accordance with Section 204 of the Omnibus Consolidated
    Recessions and Appropriations Act of 1996, a report on the evaluation
    of the Moving to Work Demonstration program (MTW) was submitted to
    Congress in January 2004.
        The evaluation of the MTW program, as contained in the January 2004
    report, finds that MTW initiatives include experimentation with changes
    in three main areas: (1) merged funding assistance, (2) subsidy
    formulas, rent rules and time limits, and (3) HUD procedural and
    reporting requirements. Based on the three goals of the MTW
    demonstration as stated in the Appropriations Act, following are some
    determinations about whether or not deregulation and the initiatives
    implemented by the MTW sites are factors that contributed to PHAs
    achieving these goals:
      --Changes in administrative procedures and reporting requirements
            resulted in more rational and efficient use of time and
            resources.
      --An administrative benefit resulting from the simplification of rent
            rules and subsidy calculations is that tenants are less likely
            to under-report their income and staff are less likely to
            miscalculate tenant rent.
      --Many PHAs focused on changes to rent rules and/or subsidy formulas
            to increase employment and self-sufficiency among assisted
            households.
      --Some PHAs were able to expand housing choice by using their funding
            fungibility to help finance the acquisition or production of
            more assisted housing units (one-for-one replacement of public
            housing units demolished under HOPE VI, building larger units
            to suit larger families, scattered site acquisitions, and
            increasing the stock of affordable rental units for voucher
            holders in tight rental markets).
      --Some PHAs merged their public housing and voucher program waiting
            lists to make the application process more efficient for staff,
            and less burdensome and easier to understand for applicants in
            an effort to give residents increased choice about housing
            type.
        Question. What are the successes and what are the problems these
    PHAs face?
        Answer. Participating PHAs have realized some interesting results
    while experimenting with: (1) Alternatives to the standard approach for
    establishing tenant rents; (2) Time limits on the receipt of housing
    assistance; (3) Administrative streamlining (to cut costs and
    complexity); (4) Funding flexibility (by combining operating subsidies,
    modernization grants and Section 8 funding into a flexible funding
    stream); (5) Alternate development and financing arrangements to expand
    the stock of affordable housing.
        Evidence to date suggests that deregulation of local HAs may yield
    benefits in terms of program design and implementation innovations.
        For example, several participating PHAs have used the funding
    fungibility authority for standard program uses, but in a more flexible
    and efficient manner, to compensate for ``losses'' in one program area
    and to develop (through construction, acquisition or rehabilitation)
    new, affordable housing units. Some participating PHAs implemented
    changes in housing subsidy formulas with provisions (such as flat
    rents) that reward resident employment and income growth, and/or with
    provisions that penalize unemployment and/or with supplemental services
    and supports to help residents make progress towards self-sufficiency
    and/or with time limits on assistance. Many participants have used the
    demonstration to alter specific procedural and reporting requirements,
    including less frequent re-examination, merged waiting lists, local
    inspection standards and protocols and other streamlining and paperwork
    reduction initiatives.
        The local flexibility and independence permitted under MTW appears
    to allow some PHAs to experiment with innovative solutions to local
    challenges, and to be more responsive to local conditions and
    priorities to an extent not otherwise permissible under standard rules.
        Question. What has been the impact on extremely low-income families
    in these areas? More served, less served?
        Answer. With respect to extremely low-income families (below 30
    percent of median income), there are no measured effects of the
    demonstration on this group. However, the demonstration requires that
    participants ``continue to serve substantially the same total number of
    eligible low income families (below 80 percent of median income) under
    MTW, and to maintain a comparable mix of families by family size, as
    would have been served or assisted if HUD funding sources had not been
    used under the MTW demonstration.'' and that ``at least 75 percent of
    the families assisted by the Agency under the MTW demonstration program
    be very low income families as defined in the 1937 Act'' (below 50
    percent of median income). MTW participants are monitored for
    compliance with these requirements, and no negative impacts have been
    noted to date.
        Inquiries to several MTW PHAs confirm that agencies have continued
    to serve essentially the same income mix of households as they are
    required to do by program guidelines. In addition, trend data about all
    public and assisted tenant households indicate that the number of
    extremely low-income families assisted has increased even beyond
    statutory requirements. Before the Quality Housing and Work
    Responsibility Act (QHWRA) was enacted in 1998 71 percent of public
    housing program admissions were extremely low-income families. Today,
    76 percent of public housing program admissions are extremely low-
    income families. In the voucher program, before QHWRA was enacted and
    an extremely low-income targeting requirement was established, 68
    percent of voucher admissions were extremely low-income families.
    Today, extremely low-income families comprise 80 percent of all
    families served. In both the public housing and the voucher program,
    extremely low-income families exceed the targeted numbers of these
    families by 36 percent and 5 percent respectively.
        Question. Also, what unique characteristics do these PHAs share?
        Answer. Characteristics unique to these PHAs are hard to define, as
    the MTW participants vary greatly in size of program, location and
    performance status, etc. However, they do have one thing in common. All
    were interested in participating in the MTW demonstration and testing
    the effects of deregulation. In addition, these PHAs took the
    initiative to develop an MTW proposal and submitted it to HUD.
    Subsequently, they were selected for participation in the MTW
    demonstration in accordance with the Federal Register requirements.
        Question. How would the new demonstration differ from the MTW Block
    Grant demonstration?
        Answer. The Freedom to House demonstration differs in several ways
    from the MTW demonstration as follows:
      --It will be conducted in a more controlled environment, where it
            will be easier to measure and quantify effects of various
            changes in policies on the public housing population. Under the
            Freedom to House demonstration, there will be test and control
            agencies.
      --The number of participating agencies will be greater.
      --The Freedom to House demonstration will be structured in such a way
            that time-consuming waiver requests will not be needed.
      --The Freedom to House demonstration will require that participating
            PHAs implement project based accounting and management.

                                  OVERLEASING

        Question. Los Angeles has an overleasing problem in excess of some
    5,000 vouchers and maybe many more. How big is this problem in Los
    Angeles and how big nationwide?
        Answer. The Housing Authority of the City of Los Angeles is
    approximately 10 percent over-leased. Nationwide, there are 80 PHAs
    representing 3 percent of the PHAs affecting 3 percent of the total
    vouchers that have the potential of being over-leased in fiscal year
    2004.
        Question. Why didn't HUD catch this earlier and what is HUD doing
    to address the problem?
        Answer. HUD did not detect this problem earlier because the PHA
    began the trend to over-lease late in calendar year 2003, especially as
    families who ported to other neighboring PHAs were charged to HACLA's
    leasing levels. HUD is addressing the problem through a Memorandum of
    Understanding that was signed in April 2004 that outlines specific
    actions that must be accomplished to reduce the leasing levels, in
    addition to other important management practices and policies that must
    be implemented to improve program performance.
        Additionally, HUD has had staff on-site since April to assess the
    situation and to work with the agency to improve performance through
    intensive technical assistance and guidance. HUD will continue to have
    a presence in the agency until confident that all problems have been
    resolved.
        Question. Has HUD looked at whether this funding represents an
    Anti-Deficiency Act violation and what are HUD's conclusions?
        Answer. HUD's conclusion is that there has been no Anti-Deficiency
    Act violation. In the PHA 2003 fiscal year, the over-leasing occurred
    late in the year and was offset by the under-leasing that had occurred.
    The PHA ended the year at 99 percent utilization of authorized unit
    months, within the authorized level.
        It is the 2004 calendar year (that began on January 1) that will
    have a financial impact as a result of the over-leasing because the PHA
    begins the year at approximately 110 percent. Since the appropriation
    prohibits HUD to provide funding for over-leasing, the PHA has
    implemented an aggressive attrition plan and HUD has required the
    agency to transfer back into the Section 8 account $63 million in
    unobligated administrative fee reserves that had been transferred into
    other accounts. These funds are targeted to cover the cost of over-
    leasing during the period of attrition.

                                    HOPE VI

        Question. The Budget Request eliminates the HOPE VI program, which
    was funded at $149 million in fiscal year 2004. The HUD Budget
    Justifications conclude that termination was appropriate because this
    program costs more than other programs that serve the same population
    (27 percent more costly than a voucher and 47 percent higher when all
    costs are included) and that projects are slow to move. However, this
    program accomplishes much more than the voucher program since it uses
    public housing capital investment to attract new investment to
    communities and helps to stabilize new communities.
        Also, the Urban Institute in its Lessons from HOPE VI for the
    future of Public Housing echoed a 1998 Abt study that advised that
    public housing inventory has accumulated capital needs backlog of about
    $18 billion, with an additional $2 billion ($1,679 per unit) accruing
    each year. Obviously the loss of HOPE VI funds plus the elimination of
    the Drug Elimination program several years ago has placed a larger and
    larger burden on PHAs, especially since the Operating Fund is
    underfunded per the formula every year. What is HUD proposing to do to
    address the growing problems associated with this deteriorating public
    housing stock?
        Answer. Rather than funding new rounds of HOPE VI grantees in
    fiscal year 2005, it is prudent to allow the Department to aggressively
    manage and complete the grants currently awarded, many of which are
    years from completion. This pause will also give the Department time to
    develop better methods for assessing distress, develop new financing
    tools and delivery mechanisms that are less costly and more efficient.
    Of the 193 HOPE VI Revitalization sites, only 29 sites are completed.
    As of March 31, 2004, $2.3 billion has not been expended out of $5
    billion in HOPE VI Revitalization Grant Awards.
        HUD recognizes that there is an estimated $18 billion capital
    backlog in the public housing inventory. While there is clearly serious
    need for investment in the inventory, it is not clear how much of this
    backlog is represented by severely distressed units needing wholesale
    demolition and replacement as articulated by HOPE VI. Current
    definitions used by HUD to define severe distress were developed in
    response to a sub-set of the public housing inventory that by and large
    no longer exists i.e., severely distressed, super-block, high-rise,
    public housing developments with significant social problems in major
    cities like Cabrini Green and Robert Taylor Homes in Chicago.
        The Department feels that it is unwise to go forward with a full-
    scale revitalization program until it can complete a higher percentage
    of existing projects and develop a more quantifiable and accurate
    method for assessing severe distress. In its report, ``Lessons Learned
    from HOPE VI for the Future of Public Housing,'' the Urban Institute
    acknowledged that due to the small number of completed sites and a lack
    of definitive data, it proved difficult to provide a rigorous analysis
    of the HOPE VI program. In fact, the Urban Institute could not conduct
    its study as directed because of a lack of projects that had progressed
    to a reasonable extent.
        Nonetheless, the Department recognizes the importance of addressing
    the current capital backlog within the public housing inventory. In
    most cases this need can be more appropriately met through other
    modernization programs operated by the Department, e.g., the Capital
    Fund, Capital Fund Finance and Mixed-Finance development. The
    Department will encourage housing authorities in need of this
    assistance to submit project proposals to these programs. To date, the
    Department has approved over $1.5 billion in transactions using Capital
    Fund Finance, with approximately $500 million in additional funds in
    the pipeline.

             NATIVE AMERICAN HOUSING BLOCK GRANT PROGRAM (NAHASDA)

        Question. The Budget Request provides $647 million for NAHASDA in
    fiscal year 2005, a decrease of $3 million from the fiscal year 2004
    level. As has been the problem with most block grant programs, this
    funding has been largely static since the creation of the program in
    1996. What has been the overall growth or reduction in the program over
    the last 5 years?
        Answer. The implementation of the Indian Housing Block Grant (IHBG)
    program began in fiscal year 1998. In fiscal year 2000, $620 million
    was appropriated for the program; for fiscal years 2001 and 2002 the
    appropriated amounts were $649 million each year; in fiscal year 2003,
    there was $645 million; and in fiscal year 2004, $650 million was
    appropriated.
        The President's budget proposal for fiscal year 2005 includes $647
    million specifically for Native American housing under the IHBG program
    authorized under the Native American Housing Assistance and Self-
    Determination Act. Of that amount, approximately $640 million is for
    direct, formula allocations through the IHBG program.
        The Department made adjustments within the program in the fiscal
    year 2005 request to allow more funds to be available for direct tribal
    use. Reducing set-asides, results in an increase in IHBG grant dollars
    available to tribes. For example, in fiscal year 2004, $2.72 million
    was set-aside for the Working Capital Fund. In fiscal year 2005, the
    Department requests only $500,000 for this purpose.
        On December 27, 2000, Congress created a new program, the Native
    Hawaiian Housing Block Grant (NHHBG) program (section 203 of the
    Omnibus Indian Advancement Act, Public Law 106-568). The NHHBG program,
    codified as Title VIII of the Native American Housing Assistance and
    Self-Determination Act (25 U.S.C. 4101 et seq.), provides the authority
    to support affordable housing activities on the Hawaiian Home Lands for
    Native Hawaiians eligible to reside there. The first year that funds
    were appropriated was fiscal year 2002, in the amount of $9.6 million.
    The amount of $9.6 million was appropriated in fiscal year 2003, and
    there is $9.5 million for the program in fiscal year 2004. For fiscal
    year 2005, the President requested $9.5 million for this program. There
    were across-the-board reductions in each fiscal year that reduced the
    amounts appropriated slightly.
        Question. Is more or less housing being built?
        Answer. Last year we reported that IHBG funding from fiscal year
    1998 through fiscal year 2001, which was the most recent data
    available, resulted in an average of 2,149 units created each year.
    Data are derived from Annual Performance Reports and Indian Housing
    Plans, and reflect dwelling units started and completed. Figures are
    reliable to the extent those reports contain accurate information.
        Data for fiscal year 2002 is now available. It shows that
    nationally, there were 896 rental units constructed, 164 rental units
    acquired, 1,625 homeownership units constructed and 426 homeownership
    units acquired using IHBG funds. This is a total of 3,111 units, nearly
    1,000 more than the average of the previous 5 years.
        Figures are affected by the transition from the way in which
    housing development funds were awarded competitively under the United
    States Housing Act of 1937, and the formula block grant allocation
    method under the IHBG authorized by the Native American Housing
    Assistance and Self-Determination Act of 1996, as amended. Numbers do
    not reflect ``phased projects,'' where it may be necessary for a tribe
    or tribally designated housing entity (TDHE) to complete several pre-
    construction steps, such as acquisition of land and development of
    infrastructure prior to actual construction of dwelling units. Phased
    pre-construction activities are necessary in most areas of Indian
    Country, but somewhat more common in the East, the Midwest and the
    Northwest, less common in the Plains States. Alaska's phased
    construction is more the result of limited weather-related building
    seasons, materials acquisition challenges and smaller project sizes.
        Question. Where do most of the funds go, rehabilitation,
    homeownership?
        Answer. Last year HUD reported that, on average, during the 5-year
    period of fiscal year 1998 through fiscal year 2002, Indian tribes or
    their tribally designated housing entities (TDHE) have provided
    assistance designed to preserve the viability of 77,838 units each
    fiscal year.
        Actual data on expenditures by category for fiscal year 2002 now
    exists. It shows that $173 million was spent on modernization of
    dwelling units, $2 million on rehabilitation of rental units, $48
    million on rehabilitation of homeownership units, $86 million on
    construction of new homeownership units, $27 million on acquisition of
    homeownership units, $56 million on construction of new rental units
    and $7 million for acquisition of new rental units.
        The unit count includes moderate or substantial rehabilitation, and
    modernization and operating assistance related to units currently in
    management. It does not include other eligible affordable housing
    activities under the IHBG, such as down payment and buy down
    assistance, minor rehabilitation of under $5,000, housing services,
    housing management services, crime prevention and safety, and model
    activities. The total does include Section 8 type programs operated by
    a tribe or TDHE. Figures are derived from Formula Current Assisted
    Stock (FCAS) data used to determine the FCAS allocation portion of the
    IHBG formula.
        Other sources of funding that increase the availability of
    affordable housing and encourage homeownership; partnerships and
    leveraging funds to benefit Native American families include the Indian
    Community Development Block Grant Program, the Title VI Tribal Housing
    Activities Loan Guarantee Fund and the Section 184 Indian Housing Home
    Loan Guarantee Program.
        Question. Have housing problems increased or decreased for low-
    income Native American families over the life of the program?
        Answer. No studies have been conducted by the Department that
    address whether housing problems for low-income Native American
    families have increased or decreased during the life of the program.
        HUD shares your concerns and values your observations regarding the
    housing needs in Native American communities. The Department believes
    that the President's budget request for HUD's Indian housing programs
    supports the progress being made by tribes in providing the housing
    needed throughout Indian Country. The Department is proud of its
    efforts and yet recognizes that much remains to be done.

                               HOMELESS VETERANS

        Question. The Budget Request provides $1.282 billion for Homeless
    Assistance Grants for fiscal year 2005, which is $15 million above the
    fiscal year 2004 level. The administration set a goal of eliminating
    homelessness by 2012. While I find a Prisoner Reentry Initiative and
    Samaritan Housing Initiative interesting, I understand that veterans of
    the late and post-Vietnam period are 3 to 4 times more likely to become
    homeless as other Americans. While the VA needs to be more involved,
    HUD also needs to become more involved. What is HUD doing to
    specifically address this crisis?
        Answer. HUD's Office of Special Needs Assistance Programs has taken
    some very direct steps to develop initiatives that target homeless
    assistance for veterans. Continuum of Care applicants for the Homeless
    Assistance competition are required each year to specify whether the
    proposed project will primarily serve veterans. Of the nearly $1.3
    billion in targeted homeless assistance awarded in 2003, 122 veteran-
    specific projects were awarded, totaling approximately $40 million. In
    addition to these funds, HUD awarded $583 million to 1,913 projects
    that indicated that they would serve homeless veterans among other
    homeless persons. During 2003, we estimate that approximately 62,000
    homeless veterans were assisted through HUD's competitive homeless
    programs. Many thousands more were served through HUD's Emergency
    Shelter Grants Program and the Department's mainstream housing
    programs.
        HUD has also developed collaborative interagency initiatives and
    relationships to address the administration's goal of ending chronic
    homelessness by 2012. Many chronically homeless persons, the most
    challenged subpopulation of all, are veterans. Our efforts to meet this
    goal have been broad and comprehensive, and our success in meeting this
    goal will have a proportional impact on veterans. The following are
    descriptions of these initiatives:
        In the $35 million HUD, HHS, and VA Collaborative Initiative to
    Help End Chronic Homelessness, the first program to specifically serve
    chronically homeless people, we required 10 percent of the funds be
    targeted to veterans. HUD has provided $20 million (70 percent) of the
    funding. While this collaboration focuses on housing and employment,
    the grantees also have to offer other essential wrap-around services,
    such as health care, education, and life skills. We believe that
    housing and jobs will help the chronically homeless persons become
    self-sufficient. Eleven communities were chosen from across the Nation
    to provide housing and services for approximately 900 chronically
    homeless persons. The proposed $50 million Samaritan Initiative (HUD
    portion) will build on this model and will further increase our
    capacity to serve the veterans population within the overall targeted
    chronic homeless population.
        The $13.5 million HUD/DOL 5-year demonstration initiative with
    HUD's contribution at the $10.2 million also focuses on housing and
    employment for chronically homeless persons. The HUD/DOL grants will
    enable persons who are chronically homeless to achieve employment and
    self-sufficiency through placement in permanent housing units,
    supplemented by ``customized employment'' strategies through local
    Workforce Investment Boards (WIB). It is expected that nearly 300
    chronically homeless individuals will receive permanent housing and
    employment opportunities in five major cities. Many chronically
    homeless veterans will be included in this population.
        PHASES-Technical Assistance is a grant program awarded in fiscal
    year 2004 to technical assistance providers to develop training
    products that address the special needs of homeless assistance
    providers that serve homeless veterans. The goal is to increase the
    capacity of these providers to successfully apply for HUD Continuum of
    Care Homeless Assistance funding. This will facilitate an increase in
    the number of funded housing and service projects that target homeless
    veterans.

                              CHRONIC HOMELESSNESS

        Question. Two years ago, the administration announced the goal of
    eliminating chronic homelessness in 10 years. I also support this goal.
    Unfortunately, homelessness seems to be getting worse. A 25-city survey
    by the U.S. Conference of Mayors released in December 2003 found that
    request for shelter rose by 13 percent in 2003 while request for food
    assistance grew by 17 percent in fiscal year 2002. What new steps has
    HUD taken or will take to eliminate homelessness by 2012?
        Answer. The administration has set a goal of eliminating chronic
    homelessness by 2012. HUD does not foresee a decline in need for
    homeless emergency and transitional housing in the short-run, as
    illustrated by the U.S. Conference of Mayor's survey. However, HUD's
    focus on continuing to build an inventory of permanent housing and
    integrating inter-Departmental services for the chronically homeless
    population through the $50 million Samaritan Initiative offers,
    according to recent research findings, the chance to gain significant
    savings in resources because the chronic homelessness have been found
    to disproportionately use emergency shelter and services. These
    resources can be then used to more efficiently address the needs of
    other homeless persons.

                  PROGRESS IN ELIMINATING CHRONIC HOMELESSNESS

        Question. One of the key components of eliminating chronic
    homelessness is the creation of more permanent housing units. Another
    key component is preventing homelessness from occurring in the first
    place. First, what specific steps the Department has taken towards
    meeting the goal of ending chronic homelessness? Second, does the
    budget request include adequate funding to fully fund all expiring
    Shelter Plus Care housing contracts? Lastly, your budget justification
    notes that the Deputy Secretary has established a Departmental task
    force to identify mainstream HUD resources to help chronic
    homelessness. Can you give us an update on what the task force has
    accomplished so far? Second, does the budget request include adequate
    funding to fund fully all expiring shelter-plus-care housing contracts?
    Lastly, your budget justification notes that the Deputy Secretary has
    established a Departmental task force to identify mainstream HUD
    resources to help chronic homelessness. Can you give us an update on
    what the task force has accomplished thus far?
        Answer. The Department has undertaken several steps itself and in
    concert with other Federal agencies to increase the focus on chronic
    homelessness, targets additional resources to this subpopulation and
    has local Continuums of Care (CoC) identify and address chronic
    homelessness in their planning and prioritization process. For example,
    HUD:
      --Helped develop the chronic homeless initiative with HHS and VA; and
            contributed $20 million of the $35 million awarded. HUD's funds
            are for permanent housing; services are funded by HHS and VA.
      --Jointly developed a $13.5 million initiative with DOL for the
            chronically homeless. HUD contributed $10 million toward this
            initiative, to be used for permanent housing activities.
      --Awarded $6.5 million in HOME recaptures, targeted to the
            chronically homeless.
      --In concert with HHS and VA, and in consultation with the
            Interagency Council on Homelessness, introduced the Samaritan
            Initiative, a $70 million joint effort that will fund local
            collaborative strategies to move chronically homeless
            individuals from the streets to permanent housing with
            supportive services. HUD is the lead agency and is providing
            $50 million for this effort.
      --Increased homeless assistance funding for each year of the
            administration to record levels in support of homeless people,
            including chronically homeless, and the prevention of those who
            are at-risk of homelessness.
      --Co-sponsored with HHS, VA, and DOL to fund various policy academies
            to assist States in accessing mainstream services for the
            chronically homeless.
      --Added chronic homelessness as a focus to the Continuum of Care
            planning process. CoC's must identify chronic homeless needs,
            develop a strategy to meet those needs and measure their
            progress in addressing those needs. In addition, added an
            overall requirement that 10 percent of HUD's entire homeless
            program appropriation be used for chronically homeless
            projects.
      --Exceeded the homeless goals in HUD's Management Plan; funding the
            move of 34,307 (goal of 25,000) formerly homeless persons into
            HUD McKinney-Vento funded permanent housing and helping 45,217
            (goal of 29,000) homeless adults move from transitional housing
            into permanent housing.
      --Is working with over 425 Continuums of Care, covering 93 percent of
            the country, to establish Homeless Management Information
            Systems (HMIS), which are improving the collection and analysis
            of data and obtain an unduplicated count of homeless persons
            and families, including chronically homeless.
      --Is working with other Federal agencies to ease access to mainstream
            housing and supportive services for chronically homeless,
            resulting in greater funding of housing rather than services.
            Currently, the McKinney-Vento homeless assistance grants fund
            both supportive services and housing.
        The budget request contains full funding to meet Shelter Plus Care
    renewal needs.
        The Deputy Secretary's Task Force continues to meet and assess HUD
    resources to help address chronic homelessness. The use of HOME
    recapture funds for projects targeted to the chronic homeless was an
    example of the Task Force's efforts.

                    HUD-VETERANS AFFAIRS SUPPORTIVE HOUSING

        Question. I was disturbed to read a recent Washington Post article
    about the continuing plight of homeless veterans. One tool that has
    shown some success in addressing homeless veterans is the HUD-Veterans
    Affairs Supportive Housing or ``HUD-VASH'' program. How many HUD-VASH
    vouchers have been distributed to homeless veterans and how much money
    is HUD spending on this program? Besides HUD-VASH, what other steps has
    HUD taken to address the needs of homeless veterans?
        Answer. Although the HUD-VASH program is authorized under Section
    12 of the Homeless Veterans Comprehensive Assistance Act of 2001, the
    program has not received any new funding for many years since new VASH
    vouchers are only available if funds for new Section 8 incremental
    vouchers is provided. No incremental vouchers have been provided since
    2001 because rapidly increasing costs of renewing vouchers has
    precluded funding to expand the base of vouchers under lease. In
    addition, the Department does not track the level of continued use of
    prior Section 8 VASH vouchers which is dependent upon local decisions.
        A comprehensive outline of HUD's targeted plans and substantial
    actions to serve homeless veterans is addressed in the response to a
    previous question on this topic and it should be noted that all of
    HUD's homeless programs targeted to ending chronic homelessness as well
    as the historic McKinney-Vento Act programs serve a significant number
    of at-risk veterans and homeless veterans.

                     RURAL HOUSING AND ECONOMIC DEVELOPMENT

        Question. The administration continues to seek the elimination of
    the Rural Housing and Economic Development program, arguing that enough
    is being done through other HUD programs such as HOME and CDBG, and
    that this program is small and duplicative of the RDA programs in the
    Department of Agriculture. However, rural housing remains underfunded
    in Agriculture and is a poor step-child of the crop subsidy programs in
    terms of size and attention. I would like your assessment of why this
    program is not needed, despite the fact that it added some 6,000
    repaired or new affordable housing units in rural areas.
        Answer. This proposal addresses GAO's suggestion to merge similar
    HUD and USDA programs in order to make the process more efficient and
    cost-effective as well as to consolidate capacity building activities.
    The elimination of RHED reflects the existence of duplicative HUD and
    USDA efforts and the fact that USDA has far greater of resources in
    this area.
        USDA's fiscal year 2005 budget, per their submission, includes $2.2
    billion in budget authority for rural development and a projected
    overall program level of $11.626 billion, consisting of grants, loans,
    and related assistance. The request includes $2.6 billion in program
    level funds for the Rural Community Advancement Program and maintains
    the flexibility to transfer funding among programs in this area. The
    $2.6 billion includes $403 million in grant funding, including
    Community Facility, Rural Business Enterprise, and Water and Waste
    Disposal grants. The USDA Rural Housing Service program requests $938
    million in loans and grants and projects a fiscal year 2005 program
    level of $5.3 billion. The grant portion is $669 million of the total.
    It should also be noted that the Department of Agriculture fiscal year
    2005 budget request also rescinds $100 million for planning grants and
    innovation grants to Regional Boards from the Commodity Credit
    Corporation because, ``. . . the program purpose is redundant with the
    mission of Rural Development as a whole and of the Rural Development
    Council around the country, which Rural Development supports''. The HUD
    funding of $25 million for the separate Rural Housing and Economic
    Development Program is overshadowed by USDA's resources and
    infrastructure, which support USDA's historic effort in these areas.

                  BROWNFIELDS ECONOMIC DEVELOPMENT INITIATIVE

        Question. HUD is proposing the elimination of the Brownfields
    program because it is slow to expend funds and enough is being done
    through the CDBG program. How much Brownfields activity is being
    conducted through CDBG?
        Answer. At present, there is no single activity code that captures
    all Brownfields cleanup and redevelopment in the reporting system for
    the CDBG program. The most recent activity expenditure report for the
    CDBG program breaks activities down into almost 100 activities, 3 of
    which directly address Brownfields activities: Clean-up of contaminated
    sites/Brownfields; Asbestos removal; and Lead-based paint testing and
    abatement. As a percentage of total CDBG expenditures for the last 3
    fiscal years, the average for the above 3 categories was about 1.6
    percent, or $17.8 million. However, there are other CDBG activities
    that also capture Brownfields redevelopment activity, including but not
    limited to the following: Acquisition; Clearance and demolition;
    Rehabilitation of privately owned commercial/industrial properties;
    Commercial/industrial infrastructure development; Commercial/industrial
    building acquisition, construction and rehabilitation; Parking
    facilities; Flood and drainage facilities; Water & sewer; and Street
    improvements. Taken together, these activities averaged another 2.9
    percent, or up to $32.2 million of the total expenditures of
    approximately $11.1 billion over 3 years, a portion of which was
    undoubtedly expended on Brownfields redevelopment activities.
        In the last comprehensive study of the use of CDBG funds for
    Brownfields redevelopment (``Redeveloping Brownfields: How States and
    Localities Use CDBG Funds''), HUD's Office of Policy Development and
    Research found that CDBG expenditures for Brownfield activities ranged
    from about 2 percent to more than 20 percent of the total block grant
    in entitlement cities that tracked their use of CDBG funds for that
    purpose. Among these cities, CDBG expenditures for Brownfields-related
    activities ranged from $200,000 to more than $5,000,000 for an entire
    redevelopment project.

                          BROWNFIELDS DEVELOPMENT TIME

        Question. How does the development time compare between CDBG and
    Brownfields?
        Answer. It is difficult to compare the development time frame
    associated with Brownfields Economic Development Initiative BEDI- and
    CDBG-assisted development projects since BEDI projects have averaged
    more than $40 million in total project costs involving full-scale
    redevelopment by the private sector while the latter tend to be of
    smaller scale and are frequently confined to the investigation and
    clean-up of a site for prospective redevelopment. BEDI grant funds must
    currently be used in conjunction with a Section 108 loan, which can add
    some additional processing time before the project can get underway.

                           OLDER SECTION 202 PROJECTS

        Question. HUD is beginning to see a number of problems in the
    section 202 program where older 202 projects are no longer economically
    feasible due to either a backlog of repairs or outmoded designs that
    are no longer competitive with the marketplace. What is the extent of
    this problem and what is HUD proposing to do about it?
        Answer. As the Section 202 portfolio continues to age similar to
    the FHA portfolio, the Department will continue to be faced with the
    challenge of dealing with older projects that are no longer
    economically feasible due to outmoded designs or in need of major
    repairs. In 2000, the Department was pleased when Congress passed
    legislation allowing for the prepayment and refinancing of Section 202
    direct loans. The refinancing of these loans allows additional funds to
    be made available to modernize, rehabilitate and make the necessary
    major repairs to these projects. The Department understands that FHA
    insurance is a primary means for refinancing these loans that have
    Section 8 contracts that allow the low-income residents to live in
    these properties on a long-term basis.
        Due to the increasing number of sponsors desiring FHA insurance to
    refinance these aging projects, the Department has been reviewing how
    to provide more flexibility in underwriting the FHA-insured loan. In
    recognition of the great need to assist these affordable elderly
    housing projects and preserve this housing stock, the Department is
    pleased to announce that a policy will be implemented to allow these
    loans to be underwritten at either the Section 8 rent or market rent,
    whichever is greater. This change should substantially enable more
    Section 2020 projects to be refinanced through FHA and provide the
    needed capital to make the necessary repairs and improvements.

                         OFFICE OF LEAD HAZARD CONTROL

        Question. I consider lead-based paint hazards one of the most
    significant problems facing low-income children in urban areas. It is a
    problem that can be solved within our lifetime, a problem with a finite
    cost. Unfortunately, the administration proposes elimination of the
    Bond-Mikulski Lead Hazard Elimination program, which is funded at $50
    million in fiscal year 2004. How does HUD justify that it is doing
    enough to address lead-based paint hazards?
        Answer. HUD agrees that lead-based paint hazards in housing remains
    a significant problem that is solvable. The ``Bond Mikulski Lead Hazard
    Elimination'' program (also known as the Lead Hazard Reduction
    Demonstration program) has made an important contribution. The grantees
    have 350 units either underway or completed. Another 500 units have
    been tested to determine the precise location of lead-based paint
    hazards. In all, over 6,000 units will be completed under the first
    round of funding for this program and the second round will support
    additional units. These two rounds of funding will allow for targeting
    of funds to areas of high need and will further allow these grantees to
    mature their capacity and effort. With this maturation, the Department
    believes that these efforts can be best accommodated by integrating all
    efforts into the regular grant program. The fiscal year 2005 request
    reflects a $14.8 million increase for the regular grant program and we
    believe that these increased funds are sufficient to make the progress
    necessary to meet our target to eliminate lead-based paint poisoning by
    2010.

                                ZERO DOWNPAYMENT

        Question. The administration is proposing a number of FHA mortgage
    insurance program changes, including creating a Zero Downpayment
    program where all fees and costs are rolled into the mortgage (this
    proposal poses substantial financial risks to the FHA Single Family
    Mortgage Insurance program--there are no disincentive against placing
    high-risk families in homes and new homeowners have no stake in these
    homes and obviously have no cushion to pay for any big ticket costs
    such as a failed furnace or leaky roof. From a historical perspective,
    FHA was almost bankrupt in the late 1980's due to defaults from housing
    families with high loan-to-value ratios which also helped to tip
    marginal neighborhoods where FHA foreclosures helped to drive down the
    value of other housing in a neighborhood.)
        More troubling, the IG audit of the FHA financial statements, dated
    November 25, 2003, states, in relevant part, that FHA defaults rose
    from 2.76 percent in fiscal year 1999 to 4.25 percent in fiscal year
    2002. More importantly, loans made in 1999 through 2001 contributed to
    over 50 percent of the total defaults in fiscal year 2002. In addition,
    claims rose 31 percent in fiscal year 2003 to over 85,000 claims, and
    FHA paid claims of $5.5 billion in fiscal year 2002 which rose to $7.8
    billion in fiscal year 2003.
        This is not to say that the FHA Mutual Mortgage Insurance Fund is
    not adequately capitalized. The actuarial study indicates that the MMIF
    is adequately capitalized and likely will be for years to come.
    However, there are serious issues with some of the estimates in the
    study. As I understand it, the 2002 actuarial study projected that
    economic value of the fund at end of fiscal year 2003 would be $27.3
    billion with the new estimate for fiscal year 2003 being $22.7 billion.
    This represents a $4.6 billion flaw which raises serious questions over
    the need for new economic models which would include borrower credit
    data to provide a better glimpse into the credit and default risk of
    the FHA book of business.
        In addition, FHA share of the home purchase loan market fell by
    16.5 percent in 2003 after falling by 1.4 percent in 2002 and 1 percent
    in 2001. In contrast, overall purchase loan originations by loan number
    went up in each of these years with 2003 being a record year for home
    sales. This and other data suggest that there is growing deterioration
    in the credit-quality of the FHA book of business; that FHA is
    essentially pricing itself into underwriting the highest risk
    mortgages.
        HUD seems to be making a decision in the FHA Zero Downpayment
    program that it can afford to house as many people as possible, no
    matter the cost of default to the fund over time or the impact of a
    family's credit in the future. Is this the policy reason for proposing
    the Zero Downpayment program?
        Answer. FHA has designed a Zero Downpayment program to serve
    borrowers who meet FHA's existing underwriting criteria, but lack the
    savings to pay a downpayment and closing costs. FHA expects Zero Down
    claim rates to be higher than those for the regular program and plans
    to charge a mortgage insurance premium sufficient to cover the costs
    that it expects to incur.
        To reduce the risks associated with the program, FHA plans to
    require pre-purchase counseling and the use of the TOTAL mortgage
    scorecard in loan underwriting.

                                    FHA RISK

        Question. As discussed, the FHA Zero Downpayment program appears to
    be structured to encourage the highest risk homebuyers to use FHA. Why
    is HUD structuring its portfolio this way? What oversight requirements
    has FHA imposed to ensure that mortgage underwriters do not make
    available mortgage insurance to high-risk, non-creditworthy homebuyers?
        Answer. HUD disagrees that borrowers without the cash to close
    represent ``the highest risk'' homebuyers. The mortgage industry, in
    developing automated risk assessments tools, has discovered that the
    downpayment is much less of a factor in predicting default than
    previously thought. FHA's own mortgage scorecard, TOTAL, also confirmed
    that the borrower's credit and the payment-to-income ratio were much
    more powerful predictors of risk than the initial equity. It is in fact
    ``risk layering'' that represents the highest risk homebuyers. Further,
    the cash not used at loan settlement becomes available during the early
    months of the mortgage for payments, minor repairs, and the other costs
    associated with moving to a new home. By offering its own Zero
    Downpayment program, HUD will be able to adopt underwriting
    requirements, structure its insurance premiums, and add loss mitigation
    tools to ensure the financial stability of the mortgage insurance fund.
        FHA will require that all mortgages be risk assessed by its TOTAL
    mortgage scorecard, which looks at credit, and application variables
    found to be predictive of loan performance. While those applications
    that are ``referred'' (i.e., the outcome of the risk-assessment was not
    an ``approve'') to an underwriter for a personal review will not all be
    rejected, FHA expects a substantial portion of referred loans to be
    denied as these represent the greatest risk. FHA also intends to
    aggressively monitor loan performance as well as lender performance
    under this program and prohibit participation rights to lenders with
    unacceptably high claim and default rates, as we do in the regular
    program.

                               DEFAULTED HOUSING

        Question. Dr. Weicher, in the late 1980's, you served HUD Secretary
    Kemp as the Assistant Secretary for Policy Development and Research.
    During that time, you were responsible for legislation designed to
    increase the actuarial soundness of the fund which included
    requirements that homebuyer have a stake in the home through reasonable
    downpayments. One of the most significant concerns at the time was the
    impact of defaulted FHA housing on neighborhoods. As you know, through
    predatory lending issues, defaulted and distressed FHA properties
    remain a tremendous burden on communities, many of which are fragile.
    How is HUD expecting to specifically address this issue in the FHA Zero
    Downpayment program?
        Answer. FHA will promote use of its Loss Mitigation Program by the
    servicing lender as a means of curing default instances. Loss
    Mitigation options include Special Forbearance, a structured repayment
    plan, Mortgage Modification, a recasting of the terms of the mortgage
    and Partial Claim, a loan from HUD secured by a subordinate note that
    becomes due upon payoff of the first mortgage. Non-home retention
    options for borrowers, who can no longer maintain ownership, but wish
    to avoid the stigma of foreclosure, are Deed-in-Lieu and Preforeclosure
    sale. Use of the Loss Mitigation Program has increased markedly since
    program inception in 1996, and is credited with a cure ratio of better
    than 70 percent per instance of use.
        HUD measures and enforces use of loss mitigation by lenders through
    a scoring system called the Tier Ranking System (TRS) developed and
    monitored by HUD's National Servicing Center (NSC) in Oklahoma City.
    Since its inception, the Department has seen a dramatic improvement in
    the utilization of loss mitigation, and most importantly, an increase
    in home retention for borrowers. TRS has been widely accepted in the
    industry and will play a critical role in measuring both the
    effectiveness of Loss Mitigation Tools and also the lenders' servicing
    of their borrowers.
        Providing assistance, as needed, to enable families to retain their
    homes and cure their delinquencies stabilizes neighborhoods that might
    otherwise suffer from deterioration and problems associated with vacant
    and abandoned properties. Avoidance of foreclosure and the resultant
    losses further stabilize the mortgage insurance premiums charged by FHA
    and the Federal budget receipts generated from those premiums.
        HUD's commitment to community revitalization presents a second
    level of effort designed to reduce future incidences of foreclosure.
    When local governments identify neighborhoods with high rates of
    foreclosure and vacant properties, and they commit an investment of
    their own resources to solutions, HUD will designate such neighborhoods
    as revitalization areas and offer special sales incentives on HUD-owned
    (foreclosed) properties. Those properties in revitalization areas are
    first offered for sale at a deep (50 percent) discount to law officers,
    teachers and firemen committing to owner occupancy for a minimum of 3
    years. Remaining properties are then offered at discounts of up to 50
    percent to cities and their nonprofit partners who agree to
    rehabilitate the properties and resell them to mid- and low-income
    owner-occupant buyers.

                       PROPERTY HOLDING PERIOD AND COSTS

       Question. What are the current holding periods for defaulted FHA
    housing and what is the average daily cost for holding this housing?
        Answer. As of May 31, 2004, the average current holding period for
    defaulted FHA housing was 155 days. As of May 31, 2004, FHA's on-hand
    inventory was 28,602. Based on that portfolio, it costs the Department
    approximately $1,080,000 in daily holding expenses.

                           PRIVATE SECTOR COMPARISONS

        Question. How does this compare with the private sector?
        Answer. HUD does not have comparable private sector data.

                              TIME IN FORECLOSURE

        Question. What is the current average time for foreclosing on a FHA
    property that is more than 90 days in arrears?
        Answer. The average time for foreclosing on an FHA property was 8.3
    months for fiscal year 2003.

                                LOSS MITIGATION

        Question. How is HUD dealing with FHA homeowners that have payment
    problems?
        Answer. HUD has loss mitigation programs used by mortgagees to help
    FHA homeowners who have payment problems retain their homes. Also, HUD
    has counseling programs to aid homeowners in learning how to minimize
    payment problems.

                         SECTION 8 ADMINISTRATIVE FEES

        Question. The new HUD Section 8 Block Grant would cap
    administrative fees for PHAs at 7 percent. This is a big reduction. As
    you know, many small and rural PHAs are already underpaid by the
    current section 8 administrative fee scheme. Has HUD analyzed the
    impact of these proposed requirements on PHAs? If not HUD needs to
    conduct this review and submit for the record an assessment of the
    impact on PHAs, especially rural and small PHAs.
        Answer. The Department's original Flexible Voucher proposal did
    include a 7 percent base administrative fee to be paid to PHAs, with an
    additional 2 percent of the total fee account set aside for high
    performance. The base fee was reduced on the fact that the flexibility
    in the proposal will reduce administrative costs of PHAs.
        Subsequent to the proposal, further analysis did identify that the
    reduction of the base level to 7 percent would impose a disparate
    effect on some PHAs. The overall level of funding included in the
    account is adequate for the proposal and HUD is exploring other methods
    to distribute a fee structure that will provide an adequate funding
    level to administer the program. There are several proposals under
    review, and a recommendation will be made very soon.

                            CONTRACT RENEWALS (HCF)

        Question. HUD is requesting $16.92 billion for fiscal year 2005--a
    reduction of $715 million. These funds would be used to renew expiring
    tenant-based and project-based rental assistance contracts and for
    other purposes. How was the fiscal year 2005 request for $16.92 billion
    calculated?
        Answer. From 1998 to 2004, the Housing Certificate Fund has grown
    from 36 percent to 51 percent of the HUD budget. During that same time
    period the budget authority for the Housing Certificate Fund alone has
    risen 105 percent. By comparison, the increase for the non-Section 8
    portions of the Department's budget have risen only 13 percent since
    1998. This rate of increase is unsustainable. Without reform, reduction
    in the number of families served by the voucher program is inevitable.
        The President's Budget for fiscal year 2005 proposes the new
    Flexible Voucher Program. HUD believes that the improved design of the
    new Flexible Voucher Program can help a greater number of families
    afford decent housing. The Flexible Voucher proposal would allow public
    housing agencies to adopt rent structures and other policies that will
    enhance self-sufficiency and reduce long-term dependency.
        The funding level for the Housing Certificate Fund, of which the
    Flexible Voucher Program is a significant portion, was determined by
    taking into account projected leasing levels in the tenant-based
    program (97 percent) as well as the renewal of existing project-based
    contracts. Additional amounts were added to cover administrative fees,
    a central reserve, and anticipated tenant protection needs based on
    historical usage. Funds for contract administrators and the Working
    Capital Fund were also included. Finally, the first year savings from
    the Flexible Voucher Program, both programmatic and administrative,
    were subtracted from the total amount. The result is a reasonable and
    responsible funding level for the Housing Certificate Fund that
    provides for the long-term stability of the Section 8 program.
        Question. The following questions assume that changes to the
    current program have not been authorized for fiscal year 2005. Would
    this funding level be sufficient to fund renewal of all rental
    assistance units currently under lease?
        Answer. No, the amount of funding requested for fiscal year 2005
    assumes adoption of the Flexible Voucher Program. This funding level
    would not be adequate if there are no changes to the current program to
    reduce the cost of providing assistance.
        Question. Would Central Reserve funds be available to make up any
    shortfalls in renewal funding?
        Answer. Only to the extent that additional funding was not provided
    to fund vouchers at a per unit cost above the adjusted August 1, 2003
    cap. However, should Congress change this through subsequent
    legislation the amount requested for the Central Reserve would be
    significantly inadequate to address the shortfall for renewals should
    the requested funding level be enacted without the reforms of the
    Flexible Voucher Program.

                            RENTAL ASSISTANCE (HCF)

        Question. HUD is requesting $163 million for fiscal year 2005--a
    reduction of $43 million. Rental Assistance funds would be used for
    relocation and replacement of housing units demolished pursuant to the
    Omnibus Consolidated Rescissions and Appropriations Act of 1996 (Public
    Law 104-134). According to HUD's budget justification, the rental
    assistance program will have $386 million in fiscal year 2004
    resources, yet the Budget Appendix estimates $217 million in fiscal
    year 2004 obligations by program activity. Obligations by program
    activity are estimated to be $163 million for fiscal year 2005. In the
    past several years, demand has been limited, resulting in large
    carryover balances. How does HUD define obligations by program activity
    as used in the Budget Appendix?
        Answer. ``Obligations by Program Activity'' provides a breakout of
    anticipated obligations in the Housing Certificate Fund by program line
    item.
        Question. How was the fiscal year 2005 request for $163 million
    calculated?
        Answer. The request of $163 million in new Budget Authority for
    Rental Assistance funds was calculated by multiplying the projected
    fiscal year 2005 per units cost ($6,287) times the projected need of
    25,927 units based on historical usage.
        Question. How much fiscal year 2004 program carryover does HUD
    estimate will be available at the start of fiscal year 2005?
        Answer. It is currently anticipated that $170 million will
    carryover from fiscal year 2004 into fiscal year 2005.

                              RENTAL HOUSING (HCF)

        Question. Could part of the $386 million available resources for
    fiscal year 2004 be used to offset the fiscal year 2005 request for
    $163 million?
        Answer. The anticipated carryover of Rental Assistance funds into
    fiscal year 2005 has already been taken into account as part of the
    $1.6 billion proposed rescission.

                              CENTRAL RESERVE FUND

        Question. HUD is requesting $100 million for fiscal year 2005--a
    reduction of $36 million. The Central Reserve was created in 2003 and
    funded at $389 million. HUD's budget justification indicates that $423
    million in total resources will be available in fiscal year 2004. HUD
    indicated previously that the Central Reserve would be obligated in
    full by the end of fiscal year 2004. HUD obligated $105 million in
    fiscal year 2003 and would have to obligate almost 4 times as much in
    fiscal year 2004 to ``fully obligate'' these funds by the end of 2004.
    What formula was used to determine the original estimate for the
    reserve?
        Answer. The Department did not request funding for a Central
    Reserve in fiscal year 2003. The creation of the Central Reserve, and
    the determination of its funding level in fiscal year 2003 was the
    result of Congressional decision-making. As such, the Department is
    unable articulate the formula that was used to determine the original
    estimate for the reserve.
        Question. What is the current estimate for obligations for fiscal
    year 2004?
        Answer. Taking into account carryover, as well as new
    appropriations, it is estimated that $336 million in Central Reserve
    funds will be obligated in fiscal year 2004.
        Question. For fiscal year 2003, how much Central Reserve funding
    was obligated to (1) assist PHAs to lease up to their authorized
    baselines under the Housing Choice Voucher program and (2) fund
    unanticipated rental unit cost increases?
        Answer. In fiscal year 2003, the Department obligated the following
    amounts in the Central Fund:
      --Increase Cost--$69,085,492;
      --Increase Leasing--$5,056,000;
      --Reserves Restoration--$31,193,000.
        Question. How much carryover does HUD currently estimate will be
    available at the start of fiscal year 2005?
        Answer. The Department anticipates that all Central Reserve funds
    will be fully utilized by the end of fiscal year 2004.
        Question. Could part of the $423 million available resources for
    fiscal year 2004 be used to offset the current request in fiscal year
    2005 of $100 million?
        Answer. No. The Department expects that these funds will be fully
    utilized by the end of fiscal year 2004.
        Question. Are Central Reserve funds no-year, 1-year, or multi-year
    funds?
        Answer. Central Reserve funds, as well as all funds in the Housing
    Certificate Fund appropriation, are no-year funds.
        Question. What was the national utilization rate for the Housing
    Choice Voucher Program in fiscal year 2002 and in fiscal year 2003?
        Answer. The fiscal year 2002 unit-based utilization rate was 88.9
    percent and for fiscal year 2003 the utilization rate was 94.9 percent.

              CAPITAL FUND TECHNICAL ASSISTANCE AND MODERNIZATION

        Question. HUD is requesting $35 million in fiscal year 2005--a $15
    million reduction in assistance from fiscal year 2004. However, given
    fiscal year 2003 and 2004 carryovers and obligations of $34.5 million
    and $55.5 million, respectively, HUD has reported that $105 million is
    available in fiscal year 2004 for technical assistance. If HUD
    obligates amounts in 2004 similar to that obligated in 2003, carryover
    balances alone (totaling $71 million) could almost cover twice the
    total amount requested in 2005. What is the projected utilization for
    fiscal year 2004?
        Answer. HUD expects to fully obligate all of its TA and
    modernization funding under the Public Housing Capital Fund to ensure a
    high utilization of resources.
        Question. What is the projected carryover amount for fiscal year
    2005?
        Answer. The Fiscal Year 2005 Budget assumes that all funds under
    the Public Housing Capital Fund will be obligated; therefore, no funds
    are expected to carryover into fiscal year 2005.
        Question. Can HUD absorb more of a reduction than that requested
    (given growing carryover amounts) without impacting the program?
        Answer. The Department's technical assistance request is designed
    to ensure that the Department has the appropriate resources to carry
    out its statutory and legal requirement. In addition, the request
    insures that PHAs and other recipient of HUD resources have the
    appropriate level of assistance. A reduction to the 2005 request for
    technical assistance funding will cause disruptions in the provision of
    technical assistance to the Departments partners and clients. All
    carryover will be obligated by the end of this fiscal year.
        Question. What analysis has been done to support the reduction in
    fiscal year 2005?
        Answer. The 2005 technical assistance request is based on the
    estimated level of technical assistance that will be required to
    implement PIH programs and the Department's internal capacity to
    provide assistance.

                            CONTRACT ADMINISTRATORS

        Question. According to HUD's budget justification, the fiscal year
    2005 budget request proposes $101.9 million in funding for the Contract
    Administrators program--an increase of about $3 million. HUD's Budget
    Appendix reports actual obligations of $170 million in fiscal year 2003
    and estimates fiscal year 2004 obligations at $217 million and fiscal
    year 2005 obligations at $102 million. As of January 5, 2004, there
    were approximately 11,412 contracts under the Contract Administrators
    program, and HUD estimates that the program will include 18,445
    contracts by fiscal year 2005. The Department proposes funding $275
    million in program activity in fiscal year 2005, yet the budget
    appendix estimates obligations by program activity for fiscal year 2005
    of $102 million.
        How does the Department define program activity (in the budget
    justification) and obligations by program activity (in the Budget
    Appendix)? What is the difference?
        Answer. The $275 million in the Budget Justification represents
    total program obligations expected to be funded from all sources in
    fiscal year 2005 including carryover, new budget authority and other
    sources. The $102 million in the Budget Appendix represents obligations
    supportable only by the new BA requested in fiscal year 2005--$101.9
    million.
        Question. How was the fiscal year 2005 request for $101.9 million
    calculated?
        Answer. Represents $100 million fiscal year 2004 request increased
    by a 1.9 percent inflation factor. Remaining funding requirements in
    fiscal year 2005 to be derived from carryover and use of funds made
    available under the Housing Certificate Fund heading.
        Question. What is the total number of contracts under HUD's Section
    8 project-based program?
        Answer. There are 18,975 active contracts, as of September 30,
    2003.
        Question. How many Section 8 contracts were funded under the
    Contract Administrators program in fiscal year 2002 and 2003?
        Answer. Contracts assigned to Contract Administrators are as
    follows:
      --Fiscal year 2002--1,401 Contracts;
      --Fiscal year 2003--306 Contracts.
        It is expected that additional geographic areas will be added to
    the program in fiscal year 2004 including: District of Columbia,
    Connecticut, Arkansas, Virginia, Northern California, Florida,
    Illinois, Utah and Nebraska. Several of these entities have been
    pending resolution of legal issues, which have now largely been
    resolved. It is expected that these areas will begin participating
    within the next several months during fiscal year 2004. This will lead
    to an increase in obligation activity in both fiscal years 2004 and
    2005.
        Question. What is HUD's latest estimate for obligations in fiscal
    year 2004?
        Answer. The latest estimate for obligations in fiscal year 2004 is
    $185 million.
        Question. How much carryover does HUD estimate will be available at
    the start of fiscal year 2005?
        Answer. HUD estimates $32.1 million will be available at the start
    of fiscal year 2005.
        Question. How can estimated obligations fall to $102 million in
    fiscal year 2005 when the number of contracts in the program will be
    increasing from under 12,000 to over 18,000?
        Answer. The $102 million in estimated obligations for fiscal year
    2005 are from fiscal year 2005 appropriations only. Total estimated
    obligations in fiscal year 2005 are estimated to be $275 million.

                            EMERGENCY CAPITAL NEEDS

        Question. HUD is requesting $50 million--an increase of about $10
    million over fiscal year 2004--in reserves for public housing
    authorities emergencies and natural disasters. According to the Budget
    Appendix, these funds are allocated according to the Department's
    approved plan. Trends in the resources for this program shows HUD
    obligating about $9.5 million in 2003 with carryover balances in the
    program totaling $40.1 million. Given additional budget authority
    approved in fiscal year 2004, current resources available in the
    program are almost $80 million. Please provide a copy of the approved
    plan.
        Answer. The reference in the Fiscal Year 2005 Budget Appendix to
    ``a Department-approved plan'' refers to the plans submitted by the PHA
    at the time of their request to justify their need for emergency
    capital funding. Accordingly, at this time, there is no approved plan
    indicating how the Department will allocate these funds. By their
    nature, emergencies and disasters are unplanned events, so a funding
    plan cannot be developed in advance of the need, but will be developed
    as emergencies and disaster applications are received. It should be
    noted that HUD believes that it is restricted by appropriation language
    in terms of how funding set aside for emergencies and natural disasters
    can be used: HUD can only use funds that correspond to the year the
    emergency or natural disaster occurred. This restriction limits HUD's
    flexibility to respond to these unforeseen events.
        Question. What analysis has the Department done to justify the need
    for the current request for $50 million in fiscal year 2005?
        Answer. By their nature, it is impossible to predict emergencies
    and disasters. Projections can only be based on past experience.
    Therefore, the fiscal year 2005 request for $50 million is based on an
    analysis of the fiscal year 2000 through 2003 emergency/disaster funds
    that were requested by the Field Office and the amounts that were
    substantiated by Headquarter staff and approved for obligation by the
    Field Office. The substantiated and approved amounts for fiscal years
    2000-2003 are as follows:

    ------------------------------------------------------------------------
                                                               Fund Requests
                                                               Substantiated
                           Fiscal Year                         and Approved
                                                              for Obligation
    ------------------------------------------------------------------------
    2000....................................................     $62,115,061
    2001....................................................      32,330,995
    2002....................................................      10,148,605
    2003....................................................      24,175,275
    ------------------------------------------------------------------------

        The estimated requirements of $50 million for fiscal year 2005 is
    also based on the pending requests for fiscal year 2003 carryover funds
    of $40 million. These pending requests exceed the amount made available
    for fiscal year 2003, and all of the fiscal year 2003 emergency and
    disaster monies will be used to fund events that occurred in fiscal
    year 2003.
        Question. What are the projected spend-outs, and utilization in the
    program?
        Answer. By their nature, it is impossible to predict disasters.
    Projections can only be based on past experience. Although PIH has
    carried over $40 million from fiscal year 2003, claims for these funds
    exceed the amount available. To date, PIH has obligated $22,159,440. It
    usually takes a significant amount of time for a PHA to recover from
    the emergency/disaster event and submit a request for funding to PIH
    for review. It takes additional time for PIH to substantiate the
    requests that it receives. The necessary delay often results in PIH
    carrying over funds from this set-aside to the following fiscal year.
    PIH is in the process of substantiating the few remaining claims from
    fiscal year 2003 that remain pending. PIH anticipates that virtually
    all of the fiscal year 2003 funding set-aside for emergencies and
    disasters will be exhausted to fund disasters that occurred in fiscal
    year 2003.
        Question. To what extent does the current request include
    allocations to public housing authorities in New York for the 9/11
    disasters? If so, does this take into account supplemental funds
    appropriated for the New York disaster?
        Answer. PIH has not received any requests from the New York City
    Public Housing Agencies to provide funding related to the 9/11
    disaster.

                  AMERICAN DREAM DOWNPAYMENT INITIATIVE (ADDI)

        Question. The administration is proposing $200 million for this
    program in fiscal year 2005 for assistance to low income homebuyers in
    need of down payment assistance that will be distributed by a separate
    formula to participating jurisdictions and States. The distribution
    formula is described in the program's authorizing legislation signed
    into law December 16, 2003. (Note.--The distribution formula is
    outlined in HUD's congressional budget justification). It received
    $87.5 million last year. HUD's original request in fiscal year 2004
    ($200 million) was derived based on an estimate of $5,000 per loan down
    payment for 40,000 loans. HUD estimates the fiscal year 2005 request
    will assist 3,000 families in fiscal year 2005 and 40,000 over time.
    What analysis has been done to determine that $5,000 per loan for
    40,000 loans might be needed?
        Answer. The average cash needed for a family at 50 percent of
    median income for downpayment and closing costs on a home whose sales
    price was at 50 percent of the Median Sales Price for the area ranged
    from $4,380 (in the West) down to $2,620 (in the South) according to a
    2000 study conducted by LISC (``Minding the Gap''). Using the mid-range
    average of $3,660 (in the Northeast) and assuming a 5 percent increase
    in home prices per year since the 1999 American Housing Survey data
    used in the study, the cash needed would be $4,671. This figure was
    rounded up to $5,000 to determine the number of families that would be
    assisted with ADDI since eligible properties in the HOME program are
    those up to 95 percent of median income while ``low-income'' is capped
    at 80 percent of median, thus having the overall effect of raising the
    average amount needed for downpayment and closing costs overall.
        Question. What analysis has been done to determine that 3,000
    families would be assisted in fiscal year 2005 and 40,000 over time?
    How long a period does ``over time'' cover?
        Answer. Since the provision of downpayment assistance through ADDI
    is much less complicated and more focused than HOME assistance, an
    outlay level of up to 10 percent can be anticipated over the first
    year. During fiscal year 2005, assistance will be provided
    predominantly from fiscal year 2003 and fiscal year 2004 ADDI funding
    which totaled a combined $161 million (32,000 families assisted over
    time at $5,000 each on average). Fiscal year 2003 and fiscal year 2004
    ADDI funds will become available to participating jurisdictions mostly
    during the fourth quarter of fiscal year 2004 following publication of
    the interim rule reflecting the enacted legislation of December 2003.
    This being the case, the program will only have been in place for
    approximately 1 year by the end of fiscal year 2005. At a 10 percent
    outlay level, approximately $16 million will have been disbursed and at
    least 3,000 households assisted during that period.
        ``Over time'' is that time period required to spend out all fiscal
    year 2005 ADDI funds, assumed to be 4 or 5 years. The 40,000 ``over
    time'' figure is obtained by dividing the $200 million requested level
    by an average per household assistance level of $5,000.

                       ADDI FUNDING FOR FISCAL YEAR 2004

        Question. Why was only $87.5 million approved in 2004?
        Answer. The President's Fiscal Year 2004 Budget requested $200
    million; however, the fiscal year 2004 Consolidated Appropriations Act
    provided $87.5 million (pre-rescission).

              STUDY ON USE OF HOME FUNDS FOR HOMEBUYER ACTIVITIES

        Question. Has HUD completed the study on the use of HOME funds for
    homebuyer activities? If so, please provide a copy.
        Answer. Yes, the Department has completed the study of HOME-
    assisted homebuyer programs. The basis of the analysis on production
    was derived from IDIS information, which provides data on the number of
    homebuyers assisted, the average amount of assistance and the
    demographics of those served, e.g. the percentage of minority
    homebuyers. The purpose of the study was to further examine trends in
    IDIS, e.g. the increase in funding directed to homebuyers over time as
    well as study characteristics of programs not reflected in current IDIS
    data, such as the incidence of homebuyer counseling, the neighborhood
    choices of assisted buyers, who is being served, income level, family
    size etc. The study provides valuable insights that inform the
    implementation of ADDI. A copy of the study is attached. The study can
    also be found on the web at: http://www.huduser.org/publications/
    hsgfin/homebuy.html.

                       RULING ON ALLOCATION OF ADDI FUNDS

        Question. Has HUD completed the ruling for allocation of the funds?
    If so, please provide a copy.
        Answer. The ADDI interim rule was published in the Federal Register
    on March 30, 2004. The rule was effective on April 29, 2004. A copy is
    provided. The text of the rule can also be viewed at the following URL:
    http://www.hud.gov/offices/cpd/affordablehousing/lawsandregs/regs/
    addi.pdf.
        ADDI funds are now available to HOME Program Participating
    Jurisdiction (PJs) and, depending upon the PJs program year start-date
    (e.g., January 1, July 1, etc.), prospective homebuyers may already be
    able to apply.

               IMPACT OF ADDI LEGISLATION ON ALLOCATION OF FUNDS

        Question. Did legislation impact the allocation formula for the
    American Dream program?
        Answer. Yes, the legislation was very specific about the formula
    factor for the distribution of ADDI, providing an amount to each State
    equal to its share of the number of low-income households residing in
    rental housing. Local participating jurisdictions within each State
    would receive a portion of the allocation based on its share of the
    State-wide number of low-income households residing in rental housing
    if they had more than 150,000 in population or garnered more than
    $50,000 in formula funds.

                         CONVERSION TO ASSISTED LIVING

        Question. This fund provides grants to owners of existing HUD-
    subsidized elderly properties to convert some or all units in these
    properties to assisted living facilities. The Department is currently
    requesting $30 million for fiscal year 2005, an increase of about $5
    million. Starting in fiscal year 2003, new budget authority for ACLP
    was reduced from about $50 million to about $25 million due to the low
    response from eligible owners. HUD has carried over about $108 million
    from fiscal year 2002 into fiscal year 2003--of which $39 million (plus
    another $25 million in new BA) was made available to applicants in the
    fiscal year 2003 Notice of Funding Availability. What analysis has been
    done to support the current request of $30 million for fiscal year
    2005?
        Answer. Carryover funds in the Conversion to Assisted Living
    Program amounted to $83.1 million at the start of fiscal year 2004. Of
    this amount, $25.3 million had been committed to projects and $57.8
    million remained unobligated.
        A combination of increased outreach efforts and the implementation
    of the Emergency Capital Repair program will have the effect of
    utilizing available carryover balances as well as raising the annual
    level of program awards. It is anticipated that the combined program
    demand through the end of fiscal year 2005 will absorb both the
    available carryover and the $30 million of new authority requested for
    fiscal year 2005.
        Question. Can the current request be offset by carryover funds that
    will be made available again for the fiscal year 2004 Notice of Funding
    Availability?
        Answer. Carryover funds in fiscal years 2004 and fiscal year 2005
    will be part of the funding mix for the combined conversion and
    emergency repair program. The combined program is expected to generate
    sufficient demand to absorb both the carryover as well as the requested
    $30 million of new appropriations requested for fiscal year 2005.
        Question. Has participation in ALCP improved? Specifically, how
    many project owners applied for the ALCP funds in each year for fiscal
    years 2000 through 2003 and how much did they receive in grants?
        Answer. Please see chart below.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                      Amount Awarded
                               Fiscal Year                             Applications    Applications    (In Millions
                                                                         Received         Funded        of Dollars)
    ----------------------------------------------------------------------------------------------------------------
    2000............................................................              29              13            19.5
    2001............................................................              22              12            21.2
    2002............................................................              31              21            54.3
    2003............................................................              13               9            15.4
    ----------------------------------------------------------------------------------------------------------------

        Question. In the ``Proposed Changes in Appropriations Language,''
    HUD states that part of the $30 million may be used for emergency
    capital repairs. What share of this fund is set-aside for this purpose?
    And what analysis has been done to support this request?
        Answer. While no hard analysis was done to substantiate the amount,
    the preliminary estimate for emergency capital repairs in fiscal year
    2005 is $10 million. This estimate was based on the numerous requests
    HUD has received for this type of funding. We believe that as awareness
    of the availability of these funds increases within the industry,
    demand will increase accordingly.

    NEED FOR INCREASED FUNDING FOR SERVICE COORDINATORS/CONGREGATE SERVICE
                                    PROGRAMS

        Question. HUD is requesting $53 million in funding for Service
    Coordinators and to fund congregate housing service programs. This is a
    $23 million increase over the fiscal year 2004 enacted level. What
    analysis has been done to justify the need for a $23 million increase
    in this program?
        Answer. Fiscal year 2004 request was based on approximately $20
    million in carryover being available in fiscal year 2004 to supplement
    the requested $30 million. This provided a total programs level of
    almost $50 million for fiscal year 2004. Based on activity to date, we
    fully anticipate utilizing the $50 million by the end of fiscal year
    2004.
        The $53 million funding requested for fiscal year 2005 will be
    sufficient to maintain funding at the historical levels while providing
    $3 million for the Section 811 Housing for Persons with Disabilities
    program.

               SELF-HELP HOMEOWNERSHIP OPPORTUNITY PROGRAM (SHOP)

        Question. HUD is requesting $65 million for the SHOP program--an
    increase of about $38 million over the fiscal year 2004 enacted level.
    According to the budget justification, this increase is designed in
    part to support the administration's goal to triple this program, and
    reflects the ability of the existing participants to expand their
    staffing outreach and production. While demand for such projects are
    demonstrated for two grant recipients, HUD has a total of $51.9 million
    in resources at the end of fiscal year 2004. If HUD obligates what it
    has in the past ($22 million) and the full amount requested ($65
    million) is granted, HUD would have about $94 million available in
    fiscal year 2005 if the full requested amount was granted. Would
    projected program demand require over $90 million in funding for fiscal
    year 2005?
        Answer. Absolutely, SHOP grantees have completed construction on
    11,025 housing units form all funding years as of December 31, 2003.
    The demand for the program has exceeded the supply as evidenced by the
    fact that the $25 million made available under the NOFA process
    generated $47 million in funding requests from applicants even though
    they were aware that available funding was constrained. In addition,
    both the demand for and capacity to use additional funds is further
    evidenced by the fact that only 486 out of 1,600 Habitat for Humanity
    affiliates have received SHOP funding since the program's inception in
    1996 and only 200 currently participate in the program. The additional
    funds requested in fiscal year 2005 could be put to immediate use since
    many local affiliates of the existing national and regional grantees
    have not yet participated in the SHOP Program.
        We continue to believe that this expanded funding for the SHOP
    program is a high priority since the average Federal per-unit SHOP
    investment has been a modest $10,000. The homebuyer's required sweat
    equity contribution significantly reduces the cost of construction, and
    has result in home purchase prices as low as $31,000. The program
    provides Homeownership opportunities for families with average incomes
    between 50 to 65 percent of area median income, some with incomes as
    low as $15,000 per year. The unique structure of the SHOP program and
    the Federal subsidy solely for land costs provides the means to
    successfully reach families whose incomes normally make homeownership
    completely out of reach.
        Finally, the fiscal year 2004 NOFA increased the Federal subsidy
    for land to up to $15,000 recognizing that in some areas the cost of
    land has risen and the opportunities to acquire land for homeownership
    is becoming more difficult. Thus, the additional funding will reflect
    this fiscal year 2004 change and allow for a further increase in
    homeownership opportunities for families with very modest incomes who
    provide substantial sweat equity to make their dream of homeownership
    come true.

                               DEMOLITION GRANTS

        Question. HUD proposes $30 million for Demolition Grants in fiscal
    year 2005. Funds are to be used for relocation, demolition, and site
    remediation for obsolete and distressed pubic housing units. What
    analysis has been done to determine that $30 million might be needed?
        Answer. The Department estimates that there is a need for
    additional appropriated funds to be directed toward assisting PHAs in
    complying with the requirements of Section 202 Mandatory Conversions
    and Section 18 Demolition approvals. The set-aside will aid in
    expediting the actual demolition of units that the Department has
    already approved, but have not yet been demolished. Based on the
    Department's experience in the most recent HOPE VI Demolition grant
    competition, there is clearly a demand for such funds. HUD received
    applications requesting more than $65 million for the most recent
    competition. However, the Notice of Funding Availability only made
    approximately $40 million available.
        Question. Does the HOPE VI program or other HUD programs cover
    similar activities and, if so, what might be covered by these grants
    that may not be covered by HOPE VI or other programs?
        Answer. With the elimination of the HOPE VI program, such funds
    will no longer be available. These funds will be used to accomplish a
    portion of the demolition and related activities that were formally
    executed under the HOPE VI program. PHAs may use Public Housing Capital
    Fund monies to demolish public housing units. However, PHAs are faced
    with tough decisions whether to use these funds toward such costly
    demolition when there are so many other demanding needs. This is why
    the Department believes that setting aside $30 million out of the $2.7
    billion requested in fiscal year 2005 for the Public Housing Capital
    Fund to target the most distressed units is more feasible than an
    individual PHA spending its limited Capital Fund for these purposes.

                         FREEDOM TO HOUSE DEMONSTRATION

        Question. HUD is requesting up to $5 million for the Freedom to
    House Demonstration Initiative. This Initiative will establish a
    demonstration program for 50 PHAs aimed at assessing the impact of
    locally determined public housing programs. It will build on certain
    elements of the Moving to Work demonstration by granting PHAs
    flexibility to manage their resources.
        What analysis was done to justify $5 million request amount?
        Answer. The requested amount of $5 million for the Freedom to House
    Initiative is based on the amount of funds appropriated in fiscal year
    1996 to initiate the Moving to Work Demonstration program.
        Question. Has the performance of the Moving to Work Demonstration
    been assessed? If so, what has resulted from that demonstration?
        Answer. In accordance with Section 204 of the Omnibus Consolidated
    Recessions and Appropriations Act of 1996, a report on the evaluation
    of the Moving to Work Demonstration program (MTW) was submitted to
    Congress in January 2004.
        The evaluation of the MTW program, as contained in the January 2004
    report, finds that MTW initiatives include experimentation with changes
    in three main areas: (1) merged funding assistance, (2) subsidy
    formulas, rent rules and time limits, and (3) HUD procedural and
    reporting requirements. Based on the three goals of the MTW
    demonstration as stated in the Appropriations Act, following are some
    determinations about whether or not deregulation and the initiatives
    implemented by the MTW sites are factors that contributed to PHAs
    achieving these goals:
      --Changes in administrative procedures and reporting requirements
            resulted in more rational and efficient use of time and
            resources.
      --An administrative benefit resulting from the simplification of rent
            rules and subsidy calculations is that tenants are less likely
            to under-report their income and staff are less likely to
            miscalculate tenant rent.
      --Many PHAs focused on changes to rent rules and/or subsidy formulas
            to increase employment and self-sufficiency among assisted
            households.
      --Some PHAs were able to expand housing choice by using their funding
            fungibility to help finance the acquisition or production of
            more assisted housing units (one-for-one replacement of public
            housing units demolished under HOPE VI, building larger units
            to suit larger families, scattered site acquisitions, and
            increasing the stock of affordable rental units for voucher
            holders in tight rental markets).
      --Some PHAs merged their public housing and voucher program waiting
            lists to make the application process more efficient for staff,
            and less burdensome and easier to understand for applicants in
            an effort to give residents increased choice about housing
            type.

                PUBLIC HOUSING OPERATING FUND COST STUDY REPORT

        Question. Please provide a copy of the June 6, 2003, Public Housing
    Operating Cost report.
        Answer. Attached is a copy of the report. It can also be found at:
    http://www.gsd.harvard.edu/research/research_centers/phocs/
    documents.html.

                          ADMINISTRATIVE RECEIVERSHIPS

        Question. HUD is requesting $10 million to support the costs of
    administrative and judicial receiverships or other intervention
    activities. According to HUD, the average cost of a receivership is
    estimated at $1 million per PHA. Therefore, it appears the office is
    planning to cover about 10 PHAs during fiscal year 2005.
        How many PHAs have courts asserted operational authority over
    through judicial receivership?
        Answer. Since 1985, four PHAs have been placed into judicial
    receivership: (1) Boston, MA, (2) Washington, DC, (3) Kansas City, MO,
    and (4) Chester, PA. Kansas City and Chester are still active judicial
    receiverships.
        Question. How many PHAs has HUD taken over through administrative
    receivership?
        Answer. Since 1985, 14 PHAs have been placed into administrative
    receivership. Eight of those PHAs remain in active administrative
    receivership. Of those 14 administrative receiverships, six have been
    returned to local control. A current listing of active administrative
    receiverships is below:
      --1. Beaumont, TX (Administrative)
      --2. Camden, NJ (Administrative) (Control to be returned by 6/30/04)
      --3. East St. Louis, IL (Administrative)
      --4. New Orleans, LA (Administrative)
      --5. Orange County Housing Authority, TX (Administrative)
      --6. Sanford, FL (Administrative)
      --7. Virgin Islands Housing Authority, VI (Administrative)
      --8. Wellston, MO (Administrative).
        Administrative receiverships returned to local control:
      --1. Chicago, IL (Administrative)
      --2. LaFayette, LA (Administrative)
      --3. San Francisco, CA (Administrative)
      --4. Shelby County, TN (Administrative)
      --5. Springfield, IL (Administrative)
      --6. St. James Parrish, LA (Administrative).
        Question. On what basis is HUD anticipating additional
    receiverships?
        Answer. When PHA deficiencies are demonstrated to be at such a
    level that current local management of the authority is unable to
    effectively remedy the situation, alternative management through
    receiverships is the primary tool for corrective action available to
    the Department. The provisions for administrative receivership stem
    from the PHA's failure to substantially follow HUD requirements to
    maintain decent, safe and sanitary housing (substantial default) or for
    their breach of one or more of the provisions of the Annual
    Contributions Contract (ACC) they have with the Department which
    outlines the parameters for receiving Federal assistance in compliance
    with appropriate statutes, rules and regulations or their failure to
    meet ``substantial improvement'' under the PHAS regulations. In
    accordance with Section 6(j)(3)(A) and its subparts, of the 1937
    Housing Act as amended, HUD anticipates that approximately four PHAs
    will not meet the requirements of meeting ``substantial improvement''
    under the PHAS program in fiscal year 2005. HUD also anticipates
    another three to five PHAs which are currently experiencing management
    difficulties, either because of lack of effective managerial operations
    or failure to comply with HUD requirements in accordance with Section
    6(f) which may be placed into administrative receivership in fiscal
    year 2005. It should be noted that though HUD's estimates demonstrate
    an average of $1 million per receivership, that figure is just an
    average. Some receiverships, either full or partial, may come either
    under or over that average. Judges make the determination over which
    issues will be addressed under judicial receiverships. Consequently,
    these receiverships typically are more expensive than administrative
    receiverships. Every receivership action is unique. The level of
    resources and assistance necessary to bring the PHA back into
    compliance is dependent upon the extent of the PHA's management
    deficiencies, the size of the Authority and the overall financial and
    physical condition of the PHA. This level of funding should meet HUD's
    projections to adequately address the serious compliance and management
    problems faced by those severely non-compliant PHAs that, as a last
    resort, are placed into receivership for remedial action.
        Question. Are compliance monitoring reviews indicating an increase,
    decrease, or the same number of PHAs likely entering receivership?
    Please provide copies of compliance review summaries.
        Answer. Field Office program compliance reviews are used as one of
    several other indicators to identify PHAs which may likely enter into
    receivership. When determining which PHAs are in serious non-compliance
    thereby necessitating receivership, both program compliance and
    performance assessment information is used. From information residing
    in our performance data systems and communication provided by field
    staff, we are kept abreast of compliance violations. We have noticed a
    slight increase in the number of program compliance findings through
    our program compliance reviews and performance reviews conducted by
    field staff including but not limited to Independent Public Accountant
    Audits, field office program compliance reviews as well as our
    automated performance systems i.e., PHAS and SEMAP. Our early analysis
    suggests that this is a result of the Department's enhanced focus on
    monitoring IPA auditors through our aggressive quality assurance
    process, our enhanced monitoring of PHAs including the Rental Integrity
    Monitoring reviews and Section Eight Management Assessment Program
    confirmatory reviews as well as the full implementation of the PHAS
    program. Copies of program compliance review summaries are being
    retrieved from the relevant Field Offices archives and will be
    submitted by end of July.
        Question. How have receiverships been funded in the past?
        Answer. Historically, receiverships have been funded in a variety
    of ways including through the use of the PHA's own financial means,
    through technical assistance funds and Salaries and Expense funds. The
    Department's first goal is for the PHA's to use their own resources to
    fund receivership activities. Whenever HUD staff has been involved
    either through training or management oversight, we have used HUD
    appropriated Salaries and Expense funds to meet those needs. HUD has
    not had a separate funding account for PHAs in receivership because the
    Authority's operations and financial streams are not altered during the
    receivership. However, HUD has provided technical assistance monies to
    some PHAs in receivership to support training and other activities when
    the use of those dollars was eligible under the technical assistance
    set-asides appropriated to the Department. The current restrictions of
    the Capital Fund Technical Assistance Set-aside allow the use of TA
    funds for Troubled and near-troubled PHAs, but not receiverships.
        Question. Is the request for funding in fiscal year 2005 1-year,
    no-year, or multi-year money?
        Answer. This request is for no-year money.

                           VOLUNTARY GRADUATION BONUS

        Question. HUD is requesting $15 million to provide incentive awards
    to PHAs who increase graduation turnover rates. The program is intended
    to promote the concept that assisted housing is transitional, not
    permanent, by giving PHA's incentives to graduate more families out of
    assisted housing. HUD plans to award PHAs that exceed a baseline number
    of families that have exited public housing. Eligibility thresholds
    would be established for housing authorities depending on size and
    other program factors. What analysis has been done to justify that $15
    million might be needed for the program?
        Answer. Currently HUD's Office of Public and Indian Housing
    administers five programs that specifically promote self sufficiency--
    the Resident Opportunity and Self Sufficiency program, which is made up
    of four smaller grants, and the Family Self-Sufficiency program. These
    programs range in cost between $9 million and $15 million annually. HUD
    believes that based on the above funding, the requested $15 million in
    additional funds will reinforce and influence Housing Authorities to
    promote the concept that assisted housing is transitional, not
    permanent. The $15 million is a small portion of funds available to
    support public housing programs, but is a starting point intended to
    encourage transition out of public housing without being such a large
    number as to be detrimental to the operation of public housing
    programs. This amount will be assessed as program activity unfolds.
        Question. Has eligibility criteria for the program been
    established? If so, please document. If not, when does HUD plan to
    establish criteria?
        Answer. The finalized eligibility criteria for the program has not
    been completed, however, HUD has narrowed its focus to one of two-
    measurement criteria; the average duration in public housing and the
    end of participation date. Under either methodology units for elderly
    and disabled will not be included.
        Under the average duration in public housing measurement, PIH would
    create a variable that reflects the average length that a tenant
    resides in public housing at the authority. Once a baseline is
    established, the PHA would be measured by including the last
    measurement time frame data versus its baseline. If the overall
    duration has decreased, the PHA would be eligible for bonus funding. A
    new baseline would be established each year.
        Under the end of participation measurement, PIH would establish a
    measure that looks only at the end of participation date or turnover
    rate. The calculation would be the difference between the end of
    participation date or turnover rate for the baseline period versus the
    last measurement time frame. If the end of participation were greater
    than the previous period, the PHA would be eligible for bonus funding.
    A new baseline would be established each year. HUD has already
    completed preliminary research and testing and is in the process of
    finalizing the final criteria and methodology.

                          DEVELOPMENT CHALLENGE PILOT

        Question. HUD is requesting $10 million to test ways to better
    coordinate, target, and leverage existing Federal community and
    economic development programs. The pilot awards new flexible grants in
    fiscal year 2005 to 5 to 10 communities that are prepared to commit to
    ambitious performance targets and to community participation in the
    governance of their development. HUD projects program improvements and
    offsets amounting to $10 million in this program. What analysis has
    been done to justify that $10 million might be needed for the program?
        Answer. The President's Management Agenda, as well as the
    Government Performance and Results Act, call for Federal agencies to
    better integrate their budgets and program performance. This pilot will
    allow HUD to experiment with several communities to examine the benefit
    of various incentives to achieve closer program coordination and
    performance measurement. While a pure numerical analysis was difficult
    to do, the proposal will build on the experience and anecdotal evidence
    in a number of communities, including Richmond, VA, that have begun to
    target for revitalization strategically selected neighborhoods. In some
    cases, improved targeting has more effectively leveraged additional
    resources in communities; resulting in safer neighborhoods, better
    housing and increased property values. These beneficial neighborhood
    effects could more than offset the initial cost of the pilot program
    and would help ensure the efficiency of the $4.3 billion annual level
    of formula funding.
        Question. What is the projected amount needed per award?
        Answer. HUD's Justification initially suggests 5-10 communities
    could be assisted with the $10 million appropriation, but the amounts
    needed will ultimately be determined at a later date based on
    applications. An interagency group will advise on the standards for
    awarding the funds competitively and help develop a common framework of
    performance measures and accountability for the Federal investment.

          PLANNED IMPROVEMENTS/OFFSETS OF DEVELOPMENT CHALLENGE PILOT

        Question. What are the planned improvements/offsets?
        Answer. The information from this pilot will generate information
    that could provide the basis for future reforms or legislative/budget
    proposals. The line ``program improvements/offsets'' represents whether
    there is an increase or decrease in funding for a specific category and
    this proposal is an ``improvement'' rather than an ``offset.''

                               FAITH-BASED PILOT

        Question. HUD is proposing a new 5-city pilot program aimed at
    increasing the participation of faith-based and community organizations
    in the cities' community development strategies. Cities will submit
    plans that demonstrate strategies for involving faith-based and
    community organizations and for making small sub-grants to faith-based
    and community groups. Funding is estimated to provide grants for 5 to
    20 faith-based partners competitively.
        What analysis has been done to justify that $10 million might be
    needed for the program? What is the projected amount needed per award?
        Answer. The requested budgeted amount for the Faith-Based pilot is
    $5 million. While we did not have a numeric analysis as to the scope of
    the request, we did base the funding level on our experience which was
    garnered in large part through over 92 education and training events we
    did in fiscal year 2003. This number includes six field office-
    sponsored conferences and six regional conferences, three of which were
    sponsored by the White House office of Faith-Based and Community
    Initiatives. This effort guides us in gauging how many grantees and how
    much funding might be necessary to establish a better model on how to
    further expend and help faith-based and community development
    organizations.
        Funding will vary depending on the proposals received, but would be
    available to cover costs required both to execute its plan and make
    sub-awards to leverage the contribution of grassroots organizations in
    affordable housing and community development activities.
        The flexibility and reach of the $4.3 billion Community Development
    Block Grant formula program is a top priority for communities
    throughout the Nation. The expenditure of $5 million to further develop
    the capacity and activity of Faith Based and other new community
    development organizations within the program is necessary to ensure
    maximum impact of the overall program.

                     STATUS OF SAMARITAN HOUSING INITIATIVE

        Question. HUD is requesting $50 million for Samaritan Housing to
    advance the goal of ending chronic homelessness. When will the new
    Samaritan Housing Initiative be submitted to Congress?
        Answer. Legislation for the Samaritan Initiative was developed and
    introduced as H.R. 4057 by Congressman Rick Renzi of Arizona, on March
    30, 2004. On April 20, 2004, it was referred to the Subcommittee on
    Housing and Community Opportunity. Senate companion legislation has
    been drafted by Senator Allard of Colorado, but has not yet been
    introduced. HUD is ready to implement the program as soon as the
    Congress passes authorizing legislation and the President signs it into
    law.

               FUNDING MECHANISM FOR SAMARITAN HOUSING INITIATIVE

        Question. What funding mechanism is included in the legislation for
    this program (i.e., How will VA and HHS funding be coordinated? How
    will the funds be allocated? Have eligible activities been
    established?)?
        Answer. Funds from HHS and HUD will be pooled. VA will provide in-
    kind supportive services. HUD will serve as the administering agency.
    The participating agencies shall establish an interagency
    implementation and monitoring team to review and conduct oversight of
    program grantees. The team shall establish uniform or coordinated
    requirements, standards, procedures, and timetables to the maximum
    extent possible. HHS and VA will provide supportive services. Eligible
    housing activities have been established as acquisition,
    rehabilitation, operating costs, leasing, housing counseling and rental
    assistance.

          ANALYSIS OF FUNDING NEEDED FOR SAMARITAN HOUSING INITIATIVE

        Question. We understand that the $50 million request builds on the
    $35 million funding level of the 2003 Chronic Homeless Initiatives.
    What analysis was done to determine funding levels for that initiative?
        Answer. The fiscal year 2003 $35 million Chronic Homeless
    Initiative was a smaller demonstration program and HUD's portion of the
    program was $20 million. HUD's contribution to the fiscal year 2003
    Initiative was in part, dependant on recaptured program funds and also
    reflected the effort to pursue program design and establish program
    performance. The fiscal year 2005 request for the Samaritan Housing
    initiative proposed $50 million in HUD funds and $10 million each from
    the Department of Veterans Affairs and the Department of Health and
    Human resources. The increased level of funding reflects that the
    program design involving interagency cooperation among several
    Departments has been well developed. In addition, the requested $50
    million funding level dovetails with the overall HUD and other agency
    resources targeted and available to ending chronic homelessness over a
    10-year period. The request in part reflects the view that the number
    of chronic homeless has been estimated as a discrete number of 150,000
    to 200,000. The analysis projects that increased housing resources,
    particularly development of permanent housing for the homeless, coupled
    with improved and increased delivery of related homeless services over
    a 10-year period, can meet the needs of this population. The Department
    believes that this is a realistic projection and outcome if the
    requested total resources are provided.

                    FAITH-BASED PRISONER RE-ENTRY INITIATIVE

        Question. The budget proposes $25 million to fund HUD's portion of
    a joint Federal initiative with the Departments of Labor and Justice
    designed to help individuals exiting prison make a successful
    transition to community life. What analysis has been done to justify
    that $25 million might be needed for the program? What is the projected
    amount needed per award?
        Answer. The scale of the proposal reflects the high priority of the
    10-year goal of ending chronic homelessness, as well as reducing
    overall homelessness while at the same time recognizing that this is a
    new initiative that will provide many lessons learned to help direct
    future policy. HUD calculates that $6,500 is required to house a
    homeless individual annually. The $25 million figure was calculated by
    figuring that $3,250 could serve nearly 7,700 individuals for 6 months
    as they are coming out of prison and getting re-established.
        Question. How is HUD's portion coordinated with the Departments of
    Labor and Justice?
        Answer. A working group will soon be convened by the White House to
    bring senior officials from the Department of HUD, Labor and Justice to
    plan the programmatic policy for the initiative.

                           ZERO DOWNPAYMENT PROPOSAL

        Question. HUD is proposing a legislative change that would enable
    HUD to insure mortgages with a zero downpayment. Borrowers would also
    be able to finance up-front insurance premiums and certain other
    settlement costs (e.g., initial service charges, appraisal, inspection,
    and other fees in connection with the mortgage--just as they do now
    under FHA's 203(b) program). Borrowers are subject to standard FHA
    requirements for mortgage amounts and income-to-debt ratio. The program
    is targeted to first-time homebuyers, however, borrowers are eligible
    if they have not owned a house in the past 3 years. FHA would charge
    borrowers upfront and annual premiums that are higher than those for
    FHA's regular 203(b) mortgage product. Up-front premiums for this new
    product would be 2.25 percent and annual premiums would be 0.75 percent
    for the first 5 years and then 0.5 percent thereafter. In comparison,
    under the Mutual Mortgage Insurance program, borrowers pay upfront
    premiums of 1.5 percent and annual premiums of 0.5 percent. Borrowers
    would also be required to participate in homebuyer counseling. Per
    HUD's suggested appropriations language, the Secretary would also be
    authorized to establish additional requirements. HUD's budget
    justifications also indicate that this new product could also be
    insured by the GI/SRI fund.
        HUD expects an increased risk of default associated with these
    mortgages; specifically, HUD estimates a default rate of 18.73 percent
    (i.e., lifetime defaults as percentage of disbursements) as compared to
    the estimated default rate of 9.06 for FHA's regular 203(b) mortgage
    product. HUD also estimates a recovery rate of 71.90 percent (i.e.,
    recoveries as a percentage of lifetime defaults). HUD estimates that
    these products would have a subsidy rate of -0.95 percent, compared
    with a subsidy rate of -1.93 percent for the Mutual Mortgage Insurance
    program. HUD expects this new program/product to generate 109,000 new
    cases in 2005 and $184 million in additional negative subsidy. HUD also
    estimates that 36,000 cases that would otherwise qualify for the
    regular 203(b) program are expected to choose the zero downpayment
    product; as a result, HUD estimates that (a) the risk of the base
    program will be decreased and (b) this will add $16 million to the
    baseline negative subsidy.
        Will the proposed zero downpayment product be underwritten using
    the new TOTAL Scorecard system? If so, since the zero downpayment
    mortgages are viewed to be ``more risky'' than FHA's standard 203(b)
    product, how will TOTAL Scorecard assess this risk?
        Answer. Yes, all mortgages under the zero downpayment program must
    be risk assessed using the FHA TOTAL mortgage scorecard. The FHA TOTAL
    mortgage scorecard never rejects any application, but rather refers the
    loan application to an individual underwriter for his or her personal
    review of the risk of the mortgage.
        The mortgage scorecard includes the initial loan to value in the
    algorithm. Thus, zero downpayment loans--since they are higher risk--
    will be more likely to be referred by the scorecard to an underwriter
    who will analyze the overall risk of the mortgage and make the credit
    decision.

                                TOTAL SCORECARD

        Question. What factors would TOTAL Scorecard weigh most heavily
    when considering whether a borrower with no downpayment would be
    approved?
        Answer. The scorecard algorithm assesses these credit and
    application variables:
      --Borrower's credit
      --Monthly Housing Expense Ratio
      --Number of Monthly Payments in Reserve following loan closing
      --Loan-to-Value (LTV)
      --Loan Term (number of years).

                             UNDERWRITING CRITERIA

        Question. Will HUD require borrowers to meet certain underwriting
    criteria that are not now considered under TOTAL or otherwise
    considered under the standard 203(b) product?
        Answer. HUD will require housing counseling as a condition of loan
    approval. FHA program data show that minority first-time homebuyers who
    received counseling in fiscal years 1998-2000 in order to reduce their
    upfront premium have lower cumulative claim rates than comparable
    homebuyers who did not. Analyses performed by Freddie Mac show similar
    results.

                            ADDITIONAL REQUIREMENTS

        Question. According to HUD budget justification documents, the HUD
    Secretary reserves the right to establish additional requirements for
    the zero downpayment product. At this point in time what, if any, type
    of requirements does the Secretary envision establishing?
        Answer. The administration proposes an upfront premium of 2.25
    percent and an annual premium of 75 basis points for the first 5 years
    of the loan, dropping to 50 basis points until LTV reaches 78 percent.
    Also intended is a requirement to underwrite applicants using the TOTAL
    automated scorecard and that borrowers receive pre-purchase counseling.

                        REDUCTION IN THE HOPE VI PROGRAM

        Question. The administration's fiscal year 2004 budget did not
    request funding for HOPE VI program. This program received $570 million
    in fiscal year 2003. Secretary Martinez indicated that there were
    sufficient unspent funds in the pipeline to keep this program
    operating. However, the House recommended $50 million, the Senate $195
    million, and $150 million was actually provided. Has HUD completed and
    submitted its report to the Appropriations Committee identifying the
    status of each HOPE VI project funded before 1999 and actions taken
    towards timely completion of these projects, detailing the department's
    plans for implementing the recommendations made by GAO, etc.? Please
    provide a copy if available.
        Answer. Yes. This report was submitted to the U.S. House of
    Representatives Committee on Appropriations and the U.S. Senate
    Committee on Appropriations on March 8, 2004 that provides the status
    of each HOPE VI project funded prior to 1999 and any actions taken to
    ensure timely completion of such projects. A copy of the report is
    provided.

                               HOUSING COUNSELING

        Question. Will FHA require borrowers who secure a zero downpayment
    mortgage to participate in homeownership counseling? If so, is FHA--as
    the insurer--planning to implement additional oversight or enhanced
    monitoring of these mortgages? Will FHA require that loan servicers
    conduct additional loan monitoring for zero downpayment loans? What
    plans are in place for assessing the effectiveness of the new zero
    downpayment product?
        Answer. Yes, housing counseling will be a requirement to
    participate. FHA has developed this program to complement its existing
    affordable housing programs. As a result, FHA's existing monitoring and
    review infrastructure provide sufficient and appropriate program
    controls. In addition, because all mortgages made under this program
    will be risk assessed by the TOTAL mortgage scorecard, which allows FHA
    to collect important information about loan characteristics including a
    ``ranking'' of the overall perceived risk, FHA will be able to quickly
    determine if underwriting criteria need to be revised based on loan
    performance.
        FHA expects loan servicers to provide the same level of
    professional and responsive service irrespective of the initial equity
    in the property. Servicers are required to track loan performance and
    to report to FHA any instances of default.
        FHA will carefully monitor loan performance. FHA tracks performance
    of all its mortgages by product type, by fiscal year endorsed, by
    originating lender and other criteria as needed. These mortgages will
    be separately identified in FHA's system of records and will be
    monitored for performance, as are all other mortgages that FHA insures.

                          DEMAND FOR ZERO DOWNPAYMENT

        Question. In HUD's budget justification, HUD estimates that the
    demand for the zero downpayment product will be 109,000 new cases in
    2005. How did you come to this estimate, and in developing the
    estimate, did you consider the following:
      --Experience of other agencies, such as VA or USDA?
      --Consult with secondary market participants that purchase zero
            downpayment mortgages, such as Fannie Mae or Freddie Mac?
      --Consult with other mortgage underwriters, such as private mortgage
            insurers?
        Answer. In estimating the demand for the Zero Downpayment program,
    FHA took into account its knowledge of the home lending and mortgage
    insurance industries, its experience with homebuyers using various
    types of downpayment assistance, and assumptions about how rapidly it
    could implement a new program.
        Furthermore, FHA's demand estimate is consistent with studies
    showing that initiatives to assist potential homebuyers in overcoming
    the downpayment hurdle will have a larger impact in raising
    homeownership rates than initiatives that lower the interest rates or
    monthly mortgage expenses. These studies show that about 28 percent of
    renters who cannot afford a modestly priced home are constrained only
    by downpayment costs.

                              CONVENTIONAL CREDIT

        Question. In HUD's budget justification, HUD estimates that 36,000
    cases that would otherwise qualify for the regular 203(b) program are
    expected to choose the zero downpayment product. Would the rest of the
    109,000 cases have received loans from the conventional market? Under
    what terms and conditions?
        Answer. HUD does not assume that the rest of the 109,000 cases
    would have received loans from the conventional market. It is unlikely
    that many borrowers seeking a mortgage under the Zero Downpayment
    program would qualify for a conventional mortgage outside of the
    subprime market. Most borrowers would probably postpone the decision to
    purchase a home until they had sufficient savings.

                        CONVENTIONAL ZERO DOWN MORTGAGES

        Question. Currently zero downpayment mortgages are available in the
    conventional market (in which they may use stricter underwriting
    requirements for these products than FHA would be using for the zero
    down product). What is the size of this market? Who makes such loans
    now?
        Answer. HUD does not have data on the size or composition of the
    conventional market for zero downpayment mortgages.

                                  CREDIT RISK

        Question. What types of borrowers does FHA expect to attract with
    the zero downpayment product, and how will the credit risk of these
    borrowers compare to the credit risk of borrowers receiving low
    downpayment loans from the conventional market?
        Answer. The program would assist those creditworthy but cash-poor
    working individuals and families excluded from purchasing their first
    home. The program is limited to first-time homebuyers and HUD expects
    that the program would be especially beneficial to those in markets
    where high rental costs inhibit the tenants' ability to save the
    downpayment. As the President said when signing the American Dream
    Downpayment Act, the inability to save the required downpayment is the
    most significant barrier to homeownership. Further, numerous studies
    since have indicated that removing the downpayment barrier would have a
    more dramatic effect on the homeownership rate than would other tools
    because removing the downpayment barrier would address the most
    significant reason why families and individuals cannot afford to
    purchase a home. The downpayment and closing cost barrier would be
    lessened and funds that would otherwise have to go towards the
    downpayment could be used to lower other debts to manageable levels. In
    fact, studies show that about 28 percent of renters who cannot afford a
    modestly priced home are constrained only by downpayment costs.
        FHA does not have credit profiles on low downpayment loans from the
    conventional market so it cannot perform such a comparison.

                               ADVERSE SELECTION

        Question. To what extent does the zero downpayment product address
    the issue of adverse selection as it relates to the borrowers for whom
    FHA is competing with the conventional market?
        Answer. Adverse selection will continue with or without the Zero
    Downpayment product offering; the GSEs have resources not available to
    HUD and offer an array of mortgage products that FHA does not have
    authority to provide. Nevertheless, this program will allow FHA to have
    a product offering similar to those of Fannie Mae and Freddie Mac, and
    without the income and location restrictions often associated with
    those products in the conventional market. FHA's product would be
    available everywhere with only the amount of the mortgage limited by
    property location. Many conventional products are limited to borrowers
    with incomes that do not exceed 100 percent of the area's median or to
    specific geographical areas.

                    COMPETITION WITH THE CONVENTIONAL MARKET

        Question. To what extent will FHA be able to compete with the
    conventional market and ensure that the mortgages FHA underwrites are
    not too risky?
        Answer. FHA is not attempting to ``compete'' with the conventional
    market, but rather wishes to operate a successful program that provides
    homeownership opportunities to those creditworthy individuals and
    families that may not qualify under the more stringent guidelines of
    Fannie Mae and Freddie Mac. FHA believes that it can serve that
    underserved segment of the market and do so in a prudent and
    responsible manner by adopting sound credit-underwriting standards.

                           FANNIE MAE AND FREDDIE MAC

        Question. Have Fannie Mae and Freddie Mac implemented pilot
    programs for their low and no downpayment products before making these
    products generally available? If so, did you consider taking such an
    approach with FHA's zero down product?
        Answer. HUD is not privy to the market tests that may have been
    conducted by Fannie Mae and Freddie Mac. However, FHA believes that the
    program should be available nationwide to all qualified families and
    not limited to certain geographical areas or otherwise restricted by
    income limits.

                                LOAN MONITORING

        Question. Will you be monitoring any differently loans made with no
    downpayment? Do you expect that FHA loan servicers to monitor these
    loans any differently? How and when will you know whether these loans
    are performing better or worse than you expected?
        Answer. Since all mortgages made under this program will be risk
    assessed by the TOTAL mortgage scorecard, which allows FHA to collect
    important information about loan characteristics including a
    ``ranking'' of the overall perceived risk, FHA will be able to quickly
    determine if underwriting criteria need to be revised based on loan
    performance. In addition, the algorithm that FHA has adopted to select
    mortgage insurance applications for post-endorsement review includes
    the initial loan-to-value; the Zero Downpayment mortgages will be
    selected more often for quality review. The actual ``monitoring,'' for
    which FHA interprets to mean default and claim experience, will be
    performed as usual. FHA expects loan servicers to provide the same
    level of professional and responsive service irrespective of the
    initial equity in the property. FHA tracks performance of all its
    mortgages by product type, by fiscal year endorsed, by originating
    lender. These mortgages will be separately identified in FHA's system
    of records and will be monitored for performance, as are all other
    mortgages that FHA insures. FHA will know as soon as a mortgage insured
    under this program is reported as in default.

                                HOMEOWNER EQUITY

        Question. With a zero downpayment loan, borrowers effectively end
    up with a loan that exceeds the value of the property. Now, in recent
    years home values have been increasing dramatically, but if home values
    were to decline, what value is there to homebuyers in having mortgages
    that exceed the value of the house?
        Answer. Generally, in the long run, home values have tended to
    rise. If home values were to decline for a brief period, borrowers with
    an FHA-insured Zero Downpayment Mortgage might choose to continue to
    enjoy the shelter and housing services provided by their home,
    especially if their borrowing costs compare favorably with rental costs
    in the community.

                          LOAN PERFORMANCE ASSUMPTIONS

        Question. Do you expect the zero downpayment loans to perform worse
    than other FHA insured loans? To what extent? Likewise, how do you
    expect the performance of zero downpayment loans to compare to the
    performance of comparable conventional loans? On what basis did you
    estimate the performance of the zero downpayment loans? For example,
    did FHA take into consideration the following?
      --1. Extrapolate from a subset of a prior program study, such as FHA
            loans with very low downpayments (i.e., 97 percent or greater)?
      --2. Experience of other agencies, such as VA or USDA?
      --3. Consult with secondary market participants that purchase zero
            downpayment mortgages, such as Fannie Mae or Freddie Mac?
      --4. Consult with mortgage underwriters, such as private mortgage
            insurers?
        Answer. FHA does not have data on the performance of conventional
    zero downpayment loans. FHA has conservatively priced the premiums
    required to maintain its fiduciary responsibility to the MMI Fund. In
    addition, many industry sources would argue that credit history is the
    primary indicator of default risk, not the initial equity investment in
    the property.

                             CASH FLOW ASSUMPTIONS

        Question. How would you expect the projected loan performance for
    the zero downpayment product to affect cash flows for existing FHA
    mortgages?
        Answer. FHA expects that, in fiscal year 2005, 36,000 (one-quarter)
    of the homebuyers for the Zero Downpayment program would otherwise have
    been served by the FHA regular program, most probably as homebuyers
    with downpayment assistance. Because these borrowers pose above average
    risk to the Fund, FHA expects that cash flows for its regular program
    will improve.

                                  PREPAYMENTS

        Question. How do you expect the zero downpayment product to perform
    in terms of prepayment?
        Answer. FHA did not make any explicit prepayment assumptions for
    the Zero Downpayment program. Loans with higher loan-to-value ratios
    generally prepay more slowly than loans with lower LTV ratios, but most
    FHA loans have high loan-to-value ratios.

                            CREDIT SUBSIDY ANALYSES

        Question. Can you please provide for the committee the analyses HUD
    prepared in developing the estimated credit subsidy for this new
    product, including any analysis showing the expected prepayments and
    foreclosures for these loans and all cash flows, including premiums and
    recoveries.
        Answer. FHA used the regular MMI credit subsidy model for fiscal
    year 2005 with the claim and premium assumptions applicable to the Zero
    Downpayment program to make credit subsidy estimates for the Zero
    Downpayment program.

                                ACTUARIAL REVIEW

        Question. The latest actuarial review of the MMI fund, prepared by
    Deloitte & Touche, states that the MMI fund had an economic value of
    $22.736 billion at the end of fiscal year 2003. How do you expect the
    proposed zero downpayment product to effect the value of the fund over
    the coming years?
        Answer. Because we estimate the zero downpayment loans to have a
    negative credit subsidy, we expect them to contribute to the positive
    economic value of the Fund.

                                ACTUARIAL TOOLS

        Question. GAO recommended in 2001 that HUD should develop criteria
    for measuring the actuarial soundness of the Fund and develop better
    tools for assessing the impact that policy changes may have on the
    volume of riskiness of loans that FHA ensures. What tools have you used
    to evaluate the proposed zero-down product? Generally, what steps has
    HUD taken to improve the tools it uses to assess such policy changes?
        Answer. HUD gauges the soundness of FHA's insurance funds in
    several ways. First, the annual independent actuarial review of the MMI
    Fund provides us with an outside expert's estimate of the capital ratio
    of the overall fund, and the economic value of new business coming into
    the Fund. The capital ratio tells us if the existing books of business
    are financially sound, while the economic value estimates of new
    business tell us if the marginal impact of new loans insured is adding
    or detracting from the financial health of the Fund. Secondly, HUD has
    developed its own cash flow models of FHA's MMI, and GI/SRI Funds
    business, and uses these models: (1) to estimate the liability for loan
    guarantees (net present value of future cash flows from existing
    insured loans) for the existing books of business, and (2) to estimate
    the credit subsidy rate (net present value of all cash flows at the
    time new loans are insured divided by dollars endorsed) on future
    business. Finally, HUD continually monitors trends in defaults and
    claims through regular monthly and quarterly management reports, and
    ad-hoc reports as specific issues or loan performance issues arise.
        For the proposed zero-down product, HUD was able to measure the
    relative claim experience of other loans it already insures for which
    borrowers make no downpayment (specifically loans with downpayment
    assistance), and used this experience to make assumptions as to the
    likely performance of the zero down loans. These assumptions were run
    through our cash flow models along with the higher proposed premium
    structure for these loans to determine that the zero down loans would
    have a negative credit subsidy, and would not adversely affect the
    economic value of the MMI Fund.

                              ACTUARIAL SOUNDNESS

        Question. In proposing the zero down product, does that mean that
    you think that the fund is actuarially sound, and what criteria have
    you developed for making this judgment?
        Answer. Yes, FHA believes that the MMI Fund is actuarially sound
    based on annual independent actuarial analyses which show the fund's
    capital ratio has remained well above the statutory 2 percent minimum
    for 8 years in a row now, and the economic value of new business coming
    into the Fund each year continues to be positive (has a negative credit
    subsidy). Together, these mean that the fund is healthy and new
    business is sound, suggesting the Fund will remain healthy.
        Specifically, the fiscal year 2003 review estimated the economic
    value of the MMI Fund at the end of fiscal year 2003 to be $22.736
    billion and the Fund's Capital Ratio to be 5.21 percent, the eighth
    full year this ratio has exceeded the congressionally mandated target
    of 2.0 percent. (Economic value is the net present value of the Fund's
    reserves plus expected future cash flows, and the capital ratio is
    economic value divided by insurance-in-force.)
        In comparison, the fiscal year 2002 actuarial review estimated the
    economic value and capital ratio of the Fund at $22.636 billion and
    4.52 percent, respectively. The increases in both measures for fiscal
    year 2003 were driven by the large positive economic value Deloitte and
    Touche placed on a record dollar volume of new loans FHA insured in
    fiscal year 2003 along with the rapid prepayment of older loans,
    keeping the end-of-year insurance-in-force (denominator of the capital
    ratio) down.

                                  GI/SRI FUND

        Question. The possibility of using the GI/SRI fund to insure the
    zero downpayment product has been raised. Under what circumstances
    would you envision the GI/SRI fund insuring the zero downpayment
    product? What impact would the new zero downpayment product have on the
    credit subsidy rate of the GI/SRI fund?
        Answer. FHA does not plan to create a zero downpayment product in
    the GI/SRI Fund.

                             DOWNPAYMENT ASSISTANCE

        Question. What do you know about the performance of FHA insured
    loans that have received downpayment assistance, and what does this
    tell you about how the new zero down loans may perform?
        Answer. FHA loans to homebuyers with downpayment assistance from
    nonprofits or government agencies have claim rates that are
    approximately twice those of the average FHA borrower.

                        DOWNPAYMENT ASSISTANCE PROGRAMS

        Question. What impact do you see the proposed zero downpayment
    loans having on programs which provide downpayment assistance?
        Answer. FHA expects the Zero Downpayment program to expand
    opportunities for homebuyers to purchase a home without cash for a
    downpayment, especially in communities without downpayment assistance
    providers. Studies suggest that a nationwide program that removes the
    downpayment barrier would especially benefit minority homebuyers.

                               PAYMENT INCENTIVES

        Question. HUD is proposing a legislative change that would enable
    borrowers with poor credit ratings to qualify for FHA insurance. FHA
    would still require borrowers to meet debt, income, and repayment
    ability standards. FHA would also require borrowers to have greater
    owner equity and would charge borrowers upfront and annual premiums
    that are higher than those for FHA's regular 203(b) mortgage product.
    Up-front premiums for this new product would be 2.25 percent and annual
    premiums would be 0.75 percent. Subsequently, the annual premium may be
    reduced or eliminated due to good mortgage payment performance; the
    budget justifications indicate that 60 months would be the trigger
    point. HUD's proposed appropriations language would, however, enable
    HUD to establish and collect an annual premium not exceeding 1.0
    percent of the remaining insured principal. Furthermore, HUD's proposed
    appropriations language dictates that these mortgages would be insured
    by the MMI fund.
        HUD expects an increased risk of default associated with these
    mortgages; specifically, HUD estimates a default rate of 18.73 percent
    (i.e., lifetime defaults as percentage of disbursements) as compared to
    the estimated default rate of 9.06 for FHA's regular 203(b) mortgage
    product. HUD also estimates a recovery rate of 71.90 percent (i.e.,
    recoveries as a percentage of lifetime defaults). HUD estimates that
    these mortgages would have a subsidy rate of -0.56 percent and that
    this program will generate 60,000 new mortgages per year and $45
    million in additional negative subsidy. (HUD estimates that its MMI
    program has a subsidy rate of -1.93 percent.)
        Will the underwriting standards for the proposed payment incentives
    product be very similar to those for FHA's 203(b) product? If so, will
    the payment incentives product be underwritten using the new TOTAL
    Scorecard system? Since the payment incentives product is viewed to be
    ``more risky'', did HUD consider using more rigorous standards for
    borrowers qualifying for the zero down product?
        Answer. Yes, all mortgages under the payment incentives program
    must be risk assessed using the FHA TOTAL mortgage scorecard.
    Underwriting criteria, other than the downpayment percentage, have not
    yet been developed.

                                  OWNER EQUITY

        Question. Are you asking for greater owner equity? If so, How much
    additional equity? How will the other underwriting criteria
    counterweight the additional risk of a loan to a borrower with a lower
    credit score?
        Answer. It was assumed that these loans would not exceed 90 percent
    LTV.

                                ANNUAL PREMIUMS

        Question. Regarding annual premiums associated with the payment
    incentive product: (a) will annual premiums be reduced or eliminated at
    60 months?; (b) will there be specific criteria used to determine that
    premiums will be reduced or eliminated (e.g., what payment history
    would be necessary)?; and (c) if they are reduced, what will they be
    reduced to?
        Answer. It was assumed that borrowers would pay an annual premium
    of 75 basis points for the first 5 years of the loan, dropping to 50
    basis points until the loan was paid down to 78 percent LTV.

                            HOMEOWNERSHIP COUNSELING

        Question. Will FHA require borrowers who secure a payment incentive
    product to participate in homeownership counseling?
        Answer. Housing counseling will be required for purchase
    transaction.

                                     RISKS

        Question. Considering the risks associated with the payment
    incentive product, did HUD consider initiating a pilot program?
        Answer. FHA is confident that the agency can operate the program
    nationwide without first offering the program as a pilot.

                                   OVERSIGHT

        Question. Will FHA implement additional oversight or enhanced
    monitoring of payment incentive mortgages?
        Answer. FHA has developed this program to complement its existing
    affordable housing programs. As a result, FHA's existing monitoring and
    review infrastructure provides sufficient and appropriate program
    controls. In addition, since all mortgages made under this program will
    be risk assessed by the TOTAL mortgage scorecard, which allows FHA to
    collect important information about loan characteristics including a
    ``ranking'' of the overall perceived risk, FHA will be able to quickly
    determine if underwriting criteria need to be revised based on loan
    performance.

                                 LOAN SERVICERS

        Question. Will FHA require that loan servicers conduct additional
    loan monitoring for payment incentives loans?
        Answer. No, FHA expects loan servicers to provide the same level of
    professional and responsive service irrespective of the initial equity
    in the property. Servicers are required to track loan performance and
    to report to FHA any instances of default. Mortgagors may also opt to
    have counseling agencies contact them directly should they become 60
    days delinquent on the mortgage.

                               PROGRAM ASSESSMENT

        Question. What plans are in place for assessing the effectiveness
    of the proposed payment incentives product?
        Answer. FHA will monitor the performance of the Payment Incentives
    program as carefully as it monitors the performance of all of its
    mortgage insurance programs. With a new program, early default and
    claim rates are the best indicators of program performance.

                                VOLUME ESTIMATE

        Question. In HUD's budget justification, HUD estimates that this
    program would generate 60,000 new mortgages per year. How did you come
    to this estimate? In developing this estimate, did you consider the
    following?
      --1. Experience of other agencies, such as VA or USDA?
      --2. Consult with secondary market participants that purchase zero
            downpayment mortgages, such as Fannie Mae or Freddie Mac?
      --3. Consult with other mortgage underwriters, such as private
            mortgage insurers?
        Answer. To estimate the potential demand for the Payment Incentives
    program, HUD analyzed data from the Survey of Consumer Finances on
    renters with sufficient income to purchase a home but who have
    imperfect credit.

                                SUBPRIME MARKET

        Question. Currently mortgages are available in the conventional
    market (subprime market) to borrowers with questionable credit
    histories. How relevant is the experience of these mortgages that are
    available through the subprime market? To what extent will FHA be able
    to compete with subprime market and ensure that the mortgages FHA
    underwrites are not too risky?
        Answer. HUD does not have data on the performance of subprime
    loans. In developing underwriting criteria for this program, FHA will
    rely on its experience in serving borrowers with imperfect credit. In
    addition, it will require pre-purchase counseling and the use of the
    TOTAL mortgage scorecard. TOTAL provides FHA with a tool with which to
    manage the incremental risk assumed by the payment incentive loans.

                                   BORROWERS

        Question. What types of borrowers does FHA expect to attract with
    the payment incentives product, and how will the credit risk of these
    borrowers compare to the credit risk of borrowers receiving loans
    similar to the payment incentives loans from the conventional market?
        Answer. HUD does not have data on the performance of conventional
    loans. With the Payment Incentives program, FHA expects to serve
    borrowers who have impaired credit, but have the cash for a significant
    downpayment. It also expects to serve borrowers with subprime loans who
    have impaired credit but have established a payment history and wish to
    refinance into a lower cost product.

                                LOAN PERFORMANCE

        Question. Do you expect the payment incentives loans to perform
    worse than other FHA insured loans? To what extent? On what basis did
    you estimate the performance of the payment incentives loans? For
    example, did FHA take into consideration the following:
      --Extrapolate from a subset of a prior program study, such as FHA
            loans with questionable credit histories?
      --Consult with secondary market participants that purchase zero
            downpayment mortgages, such as Fannie Mae or Freddie Mac?
      --Consult with mortgage underwriters, such as private mortgage
            insurers?
        Answer. Based on its experience with credit impaired borrowers and
    its knowledge of the home lending and mortgage insurance industries,
    FHA expects that the Payment Incentives program will have claim rates
    that about double those of its regular program.

                            CREDIT SUBSIDY ANALYSES

        Question. Can you please provide for the committee the analyses HUD
    prepared in developing the estimated credit subsidy for this new
    program, including any analysis showing the expected prepayments and
    foreclosures for these loans and all cash flows, including premiums and
    recoveries?
        Answer. In developing a credit subsidy estimate, FHA used its
    regular MMI credit subsidy model with downpayment, claim rate, and
    premium assumptions applicable to the Payment Incentives program.

                                ACTUARIAL REVIEW

        Question. The latest actuarial review of the MMI fund, prepared by
    Deloitte & Touche, states that the MMI fund had an economic value of
    $22.736 billion at the end of fiscal year 2003. How do you expect the
    payment incentives program to effect the value of the fund over the
    coming years?
        Answer. As with the zero downpayment loans, we estimated that the
    payment incentive loans would have a negative credit subsidy, and
    therefore, we expect them to contribute to the positive economic value
    of the fund.

                              GAO RECOMMENDATIONS

        Question. GAO recommended in 2001 that HUD should develop criteria
    for measuring the actuarial soundness of the Fund and develop better
    tools for assessing the impact that policy changes may have on the
    volume of riskiness of loans that FHA ensures. What tools have you used
    to evaluate the proposed payment incentives product? Generally, what
    steps has HUD taken to develop better tools for assessing such changes?
        Answer. HUD gauges the soundness of FHA's insurance funds in
    several ways. First, the annual independent actuarial review of the MMI
    Fund provides us with an outside expert's estimate of the capital ratio
    of the overall fund, and the economic value of new business coming into
    the Fund. The capital ratio tells us if the existing books of business
    are financially sound, while the economic value estimates of new
    business tell us if the marginal impact of new loans insured is adding
    or detracting from the financial health of the fund. Secondly, HUD has
    developed its own cash flow models of FHA's MMI, and GI/SRI fund
    business, and uses these models: (1) to estimate the liability for loan
    guarantees (net present value of future cash flows from existing
    insured loans divided by dollars endorsed) for the existing books of
    business, and (2) to estimate the credit subsidy rate (net present
    value of all cash flows at the time new loans are insured) on future
    business. Finally, HUD continually monitors trends in defaults and
    claims through regular monthly and quarterly management reports, and
    ad-hoc reports as specific issues or loan performance issues arise.
        For the proposed payment incentive product, HUD will set
    underwriting criteria such that the relative claim rate experience of
    these new loans will be about two times that of the average claim rates
    for all loans currently being insured by the MMI Fund under the regular
    program. Using this claim rate assumption HUD used its cash flow models
    along with the higher proposed premium structure for these loans to
    determine that the payment incentive loans would have a negative credit
    subsidy, and would not adversely affect the economic value of the MMI
    Fund.

                              ACTUARIAL SOUNDNESS

        Question. In proposing the payment incentives product, does that
    mean that you think that the fund is actuarially sound, and what
    criteria have you developed for making this judgment?
        Answer. Yes, FHA believes that the MMI Fund is actuarially sound
    based on annual independent actuarial analyses which show the fund's
    capital ratio has remained well above the statutory 2 percent minimum
    for 8 years in a row now, and the economic value of new business coming
    into the fund each year continues to be positive (has a negative credit
    subsidy). Together, these mean that the fund is healthy and new
    business is sound, suggesting the Fund will remain healthy.

                            UNEARNED PREMIUM REFUNDS

        Question. HUD is proposing a legislative change to restrict
    payments of refunds of unearned upfront premiums to borrowers who
    refinance with a new FHA loan; in other words, HUD would eliminate the
    payment of partial refunds of unearned upfront premiums to borrowers
    who sell their homes or refinance with conventional loans. HUD's
    rationale for this change is to provide an incentive for high quality
    current MMI borrowers to refinance with MMI--as retaining the refund
    for MMI refinances will partially offset the upfront premium cost to
    the borrower for a new loan. The restriction will affect mortgages that
    become insured on or after the date of enactment of the legislation.
    HUD estimates that eliminating refunds for borrowers who refinance with
    conventional loans will add $78 million in negative subsidy. Can you
    explain HUD's rationale for this change?
        Answer. With this policy change, some borrowers who might have
    refinanced into a conventional mortgage will have a small, albeit
    declining, incentive to refinance with FHA.

                                 FHA BORROWERS

        Question. Does this mean that an FHA borrower who sells his house
    would lose his upfront premium?
        Answer. Yes, a borrower who sells his house would be ineligible for
    a refund.

                                 PROGRAM DEMAND

        Question. What is the expected impact of the proposed change in
    policy on demand for FHA mortgage insurance? How many additional FHA
    borrowers do you estimate will choose to refinance with FHA under this
    proposal? Conversely, how many potential FHA borrowers do you think FHA
    will lose due to the effective increase in the premium?
        Answer. The number of borrowers who choose to refinance with FHA
    depends largely upon interest rates and house price appreciation. When
    interest rates are falling, borrowers whose homes have appreciated
    sufficiently will refinance into conventional mortgages, while those
    whose homes have appreciated more slowly will refinance with FHA.
    Between fiscal year 2001 and 2003, a period of falling interest rates,
    FHA recapture rates (the percent of prepaid loans refinanced with FHA)
    ranged between 18.5 and 24.7 percent. In contrast, in fiscal years 1995
    and 2000, years when interest rates rose, FHA recapture rates were 3.9
    and 3.2 percent, respectively. Borrowers who refinance with FHA are
    unaffected by the policy change. Borrowers who are eligible to
    refinance into conventional mortgages will experience a small and
    declining incentive to remain with FHA.

                            CREDIT SUBSIDY ANALYSIS

        Question. Please provide for the committee the analyses HUD
    prepared in developing the estimated credit subsidy for these proposed
    changes, including any analysis showing the expected prepayments and
    foreclosures for these loans and all cash flows, including premiums and
    recoveries.
        Answer. FHA used the regular MMI credit subsidy model for
    estimating the credit subsidy impact of the change in refund policy.
    All assumptions remained the same except for the assumptions about the
    refund policy.

                          EFFECT ON MMI ECONOMIC VALUE

        Question. The latest actuarial review of the MMI fund, prepared by
    Deloitte & Touche, states that the MMI fund had an economic value of
    $22.736 billion at the end of fiscal year 2003. How do you expect the
    proposed legislative and administrative changes to effect the value of
    the fund over the coming years?
        Answer. Because we believe the administrative changes will result
    in a credit subsidy that is more negative, we believe that the impact
    of these changes on the economic value of the Fund will be positive.

                               ACTUARIAL CRITERIA

        Question. GAO recommended in 2001 that HUD should develop criteria
    for measuring the actuarial soundness of the Fund and develop better
    tools for assessing the impact that policy changes may have on the
    volume of riskiness of loans that FHA ensures. What tools have you used
    to evaluate the proposed changes in refunds of upfront premiums?
    Generally, what steps has HUD taken to develop better tools for
    assessing such policy changes?
         Answer. HUD gauges the soundness of FHA's insurance funds in
    several ways. First, the annual independent actuarial review of the MMI
    fund provides us with an outside expert's estimate of the capital ratio
    of the overall fund, and the economic value of new business coming into
    the fund. The capital ratio tells us if the existing books of business
    are financially sound, while the economic value estimates of new
    business tell us if the marginal impact of new loans insured is adding
    or detracting from the financial health of the fund. Secondly, HUD has
    developed its own cash flow models of FHA's MMI, and GI/SRI fund
    business, and uses these models: (1) to estimate the liability for loan
    guarantees (net present value of future cash flows from existing
    insured loans) for the existing books of business, and (2) to estimate
    the credit subsidy rate (net present value of all cash flows at the
    time new loans are insured divided by dollars endorsed) on future
    business. Finally, HUD continually monitors trends in defaults and
    claims through regular monthly and quarterly management reports, and
    ad-hoc reports as specific issues or loan performance issues arise.
        For the proposed administrative changes, HUD was easily able to
    evaluate the impact of these changes by making small adjustments in its
    cash flow models consistent with the proposed changes.

                            PREMIUM REFUND CRITERIA

        Question. In proposing changes involving refunds of the upfront
    premium, does that mean that you think that the fund is actuarially
    sound, and what criteria have you developed for making this judgment?
        Answer. Yes, FHA believes that the MMI Fund is actuarially sound
    based on annual independent actuarial analyses which show the fund's
    capital ratio has remained well above the statutory 2 percent minimum
    for 8 years in a row now, and the economic value of new business coming
    into the fund each year continues to be positive (has a negative credit
    subsidy). Together, these mean that the fund is healthy and new
    business is sound, suggesting the fund will remain healthy.

                             PREMIUM EARNING PERIOD

        Question. HUD is proposing an administrative change to shorten the
    time available for partial rebates of upfront insurance premiums from
    the current 5 years to 3 years. Only homeowners repaying their FHA
    loans within this period (i.e., 3 years) would get a portion of the
    upfront premium back, on a sliding scale of amortization. This
    provision will only apply to loans insured after the effective date of
    the administrative changes. HUD estimates that this will yield $91
    million in additional negative subsidy. Can you explain the rationale
    behind this change? FHA borrowers used to be eligible to receive this
    rebate for up to 7 years after the loan was originated. This was
    changed to 5 years, and now HUD is seeking to change the time limit to
    3 years. That is, what has changed that causes you to believe that FHA
    should accelerate the speed with which it earns the upfront premium?
        Answer. The cash flow analysis shows that MMIF upfront premiums
    approximately equal claim outflows at the end of 3 years, suggesting
    the premium is fully earned before the cut-off of the current 5-year
    refund schedule.

                                SUBSIDY ESTIMATE

        Question. In HUD's budget justification, it states that this change
    is expected to yield additional negative subsidy of $91 million. How
    did HUD arrive at this estimate?
        Answer. FHA used the regular MMIF credit subsidy model for
    estimating the credit subsidy impact of the change in refund policy.
    All assumptions remained the same except for the assumptions about the
    refund policy.

                            CREDIT SUBSIDY ANALYSES

        Question. Please provide the analyses HUD prepared in developing
    the estimated credit subsidy for these proposed changes, including any
    analysis showing the expected prepayments and foreclosures for these
    loans and all cash flows, including premiums and recoveries.
        Answer. FHA used the regular MMIF credit subsidy model for
    estimating the credit subsidy impact of the change in refund policy.
    All assumptions remained the same except for the assumptions about the
    refund policy.

                       LEAD BASED PAINT REDUCTION OFFSETS

        Question. HUD is requesting $139 million for lead based paint
    hazard reduction--a $35 million reduction over the amount enacted in
    fiscal year 2004. The reduction results largely from the $49.7 million
    for grants targeted at areas with the highest lead paint abatement
    needs--Lead Hazard Demonstration Project. According to the budget
    justification, no funding is requested for fiscal year 2005 for this
    project because the program needs can now be met (offset) in part
    through the Lead Hazard Control Grants Program. The budget also
    increased the Lead Hazard Control Grants Program by $14.8 million. In
    addition, HUD eliminated the $25 million Lead Reduction Initiative from
    the HOME program under Community Planning and Development. What
    analysis was done to justify eliminating the Lead Reduction Initiative
    from the HOME program?
        Answer. The Lead Reduction Initiative within the HOME program was
    never funded by Congress. After further discussion and analysis, it
    became clear that the activities under this program appeared to largely
    duplicate the Department's regular and successful Lead Hazard Control
    Program because lead-based paint activities are already an eligible
    expense under the HOME program. Thus, it was not proposed again in the
    President's budget request for the HOME program.

                  STATUS OF UNEXPENDED BALANCES (ALL PROGRAMS)

        Question. HUD carries over large unobligated uncommitted balances
    from year to year. These balances result from underutilization of
    program funds and other reasons. According to HUD's Budget Appendix,
    its fiscal year 2003 end-of-year unobligated balance was $8.9 billion.
    While the amount unexpended needs to be reconciled, some of these funds
    may be available to offset HUD's fiscal year 2005 budget request.
        Are unexpended balances being used to offset HUD's fiscal year 2005
    budget request? If so, can this action be attributed to their
    assessment of unexpended balances (recommended by GAO in 1999, 2001 and
    again in 2002)?
        Answer. Yes, unexpended balances are being used to offset HUD's
    fiscal year 2005 budget request. In addition to the smaller rescissions
    proposed in other HUD programs, $1.6 billion is proposed for a
    rescission under the Housing Certificate Fund. HUD has been proposing
    offsets/rescissions in its Budget request at least since the 1997
    Budget, long before any GAO recommendations.

                      STATUS OF UNEXPENDED BALANCES (HCF)

        Question. About $3.28 billion of the total amount in unobligated
    uncommitted funds remained in the Housing Certificate Fund at the end
    of fiscal year 2003. HUD's fiscal year 2004 end of year unobligated
    balance estimate for the Housing Certificate Fund is $184 million.
    While the amount unexpended needs to be reconciled, some of these funds
    may be available to offset HUD's fiscal year 2005 budget request. How
    much of the $3.28 billion is attributable to unexpended obligations
    with in the Housing Certificate Fund in the Section 8 Moderate
    Rehabilitation program and in the Section 236 Multifamily Mortgage
    Interest Reduction program?
        Answer. Section 236 Multifamily Mortgage Interest Reduction
    programs a separate program, therefore, none of the unexpended balances
    in the Housing Certificate Fund are associated with Section 236.
        Question. How much of these unexpended obligations will likely be
    needed for program purposes?
        Answer. All unexpended obligations are needed for program purposes.
        Question. How does HUD intend to reduce its unexpended balance in
    the Housing Certificate Fund to $184 million at the end of fiscal year
    2004 as estimated in HUD's Budget Appendix?
        Answer. HUD does not intend to reduce its unexpended balance in the
    Housing Certificate Fund to $184 million at the end of fiscal year
    2004, but rather, the unobligated balance. The unexpended balance
    includes funds that have already been obligated as well as unobligated
    funds. The unobligated balance (the $184 million in the Budget
    Appendix) is that those funds that have not been obligated.

                         HOMELESS DEMONSTRATION PROJECT

        Question. This was a new initiative approved in fiscal year 2003
    for a 2-year period ending in fiscal year 2005. Funds totaling $10
    million were appropriated at that time. The Congress requested that HUD
    report on the demonstration by March 15, 2004. In response, HUD
    indicates that it is reporting as part of the Congressional Budget
    Justification. As such, HUD states that it is proposing to serve
    homeless persons that have substance abuse issues, and demonstration
    funds would be used to provide housing. Other resources would be
    leveraged to provide needed supportive services. Through a competitive
    selection process, HUD expects to identify best practices and share
    this information with other homeless providers. HUD is carrying over $9
    million in program funds in fiscal year 2005. What has HUD accomplished
    under this program since 2003? What analysis has been done to justify
    that $10 million might be needed for the program? What is the projected
    amount needed per award? Why haven't funds been obligated? What is the
    projected utilization?
        Answer. Since this initiative was funded by Congress, we requested
    and recently received clarification of Congress' intent for the
    program. While a needs assessment has not been conducted, a substantial
    portion of chronically homeless people have substance abuse and/or
    mental illness issues. These individuals either have been on the street
    for at least a year or have had four episodes of homelessness in the
    past 3 years. This group is particularly vulnerable. They need
    permanent housing with comprehensive services. We would anticipate that
    the awards per project would be up to $2 million. Once the housing
    demonstration program is developed and funds are awarded, we would
    expect that funds would be expended within 3 years.

          PUBLIC HOUSING CAPITAL FUND--FREEDOM TO HOUSE DEMONSTRATION

        Question. What are the successes and what are the problems these
    PHAs face?
        Answer. Participating PHAs have realized some interesting results
    while experimenting with: (1) Alternatives to the standard approach for
    establishing tenant rents; (2) Time limits on the receipt of housing
    assistance; (3) Administrative streamlining (to cut costs and
    complexity); (4) Funding flexibility (by combining operating subsidies,
    modernization grants and Section 8 funding into a flexible funding
    stream); and (5) Alternate development and financing arrangements to
    expand the stock of affordable housing.
        Evidence to date suggests that deregulation of local HAs may yield
    benefits in terms of program design and implementation innovations.
        For example, several participating PHAs have used the funding
    fungibility authority for standard program uses, but in a more flexible
    and efficient manner, to compensate for ``losses'' in one program area
    and to develop (through construction, acquisition or rehabilitation)
    new, affordable housing units. Some participating PHAs implemented
    changes in housing subsidy formulas with provisions (such as flat
    rents) that reward resident employment and income growth, and/or with
    provisions that penalize unemployment and/or with supplemental services
    and supports to help residents make progress towards self-sufficiency
    and/or with time limits on assistance. Many participants have used the
    demonstration to alter specific procedural and reporting requirements,
    including less frequent re-examination, merged waiting lists, local
    inspection standards and protocols and other streamlining and paperwork
    reduction initiatives.
        The local flexibility and independence permitted under MTW appears
    to allow some PHAs to experiment with innovative solutions to local
    challenges, and to be more responsive to local conditions and
    priorities to an extent not otherwise permissible under standard rules.

                                     OMHAR

        Question. In 2001, the Congress reauthorized the ``mark-to-market''
    program. One of the key provisions of the reauthorization bill requires
    the Office of Multifamily Housing and Assistance Restructuring or
    ``OMHAR'' to be brought under the direct supervision of the Federal
    Housing Commissioner on October 1, 2004. Can you tell me how OMHAR is
    operating and what transition plans you have in mind to move the office
    under FHA by October 1?
        Answer. OMHAR continues to operate effectively. They have completed
    1,102 restructuring transactions to date. The Office of Housing will
    assume OMHAR's activities once OMHAR sunsets on September 30, 2004. A
    reorganizational plan to effect this change was approved by Deputy
    Secretary Bernardi on June 22, 2004 and submitted to the appropriate
    committees in the Senate and House on July 9, 2004.

                          SECTION 811 DISABLED HOUSING

        Question. There is a concern that vouchers that are funded under
    this account are moved into the mainstream voucher program after being
    turned in and thus lost to the disabled population. What does HUD do to
    ensure these vouchers remain funded and available to only eligible
    persons with disabilities?
        Answer. All of the Mainstream Notices of Funding Availability
    (NOFAs) issued from fiscal years 1997 have included language indicating
    Mainstream vouchers from Housing for Persons with Disabilities Fund
    must be initially issued to disabled families, and must be reissued to
    disabled families upon turnover. Several months ago, HUD initiated
    changes to its procedures that will enable it to track the usage of
    Mainstream vouchers (5-year budget authority derived from Section 811
    appropriations) designated for disabled families. By no later than
    September 2004, public housing agencies (PHAs) will be required to
    begin reporting electronically to HUD (using the Form HUD-50058, Family
    Report) on the usage by disabled families of these Mainstream vouchers.

                             SALARIES AND EXPENSES

        Question. According to HUD's Budget Appendix, the Department is
    requesting $592 million to fund salaries and expenses in fiscal year
    2005--an increase of about $48 million over the amount enacted in
    fiscal year 2004 ($544 million). (Note.--However, the amount enacted in
    fiscal year 2004 does not reconcile with HUD's Congressional Budget
    Justification. HUD's justification reports $547 million as the enacted
    amount in fiscal year 2004). Despite differences in amounts observed in
    the enacted amount for fiscal year 2004, HUD's budget justification
    states that the amount requested in fiscal year 2005 would support
    9,405 full time equivalent staff (FTE) in fiscal year 2005. This
    reflects current FTE increases totaling 126 in the fiscal year 2004
    budget, and increases due to anticipated pay raises, time-in-grade
    increases, promotions, health and other benefits.
        HUD's resource estimation allocation process (REAP) supports a
    requirement of 9,661 FTEs in fiscal year 2005. According to HUD's
    justification, the 9,405 FTE level reflects a pathway to the REAP
    target of 9,661, incorporating current staffing levels, approved
    reorganizations, and planned workload accomplishments for fiscal year
    2004 and 2005. It appears that the administration is not requesting the
    increase in staff dictated by its REAP analysis. In addition, HUD's
    justification indicates that the 9,405 level includes $3 million in
    funding for 8 FTEs for HUD's Center for Faith-Based and Community
    Initiatives.
        If Congress in fiscal year 2005 does not approve the Center, will
    there be a need for the full proposed 9,405 level? Does the 2004 FTE
    level (9,405) factor in the Faith-Based Initiative? If so should it be
    reduced by 8 FTE? Please reconcile Salaries and Expense enacted levels
    for fiscal year 2004 between the Budget Justification and the Budget
    Appendix.
        Answer. HUD's Center for Faith-Based and Community Initiatives
    (CFBI) was established by Executive Order 13198, Agency
    Responsibilities with Respect to Faith-Based and Community Initiatives,
    on January 29, 2001. The purpose of establishing this Executive
    Department Center was to coordinate department efforts to eliminate
    regulatory, contracting, and other programmatic obstacles to the
    participation of faith-based and other community organizations in the
    provision of social services. Since 2001, Congress has approved annual
    budgetary requests for this organization each year through fiscal year
    2004.
        Fiscal year 2004 FTE level of 9,405 includes 8 FTE for CFBI and
    should not be reduced by 8 FTE. Congress approved 8 FTE in the House of
    Representatives Conference Report 108-401, Page 1103, dated November
    25, 2003 specifically for the CFBI.
        HUD's Salaries and Expenses enacted levels for fiscal year 2004 in
    the 2005 Congressional Budget Justification and the 2005 President's
    Budget Appendix are reconciled.
        The 2005 Congressional Budget Justification, Page I-1, Enacted 2004
    column, line ``Salaries and Expenses, HUD'' reflects $547,000 and line
    ``Rescission Public Law 10807'' reflects -$3,227 the .059 percent
    across-the-board rescission, resulting in a net request of $543,773.
        The President's Budget Appendix, Page 555, Program and Financing
    Schedule, 2004 Estimated column, lines 43.00 Appropriations (Total
    Discretionary) and 89.00 Budget Authority reflects $544, the amount net
    of the rescission, that reconciles with the Budget Justification.
                                     ______

                  Questions Submitted by Senator Conrad Burns

                 MONTANA SECTION 8 VOUCHER PROGRAM WAITING LIST

        Question. The current waiting list for the State of Montana Section
    8 program numbers over 7,685 for a number of vouchers of roughly half
    this amount. Public housing authorities around the State have
    separately operated Section 8 programs with similarly long waiting
    lists. A typical wait in Montana communities for a voucher runs from 2
    to 7 years depending on if you qualify for a priority on the waiting
    list. How will drastic cuts to the voucher program affect these waiting
    periods?
        Answer. The Flexible Voucher Program is expected to be able to
    serve at least the current number of families assisted, if not more.
    HUD expects that the program reforms and the administrative flexibility
    provided to PHAs will result in an increase in the number of families
    that can be assisted under the Flexible Voucher Program. These reforms
    will help more needy families make the transition from public
    assistance to self-reliance and work. As more families transition out
    of the program, more families on the waiting list will be served. The
    Flexible Voucher Program will also encourage and enable PHAs to
    maximize Federal subsidy to serve more families, as was the case in the
    original Voucher Program.
        Question. The current waiting list for the State of Montana Section
    8 program numbers over 7,685 for a number of vouchers of roughly half
    this amount. Public housing authorities around the State have
    separately operated Section 8 programs with similarly long waiting
    lists. A typical wait in Montana communities for a voucher runs from 2
    to 7 years depending on if you qualify for a priority on the waiting
    list. How will drastic cuts to the voucher program affect these waiting
    periods?
        Answer. The Flexible Voucher Program is expected to be able to
    serve at least the current number of families assisted, if not more.
    HUD expects that the program reforms and the administrative flexibility
    provided to PHAs will result in an increase in the number of families
    that can be assisted under the Flexible Voucher Program. These reforms
    will help more needy families make the transition from public
    assistance to self-reliance and work. As more families transition out
    of the program, more families on the waiting list will be served. The
    Flexible Voucher Program will also encourage and enable PHAs to
    maximize Federal subsidy to serve more families, as was the case in the
    original Voucher Program.

                    TARGETING LOW-INCOME AND DISABLED PEOPLE

        Question. By making these reductions, are you targeting the people
    (low-income and disabled) that need this program the most?
        Answer. The Flexible Voucher Program is intended to preserve and
    improve assistance for low-income and disabled families in need of
    housing. As previously stated, HUD expects that the program reforms and
    the administrative flexibility provided to PHAs will result in an
    increase in the number of disabled and other low-income families that
    can be assisted under the Flexible Voucher Program.

                                 M&M CONTRACTOR

        Question. What is the status of the renewal of the First Preston
    contract?
        Answer. The First Preston's contract expires on July 31, 2004 and
    we are negotiating a transition period to a new M&M contractor.

                                   METH HOMES

        Question. What procedures are in place for HUD and First Preston to
    handle meth homes?
        Answer. These types of homes are not common in HUD's portfolio and
    are treated on a case-by-case basis. When it has been determined that a
    meth home has been acquired by HUD, the home is tested by an
    environmental organization. If abatement is necessary, HUD is
    responsible for ensuring that the work is completed. Full disclosure at
    the time of property listing is made to advise potential purchasers
    that the property was a meth home and what steps HUD has taken to
    resolve outstanding issues.
        In those instances where HUD and/or its management and marketing
    (M&M) contractors are not aware that a meth home was sold and it is
    subsequently brought to HUD's attention, the home is inspected/tested
    and abated as necessary.

                                 FIRST PRESTON

        Question. Will First Preston services be ``regionalized''?
        Answer. No, First Preston's will not be regionalized.

                          PUBLIC HOUSING RESTRUCTURING

        Question. What steps is HUD taking to help with restructuring of
    public housing?
        Answer. The Department actively works with a wide array of
    stakeholders in the preservation of assisted, affordable housing.
    Specific restructuring tools were provided by the Multifamily Assisted
    Housing Reform and Affordability Act of 1997 (MAHRA) to the Office of
    Multifamily Housing Assistance Restructuring (OMHAR). OMHAR sunsets on
    September 30, 2004, but the Mark-to-Market (M2M) restructuring
    authorities under MAHRA continue until September 30, 2006.

                                  OMHAR SUNSET

        Question. With OMHAR ready to sunset after this fiscal year, will
    restructuring services revert back to the HUD agency?
        Answer. Yes. The Office of Multifamily Housing Assistance
    Restructuring (OMHAR) sunsets on September 30, 2004, but the Department
    retains the Mark-to-Market (M2M) restructuring authorities under the
    Multifamily Assisted Housing Reform and Affordability Act of 1997
    (MAHRA) until September 30, 2006.

                          RESTRUCTURING PUBLIC HOUSING

        Question. Will there be additional training for these folks to
    conduct a fair and equitable survey for comparable rents?
        Answer. It is anticipated that the existing group of Participating
    Administrative Entities (PAEs) will continue to perform their
    contractual roles in determining market rents as part of their due
    diligence, when developing their recommendation for a restructuring
    plan. The Department will continue to provide oversight, direction and
    training to the PAEs. This includes the PAEs responsibility for rent
    determinations.

                           MANUFACTURED HOUSING RULES

        Question. When will the rules for Manufactured Housing be released?
    These were initially passed in the 107th Congress and States like
    Montana do not currently have the infrastructure to deal with issues
    surrounding manufactured homes.
        Answer. The Department is working to publish a proposed rule for
    the Model Installation Standards this year. The Department is also
    developing the proposed regulations for both the installation and
    dispute resolution programs.
        The Manufactured Housing Improvement Act of 2000 mandates that the
    Department establish the new installation and dispute resolution
    programs by December 2005. Advanced Notices of Proposed Rulemaking for
    these programs were published for comment in March 2003. The Department
    is cooperating with the Manufactured Housing Consensus Committee to
    maintain a timely publication schedule for the rules.
        The Department understands that States such as Montana do not
    currently have the infrastructure to deal with issues surrounding
    manufactured homes. In Montana, and any other State that chooses not to
    establish a manufactured housing installation or dispute resolution
    program, the Department will assume the responsibility for
    administration of these programs.

                          SAFETY AND SECURITY FUNDING

        Question. The drug elimination funds were cut last year from their
    budget. They asked for security measures/funding due to the budget
    cuts, especially with regard to the large public housing facilities.
    Public housing could be the subject to terrorist attacks, meth labs,
    and/or prostitution organizations. The President's budget came out with
    zero funding for safety and security. How can these problems be
    addressed?
        Answer. Anti-drug and anti-crime activities, formerly associated
    with the Public Housing Drug Elimination Program, are currently
    allowable expenses of a Public Housing Agency (PHA) under the Public
    Housing Operating Fund. As with any allowable expense, including
    protective services, it is a matter of local determination and priority
    to establish the level of services a PHA wishes to provide for its
    residents.

             FAMILY SELF-SUFFICIENCY COORDINATOR POSITIONS FUNDING

        Question. Additionally, the budget also cut the Restoration/
    Continuation of the (FSS) Family Self Sufficiency position, who keeps
    families moving to Section 8 homeownership. Without this person, they
    don't have the personnel resources to focus on this priority. How can
    the President's goal of increased homeownership be met with the
    elimination of this essential position?
        Answer. Family self-sufficiency activities will remain a core
    component of the Flexible Voucher Program and PHAs participating in
    self-sufficiency activities will be rewarded through incentive bonuses.
    The administrative fee bonus funding may be used for activities such as
    FSS staff salaries to ensure coordination with supportive service
    providers, job training and vocational and educational activities.
        Further, homeownership assistance for first-time homebuyers is an
    enhanced activity under the Flexible Voucher Program. The PHA may
    provide monthly assistance payments to the homebuyer, or may choose
    instead to provide assistance for the family in the form of a one-time
    grant of up to $10,000 to be used as down payment assistance.
        Additionally, the Flexible Voucher Program will permit PHAs to
    design local homeownership programs that address the concerns of local
    lenders and realtors. HUD expects that this flexibility, along with the
    new downpayment option, will enhance, not hinder, successful PHA
    homeownership efforts. PHAs will have the flexibility to address any
    current lending, real estate or other programmatic barriers that impede
    wider use of the homeownership voucher option in their communities.

                            PROPOSED SECTION 8 CUTS

        Question. The proposal cuts over $1 billion in funding from this
    year's actual funding level. The proposal does not provide full funding
    for fiscal year 2005. Full funding to pay for all vouchers currently
    leased requires $1.6 billion more than the administration's request.
    Future spending is proposed to be even greater upwards of 30 percent of
    current funding by fiscal year 2009. Why are these cuts proposed when
    the Section 8 program is significantly underfunded currently, and with
    need far outstripping current resources by two or three times the
    current funding level?
        Answer. The Flexible Voucher Program is expected to be able to
    serve at least the current number of families assisted, if not more,
    and at funding levels more sustainable than the current program
    structure will allow. The program reforms and administrative
    flexibility provided to PHAs will result in an increase in the number
    of families that can be assisted under the Flexible Voucher Program.
    This is possible because of savings that will result from badly needed
    program reforms that reduce the nearly $2 billion in improper payments
    that are being made every year, permitting greater flexibility by PHAs
    to reduce overhead costs and streamline the assistance process, and by
    encouraging PHAs to provide only as much Federal assistance as needed
    to pay for fair market rents rather than exceeding market rents. The
    Flexible Voucher Program will also trigger savings in administrative
    costs due to greater simplicity and flexibility in income
    determinations, reducing the necessity of income certifications, and
    streamlining housing quality inspections.

                               PREDATORY LENDING

        Question. What efforts are being made to combat predatory lending
    practices?
        Answer. Since the Spring of 1999, HUD has been actively involved in
    combating predatory lending through research, regulation, consumer
    education and enforcement actions against lenders, appraisers, real
    estate brokers, and other companies and individuals that have
    victimized homebuyers. Below are HUD's numerous efforts:
      --Research.--HUD, through various offices and divisions, is actively
            engaged in efforts to understand how predatory lending
            practices occur and their effects on victims so that effective
            strategies and tactics may be developed to effectively address
            the problem.
        --Reference/Research Information.
          -- HUD Policy Development and Research maintains a predatory
                lending subject in its electronic FieldWorks, a reference
                to sources of information on various topics.
          -- PD&R annually compiles a list of subprime lender specialists
                that can be used with HMDA data to identify subprime
                lending patterns. This list has made it possible for
                researchers and policy analysts to examine both national
                and local subprime lending patterns.
          -- PD&R has research in progress that will examine the role of
                prime lenders and borrower credit quality on subprime
                lending patterns in low-income and minority areas. This
                research is also looking at the importance of non-
                traditional lenders (e.g., pawnshops, payday lenders, cash
                checkers) in low-income and minority neighborhoods.
        --Collaboration.--The Baltimore Predatory Lending Task Force is a
                group sponsored by the Community Law Center of Baltimore
                and has been meeting monthly since 1999. The Task Force is
                examining all aspects of the issue using Baltimore as a
                kind of ``laboratory.'' The Task Force has produced studies
                and a report to Congress. A wide range of advocacy groups,
                Federal, State and local government officials, and
                community groups participate.
      --Regulations and Administrative Actions.
        --Anti-flipping Rule.--HUD published a rule on May 1, 2003, to stop
                unscrupulous investors from quickly reselling properties at
                inflated values using an FHA-insured loan. The rule makes
                properties that have been sold within 90 days of previous
                sale ineligible for FHA insurance, effectively prohibiting
                the quick purchase and resale of the property.
        --Government Sponsored Enterprise (GSE) Oversight.--HUD's most
                recent regulation establishing the current goals published
                in October 2000 includes a provision that prohibits Fannie
                and Freddie from receiving credit toward their affordable
                housing goals for purchasing loans that are deemed by HUD's
                Office of Housing to be high-cost and contain prepaid,
                single-premium credit life insurance; or prepayment
                penalties.
        --Lender Accountability Rule (pending).--HUD published a Proposed
                Lender Accountability Rule in January 2003, that would re-
                establish requirements previously published in 1994 Lender
                Select regulation, whereby lenders are held accountable for
                the quality of FHA appraisals. The proposed rule provides
                that lenders are held strictly accountable for the quality
                of appraisals on properties securing FHA insured mortgages;
                provides that lenders who submit appraisals to HUD that do
                not meet FHA requirements are subject to the imposition of
                sanctions by the HUD Mortgagee Review Board; applies to
                both sponsor lenders, who underwrite loans, and loan
                correspondent lenders, who originate loans on behalf of
                their sponsors; and will help protect the FHA Insurance
                Fund, ensure better compliance with appraisal standards,
                and help to ensure that homebuyers receive an accurate
                statement of appraised value. The Final Rule is scheduled
                for issuance in 2004.
        --Appraiser Standard Rule.--HUD published a Final Rule in May 2003
                and an implementing mortgagee letter in June 2003, that
                establishes more stringent licensing and certification
                requirements for FHA Roster appraisers, based on industry-
                recognized Appraiser Qualifications Board (AQB) standards
                for education and experience; provides for a 12-month
                phase-in period for all appraisers currently on the FHA
                Appraiser Roster to meet the minimum licensing/
                certification criteria; does not permit ``grandfathering''
                of appraisers who are currently on the FHA Appraiser
                Roster. All appraisers who previously qualified for State
                licensing, and placement on FHA's Roster under reduced
                educational or experience requirements will have until June
                2004 to meet the new, more stringent levels; clarifies
                FHA's procedures for sanctioning and removing appraisers
                from the FHA Appraiser Roster.
        --Appraiser Watch Initiative.--In September 2003, FHA formally
                announced deployment of the Appraiser Watch tool, a
                monitoring tool that FHA now uses to identify appraisers
                for review. The system uses traditional risk-based factors
                to select appraisers for performance evaluation. Using
                Appraiser Watch, FHA has been able to conduct a relatively
                small number of field reviews that result in a much higher
                rate of removals of poorly performing appraisers from FHA's
                Appraiser Roster.
      --Enforcement Mechanisms and Tools.
        --Departmental Enforcement Center (Center), Office of General
                Counsel.--The Center ``works cooperatively with HUD's
                program offices to assure compliance of business agreements
                and regulations.'' Tools available to the Center
                particularly suited to predatory lending violators include
                suspension and debarment actions and pursuing Civil Money
                Penalties (CMPs) or double damages.
        --Mortgagee Review Board (MRB).--The Board oversees the performance
                of lenders participating in FHA insurance programs and has
                the authority to withdraw approval to participate in the
                programs for serious violations. This includes violations
                related to predatory lending practices when the activity
                involves a HUD program. The MRB works closely with the
                Enforcement Center.
        --Fair Housing Initiatives Program (FHIP).--FHIP supports important
                help from private fair housing organizations by funding
                enforcement and education and outreach activities carried
                out by private, non-profit fair housing organizations. Most
                recently, HUD competitively awarded a $600,000 contract to
                carry out enforcement testing and education and outreach in
                geographic areas where sub-prime lenders and mortgage
                companies are suspected of engaging in predatory lending
                practices. The education component of the contract includes
                conducting seminars, housing counseling for buyers and
                renters, developing brochures and newsletters, and a range
                of other activities to inform and educate the public about
                lending discrimination and particularly predatory lending
                tactics.
      --Public Education.--HUD supports a wide variety of information
            sources and assistance available to the public.
        --Internet.--Recognizing that an increasingly large number of
                Americans use the Internet as a source of information, the
                Department uses this medium to communicate with the public
                about predatory lending. Web pages cover various subjects,
                including contact information.
          -- Training.--Various offices and divisions provide training to
                the industry focusing on how to identify, avoid or self-
                protect against predatory lending.
          -- Local Information.--HUD supports web pages special to each
                State providing local information for consumers in the
                State.
          -- Section 8 Tenants to Homeowners.--HUD has issued guidance to
                State and local public housing authorities (PHA) to protect
                low-income families participating in the Section 8
                homeownership program from abusive lending practices. With
                this guidance, PHAs are establishing policies to prevent
                program participants from agreeing to financing they cannot
                afford. PHAs are working with local lenders that have been
                educated about the voucher homeownership program to
                establish solid working relationships. Based on
                recommendations by a joint HUD-Treasury task force report
                in 2000 on predatory lending, HUD has issued guidance to
                PHAs on how to review lender qualifications and loan terms
                for any ``predatory'' features before issuing a down
                payment voucher.
      --Intervention.--The Department supports measures to intervene in the
            homebuying process in an effort to prevent predatory lending
            abuses and, where the opportunity is available as a result of
            legislation, to correct abuses.
        --Homebuyer Counseling.--The Department awards housing counseling
                grants to agencies all across the country. In fiscal year
                2003, HUD made over 440 awards, totaling approximately $38
                million in grants, to nonprofit housing counseling
                organizations, including 17 awards to national or regional
                entities that represent another 400 or so affiliate housing
                counseling agencies. Of the $38 million awarded, $2.7
                million was awarded specifically to combat predatory
                lending or to assist victims of predatory lending.
        --Loss Mitigation.--Is a process to avoid foreclosure. The lender
                tries to help a borrower who has been unable to make loan
                payments and is in danger of defaulting on his or her loan.
                The National Servicing Center (NSC) in HUD plays an
                important role on behalf of FHA borrowers by using its
                authority and influence as the mortgage insurer to
                encourage lenders of FHA loans to work with borrowers in
                difficulty in an attempt to preserve the loan and the home.
                NSC administers this program.
        --Foreclosure Holds.--Pending foreclosures on FHA insured loans may
                be held for predatory loan reviews. NSC has placed
                ``holds'' on 8,453 threatened foreclosures since August
                2000, of which 380 were suspected predatory lending causes.
      --Other New Measures.
        --Office of Fair Housing and Equal Opportunity (FHEO) Organization
                Changes.--FHEO is creating a Division dedicated to the
                education of consumers nationwide. The new Division will
                address a range of housing discrimination issues, with
                special attention given to minority communities and the
                dangers of predatory lending. It will also respond to this
                administration's challenge to promote minority
                homeownership by helping to ensure that those minorities
                who are already homeowners stay in their homes.
        --Federal Interagency Task Force on Fair Lending.--HUD participates
                on the Federal Interagency Task Force on Fair Lending,
                which is comprised of ten agencies, including the Federal
                Reserve Board, and the Department of Justice. We have
                worked together to prepare and release a brochure titled,
                ``Putting Your Home on the Loan Line is Risky Business.''
                The brochure warns consumers about the potential pitfalls
                of borrowing money using their home as collateral. The
                brochure highlights the risks of high-cost home loans, and
                provides tips for getting the best financing possible.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                               SAMARITAN HOUSING

        Question. The Bush Administration's Samaritan initiative represents
    an important step forward in reorienting Federal homeless policy toward
    a focus on ending chronic homelessness. It is welcomed by many of us on
    this committee. As you know, it is Congress that initiated this policy
    when we first proposed a 30 percent minimum requirement on HUD within
    the McKinney-Vento program for the development of permanent housing
    targeted to people with disabilities experiencing chronic homelessness.
    How do you envision the Samaritan initiative building on what this
    subcommittee has already done with respect to focusing on chronic
    homelessness and permanent supportive housing under the McKinney Act?
        Answer. Since 1987, the programs created by Congress under the
    McKinney-Vento Homeless Assistance Act have been a major source of
    Federal assistance to States, local governments, and nonprofits
    organizations for the purpose of developing and implementing permanent
    housing. The 30 percent permanent housing requirement contained each
    year in the appropriations law has served as an additional incentive
    for providers to develop permanent housing for homeless persons,
    including those who are chronically homeless. The Samaritan initiative
    would provide added focus and resources to current efforts. Samaritan
    would be the first Federal program dedicated to the chronically
    homeless population. Moreover, the program's unique design of having a
    joint collaboration between HUD, and the Departments of Health and
    Human Services (HHS) and Veterans Affairs, will demonstrate to
    communities that agencies, including those locally, can pool resources
    to effectively end chronic homelessness.

                          PERMANENT SUPPORTIVE HOUSING

        Question. What else can Congress be doing to push the Department of
    Health and Human Services to fund services in permanent supportive
    housing where HUD support is diminishing?
        Answer. The vast majority of funds administered by the Department
    of Health and Human Services (HHS) are in mandatory, entitlement
    programs that for the most part are administered by State agencies. HHS
    has indicated that currently States have sufficient flexibility to use
    these funds to address the needs of homeless persons. Given this and to
    help States focus their attention on this important issue, HHS
    initiated State Policy Academies. HUD joined HHS in this effort both
    financially and operationally. HHS, HUD and later other Federal
    agencies met with key stakeholders from each participating State to
    develop specific plans to access their mainstream resources for
    homeless persons. We are now assessing the results of that effort. To
    further increase access to HHS and other Federal agencies' mainstream
    programs, HUD and HHS jointly developed a CD-ROM. The interactive CD-
    ROM is designed for outreach workers and case managers to better assist
    homeless persons in accessing Medicaid, TANF and other mainstream
    programs. HUD is strongly encouraging providers to use HHS and other
    Federal mainstream service programs through the annual continuum of
    care competition. The continuum application provides points based on
    the extent to which communities help homeless persons access mainstream
    programs.

                               SHELTER PLUS CARE

        Question. Is HUD committed to maintaining ongoing funding for
    Shelter Plus Care renewals in fiscal year 2005 and beyond to ensure
    that the goal of 150,000 units of permanent supportive housing is met
    over the next decade?
        Answer. The law does not provide for a separate appropriation for
    Shelter Plus Care (S+C) renewals. Rather these renewals are funded
    through the Homeless Assistance Grants account, as are all other HUD
    homeless assistance programs. As provided for each year in
    appropriations language, HUD non-competitively awards S+C renewals that
    meet the standards set forth in the law. Remaining funds are used for
    the Emergency Shelter Grants (ESG) program and the national continuum
    of care competition for new S+C and Section 8 SRO projects, and new and
    renewal Supportive Housing Program projects. This past year,
    approximately $141 million of the 2003 appropriation was required for
    S+C renewals; $150 million was awarded for ESG and approximately $975
    million remained available for the continuum of care competition.
        The achievement of the bold gold to eliminate chronic homelessness
    will require a multiple of resources requested in HUD's budget
    including the McKinney-Vento programs, the Samaritan Housing
    Initiative, the Prisoner Re-Entry Initiative as well as resources
    provided through the HOME, CDBG, Public Housing and Section 8 programs.
    Continued support of growing renewal needs is clearly a major component
    of the overall strategy.

                              SUBCOMMITTEE RECESS

        Senator Bond. We will do that, and look forward to working
    with you, and with the new Secretary.
        Thanks very much. The hearing is recessed.
        [Whereupon, at 11:30 a.m., Thursday, April 1, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                             TUESDAY, APRIL 6, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:02 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Shelby, Domenici, Stevens,
    Mikulski, and Leahy.

                         DEPARTMENT OF VETERANS AFFAIRS

    STATEMENT OF HON. ANTHONY J. PRINCIPI, SECRETARY
    ACCOMPANIED BY:
            JONATHAN B. PERLIN, M.D., DEPUTY UNDER SECRETARY, HEALTH
            VICE ADMIRAL DANIEL L. COOPER (USN RET.), UNDER SECRETARY,
                BENEFITS
            JOHN W. NICHOLSON, UNDER SECRETARY, MEMORIAL AFFAIRS
            WILLIAM H. CAMPBELL, ASSISTANT SECRETARY, MANAGEMENT
            D. MARK CATLETT, PRINCIPAL DEPUTY ASSISTANT SECRETARY,
                MANAGEMENT
            RICHARD GRIFFIN, INSPECTOR GENERAL

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. The Subcommittee of VA, HUD, and Independent
    Agencies will come to order. Senator Mikulski has been
    temporarily delayed, but she is on her way and asks that we go
    ahead.
        This afternoon we conduct a budget hearing on the fiscal
    year 2005 budget for the Department of Veterans Affairs. I
    welcome back the Secretary of the VA, Tony Principi. Mr.
    Secretary, we are very pleased to have you today. We appreciate
    your hard work, your commitment and your compassion as the
    Secretary of VA. In my humble opinion, for what it is worth,
    your record identifies you as the finest VA Secretary I have
    ever worked with and we are proud to have your leadership.
        As you know, there has been a tremendous amount of
    attention on the VA and veteran issues in recent months. This
    is no surprise given the deployment of our military around the
    world to fight the global war on terror and the war in Iraq.
    Today hundreds of thousands of brave servicemen and women are
    deployed across the globe in such unstable regions as
    Afghanistan, Iraq, Kosovo, Bosnia, and Haiti. Unfortunately,
    some of these men and women will return to the States with
    physical, mental, and spiritual wounds that can never be fully
    healed. The VA was created with the central purpose of being a
    safety net for our veterans, and its mission today is probably
    more important than ever. From what I have seen, we are saving
    more lives on the battlefield, but often the lives saved are
    lives of people who have very severe injuries.
        Overall, I strongly believe you, Mr. Secretary, have done
    an outstanding job in meeting the changes and the challenges of
    serving our Nation's veterans. Veterans have no better ally or
    friend than you. As a veteran yourself and a father of two sons
    currently serving in the military, no one can question or
    criticize your commitment or compassion for our Nation's
    veterans. As the Secretary of VA, more veterans are served than
    ever before. During your 3 years as Secretary, the number of
    veterans enrolled in the medical care system has grown by 2.4
    million people and the medical care budget has grown by some
    $7.3 billion.
        You have rightly refocused VA's health care system to give
    priority service to our most needy veterans. You have begun a
    new program that allows some veterans to fill privately written
    prescriptions at the VA. You have reduced the number of
    veterans waiting more than 6 months for an appointment from
    300,000 to less than 20,000, and I expect this waiting list
    will be eliminated within the next month. You have reduced VA's
    inventory of benefit claims by almost 100,000 and you have
    reduced the average processing time from 233 to 187 days. And
    you have made great strides in expanding burial space. More
    important perhaps, you have begun the critical process to
    modernize and rebuild the veterans' health care system that
    will ensure access and quality of care for future generations
    of veterans, as well as the current ones. It is an outstanding
    record and we congratulate you.
        Nevertheless, we still face major challenges, namely,
    providing timely quality care for veterans. During our first
    budget hearing, I told Senator Mikulski I felt like we were in
    the movie ``Groundhog Day'' because our main VA-HUD priorities
    are underfunded year after year and this year is no exception.
    By far the most troubling is veterans medical care funding. The
    budget request underfunds VA medical care and proposes to make
    up for the shortfall by proposing once again to charge new fees
    on veterans seeking care, which are essentially a new tax
    imposed on veterans. These budget proposals were unacceptable
    last year to the Congress and I can almost certainly assure you
    they are unacceptable again this year. We should not be
    balancing our books on the backs of veterans.
        VA medical care is a top priority again of this committee.
    I am committed to ensuring our veterans are not shortchanged,
    especially in time of war. While on duty, we expect our brave
    service members to face dangers on a daily basis. They,
    however, should not expect to face the danger of inadequate
    medical care services when they return from duty.
        I have seen firsthand the scars of combat with visits to
    the Walter Reed Army Medical Center here in DC. I had the
    privilege of meeting injured soldiers like Phillip Ramsey from
    Kansas City, Missouri who recently returned from combat in
    Iraq. It really saddens you to see a young man, any young
    person, with such a personal sacrifice for our country. But I
    am very pleased with the care that the Department of Defense
    was providing to him. But we know that Phillip is going to face
    a lot more challenges when the military discharges him from the
    service and VA enrolls him in their system. We cannot let
    soldiers like Mr. Ramsey fall through the cracks.
        Mr. Secretary, you are at the center of a perfect storm due
    to the overwhelming demand for VA health care services. As I
    discussed last year, this storm was created by a convergence of
    factors mainly created by Congress with legislation that opened
    up health care eligibility to all veterans and expanded benefit
    packages to many. Prior to the enactment of these laws, the VA
    mainly served the most vulnerable veterans, veterans with
    service-connected disabilities, with low income, and veterans
    needing special services, otherwise known as the VA's core
    constituents. The authors of the 1996 act predicted that the
    cost of opening up eligibility would be budget neutral because
    there would be few new enrollees. Wow, did they miss that.
    Reality, however, has demonstrated the opposite as veterans
    seeking care have besieged the VA. Since 1996, the number of
    veterans served by the VA has grown from 2.7 million to 4.7
    million in 2004. Let me repeat myself. Since 1996, the number
    of veterans served has gone from 2.7 million to 4.7 million.
    And VA projects this growth to continue well into the future.
        To respond to this fast-growing workload, we have worked on
    a bipartisan basis to appropriate substantial funding increases
    for VA medical care. The account has grown from $16.5 billion
    in 1996 to almost $28.3 billion in 2004. That is a staggering
    71.5 percent. During the last 3 years alone, VA medical care
    has grown by some $7.3 billion, or 34.7 percent. These massive
    funding increases have resulted in more veterans being served
    and provided with improved quality and accessible care. These
    additional resources have allowed the VA to reduce
    significantly the number of veterans waiting for service.
    Nevertheless, the workload growth continues to overwhelm the VA
    and some veterans, including the core constituents, are still
    being asked to wait for care. I still believe that is
    unacceptable.
        Further, while the VA has made significant progress in
    improving its performance in seeing all patients within 30
    days, recent data indicate that the VA is only able to see 48.1
    percent of new patients within 30 days. That is not good enough
    and we are not out of the storm yet.
        Mr. Secretary, you have taken some significant steps to
    respond to the overwhelming demand such as prioritizing care
    for VA's core constituents and implementing the transitional
    pharmacy benefit program. You have made some unpopular but
    necessary decisions to suspend the enrollment of lower priority
    veterans, the so-called Priority 8's. We would all like to be
    able to serve more but the truth is you cannot serve everyone
    with the resources available and VA's central purpose is to
    provide the care for the core constituents.
        In order to get out and stay out of the perfect storm, we
    need to continue to provide VA with adequate resources. The
    budget request includes $32.07 billion for discretionary
    spending. That level is $1.18 billion, or 3.8 percent more than
    fiscal year 2004. For medical care, the budget request includes
    $29.2 billion, a $904 million increase over 2004.
        I recognize and credit the administration for the
    significant budget increases during the past 3 fiscal years,
    but the 2005 request is simply inadequate. The inclusion of new
    enrollment fees and increased co-payments is especially
    troubling and disappointing since Congress rejected them last
    year. I regard the budget request for medical care as a floor,
    but there is a ceiling due to our other compelling needs such
    as affordable housing, clean water, and scientific research.
        Further, it is clear that the funding level increases for
    VA medical care cannot be sustained without reform of the
    system. A critical component of the system is the Capital Asset
    Realignment for Enhanced Services, or CARES. I fully support
    CARES. It is critical in ensuring VA has the right facilities
    in the right places. We still hark back to the GAO report that
    VA is wasting $1 million a day on unnecessary and under-
    utilized medical facilities. That money could be converted into
    direct medical care for 200 new veterans a day.
        You set out on an ambitious 2-year plan to emphasize CARES
    nationally. I appreciate your willingness to listen and respond
    to concerns of Members of Congress. I also recognize the hard
    work done by the Honorable Everett Alvarez who reviewed the
    draft plan and submitted a report last month that addressed
    most, if not all, of the major concerns expressed by Members of
    Congress.
        Despite your progress and efforts, some members still
    oppose CARES and they try to portray it as an effort to hurt
    veterans. This is disturbing to me because I think they have
    misinterpreted, either out of ignorance or intentionally, the
    purpose of CARES. It is not a cost-cutting proposal. And it is
    wrong and unnecessary to worry affected veterans. I urge you to
    get the truth out about CARES. Everybody needs to understand.
    It is a most ambitious effort the Federal Government is making
    to meet the needs of our current veterans.
        The truth about CARES is that it will improve access and
    quality of care. It will result in the construction of new
    hospitals, new clinics, and nursing homes. Under it, the
    Federal Government will invest billions of dollars in
    construction projects and currently you have up to $1 billion
    available to spend in construction funds, and you could make
    substantial down payments on new hospitals, new renovation
    projects, and new outpatient clinics. These are good stories.
        Change is difficult but the VA's health care delivery
    system for serving our veterans is necessary and vital. I
    believe that CARES will be a major part of your legacy because
    of its positive effects.
        And as I said, I am fully committed to funding the health
    care needs of the VA core constituents. We need to ensure
    accountability in performance at the VHA and manage its
    resources responsibly and efficiently. Veterans from Missouri
    and across the Nation have told me about wide performance
    variations that exist among and even within the 21 VISN's. The
    President's Task Force on Improving Health Care last May said
    the VISN structure alters the ability to provide consistent,
    uniform national program guidance in the clinical areas, the
    loss of which opportunities for improved quality, access, and
    cost effectiveness. PTF recommended structure and process of
    VHA should be reviewed and I agree.
        One last item to discuss. Last Tuesday's edition of the
    local paper had an article entitled ``Soldiers of Misfortune'',
    describing the plight of local homeless veterans. I am appalled
    that some quarter of a million veterans on any given night in
    this Nation are homeless. You assumed the chair recently of the
    Interagency Council on Homelessness. I would like to hear how
    you plan to address this problem.
        I look forward to our continued working relationship in
    addressing the needs of veterans. It is going to be a rough
    year. It is obviously clear that it would be much rougher for
    our Nation's veterans if you were not at the helm of the VA.
    You have my personal confidence. I thank you for your personal
    attention and responsiveness to the veterans in my State and
    around the country.

                               PREPARED STATEMENT

        I now turn to my colleague and ranking member, Senator
    Mikulski, for her statements and comments. Welcome, Senator.
        [The statement follows:]

               Prepared Statement of Senator Christopher S. Bond

        The subcommittee will come to order. This afternoon, the VA-HUD and
    Independent Agencies Subcommittee will conduct its budget hearing on
    the fiscal year 2005 budget for the Department of Veterans Affairs. I
    welcome back the Secretary of VA Tony Principi to our subcommittee. Mr.
    Secretary, I am very pleased to have you here today. I appreciate your
    hard work, commitment, and compassion as the Secretary of VA and in my
    humble opinion, your record will identify you as the finest VA
    Secretary ever.
        Mr. Secretary, there has been a tremendous amount of attention on
    the VA and veteran issues in recent months. This is no surprise given
    the deployment of our military around the world to fight the global war
    on terror and the war in Iraq. Today, hundreds of thousands of our
    brave service men and women are deployed across the globe in such
    unstable regions as Afghanistan, Iraq, Kosovo, Bosnia, and Haiti.
    Unfortunately, some of these men and women will return to the States
    with physical, mental, and spiritual wounds that can never be fully
    healed. The VA was created with the central purpose of being a safety
    net for our veterans and its mission today is probably more important
    than ever.
        Overall, I strongly believe that you, Mr. Secretary, have done an
    outstanding job in meeting the challenges of serving our Nation's
    veterans. Veterans have no better ally or friend than you, Mr.
    Secretary. As a veteran yourself and a father of two sons who are
    currently serving in the military, no one can question or criticize
    your commitment or compassion for our nation's veterans. As the
    Secretary of VA, more veterans are being served than ever before.
    During your 3 years as Secretary, the number of veterans enrolled in
    the medical care system has grown by 2.4 million and the medical care
    budget has grown by some $7.3 billion. You have rightly re-focused VA's
    health care system to give priority service to our most needy veterans.
    You have begun a new program that allows some veterans to fill
    privately-written prescriptions at the VA. You have reduced the number
    of veterans waiting more than 6 months for an appointment from 300,000
    to less than 20,000 and this waiting list will be eliminated within the
    next month. You have reduced VA's inventory of benefit claims by almost
    100,000 and reduced the average processing time from 233 days to 187
    days. You have made great strides in expanding burial space. Most
    importantly perhaps, you have begun the critical process to modernize
    and rebuild the VA health care system that will ensure greater access
    and quality care for current and future veterans. Mr. Secretary, your
    record is simply outstanding and I congratulate you.
        Nevertheless, you still face major challenges--namely, providing
    timely, quality health care for veterans. During our first budget
    hearing, I told Senator Mikulski that I felt like we were in the movie
    ``Groundhog Day'' because our main VA-HUD priorities are under-funded
    year after year and this year is no exception. By far, the most
    troubling problem is veteran medical care funding. The budget request
    under-funds VA medical care and proposes to make up for the shortfall
    by proposing again to charge new fees on veterans seeking care, which
    are essentially a new tax imposed on our veterans. These budget
    proposals were unacceptable last year to the Congress and they clearly
    are unacceptable again this year. We should not balance our books on
    the backs of our veterans.
        VA medical care is my top priority area again this year and I am
    committed to ensuring that our veterans are not short-changed,
    especially in a time of war. While on duty, we expect our brave
    service-members to face dangers on a daily basis. They, however, should
    not expect to face the danger of inadequate medical care services when
    they return from duty.
        I have seen first-hand the scars of combat with visits to the
    Walter Reed Army Medical Center, here in the District of Columbia. I
    had the privilege of meeting injured soldiers like Phillip Ramsey from
    Kansas City, Missouri who recently returned from combat in Iraq. It
    deeply saddens me to see such a young man make such a personal
    sacrifice for our country. I was pleased with the care that the
    Department of Defense was providing to him but we know that Phillip
    will face more challenges when the military discharges him from service
    and the VA enrolls him into their system. We cannot let soldiers, like
    Mr. Ramsey, fall through the cracks.
        Mr. Secretary, you are at the center of a ``Perfect Storm,'' due to
    the overwhelming demand for VA health care services. As I discussed
    last year, this storm was created by a convergence of factors, mainly
    created by the Congress with legislation that opened up health care
    eligibility to all veterans and expanded benefit packages to many
    veterans. Prior to the enactment of these laws, the VA mainly served
    the most vulnerable veterans--veterans with service-connected
    disabilities, veterans with low-income, and veterans who need
    specialized services--otherwise known as VA's core constituents. The
    authors of 1996 Act predicted that the cost of opening up eligibility
    would be budget neutral because there would be few new enrollees.
    Reality, however, has demonstrated the opposite as veterans seeking
    care have besieged the VA. Since 1996, the number of veterans served by
    the VA has grown from 2.7 million to 4.7 million in 2004. Let me repeat
    that: Since 1996, the number of veterans served by the VA has grown
    from 2.7 million to 4.7 million in 2004. Further, the VA projects this
    growth to continue well into the future.
        To respond to this fast growing workload, we have worked on a
    bipartisan basis to appropriate substantial funding increases for VA
    medical care. In fact, the VA medical care account has grown from $16.5
    billion in 1996 to almost $28.3 billion in 2004. That is a staggering
    71.5 percent increase! During the last 3 years alone, VA medical care
    has grown by some $7.3 billion or 34.7 percent. These massive funding
    increases have resulted in more veterans being served and provided with
    improved quality and accessible care. Further, these additional
    resources have allowed the VA to reduce significantly the number of
    veterans waiting for services. Nevertheless, the workload growth
    continues to overwhelm the VA and some veterans--including VA's core
    constituents--are still being asked to wait for care. That is
    unacceptable. Further, while the VA has made significant progress in
    improving its performance in seeing all patients within 30 days, recent
    data indicates that the VA is only able to see 48.1 percent of new
    patients within 30 days. That too is unacceptable. We are clearly not
    out of the storm.
        Mr. Secretary, you have taken some significant steps to respond to
    the overwhelming demand for VA health care such as prioritizing care
    for VA's core constituents and implementing a transitional pharmacy
    benefit program for veterans on the waiting list. You also made the
    unpopular but necessary decision to suspend enrollment of lower
    priority veterans who have higher incomes and no service-connected
    disabilities--the so-called Priority 8s. Of course, all of us would
    like the VA to serve more veterans, including the Priority 8s, but the
    truth of the matter is that the VA cannot be everything for everyone,
    especially when the VA still has a long ways to go in meeting the needs
    of its core constituents. I emphasize that the VA's central purpose is
    to provide timely, accessible, and quality health care for its core
    constituents. There can be no compromise on this purpose. These men and
    women rely on VA's health care system. They have nowhere else to go.
        In order to get out and stay out of the ``Perfect Storm,'' we
    clearly need to continue to provide the VA with adequate resources. The
    administration's budget request proposes $67.27 billion for the VA,
    including $32.07 billion for its discretionary programs. The
    discretionary funding request is $1.18 billion or 3.8 percent more than
    the fiscal year 2004 enacted level. For medical care, the budget
    request includes $29.2 billion budget for medical care--a $904 million
    increase over the fiscal year 2004 level. I recognize and credit the
    administration for the significant budget increases during the past 3
    fiscal years but the fiscal year 2005 request is simply inadequate. The
    inclusion of new enrollment fees and increased co-payments is
    especially disappointing, especially since the Congress rejected them
    last year. Thus, I regard the budget request for medical care a floor
    but there is a ceiling due to our other compelling needs such as
    affordable housing, clean water, and scientific research. Further, it
    is clear that the funding level increases for VA medical care cannot be
    sustained without reform of the system.
        A critical component of reforming the VA medical care system is the
    Capital Asset Realignment for Enhanced Services or ``CARES''
    initiative. The budget provides a substantial investment of $524
    million to implement the CARES program. I fully support CARES because
    we cannot continue to pour resources into hospitals that are half-empty
    or exist primarily to serve the research and financial interests of
    medical schools. Further, CARES is absolutely critical in ensuring that
    the VA has the right facilities in the right places so that more
    veterans can be served on a timely basis. According to the General
    Accounting Office, the VA is wasting $1 million a day on unnecessary
    and underutilized medical facilities. These funds are being paid out of
    VA's medical care account. Thus, instead of wasting $1 million a day on
    empty buildings, the VA could provide direct medical care to 200 new
    veterans a day. Obviously, VA must maximize its funds on meeting its
    first and foremost mission of caring for our Nation's veterans. That is
    why CARES is so critical and urgently needed.
        Mr. Secretary, you initiated an ambitious schedule 2 years ago to
    develop a national CARES plan. The process has not been easy but I
    believe that you have made tremendous progress. I especially appreciate
    your willingness to listen and respond to the concerns of veterans and
    Members of Congress. I also recognize the hard work done by the 16-
    member CARES Commission, led by the Honorable Everett Alvarez, who
    reviewed the Draft Plan and submitted a report last month that
    addressed most, if not all, of the major concerns expressed by members
    of Congress and veterans.
        Despite your progress and efforts, some members of Congress and
    stakeholders still oppose CARES. Sadly, some portray CARES as an effort
    to hurt veterans. I am frankly disturbed by these sorts of
    characterizations. For example, some folks in the media have portrayed
    CARES as a cost-cutting proposal. This is simply wrong and it
    unnecessarily incites fear and stress among our affected veterans. Mr.
    Secretary, I urge you to get out the truth about CARES. The public and
    stakeholders need to understand that CARES is the most ambitious effort
    the Federal Government is making to meet better the needs of our
    current veterans; and, because of the lack of space currently
    available, it will allow the VA to meet the exploding demand for
    medical care from future veterans.
        The truth about CARES is that it will improve access and quality
    care for our veterans. The truth about CARES is that it will result in
    the construction of new hospitals, new clinics, and new nursing homes.
    The truth about CARES is that it will modernize and address safety and
    seismic problems at existing hospitals to ensure patient safety. The
    truth about CARES is that the Federal Government will invest billions
    of dollars in construction projects, which will boost local economies
    and create jobs. The last point I emphasize is that you currently have
    up to $1 billion in construction funds available to spend now. With
    these funds, you have the opportunity to make a substantial downpayment
    on new hospitals, new renovation projects, and new outpatient clinics
    throughout the nation. These are good stories.
        Change is difficult but in the case of the VA's health care
    delivery system and for serving our veterans, it is necessary and
    vital. The future of VA's health care delivery system depends on a
    modernized infrastructure system that is located in areas where most of
    our veteran population lives. Many VA buildings were built after World
    War II and are not all configured for modern health care delivery and
    some are no longer appropriately located. If we expect today's service-
    members to fight with modern equipment and weapons, then why can't we
    expect our veterans to be provided with health care service in modern
    facilities?
        Mr. Secretary, CARES is your biggest challenge today and I am
    confident you will make the right decisions. I believe that CARES will
    be a major part of your legacy because of its far-reaching and
    longstanding positive effects. I am committed to CARES and committed to
    funding it so that we can begin to address as much of VA's
    infrastructure needs as quickly as possible and without delay.
        As I said earlier, I am also committed to funding fully the health
    care needs of VA's core constituents, however, let me say this clearly:
    addressing the health care needs of our veterans is more than a funding
    matter. As I just discussed, CARES is a critical component in
    addressing health care for veterans. Further, management and
    accountability cannot be ignored. With your leadership, Mr. Secretary,
    the VA has made some significant strides in its management, but
    clearly, much more needs to be done. VA especially needs to ensure
    greater accountability and performance consistency at the Veterans
    Health Administration (VHA) and manage its resources more responsibly
    and efficiently. Veterans from Missouri and across the Nation have told
    me about the wide performance variations that exist among and even
    within the 21 Veterans Integrated Service Networks or ``VISNs.'' In
    fact, the President's Task Force on Improving Health Care Delivery for
    VA and DOD (PTF) found last May that the ``VISN structure alters the
    ability to provide consistent, uniform national program guidance in the
    clinical arena, the loss of which affects opportunities for improved
    quality, access, and cost effectiveness.'' Due to these findings, the
    PTF recommended ``the structure and processes of VHA should be
    reviewed.'' I agree.
        Before closing, I raise one more issue that continues to trouble
    me--homeless veterans. Last Tuesday's edition of the Washington Post
    contained an article titled ``Soldiers of Misfortune.'' The article
    described the plight of local homeless veterans and their challenges. I
    am appalled that there are still some 250,000 homeless veterans on any
    given night in this Nation. Mr. Secretary, you recently assumed the
    chair of the U.S. Interagency Council on Homelessness. I would like to
    hear how you plan to address this problem.
        Mr. Secretary, I look forward to our continued working relationship
    in addressing the needs of our veterans. This is going to be a rough
    year--perhaps the most difficult year during your tenure. However, it
    is obviously clear that it would be much rougher for our Nation's
    veterans if you were not at the helm of the VA. You have my personal
    confidence because you have already made many long-lasting and
    meaningful changes to the VA that will benefit millions of current and
    future veterans for years to come. I also thank you for your personal
    attention and responsiveness to the veterans in my home State of
    Missouri. Your recent visit to Mt. Vernon, Missouri with me was much
    appreciated.
        I will now turn to my colleague and ranking member, Senator
    Mikulski for her statement and any comments.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman.
        Mr. Secretary, I am very pleased to welcome you. This is
    your fourth year in testifying before this subcommittee and, of
    course, you also served another Bush administration. I want to
    thank you and the people who work for you and all of those who
    staff our VA facilities for the work that they do.
        I particularly want to say thank you for the quick response
    we got on the VA outpatient clinic at Fort Howard. When
    Maryland was hit by Hurricane Isabel, the VA outpatient clinic
    was absolutely devastated and we were told by the locals that
    it would take 18 months to repair. Your quick response really
    helped us and now it is open. I will tell you if you toured
    that community around there, they were terribly hit. So we want
    to say thank you for your responses on Fort Howard, as well as
    on Perry Point. You and I are in absolute agreement on the
    direction to go. So thank you.
        We have such great respect for you, Mr. Secretary. You are
    a combat-decorated Vietnam vet. You continue to serve your
    country. You remember the lessons learned from one war and how
    we need to continue to serve not only our veterans of other
    wars, but those men and women who are now returning from the
    Afghan and Iraqi conflicts.
        While you served your country battling against enemies, we
    know that you are now arm wrestling with OMB over the budget,
    and your appearance before the authorizing committee really
    outlined how spartan this budget is.
        First of all, know that I am going to associate myself with
    the remarks from the chairman and know that I have always had
    two principles for the VA's budget. No. 1, the promises we made
    to our veterans need to be promises kept, while also making the
    best use of the taxpayers' dollars. We need to make sure that
    we do not have waiting lines for veterans. No. 2, issues like
    membership fees if you are a category 7 or increased co-
    payments really do not work. I am concerned that this budget
    falls short on these principles.
        We will be able to talk about many of the issues, but we do
    want to acknowledge some of the good things in this budget. We
    want to say thank you for reducing the financial burden on
    former POW's, also on our terminally ill veterans, and also on
    our poorest of the poor veterans. These are very good ideas and
    we want to work with you to support those, and you have been a
    real advocate in this area.
        But what we are concerned about is, No. 1, the whole issue
    of both the money and the outcomes. I understand that you told
    the VA authorizing committee that you needed $1.2 billion more,
    but unfortunately, OMB did not hear you. But we hear you and we
    have got to figure out how to give you the resources you need.
    I am very concerned in the area of shortages, I know that one
    of our outpatient clinics in the Glen Burnie area is full. We
    understand that blind veterans now do not have access to rehab
    programs. These are of great concern to us.
        Now, we have worked on a bipartisan basis to increase VA
    funding every single year, and we need to continue to do that.
    But OMB continues to shut out Priority 8 veterans and wants to
    implement fees. I am not going to go over what the President's
    summary does in the interest of time, but you need to know I am
    concerned about a $250 annual user fee, as well as prescription
    drug co-payments. I look forward to hearing your comments on
    that. I also look forward to hearing about the demonstration
    project you initiated that where someone sees a primary care
    doctor and has a bona fide prescription, say, to manage
    cholesterol or diabetes, that they could get it filled at the
    VA without having to see a VA doctor. We want to make sure we
    prevent waste and abuse, but also I think your own estimate
    said this could be a new way to reduce the stresses on our
    medical profession. We want to know about that and how are we
    doing with the prescription drug benefit and how you are
    managing it. How are you getting discounts? How is it working
    for you?
        Again, I mentioned the waiting lines. The Blind Veterans
    Association told our staff that there are over 2,000 veterans
    waiting up to 1 year for admission to a blind rehab center. We
    would like to hear your comments on that, whether you believe
    that is accurate, but particularly for those who have truly
    been disabled because of the permanent and irrevocable wounds
    of war, what can we do. That will also take me to talking about
    our Iraq men and women.
        We are concerned also about another waiting time, which we
    have been working on for over a decade, in claims processing.
    We want to know the status. Have we reduced the waiting time
    and the waiting lines? We understand that in this budget we are
    talking about reducing over 500 staff in the Benefits
    Administration. This work to reduce the claims processing has
    been such a longstanding one that started with the VA-HUD
    Subcommittee under Bush One, Clinton, and now you. We would
    hope that just as we get it on track, we are not having a self-
    imposed derailment of the progress that has been made.
        Also, we are concerned and puzzled by how OMB continues to
    insist that VA medical funding be focused on outsourcing
    studies. We know that our subcommittee rejected a $75 million
    outsourcing study, and we understand that OMB is trying it
    again and we will be discussing this with you.
        When we take a look at our returning Afghan and Iraq
    veterans, we want to be sure that we are ready for them. They
    are coming back with new types of injuries. For those of us who
    have been to Walter Reed, it is tough. I do not have to tell
    you and others at the table how tough it is. They have been
    injured in body, in mind, and in spirit. We have to make sure,
    when they leave Walter Reed and go back to the community, we
    are ready to receive them. We understand that the prosthetic
    injuries are significant and severe because of the types of
    attacks after the battle of Baghdad. Therefore, we are
    interested in where we are on meeting those kinds of needs but
    also in the area of research.
        We know that research has had a bit of a rocky road during
    this last year, and yet we believe that it is in VA medical
    research which often gives such practical research in patient
    care, patient rehabilitation, breakthroughs in new technologies
    that are truly rehabilitative that will benefit our veterans
    who have been so severely injured and at the same time, it will
    ultimately benefit the larger American population who will face
    this.
        These are the types of things we look forward to having a
    discussion with you about. We thank you and your team at the
    table.
        Senator Bond. Thank you very much, Senator Mikulski.
        Since our chairman of the full committee is here----
        Senator Stevens. Senator Shelby was here first.
        Senator Bond. All right. Senator Shelby was next in line.
        Senator Shelby. I will defer to the chairman, if he wants
    to.
        Senator Stevens. No.
        Senator Bond. Everybody is doing that these days.
        Senator Shelby. Absolutely.
        Senator Bond. It makes a lot of sense.
        Senator Shelby. It makes a lot of sense to all of us
    members, does it not?
        Senator Bond. Yes. We each get a point. Thank you.

                     STATEMENT OF SENATOR RICHARD C. SHELBY

        Senator Shelby. Thank you, Senator Bond. Thank you, Mr.
    Chairman.
        I ask first that my entire statement be made part of the
    record.
        Senator Bond. Without objection.
        Senator Shelby. And I have a few comments. I will try to be
    brief.
        Mr. Secretary, welcome to the committee. We all appreciate
    you personally, but more than that, we appreciate what you and
    your staff do. You are a very principled Secretary.
        Your testimony, Mr. Secretary, points to a number of
    different initiatives that are underway within the VA to
    improve the benefits claim process. I applaud the work you and
    your staff have done to reform this system and will support you
    as you continue this work.
        I am pleased to see funding requested in this budget for
    the virtual VA project, compensation and pension evaluation
    redesign project, the training and performance support systems
    project, and the veterans service network. Would you discuss in
    your testimony the tools these programs will give you to
    improve the claims process and how this budget helps you to
    accomplish your goals there? We all know you continue to face
    challenges in the claims area, and based on the correspondence
    that I receive as one Senator, some of these challenges are
    basic and fundamental. Customer service seems to be a
    persistent problem.
        I have seen two very recent examples. These are
    representative of a large majority of the letters I get from
    veterans about their experiences with the Montgomery, Alabama
    VA regional office.

                     COMPENSATION AND PENSION CLAIM PROCESS

        One gentleman went to the Montgomery regional office to
    inquire about disability benefits he might qualify for and
    establish a claim in December of 2003. He refiled the same
    claim four times in less than 3 months because it continued to
    be lost. Once he returned to follow up 2 hours after having
    refiled and was told there was no record of his claim.
        Secondly, a lady wrote the Montgomery regional office on
    January 27 about DIC benefits. To date she has received no
    response.
        A common refrain I hear is that ``the mission of the VA
    regional office seems to be to make the process as difficult,
    confusing, and frustrating as possible to discourage anyone
    from seeking benefits or compensation.'' I know that is not
    your tone and that is not your mission. But how do we overcome
    this?

                                MEDICAL RESEARCH

        The VA's own document, getting into medical research now,
    Appropriation Requirements by Strategic Goal, indicates a need
    for 2005 funding at $460 million for the direct cost of the VA
    research program, the same level recommended by the independent
    budget and the friends of VA medical care and health research.
    The budget request is $20 million below last year's level of
    $405 million. I am concerned about this funding cut. Would you
    discuss that during your research funding discussion?
        I also see that VA anticipates very large increases in the
    amount of non-VA Federal and private funding for VA
    researchers, $60 million and $50 million, respectively, a 14
    percent increase in non-VA sources. Why the sharp increase next
    year when you only anticipate a 4 percent increase this year?
    Is it really appropriate to put the VA in the position of
    depending on other agencies or the private sector to fund
    research important to veterans?
        During the time of war, which we are in now in Iraq, and
    one that is generating large numbers of injuries, Mr.
    Secretary, if you are not already, should you not be looking to
    increase rather than reduce the research program? If VA
    research is funded at the requested level, what areas of
    research will be cut? We would be interested in that. If
    provided with additional funding, what areas of research would
    VA add or expand? I believe these are relevant questions.
        And now concurrent receipt. To what extent is the VA
    working with DOD to implement the concurrent disability payment
    and combat-related special compensation programs? This CDP and
    CRSC program workload has not had a negative impact on the
    claims operations I hope.

                               PREPARED STATEMENT

        Mr. Chairman, I know those are a lot of questions and I
    hope the Secretary will see fit to discuss these during his
    time to talk. Thank you.
        [The statement follows:]

                Prepared Statement of Senator Richard C. Shelby

        The President has requested $67.7 billion for the Department of
    Veterans Affairs for fiscal year 2005. This includes $35.6 billion for
    entitlement programs and $32.1 billion for discretionary programs.
        The fiscal year 2005 request for VA Medical Care is $27.1 billion,
    and it also projects $2.4 billion in collections. This is a 4.1 percent
    increase over the fiscal year 2004 enacted level. Given the increase in
    the number of veterans using the VA health care system, I am pleased to
    see this increase but strongly feel the VA needs greater resources to
    adequately meet the health care needs of our deserving veterans.
    Experts agree, including the VA's own Undersecretary of Health in
    testimony given last year, that the VA needs funding increases on the
    order of 15 percent a year to maintain current medical care services.
        I am disappointed this budget cuts funding for VA Medical and
    Prosthetic Research. The direct cost and research support accounts are
    both funded at $384.7 million, a $20 million and $30 million cut
    respectively. I believe these cuts are harmful to the VA's core mission
    of providing the best medical care possible to our veterans. I plan to
    address this issue with Secretary Principi and hope the subcommittee
    will take action in the fiscal year 2005 bill to provide additional
    funding for both VA Medical Care and VA Medical and Prosthetic
    Research.
        While, in my opinion, this budget again falls short in total
    funding for our veterans, it does include important initiatives like
    the Capital Asset Realignment for Enhanced Services (CARES) program
    that will take major steps to construct new facilities across the
    country to improve access for our veterans. This budget includes $1.2
    billion for benefits management as well as a number of programs that
    seek to continue this administration's efforts to improve and
    streamline the veteran's benefits claim process. It also includes $455
    million to improve the VA burial program. Eighty-one million dollars is
    provided for cemetery construction, expansion and improvement. I am
    pleased that advanced planning funding is included for a new national
    cemetery in Birmingham.
        I look forward to working with Chairman Bond and Senator Mikulski
    on this bill and will continue to do everything I can to support the VA
    and our veterans in Alabama and across the Nation.

        Senator Bond. Thank you, Senator Shelby.
        Chairman Stevens.

                        STATEMENT OF SENATOR TED STEVENS

        Senator Stevens. Thank you very much, and I would ask that
    my complete statement appear in the record, Mr. Chairman.
        Senator Bond. Without objection.
        Senator Stevens. It is nice to be with you again, Secretary
    Principi, and your colleagues. I am aware of the recent VA-
    released report called Capital Asset Realignment Enhanced
    Services, which I understand you call CARES, which recommends
    the reallocation of capital assets necessary to meet the demand
    of veterans' health care over the next 20 years.

                              VA LEASES IN ALASKA

        The commission reviewed the VA leases in Anchorage that are
    due to expire in 2007 and the Army provided space at the
    Bassett Army Community Hospital in Fairbanks. It is my
    understanding that the report proposes a joint venture between
    the VA and the Air Force to construct a new building next to
    the Elmendorf Hospital and the report also discussed VA space
    for the Bassett Army Community Hospital in Fairbanks. Upon
    completion of that new facility, the VA outpatient clinic will
    gain an additional 1,100 square feet for a total of 3,000
    square feet as part of the construction, which is very much
    needed in the interior of Alaska.
        I do hope that you will join us in moving ahead with some
    of these projects. I keep hearing from veterans in Alaska
    regarding their concerns over the funding of veterans health
    care. We all do here in the Congress, and I think this
    committee hears more than anyone about it. We will do all we
    can to maximize funds for health care in 2005 and work with you
    in that regard. Until the new Medicare legislation is fully
    implemented in 2006, many senior vets are turning to the VA as
    an alternative source of medical coverage partially due to the
    prescription drug benefit, a problem that is addressed by our
    new bill but will not really crank in to providing real
    assistance until 2006. I would ask that you take a look at the
    problems that are listed in my comments concerning the State as
    a whole, Secretary Principi.

                              SOUTHEASTERN ALASKA

        I do, in the interest of time, want to ask you to respond
    to this question. I must go to another hearing. But I am
    concerned about southeastern Alaska, which was not covered by
    your report, as I understand it. The regional hospital which is
    owned by the city and borough of Juneau operates the Juneau
    Recovery Hospital. It is a State-licensed and accredited 16-bed
    substance abuse facility. The veterans of the southeast are not
    covered by the VA for the services they obtain from that Juneau
    Recovery Hospital, and it is my understanding they must leave
    Alaska if they seek aid in getting treatment for their alcohol-
    chemical dependency treatment. I am told that last year that VA
    told the Juneau Recovery Hospital that it was not interested in
    contracting for services from that facility and that leaves no
    alternative for southeastern Alaska veterans but to leave
    Alaska to fly 900 miles south to obtain treatment.

                               PREPARED STATEMENT

        I think most people do not understand our distances. Mr.
    Secretary, I know you do and I know that you will do all you
    can to try to deal with that problem. But clearly, we have I
    believe the highest per capita population of veterans in our
    population. Although we are a small population State, we have
    an enormous number of veterans and they live in very remote
    areas. It is very difficult to care for them now as they are
    aging and they need a lot of attention. I would hope that
    somehow or other we would work out something in terms of this
    contract care concept and let them have an opportunity to
    obtain treatment in Alaska. It costs a lot of money to fly to
    Seattle for a doctor's appointment and it is just impossible
    for many of them. Many of them are my age. I know the problems
    that they face, and I would like to help them if I can.
        So thank you very much, Mr. Chairman.
        [The statement follows:]

                   Prepared Statement of Senator Ted Stevens

        Thank you very much, and I would ask my complete statement appear
    in the record Mr. Chairman.
        It's nice to be with you again Secretary Principi. I am aware of
    the recently released CARES (Capital Asset Realignment for Enhanced
    Services) report, which recommends the reallocation of capital assets
    necessary to meet the demand for veterans' health care services over
    the next 20 years. With respect to Alaska, the commission reviewed the
    VA leases in Anchorage, due to expire in 2007, and the Army-provided
    space at the Basset Army Community Hospital in Fairbanks.
        The report mentions a proposed joint venture between the VA and the
    Air Force to construct a new building adjacent to the Elmendorf
    Hospital. This new facility is expected to increase primary care space
    by 75 percent, specialty care space by 100 percent, and mental health
    space by 100 percent.
        The report also discusses VA space at the Bassett Army Community
    Hospital in Fairbanks. The Army is constructing a new hospital facility
    scheduled for completion in fiscal year 2005. The VA community-based
    outpatient clinic will gain an additional 1,100 square feet for a total
    of 3,000 square feet as part of this construction.
        With the Alaska Market outgrowing its leased space in Anchorage and
    continued constraints common to Veterans throughout Alaska, I ask you
    to join me in ensuring these projects move ahead as expeditiously as
    possible.
        I continue to hear from veterans in Alaska regarding their concerns
    with the level of funding for Veterans Healthcare. I am fully aware of
    the funding issues you are currently facing as you run the Nation's
    largest integrated health care system, and recognize that this is an
    issue not limited to Alaska. My colleagues and I will do all we can to
    maximize funds for VA healthcare in fiscal year 2005. However, it is my
    understanding that there are many individuals who continue to use the
    VA as a primary source of medical care, even though they have access to
    alternative sources of medical coverage. I understand this may be
    partially due to the prescription drug coverage provided by the VA that
    some plans don't provide. Until the new Medicare legislation is fully
    implemented in 2006, that is also true for many senior vets. The
    unnecessary burden this puts on a system already overwhelmed with high
    priority cases must be an issue worth reviewing.
        Last year the VA notified the Alaska delegation that it planned to
    move the administration of veterans benefits (but not health care) to
    Salt Lake City, consistent with the implementation of the VAMROC (VA
    Medical and Regional Office Center) Plan. VA staff in Alaska assured my
    office that the proposed move would not result in any personnel
    transfers or layoffs in Anchorage and that the move was intended to
    result in more efficient and timely processing of claims for veterans
    benefits. This has been successful.
        Alex Spector, Director of the VA in Anchorage, and Douglas
    Wadsworth, Director of the VA Regional Office in Salt Lake, tell me
    that the percentage of rating claims pending over 6 months has been
    reduced from 39 percent to 26 percent, and that as of February, the VA
    has already successfully rehabilitated 23 veterans through its
    Vocational and Rehabilitation & Employment Program, compared to a total
    of 31 veterans in fiscal year 2003.
        I thank you again for all your hard work on developing a special
    physician payment system for veterans' health care in Alaska. Your
    leadership has preserved access to healthcare for our veterans. That
    system helped us gain a special physician rate in Alaska for Medicare
    and TRICARE beneficiaries last year when the Medicare Modernization
    legislation was enacted.
        I am concerned about Southeast Alaska issues that are not covered
    in the CARES report. It's my understanding that the Bartlett Memorial
    Hospital, owned by Juneau, operates JRC, state licensed and accredited
    16-bed substance abuse facility, providing treatment of alcoholism and
    drug dependency. JRH offers many services including: intensive
    outpatient, inpatient rehabilitation, partial hospitalization and
    continuing care.
        One last additional issue I would like to raise is regarding our
    Veterans in Southeast Alaska. These veterans are not being covered by
    the VA for services they obtain at the Juneau Recovery Hospital (JRH)
    and must leave Alaska if they desire the VA to cover their alcohol and
    chemical dependency treatment. JRH has negotiated with the VA office in
    Anchorage since 2002 in order to obtain a contract for services. In
    March, 2003, JRH was told that the VA was not interested in a contract
    for services.
        This leaves no alternative for Alaskans but to travel 900 miles
    south to obtain treatment. Most people don't understand our distances
    in Alaska, and I know you do, and will do all you can to help with this
    problem.
        We have the highest per capita population of veterans, Mr.
    Secretary, and they live in remote areas, making it difficulty to care
    for them as they age. I hope we can we work out something in terms of
    this contract care treatment, so they can obtain treatment in Alaska.
    Many of them are my age and I would like you to join me in helping
    them.

        Senator Bond. Thank you very much, Chairman Stevens. We
    appreciate your being here.
        Secretary Principi. If I can, I would like to briefly
    answer the question. You are absolutely right about this. We
    have an extraordinary opportunity to share with the Air Force
    at Elmendorf and with the Army up at Wainwright. It is
    critically important that we move forward very quickly on the
    new outpatient clinic at Elmendorf because our lease is
    expiring and they do not want to renew it because they have to
    expand. So we have to do that. It is just a great partnership.
        The same up at Wainwright. That is coming along well with
    the new hospital up at Wainwright. We will continue to cement
    that bond between the military services and the VA in Alaska.
        Not as well as you, Senator, I have been to Alaska so many
    times I understand the extraordinary difficulty of commuting
    back and forth for veterans, and I will look into that contract
    in southeastern Alaska to see if there is something we can do
    to keep veterans close to their home and not have to transport
    them all the way down to Seattle.
        [The information follows:]
           Contracting Out Services for Southeastern Alaska Veterans
        Southeast Alaska veterans currently receive primary care both at
    the VA Clinic located in Anchorage and through fee basis care in their
    home community. Veterans who are 50 percent service-connected (SC) and
    higher are authorized for fee care in their home community. Also, any
    veteran enrolled in the VA system who meets the medical criteria for
    emergent care, obviating the need for hospitalization, is also
    authorized care in their home community. Veterans who are less than 50
    percent SC, or are non-service connected (NSC), are offered primary
    care at the VA Clinic in Anchorage. Veterans who meet the VA
    Beneficiary Travel guidelines are provided travel to Anchorage for
    appointments.
        The Alaska VA Healthcare System had a vendor outreach meeting in
    Juneau, AK, on April 6, 2004. Thirteen individuals representing nine
    provider groups were present. A separate meeting occurred with the
    Family Practice Clinic. The purpose of the outreach was to update
    vendors about the Alaska fee basis program, answer questions, and talk
    about possible partnerships with the VA. Although a formal proposal for
    contracting care was not presented, it did not appear as though any of
    the participants were particularly interested in contracting with VA,
    given the quality measures, referral processes, and clinical data
    requirements required in a healthcare contract with VA.
        VA is willing to further explore contracting with providers in
    Southeast Alaska, as well as pursuing other possible options that would
    be a cost effective solution and alleviate travel to Anchorage for
    southeastern Alaska veterans. It should be noted that the availability
    of specialty care is very limited, not only in Southeast Alaska but
    throughout the State. VA appreciates the inconvenience to patients who
    need to travel outside Alaska for care, and attempts to minimize that
    inconvenience to the extent possible within available resources.

        Senator Stevens. Thank you very much. I am going to offer
    to take the whole committee to Alaska, and I am going to start
    at Ketchikan and put them on a ferry and take them up through
    southeastern by how veterans get between places because that is
    the least expensive way to travel. Then I am going to take them
    up to Anchorage and let them travel by train up to Fairbanks,
    and then we will fly around in some small planes from village
    to village to village and let them see how it works.
        When Senator McClellan was chairman of this committee, I
    was a younger Senator. He did that for me and we went up there
    and spent 10 days and there was not a request I made for the
    next 2 years that was denied.
        Secretary Principi. Well, we have allocated an additional
    $10 million to Alaska for contract care in the community
    because of the needs up there and we will continue to look at
    it, Senator.
        Senator Stevens. Thank you very much. Thank you, Mr.
    Chairman.
        Senator Bond. Senator Domenici.

                     STATEMENT OF SENATOR PETE V. DOMENICI

        Senator Domenici. I was just going to tell Senator Stevens
    he does not have to take me up there. Whatever you want, you
    can have. You do not have to take me up on the trip. I have too
    many other trips to take. Just believe me.
        Mr. Chairman, let me just have a couple of minutes and I
    will insert my remarks.
        First, I want to thank you, Mr. Secretary. I think they are
    saying your name wrong, but they say mine wrong also. I tell
    them my name is Domenici and they say, no, it is not. It's
    Domenici. So I have to take them home to Italy and let them
    talk to my relatives. But your name is Principi.
        In any event, let me say I have three issues and I am just
    going to cover them very quickly.

                                   TELEHEALTH

        One has to do with telehealth. As you know, for a long time
    I have been interested in enhanced access of care for rural
    veterans. Establishing more community-based outpatient clinics
    is one way that the VA and Congress have worked together to
    reach these areas. In fact, my home State of New Mexico now
    operates 11 such clinics for rural veterans. I believe Congress
    and the VA should work together to improve the use of
    technology for serving rural veterans. In particular, we can do
    much more in the area of telehealth and telemedicine.
        What is the current state of the VA telehealth, and what
    legislative initiatives would you recommend to improve that?
        It is my understanding that VA is implementing a telehealth
    pilot project to provide medical services in remote parts of
    eastern New Mexico. I would like you to describe that for the
    record if you do not have it ready, if you would do that for
    us.
        [The information follows:]

                                   Telehealth

        VA is recognized as a leader in the field of telehealth. VA's
    former Telemedicine Strategic Healthcare Group has been incorporated
    into a new Office of Care Coordination (OCC) and the term telehealth is
    increasingly being used in VHA rather than telemedicine. These changes
    recognize that implementing telehealth is more than a technology issue.
    It involves embedding telehealth and other associated technologies
    directly into the care delivery process and that it now involves many
    different professionals. VA is undertaking telehealth in 31 different
    areas. OCC is supporting all these areas but is focusing particularly
    on those where there is particular need. It is therefore designating
    lead clinicians in the areas of telemental health, telerehabilitation
    and telesurgery. VA is formalizing guidance for the development of
    telehealth, with a particular emphasis on the community-based
    outpatient clinic in relation to major areas of veteran patient need.
    This has commenced with the following:
      --Telemental health,
      --Teledermatology,
      --Telesurgery (enabling remote pre-op and post-op assessments),
      --Teleretinal Imaging for diabetic retinopathy, and
      --Telerehabilitation.
        Teleradiology is a major associated area of need where VA is
    seeking to work to bring resources at a local level into an
    interoperable infrastructure and create a national system. Such a
    system, if developed, will enable sharing of resources and acquisition
    of services when local difficulties with recruitment and retention of
    radiologists create challenges to delivering care. OCC is working to
    support VHA's Chief Consultant for Diagnostic Services in this endeavor
    and to make sure that the various areas of telehealth practice
    harmonize with respect to such processes as credentialing and
    privileging. This will facilitate working with the Department of
    Defense.
        In recognition of the demographics of the veteran population and
    the rural and underserved areas in which veteran patients often live VA
    is placing a particular emphasis on developing care coordination that
    uses home telehealth technologies. The rationale for this program is to
    support the independent living of veterans with chronic diseases
    through monitoring of vital signs at home e.g. pulse, blood pressure
    etc. at home. A piloting of this care coordination/home telehealth
    (CCHT) program demonstrated very high levels of patient satisfaction
    and reduced the need for unnecessary clinic admissions and
    hospitalizations. For example by monitoring a heart failure patient at
    home it is possible to detect any worsening of the condition when there
    is breathlessness and weight gain. Early detection in this way means
    medication can be adjusted and the problem resolved rather than have
    the patient deteriorate unnoticed and require admission to hospital in
    extremis at risk of dying, and often necessitating an intensive care
    unit admission.
        Because the support of a patient at home usually requires a
    caregiver in the home OCC is paying attention to caregiver issues and
    working on this collaboratively with other organizations and agencies,
    as appropriate.
        Care coordination is being incorporated into VA's long-term care
    strategic plan as a means of supporting non-institutional care, when
    appropriate for veteran patients who want to remain living in their own
    home and live independently.
        At this time we have no specific legislative initiatives to
    recommend.

                         Telehealth Pilot in New Mexico

        VA is implementing a telehealth pilot to provide medical services
    to patients in remote parts of VISN 18. Telehealth is remote patient
    case management using devices located in the patient's home that
    connect to hospital staff via a normal phone line. The patient responds
    to short, disease-specific questions each day. The devices may also be
    used to transmit vital signs and medical information to hospital staff
    monitoring the daily reports. Hospital staff can send patients
    reminders, tips, and feedback on their progress. Telehealth enhances
    veteran health care because it allows for earlier intervention and
    enhanced veteran self-care and self-assurance. To begin, selected
    patients with congestive heart failure and chronic obstructive
    pulmonary disease will receive telehealth care in their homes.
    Implementation will begin with the Geriatric Clinic and the Spinal Cord
    Injury Clinic in Tucson, Arizona, followed by their Primary and Medical
    Care teams. Then the pilot will be expanded to Amarillo VA Health Care
    System patients. Amarillo will start enrolling medical center patients
    with congestive heart failure and chronic obstructive pulmonary disease
    for care coordination in Phase One. When this is operational, Phase Two
    will begin to enroll patients with these same diseases at the Clovis,
    New Mexico, and Lubbock, Texas, community based outpatient clinics. VA
    anticipates that Phase Two will occur in fiscal year 2005.

                          Staffing in Rural Facilities

        Given the increased workload throughout the system, a majority of
    sites are experiencing an increase in demand for services. This is
    having an impact on VA's ability to maintain capacity and provide
    services within its 30-day access standards. Remote rural facilities
    face even greater challenges in the recruitment of providers, because
    frequently the pool of providers for recruitment is not as extensive as
    in non-rural locations. This is especially true for specialists,
    because many specialty positions are scarce. In some of the small rural
    facilities, the loss of a specialist can have a major impact on the
    services provided, resulting in prolonged waiting times and wait lists.
        In recent years, VA has improved access to care for veterans in
    rural areas through development of Community-Based Outpatient Clinics
    (CBOCs). Where we have staffing shortages, these clinics are managed
    via contracts. Additionally, VA has a new initiative on care
    coordination that uses telehealth technology to provide care in
    patients' homes. Telehealth technologies allow greater access to care
    for veterans in rural areas, while simultaneously reducing travel and
    inconvenience. Through telehealth technology, staff at VA medical
    centers can provide services remotely, thus filling in the void where
    staffing shortfalls exist.
        We do not have readily available, detailed information on staffing
    shortfalls in specific rural locations. This type of information would
    fluctuate on a weekly, even a daily basis. Obtaining reliable
    information would require an extensive survey of field facilities.
        We have sent to Congress legislative initiatives that would assist
    us in recruitment of physicians and nurses, not only in rural
    locations, but throughout the VA health care system. One is a Physician
    Pay Bill, which would allow VA to be more competitive in the market for
    recruiting physicians to work within VA. This is especially true for
    specialty physicians which VA has difficulty recruiting. The second is
    a legislative proposal allowing enhanced flexibility in scheduling
    tours of duty for registered nurses. The ability to offer compensation,
    employment benefits and working conditions comparable to those
    available in their community is critical to our ability to recruit and
    retain nurses, particularly in highly competitive labor markets and for
    hard-to-fill specialty assignments.

        Senator Domenici. And then medical research has been
    touched on a bit. I would just like you to describe in more
    detail the current trends of medical research and tell us where
    we might expect some new breakthroughs. We talk about
    collaboration with other government agencies and universities.
    I can tell you there are great opportunities for the VA to
    contract and go into partnership with other branches of the
    government. I think you know in my home city of Albuquerque, we
    were the second--and actually the first of a significant
    partnership of a hospital. Air Force veterans, one big hospital
    instead of two hospitals. It has worked well. Either would be
    too big without the other, and putting them together, they just
    are right.

                         RURAL OUTPATIENT-BASED CLINICS

        Outpatient-based clinics are working splendidly and I have
    some questions asking you to address the staffing shortfalls
    that may exist in these rural facilities. I know your problems
    are terrific. I would just hope that you would take this
    opportunity to look carefully at the current group of veterans
    and make sure that we do not let any of them fall between the
    cracks. We do not need anyone coming to the American people
    saying we have let any of them get denied when they should have
    been cared for. That will be a very big story and a big black
    mark. So currently they are getting a lot of good care, but I
    hope the word is out that you all better make sure you take
    care of them and take care of them well.
        Thank you. Thank you very much, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Domenici, for
    your very appropriate comments.
        And now, finally, we will get to the testimony of Secretary
    Principi. We thank you for your attention to our concerns, and
    we will make your full statement a part of the record and ask
    you to proceed.

                        STATEMENT OF ANTHONY J. PRINCIPI

        Secretary Principi. Thank you, Mr. Chairman, Chairman Bond,
    Senator Mikulski, and members of the committee. I am pleased to
    have this opportunity to testify on our proposed budget for
    fiscal year 2005 to address some of the challenges that you
    raise. I too am constantly reminded that we live in a difficult
    time and young men and women are coming back to our shores,
    having served so magnificently in combat theaters of operation
    and even on the front lines in the ramparts of freedom, and we
    need to be there for them and we cannot afford to have anyone
    fall through the cracks. It is a very, very high priority. I
    feel very deeply about this.
        I want to thank you both for your kind comments, but most
    importantly, I want to thank you for your extraordinary support
    for my Department and for the veterans of this Nation. I think
    the progress we have made in recent years is directly
    proportional to the tremendous support that you, Mr. Chairman,
    and Senator Mikulski have given to my Department.
        The President proposed a VA budget for fiscal year 2005
    that will, if it is approved, ensure that 800,000 more veterans
    receive medical care than VA cared for in 2001, the year I
    became Secretary of Veterans Affairs. As you indicated, our
    health care budget has grown dramatically in recent years and
    with the 2005 budget, the 4-year cumulative will be more than
    40 percent. Again, on behalf of America's veterans I thank both
    the President and the members of this committee for your
    enormous contribution to this achievement. This 4-year
    cumulative total is probably the largest increase certainly in
    50 years and perhaps in the history of the VA. My budget has
    gone from $48 billion overall to about $65 billion in 2004, and
    with this budget, it will go up well over $70 billion in 2005.
        As a result of these budget increases and the tremendous
    hard work of the people at the table with me and those
    throughout the VA, quality of veterans' health care in my view
    has never been so good. This is not my dad's VA. Never before
    has access been this broad. We have almost 800 community-based
    outpatient clinics, and prior to the mid-1990's we had none.
    Never before have we treated so many veterans at so many
    locations. That is the good news.
        The challenging news is that we have a lot of work ahead of
    us because more and more veterans are coming to us for health
    care. But I believe that with the 2005 budget and what you have
    provided to us in 2004, we will have the resources we need to
    meet our goal of scheduling non-urgent primary care
    appointments for 93 percent of the veterans within 30 days and
    99 percent within 90 days.
        In July of 2002, not really too long ago, we had 317,000
    veterans who were waiting more than 6 months for an
    appointment. Today that number is down to about 22,000, of
    which only about 5,000 are waiting for an initial visit. We
    will continue to focus on the medical needs of veterans
    identified by Congress as the highest priority, the service-
    connected disabled veterans, the poorest of the poor, the low
    income who have few if any other options for health care in
    this country, and those who need our specialized services like
    blind rehabilitation and spinal cord injury.
        This budget request also more than doubles from the current
    fiscal year our appropriation request for construction of the
    new and improved facilities soon to be identified through our
    CARES process. And I look forward to the opportunity to talk
    with you about CARES during the question and answer period.
        In addition, I plan to use the authority that you have
    given me to apply up to $400 million of the 2004 appropriation
    to CARES projects to modernize our infrastructure throughout
    the country. This makes a total of approximately $1 billion
    that we will be able to commit during 2004 and 2005 to
    transforming VA's medical facilities into a 21st century health
    care system and not one from the century gone by.
        Perhaps most importantly the budget will fund high quality
    care for veterans returning to our shores from overseas
    conflicts. Approximately 19,600 of the 145,000 returnees from
    Iraq and Afghanistan have sought and been provided VA health
    care, and I know that number will increase in years to come.
        The budget request also sustains our tremendous progress in
    bringing down the disability claims backlog. By the end of last
    fiscal year, we reduced our inventory of rating-related claims,
    claims for disability compensation and pension, from a high of
    432,000 to 253,000. And the percentage of veterans waiting more
    than 6 months for a decision was down to 18 percent from 48
    percent. A court of appeals decision in September 2003 made us
    hold claims where part of the decision was a denial for a year,
    and our backlog shot back up, but the Congress fixed that
    problem and we are now back on track to achieve my goal of
    250,000 and about 100 days' processing time by the end of this
    year. We now decide more than 60,000 cases a month, up from
    about 40,000 per month in 2001. And that is because of the
    people you have given us and the hard work of our Veterans
    Benefits Administration folks.
        The President's request will also continue the greatest
    expansion of the national cemetery system since the Civil War
    and fund long-deferred maintenance needed to ensure our
    cemeteries are recognized as national shrines. We will open up
    11 new national cemeteries between now and the year 2009, which
    will increase our gravesite capacity by 85 percent. And that is
    needed because of the large number of World War II veterans and
    Korean veterans that are passing from us.
        As you indicated, Senator Mikulski, the budget emphasizes
    our health care commitment to the poor. So we propose to raise
    the income threshold, exempting low income veterans from
    pharmacy co-payments, from an income of $9,800 a year to
    $16,500. Of course, we ask for elimination for all co-payments
    for former prisoners or war and those in end-of-life care and
    hospice care and palliative care. We also ask for the authority
    to reimburse veteran patients for their out-of-pocket costs in
    those cases where they must make co-payments to their insurance
    companies for non-VA emergency care, when they seek emergency
    care in private hospitals and have to make co-payments.
        The budget does propose an increase, as you indicated, for
    pharmacy co-payments to $15 for a 30-day supply and I believe a
    modest annual fee for higher income veterans, non-disabled
    veterans, using our system that really totals less than $21 a
    month, a very small portion of the cost of care and comparable
    to the amount military retirees, enlisted people who retire
    after 20 years of service, devote their career to the military,
    have to pay to enroll in the TRICARE prime program. So I think
    there is an equity issue and that is why I think the $250 was a
    reasonable amount for veterans with the higher incomes and no
    disabilities to pay. But I understand the reticence of the
    members of the committee.

                               PREPARED STATEMENT

        I place a very high priority on effective and efficient
    management of the resources entrusted to the Department by
    Congress. By financial management initiatives and medical care
    collections, debt management procurement reform, we will
    continue to increase the resources that are made available to
    veterans because every dollar we waste is a dollar that we
    cannot spend on veterans' health care. The same is true with
    CARES. Every dollar we spend on utility bills for empty
    buildings is a dollar we do not have to spend on veteran's
    health care. And that is why I believe the CARES process is so
    important.
        That concludes my testimony, Mr. Chairman, Senator
    Mikulski. I look forward to answering your questions.
        [The statement follows:]

                   Prepared Statement of Anthony J. Principi

        Mr. Chairman and members of the committee, good afternoon. I am
    pleased to be here today to present the President's 2005 budget
    proposal for the Department of Veterans Affairs (VA). The focal point
    of this budget is our firm commitment to continue to bring balance back
    to our health care system by focusing on veterans in the highest
    statutory priority groups.
        The President's 2005 budget request totals $67.7 billion (an
    increase of $5.6 billion in budget authority)--$35.6 billion for
    entitlement programs and $32.1 billion for discretionary programs. Our
    request for discretionary funds represents an increase of $1.2 billion,
    or 3.8 percent, over the enacted level for 2004, and supports my three
    highest priorities:
      --provide timely, high-quality health care to our core constituency--
            veterans with service-connected disabilities, those with lower
            incomes, and veterans with special health care needs;
      --improve the timeliness and accuracy of claims processing;
      --ensure the burial needs of veterans and their eligible family
            members are met, and maintain veterans' cemeteries as national
            shrines.
        The growth in discretionary resources will support a broad array of
    benefits and services that VA provides to our Nation's veterans.
    Including medical care collections, funding for the medical care
    program rises by $1.17 billion over the 2004 enacted level. As a
    principal component of our medical care budget, we are requesting $524
    million to begin implementing recommendations stemming from studies
    associated with the Capital Asset Realignment for Enhanced Services
    (CARES) program.
        We are presenting our budget request using a slightly modified new
    budget account structure that we proposed for the first time last year.
    This new structure more clearly presents the full funding for each of
    the benefits and services we provide veterans. This will allow the
    Department and our stakeholders to more effectively evaluate the
    program results we achieve with the total resources associated with
    each program. I am committed to providing Congress with the information
    and tools it needs to be comfortable with enacting the change.

                                  MEDICAL CARE

        The President's 2005 request includes total budgetary resources of
    $29.5 billion (including $2.4 billion in collections) for the medical
    care program, an increase of 4.1 percent over the enacted level for
    2004, and more than 40 percent above the 2001 level. With these
    resources, VA will be able to provide timely, high-quality health care
    to nearly 5.2 million unique patients, a total 21 percent higher than
    the number of patients we treated in 2001.
        I have taken several steps during the last year to refocus VA's
    health care system on our highest priority veterans, particularly
    service-connected disabled veterans who are the very reason this
    Department exists. For example, we recently issued a directive that
    ensures veterans seeking care for service-connected medical problems
    will receive priority access to our health care system. This new
    directive provides that all veterans requiring care for a service-
    connected disability, regardless of the extent of the injury or
    illness, must be scheduled for a primary care evaluation within 30 days
    of their request for care. If a VA facility is unable to schedule an
    appointment within 30 days, it must arrange for care at another VA
    facility, at a contract facility, or through a sharing agreement.
        By highlighting our emphasis on our core constituency (Priority
    Levels 1-6), we will increase our focus on the Congressionally-
    identified highest priority veterans. The number of patients within our
    core service population that we project will come to VA for health care
    in 2005 will be nearly 3.7 million, or 12 percent higher than in 2003.
    During 2005, 71 percent of those using VA's health care system will be
    veterans with service-connected conditions, those with lower incomes,
    and veterans with special health care needs. The comparable share in
    2003 was 66 percent. In addition, we devote 88 percent of our health
    care funding to meet the needs of these veterans.
        While part of our strategy for ensuring timely, high-quality care
    for our highest priority veterans involves a request for additional
    resources, an equally important component of this approach includes a
    series of proposed regulatory and legislative changes that would
    require lower priority veterans to assume a small share of the cost of
    their health care. These legislative proposals are consistent with
    recent Medicare reform that addresses the difference in the ability to
    pay for health care. We are submitting these proposals for Congress'
    reconsideration because we strongly believe they represent the best
    opportunity for VA to secure the necessary budgetary resources to serve
    our core population. Among the most significant legislative changes
    presented in this budget are to:
      --assess an annual use fee of $250 for Priority 7 and 8 veterans; and
      --increase co-payments for pharmacy benefits for Priority 7 and 8
            veterans from $7 to $15.
        We will work with Congress to enact our legislative proposal to
    eliminate the pharmacy co-payment for Priority 2-5 veterans, who have
    fewer means by which to pay for these costs, by raising the income
    threshold from the pension level of $9,894 to the aid and attendance
    level of $16,509 (for a single veteran). This would allow about 394,000
    veterans within our core constituency to receive outpatient medications
    without having to make a co-payment.
        The 2005 budget includes several other legislative and regulatory
    proposals that are designed to expand health care benefits for the
    Nation's veterans. Among the most significant of these is a provision
    that would give the Department the authority to pay for insured veteran
    patients' out-of-pocket expenses for urgent care services if emergency/
    urgent care is obtained outside of the VA health care system. This
    proposal would ensure that veterans with life-threatening illnesses can
    seek and receive care at the closest possible medical facility. In
    addition, we are proposing to eliminate the co-payment requirement for
    all hospice care provided in a VA setting and all co-payments assessed
    to former prisoners of war. Currently, veterans are charged a co-
    payment if hospice care cannot be provided in a VA nursing home bed
    either because of clinical complexity or lack of availability of
    nursing home beds.
        The President's 2005 budget for VA's medical care program also
    continues our effort to expand access to long-term care for veterans.
    This budget includes a legislative proposal to focus long-term care on
    non-institutional settings by expanding the 1998 average daily census
    nursing home capacity requirement to include the following categories
    of extended care services--nursing homes, community residential care
    programs, residential rehabilitation treatment programs, home care
    programs, non-institutional extended care services under VA's
    jurisdiction, and long-term care beds for which the Department pays a
    per diem to States for services in State homes. As part of this effort,
    we aim to significantly enhance access to non-institutional care
    programs that allow veterans to live and be cared for in the comfort
    and familiar setting of their home surrounded by their family.
        In return for the resources we are requesting for the medical care
    program in 2005, we will continue to aggressively pursue my priority of
    providing timely and accessible health care that sets a national
    standard of excellence for the health care industry. During the last 3
    years, we have significantly enhanced veterans' access to health care.
    We have opened 194 new community clinics, bringing the total to 676.
    Nearly 9 out of every 10 veterans now live within 30 minutes of a VA
    medical facility. This expanded level of access has resulted in an
    increase in the number of outpatient visits from 44 million in 2001 to
    51 million in 2003, as well as a 26 percent rate of growth in the
    annual number of prescriptions filled to a total of 108 million last
    year. To further highlight the Department's emphasis on the delivery of
    timely, accessible health care, our standard of care for primary care
    is that 93 percent of appointments will be scheduled within 30 days of
    the desired date and 99 percent of all appointments will be scheduled
    within 90 days. For appointments with specialists, the comparable
    performance goal is 90 percent within 30 days of the desired date.
        As I mentioned earlier Mr. Chairman, a key component of our overall
    access goals is the assurance that veterans seeking care for service-
    connected medical problems will receive priority access to health care.
    In addition, we have dramatically reduced the number of veterans on the
    waiting list for primary care.
        VA's health care system continues to be characterized by a
    coordinated continuum of care and achievement of performance outcomes
    that improve services to veterans. In fact, VA has exceeded the
    performance of private sector and Medicare providers for all 18 key
    health care indicators, from diabetes care to cancer screening and
    immunizations. The Institute of Medicine has recognized the
    Department's integrated health care system, including our framework for
    using performance measures to improve quality, as one of the best in
    the Nation. Additionally, VA's quality score based on a survey
    conducted by the Joint Commission on Accreditation of Healthcare
    Organizations exceeds the national average quality score (93 versus
    91).
        We will continue to use clinical practice guidelines to help ensure
    high-quality health care, as they are directly linked with improved
    health outcomes. We expect to show improvements in both of our
    principal measures of health care quality. The clinical practice
    guidelines index will rise to 71 percent in 2005, while the prevention
    index will increase to 84 percent.
        The 2005 budget includes additional management savings of $340
    million that will partially offset the need for additional funds to
    handle the increasing utilization of health care resources,
    particularly among our highest priority veterans who require much more
    extensive care, on average, than lower priority veterans. We will
    achieve these management savings through improved standardization
    policies in the procurement of supplies, pharmaceuticals, and other
    capital purchases, as well as in other operational efficiencies such as
    consolidations.
        Our projection of medical care collections for 2005 is $2.4
    billion. This total is 38 percent above our estimated collections for
    2004 and is more than three times the collections level from 2001.
    Approximately $407 million, or 61 percent, of the increase above 2004
    is possible as a result of the proposed medical care policy
    initiatives. The Department continues to implement the series of
    aggressive steps identified in our revenue cycle improvement plan in
    order to maximize the health care resources available for the medical
    care program. We are establishing industry-based performance and
    operational metrics, developing technological enhancements, and
    integrating industry-proven business approaches, including the
    establishment of centralized revenue operation centers. For example,
    during the last year we have lowered the share of reimbursable claims
    receivable greater than 90 days old from 84 percent to 39 percent, and
    we have decreased the average time to produce a bill from 117 days to
    49 days. Further, the Department is implementing the Patient Financial
    Services System in Veterans Integrated Service Network 10 (Ohio). This
    will be a single billing system that we will use for both hospital
    costs as well as physician costs, and involves comprehensive
    implementation of standard business practices and information
    technology improvements.
        As you know Mr. Chairman, one of the President's management
    initiatives calls for VA and the Department of Defense (DOD) to enhance
    the coordination of the delivery of benefits and service to veterans.
    To address this Presidential initiative, our two Departments
    established a high-level Joint Executive Council to develop and
    implement significant collaborative efforts. We are focusing on three
    major system-wide issues: (1) facilitating electronic sharing of
    enrollment and eligibility information for services and benefits; (2)
    establishing an electronic patient health record system that will allow
    rapid exchange of patient information between the two organizations by
    the end of 2005; and (3) increasing the number of shared medical care
    facilities and staff. The sharing of DOD enrollment and eligibility
    data will reduce the burden on veterans to provide duplicative
    information when making the transition to VA for care or benefits.
    Shared medical information is extremely important to ensure that
    veterans receive safe and proper care. VA and DOD are working together
    to share facilities and staff in order to provide needed services to
    all patients in the most efficient and effective manner.

            CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

        The 2005 budget includes $524 million of capital funding to move
    forward with the Capital Asset Realignment for Enhanced Services
    (CARES) initiative, a figure more than double the amount requested for
    CARES for 2004. This is a multi-year program to update VA's
    infrastructure to meet the needs of veterans in the 21st century and to
    keep our Department on the cutting edge of medicine. CARES will assess
    veterans' health care needs across the country, identify delivery
    options to meet those needs in the future, and guide the realignment
    and allocation of capital assets so that we can optimize health care
    delivery in terms of both quality and access. The resources we are
    requesting for this program will be used to implement the various
    recommendations within the National CARES plan by funding advance
    planning, design development, and construction costs for capital
    initiatives.
        Mr. Chairman, the independent commission that reviewed our draft
    CARES plan has delivered their report to me. I am in the process of
    reviewing the commission's analysis and recommendations. We will
    thoroughly evaluate their report and seriously consider their
    recommendations before making our final realignment decisions and
    preparing for the next phase of the CARES program.

                        MEDICAL AND PROSTHETIC RESEARCH

        The President's 2005 budget includes total resources of $1.7
    billion to support VA's medical and prosthetic research program. This
    request is comprised of $770 million in appropriated funds, $670
    million in funding from other Federal agencies such as DOD and the
    National Institutes of Health, as well as $230 million from
    universities and other private institutions. Our budget includes an
    initiative to assess pharmaceutical companies for the indirect
    administrative costs associated with the clinical drug trials we
    conduct for these organizations.
        This $1.7 billion will support nearly 2,900 high-priority research
    projects to expand knowledge in areas critical to veterans' health care
    needs--Gulf War illnesses, aging, diabetes, heart disease, mental
    illness, Parkinson's disease, spinal cord injury, prostate cancer,
    depression, environmental hazards, women's health care concerns, and
    rehabilitation programs.

                               VETERANS' BENEFITS

        The Department's 2005 budget request includes $36 billion for the
    entitlement costs associated with all benefits administered by the
    Veterans Benefits Administration (VBA). Included in this total, is an
    additional $2.740 billion for disability compensation payments to
    veterans and their survivors for disabilities or diseases incurred or
    aggravated while on active duty. Recipients of these compensation
    benefits will have increased from 2.3 million in 2001 to over 2.6
    million in 2005. The budget includes another $1.19 billion for the
    management of these programs--disability compensation; pensions;
    education; vocational rehabilitation and employment; housing; and life
    insurance. This is an increase of $26 million, or 2.2 percent, over the
    enacted level for 2004.
        We have made excellent progress in addressing the Presidential
    priority of improving the timeliness and accuracy of claims processing.
    Not only have we hired and trained more than 1,800 new employees in the
    last 3 years to directly address our claims processing backlog, but the
    productivity of our staff has increased dramatically as well. Between
    2001 and 2003, the average number of claims we completed per month grew
    by 70 percent, from 40,000 to 68,000. Last year the inventory of
    rating-related compensation and pension claims peaked at 432,000. By
    the end of 2003, we had reduced this backlog of pending claims to just
    over 250,000, a drop of over 40 percent. We have experienced an
    increase in the backlog during the last few months, due in large part
    to the impact of the court decision (PVA v Secretary of Veterans
    Affairs) that interpreted the Veterans Claims Assistance Act of 2000 as
    requiring VA to wait a full year before denying a claim. However, this
    rise in the number of pending claims will be temporary, and we expect
    the backlog to be back down to about the 250,000 level by the end of
    2004. We thank the Congress for the legislation that eliminated the
    mandatory 1-year waiting period.
        In 2002 it took an average of 223 days to process a claim. Today,
    it takes about 150 days. We are on track to reach an average processing
    time of 100 days by the end of 2004 and expect to maintain this
    timeliness standard in 2005. One of the main reasons we will be able to
    meet and then sustain this improved timeliness level is that we have
    reduced the proportion of claims pending over 6 months from 48 percent
    to just 19 percent during the last 3 years.
        To assist in achieving this ambitious goal, VA established benefits
    delivery at discharge programs at 136 military installations around the
    country. This initiative makes it more convenient for separating
    servicemembers to apply for and receive the benefits they have earned,
    and helps ensure claims are processed more rapidly. Also, the
    Department has assigned VA rating specialists and physicians to
    military bases where servicemembers can have their claims processed
    before they leave active duty military service.
        We expect to see an increase in claims resulting from the return of
    our brave servicemen and women who fought to protect the principles of
    freedom in Operation Enduring Freedom and Operation Iraqi Freedom. We
    propose to use $72 million of the funds available from the war
    supplemental during 2004 to address the challenges resulting from an
    increasing claims processing workload in order to assist us in reaching
    our timeliness goal of 100 days by the end of 2004. We propose to use
    the remaining $28 million in 2005 to help sustain this timeliness
    standard.
        At the same time that we are improving timeliness, we will be
    increasing the accuracy of our claims processing. The 2005 performance
    goal for the national accuracy rate for compensation claims is 88
    percent, well above the 2001 accuracy level of 80 percent.
        This budget request includes additional staff and resources for new
    and ongoing information technology projects to support improved claims
    processing. We are requesting $2 million for the Virtual VA project,
    the ultimate goal of which is to replace the current paper-based claims
    folder with electronic images and data that can be accessed and
    transferred electronically through a web-based solution. The 2005
    funding will maintain Virtual VA at the three Pension Maintenance
    Centers. We are seeking $3.4 million for the Compensation and Pension
    Evaluation Redesign, a project that will result in a more consistent
    claims examination process. In addition, we are requesting $2.6 million
    in 2005 for the Training and Performance Support Systems, a multi-year
    initiative to implement five comprehensive training and performance
    support systems for positions critical to the processing of claims.
        The Veterans Service Network (VETSNET) development is nearing
    completion and is scheduled to begin deployment in April 2004. This
    system offers numerous improvements over the legacy Benefits Delivery
    Network (BDN) that it is replacing (e.g., correction of material
    weaknesses and implementation of comprehensive claims processing within
    a modern corporate environment). Sufficient platform capacity is
    required to successfully deploy VETSNET and to ensure the continued and
    uninterrupted payment of approximately $24 billion annually in benefits
    to around 3.4 million deserving veterans and their beneficiaries.
    Therefore, $5 million in funding is requested to procure the capacity
    required. This platform capacity will ensure successful deployment and
    operation of VETSNET throughout VBA's Regional Offices and in a modern
    corporate environment that integrates all components of claims
    processing (e.g., establishing the claim, rating the claim, preparing
    the claim award, and paying the claim award). Without sufficient
    platform capacity, the Veterans Benefits Administration will be unable
    to operate this critical new system.
        In support of the education program, the budget proposes $5.2
    million for continuing the development of the Education Expert System.
    These resources will be used to expand upon an existing prototype
    expert system and will enable us to automate a greater portion of the
    education claims process and expand enrollment certification. This
    initiative will contribute toward achievement of our 2005 performance
    goals for the average time it takes to process claims for original and
    supplemental education benefits of 25 days and 13 days, respectively.
        VA is requesting $9.6 million for the One-VA Telephone Access
    project, an initiative that will support all of VBA's benefits
    programs. This initiative will result in the development of a Virtual
    Information Center that forms a single telecommunications network among
    several regional offices. This technology will allow us to answer calls
    at any place and at any time without complex call routing devices.
        In order to make the delivery of VA benefits and services more
    convenient for veterans and more efficient for the Department, we are
    requesting $1.5 million for the collocation and relocation of some
    regional offices. Some of this will involve housing regional office
    operations in existing VA medical facilities. In addition, we are
    examining the possibility of collocations using enhanced-use authority,
    which entails an agreement with a private developer to construct a
    facility on Department-owned grounds and then leasing all or part of it
    back to VA. At the end of these long-term lease agreements, the land
    and all improvements revert to VA ownership.

                                     BURIAL

        The President's 2005 budget includes $455 million for the burial
    program, of which $181 million is for mandatory funding for VA burial
    benefits and payments and $274 million is for discretionary funding,
    including operating and capital costs for the National Cemetery
    Administration and the State Cemetery Grant program. The increase in
    discretionary funding is $9 million, or 3.4 percent, over the enacted
    level for 2004, and includes operating funds for the five new
    cemeteries opening in 2005.
        This budget request includes $926,000 to complete the activation of
    new national cemeteries in the areas of Detroit, MI and Sacramento, CA.
    These are the last two of the six locations identified in the May 2000
    report to Congress as the areas most in need of a national cemetery.
    The other four cemeteries will serve veterans in the areas of Atlanta,
    GA, South Florida, Pittsburgh, PA, and Fort Sill, OK.
        With the opening of new national cemeteries and State veterans
    cemeteries, the percentage of veterans served by a burial option within
    75 miles of their residence will rise to 83 percent in 2005. The
    comparable share was less than 73 percent in 2001.
        The $81 million in construction funding for the burial program in
    2005 includes resources for Phase 1 development of the Sacramento
    National Cemetery (CA) as well as expansion and improvements at the
    Florida National Cemetery (Bushnell, FL) and Rock Island National
    Cemetery (IL). The request includes advanced planning funds for site
    selection and preliminary activities for six new national cemeteries to
    serve veterans in the following areas--Bakersfield, CA; Birmingham, AL;
    Columbia/Greenville, SC; Jacksonville, FL; Sarasota County, FL; and
    southeastern Pennsylvania. Completion of these new cemeteries will
    represent an 85 percent expansion of the number of gravesites available
    in the national cemetery system since 2001, almost doubling the number
    of gravesites during this time period. In addition, the budget includes
    $32 million for the State Cemetery Grant program.
        In return for the resources we are requesting for the burial
    program, we expect to achieve extremely high levels of performance in
    2005 and to continue our noble work to maintain the appearance of
    national cemeteries as shrines dedicated to honoring the service and
    sacrifice of veterans. Our performance goal for the percent of survey
    respondents who rate the quality of service provided by the national
    cemeteries as excellent is 96 percent, and our goal for the percent of
    survey respondents who rate national cemetery appearance as excellent
    is 98 percent. In addition, we will continue to place emphasis on the
    timeliness of marking graves. Our performance goal for the percent of
    graves in national cemeteries marked within 60 days of interment is 82
    percent in 2005, a figure dramatically above the 2002 performance level
    of 49 percent.

                            MANAGEMENT IMPROVEMENTS

        Mr. Chairman, we have made excellent progress during the last year
    in implementing the President's Management Agenda. Our progress in the
    financial, electronic government, budget and performance, and DOD/VA
    coordination areas is currently rated ``green.'' Our human capital
    score is ``yellow'' due only to some very short-term delays. However,
    VA's competitive sourcing rating is ``red'' because existing
    legislation precludes us from using necessary resources to conduct cost
    comparisons of competing jobs such as laundry, food and sanitation
    service. The administration will work with Congress to develop
    legislation to advance this effort that would free up additional
    resources to be used to provide direct medical services to veterans. We
    will continue to take the steps necessary to achieve the ultimate goals
    the President established for each of the focus areas.
        We have several management improvement initiatives underway that
    will lead to greater efficiency and will be accomplished largely
    through centralization of several of our major business processes. We
    are currently realigning our finance, acquisition, and capital asset
    management functions into business offices across the Department. There
    will be one business office in each of the 21 Veterans Integrated
    Service Networks and a single office for the National Cemetery
    Administration. For the Veterans Benefits Administration, the majority
    of the field functions will be centralized into product lines. In
    addition, we are establishing an Office of Business Oversight in our
    Office of Management that will provide much stronger oversight of these
    functions by our Chief Financial Officer, will improve operations
    through more specialization, and will achieve efficiencies in staffing.
    The realignment of these business functions will reduce and standardize
    field business activities into a more manageable size, limit the number
    of sites to be reviewed, provide for more consistent interpretation of
    policies and procedures, and promote implementation of performance
    metrics and data collection related to these business functions. As a
    result of the realignment, we will significantly strengthen compliance
    and consistency with finance, acquisition, and capital asset policies
    and procedures.
        We continue to make excellent progress in implementing the
    recommendations of our Procurement Reform Task Force, as 43 of the 65
    recommendations have been completed. By the end of 2004, we expect to
    implement all of the remaining recommendations. These procurement
    reforms will optimize the performance of VA's acquisition system and
    processes by improving efficiency and accountability. We expect to
    realize savings of about $250 million by the end of 2004 as a result of
    these improvement initiatives. This figure will rise after we have
    completed all 65 recommendations.
        During 2005 VA will continue developing our enterprise architecture
    that will ensure that all new information technology (IT) projects are
    aligned with the President's E-government initiatives as well as the
    Department's strategic objectives. The enterprise architecture will
    help eliminate redundant systems throughout VA, improve IT
    accountability and cost containment, leverage secure and
    technologically sound solutions that have been implemented, and ensure
    that our IT assets are built upon widely accepted industry standards
    and best practices in order to improve delivery of benefits and
    services to veterans. One of our primary focus areas in IT will be
    cyber security. We will concentrate on securing the enterprise
    architecture and providing continuous protection to all VA systems and
    networks. This will require purchases of both hardware and software to
    address existing vulnerabilities.
        We are continuing the development and implementation of our CoreFLS
    project to replace VA's existing core financial management and
    logistics systems with an integrated, commercial off-the-shelf package.
    CoreFLS will help us address and correct management and financial
    weaknesses in the areas of effective integration of financial
    transactions from Department systems, necessary financial support for
    credit reform initiatives, and improved automated analytical and
    reconciliation tools. We have conducted initial tests at selected sites
    and are still on schedule for full implementation during 2006.
        The Department has developed a comprehensive human capital
    management plan and has started implementing some of the strategies
    outlined in this plan. In addition, we are implementing a redesigned
    performance appraisal system to better ensure that all employees'
    performance plans are linked with VA's mission, goals, and objectives.

                                    CLOSING

        Mr. Chairman, VA has achieved numerous successes during the last 3
    years that have significantly improved service to our country's
    veterans. We have enhanced veterans' access to our health care services
    that set the national standard with regard to quality; improved the
    timeliness of health care delivery; expanded programs for veterans with
    special health care needs; dramatically lowered the time it takes to
    process veterans' claims for benefits; and expanded access to our
    national cemetery system. The President's 2005 budget will provide VA
    with the resources necessary to continue to improve our delivery of
    benefits and services, particularly for veterans with service-connected
    conditions, those with lower incomes, and veterans with special health
    care needs.
        That concludes my formal remarks. My staff and I would be pleased
    to answer any questions.

                              MEDICAL CARE FUNDING

        Senator Bond. Thank you very much, Mr. Secretary.
        I understand you recently sent a letter to House Budget
    Committee Chairman Nussle endorsing an additional $1.2 billion
    over the budget request for VA medical care, making the safe
    assumption that the administration's proposed fees will not be
    accepted by the Congress. Will $1.2 billion be adequate to
    ensure that the VA will be able to meet its medical care needs
    for 2005?
        Secretary Principi. Yes, it certainly will, Mr. Chairman. I
    am very pleased I was given the authority to endorse the budget
    resolution, adding $1.2 billion to our appropriation because of
    the understanding that Congress would not enact the policy
    reforms on user fees and co-payments. Therefore, those dollars
    would be necessary to ensure that our waiting lists and waiting
    times for appointments do not go up. It will also allow us to
    slightly increase staffing in our Benefits Administration,
    increase the amount for research and a little bit for CARES as
    well. So the $1.2 billion would, indeed, allow us to continue
    to stay on track.

                                     CARES

        Senator Bond. Speaking of CARES, I understand you had some
    personal experiences where you have seen veterans' hospitals
    apparently with some unneeded space, maybe in Chicago and
    something about New York. You said rather than spending the
    money on unneeded electricity, what do you mean by that, Mr.
    Secretary?
        Secretary Principi. Well, I had an interesting evening one
    night. I was in New York City driving up 1st Avenue to an event
    up in midtown, and I was caught in traffic at the corner of
    23rd and 1st Avenue and looking up the VA medical center, an
    18-story bed tower at about 7:30 at night and I noticed no
    lights on or virtually no lights on. I knew there was power
    because some lights were on.
        I went back to my office the next day and I asked for the
    information on the New York City medical centers, Brooklyn,
    Manhattan, and Bronx, and how large are these medical centers
    and how many patients do we have in them because I did not see
    any lights on in the bed tower. They came back and said the
    Bronx was built to 1,800 beds in 1920, downsized to about 850
    beds in the 1970's. Manhattan was built to 1,000 beds in 1950
    and Brooklyn was built to 1,300 beds in 1950 as well. And the
    day I was in New York, they had a combined inpatient census of
    385 patients. So we have three medical centers within
    relatively short distance of one another that were built to
    3,000 beds. Of course, they had been converted to other uses,
    and there were only 385 patients in them.
        I think that is an indication that medical care has changed
    so dramatically in this country going to outpatient care and
    ambulatory surgery and reducing lengths of stay and drug
    therapy and using technology, telehealth, that we were spending
    an awful lot of money on maintenance of very old buildings that
    are no longer defined as health care delivery. And veterans
    deserve better than that.
        That is why I believe this process is so important to
    ensure that we have a modern infrastructure with medical
    centers, tertiary care hospitals that are supported by multi-
    specialty outpatient clinics and that are supported by primary
    care clinics. That was the example I used.
        Senator Bond. In addition to the obvious benefits of CARES,
    I believe it will also spur some major construction spending.
    There are some estimates that VA would spend some $4 billion to
    $6 billion in new construction under CARES. For 2004, how much
    money will VA be able to spend on new construction projects
    under CARES and how many do you think could be funded
    immediately? How would you prioritize the funding?
        Secretary Principi. Mr. Chairman, CARES is not about saving
    money. CARES is about modernization. The VA health care
    infrastructure is aging and we have not made the investment in
    it for many years that we should. So I think the budget
    estimates in the area that you mentioned, $5 billion to $7
    billion, over a period of years is approximately correct. We
    have almost $1 billion in 2004 and 2005 that would be available
    to begin the process. Much of it will be advance planning and
    design funding in 2004 that would allow us in 2005 to award
    contracts to begin to modernize.
        Senator Bond. I will now defer to my colleague from
    Maryland to continue the questioning. Thank you.
        Senator Mikulski. Thank you, Mr. Chairman.

                         ENROLLMENT FEE AND COPAYMENTS

        Mr. Secretary, I want to raise the issue once again about
    something that Congress rejected last year, which is the issue
    of charging category 7 and 8 veterans, those who do not have
    literally a service-connected disability, a $250 enrollment fee
    as well as more than doubling their drug co-payments from $7 to
    $15 and also outpatient co-payments by another $5. Some people
    call this $250 a user fee. I call it a toll charge to get into
    VA, which of course I object to.
        Could you tell us why you picked $250? How many veterans
    will not enroll because of this fee? Was this done as a
    deterrent for veterans coming in? What is the point of the
    $250?
        Secretary Principi. Well, I think the focus is to make sure
    that we first and foremost care for those high priority groups
    established by Congress, the service-connected disabled, the
    very poor, and those in need of specialized services and to ask
    those who can most afford to make a small contribution, if you
    will, to the cost of their care.
        Why $250? Again, I am an E-6. I mean, I am a staff sergeant
    and I am in uniform for 20 years or 30 years and I have been
    overseas on combat tours. And I retire with maybe an income of
    $1,000 a month, $12,000 a year retirement after 20 years of
    military service. I have to enroll in TRICARE Prime to get
    medical care for myself and my family. I have to pay a minimum
    of $250-some-odd. So why is it fair that we mandate in this
    country that military retirees who have 20 years' service pay
    $250 to be enrolled in the TRICARE Prime program, but it is
    unfair to ask a veteran who maybe only served 2 years or 4
    years in the military and has no disabilities to pay the same
    amount. So that is how I came up with the $250.
        Senator Mikulski. Well, Mr. Secretary, I appreciate that.
    As you know, I feel and I think in your heart you feel that
    people paid their dues. They paid their dues in active duty. By
    the very nature of active duty, they might not have the kind of
    permanent wound of an orthopedic injury, spinal cord, or
    amputation. But you do not come home from war without
    consequences.
        And I agree with your commentary about the TRICARE men and
    women. But you see, my response to that is why charge them $250
    as well.
        Secretary Principi. Of course, that is Department of
    Defense.
        Senator Mikulski. I know that, but I want you to know that
    you are seeking parity with them because of essentially what
    you see is a fairness issue. I see as a fairness issue that
    when you serve in the military and if you have put in 20
    years--while the rest of us are eating turkey on Thanksgiving,
    they are chasing some turkey down some hole somewhere. So I
    believe we have got to stand by our military.
        But I understand your situation. You understand where we
    are coming from, but I just do not think you have to pay dues
    to get veterans health care.
        But let me take an issue which we do know is exploding
    whether it is in the civilian population, the veterans'
    population, or in TRICARE: the cost of prescription drugs. We
    know many are turning to VA medical care because you offer a
    prescription drug benefit. Could you tell the committee how you
    are controlling the cost of drug purchases and at the same time
    not shackling the physician to prescribe what is medically
    necessary or medically appropriate? This is a challenge that we
    are facing and we would like to know, one, how are you doing it
    and, second, would there be lessons learned in other Government
    initiated programs?

                      PHARMACY BENEFIT MANAGEMENT PROGRAM

        Secretary Principi. We have a model program in my view and
    one that has been very, very successful because it is a
    pharmacy benefit management program that brings clinicians and
    administrators and pharmacists together to make decisions on
    our program.
        How do we do it? We have a national formulary. Of course,
    physicians, if they need to order a drug off the formulary,
    they can do so, but we try to stick to the formulary.
        Senator Mikulski. And that would be because of evidence-
    based medical necessity.
        Secretary Principi. Exactly. Sixty-five percent of the
    drugs we prescribe are generic. So we try to use generic drugs
    whenever therapeutically equivalent. And we buy in large sums.
    We leverage our purchasing power and use consolidated mail-out
    pharmacies.
        The results of all of this have been that we have been able
    to keep our prescription drug costs to manufacturers' level
    just over the past 4 years. The only inflation comes from the
    large number of veterans who are coming to us. But the actual
    cost for ingredients has been steady at around $15 for a 30-day
    supply of drugs. And that is pretty extraordinary in my view.
    It comes about from a formulary, generic drugs, and national
    procurement.
        Senator Mikulski. So you have a pharmacy benefit
    management. Second, you use generic drugs. You also use mail-
    out pharmacies so that, for example, for a diabetic, you do not
    have to continually have to go to get your testing supplies and
    some of those things that are----
        Secretary Principi. It is mailed to you. Exactly. It is
    mailed from one of six or seven consolidated mail-out
    pharmacies.
        Senator Mikulski. What you take is predictable. Then, of
    course, where there might be an infection or something, it
    requires timely treatment.
        Now, let us go to the bulk purchasing. Essentially when I
    go to the Price Club or Sam's Club, it is discount because of
    bulk. You have got an Uncle Sam's Club. Right? You have got an
    Uncle Sam's Club with your bulk purchasing because essentially
    you are talking about managing primarily chronic illness which
    has a predictability, not the infections and so on.
        Could you share with the committee how much you save in the
    bulk purchasing?
        Secretary Principi. Well, I just have five drug classes
    here. I probably cannot even pronounce the names. Maybe I
    should let Dr. Perlin do so to give you an idea of the
    magnitude of the cost avoidance by buying in these large
    quantities for five drugs.
        Dr. Perlin. Senator, it is really quite remarkable. One is
    an acid reflux ulcer drug omeprazole. The savings by partnering
    and buying in bulk are $134 million to VA this year alone.
    Metformin is a drug for diabetes. The savings for that are $45
    million this year alone. Terazosin, diltiazem, and felodipine
    all for blood pressure, and the savings for each of those are
    $44 million for terazosin, $23 million for diltiazem, and
    felodipine, $22 million. And that is just our top five.
        Secretary Principi. Our 6-year savings in pharmaceuticals,
    as a result of the pharmacy benefit management program, have
    exceeded $1.1 billion. So we need to replicate that now in
    surgical, medical supplies, and equipment. There is an awful
    lot of money we are leaving on the table. We need to do more
    standardization, more national contracting for high-tech
    equipment like MRI's, as well as stents and bandages and
    surgical gloves. There is an awful lot of money that we can
    save the taxpayer and use for more medical care in the future.
        Senator Mikulski. Well, we are all for this Uncle Sam's
    Club. I know my time is up, but what is interesting to me is
    for all the calls we get from veterans' families saying, ``My
    father needs a nursing home, there is a waiting line for
    certain specialty care,'' et cetera, ``nobody has called me and
    said I am not getting the drug that I need or the VA would not
    give me the drug. I went to another primary care doctor and got
    X.'' So it must be working. I think that, first of all, these
    are very informative. I would like to have more of a
    documentation on the savings. I think that these are lessons to
    be learned, and we want to follow up on that.
        And then I will be talking about your demonstration issue
    in a minute.
        Thank you, Mr. Chairman.
        [The information follows:]
                       Prescription Drugs Bulk Purchasing
        Question. Provide documentation on the savings of bulk purchasing
    of prescription drugs.
        Answer.

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

    ------------------------------------------------------------------------
    Fiscal Year 1996........................................      $1,900,000
    Fiscal Year 1997........................................      32,800,000
    Fiscal Year 1998........................................      88,600,000
    Fiscal Year 1999........................................     127,800,000
    Fiscal Year 2000........................................     186,800,000
    Fiscal Year 2001........................................     278,800,000
    Fiscal Year 2002........................................     444,400,000
    Fiscal Year 2003........................................     394,200,000
    Fiscal Year 2004 (1st Qtr)..............................      83,300,000
                                                             ---------------
          TOTAL.............................................   1,638,241,300
    ------------------------------------------------------------------------

        While standardization contracting is an important cost avoidance
    tool, VA uses other tools to reduce the expense of drug therapy,
    including: (1) purchasing drugs through a Pharmaceutical Prime Vendor
    using negative distribution fees; (2) purchasing drugs in bulk
    quantities not available in the commercial supply chain and repackaging
    those drugs in unit of use quantities; and, (3) managing the
    appropriate utilization of drugs through the development and
    dissemination of evidence-based drug utilization guidelines. These
    strategies work together to help contain the growth of VA's
    pharmaceutical expenditures.

                                     CARES

        Senator Bond. Thank you, Senator Mikulski.
        I would like to go back to the CARES discussion and ask you
    about Chicago. I would like an update on how progress on CARES
    is going in VISN 12, hear how the program is operating where
    one of the hospitals was scheduled to close and how it is
    affecting medical care. Has the closure of Lakeside had any
    adverse impact on the services for veterans and has the medical
    care service in VISN 12 improved?
        Secretary Principi. I think this has become a success
    story. It was the first pilot that we started on CARES, and
    since the CARES decision was made, we have allocated $100
    million to Chicago. Seventy-two million dollars is obligated,
    with the rest in minor projects. All of the Lakeside inpatients
    have been moved over to Westside which is in the poorer part of
    Chicago. We are in design at the present time for a new bed
    tower, a 200-bed bed tower. The intensive care unit has been
    completed. We have got a brand new, modern, state-of-the-art
    ICU. We have, through the enhanced use leasing, a new regional
    office and parking garage on the grounds of the VA medical
    center at Westside. At Hines, the new spinal cord injury and
    blind rehabilitation center, which is state-of-the-art, nothing
    like it in the country, is under construction and should be
    completed by the end of 2004. So I think this is an example of
    what could be done, how we can modernize a health care system
    and provide state-of-the-art, 21st century health care to 21st
    century veterans.
        Senator Bond. I thank you for that. That is good news.

                       TRANSITIONAL PHARMACY BENEFIT PLAN

        Let me turn to the transitional pharmacy benefit plan. I
    commend you for implementing the pilot program. We estimated
    originally that over 200,000 veterans would be eligible, but it
    now appears only 41,000 are eligible. I would like to know how
    it has reduced the waiting list. Why has the number changed so
    drastically? What is your current cost estimate of the program
    and how much does it save?
        Secretary Principi. I will turn this over to Dr. Perlin.
    Let me just start out by saying about a third of the veterans
    who come to us, some places much higher, are only coming for
    prescription drugs. They may be enrolled in Medicare and have
    seen a doctor but they cannot get prescription drugs, so they
    are coming to us.
        When we had those long waiting lists, I wanted to do a
    pilot project to see how well we could reduce the waiting times
    and provide the veterans with what they needed, prescription
    drugs. The pilot was generally successful although I think the
    data still needs to be analyzed. I know the Inspector General
    is looking into this and will have a report available shortly
    on the success of this pilot project. Perhaps Dr. Perlin can
    just give us some specifics.
        Dr. Perlin. Thank you, Mr. Chairman. The inception of the
    project occurred when we had huge waiting lists. As the
    Secretary mentioned, a year and a half ago we had 176,000
    patients waiting for their first appointment over 30 days.
    Since the time when it was implemented, I am pleased to say
    that the waiting list has diminished. That meant that the
    number of veterans who were waiting over 30 days came down to
    42,000.
        Of this 42,000, sir, 8,000 took part in the pharmacy
    benefit which was, in fairness, lower than we expected. We
    believe that some veterans may not have heard about the
    pharmacy benefit. We also believe that some may have found the
    process complex. It was a new process for us, a learning
    process in terms of processing prescriptions from outside of
    the system.
        Because we have tighter control within our system with
    electronic prescribing and the closed formulary, we had some
    implementation challenges with prescriptions that were outside
    of our formulary. So all told, about 20 percent of those people
    used the program who were eligible and it was substantially
    lower than we initially had considered.
        Senator Bond. I would like to ask Mr. Griffin if he has any
    additional views, the Inspector General. Have you come to any
    conclusions? Is there anything additional that you could
    provide on the program at this point? And if you would state
    your name for the record.
        Mr. Griffin. My name is Richard Griffin. I am the Inspector
    General for the Department of Veterans Affairs.
        Senator Bond. Welcome.
        Mr. Griffin. As indicated by the Secretary, we have done
    some work in this area. We have recently finished a draft
    report which will be going to VHA for comments.
        I would say that, in general, there were a number of issues
    that impacted the ability to have this program successfully
    kicked off. I would go back a few months prior to the start of
    the program to another audit which we had done at the
    Secretary's request on waiting times throughout the system. At
    that time, the reported waiting times in VHA were 309,000.
    Through the course of our audit, we determined that the actual
    number in May of 2003 was really 218,000, and that was as a
    result of some double-counting of some individuals. There were
    some other veterans who had enrolled in the system just so they
    would be enrolled but who were not actively seeking
    appointments from the Department. And there were some that were
    canceled or changed administratively but the record-keeping did
    not reflect that activity. So that is what was discovered in
    May.
        One of our recommendations to VHA was that they continue to
    pursue electronic waiting times, which they have been doing and
    have been making good progress on. But that is just a few short
    months before the July date when the temporary pharmacy benefit
    was going to start, and some of those growing pains with the
    electronic process still existed. So as a result, the data that
    was being utilized to try and track how many veterans benefited
    from this program was not always accurate.
        The other truth is that as a result of increases in
    staffing from previous budget years, a tremendous dent was made
    in those waiting lists in the 12 months preceding the kickoff
    of this benefit program.
        So you had a combination of increased staffing being
    brought to bear against the workload. You had some facilities
    that accepted the challenge and put in the overtime and got the
    numbers down, and then we had a continued problem with the
    software and with the administration of the program.
        Senator Bond. Thank you very much, Mr. Griffin. We will
    look forward to seeing your full report when it is ready.
        Now I turn to Senator Leahy who has joined us. Thank you,
    Senator.

                     STATEMENT OF SENATOR PATRICK J. LEAHY

        Senator Leahy. Thank you, Mr. Chairman. I look around here.
    I wonder who is back running the store. Secretary Principi you
    have got everybody here. I know the buck stops here and I
    appreciate that. It is good to see you.
        I really get worried--and I have told you this before--on
    the Veterans Affairs budget. We seem to go around and around.
    Last year we went back and forth to add $1.6 billion to the
    administration's budget request for fiscal year 2004, the
    current year. A month before the administration submitted its
    fiscal year 2005 budget, I joined several members of this
    subcommittee and the Veterans Committee to end the pattern of
    the administration where they come in with an unreasonably low
    request. They know that it is a request that nobody is going to
    accept, hoping that then Congress will find the money somewhere
    to bring it up, and it leaves a lower funding baseline the next
    year.
        And the same thing happened again this year. The
    administration submitted a budget clearly short by several
    hundreds of millions of dollars. Veterans groups, everybody
    else has said it is short. They point to inflation. They point
    to increased costs of hospitalization, especially with so many
    coming back from Iraq and Afghanistan.
        I do not know why we are in this. It has been reported that
    you asked for an additional $1 billion and you were turned
    down. I appreciate your asking for it. But what do you have to
    do? Even in an election year, you would think that somebody
    would listen to what veterans are saying. It is somewhat of a
    rhetorical question, but I would be delighted to hear an
    answer.
        Secretary Principi. No. I appreciate the question.
        Again, I would say I guess we always want more.
        Senator Leahy. No, no. Mr. Principi, it is not that we want
    more, it is we need more. And with the number of people coming
    back from Iraq and Afghanistan and everything else, we need
    more.
        Secretary Principi. Well, men and women coming back from
    Iraq and Afghanistan have the highest priority in my view, and
    we will be there for them. We have to be there for them. We
    have no choice.
        But again, my budget just in health care over this 4-year
    period has increased, if you include the 2005 budget as
    requested and if it becomes enacted, over 40 percent. Twenty-
    seven percent of that increase is from the President's request;
    13 percent from congressional add-ons. So the problem is we,
    our government, opened the doors in 1998 to 25 million
    veterans. Prior to 1998 only 3 million had eligibility for the
    full continuum of VA health care. So we went one day from 3
    million to 25 million, and as the chairman said, we have this
    perfect storm. We have eligibility for all 25 million. No one
    is entitled but everyone is eligible. We have the best
    prescription drug program in the Nation. We have opened up now
    some 760 outpatient clinics that did not exist prior to 1995,
    and the quality of care is much better than for my dad. So we
    have this tremendous demand for health care, although our
    budget has risen rather dramatically.

                                MEDICAL RESEARCH

        Senator Leahy. Mr. Secretary, in your budget is a summary
    on page 1 to 6, take, for example, medical research spending.
    It says it is increased, but you are asking for a direct
    appropriation for medical and prosthetic research of $769
    million. That is a $50 million cut. So, on the one hand, we are
    increasing all this, but then when you go to the fine print, it
    is saying it is cut.

                                 MENTAL HEALTH

        Now, you said that people coming back is the first
    priority, and I am sure you mean that and that is the way it
    should be. But I look at this article--and I am sure you read
    it--that was in the New York Times magazine on the incidence of
    post-traumatic stress disorder, depression among many of our
    troops returning from Iraq and Afghanistan. It says in this
    particular article a wounded veteran who is photographed here--
    you can see that he has lost an arm. Many are going through the
    medical evaluation board process. They get medical discharges.
    They become eligible to access care through the VA. But then we
    find that notwithstanding this huge increase, because of Iraq
    and Afghanistan, the mental health programs seem to be kind of
    an ugly stepchild of the VA. Notable shortages in psychiatric
    care for veterans in my own home State of Vermont which has a
    good VA hospital. We have the National Center for Post-
    traumatic Stress Disorder at the White River Junction VA
    Medical Center. They provide care and advice to the Army. They
    are going to continue doing that, but they have been flat-lined
    for the past few years, notwithstanding the increase in need.
        You have so much support up here. I do not know how all
    this comes about. I mean, the administration can do all the
    great photo ops, and some of them are very valid. But a lot of
    them are not because we hear then from the veterans saying, oh,
    great, we got this increase. It is not really the way the
    budget came up. What are we going to do?
        Secretary Principi. Well, again, Senator Leahy, when I
    started this business 3\1/2\ years ago, my budget was $48
    billion. Today it is $65 billion.
        Senator Leahy. A lot of that was pushed in by the Congress.
        Secretary Principi. But it has grown dramatically. We have
    treated 800,000 more veterans than the year before I became
    Secretary. I am not taking credit for that. I am just saying
    that 800,000 new veterans have come to the VA and received
    health care that did not in 2001. That is an extraordinary
    increase. And yes, more and more veterans are coming to the VA
    for lots of different reasons.
        Mental health. You are right. Sometimes it does not get the
    allocation that I think it deserves. It is not as glamorous, if
    you will, as high-tech medicine, and we have to continually
    stress the importance of mental health programs.
        Senator Leahy. Will it get the allocation?
        Secretary Principi. Sir?
        Senator Leahy. Will you give it the allocation?
        Secretary Principi. Yes, I will give it the allocation. I
    convened a task force on mental health. They made some
    excellent recommendations to ensure that we have a baseline of
    spending across our entire system. Right now it is too un-
    uniform and inconsistent across the Nation.
        In research, the appropriation piece has dropped by $50
    million in this request, but the appropriation is one small
    part of our research program of $1.7 billion. From 2000 to
    2003, we have gone from $504 million in grants from NIH and DOD
    to $704 million. So we are increasing the amount of money that
    is coming to the VA from other sources, NIH and Defense and
    pharmaceutical companies. So we will continue to work to ensure
    that our research program is robust.
        Senator Bond. Thank you very much, Senator Leahy.
        Senator Leahy. Mr. Chairman, I will submit some other
    questions for the record.
        Senator Bond. Thank you, sir. We will do that.
        I think there is a medical care chart request that we will
    put in the record too, going back to the presidential requests
    for about the last 10 years, showing the percentage increase in
    requests. I have that here and we will make this available in
    the record.
        [The information follows:]

        Senator Bond. Senator Mikulski, do you have some questions?
        Senator Mikulski. Thank you very much, Mr. Chairman. I
    believe Secretary Principi and Dr. Perlin answered the question
    I had about the demonstration project on delivery a
    pharmaceutical benefit, in other words, those who had gone to
    another primary care physician but had come in to see you. This
    sounds like this has momentum.
        And you have also significantly reduced waiting lists.
    Waiting lists are a big issue with me. It is a very big issue
    with the veterans' organizations, and the fact that they have
    been reduced is commendable.

                        WAITING LINES IN SPECIALTY CARE

        But let us go to those waiting lines in the area of
    specialty care. Am I right, Dr. Perlin, that this is where
    there is a waiting list? In other words, do you feel confident
    that you have reduced the waiting list for what we would call
    primary care and primary care management? The blind veterans'
    organizations have told me that there is a now a waiting list
    to get into blind rehab programs.
        Dr. Perlin. Senator, we have made progress in the area of
    specialty care as well. Our goal for 2005 is that 90 percent of
    all appointments will be in 30 days or less. In point of fact,
    we still do have pockets where we need to make improvement. One
    of the areas you mentioned, blind rehabilitation, is such an
    area.
        For veterans who have suffered acute injury, immediate
    injury, such as someone coming back from war, we will see them
    immediately. Those people categorically do not wait.
        We need to modernize our programs. In fairness, the
    programs we have had for someone who has a traumatic loss of
    vision would be different than for some of our veterans who are
    aging and because of diabetes, suffer from macular
    degeneration, a very slow and progressive onset. The programs
    that we have worked with, the inpatient programs for 6 weeks of
    care, are both labor-intensive and require a 6-week commitment
    on the part of the veteran. In point of fact, those veterans do
    wait, between 4 months and a year, but because of the 6-week
    commitment, they often schedule that. My point is we need to do
    better in terms of reducing that waiting list and add new
    programs to address both causes, trauma and slow disease
    progression.
        Senator Mikulski. Well, what you are saying is if you are
    coming back from Iraq or Afghanistan and you have left a
    military hospital and there needs to be medical management of
    the loss or traumatic injury to the eye, they are seen right
    away.
        Dr. Perlin. Yes, ma'am.
        Senator Mikulski. For those who have a chronic and
    degenerative visual situation that comes from, say, diabetes,
    what you are saying is they might have to wait, but they are
    not going to wait indefinitely.
        What would you say are the specialties most challenging for
    you right now?
        Dr. Perlin. Specialty care is sort of a reflection of the
    diseases in society. Cardiology, endocrinology, all of those
    are areas we are working on, but we are moving the waiting
    times forward. Again, we have set the standard to be 90 percent
    of all appointments within 30 days and then 99 percent within
    90 days. We believe we will hit the marks on that. We are about
    41 days overall as an average wait at the moment.

                              WORKFORCE SHORTAGES

        Senator Mikulski. Well, first of all, that is very good,
    but let me ask a question on workforce shortages. We understand
    in the medical profession generally there is not a shortage of
    doctors, but there is a shortage of allied health care people
    that are able to meet both acute needs as well as chronic
    management. What are your challenges in the area of nursing, x-
    ray technology? What should we be looking at to help VA not
    only have the money to hire but also to have a farm team to
    help create opportunities for those who would like to come in
    to health care and then serve their Nation as well?
        Dr. Perlin. Well, thank you, Senator, because that is
    absolutely right. Our farm team serves the Nation. Sixty
    percent of all health professionals experience some part of
    their training in VA. So that is a farm team for the Nation.
        As with the Nation, we suffer because of the national
    nursing shortage. I am proud to say that in contrast to
    turnover rates of 17 percent annually, VA has retention rates
    and turnover of only 7 percent among R.N.'s, but there are
    areas of the country where it is very, very difficult to get
    R.N.'s into the workforce.
        You identified x-ray technicians, nuclear technologists.
    Some of these allied health professions are areas where in fact
    some of the salaries in the private sector have gone up
    disproportionately. I know that legislation, title 38 hybrid,
    has been something under review, and those are areas that are
    important for us to maintain both training and adequate staff.
        Senator Mikulski. Well, Doctor, I am going to ask you,
    along with the Secretary, if you could give recommendations to
    us. Where there are national shortages, you could end up in a
    war for talent which then becomes a bidding war. When we say
    the private sector, we are not talking about the profit
    hospitals. We are talking about nonprofit. So you are in a
    bidding war for many people. Am I correct in that?
        So my question would be what would be those ideas which we
    could both recruit people through either debt forgiveness ideas
    for service to the VA, like debt for duty, or other scholarship
    programs? I know this would be a subject of authorization, but
    also we see these in other fields. I am out now touring the
    community colleges. There are people who want to come into
    these fields, but they almost have to be in a work-study
    environment and this becomes of question of where maybe the VA
    could play a role and also then have new thinking, new energy.
        Dr. Perlin. Well, thank you, Senator. I absolutely agree
    with the idea that novel programs such as debt forgiveness such
    as is used in the military would be one of the mechanisms in
    which we can bring people in to VA, retain them in VA, and
    actually provide a service for the country as well.
        When we have to contract care, it becomes very expensive.
    As you know, we have legislation proposed for physician pay
    reform, something that has not occurred for over a decade. In
    all of those areas, that helps us be more competitive.
        For nurses in particular, the associate degree nurses can
    have a full scholarship to attain their baccalaureate degree in
    VA, and we would appreciate any help in getting that word out
    because that is a program and your suggestion to emulate that
    in other areas is, I believe, right on target.
        Senator Mikulski. Well, thank you very much.
        Senator Bond. Thank you, Senator Mikulski.

                           PERSIAN GULF WAR VETERANS

        Mr. Secretary, we all know, of course, that the returning
    service members, including the Reserve and Guard, are entitled
    to 2 years free health care upon separation from service after
    having served in the Persian Gulf. Congress has appropriated
    $100 million in emergency appropriations in 2003 to assist the
    war veterans. I would be interested in knowing what specific
    steps the VA is taking to respond to the needs of returning
    Persian Gulf War vets.
        Secretary Principi. On the medical side, we have had about
    145,000 active duty service members return to our shores, of
    which almost 20,000, if you will, have come to the VA for
    medical care and for various reasons, some related to their
    combat injuries, others unrelated.
        We did receive a $100 million supplemental that could be
    used for either medical or benefits. I have chosen to use the
    supplemental to assist us in addressing the claims of men and
    women returning from Iraq and Afghanistan to reduce the
    backlog. So I think we are making progress on both fronts, and
    the $100 million supplemental has helped us significantly.

                    U.S. INTERAGENCY COUNCIL ON HOMELESSNESS

        Senator Bond. Mr. Secretary, I spoke earlier on
    homelessness and the responsibility you took on as chair of the
    U.S. Interagency Council on Homelessness. My colleague and I
    are very strong supporters of the mission. Can you tell us
    briefly what are your goals as chairman of the ICH? How do you
    ensure that veterans are receiving adequate support from other
    Federal agencies? I would be interested to know how homeless
    veterans' access to permanent housing programs is being
    supported by HUD, for example.
        Secretary Principi. We are addressing the homelessness
    issue on many fronts. From the VA perspective, with the latest
    round of grants and per diem, we will have 10,000 beds, the
    highest number we have ever had, transitional housing beds for
    homeless veterans.
        We need to continue to attack the underlying causes of
    homelessness, substance abuse, PTSD, serious mental illness,
    employment-related issues. So it is very, very important that
    we address the clinical issues if we really want to prevent and
    overcome homelessness.
        I was proud the President named me chairman of the
    Interagency Council on Homelessness and my goals this year
    really are to work as hard as I can to achieve the goal of
    eradicating homelessness in our society in 10 years.
    Specifically, we will only do so if the Federal agencies
    involved work together, VA, HUD, HHS, and Labor. To that
    degree, my goal is to bring all of these agencies together, to
    share our resources, and address our respective expertise in
    housing, in employment, in health care. Last year we had $35
    million towards this effort. We have now upped that amount. The
    President has authorized us to use $75 million of interagency
    funding. Most of it is funded by HHS.
        We have a guaranteed loan program for housing, and we will
    have three to five projects started this year. We have one in
    Chicago with Catholic Charities. I am very excited about it. We
    are going to provide a guaranteed loan to Catholic Charities to
    open up a homeless shelter in south side Chicago with a VA
    clinic attached to it. This is a wonderful, wonderful example
    of what we can do.
        With regard to permanent housing, HUD, I think there have
    been some difficulties getting the section 8 vouchers to the
    VA. We continue to work with HUD on that issue.
        Senator Bond. I think we understand some of the challenges
    you face in that area, trying to get those coordinations. We
    will work with you, Mr. Secretary.

                                    COREFLS

        My final question is a tough one, but I would like to have
    you discuss it. Developing an integrated information technology
    system for the Department is critical. The VA has tried to
    address this issue by developing an integrated financial
    management system called CoreFLS. I understand the system had
    serious implementation problems at Bay Pines VAMC resulting in
    some serious patient care problems. Have you responded to the
    problems? Do you believe the CoreFLS is salvageable or should
    the Department chuck it and start all over again?
        Secretary Principi. Well, I certainly hope it is
    salvageable. I will not chase good money after bad. We have
    spent $279 million since the program was launched back in 1998.
    It is a very, very important undertaking to build a new,
    integrated financial logistics system for the VA, overcome
    material weaknesses that the VA has had for many, many years in
    its financial management systems.
        It does have problems. Part of it is the test site that was
    selected at Bay Pines for this project--it turns out that that
    was a bad decision because of the other systemic problems that
    Bay Pines VA Medical Center was having.
        To attack this problem, Mr. Chairman, I have done the
    following. I have made some personnel changes recently.
    Secondly, I have asked the Inspector General to do a complete
    and thorough audit and investigation of everything related to
    this CoreFLS project from how the contract was implemented,
    right on down the line.
        Additionally, I have asked our CIO, our chief information
    officer, to contract with an independent agency or organization
    to assess the validity of CoreFLS and whether we should go
    forward with it, and I expect a report from my CIO in 60 days.
    So I am watching it very, very carefully. This was designed to
    be a close to $500 million project. We need to take appropriate
    steps.
        Senator Bond. Thank you. I appreciate that summary.
    Obviously, there is a lot of money that I hope is not down a
    rat hole, but obviously we need a good system and I think it is
    time to step back and take a very careful review and see where
    we are going.
        Secretary Principi. I will report to you, Mr. Chairman,
    Senator Mikulski, as soon as I get the final report from the IG
    and the report from the independent team that will be
    addressing it over the next 60 days and then discuss going
    forward at that time.
        Senator Bond. Thank you, Mr. Secretary. That concludes my
    questions. I will turn now to Senator Mikulski.
        Senator Mikulski. Thank you, Mr. Chairman.
        For my final round I have one question about claims
    processing and then for our Afghan-Iraqi vets.

                               CLAIMS PROCESSING

        On claims processing, I am back to my favorite topic:
    waiting lines and waiting times. As you know for some years,
    those who filed disability claims have had very long waiting
    times and very disappointing and frustrating experiences with
    claims processing. Now, as I understand it, you have been able
    to substantially reduce that waiting time. You said that in
    your testimony. But then I am puzzled by the fact that there is
    going to be a reduction of 540 staff from the VA Benefits
    Administration.
        So here is my question. How are we doing on the claims
    time? Again, if you have a disability, you should not have to
    wait in line to get that for which you are both eligible and
    entitled. Then, second, presuming progress has been made, are
    we now about to trip ourselves up?
        Secretary Principi. Sure. A very important issue, Senator
    Mikulski. As I indicated, we are making great progress. We are
    clearly not there yet. This is a moving target and no sooner do
    I feel that we have got everything under control and then
    something else happens. The court decision will come down and
    say a veteran had a claim. It had 15 conditions and you may
    have approved 14 and you denied 1, but you have got to hold the
    claim for a year to give the veteran a chance to submit
    additional evidence, or concurrent receipt. Veterans, in order
    to become eligible, may want to reopen their claim to get an
    increased disability rating to become eligible for CRSC. So it
    is constantly changing. The landscape is constantly changing.
        The 500 people you mentioned--only 35 of those will come
    out of the disability compensation arena. VBA, the Benefits
    Administration, has as you know, education, housing, vocational
    rehabilitation and pension. We have done some consolidation in
    pension. Thereby we can reduce a little bit of our end
    strength.
        Obviously, I am concerned. It is a very high priority of
    mine. I think we are okay. You gave us 1,800 people over the
    past couple years.
        Senator Mikulski. Right and then I see you are letting off
    500.
        Secretary Principi. They are not actually coming from that.
    How many people do we have in Benefits Administration? About
    11,000. So they will be coming from other areas.
        But the point I feel is important to make is it takes a
    couple years to get those people up and trained. Now that they
    are trained, they should be much more productive.
        Secondly, I think you have a right to demand that like the
    private sector that is showing productivity improvements
    because of technology that you are investing with us, we need
    to demonstrate some productivity improvements too.
        So I think the combination, Senator Mikulski, will allow us
    to do so. But obviously----
        Senator Mikulski. Well, Mr. Principi, I am going to ask you
    and your management team to stand sentry. I think we have come
    a long way over the last several years in reducing the waiting
    line for disability claims and at the same time ensuring those
    eligible and therefore entitled to get their benefit and
    prevent abuse in the system. So we do not want to lose those
    gains and then in the anticipation of the Iraqi-Afghan vets
    coming home, many of whom do bear these permanent wounds of war
    that we do not want, as they then apply for benefits, to have
    to go through the frustration about applying.

                             IRAQI-AFGHAN VETERANS

        But this then takes me to the Iraqi-Afghan vets. First of
    all, I think that VA is going to be hit by the three
    populations. No. 1, we have expanded the eligibility
    opportunities to come to VA. No. 2, the Vietnam vets are coming
    of age, and I believe that they are going to turn more and more
    to VA because of the failure of health care in other areas,
    with the loss of a job or not being eligible for Medicare.
    Essentially the people between 55 and 64. You will be the
    health care providers not of the last resort in a negative
    sense. And then now we have these men and women who will be
    returning from Iraq and Afghanistan.
        My question is, No. 1, are we ready and do we need
    additional money for that?
        No. 2, there seems to be, because of the nature of the war
    against us, an incredible amount of orthopedic injuries. My
    visit to Walter Reed and contacts with constituents talk about
    the prosthetic issues. So my question is, are we ready? Second,
    are we paying particular attention to this? And third, I am
    very troubled by the cut in VA medical research. The doctors
    over at Walter Reed are telling me that there is not a lot of
    work going on in the area of prosthetics either at Walter Reed
    or with themselves, at least with upper body.
        Have you been over to Walter Reed?
        Secretary Principi. Yes, many times.
        Senator Mikulski. I do not have to describe to you what I
    met. But when you walk up to a young man and you want to shake
    his hand and the injury is there, you do not go home at night
    and just read memos. You really want to be on the edge of your
    chair to help them.
        Secretary Principi. It is pretty tough. I go up as much as
    I can.
        Senator Mikulski. Well, God bless you for that.
        Secretary Principi. I think we are ready in the short term,
    Senator. I think because of what you have done and almost a $3
    billion increase in 2004 and I am sure we will have a very good
    increase in 2005, I think we are fine.
        But I do not know about the long term in the sense of we
    have 25 million eligible today. As you indicated, my cohort of
    now 60's, approaching 60, medication and everything is
    increasing, visits, et cetera. So if you want us to focus on
    the service-disabled and the poor and those in need of
    specialized services, I think we are going to be fine. But if
    there is going to be the need to expand the patient population
    to those who may have higher incomes and may have some other
    options--they may not be great options. They may be closing on
    them--then I think the long term is going to be problematic.
    The system is not built for anywhere near 25 million veterans,
    and we are almost growing too fast. The beauty of these
    outpatient clinics throughout Maryland, throughout Missouri is
    that veterans have access, but there is going to come a time
    when they are going to go in for an appointment, but then 6
    months later they are going to have to go in for an inpatient
    open heart or a new hip. Once you get them in the system, then
    they are in the system for everything except long-term care and
    that is 70 percent or greater. But long term it could be
    difficult to balance all this out. And are we going to have to
    go the contract route?
        Senator Mikulski. Mr. Secretary, I am going to ask you to
    give us a white paper on this because we have got to meet the
    needs immediately of those veterans coming home that are being
    discharged from the hospitals, many of whom return to rural
    communities. As you know, when I make those phone calls in
    Maryland to those who have lost a soldier or a sailor or a
    Marine, a lot of them are from our rural communities or they
    are from minority communities. They are going to come back,
    their brothers and their sisters and their cousins, and we just
    have to be there. So just know I think this is where we have to
    be in partnership.
        [The information follows:]

                White Paper on VA Seamless Transition Task Force

                                   BACKGROUND

        Secretary of Veterans Affairs, the Honorable Anthony J. Principi,
    created a VA Task Force for Seamless Transition for Returning Service
    Members on August 28, 2004. The Seamless Transition Task Force meets
    weekly and is co-chaired by Dr. Michael Kussman, Acting Deputy Under
    Secretary for Health and Chief of Patient Care Services in the Veterans
    Health Administration (VHA), and Carolyn Hunt, Deputy Director of the
    Compensation and Pension Office in the Veterans Benefits Administration
    (VBA). The task force was charged with:
      --Improving collaboration between VHA, VBA and DOD on care of
            returning Operations Iraqi Freedom and Enduring Freedom (OIF/
            OEF) veterans;
      --Improving communication and coordination among VHA, VBA and DOD
            staff in providing health care services and VA benefits
            applications to OIF/OEF veterans;
      --Ensuring VA staff is educated about the needs of this new group of
            veterans; and
      --Ensuring appropriate policies and procedures are in place to
            enhance seamless transition of health care and access to
            disability services.

                      MTF LIAISONS FOR SEAMLESS TRANSITION

        The task force identified the five major Military Treatment
    Facilities (MTFs) where seriously injured and ill OIF/OEF active duty
    service members were being treated, and assigned VA staff to work side
    by side with MTF staff to assure seamless transition for OIF/OEF active
    duty service members and veterans. VA staff were later assigned to two
    additional MTFs, with another VHA staff member providing liaison to all
    other MTFs. The VHA social workers assigned to the MTFs serve as
    liaisons and arrange transfer of health care, inpatient and outpatient,
    from military hospitals to VHA health care facilities. They also
    arrange for TRICARE authorization so that VHA facilities can provide
    health care to active duty service members, and they enroll active duty
    service members in the VA health care system prior to transfer. VBA
    benefits counselors educate service members about VA benefits and help
    them apply prior to military separation.
        VHA staff are assigned as follows:
      --National Naval Medical Center (Bethesda).--Full time VHA social
            worker;
      --Brooke Army Medical Center (San Antonio).--Full time VHA social
            worker;
      --Darnall Army Medical Center (Fort Hood).--Full time VHA social
            worker;
      --Eisenhower Army Medical Center (Fort Gordon).--Part time VHA social
            worker;
      --Evans Army Hospital (Fort Carson).--Full time VHA nurse;
      --Madigan Army Medical Center (Fort Lewis).--Two full time VHA social
            workers;
      --Walter Reed Army Medical Center.--Two full time VHA social workers;
      --All other MTFs.--A part time VHA social worker.

                VHA FACILITY POINTS OF CONTACT AND CASE MANAGERS

        Each VHA facility identified a Point of Contact (POC) to work with
    the VHA social workers serving as liaisons to the MTFs. The POCs
    arrange inpatient care, outpatient appointments, and all necessary
    equipment, supplies, orthotic devices and prosthetics for OIF/OEF
    active duty service members and veterans. Each facility also identified
    a nurse or social worker case manager who is assigned to all OIF/OEF
    active duty service members and veterans whose care is transferred to
    that facility. The case managers maintain contact with the MTF staff,
    particularly for those active duty service members who are still
    awaiting Physical Evaluation Board results regarding medical retirement
    or medical separation from active duty. Lists of the VHA and VBA
    liaisons, the VHA POCs and case managers, and the VBA case managers are
    updated weekly and are available on the VA Intranet web page.

                       VA GUIDANCE ON SEAMLESS TRANSITION

        Secretary Principi sent a letter to each VA employee stressing the
    importance of seamless transition for returning OIF/OEF active duty
    service members and veterans. The VA Seamless Transition Task Force
    developed the following:
      --Guidance to VHA health care facilities and VBA regional offices on
            the roles of the VHA liaisons, POCs and case managers and the
            VBA benefits counselors and case managers. The guidance
            includes a script for front-line staff to use when interacting
            with veterans.
      --A video, ``Our Turn to Serve'', which was shown to all VA
            employees.
      --A VA Intranet web page for OIF/OEF where all policy guidance,
            resource information, task force minutes, and lists of VHA and
            VBA liaisons, POCs and case managers is available to VA staff.
      --A new OIF/OEF icon on the VA Internet web page with information
            about VA, DOD, Reserve and Guard Affairs, TRICARE and other
            resources are available.
      --Pamphlets, brochures and other outreach materials for OIF/OEF
            regular active duty, members of the Reserves and National
            Guard, veterans, and family members. Soon-to-be completed
            products include laminated cards with VA and DOD phone numbers
            and web addresses as well as an in-flight video welcoming OIF/
            OEF active duty service members and veterans home and offering
            VA benefits and services.
      --VBA staff continue to conduct briefings on VHA and VBA benefits at
            Transitional Assistance Program (TAP) meetings. VHA staff have
            been invited to attend. Briefings are also conducted at Reserve
            and Guard units during weekend drills.
      --A proposal for a permanent Seamless Transition office at the
            Department level to carry on the activities of the task force
            in the future.

                              THE TRANSITION LINK

        Having VHA social workers at the major MTFs assures that those
    active duty service members who are to be discharged from the MTF but
    who still need rehabilitation and other heath care services are
    referred to VHA. The VHA social workers arrange for transfer of care,
    inpatient and outpatient, for all service members referred by MTF
    staff. The VHA social worker meets with each service member and
    discusses VHA health care services, developing a plan for transfer to
    the VHA facility that can provide the needed care and is closest to the
    service member's home.
        For service members needing specialty services, such as treatment
    or rehabilitation for spinal cord injury, traumatic brain injury,
    visual impairment, amputations, and serious mental illness, the VHA
    social worker will arrange transfer to the VHA facility that can
    provide that level of care. The VHA POC and case manager at the
    receiving facility arrange for inpatient and outpatient services as
    well as for all necessary equipment, supplies, orthotic devices and
    prostheses. The VHA case manager makes contact with the active duty
    service member prior to transfer and with the service member's family.
    The case manager can assist the family member with transportation and
    lodging needs if the VHA facility is not within commuting distance.
        For service members who need less specialized care, transfers are
    made to all VHA facilities, including community-based outpatient
    clinics. Community-based outpatient clinics provide access in rural
    parts of the country.
        Service members also have the option of utilizing TRICARE providers
    while they are still on active duty. The VHA social workers serving as
    liaisons at the MTFs assist service members in choosing treatment
    options that include TRICARE and VHA.
        For those who are already separated or retired from active duty,
    post-MTF treatment can include VHA health care facilities, including
    community-based outpatient clinics and services received by community
    providers via fee basis or contracts.

        Senator Mikulski. Senator Leahy followed one course of
    questions. See, I follow another course. I do not think we
    ought to talk about Republicans or Democrats. I think when we
    talk about veterans, we are the Red, White and Blue Party. I
    tell you, when those guys sign up, nobody asks them their
    political party. When they face these ghoulish and horrific
    circumstances, it is not about politics. It is about our
    country.
        The other thing I do know is that you are looking at
    innovation, and I want to thank you for that. We contacted you
    because in the Cumberland outpatient clinic, they were losing
    their opportunity for visual care, not the sophisticated type
    care, Dr. Perlin, that might be available at the University of
    Maryland, VA or even a mandated visit at Wilmer Eye Clinic at
    Hopkins, but it was for the certain basic care which would be
    handled through an optometrist. And you contracted with a Wal-
    Mart.
        Now, when I first heard it, I thought, ``Holy hell. Are we
    going to Wal-Mart for the VA? I do not want Wal-Mart medicine
    for my vets.'' But when we looked at it, that was who was
    available in the community and we had a way where there would
    not be a waiting line for veterans.

                         ADDITIONAL COMMITTEE QUESTIONS

        So we are looking for innovation, and I have some other
    ideas on some of this that I would like to then discuss with
    you. I know that our time is up, but we need to really look now
    for the immediate return and then we need to look ahead and to
    prepare ourselves. When everybody wants to stand up for their
    troops, I think we need to stand up for them right here and
    today, meet the budget needs and lay the groundwork for what
    could come in the future.
        So, thank you.
        Secretary Principi. Thank you very much.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

               Questions Submitted by Senator Christopher S. Bond

                                   PRIORITIES

        Question. Given the likely funding constraints for our
    subcommittee, what are your top three funding priorities for the VA?
        Answer. While VA believes all its programs are a high priority, we
    are well aware of the funding constraints the subcommittee faces and
    recognize that difficult budget decisions must be made. However, I have
    gone on record stating that my three highest priorities are:
      --Provide timely, high quality health care to our core constituency--
            veterans with service connected disabilities, those with lower
            incomes, and veterans with special health needs;
      --Improve the timeliness and accuracy of claims processing;
      --Ensure the burial needs of veterans and their eligible family
            members are met, and maintain veterans' cemeteries as national
            shrines.

                                CARES--CLOSURES

        Question. Mr. Secretary, you have heard many negative comments on
    CARES because of the potential hospital closings in the plan. Without
    going into specifics, I believe that closures or realignments are
    necessary in cases where the facility is underutilized and where these
    closures will be replaced with other services that will provide better
    care for more veterans.
        There appear to be some misunderstanding about CARES because some
    people believe that the proposed closures will reduce services or
    access for veterans. My understanding is that by closing unneeded
    facilities, the VA will re-direct its cost savings to open more
    outpatient clinics or purchase contract care that is located closer to
    more veterans. Further, the VA will be able to use proceeds from
    enhanced use leases of closed facilities to pay for more medical care
    services for more veterans. Therefore, more veterans will benefit from
    improved access under CARES. Can you respond?
        Answer. VA has been committed to developing a plan that addresses
    the future needs of enrolled veterans. Extensive data based plans were
    developed for each of VA's 77 market areas. All plans identified the
    capital investments and realignments that are required over the next 20
    years to provide cost effective, accessible, quality health care in
    facilities that meet the physical requirements for the delivery of
    health care services.
        On May 7, 2004, I released my decision, which will afford more
    opportunities for veterans to benefit from improved access. Under the
    guidelines of this decision, VA will develop a national plan for
    directing resources where they are most needed; preserving VA's mission
    and special services; and, at the same time, continuing to provide
    high-quality care to more veterans in more locations.
        My decision includes the development of an additional 156 CBOCs and
    calls for taking advantage of all opportunities to purchase contract
    care more effectively. VA will also continue to work with DOD to
    improve sharing to enhance benefits and services to veterans, service
    members, and their dependents, while improving use of taxpayer
    resources.
        Successful implementation of CARES will rest in large part in VA's
    ability to effectively manage its vacant and underutilized space. In
    the last 10 years VA has made numerous changes to the enhanced use
    lease process. It is critical that VA continue to improve its
    capabilities. A cross-organizational team has made recommendations to
    further improve the timeliness and effectiveness of the EUL process.
    Through CARES VA expects to reduce its current vacant and underused
    space by 42 percent by 2022.
        Overall, the comprehensive restructuring of VA health care will
    improve the way VA delivers care. I wish to emphasize that health care
    services for veterans will not be reduced.
        Question. Lastly, under the Veterans Health Care, Capital Asset,
    and Business Improvement Act of 2003, the VA is required to prioritize
    its CARES projects based on six criteria. The first and most important
    criterion is that the project replaces or enhances a project that is
    expected to close. I believe that this criterion helps ensure there is
    continuity in service for veterans. Do you agree?
        Answer. I agree that the criterion will help assure continuity of
    service to veterans. It has always been a major tenet of the CARES
    process that no realignments, closures, or other changes be made to VA
    health care services in a particular locale without first ensuring the
    continuation of these services, whether through other VA facilities or
    through contracts with other health care providers in the community.
        Moreover, to ensure compliance with the law while implementing my
    decision on CARES, VA will use its existing capital development process
    to revise the weights of its criteria so that patient and employee
    safety concerns are ranked as the second most important factor in
    consideration for construction funding. This process will be completed
    in time to be operative for submission of VA's 5-year capital plan,
    scheduled for this month.

                   TRANSITIONAL PHARMACY BENEFIT (TPB) PILOT

        Question. Mr. Secretary, I commend you for implementing a pilot
    program that allows veterans to fill privately written prescriptions at
    the VA. Under the Transitional Pharmacy Benefit (TPB) program,
    preliminary data indicates that 8,298 or 20 percent of the 41,167
    eligible patients have participated in the program.
        To what degree has the program help reduce the waiting list?
        Answer. The TPB program was designed to provide prescription drug
    services to veterans on the waiting list to ease the burden of out-of-
    pocket prescription drug expenses for veterans whom we were not able to
    serve within 30 days of the appointment request. We have no data
    explicitly linking the TPB program with system-wide reductions in the
    waiting list.
        Question. When the VA originally announced this program, it
    estimated that over 200,000 veterans would be eligible to participate
    but now only 41,000 are eligible. Why has this number changed so
    drastically?
        Answer. Throughout the TPB program development period, various
    eligibility policy options were considered, each of which impacted the
    potential pool of eligible program participants. The number of 200,000
    veterans represented the best estimate available at the time the
    program was initially being developed.
        For example, as data refinements were made, some of the 200,000
    patients originally included in the estimate were found to already have
    had medical care appointments and were excluded. Similarly, another
    portion of the original 200,000 projected patients were found to
    already have received prescriptions from VA and were excluded. More
    detailed explanations of the gradual reduction in eligibility numbers
    can be found in the VA Office of the Inspector General's (OIG) report
    on the program entitled Evaluation of VHA's Transitional Pharmacy
    Benefit.
        Question. What was the original cost estimate of the program? What
    is your most current cost estimate of the program? How much money have
    you saved in administrative costs by streamlining the process in
    obtaining prescription drugs?
        Answer. An early cost estimate for the TPB program (i.e., before
    final policy decisions reduced the pool of eligible participants from
    200,000 to 41,000) was $59 million. Program costs through the first 20
    weeks have been calculated to be $4,183,167 ($915,126 in estimated
    administrative costs and $3,268,041 in drug ingredient costs).
        The TPB program has increased, rather than decreased, the
    administrative prescription processing costs due to the increased labor
    requirements associated with contacting private physicians to discuss
    conversion of prescriptions to formulary items and other formulary-
    related issues.
        Question. Based on your preliminary findings, do you believe the
    program has been a success and do you think it should be expanded?
        Answer. For those patients who chose to participate in the TPB
    program, it clearly met its original intent of easing the burden of
    out-of-pocket prescription drug expenses for veterans whom VA was
    unable to serve within 30 days of their appointment request, and is
    therefore considered a success. In this regard, VA is not opposed to
    continuing to offer the TPB program to other patients so long as they
    continue to meet the original three eligibility criteria, which were
    the following:
      --they must have been enrolled in the VA health care system prior to
            July 25, 2003;
      --they must have requested their initial primary care appointments
            prior to July 25, 2003; and,
      --they must have been waiting more than 30 days for their initial
            primary care appointments as of September 22, 2003.
        Question. I have heard that some VA medical personnel opposed the
    implementation of this program. Anecdotally, some medical facilities
    may have taken some extraordinary steps to bring their waiting lists
    down so they did not have to implement the pharmacy program. For
    example, my staff heard that one hospital forced personnel to work
    overtime to see the patients on the waiting list. Is there any truth to
    these rumors? What steps were taken to ensure that the program was
    implemented in a fair and objective manner?
        Answer. As indicated in the Congressional hearing on the
    Transitional Pharmacy Benefit (TPB) on March 30, 2004, VHA has worked
    diligently and aggressively to reduce the list of patients on the wait
    list for their first clinic appointment and has demonstrated meaningful
    reductions in the wait lists. Many facilities extended clinic hours to
    nights and weekends, scheduled staff to work overtime, and/or hired
    additional staff to reduce appointment wait lists.
        The time period from the TPB program approval to implementation was
    compressed and VHA staff worked diligently to achieve the best possible
    program implementation in the time available for rollout. In order to
    encourage consistent system-wide program implementation, VHA took the
    following actions:
      --Prior to and during the TPB program rollout, VHA conducted a series
            of conference calls with pharmacy, eligibility, information
            technology, and other support staff to provide an overview of
            the TPB program and to provide detailed instructions for
            program implementation.
      --TPB program overviews were also provided to senior VISN and Medical
            Center clinical and administrative managers on separate
            conference calls.
      --Periodic program updates were provided to field staff via blanket
            e-mail messages from the pharmacy, information technology, and
            eligibility program offices. These messages also provided an
            electronic forum for field staff to discuss operational issues
            and or seek clarification on specific TPB implementation
            issues.
      --VHA also monitored waiting lists and facility specific TPB
            participation to track program participation, cost and
            utilization trends.
      --VHA established a website with TPB reference and educational
            information geared to VA staff, patients and private sector
            providers.

                                ACCESS STANDARDS

        Question. Mr. Secretary, I commend you for reducing the waiting
    list of veterans waiting more than 6 months for a medical appointment.
    I also commend you for prioritizing care for veterans with service-
    connected disabilities. Nevertheless, I remain concerned about
    veterans' access to health care. Despite the establishment of access
    standards since 1995, the VA has not been required to meet them. In
    fact, the President's Task Force to Improve Health Care Delivery for
    Our Nation's Veterans found that ``there is persistent concern about
    the inability of VA to provide care to enrolled veterans within its
    established access standards.''
        Do you believe that the VA should be required to meet its access
    standards? What steps have you taken to hold VA staff accountable for
    meeting the Department's access standards?
        Answer. Yes, VA will continue to meet its access standards and use
    all necessary resources and private-sector initiatives to assure that
    our veterans receive needed care in a timely manner.
        VA holds staff accountable for meeting the Department's access
    standards through performance contracts. The fiscal year 2004
    performance contracts include a combination of standards for access.
    They are combinations of responses from veterans through surveys on how
    long they waited and percentages of appointments within 30 days of the
    Veteran's desired appointment date for veterans requesting the next
    available appointment.

                                 WAITING TIMES

        Question. The VA has established a goal of seeing 93 percent of all
    patients within 30 days and in fact, the VA is actually seeing almost
    94.5 percent of all patients within this period. However, the VA's most
    recent data indicates that 48 percent of new patients are being seen
    within 30 days.
        First, does the VA independently verify the accuracy of its wait
    time data? Is it possible for some medical centers to game the system?
        Answer. The General Accounting Office (GAO) audited VA wait times
    in 1999-2000 and most recently in VISNs 6 and 9. Veterans receiving VA
    care are also surveyed about their experience accessing our system. We
    also track complaints on access. All three sources give an independent
    check on our internal wait time calculations. In addition, our wait
    time numbers are trended, and variances between what is reported and
    what is expected are singled out for review with leadership.
        The Under Secretary for Health (USH) read a memo on March 26, 2003,
    to senior VHA leadership stressing his expectations of the highest
    managerial and ethical practices when reporting wait times. The Acting
    USH recently sent an e-mail to all employees regarding ethical conduct
    and the need to report unethical practices to include ``gaming.'' The
    Acting USH asked staff to e-mail him directly if other channels of
    reporting fail. The VA IG also independently evaluates waiting times.
        Question. Second, what is the reason for the poor access rate for
    new patients? Does this poor access rate include new Priority 1-6
    patients?
        Answer. New patients typically request the next available
    appointment date. Established patients typically request follow-up
    appointments. It is easier to balance supply and demand for established
    patients who need to be followed up at predictable dates in the future,
    than it is to balance supply and demand for new patients who request
    the first unscheduled appointment available.
        The 48 percent of new patients seen within 30 days (referenced in
    your previous question) may include Priority 1-6 patients; however,
    facilities are reviewing their appointment logs to see service
    connected veterans within 30 days. VA is able to take care of its
    established patients in a reasonable time frame. Veterans waiting for
    an initial appointment have more extended waits. VA's continued growth,
    difficulty recruiting, lack of a physician pay bill, and geographical
    variances all account for the access issues with new patients.
        Question. Lastly, your data indicates a wide variance among the
    networks on access rates. What are the reasons for this performance
    variance? Do you believe VA's performance needs to be more consistent
    across networks?
        Answer. Veterans' demand for services is increasing at different
    rates between networks. VA operates as a national health care system
    and is working on implementing its Advanced Clinic Access program to
    improve access and make office practice efficiencies. While some
    networks will lag behind others in implementing Advanced Clinic Access
    changes, it is ultimately the uneven growth in demand across VISNs that
    results in inconsistent performance.

                                 CARES--GENERAL

        Question. Mr. Secretary, the CARES Commission released their report
    to you on February 12, 2004 and you are now reviewing the report. The
    report includes a wide range of recommendation covering individual
    medical facilities and broad health care issues.
        First, do you have any general concerns about the Commission's
    recommendations? For example, do you have any concerns that the
    Commission consistently applied its guiding principle of reasonableness
    to every location? Do you believe the Commission's recommendations were
    adequately supported by benefit and cost information?
        Answer. It is my belief that the Commission did a magnificent job
    in providing a consistent level of reasonableness and fairness in all
    of its recommendations, given the enormity of the task I set before the
    Commission and the relatively short time it had to produce its report.
    I have every confidence that they had access to and made optimal use of
    the best data available, including cost and benefit information. I
    cannot commend them enough for their valuable contribution to this
    effort.
        Question. Second, do you plan to accept or reject or modify the
    Commission's recommendations in their entirety or on an individual
    basis?
        Answer. I released my decision on May 7, 2004, and have shared it
    with the Committee. I have formally accepted the CARES Commission
    Report although I will use the flexibility it provides to minimize the
    effect of any campus or service realignment on continuity of care to
    veterans.
        Question. The Commission recommended the creation of a separate
    entity that would be charged with the disposition of VA's excess
    properties and land. What are your thoughts on this recommendation?
    Does the VA have the current capacity to carryout this disposition
    function in an efficient and cost-effective manner?
        Answer. The CARES Commission recommended that the Department ensure
    that efficient processes are in place for property disposal and that
    sufficient expertise is available, including the use of private sector
    professionals. As indicated in the question, the Commission suggested
    that perhaps a separate organization might be created. We agree that
    processes and procedures need to be in place to support timely
    disposal. This area of expertise is within VHA's Office of Facilities
    Management and in the Office of the Assistant Secretary for Management,
    of which both utilize private sector services. Both of these elements
    are provided legal support by the Office of General Counsel. A cross
    organizational team has made recommendations to further improve the
    timeliness and effectiveness of the enhanced use lease process. These
    recommendations include delegating authority within appropriate
    thresholds to newly created Chief Asset Manager and Chief Logistics
    Officer at the regional area. VA will also increase real property
    management expertise at the VISN level, and ensure VA personnel have
    access to the financial, legal, and marketing expertise to manage
    complex real estate projects.
        The Department does not presently have the authority to directly
    dispose of property except in very limited situations. Most disposals,
    if not legislatively directed, are through the General Services
    Administration, who handles the real estate aspects of the transaction.
    There have been few disposals historically. The extent to which
    organizational changes might be beneficial will depend on whether VA
    receives the authority to dispose of property and the volume of
    disposals

                               CLAIMS PROCESSING

        Question. Mr. Secretary, I commend you for the substantial
    improvement in reducing the processing times for compensation and
    pension claims. I am, however, concerned about the proposed budget
    reductions in the administration's request when the VA expects a
    projected workload increase. I am especially concerned about the
    Department's ability to meet the workload resulting from the partial
    ban on ``concurrent receipt'' and returning veterans from the War in
    Iraq.
        Are these legitimate concerns? Can the VA adequately handle its
    projected workload despite the proposed staffing reductions in the
    budget request?
        Answer.

    ----------------------------------------------------------------------------------------------------------------
                                                                       2004 Estimate   2005 Estimate    Difference
    ----------------------------------------------------------------------------------------------------------------
    Compensation Direct FTE.........................................           6,035           6,040              +5
    Pension Direct FTE..............................................           1,451           1,230            -221
    ----------------------------------------------------------------------------------------------------------------

        VBA's primary compensation and pension (C&P) claims processing
    goals for fiscal year 2004 are to reduce the rating inventory to
    250,000 claims, improve rating timeliness to 100 days, and increase the
    quality of rating claims processing to 90 percent. An inventory of
    250,000 claims will represent a normal workload without an associated
    backlog. With its workload under control as we enter fiscal year 2005,
    VBA will be able to maintain optimal performance despite a decrease in
    personnel.
        Over the past several years, we have implemented a number of
    initiatives that will help us sustain our improved performance into
    2005 and beyond:
      --Since 2001, VBA has added 1,800 decision makers in the C&P business
            lines. As these new employees have gained proficiency in their
            duties, VBA's performance has dramatically improved.
      --Specific performance priorities, including station inventory,
            timeliness, and quality levels, have been incorporated into the
            Regional Office Directors' Performance Appraisal Plan since
            fiscal year 2002. Additionally, national performance plans were
            effected 2 years ago for the key technical positions of
            Veterans Service Representative, Rating Veterans Service
            Representative, and Decision Review Officer. Individual
            productivity and quality requirements are included in each of
            these plans.
      --In its May 2002 report, the VA Claims Processing Task Force noted
            that the work management system then in place contributed to
            inefficiencies in claims processing. As a result, a new model
            was instituted nationwide at the end of fiscal year 2002. It
            reengineered work processes to reduce the number of tasks
            performed by decision-makers, and incorporated a triage
            approach to incoming claims. The efficiencies gained through
            this reorganization are evident in VA's continued performance
            improvements.
      --Three Pension Maintenance Centers were established in fiscal year
            2002 to consolidate this very complex, labor-intensive
            component of VBA's workload. This consolidation is now complete
            and has resulted in a streamlined pension maintenance process
            requiring fewer resources.
      --The proposed pension staffing reductions also include employees
            adjudicating the remaining pension work. Public Law 107-103,
            the Veterans Education and Benefits Expansion Act, eliminated
            the need for rating decisions for certain categories of pension
            claimants, thereby reducing the amount of work and time
            required to process these claims.
      --In 2003, responding to a court decision that invalidated a VA
            regulation to the extent that it permitted the Board of
            Veterans' Appeals to consider evidence not already considered
            by the agency of original jurisdiction (AOJ), without remanding
            the case to the AOJ for initial consideration or obtaining the
            claimant's waiver of the right to initial AOJ consideration,
            VBA established the Appeals Management Center (AMC). Rather
            than sending remanded claims back to regional offices, the AMC
            develops these cases and makes decisions based on the evidence
            received. This enables regional offices to use their resources
            in other areas of claims processing.
      --New training tools and information technology (IT) applications
            have had a positive impact on worker productivity and quality.
            National training packages--particularly the Training and
            Performance Support System (TPSS)--facilitate consistent and
            thorough training nationwide, increasing employee proficiency
            more quickly and improving the quality of work.
      --Programs such as Rating Board Automation (RBA) 2000, Modern Award
            Processing, and SHARE have automated processes previously
            performed manually, hence accelerating many aspects of claims
            adjudication and avoiding some of the errors inherent in manual
            processing.

                                 VISN STRUCTURE

        Question. The President's Task Force (PTF) found last May that the
    VA's veterans integrated systems network (VISN) structure ``resulted in
    the growth of disparate business procedures and practices.'' Further,
    the PTF's report stated that the ``VISN structure alters the ability to
    provide consistent, uniform national program guidance in the clinical
    arena, the loss of which affects opportunities for improved quality,
    access, and cost effectiveness.'' Due to these findings, the PTF
    recommended ``the structure and processes of VHA should be reviewed.''
        Do you agree with the PTF's findings? If so, how have you responded
    to these findings? Do you believe the VISN structure needs to be
    altered?
        Answer. Recommendation 4.1 in the PTF Final Report indicated that
    the Secretaries of Veterans Affairs and Defense should revise their
    health care organizational structures in order to provide more
    effective and coordinated management of their individual health care
    systems, enhance overall health care outcomes, and improve the
    structural congruence between the two Departments. We agree that more
    effective coordination between the two Departments is desirable, but we
    also recognize the difficulties in coordinating activities between two
    structurally different organizations. However, both VHA and DOD Health
    Affairs are working to improve coordination activities. Recently, VHA
    approved five new full-time equivalents to serve as liaisons with the
    three new TRICARE regions under T-Nex, with TMA headquarters in Aurora,
    CO, and with Health Affairs in Washington, DC.
        Although we are not averse to altering the VISN structure as
    necessity dictates, at this time, we have no plans to change it.

                                    RESEARCH

        Question. The budget request proposes a $21 million cut to the
    medical and prosthetic research account. Further, there has been some
    controversy on proposed changes to VA's research programs.
        What is the justification for this proposed reduction? Is the
    Office of Research still pursuing changes to its research agenda so
    that its programs will more directly benefit veterans?
        Answer. VA's medical and prosthetic research program contributes
    significantly to veterans' health care, and the program enjoys the full
    support of the Department. Fiscal constraints for all non-Defense/
    Homeland Security programs forced careful evaluation of all facets of
    health care delivery to ensure that the Department proposed a fiscally
    responsible budget that addressed veterans' needs. In addition, VA
    believed that it would be able to offset the reduction with
    reimbursements from pharmaceutical firms for the indirect costs
    associated with conducting research. Accordingly, VA determined that it
    could temporarily reduce appropriated research funding without directly
    harming its ability to recruit and retain physicians.
        The Office of Research and Development continues to evaluate its
    programs to ensure that they best serve the Nation's veterans. This on-
    going process began in the 1990's and has resulted in important medical
    discoveries that have improved veterans health and reduced medical care
    costs. The most recent program revision has resulted in increased
    emphasis on prosthetics and rehabilitation that addresses the long-term
    needs of severely wounded veterans returning from Southwest Asia.

                              CARES--CAPITAL COSTS

        Question. The Draft National CARES plan developed by the Under
    Secretary for Health included an estimate of the capital costs for
    implementing CARES. The CARES Commission, however, did not provide a
    capital cost estimate.
        Will you provide us a capital cost estimate for CARES for those
    recommendations you accept?
        Answer. As we build our fiscal year 2006 budget, we will assess
    what amount should be funded in fiscal year 2006 for CARES and estimate
    the outyear funding stream. Priority will be given to implementing the
    long-range plan identified in my May 7 CARES Decision Report; while
    recognizing that this plan must fit with the overall spending caps.
    Specific project information will be included in the forthcoming 5-year
    Capital Plan.

                             ACTIVITY-BASED COSTING

        Question. Some Federal agencies and private healthcare providers
    are using activity-based costing to analyze and break down the cost of
    a medical procedure, test, or service into cost information that can
    used to achieve financial and operational efficiencies. I am aware that
    the San Diego VA Medical Center is currently utilizing activity-based
    costing software in various lab departments.
        How well is activity-based costing software working at the VA San
    Diego Medical Center?
        Answer. The VA San Diego Healthcare System, Pathology and
    Laboratory Medicine Service (PALMS) is utilizing an activity based
    costing (ABC) software program as a supplement to DSS data as an aid in
    strategic and tactical management decisions. The laboratory began using
    this software as part of a beta-testing agreement about 3 years ago.
    There are several benefits to this type of cost analysis, including
    improved identification of high-cost components to laboratory tests,
    data-driven decision-making, and more accurate budget projections.
    While utilization of this software is still in the development phase in
    this facility, we feel that full implementation would realize decreased
    costs for the laboratory services provided.
        There are many benefits associated with activity based costing in
    general, however the following specific information will address the
    particular software that has been in use at the VA San Diego. The ABC
    software provides a very specific breakdown of costs associated with
    each product (test) performed. This allows management to identify
    outliers and implement improvements to reduce overall cost.
    Additionally, this functionality aids in ensuring the accuracy of
    costing information, such as labor, supply, and overhead allocations.
    This program has the ability to ``simulate'' increases in workload or
    changes in methodology and recalculates the projected costs. Based on
    this information, PALMS can make determinations regarding increasing or
    decreasing sharing agreements, new equipment purchases, or utilizing
    contract services or laboratories. The costing information is virtually
    real time, compared to the current method, which has a lag time of one
    quarter to demonstrate operational changes. Some additional benefits
    include the ability to benchmark against comparable laboratories and a
    budgeting module. The budgeting module utilizes current costs and
    expenditures, but also provides for projected changes in workload or
    methods.
        The full implementation of activity based costing in the laboratory
    would aid in reducing costs, improving financial efficiency, and
    improving the accuracy of current costing methods. This facility
    currently performs laboratory testing for veteran patients, local area
    healthcare facilities, Department of Defense, and various research
    studies. The ABC software would insure external customers are charged
    appropriately for services rendered and decisions to expand external
    sharing are data-driven and justifiable.

                              VA-DOD COLLABORATION

        Question. For several years, there have been numerous efforts to
    promote health care collaboration between the Department of Defense and
    the VA. Most recently, the Bob Stump National Defense Authorization Act
    for fiscal year 2003 directed DOD and VA to establish a joint program
    to identify and provide incentives to implement, fund, and evaluate
    creative health care coordination and sharing initiatives between the
    two departments.
        Can you give us a status and any initial findings in implementing
    this new program?
        Answer. The Treasury account required by the law has been
    established, and the $15 million contributions that each Department is
    required to contribute annually have been made. The DOD-VA Health Care
    Sharing Incentive Fund Memorandum of Agreement is being finalized for
    approval. On November 7, 2003, the Financial Management Work Group of
    the Health Executive Council (HEC) issued the first call for proposals,
    which were due in early January 2004. A work group of VA and DOD staff
    has completed its review of the 57 proposals submitted. The Financial
    Management Work Group approved 28 projects to advance to the second
    round of evaluations. Second round applicants are being asked to submit
    a business plan and a business case analysis by May 21, 2004. Final
    selections are not expected until this summer.
        The Incentive Fund has generated a lot of interest. Some of the
    lessons learned to date include:
      --VA and DOD partners need to coordinate early on their submissions.
      --Time frames for submission of proposals need to allow sufficient
            time to go through VA's and DOD's chains of command.
      --Corporate information technology activities and initiatives need to
            be better communicated to avoid development of submissions that
            are not congruent or duplicative with National projects or
            solutions.
      --Partners need to recognize that the Incentive Fund process does not
            supercede normal administrative requirements of either
            Department, which need to be factored into the time frames for
            submission of proposals. For example reviews by governing
            boards for purchases of major pieces of equipment still need to
            go through VA's and DOD's review boards.
                                     ______

                Questions Submitted by Senator Richard C. Shelby

                     COMPENSATION AND PENSION CLAIM PROCESS

        Question. Discuss the tools these programs--Virtual VA project;
    Compensation and Pension Evaluation Project; the Training and
    Performance Support Systems Project; and the Veterans Service Network--
    will give to improve the claims process, and does this budget help VA
    to accomplish our goals there?
    Virtual VA
        Answer. Virtual VA is an ongoing initiative designed to replace the
    current paper-based claims folder with electronic images and data that
    can be accessed and transferred electronically. It will provide a long-
    term solution to improving the quality of claims processing for
    veterans and their dependents through enhanced file management, a
    reduced dependency on paper, and increased workload management across
    the business enterprise. Virtual VA is currently being used to support
    the pension workload at three Pension Maintenance Centers
    (Philadelphia, Milwaukee, and St. Paul). The majority of the pension
    maintenance work has now been centralized to these three locations and
    we expect continued improvement in performance. Virtual VA also
    provides simultaneous access to pension documentation by VBA users and
    Veterans Service Officers across the country, allowing for immediate
    response to veterans' inquiries and improved levels of service. Through
    the use of Virtual VA at the Pension Maintenance Centers, we are
    learning how to optimize this valuable tool and intend to continue our
    deployment to other programs after its effectiveness is validated
    through pension maintenance processing.

    Compensation and Pension Evaluation Redesign (CAPER)
        CAPER is an ongoing initiative designed to improve services by
    enhancing the disability exam request and return process, as well as
    the disability evaluations process, across the Veterans Benefits
    Administration, the Veterans Health Administration, the Board of
    Veterans Appeals, and contract examiner organizations by using
    redesigned business processes and leveraging information technology
    wherever possible. CAPER will help standardize the quality of
    disability examinations and enhance the level of consistency of
    disability evaluations. Improvements in these processes will contribute
    to the overall timely delivery of disability rating decisions and
    awards, and improve the quality of rating decisions.

    Training and Performance Support Systems (TPSS)
        The Training and Performance Support Systems (TPSS) developed by
    the Veterans Benefits Administration (VBA) have two categories of
    products. Each category directly supports claims processing, but in
    different ways, as described below:
        Training.--Training modules (including performance tests and
    performance-based tests) train employees to perform critical claims
    processing tasks, such as ``Rate an original claim for compensation.''
    The specific benefit to claims processing is that the training
    produces, in a relatively short time frame, a highly trained employee
    who has passed performance tests and is known to be ready to perform
    the job.
        Performance Support.--Job aids and Electronic Performance Support
    Systems (EPSS) are tools that are used by both newly trained employees
    and by experienced employees to perform critical claims processing
    tasks, such as ``Process claims for helpless child benefits.'' These
    tools include work flows, medical information, and other key data. In
    general terms, the benefits are that the products increase employees'
    consistency and efficiency in doing their work by reducing the time
    required to research necessary information and prepare decisions and
    letters.

                                RESEARCH FUNDING

        Question. VA anticipates very large increases in the amount of non-
    VA Federal and private funding for VA researchers, $60 million and $50
    million, respectively, a 14 percent increase in non-VA sources. Why the
    sharp increase next year when you only anticipate a 4 percent increase
    this year? Is it really appropriate to put the VA in a position of
    depending on other agencies or the private sector to fund research
    important to veterans?
        Answer. VA based the estimate on actual previous year growth rates,
    which have averaged approximately 16 percent. Earlier estimates had
    been somewhat conservative and underestimated actual increases.
        In the months since VHA developed the estimates, two underlying
    assumptions have changed. VA will not receive NIH reimbursement for the
    indirect facility costs of conducting NIH-funded research, an amount
    estimated to be $50 million. In addition, NIH budget growth will be
    lower than expected, resulting in less growth in direct dollars from
    that organization.
        VA believes that funding for research should be a partnership
    between VA, other Federal research institutions, the medical and drug
    industry, and institutions of higher learning. Through this type of
    leveraged partnership of ideas and funding our veterans and society
    will best be able to reap the benefit of VA's direct investment in
    research. VA will continue to uses its appropriated dollars to ensure
    that the research most vital to veterans is funded. The Medical and
    Prosthetics Research budget provides the resources for VA's multi-site
    clinical trials, centers of excellence, and other initiatives that have
    dramatically increased the quality of health care while reducing
    patient costs. Moreover, appropriated funds provide the research core
    that enables our investigators to receive so much non-VA funding.
        Question. If VA research is funded at the requested level, what
    areas of research will be cut?
        Answer. All currently funded projects will continue, but VA will
    have to reduce the number of new projects funded in fiscal year 2005 by
    approximately 120 or 35 percent. No specific areas of research will be
    cut. Under the proposed budget, VA will be forced to lower the priority
    cut-off score to 12 instead of a priority score of 18.5 used this year,
    causing VA to fund a smaller portion of the relevant and scientifically
    rigorous proposals.
        Question. If provided with additional funding, what areas of
    research would VA add or expand?
        Answer. An increase of $65 million in direct research funding would
    allow VA to expand its research portfolio above the fiscal year 2004
    level. In particular, VA would be able to expand research into
    innovative new approaches to limb loss, prosthetics and tissue
    replacement for severely wounded veterans returning from Iraq and
    Afghanistan.

        VA/DOD CONCURRENT DISABILITY PAYMENT AND COMBAT-RELATED SPECIAL
                                  COMPENSATION

        Question. To what extent is the Department of Veterans Affairs (VA)
    working with Department of Defense (DOD) to implement the concurrent
    disability payment and combat-related special compensation (CRSC)
    programs?
        Answer. The coordination and support VA provides to DOD for
    Concurrent Retired and Disability Pay (CRDP), or ``concurrent
    receipt'', is primarily in the area of data sharing. The military
    service finance centers, DOD, Coast Guard, and Public Health Service
    provide VA with monthly recertification tapes of all retirees verified
    to be eligible to receive CRDP. VA updates the tapes by annotating any
    changes in the combined disability evaluation, individual
    unemployability indicator, rate of compensation, and effective date of
    change. VA and these payment centers are having ongoing discussions on
    ways to improve the process. One result of this exchange is that VA has
    clearly identified the data needs of the military payment centers in
    the development of the VETSNET application.
        VA coordination and support provided to DOD for the combat-related
    special compensation (CRSC) program include the following major
    activities:
      --VA has contracted with a vendor to image pertinent records from VA
            claims folders to assist CRSC boards in making their
            determinations. As of April 1, 2004, almost 6,700 requests for
            records have been centrally requested under the contract.
      --Local regional offices have copied records for hundreds of
            individual retirees to assist them in completing their
            applications.
      --Remote access to VA's benefits systems has been provided to DOD
            Boards and is being provided to the Coast Guard and Public
            Health Service.
      --The VA Compensation and Pension Service has provided several
            training sessions, beginning with an initial 3-day session to
            Board members to assist them in understanding our data systems
            and the records being provided to them. VA has conducted
            additional training on issues such as special monthly
            compensation and individual unemployability. The staff also
            provides data on specific retiree claimants in emergency
            situations, and provides assistance to specific Boards when
            they have questions.
      --VA provides on-going data exchanges on disability evaluations and
            effective dates of any changes for all disabilities.
      --VA has identified the needs of DOD for administering CRSC. These
            needs will be addressed as VETSNET progresses to ensure that
            there is no disruption in the information flow when conversion
            to VETSNET is underway.
                                     ______

                Questions Submitted by Senator Pete V. Domenici

                                   TELEHEALTH

        Question. Mr. Secretary, as you know, I have long been interested
    in providing enhanced access to medical care for our rural veterans.
        Establishing more community based outpatient clinics is one way
    Congress and the VA have worked together to reach out to rural
    veterans. In fact, my home State of New Mexico now operates 11 such
    clinics for rural veterans.
        I believe Congress and the VA should also work together to improve
    the use of technology for serving rural veterans. In particular, I
    believe we can do much more in the area of telehealth and telemedicine
    for disease management and enhanced care for veterans in remote areas.
        What is the current state of VA's telehealth program?
        Answer. VA is recognized as a leader in the field of telehealth.
    VHA previous Telemedicine Strategic Healthcare Group has been
    incorporated into a new Office of Care Coordination (OCC) and the term
    telehealth is increasingly being used in VHA rather than telemedicine.
    These changes recognize that implementing telehealth is more than a
    technology issue it involves embedding telehealth and other associated
    technologies directly into the health care delivery process and that it
    now involves many different professionals. VA is undertaking telehealth
    in 31 different areas. OCC is supporting all these areas but
    particularly focusing on those where there is particular need and is
    therefore designating lead clinicians in the areas of telemental
    health, telerehabilitation, and telesurgery. VA is formalizing guidance
    for the development of telehealth, with a particular emphasis on the
    community based outpatient clinic in relation to major areas of veteran
    patient need. This has commenced with:
      --Tele-mental health
      --Teledermatology
      --Telesurgery (enabling remote pre-op and post-op assessments)
      --Teleretinal Imaging for diabetic retinopathy
      --Telerehabilitation
        Teleradiology is a major associated area of need where VA is
    seeking to work to bring resources at a local level into an
    interoperable infrastructure and create a national system. Such a
    system, if developed, will enable sharing of resources and acquisition
    of services when local difficulties with recruitment and retention of
    radiologists create challenges to delivering this care. OCC is working
    to support VHA's Chief Consultant for Diagnostic Services in this
    endeavor and to make sure that the various areas of telehealth practice
    harmonize with respect to important processes e.g., credentialing and
    privileging. This will facilitate working with the Department of
    Defense.
        Care coordination in VA involves the use of innovative technologies
    such as telehealth, disease management, and health informatics to
    enhance and extend care. VA is implementing a national care
    coordination program that heralds a marked expansion in telehealth
    across the system.
        In recognition of the demographics of the veteran population and
    the rural and underserved areas in which veteran patients often live VA
    is placing a particular emphasis on developing care coordination that
    uses home telehealth technologies. The rationale for this program is to
    support the independent living of veterans with chronic diseases
    through monitoring of vital signs at home e.g., pulse, blood pressure,
    etc. at home. A piloting of this care coordination/home telehealth
    (CCHT) program demonstrated very high levels of patient satisfaction
    and reduced the need for unnecessary clinic admissions and
    hospitalizations. For example, by monitoring a heart failure patient at
    home it is possible to detect any worsening of the condition when there
    is breathlessness and weight gain. Early detection in this way means
    medication can be adjusted and the problem resolved rather than have
    the patient deteriorate unnoticed and require admission to hospital in
    extremis at risk of dying, and often necessitating an intensive care
    unit admission.
        VA is creating a national infrastructure to support the safe,
    effective, and cost-effective use of home-telehealth technologies by
    veteran patients wherever they reside.
        Because the support of a patient at home usually requires a
    caregiver in the home OCC is paying attention to caregiver issues and
    working on this collaboratively with other organizations and agencies,
    as appropriate.
        Question. What legislative initiatives would you recommend to
    improve both telehealth and telemedicine programs?
        Answer. At this time we have no specific legislative proposals to
    recommend.
        Question. It is my understanding that VA is implementing a
    telehealth pilot project to provide medical services to veterans in
    remote parts of eastern New Mexico. Can you describe how the pilot will
    be implemented and how it will help our veterans receive better care?
        Answer. VA is implementing a telehealth pilot to provide medical
    services to patients in remote parts of VISN 18. Telehealth is remote
    patient case management using devices located in the patient's home
    that connect to hospital staff via a normal phone line. The patient
    responds to short, disease-specific questions each day. The devices may
    also be used to transmit vital signs and medical information to
    hospital staff monitoring the daily reports. Hospital staff can send
    patients reminders, tips, and feedback on their progress. Telehealth
    enhances veteran health care because it allows for earlier intervention
    and enhanced veteran self-care and self-assurance. To begin, selected
    patients with congestive heart failure and chronic obstructive
    pulmonary disease will receive telehealth care in their homes. Now that
    VA Central Office has released equipment funding and equipment can be
    contracted for, implementation will begin with the Geriatric Clinic and
    the Spinal Cord Injury Clinic in Tucson, Arizona, followed by their
    Primary and Medical Care teams. Then the pilot will be expanded to
    Amarillo VA Health Care System patients. Amarillo will start enrolling
    medical center patients with congestive heart failure and chronic
    obstructive pulmonary disease for care coordination in Phase One. When
    this is operational, Phase Two will begin to enroll patients with these
    same diseases at the Clovis, New Mexico, and Lubbock, Texas, community
    based outpatient clinics. VA anticipates that Phase Two will occur in
    fiscal year 2005.
        Question. Are telehealth and telemedicine programs being designed
    to allow for participation by joint venture partners such as the
    Department of Defense?
        Answer. VA has explored, and will continue to explore, all
    opportunities to partner with the Department of Defense and other
    Federal agencies as it develops its telemedicine and telehealth
    programs. This is important to patients, maximizes the return on
    Federal investments in technology, and enables standards to be set in
    this emerging area of technology.
        VHA's partnerships with DOD include:
      --The AHFCAN program in Alaska (a congressionally mandated cross
            Federal program),
      --The Telemedicine Hui in Hawaii (a congressionally mandated cross
            Federal program),
      --Teleradiology with the Navy at Great Lakes Naval Recruiting Station
            in Chicago,
      --Teleretinal imaging for diabetes care in Boston, Maine and Hawaii,
      --Developing credentialing and privileging standards for
            telemedicine/telehealth that were used by the Joint Commission
            for Health Care Organizations in formulating their standards in
            this area.
        To foster possible VA/DOD collaborations VA regularly engages with
    DOD telemedicine/telehealth colleagues at:
      --An inter-service DOD working group on telehealth that VHA attends
            Telehealth Working Integrated Project Team (TH W-IPT),
      --The Joint Working Group on Telehealth--a cross-Federal group that
            VA and DOD both participate in,
      --VA and DOD participation at the American Telemedicine Association
            industry briefings each fall.
        As a recent example of VA/DOD collaboration, on February 12, 2004,
    VA presented a satellite broadcast on telesurgery to VA clinicians
    nationwide in partnership with the U.S. Army's Telemedicine and
    Advanced Technologies Research Center (TATRC). VA's chief of surgery is
    currently working with TATRC on joint developments involving
    telesurgery.

                                MEDICAL RESEARCH

        Question. Investments in research projects at VA have led to a
    number of promising advances in our understanding of diseases and
    medical conditions. These include breakthroughs in areas such as spinal
    cord and prosthetic research.
        Can you describe some of the current trends in VA medical research
    and tell us where we might expect some new breakthroughs in the near
    future?
        Answer. VA continues to maintain strong research portfolios in its
    core competencies. These include mental health, clinical trials,
    substance abuse, spinal cord injuries, and Post-Traumatic Stress
    Disorder (PTSD). In addition, VA is placing increased emphasis on
    prosthetics and rehabilitation for survivors of combat trauma wounds,
    Gulf War Illnesses and other deployment health issues, vaccine
    development, and responses to emerging pathogens.
        While new breakthroughs are difficult to predict, VA is excited
    about several promising developments. An ongoing Cooperative Studies
    Program (CSP) clinical trial using deep brain stimulation offers great
    hope for those suffering from Parkinson's disease. The study is
    comparing best medical therapy to deep brain stimulation for improving
    motor symptoms as well as determining the optimum brain area to
    stimulate.
        Another multi-site trial is examining whether intensified blood-
    sugar control and management reduces major vascular complications that
    lead to most deaths, illnesses, and treatment costs for type II
    diabetic patients. If successful, the study would lead to quality of
    life improvements to all type II diabetic patients as well as
    significant cost reductions to VA, Medicare, and other health care
    organizations.
        An upcoming Amyotrophic Lateral Sclerosis (ALS) trial will test the
    effectiveness of two butyrate compounds in reducing and retarding the
    devastating affects of the disease. Research involving animal models
    has shown the ability of both compounds to slow the progression of ALS
    and improve quality of life. Currently, the most effective ALS
    medication prolongs life approximately 4 months without providing
    significant quality of life improvements.
        Question. Please talk about how VA's collaboration in medical
    research with other government agencies and universities is improving
    the quality of life of our veterans.
        Answer. Collaboration with other agencies and organizations has
    contributed greatly to the effectiveness of VA's research program. VA
    investigators annually receive research grants from non-VA sources
    totaling more than $700 million, supplementing the Medical and
    Prosthetic Research and Medical Care appropriations. These funds permit
    VA to address better the many conditions affecting the veteran
    population.
        Collaborative efforts permit VA to access the expertise and skills
    of non-VA researchers at other government agencies and universities.
    These collaborations benefit both VA and its partners by maximizing
    intellectual and budgetary economies of scale. In particular, VA is
    collaborating with the National Institutes of Health on a variety of
    clinical trials that address many conditions.

                       COMMUNITY BASED OUTPATIENT CLINICS

        Question. Mr. Secretary, veterans from rural States continue to
    benefit from the use of community-based outpatient clinics.
        Occasionally, however, we hear concern from rural veterans about a
    lack of adequate numbers of medical staff at these clinics.
        Please describe what steps VA is taking to address staffing
    shortfalls that exist at rural clinics.
        Answer. Given the variation in increased workload around the
    system, many sites are experiencing an increase in demand for services.
    This may result in increasing waiting times and veterans waiting for
    their first appointment to primary care. Efforts to address staffing
    shortfalls, as well as the increased wait times that they may engender,
    include the following initiatives:
      --incorporating Advanced Clinic Access concepts;
      --hiring new providers when available in the local community;
      --recruiting additional providers;
      --contracting/fee basis care;
      --continued education of clerks to avoid scheduling errors;
      --expanding CBOC contracts;
      --improving consult management;
      --establishing nurse-directed, pre-screening clinics for new
            patients;
      --maximizing clinic scheduling efficiency;
      --increasing access to specialists through telemedicine; and
      --reviewing data and feedback of data to providers.
        Question. What incentives does the VA provide or could it provide
    to recruit health professionals to rural areas?
        Answer. VA is currently awaiting action on the Physician Pay Bill,
    which would allow VA to be more competitive in the market for
    recruiting physicians to work within VA. This is especially true for
    specialty physicians which VA has difficulty recruiting. VA also has
    before Congress a legislative proposal allowing enhanced flexibility in
    scheduling tours of duty for registered nurses. The ability to offer
    compensation, employment benefits, and working conditions comparable to
    those available in their community is critical to our ability to
    recruit and retain nurses, particularly in highly competitive labor
    markets and for hard-to-fill specialty assignments.
                                     ______

                 Questions Submitted by Senator Robert C. Byrd

     CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES) REPORT PROCESS

        Question. Secretary Principi, according to the VA Congressional
    Liaison Office this past February, you were expected to make a decision
    on the CARES Commission's recommendations within 30 days of your
    receipt of the CARES report on February 13, 2004. Further, according to
    the Federal Register of August 20, 2003, you will either accept or
    reject the Commission's recommendations, without modification, although
    Chapter 1 of the CARES report indicates that you could also decide to
    ask for additional information. Obviously, your goal of making a
    decision within 30 days of your receipt of the CARES report has been
    not been met.
        When will you be making a decision on the CARES Commission's
    report? Are you currently seeking additional information on specific
    recommendations contained in the report? If so, please identify the
    specific recommendations for which you are seeking more information.
        Answer. My decision was released May 7, 2004. I sought no
    additional information on specific recommendations of the CARES
    Commission.
        Question. Is it your intent to either accept or reject the
    Commission's recommendation, without modification, in accordance with
    the Federal Register?
        Answer. I have formally accepted the CARES Commission Report
    although I will use the flexibility it provides to minimize the effect
    of any campus or service realignment on continuity of care to veterans.
        Question. If you reject the CARES Commission's report, how will the
    vast data and information collected over a several year period for
    preparation of the CARES report be utilized?
        Answer. These data will form the foundation for addition data
    collection and analysis as the Department proceeds to implement the
    decisions reached in my decision document.
        Question. If you approve the CARES Commission's report, I
    understand that VISNs will prepare detailed implementation plans and
    submit them to the Secretary for approval, and then, later these will
    be refined and integrated into the annual VA strategic planning cycle.
    What is projected timeline for these activities based in fiscal years?
        Answer. In general, the implementation plans will be incorporated
    into the 2005 Budget Cycle and the 2006 and beyond Strategic Planning
    Cycle.

                   CARES REPORT: WARS IN AFGHANISTAN AND IRAQ

        Question. Secretary Principi, the CARES process began in October
    2000. Since then, the United States has become involved in wars in
    Afghanistan and Iraq, with hundreds of thousands of troops deployed
    overseas to participate in combat operations. In Iraq alone, more than
    3,000 Americans have been wounded. An unknown number of these troops
    will require long-term medical care from the Department of Veterans
    Affairs.
        The conduct of these two wars, which could yet extend for years to
    come, is creating hundreds of thousands of new veterans, all of whom
    will have some claim to service through the VA health care system.
        Secretary Principi, does the CARES process, which started before
    the United States became involved in an open-ended war on terrorism and
    a lengthy occupation of Iraq, anticipate providing services to these
    hundreds of thousands of new veterans? Could there be a need to revise
    the findings of the CARES Commission to accommodate these new veterans?
        Answer. I do not believe that the findings of the CARES Commission
    need revision to accommodate these veterans needs. At this time we
    believe that we can accommodate the needs of returning OIF and OEF
    veterans with the current resources of the VA health care system.
    However, we will continually monitor our resources in this regard to
    ensure that we do not fall short in providing them needed health care.

      CARES REPORT: OUTSOURCING OF INPATIENT SERVICES AT THE BECKLEY VAMC

        Question. I, along with my colleagues, Senator Rockefeller and
    Congressman Rahall, sent you the attached February 26, 2004, letter
    asking you to reject the CARES Commission's recommendation to eliminate
    the 40 hospital beds at the Beckley VA Medical Center. The
    recommendation, if approved, would require the 15,000 veterans who are
    enrolled to receive care at the Beckley VA Medical Center to either
    have their medical care contracted to 1 of 11 hospitals within an hour
    of Beckley or to travel to the nearest VA hospitals in Salem, North
    Carolina, and Richmond, Virginia. I received your response on March 24,
    2004, which did not address any of the issues we raised. I continue to
    be very concerned about the CARES Commission's recommendation
    pertaining to inpatient services at the Beckley VA Medical Center, and
    I would appreciate your specific responses to the questions posed
    below.
        Did the Commission contact each of the 11 accredited hospitals that
    the VA identified as alternatives to verify their ability to absorb the
    VA patients of the Beckley VAMC? If so, please provide the response of
    each hospital. If not, please contact them and provide their responses
    to me and to this subcommittee.
        Answer. The CARES Commission did not contact the community
    alternatives within 60 minutes of the Beckley VA Medical Center, as
    listed in Appendix D of the Commission's Report. The Commission
    identified and reviewed available data for alternative community
    resources for every VA medical center identified in the DNCP as a small
    facility. As part of that review, data indicated the types of services
    offered by the community resource, the number of staffed beds for the
    services, and the average daily census for those beds.
        The CARES Commission's charter expired on February 29, 2004. Should
    the Secretary accept the Commission's recommendation to discontinue
    services at a VA medical center, the Commission believes that the
    implementation and operational strategic planning processes would
    include collaborating and negotiating with community facilities to
    provide alternative medical care to veterans.
        Question. What considerations were given to the long and many times
    treacherous travel that elderly veterans who would normally rely on the
    Beckley VAMC for inpatient services will have to travel to reach Salem,
    North Carolina, or Richmond, Virginia, which is at least a 4-hour drive
    from Beckley?
        Answer. After due consideration, I have not found it reasonable to
    consider the closure of the inpatient medical beds at the Beckley VAMC
    for the foreseeable future.
        Question. What specific cost savings does outsourcing outpatient
    care from the Beckley VAMC to local hospitals offer?
        Answer. Outsourcing outpatient care was never a part of the small
    facility plan for Beckley, nor did the CARES Commission recommend it.
    In fact, the Commission recommended that Beckley retain its multi-
    specialty outpatient services. I concurred with this recommendation.

                              CATEGORY 8 VETERANS

        Question. The administration suspended new enrollments of Category
    8 veterans in January 2003. This means that veterans with higher
    incomes that do not have a service-connected disability may be denied
    service at VA hospitals, contrary to the intent of the Veterans Health
    Care Eligibility Reform Act of 1996.
        Secretary Principi, how much of an increase in VA health care funds
    would be needed to resume enrollments of Category 8 veterans?
        Answer. VA has determined that resumption of enrollment for
    Priority 8 veterans would require an additional $519 million in fiscal
    year 2005, growing to an estimated $2.3 billion in fiscal year 2012.
        Question. For how long does the administration anticipate rejecting
    new enrollments of Category 8 veterans?
        Answer. At this time, we are unable to project how long VA will
    continue the policy of not accepting the enrollment of new Priority 8
    veterans.
        The statute governing VA's enrollment system requires the Secretary
    to decide annually whether VA has adequate resources to provide timely
    health care of an acceptable quality for all enrolled veterans. Each
    year, VA reviews actuarial projections of the expected demand for VA
    health care in light of the expected budgetary resources and develops
    necessary policies to manage the system of annual patient enrollment.
    VA has not made a decision regarding reopening Priority 8 enrollment in
    fiscal year 2005, but will do so later this year. We must consider not
    only the impact of this policy in fiscal year 2005, but also the impact
    in future years.
        Question. Does the CARES Commission report anticipate that the
    suspension of new Category 8 enrollees will continue?
        Answer. The CARES Commission report assumed a continuation of the
    suspension of enrollment of new Priority 8 veterans.

                              SUBCOMMITTEE RECESS

        Senator Bond. Thank you very much, Mr. Secretary.
        Secretary Principi. Thank you, Mr. Chairman. It is always a
    pleasure.
        Senator Bond. We appreciate the discussions. I think they
    were very constructive.
        The hearing is recessed.
        [Whereupon, at 3:47 p.m., Tuesday, April 6, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                                  ----------

                            THURSDAY, APRIL 8, 2004

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:10 a.m., in room SD-628, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

    STATEMENT OF DAVID EISNER, CHIEF EXECUTIVE OFFICER
    ACCOMPANIED BY MICHELLE GUILLERMIN, CHIEF FINANCIAL OFFICER

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. The subcommittee will come to order. I
    apologize for the delay. I had to present to the Judiciary
    Committee the Missouri Supreme Court Judge who has been
    nominated by the President for confirmation to the Eighth
    Circuit Court of Appeals, and I apologize for delaying the
    start of this hearing. But this is a very important position,
    as I trust you understand.
        This morning the committee completes its budget hearing
    schedule for the year by hearing from the Corporation for
    National and Community Service on its fiscal year 2005 budget.
        It is a pleasure to welcome the Corporation's new Chief
    Executive Officer, Mr. David Eisner, who has been on the job
    for almost 4 months, a real veteran now. And we are also
    pleased to welcome back the Corporation's Chief Financial
    Officer and Acting Chief Operating Officer, Ms. Michelle
    Guillermin.
        I congratulate both of you on taking on new
    responsibilities, especially given the longstanding challenges
    that face the Corporation.
        For fiscal year 2005, the administration is requesting a
    total of over $1 billion for CNCS, of which $642.2 million is
    for programs under the VA-HUD subcommittee's jurisdiction. The
    request is $61.2 million or 10\1/2\ percent over the fiscal
    year 2004 enacted level. Further, the administration proposes
    some $452 million for the AmeriCorps program to support 75,000
    new members--the same level of participation supported under
    the 2004 enacted level.
        This is quite a healthy budget recommendation compared to
    most other domestic programs, including, regrettably, the
    programs under the VA-HUD jurisdiction. I am pleased that the
    administration provided such a strong budget for the
    Corporation and the AmeriCorps program. This year's budget,
    however, will probably be the most difficult and challenging we
    have faced, especially with record shortfalls in the budget
    request for other compelling and important programs, such as VA
    medical care, Section 8 housing, and the EPA's Clean Water
    State Revolving Fund programs. In fact, to be quite honest, I
    am not sure that the subcommittee can afford to increase
    funding for any program or activity until we have adequately
    funded these and other compelling programs.
        To say that the past year for the Corporation and its
    grantees was frustrating and stressful is, at best, an
    understatement. While I do not want to belabor the recent past
    or reopen old wounds, a lot can be learned from it and we must
    not forget these experiences so that we do not repeat them. The
    primary lesson is that management and fiscal accountability are
    important issues and have real consequences when neglected.
        Since the inception of the Corporation and the AmeriCorps
    program, the Corporation's leadership largely ignored these
    issues. While the Corporation has made efforts to address
    management failings and its leaders have made promises that its
    problems would be resolved, many of these previous efforts were
    largely window dressing and the promises mostly rhetoric. The
    sad result was that thousands of well-performing organizations
    and the communities they served suffered from mismanagement.
        Moreover, thousands of caring and compassionate individuals
    were denied the opportunity to participate in the program. I
    hope we do not repeat this lesson. I hope the Corporation and
    its supporters have learned from the history.
        But let us be clear. Not all is negative. Some good did
    result from the painful experiences of the past year. The most
    notable result was the increased awareness and support for the
    program among members of Congress and the public, which led to
    a record budget for the AmeriCorps program. The numerous media
    reports raised the profile of AmeriCorps volunteers and their
    very positive impact on the local communities throughout the
    Nation. Prior to the well-publicized problems of AmeriCorps,
    only a handful of members expressed any serious concern or
    attention to the program. Now, the program has the attention of
    most, if not all, members of Congress.
        Nevertheless, this is not the time to relax. Focus and hard
    work must continue on resolving the continuing management
    weaknesses of the Corporation. The Corporation must instill a
    culture of accountability and personal responsibility based on
    performance which is measured not in just program outcomes but
    also on sound management. For too long, the Corporation has
    been overly fixated on public relations and promoting its
    programs at the expense of management responsibility. To be
    blunt: the Corporation needs a serious paradigm shift.
        Fostering an environment where management and fiscal
    responsibility is taken more seriously must begin at the top.
    Mr. Eisner, your performance thus far has been impressive, and
    we commend you for the close attention and efforts you have
    made on management and accountability. I recognize that it
    helps to have an incredibly bright and hardworking CFO by your
    side, but I credit you for electing to be involved personally
    in these issues.
        The Corporation's Board of Directors, led by Chairman Steve
    Goldsmith, has also become actively engaged in the
    Corporation's management and policies. I especially appreciate
    the Board's approval of Resolution 2003-05, which directs the
    CEO to consult with the Board in advance of any Corporation-
    wide pay adjustments or cash awards. Hopefully, this action
    will ensure that the Corporation ends the practice of rewarding
    bad behavior, as demonstrated last year when significant cash
    awards were provided to senior level staff right after the
    AmeriCorps over-enrollment problem was uncovered; a problem
    that was a serious violation of the Anti-Deficiency Act.
    Certainly, it was not an appropriate time to award staff
    bonuses.
        In general, with Mr. Eisner and Ms. Guillermin's
    leadership, the Corporation appears to be headed in the right
    direction in terms of management and accountability and, with a
    robust budget recommendation for this year, the Corporation has
    an opportunity to expand significantly the AmeriCorps program.
    Nevertheless, I believe the Corporation is at a critical
    crossroads in terms of administering the AmeriCorps program.
    And I believe the direction the Corporation chooses will have
    long-term implications for the program.
        You have recently begun a major effort to improve the
    performance of the AmeriCorps programs through a rulemaking
    process. I think that process is long overdue, since the rules
    governing the AmeriCorps program lack clarity which contributes
    to some of the questionable funding decisions. These rules
    should provide the necessary framework for better oversight, a
    responsibility the Corporation previously has ignored.
        Further, the Corporation in the past has paid little
    attention to the long-standing concerns of the Congress about
    sustainability and reducing the costs per member. The
    Corporation's rulemaking goals are designed to bring a far
    greater degree of predictability and reliability for its
    grantees and to make the program more efficient, effective, and
    accountable. I support these goals and strongly urge the
    Corporation to complete rulemaking this year. I fear that if
    the Corporation does not complete it, the Congress may get
    involved, and that's bad news.
        The issue of most interest to me is sustainability. The
    2004 VA-HUD conference report directed the Corporation to
    undertake public notice and comment rulemaking to develop a
    definition of sustainability. I advocated the inclusion of this
    directive in the conference report because of my long-standing
    concern that the Corporation was not adequately compliant with
    the statutory goal of reducing AmeriCorps grantees' reliance on
    Federal funds. As noted by the Corporation's Office of
    Inspector General in 2001, the Corporation lacked a clear
    definition of sustainability. Accordingly, the OIG recommended
    that the Corporation establish a means of clearly measuring the
    grantee's reliance on Federal funding. Further, the OIG
    recommended the Corporation consider developing a performance
    goal for reducing grantees' reliance on Federal funds.
        Now, many AmeriCorps groups have expressed concerns about
    sustainability. And I agree with some of their concerns. For
    example, I do not believe in a ``one size fits all'' definition
    of sustainability. The Corporation should develop a flexible
    approach to sustainability so that it does not unfairly punish
    good performers or small, disadvantaged organizations--
    especially those in rural areas. The Corporation may need to
    consider a special set of rules for these types of
    organizations. Nevertheless, I am concerned about the
    ``entitlement'' mentality of some groups regarding AmeriCorps
    funding and believe that under certain circumstances, time
    limits on funding may be warranted. For example, time limits
    should be considered for some groups that receive significant
    funding support from other Federal sources.
        The Corporation should consider time limiting some types of
    organizations so that more organizations can compete for
    AmeriCorps funds. There are clearly more volunteer groups
    requesting funds than there are funds available. I strongly
    believe that the Corporation must ensure that the playing field
    for AmeriCorps funding is fair and equitable. As Senator
    Mikulski and I have observed, there are numerous, well-
    performing organizations that have approached us for AmeriCorps
    funding. I oppose earmarking the AmeriCorps account.
        I sympathize, however, with well-performing organizations
    that do not receive AmeriCorps funding. And that's why we
    created the Challenge Grants program. Not surprisingly, the
    Challenge Grants program has been popular, as demonstrated by
    the overwhelming demand for the Challenge Grants program. Last
    year, the Corporation received 52 applications requesting $31
    million out of an available pool of $6 million. In addition, 31
    of those organizations were first-time applicants to the
    Corporation. Further, the ability of the applicants to meet the
    program's 2 to 1 match requirement demonstrates that groups can
    successfully obtain private matching funds.
        If we assume flat funding or minor funding increases in the
    future for AmeriCorps, it is obvious that new groups in the
    future will have extreme difficulty competing for funds unless
    the rules are changed. And flat funding may be the reality for
    the next several years as Congress seeks to balance the budget
    and control deficit spending.
        In this case, funding problems may be especially troubling
    for up and coming organizations, such as those receiving Next
    Generation grants from the Corporation. The Next Gen program,
    as it is called, was created by Senator Mikulski to provide
    seed money to build the capacity of small volunteer
    organizations who have innovative ideas. This program has
    attracted a large number of applicants, as evidenced in the
    fiscal year 2003 cycle, where some 1,100 organizations applied
    for the program--more than any previous grant competition in
    the history of the Corporation. I fear that these groups may
    not be able to compete for AmeriCorps funds if the Corporation
    solely continues to fund the same organizations year after
    year.
        The other rulemaking issue of interest to me is reducing
    the costs of the program on a per member basis. I appreciate
    the Corporation's attention to this issue since its record on
    reducing the cost per member has been mixed at best. In the
    Corporation's budget justifications, it notes that its
    projected average cost per FTE for its AmeriCorps program is
    the same level as planned for fiscal year 2004. The Corporation
    also notes that its 2004 cost per member was 10 percent below
    the 2002 baseline. It was disappointing, however, to read that
    this reduction was not attributed to any program reform, but
    due to an increase in professional corps members whose costs
    are lower than the typical AmeriCorps grant.
        The last issue I raise is on performance measures. Despite
    millions of extra dollars that this committee has appropriated
    to address the Corporation's financial accounting and grants
    management system, the Corporation is still unable to provide
    data on the actual costs of the AmeriCorps program.
    Furthermore, the Corporation is unable to provide performance
    data on the impact of the AmeriCorps program.
        According to the administration's own Program Assessment
    Rating Tool or PART, the AmeriCorps program received an overall
    weighted score of 36 percent and rating of ``results not
    documented.'' The PART analysis found that the AmeriCorps
    program's current goals are neither specific nor measurable.
    The Corporation has begun a number of initiatives to address
    performance measures. And I cannot stress enough the importance
    of having this information for policy makers. And I would urge
    the Corporation to address this matter immediately.
        In closing, I support the President's Call to Service and
    believe that the Corporation can play an important role in
    improving the lives of many Americans and the communities it
    serves. Everywhere I have traveled, people have expressed a
    strong desire to volunteer and serve their communities and
    country. I strongly believe that if harnessed in the right
    fashion, the AmeriCorps program can reach new heights in
    improving the security and spirit of our citizens and
    communities.
        Mr. Eisner, Ms. Guillermin, I wish you the best and look
    forward to working with you in resolving the many challenges
    facing the Corporation.
        It is now my pleasure to turn to my colleague and ranking
    member, a longtime champion and advocate of the AmeriCorps
    program and the Corporation, Senator Mikulski, for her
    statement and comments.
        Thank you.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. I
    would like to welcome both Mr. Eisner, our new CEO, and Ms.
    Guillermin, the CFO of the Corporation.
        Last year, there were many things that impacted us. And at
    this very hearing a year ago, I said it was time to get
    National Service back on track, restore the shattered
    confidence of communities, volunteers, the private sector, and
    the Congress, in AmeriCorps.
        I wrote to President Bush and said out loud in the
    committee hearing that I wanted several things: First, I called
    for new leadership. I wanted reform of the Board and referred
    to it as the Enron of Non-Profits. In addition, I called for
    new accounting rules and procedures, because National Service
    had over-enrolled almost 30,000 more volunteers than it had
    money for. And I called for new funding to bridge the gap and
    also to meet the need, the number of volunteers, both America
    could use and the President wanted to do.
        I am pleased to say that we have made progress. And I
    wanted to welcome you, Mr. Eisner, and Ms. Guillermin, in a
    spirit of bipartisan partnership to exactly do that, to make
    sure that we have AmeriCorps on track and that it really
    fulfills the objectives of not like a program, but of a social
    movement.
        We really want to express our appreciation to Mr. Goldsmith
    and the Board. We believe that he did absolutely engage the
    Board and re-energized the Board. And I know that we have new
    members who could not be here today, but we look forward to
    other conversations with them.
        We want to alert you to the fact that five nominees for the
    Board continue to be at the White House. We believe many are
    ready to be returned to Congress. We would like you to work to
    expedite that, so Congress could approve the Board and you can
    have the full complement of the people that are legislatively
    required again to fulfill our mission, our mandate, and our
    desire to reform, renew, refresh our AmeriCorps effort.
        In addition to that, Senator Bond and I, on the accounting
    rules and procedures--worked to pass the Strengthen AmeriCorps
    Program Act, which gave clarification and certainty to
    accounting rules for the National Service Trust, which pays
    those education awards that got so complicated and seemed to be
    so poorly managed.
        Also, we called for new funding. And working with Senator
    Bond, we tried to get funding as part of the emergency
    supplemental, but we were not successful. We kept trying. And
    ultimately we did prevail.
        The 2004 VA-HUD bill provided the highest funding level for
    AmeriCorps. We know it is not only about resources. It is about
    reform. But it is also about re-invigoration. And so we are
    asking then for the three R's. And we look forward to
    discussion with those.
        We appreciate the fact that there has been more money
    provided, but as founder of National Service, I want to uphold
    the original principles that it was based on, of old-fashioned
    values, which was to recruit people to, No. 1, learn the habits
    of the heart, which was neighbor helping neighbor; that if they
    would learn the leadership skills to do that, they and the
    communities that they help would be forever changed; that we
    would be working directly hands-on in the community. And at the
    same time, when they finish their service, they would always
    have the commitment of service, whether they worked in public
    service or our private sector.
        We now know that there are 300,000 AmeriCorps volunteers,
    and many are exactly doing that. And I hope to discuss with you
    how to harness their power for ongoing support, looking at our
    experience in the Peace Corps as a model; that once an
    AmeriCorps member or a Civil Conservation Corps member, you are
    there forever, which could also provide much needed help out in
    local communities.
        Now that we are back on track, we must need to make sure,
    though, that we stay the course and stay sentry over the
    original principles. My goal for this year is two-fold: One, I
    want to know how the Corporation and Board are moving in terms
    of management reform. I also want to make sure that the
    Corporation is doing everything possible to prevent
    mismanagement and uncertainty, which is what happened last
    year. And I want to know the progress that is being made and
    what needs to be done and how we can help.
        Second, I want to know how the Corporation is planning to
    take the Corporation into the new century, meeting new
    challenges, with the new types of workforce we have, new
    opportunities for volunteerism. That is why I called for
    reform, renew, refresh, re-invigorate, and so on.
        We will need to take a look at rules. Senator Bond and I
    mandated that any process to write new rules must be fair and
    open, with an opportunity for advocates and communities to
    comment, while goals that all AmeriCorps supporters share to
    ensure maximum impact in communities and get greatest value for
    taxpayers' dollars. The Corporation must also acknowledge that
    conclusions are not foregone and outcomes are not pre-
    determined.
        We look forward to hearing about how you intend to proceed
    on the rulemaking process. I know that the House has sent a
    letter to you calling for what they say are reforms. And I will
    comment about them later on in my questions. I believe that
    there are some of the things contained their letter that I
    could be supportive of, but there are others that I think would
    authorize by proxy through a rulemaking process. But, again, we
    are in for a spirit of reform. And I know you share that.
        Let us then go to the money. The request is for $642
    million for all National Service programs. This is a 10 percent
    increase, $61 million over 2004. This is very good news. And we
    all want to make the wisest, most prudent, most leveraged use
    of these resources, and will look forward to hearing from you.
        At the same time, what we do know, though, is the whole
    issue of Challenge Grants, the seed money, et cetera, and how
    you think we should proceed. We know that there are national
    programs. And when I had spoken to your predecessor, I said,
    ``You know, when we look at National Service, if we use a
    mutual fund or a market valuation, you have large caps.''
        These are national programs that operate at the local
    level, but they have uniform recruiting. They have a way of
    screening volunteers to make sure they are appropriate in every
    single level, particularly their ability to be involved with
    children. They can duplicate and replicate leadership
    operations and so on.
        Then there is mid-cap. That came from the governors and the
    governors need to be involved, because we believe that
    ultimately problems and solutions are local. We welcome the
    Boys and Girls Club. We know what Teach for America is doing,
    but the governors were mid-cap.
        And then I always like to look ahead to what is the next
    generation of leadership. Where is the Teach for America of the
    next generation? Where is the possible concept of a version of
    a Community Development Corporation that really does transform
    urban communities or rescue kids that are heading for a dead-
    end, or a prisoner return program, which I also know the
    President is interested in. So it was to be in some ways not a
    reckless set of funding, but a prudent investment in terms of
    what are some of the ideas to see if they can work at a very
    small scale before either a governor moved them to a State
    level or so on.
        So that is where we are. And we look forward to discussing
    it with you. But we do believe it is a new day in AmeriCorps,
    that it is a new day, it is new leadership, it is a new state
    of mind, and it is new money. And we look forward to looking
    for brand new progress. So, we look forward to our conversation
    with you this morning.
        Senator Bond. Thank you very much, Senator Mikulski.
        Mr. Eisner, we will accept, for the record, your full
    statement. We appreciate your giving us that extended
    discussion, and I would invite you to summarize your testimony
    for the committee.
        Thank you.

                           STATEMENT OF DAVID EISNER

        Mr. Eisner. Thank you, Mr. Chairman and Senator Mikulski. I
    have submitted the full statement for the record and will
    summarize in about 5 minutes.
        First, let me thank you for the opportunity to discuss
    President Bush's fiscal year 2005 budget proposal for the
    Corporation for National----
        Senator Mikulski. Pull up the microphone.
        Mr. Eisner. I want to thank you for the opportunity to
    discuss the President's budget proposal for the Corporation for
    National and Community Service and also to talk about the
    financial and management improvements that the Corporation has
    made over the past year.
        As you mentioned, Mr. Chairman, Steven Goldsmith, our Board
    Chair, regrets that he cannot join us this morning; however, I
    have submitted, with my written testimony, a letter from our
    Chairman, in which he provides information about recent steps
    taken by the Board to improve its oversight.
        Senator Bond. That will be accepted for the record, as
    well.
        Mr. Eisner. Thank you. And let me, finally, by way of
    thanks, thank this committee for the extra attention that you
    and your staffs have devoted to the Corporation over the past
    year. You have our deepest gratitude and appreciation for your
    leadership and helping us make things right at the Corporation,
    including your support of the President's 2004 budget request.
    This year's appropriation will enable us to reach the
    President's goal of a record 75,000 AmeriCorps members. And
    that it will also allow us to engage approximately 1.8 million
    students in service to their communities through service-
    learning programs supported by Learn and Serve America is
    greatly appreciated. Those opportunities are critical to foster
    a culture of citizenship, service, and responsibility in our
    Nation.
        As you have mentioned, last year's budget hearing came in
    the midst of what could be called a tumultuous year for the
    Corporation. There were very serious questions raised by
    members of this committee and others about our financial
    management.
        And a year later, I am pleased to report that a new level
    of fiscal and operational integrity today marks the way that
    the Corporation operates, thanks in part to your leadership, as
    well as to a number of other factors. We have financial and
    grants management policies that have been implemented by our
    CFO and Board of Directors. And I am so grateful to have
    Michelle Guillermin, our CFO, here beside me to help in this
    testimony and also grateful for her adoption of the role of
    Acting Chief Operating Officer.
        Another factor was the Strengthen AmeriCorps Program Act,
    which for the first time set into law a fiscally prudent method
    for determining how we record obligations in the National
    Service Trust.
        Another factor is the increased oversight role by our Board
    of Directors in the Corporation's grant-making.
        And finally, we have made significant progress in
    implementing three management priorities that I have stressed
    since coming to the Corporation in mid-December. These three
    priorities that all members of the Corporation have invested in
    are: Restoring trust and credibility among our stakeholders,
    managing to accountability, and keeping the focus on our
    customers, which are our grantees in the field, as well as the
    participants, volunteers, and members in our programs.
        Through attention to these priorities, we have been able to
    reform many elements of our operations. We have reformed our
    grant-making process, our operational management, our budgeting
    and forecasting capabilities. We have reformed the Alternative
    Personnel System. We have reformed our technology and data
    management systems. And through the rulemaking that you have
    mentioned, we are also well on our way to reforming the
    AmeriCorps program.
        All of that results in a Corporation today that is in a far
    stronger position than we were a year ago. The GAO, our
    Inspector General, and the independent auditing firm, Cotton
    and Company, despite citing a few remaining management
    weaknesses, have all issued positive reports. And taken
    together, those reports reflect that we are in compliance with
    the requirements of the Strengthen AmeriCorps Program Act; that
    we are following fundamentally sound management accounting
    practices; and our ongoing management reforms are effectively
    addressing the identified weaknesses.
        In addition, two recent developments: An Executive Order on
    National and Community Service, which President Bush signed in
    February, and the beginning of the AmeriCorps rulemaking
    process on such issues as sustainability of grantees and
    Federal share of costs, promise to accelerate the reform
    process.
        The goals of both the Executive Order and rulemaking are to
    make our programs more efficient, effective, and accountable.
    And from what I have heard in public meetings on rulemaking in
    Columbus, Seattle, Boston, Dallas, here in Washington, and on
    many conference calls, I am confident that we can in fact
    arrive at fair and equitable solutions to these very difficult
    problems and that we will be able to make our program more
    consistent, stable, and predictable.
        I should note that as we reform our programs the
    Corporation is striving to ensure that National Service works
    more intentionally to broaden, deepen, and strengthen the
    ability of our Nation's 63 million community volunteers to
    contribute to their communities and of America to capture that
    strength of community volunteerism.
        As noted in the Executive Order, the Corporation should
    serve as an engine of volunteer mobilization. And we are
    finding ways for an increasing number of AmeriCorps members to
    devote more of their time to helping charities recruit, train,
    and supervise volunteers.
        The President's 2005 budget includes several targeted
    investments in programs and initiatives that are designed to
    leverage volunteers and private dollars. It also includes an
    initiative to increase outreach to new groups and to ensure
    that the Corporation can provide our grantees with effective
    assistance and monitoring.
        Some, like the Challenge Grants that I know both of you are
    champions of, accomplish more than one of these objectives and
    all are described in detail in my written testimony.
        Finally, because of the challenges faced by the Corporation
    over the past year, it is necessary in these comments, and I am
    sure through a lot of today's testimony, to focus on the
    financial and management reforms that we have made over the
    past year. As we strive to strengthen our management, though,
    we at the Corporation are not losing sight of our main mission
    of our--and the mission of our programs, which is to engage
    people of all ages and backgrounds in meaningful service that
    meets critical local needs, to strengthen community
    organizations, and to change participants' lives, as well as to
    promote the ethic of good citizenship across our Nation.

                               PREPARED STATEMENT

        Thank you, Mr. Chairman. This concludes my remarks. And Ms.
    Guillermin and I are happy to answer any questions you might
    have.
        Senator Bond. Thank you, Mr. Eisner.
        [The statement and letter follow:]

                       Prepared Statement of David Eisner

        Mr. Chairman and Members of the committee, thank you for the
    opportunity to discuss President Bush's fiscal year 2005 budget
    proposal for the Corporation for National and Community Service, as
    well as the financial and management improvements that our agency has
    made during the past year.
        To begin, I want to thank this committee for all the extra
    attention you and your staffs have devoted to the Corporation over the
    past year, and to express my deepest gratitude and appreciation for
    your leadership in helping to make things right, including your support
    of the President's 2004 budget request for the Corporation. That
    appropriation will enable us to support a record 75,000 AmeriCorps
    members and will allow us to engage approximately 1.8 million students
    in service to their communities through service-learning programs
    supported by Learn and Serve America. Those opportunities are
    critically important in helping to foster a culture of citizenship,
    service, and responsibility in our Nation.
        As you all know, last year's budget hearing came in the midst of a
    tumultuous year for the Corporation, with serious questions raised by
    members of this committee and others about our financial and
    operational management. Twelve months later, I am pleased to report
    that the Corporation is in a far stronger position, thanks to your
    leadership and a number of other interrelated factors.
        First, the agency's Chief Financial Officer, Michelle Guillermin,
    who joins me here today, and her expanded financial team have been
    extremely busy over the past year implementing a comprehensive new set
    of policies regarding both the awarding of grants and the enrollment of
    members. The aim is to ensure that last year's problems with the
    National Service Trust are never repeated, and to foster decision
    making that is based on timely and credible data. The team has also
    spent considerable time and effort applying its financial and budgetary
    expertise to the general finances and operations of the Corporation.
        Second, in June, Congress passed the Strengthen AmeriCorps Program
    Act, which President Bush signed in early July. The legislation
    establishes for the first time a clear set of budgeting guidelines for
    the National Service Trust, including when to record an education award
    obligation and in what amount. It also establishes a reserve fund to
    protect members in the event that the estimates used to calculate the
    obligation are incorrect.
        Third, our Board of Directors, under Chairman Steve Goldsmith, has
    taken on a more active role and increased its oversight
    responsibilities. Last year, the Board's Grants Management Task Force
    examined the procedures we use to solicit, review, award, and monitor
    grants and recommended that the Corporation set clearer priorities and
    eliminate barriers for faith-based and new applicants to receive
    Corporation funding. The recommendations led to the establishment of a
    new Office of Grants Policy and Operations to oversee the Corporation's
    grant-making activities. Last fall, the Board, along with Congress,
    directed that AmeriCorps undertake rulemaking to resolve several key
    issues, such as sustainability of grantees and Federal share of member
    costs, that in the past have created inconsistency for grantees--a
    process that is now under way. Several new directors, including Cynthia
    Boich Burleson and Henry Lozano, have come on board, adding experience
    and fresh perspectives. And, to increase its oversight of Corporation
    operations, the Board has required the CEO to certify that approved
    grants are consistent with the Board-approved application guidelines.
        Unfortunately, Chairman Goldsmith could not be here to testify in
    person. However, I have submitted with this testimony a letter from
    him, addressed to Senators Bond and Mikulski, in which he provides
    additional information about other recent actions taken by the Board.
        Finally, since coming to the Corporation in December, I have worked
    closely with the Board to stress three management priorities to guide
    the way the Corporation conducts its business, both internally and
    externally. These management priorities are: (1) restore trust and
    credibility; (2) manage to accountability; and (3) keep the focus on
    the customer.
        In my 4 months at the agency, we have made significant progress on
    each of these priorities, and I expect to continue to make significant
    progress in the months ahead. I never cease to be impressed by the
    dedication, professionalism, and resourcefulness of the employees at
    the Corporation, who strive on a daily basis to make our programs and
    our service opportunities as meaningful--and as accountable--as
    possible.
        As a result of all of these efforts--the actions of the CFO, the
    Strengthen AmeriCorps Program Act, increased Board oversight, and the
    commitment of myself and Corporation staff to the management priorities
    I have just noted--I am proud to report that a new level of fiscal and
    operational integrity marks the way the Corporation operates. Indeed, a
    number of recent outside reviews of the Corporation's management--by
    the GAO, our Inspector General, and the independent auditing firm
    Cotton and Company--have found that: (1) we are in compliance with the
    requirements of the Strengthen AmeriCorps Program Act; (2) we are
    following generally sound business and accounting practices; and (3)
    management reforms are effectively addressing the identified
    weaknesses.
        On March 12, as directed in the Omnibus Appropriations Act, the
    Corporation submitted to this committee a comprehensive report
    detailing implementation of corrective actions and future plans for
    achieving management reforms and increased accountability. Because
    these improvements are of considerable interest to the committee, I
    would like to highlight some of them:

    Trust Management
        After the problems with the National Service Trust were discovered
    in late 2002 and before the AmeriCorps enrollment pause was lifted in
    March 2003, the Corporation instituted a set of strict new procedures
    regarding the awarding of grants and the enrollment of members, many of
    which were explained to this committee last year. The Corporation also
    enhanced its management of the Trust by improving internal
    communication between departments and by clearly identifying those
    persons responsible for Trust operations and oversight. That area was
    cited in several reports as having been a major weakness in the way the
    Trust had been managed.
        The Strengthen AmeriCorps Program Act of 2003 determined that the
    National Service Trust obligation should be recorded at the time of
    approval of an AmeriCorps position. This change provides extensive
    safeguards against potential difficulties. In addition, as I mentioned
    earlier, the Act established a reserve fund to serve as a safety net in
    case actual education award usage varies from our estimates, and
    specified the accounting practices to be used for determining the
    liability for education awards. This marks the first time that a
    detailed procedure for recording Trust obligations has been set into
    law.
        We are institutionalizing broad reforms to ensure that the
    budgeting, planning, recording, and reporting practices associated with
    the Trust comply with all legal requirements and meet the highest
    standards of management. This includes establishing fund control
    regulations as required by OMB Circular No. A-11. CFO Guillermin and
    her staff also have developed new certification procedures designed to
    systematically control the approval of education awards and to monitor
    enrollments and other indicators related to Trust liabilities.
        In addition, under the leadership of a new Chief Information
    Officer, we have made good progress in upgrading and integrating our
    technological capabilities. In particular, we have begun to incorporate
    the capability of our Web-Based Record System (WBRS)--the system that
    tracks information associated with an enrolled AmeriCorps member--into
    eGrants, the system through which organizations apply for grants and
    issue compliance reports. These improvements allow the Corporation to
    get a much better snapshot of member enrollments at any given time, and
    prevent grantees from enrolling more members than have been allotted to
    them in their grant. We will continue to monitor these processes,
    improve our technological capabilities, and work with our Inspector
    General, the Office of Management and Budget, and the General
    Accounting Office to ensure responsible stewardship of the National
    Service Trust.

    Grants Management
        The new Office of Grants Policy and Operations is charged with
    overseeing the daily operations of the grant review process and with
    improving the Corporation's grant-making activities. A new, streamlined
    peer review process has been implemented, and the CIO has begun to make
    improvements to the eGrants system, through which all grant
    applications funded by this committee are submitted and reviewed.
        The Internet-based eGrants system allows our grantees to go to one
    place to apply for grants, submit progress reports, and complete
    financial status reports. The applications are evaluated by Corporation
    staff using the system, and once a grant is awarded, the current status
    and any changes are also tracked through the system. Use of eGrants has
    significantly reduced the paperwork and time needed to process a grant.
    This and other IT enhancements allow the Corporation to make timelier
    grant awards, monitor grants more effectively (including enrollment and
    expenditures), and be more responsive to the needs of grantees.

    Performance Measurement
         Performance measurement is a key area of grantee and program
    accountability. By fiscal year 2005, the Corporation will have fully
    implemented an ambitious, multi-year performance measurement program in
    which we: (1) require each grantee to submit information on
    performance, documenting the actual impact of the program on the people
    and communities it serves; (2) provide ongoing training and technical
    assistance to grantees in establishing and collecting performance-based
    information; (3) develop national outcome-oriented performance measures
    and indicators for all our programs; and (4) collect annual performance
    data from participants, grantees, sub-grantees, and end beneficiaries
    in all Corporation programs.
        Currently, all programs that apply for funding from the Corporation
    (except in the Challenge Grant category) must submit applications that
    propose at least three self-nominated performance measures--one output,
    one intermediate-outcome, and one end-outcome. Learn and Serve America
    applicants are required to submit performance measures in at least one
    of four program impact areas: promotion of civic responsibility;
    improved academic performance; reduction in risky behaviors; and
    institutionalization of service-learning and civic participation. In
    2003 and 2004, AmeriCorps revised its program guidance to require
    grantees to develop a performance indicator on ``volunteer leveraging''
    (grantees that are unable to incorporate volunteer leveraging
    activities into their program must provide an explanation.) The
    measures developed by the grantees must be approved by Corporation
    staff. All negotiated performance measures are included in grant
    awards, and grantees must meet proposed performance measurement targets
    or explain and address any performance deficiencies. Through
    performance reporting, the Corporation is committed to rewarding
    successful programs with continued or increased funding, while holding
    poor-performing programs accountable for their results.
        The Corporation also has worked closely with State service
    commissions to develop a set of administrative standards by which to
    assess their performance in overseeing national and community service
    programs. Commissions have been established in every State except South
    Dakota. In addition, the District of Columbia, Puerto Rico and American
    Samoa each have active commissions. Currently, 44 of the 52 commissions
    have met all administrative standards. Of those outstanding, two are
    new commissions and will be reviewed for the first time this year. In
    fiscal year 2005 we expect at least 50 commissions to meet the
    standards. Our program officers and State administrative standards
    project manager are providing technical assistance to assist in
    resolving outstanding issues.

    Other Improvements
        Our efforts to improve management of the Trust were designed to
    foster a management culture that relies on credible data in awarding
    grants and in setting program goals. Through a variety of new systems
    and procedures, we have also applied this mindset to other operations
    of the Corporation. For example, we have implemented a new budget
    process that links financial requests to performance measures, and an
    expanded staff of budget analysts is supporting our programs while
    striving to improve financial analysis and implement performance
    management. In addition, we have increased efficiency and thoroughness
    and have made great strides toward eliminating a significant backlog of
    outstanding audit matters and grant closeouts.
        The challenges of last year spurred a number of other changes. We
    have reorganized and flattened the Corporation's management reporting
    structure and assembled a new executive management team that is
    responsible for overseeing a broad slate of management reforms in
    program and personnel management. In addition to the new Office of
    Grants Policy and Operations, we have added a Senior Advisor on Faith-
    Based Initiatives, housed in the CEO's office, to conduct outreach to
    faith-based organizations, especially those with no previous history of
    Corporation funding. And, after a thorough review and in close
    consultation with our employees and their union representatives, we are
    implementing significant changes to the Alternative Personnel System,
    through which the great majority of our employees serve. Of greatest
    importance, we are ending the term-appointment system, which worked as
    a disincentive to creating a stable, high-performing workforce.
        To continue this progress, we are contracting with the National
    Academy of Public Administration to study and make recommendations
    about our leadership structure, operations, management, and grants
    programs. In addition, we will be conducting a Business Process Review
    of several key functions in the effort to become a more efficient and
    effective organization.
        As an indication of the Corporation's commitment to the highest
    levels of management and financial accountability, the agency obtained
    an unqualified independent auditors' opinion on our financial
    statements for fiscal year 2003, with no material weaknesses and only
    one reportable condition. The development of measures for financial
    accountability for both internal Corporation operations and our
    grantees will continue to be a priority in the current and upcoming
    fiscal years.

                         EXECUTIVE ORDER AND RULEMAKING

        Two recent developments--an Executive Order on National and
    Community Service Programs and the AmeriCorps rulemaking process, which
    is currently under way--will help accelerate our management
    improvements in fiscal years 2004 and 2005.
        Executive Order 13331 on National and Community Service Programs,
    signed by the President on February 27, 2004, directs the Corporation
    to adhere to four fundamental principles in the administration of its
    programs: (1) support and encourage greater engagement of Americans in
    volunteering; (2) respond more effectively to State and local needs;
    (3) be more accountable and more effective; and (4) increase
    involvement with grassroots faith-based and community organizations.
    The Executive Order further directs us to review our policies and
    programs for consistency with the principles; to change inconsistent
    policies so that they maximize support from the private sector and
    leverage Federal resources to build the volunteer infrastructure of
    faith-based and other community groups; to institute management reforms
    that comply with all budgetary and fiscal restrictions and that tie
    employee performance to fiscal responsibility, attainment of management
    goals, and professional conduct; and to report back to the President
    within 180 days on the actions the Corporation proposes to undertake to
    accomplish these objectives.
        Many of the above issues are being addressed as part of the
    rulemaking process, which we currently are undertaking to address a
    number of issues that have proven to be particularly difficult to
    resolve, including sustainability, Federal share of costs, match
    requirements of grants, and volunteer leveraging. Over the past 4
    weeks, the Corporation has conducted public meetings on rulemaking in
    Columbus, Seattle, Boston, Dallas, and here in Washington, as well as
    having held a number of conference calls. At each of those sessions, we
    have heard the opinions of the Corporation's various stakeholders in
    advance of publishing proposed rules for public comment. We have taken
    this extra step because we understand the complexity of the issues
    involved and we are committed to building trust and credibility through
    an open and honest exchange with our stakeholders.
        Our grantees, members, State commissions and other partners all
    have legitimate and varied points of view about the rules governing the
    future of the program. The issues at hand are complex and do not lend
    themselves to easy answers. However, these stakeholders also have a
    wealth of experience, knowledge, and new ideas that we can harness--
    that we must harness--to get rulemaking right.
        The goals of both the Executive Order and rulemaking are: to make
    our programs more efficient, effective, and accountable; to ensure that
    national and community service programs add value to traditional
    volunteering and the nonprofit world; and to bring a far greater degree
    of consistency, predictability, and reliability for our grantees.
        While the rulemaking process continues, the Corporation has taken a
    number of steps to move AmeriCorps in the direction indicated by the
    President, Congress, and the Board for the 2004 program year. As we
    strive to reach 75,000 members, the Corporation has issued grant
    guidelines for 2004 that call for a lower average cost per member
    (average cost per FTE includes the Corporation's share of member
    support, other than the education award and child care costs, and
    program operating costs). We also expect to increase the percentage of
    AmeriCorps members participating in the Education Award Program, in
    which the Corporation is responsible for the education award and a
    small administrative fee but is not responsible for paying members'
    stipends or other costs of the program, from 37 percent to 40 percent.
    And, we are working to increase the number of professional corps
    grantees within our portfolio.
        As a result, we anticipate that the projected average cost per
    full-time equivalent (FTE) of AmeriCorps*State and National stipend
    programs for fiscal year 2004, not including EAP Grants, will be about
    $9,450--or about 10 percent below the fiscal year 2002 baseline level
    of $10,507. This reduction is consistent with the 2004 Omnibus
    Appropriations Act, which directs the Corporation to reduce the total
    Federal costs per participant in all programs.

                                   WHAT WE DO

        The Corporation's programs are an integral part of President Bush's
    effort to create a culture of citizenship, service, and responsibility
    in America.
        AmeriCorps members help build the capacity of the nonprofit
    community and leverage thousands of volunteers to serve with nonprofit
    organizations, public agencies, and faith-based organizations in rural
    and urban communities throughout the Nation. AmeriCorps members and
    volunteers tutor and mentor youth, build affordable housing, help close
    the digital divide, clean parks and streams, run after-school programs,
    and help communities respond to disasters. In 2003, AmeriCorps members
    also focused their efforts on helping to meet the Nation's homeland
    security needs--a priority that will continue in 2004 and 2005.
    AmeriCorps*NCCC (National Civilian Community Corps) is a team-based,
    residential program designed specifically for those between the ages of
    18 and 24. Through the program, about 1,250 young men and women serve
    with nonprofit groups to provide disaster relief, preserve the
    environment, build homes for low-income families, tutor children, and
    meet other challenges. In 2003, AmeriCorps*NCCC members responded to 36
    requests for emergency relief, including Hurricane Isabel along the
    mid-Atlantic coast; fires in California, Colorado, Wyoming and Arizona;
    tornadoes in Kansas, Mississippi, Oklahoma and Missouri; floods in
    Texas, Kentucky, Alabama and Tennessee; and the recovery of debris from
    the Space Shuttle Columbia.
        Learn and Serve America serves as an ``on ramp'' to a lifetime of
    civic engagement for approximately 1.8 million students who participate
    in service-learning projects supported by the program. Service-learning
    can bring together many youth development strategies--including
    character education, civic education, and career education--that
    schools and other youth-serving organizations use to help young people
    navigate childhood. It also helps meet local needs, creates community
    ties, increases academic achievement, and spurs civic awareness.
        We have just announced and will soon be issuing Learn and Serve
    continuation grants for the second year of 3-year grants to schools,
    colleges, and community organizations in all 50 States. Many of these
    grants will be awarded to programs that link the teaching of history
    and civics with service. The grants support educators' efforts to help
    their students understand the meaning of civic participation in
    American democracy. This time next year, we will have a full year of
    progress reports on these programs, and I look forward to giving you a
    more comprehensive report then.
        To a great degree, all our programs are about fostering the ethic
    of good citizenship and putting into practice the democratic ideals of
    self-government and service to others. Other initiatives under the
    Corporation's umbrella include the President's Council on Service and
    Civic Participation, which sponsors the President's Volunteer Service
    Award; the National Conference on Community Volunteering and National
    Service, the premier gathering of those who work in volunteer
    management and the voluntary sector; Presidential Freedom Scholarships,
    which provide matched scholarships of $1,000 to high school students
    who have demonstrated exemplary leadership in community service; and
    the Martin Luther King, Jr. Day of Service, which seeks to transform
    the MLK holiday into a day of community service honoring Dr. King's
    memory, as exemplified by the United Way of Southeastern Pennsylvania's
    use of its $6,500 grant to support a city-wide day of service in
    Philadelphia involving more than 40,000 volunteers. All these programs
    have the goal of increasing the numbers of Americans of all ages
    involved in their communities.
        From a Bureau of Labor Statistics survey that the Corporation
    helped initiate, we know that in 2003, 63.8 million American adults
    volunteered through formal organizations--up 4 million from a year
    earlier and still strong some 2 years after September 11. As we reform
    our programs, the Corporation is striving to ensure that national
    service intentionally works to broaden, deepen, and strengthen the
    ability of these 63 million volunteers to contribute effectively to
    society--and of America to capture this strength.
        As I noted earlier, one important role for national service is to
    serve as an engine of volunteer mobilization, and we are finding ways
    for more and more of our AmeriCorps members to devote more of their
    time to helping charities recruit, train, and manage volunteers. The
    President's Executive Order will facilitate this process.
        The value of this volunteer-leveraging role to the nonprofit world
    is highlighted in a recent comprehensive study of volunteer management
    capacity at charities and congregational social service outreach
    programs across the United States commissioned by the Corporation, USA
    Freedom Corps, and the UPS Foundation. The study found that these
    groups valued their volunteers for these important reasons:
      --they were instrumental in reducing costs;
      --they improved the quality of services provided; and
      --they raised awareness of the organization in the community.
    Moreover, the study also found that the strongest predictor of
    achieving high value from volunteers was having a person on hand to
    manage volunteer activities.
        Our members can provide an extremely valuable resource to
    charities, and we are going to continue to strengthen relationships
    with grantees that use members effectively to recruit and manage
    episodic volunteers. What is more, we are looking for other ways to use
    AmeriCorps members to help build the capacity of nonprofit groups, both
    faith-based and secular. Building capacity broadens charities' reach
    and helps them to become more efficient, effective, and, ultimately,
    self-sustaining.
        This does not preclude national service participants from
    continuing to provide direct service. It stresses those areas where
    national service can add value to the millions upon millions of
    volunteers who serve their communities every day through traditional
    volunteer networks and nonprofit organizations.

                              2005 BUDGET PROPOSAL

        In our 2005 budget proposal, the Corporation is asking for a total
    of $642.2 million from this committee. This includes $442 million to
    support reaching our target of 75,000 AmeriCorps members; $27 million
    for the National Civilian Community Corps; and $46 million for Learn
    and Serve America.
        The President's 2005 budget request largely parallels the 2004
    enacted budget, but with a few added investments in targeted programs
    and initiatives. These new investments are designed specifically to
    further our goals of leveraging the numbers of volunteers engaged in
    service activities, increasing outreach to new groups, and ensuring
    that the Corporation is accountable for results while providing
    adequate assistance to our grantees. They include:
      --A $3 million increase for Learn and Serve America, specifically to
            fund a program to educate teachers about service-learning
            techniques. The training program is designed to increase both
            the quality and the quantity of educators, who will then engage
            thousands more students in meaningful service to their
            communities. If passed, this would be the first increase in
            funding for Learn and Serve America in a decade.
      --A $2 million increase for the AmeriCorps*NCCC program to provide
            much-needed capital improvements to the five regional campuses
            across the country, located in Charleston, South Carolina;
            Denver, Colorado; Perry Point, Maryland; Sacramento,
            California; and Washington, DC. The capital projects include
            vitally important roof repairs, accessibility upgrades, and
            fire safety enhancements.
      --A $7.6 million increase for Challenge Grants, an innovative grant
            program that requires a two-for-one private match for every
            Federal dollar offered. For the first Challenge Grant
            competition in 2003, we received 52 applications requesting a
            total of $36.8 million and awarded a total of $5.9 million in
            grants to eight nonprofit organizations. The Notice of Funds
            Available for 2004--for $2.4 million in grants--is to go out
            shortly. In fiscal year 2005, the minimum Challenge Grant award
            will be reduced from $500,000 to $100,000, and the maximum will
            be reduced from $1 million to $500,000, enabling us to support
            many more grantees. We estimate that up to 30,000 citizen
            volunteers will be supported through this program, that many
            previously unfunded groups will apply, and that it will serve
            as a powerful catalyst to bring new private supporters of
            service to the table in many communities.
      --A $3 million increase for Next Generation Grants. Because
            prospective grantees in this competition cannot have received
            prior funding from the Corporation and must have organizational
            budgets of $500,000 or less, this program is an important part
            of our outreach to faith-based and other community
            organizations. In the first of these competitions, for which a
            total of $5 million ($4 million from fiscal year 2003 and $1
            million from fiscal year 2004) had been appropriated, we
            received more than 1,150 proposals requesting more than $280
            million. From those, we have asked 23 ``finalist''
            organizations to submit a full application, and we expect to
            select roughly half for funding by mid-June. We believe that
            both Challenge Grants and Next Generation Grants will decrease
            the pressure for earmarked appropriations.
      --Twenty million dollars to fund a ``Silver Scholarship'' program to
            provide transferable scholarships of $1,000 each to nearly
            10,000 senior volunteers who, through a special grant program
            run by the Corporation, dedicate 500 or more hours tutoring or
            mentoring a child over the course of the year. The program will
            support organizations that help meet President Bush's goal that
            every child be able to read by the third grade. Approximately
            half the request is for program grants, and the other half is
            for the National Service Trust to fund the scholarships in a
            model, pioneered through the AmeriCorps program, with
            tremendous potential to mobilize the aging baby boomer
            population.
      --An increase of $5 million for training and technical assistance to
            help grantees successfully manage their programs, including
            providing necessary assistance for grantees to attract and
            manage additional volunteers, and to raise funds from other
            sources. Grantees will receive training in how to build their
            organizational capacity and become more sustainable.
      --An increase of $3 million for evaluation to help ensure that our
            programs are efficient and effective, as well as to develop new
            and more effective tools to measure the impacts and outcomes of
            our programs. The Corporation currently is in the midst of
            implementing a leading-edge performance measurement system.
            These funds will support continued collection and analysis and
            support scientific evaluations of program impacts, cost-benefit
            studies, and other projects that inform our program design and
            management.
      --A $6.7 million increase for program administration to ensure that
            the Corporation and State service commissions have sufficient
            operating funds. At a time when the Corporation has been called
            on to increase effectiveness, performance, accountability, and
            performance measures and to expand outreach to small community
            and faith-based organizations--when the AmeriCorps program has
            grown by 50 percent--we must have resources to continue to
            maintain a sufficient level of support and oversight. Following
            a reduction of 18 employee positions in 2003, our request would
            restore key staff, provide for adjustments to current services,
            increase employee training, and fund badly needed updates to
            the material we use to promote national and community service.

                                   CONCLUSION

        Because of the challenges faced by the Corporation last year, it
    has been necessary to focus a good deal of this testimony on the
    financial and management improvements that we have made over the past
    year. It has also been necessary to work to rebuild the trust and
    credibility of the Corporation with many its stakeholders, from
    grantees and their private supporters to AmeriCorps members and Members
    of Congress.
        In the past 4 months, we have seen significant progress in this
    area. I am committed to working with all our constituencies in an open,
    honest, and above-board manner. We are working to be more open and
    responsive to Congress, informing you in advance of significant
    developments concerning our agency, including grant awards and the
    decision to begin the rulemaking process, as well as meeting with your
    staffs on a regular basis to report on progress. And, embarking on the
    rulemaking process has been very helpful in demonstrating to our
    grantees and to the field of potential grantees that we are committed
    to a new level of open and inclusive communication.
        Of course, one of the best ways to build trust is to meet
    expectations--to do what we say we are going to do, and do it well. And
    that means managing to accountability, one of my management priorities.
    As noted earlier, we have made significant strides in that direction,
    and I look forward to working with you to continue to strengthen
    national and community service in America.
        In sum, because of your leadership and our commitment to management
    excellence, the Corporation for National and Community Service is far
    stronger than it was last year. We have heard Congress' concerns about
    our management weaknesses and are committed to achieving the highest
    levels of accountability, efficiency, and effectiveness in all our
    operations. Furthermore, we share with Congress the common goals of
    developing strong, high-quality national service programs; of
    attracting a diverse set of grantees; and of leveraging taxpayer funds
    to the greatest extent possible.
        Mr. Chairman, this concludes my remarks. I would be happy to answer
    any questions that you might have.
                                     ______

     Letter From Stephen Goldsmith, Chairman of the Board, Corporation for
                         National and Community Service
                                                         April 8, 2004.
    The Honorable Christopher S. Bond,
    Chairman,
    The Honorable Barbara A. Mikulski,
    Ranking Minority Member,
    Subcommittee on Veterans Affairs, HUD, and Independent Agencies,
            Committee on Appropriations, United States Senate, Washington,
            DC 20510.
        Dear Senator Bond and Senator Mikulski: I regret that a teaching
    commitment prevents me from appearing at the Committee's hearing.
    However, I am pleased that the Corporation's Chief Executive Officer,
    David Eisner, and our Chief Financial Officer, Michelle Guillermin,
    will be on hand to answer your questions and to thank you on my behalf
    for your steadfast support during the 2004 budget process.
        Management of the Corporation is far stronger today than it was a
    year ago. We have instituted a number of significant management reforms
    in the areas of grant making, grant review, data management, budgeting,
    organizational structure, and personnel policies. In addition, in a
    short period of time our new CEO has made great strides in rebuilding
    trust in the agency, in part by working tirelessly to oversee the first
    stage of the AmeriCorps rulemaking process, through which we are
    reforming the AmeriCorps program. Having witnessed his ability to
    engage Corporation stakeholders in discussion of difficult issues and
    balance competing points of view, I have complete confidence that he
    can lead national and community service to the next level.
        Despite the progress of the past year, our efforts are far from
    over. Indeed, we are striving to create a deeply rooted and lasting
    commitment to accountability and performance-based management
    throughout the organization. To ensure that the information we use to
    make decisions is timely, accurate, and reliable and that the
    Corporation is accountable, we will need to modernize our technological
    systems, under the direction of our new Chief Information Officer.
        Last year, this Committee expressed concern about the Board's
    oversight of Corporation operations. The Board has taken significant
    steps over the past year to increase and strengthen our oversight
    responsibilities, as well as to ensure that we have a more active role
    in guiding Corporation policy.
        The Board now requires that it approve guidelines issued by the
    Corporation for upcoming grant competitions and that the CEO certify to
    the Board that grants recommended for funding meet its priorities. The
    Board also requires that the CEO consult with the Board prior to
    issuance of cash awards and pay increases. In addition, the Board has
    developed and submitted to Congress a Comprehensive Management Reform
    Plan, and we have reorganized the Board's committee structure to more
    appropriately reflect and provide oversight to the various functions of
    the Corporation. In short, we have heard your concerns, taken steps to
    address our shortcomings, and remain committed to the highest levels of
    organizational accountability and responsible governance.
        Please let me know if you require any further information, and I
    would be happy to provide it to you.
                Sincerely,
                                             Stephen Goldsmith,
                                                 Chairman of the Board.

                         ACCOUNTABILITY AND MANAGEMENT

        Senator Bond. I appreciate your responding to some of the
    points that Senator Mikulski and I raised. I also appreciate
    your emphasis on leverage, using AmeriCorps volunteers on a
    wholesale basis. In other words, maximizing their impact by
    enabling them and directing them to assist in recruiting other
    retail volunteers, which I think gives a lot more impact to the
    AmeriCorps program.
        Going back to our discussion of the need to change the
    culture at the Corporation to make management and
    accountability a top priority, which I think is your biggest
    challenge, what steps specifically do you intend to take to
    avoid the mistakes of the past, to hold personnel accountable,
    and to make the conscious decision not to reward with pay
    increases or cash awards the ineffective action of those who
    may not perform to standards in AmeriCorps administration?
        Mr. Eisner. Thank you for that question. And let me answer
    it in a few parts. First, I would like, when I am completed
    with the rest of the answer, to ask Michelle to spend some time
    talking specifically about the reforms relating to the Trust
    that will prevent those kinds of challenges from happening
    again.
        Secondly, I want to talk generally about the accountability
    measures that we are putting in place in the Corporation. And
    then specifically I want to talk about how we are changing our
    personnel management to enforce greater accountability at an
    individual level.
        Across the Corporation, we have been focusing on
    accountability, which means that no major activity, or even
    minor activity that is happening in the Corporation, happens
    without a specific individual being responsible. Across the
    Corporation, my direct reports, their managers and individuals
    are now used to within every meeting, asking the question: Who
    is responsible for this specific outcome?
        In a deeper way, we have also flattened the organization.
    We had many different levels of hierarchy. We have flattened
    the organization so that the people who are where the rubber
    meets the road, working with our grantees, working with our
    State commissions, working with the national direct, are not
    engaged in our policy-making and our executive-making decisions
    so that we are no longer making decisions at a high level that
    do not include the appropriate input from the folks that are
    engaging in the actual behavior.
        And then finally we are working as quickly as we can to
    begin to use data more effectively to inform our decision-
    making so that we are specifically looking at the data that we
    are getting back from our early focus on performance measures
    that our grantees are now being required to input as means for
    us to make decisions about how we implement our programs. Upon
    receiving grant applications now, before we move into the peer
    review process, we are using the information about the grants
    that have come in to determine that we are using the right
    process to compare apples to apples so that we can be
    accountable for the outcome.
        As far as our personnel management system goes, our CHCO,
    Joyce Edwards, has really, in a few months, done an amazing job
    of dramatically changing our performance culture. First of all,
    we are moving from a pass-fail basis--all of the employees of
    the Corporation used to be measured on literally whether they
    passed or failed, without deep appreciation for what
    performance goals they have achieved. We have now moved into a
    more sophisticated measurement. Prior to each new year,
    performance measures are being expected from each employee.
    There are mid-year reviews for each employee. And then, at the
    end of the year, we are assessing performance against those
    measurements.
        We have also reformed the Alternative Personnel System
    internally, so that we are moving from an indiscriminate use of
    term appointments to a more permanent use, which means that we
    are already seeing as we open positions we are having a higher
    level of candidate applying, because they are not limited by
    the terms. And we are seeing internally the beginnings of what
    we expect will be stronger retention of our key employees.
        Let me ask Michelle to quickly talk about the solutions we
    have made in the area of the Trust.
        Ms. Guillermin. Thank you. I will very quickly sum up some
    of the major changes we have made. For every grant award that
    is made or any amendment to a grant that is made, a
    certification process takes place in my office, and I
    personally certify that funds are available before they are
    awarded to a new grantee.
        We are in the process of implementing funds control
    regulations. We have modified our systems to better enforce
    some of the member enrollment controls that were lacking. One
    of the major changes we have made is we look at the way we plan
    and execute against plans differently than we have in the past.
    We have a plan that estimates how our grant cycle will roll out
    during the year. We not only execute against that plan, but as
    those estimates now become actual numbers, we re-forecast the
    full-year plan on a regular basis.
        Senator Bond. Thank you very much, Mr. Eisner and Ms.
    Guillermin.
        I will turn now to Senator Mikulski.

                           CHAIRMAN GOLDSMITH LETTER

        Senator Mikulski. Thank you, Mr. Chairman.
        I am going to pick up on the whole idea of reform. Mr.
    Eisner and Ms. Guillermin, I appreciate the remarks that you
    made. I want to now go to the engagement of the Board and Mr.
    Goldsmith, which I think is heartening.
        In his letter to Senator Bond and myself, Mr. Goldsmith
    explained he could not be here today, but he is, first of all,
    complimentary to you, Mr. Eisner, and of course then to your
    team, about engagement and reform. I think he outlines a
    roadmap that is part of my reform thinking. He talks about how
    he wants whatever reform is to be lasting, that this is not a
    one-shot deal where administrators come and go.
        We really appreciate the fact that what you are instituting
    with your team is going to take root in the part of not only a
    rule book for an operating plan, but a culture of an agency. We
    believe there is momentum and really wind at our back.
        He also talks about the need to modernize technological
    systems and having a new Chief Information Officer. I support
    that while you have a CFO and a COO, we believe in today's
    modern world you do particularly when you are also managing
    such a diverse set of grantees, the numbers, volunteers, and so
    on. So we want to work with you to ensure that we modernize
    that technological system and that you have the right brain
    power to do it so we do not have another boondoggle. And the
    world that you come from, Mr. Eisner, we believe that you will
    bring that.
        In addition, he talks about other reforms that the Board
    does in terms of the Board insisting that the CEO certify to
    the Board that grants recommended for funding priorities
    requires the CEO to consult with the Board prior to the issuing
    of cash awards and pay increases. And he has a whole set of
    other issues.
        One, that we have Mr. Goldsmith's viewpoint. And then
    second, I think he has a good roadmap of the Board and working
    with you, Mr. Eisner, and the leadership.
        So we feel this is good news and there is momentum.
        I would like to go to the rulemaking. And there were
    certain principles that I had. First of all, it had to be open,
    it had to be transparent, and it had to provide the opportunity
    for timely comment by advocates, grantees, as you would say,
    sir, the stakeholders and the customers.
        Could you tell us, now, what are your mechanisms for
    rulemaking? Then I want to go to the questions of
    sustainability. And then, third, I want to go to Mr. DeLay's
    recommendations, some of which I agree with and others I do
    not.

                                   RULEMAKING

        Mr. Eisner. Thank you. Rulemaking is one of the most
    important activities that we are undertaking this year. And we
    are just concluding the first public comment period. As you are
    aware, rulemaking normally includes an agency issuing draft
    regulations, then a comment period on those regulations, and
    then issuing a final.
        We have added a pre-rulemaking comment period so that our
    agency could capture the ideas and the concerns of folks that
    have been making this program strong for 10 years. And now upon
    concluding that, we have received 423 written comments, and
    they are still coming strong. We have had more than 700 people
    participate in our five public meetings and four conference
    calls, more than 140 individuals providing testimony, 23 hours
    of testimony that I have personally participated in, not to
    mention, innumerable meetings.
        So I believe that the process has been fair and open. And
    we--to your point in opening comments have made the point over
    and over again, that there is no pre-determined outcome here.
    We know that we are going to meet the requests that we have
    received from Congress, from our Board, and from the President
    to build greater efficiency and accountability, to address the
    issue of sustainability, to address the issue of Federal share
    and matching requirements, as well as a host of other issues.
    But how we are doing that has not been pre-determined. And we
    are only now focusing on which options we are going to pursue.

                          CRITERIA FOR SUSTAINABILITY

        Senator Mikulski. Well, we appreciate that. And we want to
    be kept apprised.
        I would like to ask one more question this round, if I
    could. But could you give me the criteria that you have or the
    direction that you think you have on the issue about
    sustainability?
        When we created AmeriCorps or National Service, we wanted
    programs to be sustainable, but in our minds sustainability was
    both money--in other words, we could not deal with--when I say
    shaky, I do not mean morally shaky, but from a management or
    fiscal point, something that made a public investment for no
    outcome.
        But in us it was that it would be--sustainability was that
    there was a quality of the program, that it could be
    financially maintained over time, and that it could be also--
    have the potential for replication, perhaps, in another State
    or whatever. Could you tell us what you see as sustainability?
        Mr. Eisner. Let me start off by noting that one the
    important things that we are going to do in the context of
    rulemaking is define sustainability. Sustainability has been
    used extremely broadly to mean many different things.
        Senator Mikulski. Yes.
        Mr. Eisner. And we received dozens of comments with
    suggested definitions of sustainability.
        Directly to your question, I think that there are many
    potential aspects to sustainability. There is the
    sustainability in leverage of our overall programs to ensure
    that we are not simply taking the same resources each year and
    plugging different holes. We want to say that over a period of
    years, as we invest, that investment expands. And so there has
    to be a sustainability every place that we go that carries
    these programs forward.
        There is an issue of organizational sustainability, which
    in many ways can be characterized in the negative, that Federal
    funds should not harm the ability of a program to remain
    independent and strong, that we should not be fostering over-
    reliance on Federal funding.
        I think there is also an issue of sustainability relating
    to our members. When an AmeriCorps member serves for a year or
    2 years and then leaves the program and continues to be engaged
    in service--in public service or volunteerism--that is also
    potentially a strong element to sustainability.
        And then finally, sustainability can be measured in
    leverage. When a program increasingly uses the same amount of
    Federal funds and becomes more and more productive, more and
    more impactful, engages more community members and volunteers,
    and deepens its partnerships with the community, that's another
    way of thinking of sustainability. And our job is to work
    through these different definitions and come up with a
    definition that is responsive to you and that also helps the
    field understand where they are trying to go in sustainability.
        Senator Mikulski. Well, I appreciate that, Mr. Eisner. My
    time is up. I am going to come back to some of the other
    aspects in a second round.
        What I want to be clear about is that sustainability is not
    only about money and not a desire to be a micro-manager. As you
    proceed in your rulemaking, which was to go to public comment
    and therefore it should not be like a conversation with just
    you and I. I am a public commenter, a heavy public hitter
    commenter, but nevertheless, that we look at sustainability in
    a broader sense.
        And we look forward then to what you will be arriving at as
    the criteria.
        Thank you, Mr. Chairman.

                              RULEMAKING TIMELINE

        Senator Bond. Thank you, Senator Mikulski.
        Mr. Eisner, you have had the same experience now that we in
    the Senate have, with 23 hours and hundreds of thousands of
    comments. And we can sympathize with you.
        Very quickly, can we get your commitment to complete the
    rulemaking this year?
        Mr. Eisner. You have my and my organization's commitment to
    do everything we can to do that. We will have draft comment--
    drafts moving forward. We need to submit it to OMB. And we need
    to, then, move that forward.
        Senator Bond. We understand that things can happen at OMB
    that take time. I am from the Show-Me State. And I would like
    to see that rulemaking this year.
        Mr. Eisner. We are very focused on it. And your earlier
    comment that if we do not have it, we are likely to see a
    challenge in the fall as we deal with our appropriations. We
    understand very clearly.

                               PROFESSIONAL CORPS

        Senator Bond. Let me move to the Professional Corps. The
    President has directed the Corporation to develop separate
    guidelines and recognize the importance of a Professional Corps
    in the AmeriCorps program and proposed $10 million for the
    Challenge Grant program.
        Can you describe the types of organizations that would
    qualify as Professional Corps? For example, would Teach for
    America be considered a Professional Corps organization. Have
    any Professional Corps organizations received Challenge Grant
    funds or AmeriCorps grant funding?
        Mr. Eisner. As far as a definition of Professional Corps,
    Professional Corps have been defined for us as organizations
    that receive--where the members receive their stipends or the
    member support from a third-party organization and where the
    Corporation provides the education award and a small amount of
    administrative or program support.
        So with that definition, Teach for America certainly does
    count as a Professional Corps. There are many other
    organizations that focus on teaching, that focus on health care
    professionals, that focus on crisis professionals. We are
    currently considering whether organizations that train and
    certify volunteer managers might constitute Professional Corps.
    It will depend on the level of professionalism there.
        One of our challenges that--some Professional Corps are
    actually quite expensive. And those are Professional Corps
    where the member cost is picked up by the third-party, but
    where the program expenses are huge. For example, if you have a
    corps of surgeons that provide service, the oversight and
    training would be enormous. And we are currently not including
    that within our internal understanding of Professional Corps.
        So we look at Professional Corps as lowering the overall
    cost by having a small administrative and program cost, having
    a level of certification that means that these are
    professionals, and where the third-party is picking up the
    member cost.
        Senator Bond. Given the facts that the Corporation is
    developing a set of guidelines for Professional Corps and that
    Professional Corps, such as Teach for America, have
    successfully competed for Challenge Grant AmeriCorps funding,
    the administration request for a $4 million earmark for Teach
    for America is puzzling.
        Further, given the huge earmark demands that the committee
    receives every year, funding this earmark would open the flood
    gates to other earmarks, which are opposed by the
    administration and OMB.
        Do you see if we start going down this road, we invite all
    of those 23 hours of comments and hundreds of contacts to come
    into our offices? And we think that you are better equipped to
    handle those, perhaps, than we are.
        Let me turn to the Learn and Serve activities. I am a big
    supporter of child literacy, mentoring and tutoring programs,
    and appreciate the Corporation's activities in these areas. I
    notice in your budget justifications that two of the primary
    activities are mentoring and literacy. I also noticed that
    conflict resolution and community gardening are two other
    primary activities.
        As a senator, I get involved in conflict resolution almost
    every day. And I enjoy gardening. It is one of my hobbies but I
    am a bit puzzled by the Corporation's support for these
    activities.
        Can you explain why the Corporation funds these types of
    activities? What are the benefits and impacts on a local
    community and students? Did you fund these activities because
    local communities identified them as high-priority needs? How
    did you choose them?

                                LEARN AND SERVE

        Mr. Eisner. Yes. We fund those as local communities
    identify them as high-priority needs. In many ways, the
    activities of the Learn and Serve programs are geared to what
    is the most important set of activities to engage the students.
    In certain high poverty areas, conflict resolution can be a
    lifesaving activity and can help students achieve an
    understanding of service that is different than what you might
    find in a suburban community. And it is very important.
        As far as gardening goes, that is the--it is more likely to
    be a focus on environment and a focus on the importance of
    serving one's broader community. I visited a program in Seattle
    where Learn and Serve participants were doing gardening, but
    what they were in fact doing was refurbishing a community park
    that had lain fallow for two decades. And by engaging the
    students in revitalizing that park, the students were learning
    about biology. They were learning about botany at the same time
    that they were experiencing the importance of supporting their
    community and building something that was destroyed into
    something beautiful.
        Senator Bond. I hope they have greener thumbs than I do. My
    efforts are not always successful.
        Senator Mikulski.

                    PROFESSIONAL CORPS AND RULEMAKING LETTER

        Senator Mikulski. Thank you. Mr. Chairman, I just want to
    make a comment about the Professional Corps. We encouraged the
    concept in the 2004 appropriations.
        I would like to share with you what I had in mind as I
    again continue the bipartisan efforts with Senator Bond, that
    the Professional Corps wasn't for every profession. It was to
    be in those areas where there is a workforce shortage and where
    there are other, as you indicated, third-party groups that
    would be able to work on this.
        One, of course, was in the area of education. The flagship
    one we are all familiar with is Teach for America. The other
    was where there were workforce shortages or where there would
    be a community crisis of some kind, almost like a reserve
    Professional Corps.
        That is all a work in progress, but it was initially around
    where there was a workforce shortage. It was not to create a
    legal aid program. It was not in that category or a surgeon's
    program, as wonderful as that might be. We have physicians in
    this own institution who volunteer, and we salute their
    efforts. But that is not what the Professional Corps was all
    about.
        And when we originally created AmeriCorps, one of the
    things we talked about was people had to do hands-on work in
    the community, that it was not to be an accountant sitting in
    doing accounting for a non-profit. It had to be hands-on or
    direct engagement with the community. AmeriCorps volunteers
    were not to be bureaucrats. They were to be community people.
        So I just offer that as a comment and an insight as you are
    fleshing this out.
        Let me come back, though, to the rulemaking. And I would
    like to go to Congressman DeLay's letter to you. First of all,
    in his letter, he encourages to preserve the right in faith-
    based organizations to retain their religious identity and
    their character while participating in national community
    service. I want to be on the record that I really support
    faith-based initiatives. I believe what they bring in our
    society is just unique to the American society. Church and
    State should be separated, but should not be divided or
    adversarial.
        I would encourage you, though, as you look at how to
    involve faith-based organizations, that we make sure we are
    constitutionally compliant. We have precedents in other areas
    where faith-based groups have been used so that we stay in the
    community volunteer business and we do not end up in the
    lawsuit business. We do not want to see you or our grantees all
    tied up in lawsuits.
        So as you look at this, let us really see how we can
    involve faith-based organizations, but let us stay
    constitutionally compliant. That is No. 1.
        No. 2, the aspect of controlling Federal costs. Of course
    we need to be stewards of the taxpayers' dollar, maintain
    fiscal controls, but I am concerned that our colleague, in his
    zeal for cost, is talking about reducing grants to volunteers,
    cutting daycare, and pursuing those kinds of things that I
    think are really authorizing by proxy.
        When we talk about what should be the level of funding for
    what a volunteer gets in a stipend, what should be the
    appropriate level for daycare, I believe is part of an
    authorizing process and not rulemaking. So I am ready to do
    authorizing, and I know you are ready to do rulemaking. And I
    do not want to see them confused.
        I wish we were being as hard as corporate potentates as we
    are being on our volunteers. I did not like the attitude there.
    This whole idea of limiting the living stipend, limiting the
    child care costs, limiting the number of volunteers, years a
    grantee may receive funds for full-time, we believe, is a
    function of authorizing.
        Sustainability, we have already talked about. Where we do
    agree with our House colleagues, though, is strengthening the
    financial management to ensure the effectiveness. We have gone
    over this. And establish accounting measures. And our
    colleague, Senator Bond, has really been the father of the
    Strengthen AmeriCorps accounting, and we fully support him 100
    percent.
        So know where our flashing yellow lights would be one
    criteria for sustainability. Second, involving faith-based
    organizations but be constitutionally compliant. But when we
    get into how much you should get for daycare and how long you
    can get a stipend and what that should be, we think that is a
    function of authorizing.
        So do you have any comments?
        Mr. Eisner. Thank you for laying those out. I do not
    disagree with any of the guidelines you are asking us to use as
    we make decisions.
        I would also note that you are correct that the
    Professional Corps should be about where there are workforce
    shortages that impact the communities. And that is where we are
    focusing Professional Corps.
        Senator Mikulski. Two other things. And perhaps we can talk
    about it when we do authorizing. Not to break new ground today.
    Today the ground is the momentum of reform and renewal. And
    then the other, how do we harvest the ability of these 300,000
    alumni?
        Well, we look forward to your creative and fiscally prudent
    ideas on that.
        Mr. Chairman.

                       AMERICORPS EDUCATION AWARD PROGRAM

        Senator Bond. Thank you very much, Senator Mikulski. I
    appreciate being able to share parentage with part of the
    AmeriCorps program with you, because you are recognized as the
    godmother of the AmeriCorps program.
        Mr. Eisner, the Education Award program has many advantages
    over regular AmeriCorps because of lower costs, broad reach,
    broad network of program sponsors, and its simplified
    application process, and perhaps greater program flexibility.
    Obviously, there is a huge demand for it.
        What is your opinion of this program? Is it accurate to say
    that you could find more members than originally estimated? And
    do you believe that the program should be expanded?
        Mr. Eisner. The Education Award program is a very strong
    and innovative element of the overall AmeriCorps program. We
    were delighted to see that in our first tranche of 2004
    funding, that we had very, very high numbers of requests for
    Education Awards. We have set the target for Ed Awards at 40
    percent of our members this year. And we believe that not only
    are we not going to have a problem reaching that, but it is
    going to be a very competitive process.
        So we anticipate that we could--we could go even higher. I
    think what we need to stay cognizant of is what that will do to
    the nature of the volunteers. We have seen that a higher
    percentage of the Ed Award programs tend to be more part-time
    than full-time members. So one question is: Are they getting
    the same amounts of things done as the full-time members?
        Another aspect that we need to look at is what happens to
    the demographics of memberships. It seems that with the
    stipended programs we seem to be having greater success at
    having economic diversity and racial and ethnic diversity than
    with the Education Award program. Although we are going to be
    watching that very closely.
        And so I think it is a very useful question, because it is
    such a cost-effective program, about whether it can be
    extended. But I think we need to--before I would say that I am
    in favor of that, I would really want to look to see what that
    is doing to the make up of the participants.

                          ALTERNATIVE PERSONNEL SYSTEM

        Senator Bond. Well, thank you. That is what we ask you to
    do. And I appreciate that.
        I have a concern. This is going to be my last question. I
    will submit the rest for the record. But I want to focus on the
    recent changes you have made to the Corporation's Alternative
    Personnel System by converting most term-appointed employees to
    a general or permanent appointment system. It does seem like
    the decision came out of left field. We received a document on
    March 12 that laid out some general goals. I would be
    interested in knowing how you came to your decision. What
    options did you review? And whom did you consult? Did the Board
    review and approve this decision? I will ask the second part of
    that question. Let me let you address that first one.
        Mr. Eisner. As you are aware, there have been several
    studies that have pointed out the deficiencies of the current--
    of the recent past Alternative Personnel System, with one of
    the most glaring deficiencies was the use of the term
    appointments. And both the Office of Personnel Management and
    our IG asked us specifically to study what our options and
    alternatives were, and specifically to consider whether that
    program had outlived its usefulness.
        Our CHCO, who is one of the----
        Senator Bond. CHCO being--just for the record----
        Mr. Eisner. Chief Human Capital Officer.
        Senator Bond. Thank you. That might be helpful for the
    record.
        Mr. Eisner. And we--and we hired the CHCO as--in response
    to a direct recommendation from our Inspector General, who
    believed that we needed it. And we were very fortunate to be
    able to retain the services of Joyce Edwards, who is one of the
    Nation's experts in government personnel systems and with a
    deep and close relationship with the Office of Personnel
    Management.
        She reviewed the challenges and options--and frankly, upon
    my arriving at the Corporation, looking at the challenges that
    she had outlined and speaking to many of our employees, I
    realized that this was an absolutely urgent and essential first
    step in rebuilding--rebuilding our employee performance. And
    employees were from--everything from morale to the general
    sense of equity and fairness. These were Federal employees that
    were not considered by other Federal agencies to be non-
    competitive applicants. What it meant was that as we set out to
    recruit additional employees, because we were term-limiting
    them, we were not getting the highest quality of applicants.
        And as--you know, I am constantly impressed with the
    creativity and professionalism of our employees, even under the
    terribly adverse circumstances of the last couple of years. But
    the most oppressive thing that we were doing to them was this
    term system. And so I accelerated the process of removing it.
        However, in accelerating that, we did--we looked at
    probably seven different alternatives of ways that we could
    parse the term system, the time frame for changing the term
    system, and we picked the one that we thought would be most
    effective and the least costly to implement.
        Senator Bond. But we would like to see those options, if
    you will submit those for the record. Is it correct to assume
    that the Board approved this change?
        Mr. Eisner. Yes.
        [The information follows:]

           Reassessing the Corporation's Use of APS Term Appointments
        Issue.--In order to build a diverse, high-performing workforce, how
    should the Corporation change its current policies and practices on the
    use of APS appointments?

                                   BACKGROUND

        The APS Handbook (the primary Corporation guidance on personnel
    issues) authorizes 5 types of appointments: Temporary, Discretionary,
    Term, Indefinite, and General. Although no policy directive has been
    issued, it has generally been the Corporation's practice to use the
    term appointment authority to hire new employees.

    ------------------------------------------------------------------------
                                                                   Non-
               Type of Appointment             Supervisors/     Supervisory
                                                 Managers        Employees
    ------------------------------------------------------------------------
    APS Discretionary.......................              15              10
    APS Temporary...........................               0               2
    APS General.............................              13              64
    APS Term................................              57             299
    General Schedule........................              25              73
                                             -------------------------------
          TOTAL.............................             110             448
    ------------------------------------------------------------------------

        Many Corporation employees and several independent studies have
    urged the Corporation to rethink its current practices on the use of
    term appointment.
      --The 2003 OIG/Deloitte & Touche report recommended that the
            Corporation reexamine and reconsider its use of term
            appointments. The report found: ``Term appointments, even
            though nearly 90 percent are renewed, promote a short-term
            mentality among employees and managers. Many employees begin
            thinking about leaving 12-24 months before their appointments
            expire. Term appointments also deter some candidates from
            joining the Corporation, particularly those with competitive
            Federal status.''
      --The 2003 OPM report recommended that the Corporation reexamine its
            current use of term appointments. OPM's report noted that use
            of term appointments has a negative impact on employee morale,
            contributes to a high turnover rate and loss of institutional
            knowledge, and appears to be used as a tool for dealing with
            poor performers. OPM also states that unless we change our
            current practice on term appointments, the Corporation does not
            meet a fundamental criteria for approval of an Interchange
            Agreement--a Union and MIT priority.
      --NAPA's 1999 report recommended continued use of term appointments,
            but with exceptions for career candidates from within the
            Federal sector, and in lieu of recruitment bonuses to non-
            Federal candidates.
      --The MIT Human Resources Committee has identified reassessment of
            our use of term appointments as a priority.
      --At the January 6th ``Talk to Your CHCO'' session, employees again
            expressed their frustration and disappointment with the current
            practice. Among the problems highlighted were:
            misrepresentation of the features of the APS system, job
            insecurity, inability to transfer to other Federal positions,
            the absence of policies on how appointment decisions are made,
            and inconsistency and lack of transparency in the management
            decision making process.
        The preliminary Strategic Human Capital Plan provides that, by the
    end of February, the Corporation will reassess our current practices on
    the use of term appointments and issue policies.
        Options.--These options are presented in an effort to stimulate
    discussion and facilitate decision making. They are not intended as a
    summary of all the possible alternatives. In fact, the Executive Team,
    employees, and their Union representatives are encouraged to suggest
    other options.
      --(1) Continue current practice, but clarify policy. (Specifically,
            continue to use term appointments for all new hires, but
            clarify policy so that there is consistency and transparency in
            the length of terms and on the conditions under which the term
            appointments will be extended or terminated.)
      --(2) Continue to use term appointments for most new hires, but
            permit the use of general appointments for career Federal
            employees and to attract high-quality people from the private
            and non-profit sectors.
      --(3) Use a 2-year term appointment for all new employees
            (paralleling the probationary period). At the end of that
            period, convert high-performing employees to general
            appointments. Phase in the conversion of current term
            appointees to general appointments.
      --(4) Discontinue the use of term appointments for on-going positions
            and phase in the conversion of current term appointees to
            general appointments. (NOTE: Term appointments would continue
            to be used to appoint individuals to positions of a project
            nature or in other circumstances where it is expected that the
            employee would leave the position after a specified period of
            time.)
      --(5) Discontinue the use of term appointments for on-going positions
            and seek OPM approval to convert all term appointees who occupy
            on-going positions to general appointments.

        Senator Bond. And will the employees under the new general
    appointment system be treated the same as under the GS system,
    or will you still have the ability to hold them accountable, as
    you did under the term----
        Mr. Eisner. The term--these employees will continue to be
    under the Alternative Personnel System. And moreover, we
    believe that as a result of removing the term system, more of
    our employees will be willing to leave the GS system and move
    to the Alternative Personnel System.
        The fact that in order to move they had to embrace a term
    was one of the biggest impediments to converting our employees
    from the GS system to the Alternative Personnel System.
        Senator Bond. Thank you very much, Mr. Eisner.
        Senator Mikulski.

                                CHALLENGE GRANTS

        Senator Mikulski. Thank you. This, too, will go to my last
    round of questions. I know we will have ongoing conversation.
        I would like to go to page 9 and 10 of your written
    testimony, in which you talk about the 2005 budget proposals.
    First of all, I am so pleased that you are going to allow $2
    million to upgrade some of the facilities at the NCCC Training
    programs. We did it a long time ago. And now they are worn.
        I would like to go to the discussion, though, that you had
    with both the Challenge Grants, as well as the Next Generation
    Grants. With Challenge Grants, you talk about the tremendous
    number that you have gotten for requests, but it is your intent
    to reduce them. The minimum Challenge Grant would be reduced
    from $500,000 to $100,000, and the maximum reduced from $1
    million to $500,000. Your rationale, as I understand it, is to
    serve more grantees.
        Here then is my question: In doing that, could we end up
    with more grantees, but giving them money that really did not
    do anything to help them out. Are we spreading the money so
    thin that it does not have the traction with the groups, where
    the Federal resources are also in the partnership for
    leveraging and getting greater productivity from them? Do you
    see where I am going?
        Mr. Eisner. I do see where you are going. And I understand
    the concern. I think that a greater challenge for us is--
    particularly, as we are more focused on building
    sustainability--identifying the operational and business models
    that are capable of attracting the kind of 2 for 1 match that
    we are achieving in the Challenge Grant models.
        We would hope that the Challenge Grants spawn innovation.
    And we are concerned that if we simply are able to do eight
    grants, as we were able to do in the 2003 cycle, that we are
    not accelerating the innovation of those models sufficiently.
    And we think that we can achieve many--we can have many more
    grantees and explore more models with the lower minimum and
    maximum.
        Senator Mikulski. We understand, in the Challenge Grants--
    then I want to get to the Next Generation Grants--that you
    received about $36 million worth of requests. From your initial
    purview or looking at them, if you had the money, would these
    be the people desperate for money at the local level. There has
    been a cutback because of the economy; this is why we are being
    deluged with earmarks. I mean, it is an unprecedented year of
    requests for money.
        My question to you is: Is the $36 million you have gotten
    in requests, are these real organizations that could use real
    help for which we have modest resources and we are going to try
    to do our best by them? Or do you think, ``Boy, if we could do
    this, this would really help these programs that do such
    phenomenal work across the Nation?''
        Mr. Eisner. Certainly, a lot more of them are real and
    powerful than we were able to fund in 2003. I would not want to
    say that the right number is $36 million. But in 2005, we are
    looking at going to $10 million and think that that would be a
    really strong and powerful number, especially as we look at
    that $10 million would generate $20 million in private
    investment.
        Senator Mikulski. Actually, $30 million, isn't it, 2 to 1?
        Mr. Eisner. Yes. It would be $10 million Federal, $20
    million private, for a total of $30 million.
        Senator Mikulski. Well, that would be pretty phenomenal.
    Well, we want to watch this and see how you go as you then deal
    with this, because this is only the second or third year of the
    Challenge Grant?
        Mr. Eisner. That is right.

                             NEXT GENERATION GRANTS

        Senator Mikulski. Well, let us go to Next Generation
    Grants. And I understand that you got over 1,000 requests. And
    it came to $280 million. Bingo. Or it is MegaBall. I mean, this
    is bigger than those West Virginia lottery winners there. Now
    if I were one, you could see where I would be spending my
    money.
        Are we on to something, or are these just desperate little
    organizations that have practically no viability, or are there
    all of these wonderful organizations out there just really out
    of oxygen--they have a lot of oxygen, but not a lot of
    resources?
        Mr. Eisner. I think it is a combination of all of the
    above. We have in this country more than 1.5 million 501(c)(3)
    organizations, and about 300,000 of them are fairly strong
    operationally. And we are in an economic environment where
    their foundation funding, their corporate support, and their
    community funding is in a low ebb.
        So clearly----
        Senator Mikulski. Because that is why we are worried about
    some of the matching funds.
        Mr. Eisner. I think that is right. At the same time, I am
    extremely heartened to see so many organizations coming up with
    new models that can drive our AmeriCorps----
        Senator Mikulski. Were you surprised by this number?
        Mr. Eisner. I was surprised.
        Senator Mikulski. Well, first of all, we know that you are
    only going to get down to about 23, because this was not meant
    to be a new pot of gold at the end of somebody's rainbow, as
    desirable as that is.
        We hope that as you distribute these first rounds that you
    are looking also on how to leverage the Challenge Grants,
    recognize what we will call the large caps. Really, the lessons
    that will be learned as you go through this to see how we can
    then do this in other budget cycles and whether we are really
    onto something to do that.
        In addition, and I will close by this: I was really pleased
    to see that you want to spend an additional $5 million on
    training and technical assistance to recruit the volunteers and
    money. In other words, capacity-building at the local level.
    This is something really to be encouraged, and I think will pay
    long-term dividends.
        In addition, your increase to help with personnel,
    particularly for the State Commissions. We have a former
    governor here. We believe in the State programs. We believe
    that ultimately while we look at these wonderful new programs,
    the large ones, that ultimately the heart and soul of
    AmeriCorps is what goes on at the local level and goes on
    through the State Commissions, where the Utah programs are
    different than the Maryland programs, but the habits of the
    heart are the same.
        So we look forward to making sure that our State
    Commissions and the resources to be able to do what we ask them
    to do are really out there, because we are very enthusiastic
    about the creativity and applicability at a more State or
    regional level.
        So thank you.

             TRAINING AND TECHNICAL ASSISTANCE TO STATE COMMISSIONS

        Mr. Eisner. I will quickly respond to that. I agree. And
    one of my biggest enjoyments over the past 3 months has been
    getting to know the State Commissions, which are the heart and
    soul and which are the brilliance of this system and how it
    devolves responsibility into the States to meet local and
    community needs, but underscores, for me, the absolutely
    imperative nature of our ability to train those State
    Commissions.
        I think 23 of those State Commissions are new. Because of
    the changes in the governor's office, those Commissions come in
    new. If we do not have the capacity to train them, we are
    missing--the whole program does not work right. And I would
    note also that our training needs for next year are going to be
    extremely urgent, because we are now putting out 75,000
    AmeriCorps members this year, which means that there are going
    to be a whole lot of new programs operating next year. If we
    are not able to train these new programs--we know that training
    is synonymous with their ability to succeed. If we cannot get
    the funding to train these new programs, then I am worried we
    will have a very high rate of failure among those programs.
        Senator Bond. Thank you very much, Mr. Eisner. I associate
    myself with the comments of Senator Mikulski. As one who has
    done a lot of work with volunteer organizations, I can tell you
    that volunteers are great, providing they have the right kind
    of direction, support, and coordination. Without very
    thoughtful leadership, volunteers can spend a lot of time and
    not accomplish much.
        I would just note for the record, when we are talking about
    the NCCC program, you have got regional campuses--three on the
    East Coast, one on the West Coast, and one in Denver--to serve
    what we in the heartland call the Fly-Over Country. People will
    go to California and come to the East Coast. We do do volunteer
    work and other good work in the heartland, as well. So we hope
    this does not reflect any bias towards the coasts.

                         ADDITIONAL COMMITTEE QUESTIONS

        I thank you very much, Mr. Eisner and Ms. Guillermin. We
    wish you the very best. To say that you have a challenging job
    is an understatement, but that is what makes it interesting.
    And we look forward to your leadership and working with you,
    and assure you that we will be available when you have
    comments. We will have questions for the record. And we have
    already made some requests and look forward to hearing your
    response.
        [The following questions were not asked at the hearing, but
    were submitted to the Corporation for response subsequent to
    the hearing:]

       Questions Submitted to the Corporation for National and Community
                                    Service

               Questions Submitted by Senator Christopher S. Bond

                               FUNDING PRIORITIES

        Question. Given the funding constraints and competing needs under
    the VA-HUD Subcommittee, what are your top three funding priorities for
    the Corporation?
        Answer. My first priority is to effectively manage the growth of
    the AmeriCorps program. AmeriCorps grants for 2004, which are under
    review in preparation for an early summer announcement, represent a
    major increase over 2003. In 2004, we project that we will award grants
    for 67,000 State and National members, compared to about 22,000 in the
    2003 grant cycle. The majority of 2004's grantees will be new or
    recompeting. When added to our VISTA and NCCC awards, we project that
    we will award grants for a total of 75,000 AmeriCorps members. With so
    many new grantees, oversight, training and technical assistance, and
    evaluation are critical.
        Our budget request includes a $7 million (18 percent) increase over
    fiscal year 2004 for Program Administration, including support for
    State Commissions. With 50 percent growth in the AmeriCorps program, we
    have increasing staffing needs in order to meet customer service
    standards and accountability requirements.
        Our budget also includes restoration of the training and technical
    assistance funds cut from the Subtitle H appropriation in fiscal year
    2004. Our experience tells us that without this assistance from the
    Corporation, new grantees, particularly small, community based
    organizations, are at risk of failing to meet program requirements and
    performance goals.
        One of the Corporation's strengths is its evaluation program, but
    the funding cuts of the past 2 years to this part of our program are
    beginning to take a toll. Our fiscal year 2005 request of $6 million
    for evaluations would allow us to support grantee performance
    measurement, collect national-level performance information, and
    rigorously study the impact of our programs on participants,
    communities, and beneficiaries.
        My second priority is to strengthen the national service pipeline
    by expanding Learn and Serve America. Despite a growing body of
    research showing the value of service-learning both to academic
    achievement and to strengthening America's culture of service and
    volunteering, LSA remains funded at $43 million, the same level since
    fiscal year 1996. We have proposed a $3 million initiative to teach
    educators how to incorporate service-learning in their classrooms. Each
    teacher could encourage hundreds of young people to participate in
    community service and contribute to renewing the service ethic in
    America.
        My third priority is to make badly needed repairs and upgrades to
    NCCC campuses. We have requested $27 million for NCCC, $2 million above
    fiscal year 2004, to fix roofs, enhance fire safety, improve
    accessibility for persons with disabilities, install more reliable
    computer networks, and perform other major maintenance (e.g., heating
    and air conditioning, repaving and plumbing). These projects have been
    deferred for too long.

                           MANAGEMENT--ACCOUNTABILITY

        Question. Mr. Eisner, I appreciate your attention to changing the
    culture at the Corporation so that management and accountability are
    taken more seriously. I am especially concerned about ``rewarding bad
    behavior'' as evidenced by the last year's cash bonuses and salary
    increases given to employees.
        How will you hold Corporation personnel accountable for their
    actions? For poor performers, are you willing to prohibit pay increases
    or cash awards or take serious administrative actions such as firing or
    suspending personnel? What specific performance measures will be used
    in determining cash awards, bonuses, and salary increases?
        Answer. We are committed to building a performance culture within
    the Corporation--a culture where managers and employees know what is
    expected and are evaluated on their accomplishments. In a performance
    culture, only employees who significantly contribute to organizational
    success will be rewarded. Employees who do not deliver would receive
    appropriate training, be moved to a more appropriate position, or
    separated.
        To build this performance culture, we must revamp the Corporation's
    current ``Pass/Fail'' performance appraisal system. Under new
    leadership, our Human Capital Office has already designed a new
    performance appraisal system for managers and supervisors. The proposed
    new policy strengthens the link between organizational results and
    individual employee performance, and reinforces our commitment to
    customer service and employee involvement.
        Our plan is to implement the new system by June 30 and use it to
    evaluate all managers and supervisors when the appraisal period ends at
    the end of September. We are also working with our Union to design a
    new appraisal system that will increase accountability among non-
    managerial employees.
        Even as we work to improve our performance appraisal systems, we
    are working within our current system to make sure that exceptional
    employees (and only exceptional employees) receive cash awards and pay
    increases. We are also working hard to deal assertively with ``poor
    performers.''
        In accordance with guidance developed by our Compensation
    Committee, 2003 cash awards and pay increases will be reserved for
    employees whose performance had a significant impact on accomplishment
    of the organization's goals and objectives: These exceptional employees
    must demonstrate performance that regularly goes ``above and beyond''
    expectations, and is recognized outside their operating sphere. Award
    winners must always be willing to take the initiative to seek ways to
    improve themselves and organizational operations.

                              COST PER FTE/MEMBER

        Question. I remain very concerned that the Corporation continues to
    pay too much for the volunteer members in the AmeriCorps programs. I
    know the average cost per FTE is $9,450 and does not include education
    award or the cost of child care. It may not include health care costs;
    I do not know. The payments seem to exceed minimum wage.
        I would like a breakdown of the maximum Federal benefits a typical
    member is eligible to receive. How much does a member receive on a per
    hour basis and what is the annual payment to a member who is in the
    program full-time? In addition, how is healthcare provided--what is the
    cost to the government and what is the cost to the person? What does
    the government pay for childcare and is this cost shared? How are these
    costs determined since costs differ from community to community? What
    other expenses are covered by the Federal Government?
        Answer. Here is a breakdown of the maximum member benefits funded
    by the Corporation:
        Living Allowance.--$8,415 (85 percent of the minimum living
    allowance of $9,900 for 2003 grants). The grantee must provide at least
    15 percent ($1,485) with non-Federal cash match. The grantee may pay a
    higher living allowance than $9,900, but the Corporation will not pay
    any more than $8,415 of the cost.
        The AmeriCorps minimum living allowance is tied to the
    AmeriCorps*VISTA stipend, which is defined by statute as 95 percent of
    the poverty line for an individual (as determined by the Census
    Bureau). The allowance is not paid on a per hour basis; it is paid in
    equal increments over the course of the term of service, a minimum of
    1,700 hours for full-time members (some programs require more). If the
    living allowance were paid on an hourly basis, the minimum would be
    $5.82 per hour (Federal share $4.95 per hour). The Federal minimum wage
    is currently $5.15 per hour.
        The living allowance is treated as income to the member and is
    therefore taxable (both Federal and State). The member is responsible
    for reporting the amount received on his or her taxes for the year in
    which it is received. Grantees are also required to deduct appropriate
    Social Security contributions from a member's living allowance.
        Health Care Coverage.--Grantees secure health insurance locally and
    are only required to provide it for members who serve full-time. The
    maximum Federal share is 85 percent of the cost of a policy if the
    policy provides minimum benefits as stated in guidelines. The maximum
    cost per member per month is $150 per month unless there are unusual
    circumstances. The average cost is $95 per month. The Corporation
    requires justification for any amount over the maximum.
        Grantees are required to provide health insurance only if the
    member is not already covered by a policy that provides the minimum
    benefits. The Corporation does not pay any of the cost of a policy that
    does not include these minimum benefits. Federal payments cover only
    the member, no other person. Minimum benefits are:
      --Covered Services.--Physician services for illness or injury,
            hospital room and board, emergency room, x-ray and laboratory,
            prescription drugs.
      --Limited Coverage.--Mental/nervous disorders and substance abuse.
      --Annual Limits.--Deductible: not more than $250 per individual; Out-
            of-pocket: not more than $1,000 per individual; Maximum
            Benefit: At least $50,000.
      --Coinsurance.--May require a co-pay from member, not to exceed 20
            percent or alternatively, a comparable fixed fee. An exception:
            mental illness and substance abuse coverage may require a 50
            percent co-payment.
        Health care costs are included in the Corporation's cost per FTE
    projection.
        FICA and Worker's Comp, or other State requirements, may be matched
    by the Corporation if requested in the grant, and are included in the
    cost per FTE calculation.
        Child Care (2002 figures).--The typical AmeriCorps member does not
    use the childcare benefit. Childcare is only provided to members who
    meet specific income limits and serve full-time. In 2002, 1,834 members
    (3 percent of the total) qualified for the childcare benefit. If
    qualified, the Corporation pays 100 percent of the authorized cost. The
    Corporation manages the childcare benefit through a contractor, who
    pays the childcare provider directly.
        In 2002, the average annual child care payment per qualifying
    member was $3,420 ($2,047 per child). The payments are determined using
    the Child Care and Development Block Grant (CCDBG) authorized rates,
    which vary by State. Where the actual cost exceeds the authorized
    amount, the member pays the difference.
        Education Award.--Full time members, upon completion of 1,700
    hours, become eligible to receive a $4,725 award; part time members are
    eligible to receive a prorated award. The award is payable only to
    qualified educational institutions or lenders and is taxable to the
    member upon redemption.

        BENEFITS FOR FULL-TIME AMERICORPS*STATE AND NATIONAL MEMBER WITH
                                    CHILDCARE
    ------------------------------------------------------------------------
                                                 Federal
                Benefit                Total      Share          Notes
    ------------------------------------------------------------------------
    Living Allowance...............     $9,900     $8,415  Fed. share
                                                            limited to 85
                                                            percent of
                                                            minimum
                                                            allowance
    FICA, Workers Comp., Other.....        757        644  FICA employer
                                                            share @ 7.65
                                                            percent
    Health Care....................        830        706  Based on 2002
                                                            State
                                                            Competitive
                                                            grants
    Child Care.....................      3,420      3,420  Authorized costs
                                                            vary by State
    Education Award................      4,725      4,725  Full value of
                                                            full-time award
                                    ----------------------
          TOTAL....................     19,632     17,909
    ------------------------------------------------------------------------

                                      APS

        Question. Mr. Eisner, you recently made some major changes to the
    Corporation's Alternative Personnel System by converting most term-
    appointed employees to a General or permanent appointment system.
        Will employees under the new General appointment system be treated
    the same as employees under the GS system or will you still have the
    same ability as you did under the term appointment system to hold
    employees accountable?
        Answer. We strongly believe in maintaining and strengthening the
    APS system, which gives us more flexibility than the GS system to
    promote accountability and deal with poor performers. Whether term or
    general appointments, the APS system gives the Corporation the same
    increased flexibility and streamlined procedures for separating poor
    performers. Under our new system, managers will have a revamped
    performance appraisal system and will be expected to deal with problem
    employees as soon as performance problems are identified.
        The revision of our appraisal systems and our appointment policies
    are both part of a strategic reassessment of our human capital
    policies. These policy changes are designed to promote employee
    accountability. In addition, we have observed or anticipate that the
    change in our appointment policies will produce several other important
    benefits:
      --We have already noted an increase in the caliber of applicants for
            several key vacancies.
      --We will be able to invest in long-term employee development--an
            impracticality when employees were hired for 2-, 3-, or 5-year
            terms.
      --Employee productivity and morale has already improved, and we
            expect this to have a positive impact on our ability to keep
            our best employees.
      --We expect the change in the appointments policies to result in a
            greater percentage of the workforce participating in the APS
            system.
        As you requested in the hearing, I am submitting for the record the
    discussion document on Options in the use of APS term appointments,
    dated January 17, 2004, that was widely shared in the Corporation. On
    page 2 of the document are the five options I referenced during the
    hearing in response to your questions.
        I want to take this opportunity to thank the architect of our new
    human capital strategy, Joyce Edwards, whose detail to the Corporation
    from OPM ends in August. Joyce is truly one of the best human capital
    professionals I have ever worked with, and clearly deserves her stellar
    reputation at OPM and in the field more broadly.
        Question. Your new policy maintains term appointments for senior-
    level managers to provide a ``periodic infusion of fresh leadership.''
    Why aren't mid-level positions subject to term appointments?
        Answer. We will continue to use term appointments in a smart,
    strategic way at every level. Our goal is to have a workforce that
    combines fresh, energetic leadership with strong institutional
    knowledge and continuity.
        Question. The Peace Corps also utilizes a term appointment system
    for its employees. Did you look at the Peace Corps system prior to your
    decision in changing the Corporation's personnel system? What did you
    learn from the Peace Corps? Did you talk with former Corporation
    personnel that currently work at the Peace Corps to obtain information
    on the differences between the two agencies? Do they have the same or
    similar morale problems as the Corporation?
        Answer. We did look at the Peace Corps system prior to changing
    Corporation policy on the use of term appointments. We discussed the
    change with the Peace Corps' Human Resources Director and many
    Corporation employees who were formerly at the Peace Corps.
        Term appointments are valuable if their use can be aligned with an
    agency's strategic management priorities. What we learned from the
    Peace Corps reinforced our own experience that while term appointments
    are a valuable management tool, their mandatory or indiscriminate use
    limits management's ability to align its workforce with its strategic
    objectives as well as creating structural barriers to effective
    workforce training, succession strategies, quality improvement and
    performance management.

                                 PUBLIC AFFAIRS

        Question. The Corporation's budget includes $3.4 million for public
    affairs--a $2.25 million or 197 percent increase over the fiscal year
    2004 enacted level. The Corporation justifies this increase to help
    grantees achieve rising recruitment goals and to support them in their
    efforts to attract more private support. The Corporation plans to use
    these funds to produce and distribute bilingual public service messages
    for television, radio, newspapers, magazines, and the web to more than
    40,000 media outlets. The Corporation also plans to spend these funds
    to build up the inventory of service gear and identity items used by
    members and volunteers.
        First, I did not think attracting members was a problem given the
    over-enrollment of AmeriCorps volunteers during the past 2 years. What
    am I missing?
        Answer. The 2004 appropriation supports 75,000 AmeriCorps
    positions, a 50 percent increase over last year. Achieving this target
    will require a significantly higher number of qualified applicants.
    Challenges include overcoming lingering hesitation among potential
    applicants resulting from the events of the 2003 program year and
    assisting the many new organizations--especially small, faith-based and
    community groups--that will need additional recruitment help because of
    their inexperience with the program. The volume of online applications
    for the first two quarters of fiscal year 2004 was 23 percent lower
    than the same time period in fiscal year 2003. While online
    applications represent a small part of overall applications, and many
    positions are not yet advertised online, we are closely monitoring this
    indicator. In addition to increasing volume, we are at the same time
    always seeking high-quality applicants. Increasing awareness of
    available opportunities drives competition which leads to better
    matching between applicants and programs. Finally, we want AmeriCorps
    to reflect the vast diversity of America's population, and this
    requires targeted outreach to under-represented populations, including
    producing bilingual materials.
        Attracting a large, diverse, and high-quality applicant pool
    requires investing in promotional materials to assist our programs and
    grantees in their recruitment efforts, including public service
    advertising that can be adapted with local taglines. State service
    commissions and small community and faith-based programs cannot afford
    broadcast-quality campaigns and rely on the Corporation for these
    products. The last AmeriCorps PSA campaign, which leveraged more than
    $35 million in donated media support, expired more than 2 years ago,
    and funds are needed for a new effort. In years past, the costs have
    often been spread over 2 fiscal years, but given recent operational
    budget cuts, the 2005 budget seeks funds for both creative development
    and distribution. This investment will leverage many times its cost in
    donated airtime and will assist local programs in reaching their
    recruitment goals. Such materials have an added benefit of helping
    grantees build partnerships, raise private sector support, and become
    more sustainable in their operations.
        Question. In terms of funding level, how does the fiscal year 2005
    request level for public affairs compare to the last 5 year's funding
    levels?
        Answer. Following is the budget history including payroll and
    operations for the past 5 fiscal years. Note that the Office of Public
    Affairs and the Office of Public Liaison, which had independent
    directors, staffs and budget were merged in fiscal year 2004 (that
    process began in fiscal year 2002). More importantly, the Office of
    Public Affairs has taken on significant new responsibilities in light
    of the many levels of program and management reform the Corporation is
    undertaking. If we are to succeed in driving greater accountability for
    performance measurement and management through our personnel
    management, grantmaking procedures, grantee oversight, member
    recruitment and development, training activities and overall
    operations, we must build a far greater alignment in communications on
    priorities and expectations to all of our employees, partners,
    grantees, vendors and program participants. This responsibility for
    communications agenda-setting and consistency falls to the Office of
    Public Affairs, which will manage the communications priority-setting
    and consistency for all of our program divisions and manage the
    production of materials and online information for all of our
    constituencies so that they are aligned with Corporation priorities and
    consistent with each other. These functions are particularly important
    in light of programmatic reforms that are being implemented. These
    functions underlie the increase in budget for the Office of Public
    Affairs in 2005.

                           FIVE YEAR BUDGET (INCLUDES SALARY, OPERATIONS, AND PROGRAM SUPPORT)
    ----------------------------------------------------------------------------------------------------------------
                                                                      Public Liaison  Public Affairs       Total
    ----------------------------------------------------------------------------------------------------------------
    2000............................................................        $866,800        $628,000      $1,494,800
    2001............................................................         720,500         395,100       1,115,600
    2002............................................................         667,522         407,000       1,074,522
    2003............................................................         678,500         127,400         805,900
    2004............................................................  ..............       1,090,600       1,090,600
    2005............................................................  ..............       3,400,000       3,400,000
    ----------------------------------------------------------------------------------------------------------------

        Question. Second, while the main catalyst for last year's media
    attention was the over-enrollment fiasco, it also provided a major
    outlet for publicizing the benefits of the AmeriCorps program. Further,
    the AmeriCorps community facilitated a lot of the PR by mobilizing
    letters to the media and through an active outreach effort through the
    web and other means. I also understand that some of these organizations
    continue to advertise such as television ads by City Year. Given those
    facts, why does the Corporation feel the need to fund such a massive
    public relations effort? Who is paying for City Year's advertisements?
    Can grantees use Corporation funds for advertisements?
        Answer. Please see the prior two responses as to the need for this
    increase in funding. It should be noted, however, that the vast bulk of
    the Corporation's Public Affairs funding does not go to public
    relations, but to production of documents and publications, to
    recruitment, training, grantee materials, and to managing multiple
    online and offline information streams.
        No Corporation funds are being used to pay for placement of City
    Year's public service advertisements as they are being donated by a
    cable television station. Likewise, the 2005 Public Affairs budget,
    like previous budgets, does not contemplate nor request funds for paid
    placement of recruitment ads. Unlike some Federal agencies, the
    Corporation only places its television and radio ads through donated
    airtime, and we have had considerable success in doing so.
        With regards to grantees, development of brochures and other
    materials to support recruitment is an allowable grant cost. Very few
    local programs, however, have the capacity to produce a television or
    radio campaign, which is why the Corporation produces spots that can be
    adapted for local programs.
        Question. Third, since grant applicants are required by program
    rules to bring private matching funds to the table in order to compete
    for Corporation funds, why should the Corporation assist organizations
    in meeting the program requirements?
        Answer. The Corporation has a long history of providing training
    and technical assistance to support grantees in their efforts to be
    compliant with Corporation rules. The reason for matching requirements
    is to ensure that programs maximize their leverage of Federal dollars
    and to help achieve and maintain grantee independence and
    sustainability in spite of receiving Federal funds. These objectives
    are well worth the relatively small investment we must make to help
    programs succeed at achieving the match.
        Helping local programs increase their match furthers several
    Corporation goals--improving quality, reducing reliance on Federal
    funding, and allowing more organizations to have access to Corporation
    funds. The match requirements are minimums. Most grantees provide
    higher levels that what is required because they find it beneficial and
    often necessary to raise more than the minimum match to support
    training, insurance, transportation, and other costs related to
    operating a high-quality program. As the Corporation moves to reduce
    the Federal cost per member, programs will have to raise an increasing
    share of costs if they are to maintain the characteristics of their
    programs. By helping grantees not only meet and exceed their minimum
    requirements but also raise as much as possible from private sources,
    we are helping them to create effective programs that satisfy the many
    and varied purposes of national and community service programs.
        Question. Lastly, can you explain the need for the Corporation to
    expand service gear and identity items? What are these items--hats, t-
    shirts, uniforms? Do AmeriCorps volunteers pay to acquire these items?
        Answer. In October 2002, the Corporation revised its logos to
    highlight the agency's mission of service to community and Nation, show
    the connections between its three programs, demonstrate that service is
    a patriotic duty and an obligation of citizenship, and allow States and
    programs to localize the national logo. Since this change, the
    Corporation has not had dollars sufficient to update items that carry
    the logo.
        The Corporation purchases an initial quantity of items and makes
    them available for purchase by programs and members through the
    Mississippi Industries for the Blind and Disabled. After initial
    inventory purchases, dollars from sales of these items are utilized to
    replenish the stock of available items. Expected increases in
    AmeriCorps enrollment point to the need for a larger investment in
    initial stocks, particularly of service gear.
        AmeriCorps members are encouraged but not required to wear official
    AmeriCorps service gear. AmeriCorps members can purchase these service
    gear items, or programs are allowed to allocate from $35 to $70 per
    member for official gear. A standard gear package would include a $7 t-
    shirt, a $7 baseball cap and a $20 sweatshirt.

                           LEARN AND SERVE ACTIVITIES

        Question. I am a big supporter of child literacy mentoring and
    tutoring programs and appreciate the Corporation's efforts in these
    areas. I noticed in your budget justifications that two of the primary
    service activities for the Learn and Serve program are mentoring and
    literacy.
        Given that AmeriCorps members also participate in mentoring and
    tutoring activities, how are you coordinating those activities with the
    Learn and Serve mentoring and tutoring activities? How do you know if
    these two programs are overlapping or duplicating each other's efforts?
    What steps do you take to verify independently whether duplication is
    occurring?
        Answer. Most Learn and Serve America (LSA) mentoring and tutoring
    activities engage older students in service to younger ones. In these
    programs, high school students, for example, after receiving training,
    read with elementary school students on a regular basis. The older
    students may provide support in phonics, letter or word recognition,
    and provide encouragement for reading through their own example. These
    mentoring and tutoring programs, therefore, are supplementary to
    services offered by AmeriCorps or other adult tutoring programs if such
    programs operate at the same sites.
        LSA Higher Education programs provide college-age tutors, who
    provide primary tutoring support. During the application process,
    programs are asked about their organizational capacity to leverage
    resources. In this section they note any efforts to work with other
    CNCS programs. All LSA programs are asked to inform State Service
    Commissions about their programs in order to avoid duplication of
    effort. In addition, both AmeriCorps and LSA programs are coordinated
    with the schools and afterschool programs they serve. The service-
    learning or volunteer coordinators at the sites served by both programs
    work to ensure that the greatest number of children in need is reached.
    The need for literacy and mentoring services is widespread; the demand
    for these services is far greater than AmeriCorps and LSA programs can
    meet; few local sites are served by both programs.
        The Corporation is currently developing web-based local performance
    measurement systems that will give us the ability at the national level
    to determine local sites where both AmeriCorps and LSA programs are
    serving.

                               PROFESSIONAL CORPS

        Question. Both this Committee and the President in his Executive
    Order directed the Corporation to develop separate guidelines that
    recognize the importance of professional corps under the AmeriCorps
    program.
        How much money have professional corps organizations received from
    the Corporation's programs (AmeriCorps, challenge grants, etc.)?
        Answer. I have provided lists of the fiscal year 2003 and fiscal
    year 2004 grants for Professional Corps programs, including
    announcements from October 1, 2002 through May 7, 2004.
        Professional Corps models are eligible to apply in all of our
    competitions. Therefore, there may be additional Professional Corps
    programs announced as we announce the results of competitions
    throughout the spring and summer. We will soon issue a Notice of Funds
    Availability (NOFA) for a 2004 Professional Corps competition, with the
    goal of awarding grants for at nearly 3,000 members.

    ------------------------------------------------------------------------
      Professional Corps Fiscal Year   Funds Awarded/      FTE     Positions
            2003 Competitions             Approved       Awarded    Awarded
    ------------------------------------------------------------------------
    Teach for America--National            $2,000,000     ( \1\ )    ( \1\ )
     Challenge Grant.................
    Teach for America Maryland--             $311,383         175        175
     AmeriCorps State................
    Teach for America North Carolina--        $40,000         100        100
     AmeriCorps State/EAP............
    Teach for America Rio Grande             $155,901          71         71
     Valley TX--AmeriCorps State.....
    Teach for America New York--             $120,000         300        300
     AmeriCorps State/EAP............
    Teach for America Atlanta--               $92,000         230        230
     AmeriCorps State/EAP............
    Milwaukee Teacher Education               $50,000         125        125
     Center--AmeriCorps State/EAP....
    Marquette University Compton              $16,000          40         40
     Fellows Program Wisconsin--
     AmeriCorps Direct EAP...........
    Mount Mary College Urban                  $16,000          40         40
     Education Fellows Program
     Milwaukee--AmeriCorps Direct EAP
    University of San Francisco TEAMS        $210,000         525        525
     Program--AmeriCorps Direct EAP..
    University of Notre Dame--ACE             $61,600         154        154
     AmeriCorps Direct EAP...........
                                      --------------------------------------
          TOTAL......................      $3,072,844       1,760     1,760
    ------------------------------------------------------------------------
    \1\ Not applicable.

    ------------------------------------------------------------------------
      Professional Corps Fiscal Year   Funds Awarded/      FTE     Positions
            2004 Competitions             Approved       Awarded    Awarded
    ------------------------------------------------------------------------
    Teach For America--AmeriCorps            $264,300      660.75      2,060
     Direct EAP......................
    City University of New York NYC          $703,000     1757.5       3,215
     Teaching Fellows (balance of
     2003-2004 school year)--
     AmeriCorps Direct EAP...........
    City University of New York NYC          $500,000    2,000         2,000
     Teaching Fellows (for 2004-2005
     school year)--AmeriCorps Direct
     EAP.............................
    Mount Mary College Urban                  $16,000       40            40
     Education Fellows Program
     Milwaukee--AmeriCorps Direct EAP
    Teacher's College Columbia                $37,200       93            93
     University, NY--AmeriCorps
     Direct EAP......................
    Milwaukee Teacher Education               $70,000      175           175
     Center (MTEC)--AmeriCorps State
     EAP.............................
    Teach For America Atlanta--               $78,000      195           195
     AmeriCorps State EAP............
    Teach for America North Carolina--        $40,000      100           100
     AmeriCorps State EAP............
    University of Notre Dame ACE--            $65,600      164           164
     AmeriCorps Direct EAP...........
    University of San Francisco              $250,000      625           625
     School TEAMS Program--AmeriCorps
     Direct EAP......................
                                      --------------------------------------
          TOTAL......................      $2,024,100    5,810.25      8,667
    ------------------------------------------------------------------------

                           RULEMAKING--SUSTAINABILITY

        Question. I commend the Corporation for its rulemaking efforts and
    especially appreciate its efforts to define sustainability as
    instructed by the Congress. My overriding concern about sustainability
    is that we need to ensure that the playing field for AmeriCorps funding
    is level and fair. It appears that year after year, the same
    organizations receive the lion's share of AmeriCorps funding, leaving
    few opportunities for new organizations. This problem is exacerbated by
    the Corporation's mixed record on reducing the Federal share of the
    costs of the program.
        On average, how many new organizations receive AmeriCorps funding
    every year? In terms of percentage and dollars of AmeriCorps funding,
    how much money does this represent?
        Answer. Within the AmeriCorps*National Direct Program, about 40
    grants are awarded every year, and a little over 10 percent of these
    grants are awarded to organizations that have never served as a
    National Direct grantee. Within the Education Award Program, about 22
    grants are directly awarded to organizations through AmeriCorps each
    year; about 31 percent of these grants go to new organizations.
        Among organizations that receive subgrants indirectly from the
    Corporation through grantees, the percentage of new organizations is
    higher. Here are the average percentages of new subgrantee
    organizations by program:
      --AmeriCorps*State (1995-2003): 24 percent.
      --AmeriCorps*National (1995-2003): 38 percent.
      --Education Award Program (1998-2003): 44 percent.
        The attached tables give year-by-year breakdowns for all AmeriCorps
    grantees (except for State Commissions) and subgrantees. Table 6 gives
    averages for the major years in the Corporation's recent grantmaking
    cycles. Every third year after 1994-1997, 2000, and 2003--marks the
    beginning of a new grant period for many grantees. In the off-years,
    much of the awarded money goes to existing grantees who apply for
    continuations, which reduces the number of new organizations that
    receive money. (The first year of each program's existence--1994 for
    State and National, 1997 for EAP--is left out of all calculated
    averages, since virtually every grantee was ``new.'')
        The Corporation is currently engaged in the process of validating
    the organizational records in its historical grantmaking database.
    Until then, aggregate data on awarded dollars to ``new'' organizations
    will not be available for all grantees and subgrantees over the period
    1994-2004.

                                         TABLE 1.--AMERICORPS*STATE SUBGRANTEES
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Number of   Number of New
                                 Year                                 Subgrantees      Subgrantees      Percent New
    ----------------------------------------------------------------------------------------------------------------
    1994..........................................................            378              378            100.00
    1995..........................................................            392              163             41.58
    1996..........................................................            431               86             19.95
    1997..........................................................            518              185             35.71
    1998..........................................................            530               65             12.26
    1999..........................................................            501               63             12.57
    2000..........................................................            588              211             35.88
    2001..........................................................            625               96             15.36
    2002..........................................................            612               59              9.64
    2003..........................................................            442              163             36.88
    2004..........................................................  ...............  ...............  ..............
    Average, 1995-2003............................................            515.4            121.2           23.52
    ----------------------------------------------------------------------------------------------------------------

                                        TABLE 2.--AMERICORPS*NATIONAL SUBGRANTEES
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Number of   Number of New
                                 Year                                 Subgrantees      Subgrantees      Percent New
    ----------------------------------------------------------------------------------------------------------------
    1994..........................................................            717              716             99.86
    1995..........................................................            754              492             65.25
    1996..........................................................            308               65             21.10
    1997..........................................................            234               51             21.79
    1998..........................................................            246               31             12.60
    1999..........................................................            251               51             20.32
    2000..........................................................            279              132             47.31
    2001..........................................................            296               74             25.00
    2002..........................................................            298               61             20.47
    2003..........................................................            211              125             59.24
    2004..........................................................  ...............  ...............  ..............
    Average, 1995-2003............................................            319.7            120.2           37.61
    ----------------------------------------------------------------------------------------------------------------

                                   TABLE 3.--EDUCATION AWARD PROGRAM: DIRECT GRANTEES
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Number of   Number of New
                                 Year                                 Subgrantees      Subgrantees      Percent New
    ----------------------------------------------------------------------------------------------------------------
    1994..........................................................  ...............  ...............  ..............
    1995..........................................................  ...............  ...............  ..............
    1996..........................................................  ...............  ...............  ..............
    1997..........................................................             22               22            100.00
    1998..........................................................             22               16             72.73
    1999..........................................................             23                5             21.74
    2000..........................................................             24               10             41.67
    2001..........................................................             25                5             20.00
    2002..........................................................             38                7             18.42
    2003..........................................................             19                3             15.79
    2004..........................................................  ...............  ...............  ..............
    Average, 1998-2003............................................             25.2              7.7           30.46
    ----------------------------------------------------------------------------------------------------------------

                                TABLE 4.--EDUCATION AWARD PROGRAM: COMMISSION SUBGRANTEES
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Number of   Number of New
                                 Year                                 Subgrantees      Subgrantees      Percent New
    ----------------------------------------------------------------------------------------------------------------
    1994..........................................................  ...............  ...............  ..............
    1995..........................................................  ...............  ...............  ..............
    1996..........................................................              1                1            100.00
    1997..........................................................             54               54            100.00
    1998..........................................................             55               35             63.64
    1999..........................................................             56               22             39.29
    2000..........................................................             55               33             60.00
    2001..........................................................             44               15             34.09
    2002..........................................................             36                5             13.89
    2003..........................................................             10                3             30.00
    2004..........................................................  ...............  ...............  ..............
    Average, 1998-2003............................................             42.7             18.8           44.14
    ----------------------------------------------------------------------------------------------------------------

                                         TABLE 5.--AMERICORPS*NATIONAL GRANTEES
    ----------------------------------------------------------------------------------------------------------------
                                                                    Total Number of   Number of New
                                 Year                                 Subgrantees      Subgrantees      Percent New
    ----------------------------------------------------------------------------------------------------------------
    1994..........................................................             42               42            100.00
    1995..........................................................             44                7             15.91
    1996..........................................................             45                7             15.56
    1997..........................................................             42                4              9.52
    1998..........................................................             39                1              2.56
    1999..........................................................             37    ...............  ..............
    2000..........................................................             40                8             20.00
    2001..........................................................             41                4              9.76
    2002..........................................................             41                4              9.76
    2003..........................................................             27                2              7.41
    2004..........................................................  ...............  ...............  ..............
    Average, 1995-2003............................................             39.6              4.1           10.39
    ----------------------------------------------------------------------------------------------------------------

       TABLE 6.--AVERAGES BY PROGRAM, MAJOR GRANT AWARD YEARS (1997, 2000,
                              2003, EXCEPT FOR EAP)
    ------------------------------------------------------------------------
                                                                Percent New
                             Program                             Grantees
    ------------------------------------------------------------------------
    AC*State................................................           36.11
    AC*National: Grantees...................................           12.84
    AC*National: Subgrantees................................           42.54
    EAP--Direct (2000 and 2003).............................           30.23
    EAP--Commission (2000 and 2003).........................           55.38
    ------------------------------------------------------------------------

    Notes
        (1) Some organizations receive more than one grant or subgrant per
    year within an AmeriCorps funding source. These organizations are
    listed once for each year within each table, regardless of how many
    programs they are operating.
        (2) Organizations can be new in more than 1 year, if they receive
    grants or subgrants from more than one AmeriCorps funding source. For
    instance, an organization got a subgrant to operate a National Direct
    site in 1996, and got a State formula subgrant in 1997. The
    organization will be listed as a ``new'' subgrantee for AC*National in
    1996, and a ``new'' State subgrantee in 1997.
        (3) Organizations that changed their names may have multiple
    entries in the Corporation database.

        Question. I am also concerned about future AmeriCorps applicants
    such as those supported under Senator Mikulski's Next Generation
    program. This program has obviously been a huge success in terms of the
    number of applications applying for funding under the program.
        At some point in the future, do you expect these organizations to
    compete for AmeriCorps funding?
        Answer. We certainly hope so.
        As you know, the Next Generation Grants competition is geared
    toward providing seed money for a small number of organizations that
    propose innovative service programs and have the potential to become
    part of one of the Corporation's regular grant programs (i.e.
    AmeriCorps*National and Learn and Serve Community-Based). Since Next
    Generation organizations are new to the Corporation (many have not
    managed a Federal grant before) and they are generally proposing start-
    up activities, they represent high-risk grantees. We are working to
    provide them with technical assistance that should help them be more
    competitive in the future.
        Question. Assuming relative flat-funding for the AmeriCorps program
    into the future and the continued practice of funding most of the same
    organizations year after year, are new organizations going to have
    difficulty competing for funds? If you do not ensure opportunities for
    these new organizations to compete for AmeriCorps funding, then will
    you be setting them up for disappointment?
        Answer. We are contemplating several options to address the issue
    you highlight. One option is a portfolio approach where certain grant
    money would be set aside for new programs.
        With our current funds for the Next Generation competition, we will
    likely award a small number of grants (approximately 10-20 grants). We
    feel confident that our current program budgets would allow all
    grantees to be absorbed into one of our regular grant programs if each
    demonstrated a great degree of success operating their proposed
    program. Moreover, we are careful about the types of expectations we
    convey to Next Generation grantees by noting that it is likely that
    some grantees will gradually join our regular portfolio and others may
    not.

                              PERFORMANCE MEASURES

        Question. One of my long-standing concerns with the Corporation is
    its inability to measure the performance of its programs--primarily the
    AmeriCorps program. I appreciate the Corporation's recent efforts to
    address this matter but I would like the Corporation to respond to
    three questions.
        One, when will the Corporation be able to provide us with
    performance measure data on the AmeriCorps program?
        Answer. Data for our new, outcome-oriented performance measures
    will be collected this summer, depending upon the timing of OMB
    approval. We are hopeful that we will then be able to report results in
    the fiscal year 2004 performance report to Congress, and include them
    in the fiscal year 2006 budget submission. We also plan to conduct
    these performance surveys every year, which will provide year to year
    comparison.
        In 2002, the Urban Institute conducted a review of our existing
    performance measurement systems and made recommendations to correct
    performance measurement systems weaknesses, including a recommendation
    to modify indicators to measure more intermediate and end outcomes,
    rather than outputs. As part of a multi-year intensive effort to
    measure the impact of its community service programs upon the
    individuals and communities they serve, in fiscal year 2003 the
    Corporation awarded three performance measurement contracts, which will
    strengthen outcome reporting for AmeriCorps, Senior Corps, and Learn
    and Serve America. This action marks the second phase of the
    Corporation's performance measurement initiative and will allow the
    Corporation to shift its annual performance reporting from process-
    oriented accomplishments to results-oriented outcome reporting.
        A key component of this performance measurement initiative is
    surveys of members, organizations and institutions receiving
    Corporation funding, and individuals who receive services from national
    and community service programs. This initiative will: (1) provide an
    ongoing assessment of the short- and long-term effects of community
    service on volunteers, host organizations, individual beneficiaries and
    communities; and (2) use data on program performance and results to
    inform the Corporation's budgeting process. More specifically, the
    surveys will help measure the following (Note: specific indicators will
    be in the next draft):
    Members
      --The change in members' level of volunteer service and community
            involvement during and following their service experience; and
      --The change in members' life skills--such as leadership, teamwork,
            communications, time management, and decision-making, and thus
            their ability to achieve their personal goals.
    Organizations
      --Organizations' contribution to helping improve individuals,
            communities, and organizations;
      --Organizations' ability to achieve their goals; and
      --The change in organizations' ability to provide and sustain needed
            services to communities.
    End Beneficiaries
      --AmeriCorps' impact on improving communities' ability to respond to
            disaster;
      --Volunteers' perception that their personal and the programs'
            efforts contributed to helping individuals, communities, and
            organizations;
      --AmeriCorps' impact on improving the life of youth; and
      --AmeriCorps' impact on improving students' academic performance.
        The performance measurement survey initiative is complemented by a
    cross-program requirement that applicants for Corporation funding
    nominate at least three performance measures for their program. As part
    of its continuous improvement, the Corporation will continue to assist
    programs in adopting performance measures that help ensure
    accountability for performance and results while helping to effectively
    address community needs.
        Presently, applicants seeking competitive funds must negotiate
    their final measures with Corporation staff who then monitor grantees'
    progress toward achieving those proposed results. Program
    accomplishments and proposed measures are both taken into consideration
    when making funding decisions. In addition, the Corporation requires
    grantees to submit in their funding proposal at least one performance
    measure on volunteer leveraging and to track their progress toward
    meeting their targets. (Grantees must provide an explanation if they
    are unable to incorporate volunteer leveraging activities into their
    program).
        Question. Two, how will the Corporation verify the accuracy and
    reliability of the performance data it collects?
        Answer. For the AmeriCorps performance measurement surveys, the
    Corporation and the Urban Institute have taken various measures to
    ensure we receive reliable and accurate data. Surveys of members and
    organizations will involve random samples and will be appropriately
    weighted. The Urban Institute will directly collect data from
    respondents about their experiences with AmeriCorps and ensure
    respondents that their responses to a survey will be kept confidential.
    To ensure candor and protect privacy, Urban Institute will not provide
    to the Corporation the name of respondents, nor the organization they
    serve with, received services from or represent. Urban Institute's
    subcontractor, Princeton Survey Research Associates, utilizes the
    latest methodological and technical developments for conducting
    surveys. Princeton's Computer Assisted Telephone Interviewing (CATI)
    system is designed to ensure total flexibility in questionnaire
    administration as well as to provide data quality and accuracy checks.
    By collecting performance data through telephone, we will ensure a high
    response rate and a low likelihood of data fraud.
        For the Learn and Serve performance surveys, the Corporation and
    Abt Associates expect to receive reliable and accurate data because it
    will be a census: all institutions receiving LSA funds, including
    grantees, subgrantees, and sub-subgrantees, will complete a survey of
    their activities, experiences, and outcomes. In accordance with the
    Learn and Serve program reporting requirements, these surveys are now
    required to be submitted at the end of each program year. Data
    collection will take place through an on-line, web-based system that
    will include a data entry interface, reporting management tools for use
    by the Corporation and grantees in tracking data collection, and the
    capacity to generate on-line reports that provide aggregated results to
    all users of the system.
        The Corporation also receives self-reported data and reports from
    grantees and programs about their performance and volunteer leveraging
    accomplishments. The data reported by the Corporation is compiled from
    data and reports submitted by non-Corporation entities (grantees,
    sponsoring organizations, and service sites) in response to the
    Corporation's reporting requirements. The focus of the Corporation's
    data quality efforts has been on assessing the internal data system
    controls and their effect on the accuracy of the performance
    information. The Corporation's programs do not independently verify or
    validate data they receive from outside sources. As a result, the
    Corporation may have reservations about the accuracy of some data that
    are self-reported.
        For each accomplishment (or code), there is considerable variation
    in the units that subgrantees use to report their outcomes. For
    example, for any given activity, some programs count volunteer hours,
    some count items produced, some count people involved, and some do not
    indicate what units their numerical reports reflect. Additionally,
    several programs used ``miles'' as their way of measuring river
    cleanup, but many others may have used other measurement units such as
    hours of cleanup, acres of cleanup, or number of people involved in the
    cleanup, etc. Since only similar measurement units can be aggregated,
    the results of an analysis would likely represent just a fraction of
    all programs actually reporting outputs in that accomplishment field
    and would understate the true output and accomplishments of AmeriCorps
    programs.
        To address future data accuracy concerns, the Corporation, with the
    input of its grantees and other stakeholders, is renewing its attempt
    to develop uniform volunteer leveraging measures and develop stronger
    and more consistent performance measurement criteria. The Corporation,
    at a minimum, would like to provide advisory standards for calculating
    volunteers and their impact.
        To assist grantees in fulfilling requirements for performance
    measurement, the Corporation, through the Office of Leadership
    Development and Training, has also shifted the focus of its training
    and technical assistance from the identification of objectives to
    identifying and measuring program outputs and outcomes. Written
    materials, such as performance measurement tool kits, have been
    developed and made available to programs to assist them in this
    transition. Technical assistance is provided through one-on-one or
    small group consultations.
        Each of the steps will lead to an outcome-based performance
    measurement system, allow the Corporation to report on and aggregate
    verifiable program outcomes and outputs, and will provide information
    to foster a culture of continuous program improvement.
        Question. Three, will performance-based budgeting be used in future
    budget submissions? Does this mean that if the AmeriCorps program is
    not performing adequately, we can expect to see budget decreases in
    future requests?
        Answer. For the fiscal year 2006 budget submission, the Corporation
    plans to use logic models as a planning tool. Logic models show how
    resource requests support Corporation outcome goals through program
    activities, outputs, and intermediate outcomes. We will continue to
    organize our budget presentation around the existing account structure,
    but we will be able to demonstrate more clearly than before how
    resources (or inputs) are turned into measurable results.
        If any program consistently fails to achieve its performance
    targets, our logic models should help us to determine if the failure is
    related to management, program design, resources, or some other cause.
    Once we understand the causes of the problem, we can take appropriate
    action, which could include budget reductions.

                             NATIONAL SERVICE TRUST

        Question. It appears that the Corporation has made some significant
    strides in addressing the problems associated with the National Service
    Trust so that we do not repeat last year's fiasco with the over-
    enrollment of AmeriCorps members. Nevertheless, I remain troubled
    because of the GAO's recent findings in its January 2004 report--
    especially GAO's finding on the 170 AmeriCorps participants who were
    listed as deceased in the Social Security death master file. GAO also
    found that 4,400 data entries had discrepancies that could affect
    estimates of future expenditures of the Trust.
        What steps has the Corporation taken in response to GAO's findings?
    For example, have you developed a plan that would perform data
    verification? When will you conduct the next data verification process?
    Will these steps prevent the types of discrepancies found by the GAO?
        Answer. The Corporation is taking action to address each of the
    recommendations made by GAO. As noted in its report, the majority of
    the discrepancies found by GAO involved members who had exited a
    program without an award (and thus have no impact on trust balances)
    but their status had not been updated in electronic System for
    Programs, Agreements, and National Service Participants (eSPAN), the
    Corporation's database and system of record for all national Service
    Participants. In the short term, the Corporation is reviewing these
    records and will update eSPAN to reflect the proper status. In the
    longer term, the Corporation plans to integrate the functionality of
    its Web Based Reporting System (WBRS) into eSPAN, eliminating the need
    to reconcile between the two systems and enable the Corporation to
    produce more timely information.
        The Corporation is also revising the compliance testing
    requirements for the AmeriCorps programs contained in OMB Circular A-
    133 to include testing of data submitted by grantees to the National
    Service Trust database and will submit the changes for inclusion in the
    next update to the Circular later this year.
        The Corporation transmitted all member enrollment records covering
    fiscal years 2001, 2002, and 2003 to the Social Security Administration
    (SSA) for comparison and certification. SSA completed its review and
    provided the results to the Corporation on April 26, 2004. The
    Corporation has begun its analysis and research of the discrepancies to
    determine the required corrections to eSPAN data. The Corporation has
    also incorporated the SSA verification into its Quality Assurance
    Review process, which will be conducted annually and cover all new
    enrollees. In addition, the Corporation is building an automated edit
    check into eSPAN system to compare Trust data to the SSA's valid number
    list at the time data is input into the system by grantees and State
    offices. This process is being performed on an ad hoc basis until the
    automated check can be placed into service. While it is not possible to
    eliminate all errors, these controls should significantly reduce the
    number of data entry errors being made.
        Out of approximately 158,000 member records reviewed, GAO
    identified 169 member records (147 AmeriCorps*State and National and 22
    AmeriCorps*VISTA), or .11 percent, as having Social Security Numbers
    (SSNs) for persons listed in SSA's death master file, the Corporation's
    research shows that for the 147 exceptions related to AmeriCorps*State
    and National records:
      --21 were a sample error, that is, the record had been counted twice
            in the sample, the SSN was not in the eSPAN database, or the
            death date used by GAO was not valid (00010000). No follow up
            action is needed for these records.
      --11 related to members whose name and SSN in SPAN matched the GAO
            sample but the member had exited the program prior to the date
            of death in SSA's records (no follow up action needed; database
            record to be flagged noting status);
      --7 related to members whose name and SSN in eSPAN matched the GAO
            sample and who are in a still serving/not exited status (the
            Corporation is following up with program on status; database
            record to be flagged noting discrepancy);
      --4 related to members whose name and SSN in eSPAN matched the GAO
            sample and the date of death listed in the SSA death master
            file was prior to the exit date recorded in SPAN (3 earned an
            award and 1 did not, the Corporation froze the Trust accounts
            for the members earning an award and forwarded the
            discrepancies to OIG for review);
      --104 related to members whose name and SSN do not match the GAO
            sample indicating that there was an input error. Thirteen of
            these members are in a still serving/not exited status, 43 have
            earned an award, and 48 exited without earning an award (the
            Corporation is following up to verify SSN, database record to
            be flagged with status).
        For the 22 VISTA exceptions:
      --16 were related to members who had left the program prior to the
            date of death indicated in SSA's records (no follow up action
            needed; database record to be flagged noting status).
      --3 were input errors which have been corrected.
      --2 related to members whose name and SSN do not match the GAO sample
            indicating that there was a input error (the Corporation is
            following up to verify SSN, database record to be flagged with
            status).
      --1 related to a member whose name and SSN match the GAO sample and
            the date of death was prior to the exit date recorded in eSPAN
            (the member did not earn an award, the Corporation has flagged
            the file and forwarded this discrepancy to OIG for review).
      --The Corporation has uncovered no instances where either the member
            or the grantee organization substituted other SSN's to generate
            inappropriate revenues.

                                REAUTHORIZATION

        Question. Does the Corporation support reauthorization of its
    programs? If so, will the administration submit a reauthorization bill
    to the Congress this year?
        Answer. The President continues to support reauthorization of the
    Corporation and has mentioned it publicly several times. The document
    entitled Principles and Reforms for a Citizen Service Act, introduced
    by the President on April 9, 2002, continues to serve as a guide for
    reauthorization. Additionally, on February 27, 2004, the President
    signed an Executive Order implementing many of the key reforms proposed
    in the Citizen Service Act through administrative action.

                               GRANTEE OVERSIGHT

        Question. To the Corporation's credit, it has done a better job of
    reducing its backlog of overdue grantee audit resolutions.
    Nevertheless, the independent auditors continue to cite the
    Corporation's monitoring of grantee activities as a reportable
    condition. As recommended in previous years, the auditors recommended
    the creation of a risk-based monitoring system to address its grantee
    monitoring problems.
        What is the status of developing a risk-based monitoring system?
    Have you identified any grantees that were in noncompliance with
    Corporation rules? What kind of actions have you taken to discipline
    grantees that were noncompliant? For example, have you ever suspended,
    debarred, or recovered funds?
        Answer. The Corporation is implementing risk-based systems for all
    three of its program streams: AmeriCorps, Learn and Serve America, and
    Senior Corps. The new policies will be reflected in the Corporation's
    Grants Management Handbook, which is currently under revision.
        We identify grantees that are not in compliance with Corporation
    rules both through audits and monitoring activities. In program year
    2003, we disallowed a total of $508,951 through the audit resolution
    process.
        When we find grantees are not in compliance, we either suspend
    their access to grant funds or withhold issuing new funds until we
    receive the delinquent reports. In 2003, we suspended two accounts
    until we received overdue financial reports. Currently, one grantee's
    account is suspended. No grantee has had to be debarred. We have
    terminated three grants for failure to comply with grant requirements
    or for poor performance.

                              PEER REVIEW PROCESS

        Question. Last year, many applicants to AmeriCorps complained about
    the arbitrariness of the peer review process. It appears that the
    process may need to be fixed.
        Do you agree with the complaints that the peer review process is
    not working properly? If so, can you tell us what you are doing to
    repair the process and whether you see fixing peer review as a part of
    rulemaking?
        Answer. The peer review process needed major changes. Specifics on
    the needed improvements were gathered from public complaints, findings
    of the Inspector General Audit of June 28, 2001, the board of
    directors'grants management task force report issued May 12, 2003, and
    the Management Improvement Team (MIT).
        The recommendations of the MIT resulted in the development of the
    new Office of Grants Policy and Operations (March 2004) and the
    elevation of this office to a senior management status. This signaled
    to the Corporation staff, as well as the service community, the
    importance of the work of grantmaking and the need to invest resources
    in the operations that manage up to 20 grant review processes annually.
        Specific changes I have approved in the process include: securing a
    more selective and higher quality group of reviewers; instituting
    quality controls in the peer review process; greater emphasis on peer
    review scores; enhanced training of peer review and staff in
    preparation for the grant reviews; and streamlined internal processes
    that enabled us to meet tighter deadlines this year (earlier
    notification of grantees and shorter time between announcements and
    funds distribution). Last month we provided your staff with an
    approximate timetable for all of our 2004 grants. I am pleased to
    report that these changes have already been effectively implemented in
    the 2004 peer reviews that took place last month, and that the results
    exceeded expectations. I remain committed to further improving our
    customer service as well as the transparency of this process.

                              SILVER SCHOLARSHIPS

        Question. The administration is proposing again the Silver
    Scholarships program. This program was originally proposed in the
    fiscal year 2002 budget but rejected by the Congress.
        I have no objections to assisting senior volunteers but this
    program seems duplicative of the Senior Corps program funded out of the
    Labor-HHS Subcommittee. Can you explain the differences?
        Answer. The service requirements for the Silver Scholarship Program
    are more rigorous than RSVP. The minimum 500 annual hours to be served
    will require volunteers to serve an average of 10 hours a week. While
    many RSVP volunteer serve this intensively, the current average is 4
    hours per week.
        Foster Grandparents also tutor and mentor children and serve 15-20
    hours per week. However, the FGP is a means tested program with an
    average Federal cost per volunteer service year of $4,500.
        The President is very committed to both expanding service
    opportunities and to providing caring mentors and tutors for children
    and youth. He has stated ``Today's elderly are the healthiest, most
    energetic, best-educated generation . . . They have more free time and
    want to use it. They have the wisdom of years, and they want to share
    it.''
        Well run tutoring and mentoring programs have proven to be very
    effective in changing youth's life trajectories, reducing drug and
    alcohol use, and improving academic behaviors. Estimates of the current
    number of mentors in the country are less than 500,000. There are
    several million youth who would accept and benefit from adult
    mentoring.
        Findings and results of a number of senior service demonstrations
    over the past several years provide strong evidence that seniors in
    retirement will commit to serving 10 hours per week if:
      --There is a structure through which individuals can participate;
      --Projects are well run and are providing many services in
            communities;
      --There is some modest incentive to recognize that the activity has
            value and to cover out-of-pocket costs; and
      --There is flexibility so that seniors can participate in a variety
            of activities and in different amounts and blocks of time.
        We believe that the structure and focus of the Silver Scholarship
    Program will be appealing to Baby Boomers and is an important part of
    our strategy to involve large numbers of this group in service during
    the third stage of life.
        Question. Under what existing legal authority does the Corporation
    have in implementing this program? Is this program authorized or
    permissible under the existing authorizing statute?
        Answer. This program, as proposed, is not authorized in the current
    statute; however, we have proposed appropriations language in the
    budget justification that would provide the authority necessary to fund
    the program grants under Subtitle C and pay the scholarships from the
    National Service Trust.
        Silver Scholarships will work just like the AmeriCorps education
    awards. Upon completion of the required 500 hours, the Silver
    Scholarship grantee will submit a Silver Scholarship Beneficiary
    Designation Form to the Corporation on behalf of the volunteer. The
    beneficiary will then be entitled to $1,000 to be paid from the
    National Service Trust directly to a lender or an education institution
    for eligible higher education expenses, including loan repayment. There
    will be no direct payment from the trust to an individual.
        Question. In its original proposal in fiscal year 2002, the
    administration proposed splitting the funding for the Silver
    Scholarships program between the VA-HUD and Labor-HHS Subcommittees.
    However, for fiscal year 2005, the budget request only includes funding
    out of VA-HUD. Please explain.
        Answer. We proposed the grant and Trust funding to one
    appropriations subcommittee because both are necessary for the program
    to work; we were concerned that working through two subcommittees
    created the possibility of only one piece being funded. We chose the
    VA-HUD subcommittee because it oversees the National Service Trust.
        Question. Given the Corporation's ongoing management challenges
    with its current program responsibilities, does the Corporation have
    the resources to administer a new program?
        Answer. Existing staff in Senior Corps will administer the program.
    We are confident that they are up to the challenge. Enrollment in the
    National Service Trust will follow the strict guidelines and procedures
    for the Trust that are overseen by our Chief Financial Officer.

                                COST ACCOUNTING

        Question. Past GAO reports have indicated that the Corporation
    lacks reliable cost information for some of its programs, which hampers
    analysis of the true cost of its programs. Further, a
    PriceWaterhouseCoopers (PWC) assessment of the Corporation's
    implementation of a cost accounting system indicated that the
    Corporation's cost accounting model should be able to calculate actual
    costs per program, but that the model needs to be refined to calculate
    cost per grant or cost per grant dollar.
        Can the Corporation now provide information on a cost per grant or
    cost per grant dollar basis as recommended by PWC? What steps is the
    Corporation taking to ensure that the cost data is reliable?
        Answer. During fiscal 2001 the Corporation contracted with
    PriceWaterhouseCoopers to assess its cost model. PriceWaterhouseCoopers
    concluded that the methodology was in conformance with the applicable
    Federal accounting standards and provided several recommendations to
    enhance the methodology. Specifically, PriceWaterhouseCoopers
    recommended that we add functionality to calculate ``administrative
    cost per grant'' or ``administrative cost per grant dollar'' that can
    be monitored over time to measure improvements in administrative cost
    management. To implement this recommendation the Corporation added a
    performance measure reporting the administrative cost per grant dollar
    awarded to its fiscal 2003 Performance and Accountability Report to
    Congress as follows:
      --AmeriCorps--15.5 cents and 15.9 cents per dollar, for fiscal 2002
            and 2003, respectively.
      --National Senior Service Corps--5.5 cents and 6.6 cents per dollar,
            for fiscal 2002 and 2003, respectively.
      --Learn and Serve America--9.0 cents and 8.1 cents per dollar, for
            fiscal 2002 and 2003, respectively.
        We are currently developing an administrative cost per grant
    measure that will give a more meaningful indication of our efficiency.
        Beginning with the fiscal 2004 Performance and Accountability
    Report to Congress, the Corporation will break down costs at the
    subprogram level. For example, rather than reporting costs associated
    with the AmeriCorps responsibility segment, the schedule will have
    individual amounts for the National Direct, State, VISTA, and NCCC
    programs. The Corporation also reviews the cost accounting methodology
    and makes adjustments (such as further isolating costs by program) when
    necessary to ensure that the information is reliable and reflects the
    results of its operations. The cost accounting information used in
    developing the performance metric is derived from footnote 12 in the
    Corporation financial statements. The Office of Inspector General
    audits this information as part of annual financial statement audit
    which provides additional assurance to the Corporation and Congress on
    its reliability.
                                     ______

     Questions Submitted to the Board of the Corporation for National and
                               Community Service

               Questions Submitted by Senator Christopher S. Bond

                             ED AWARD ONLY PROGRAM

        Question. The ``education award only'' program has many advantages
    over the regular AmeriCorps program because of its lower costs, its
    broad reach to more communities, its broad network of program sponsors
    and strategies, its simplified application process, and its greater
    program flexibility. Based on your most recent data, there is obviously
    a huge demand for the program.
        What is your opinion about this program? Do you believe this
    program should be expanded?
        Answer. The Education Award Program (EAP) has an enormous number of
    strengths and offers several flexibilities over the AmeriCorps State
    and National program. Clearly the program is highly cost effective,
    limited to $400 in administrative dollars and the cost of the education
    award. The simplified application process offers successful programs
    greater flexibility and makes these funds available to a broader pool
    of program sponsors. It is overall a more flexible program for the
    Corporation. EAP has expanded dramatically over a short period of time
    and I am excited about the opportunities it offers for the State
    commissions and for the National Direct grantees. It is one of many
    innovative, low-cost models that may make it possible to expand
    national service without a large increase in Federal spending. We need
    to continue to explore this option. However, we also must ensure the
    proper mix of low cost and traditional awards, to strengthen national
    service programs and maximize participation and results. There may be
    differing views on the optimum mix of traditional and lower cost
    program options, but we are striving to develop a broader continuum of
    options that includes EAP and low cost stipends for a better blend that
    produces more volunteers per Federal dollar spent.

                                      APS

        Question. The Corporation recently made some major changes to the
    Corporation's Alternative Personnel System by converting most term-
    appointed employees to a General or permanent appointment system.
        In my opinion, this decision came out of left field. Prior to the
    announcement of the decision, we had only received a draft document on
    March 12 titled the ``Preliminary Strategic Human Capital Plan'' that
    laid out some general goals but not much analysis or discussion on term
    appointments.
        Did the Board review and formally approve this decision? What was
    the vote? What kind of analysis was provided to the Board? Did the
    Corporation provide options for the Board's review? What was the
    Board's opinion(s) of this decision?
        Answer. The Alternative Personnel System (APS) authority provides a
    well-managed organization with the ability to perform at exceptionally
    high levels on behalf of the public and to the advantage of its
    employees. APS allows good managers to do better. Unfortunately, in my
    short tenure it seemed to me generally that APS was used badly; it
    neither rewarded the right conduct nor properly reassured employees. I
    was sufficiently concerned that I requested a study of the APS by the
    Corporation's Inspector General in 2003. The results of the IG study
    and a report prepared by OPM specifically identified many shortcomings
    with the then-current APS appointment system. And both OPM and the IG
    recommended that the Corporation reevaluate APS and ensure its
    alignment with the Corporation's strategic objectives. The statute
    governing the Corporation clearly authorizes the CEO to:
      --establish an APS;
      --appoint and determine compensation in the APS; and
      --determine whether to utilize term appointments in the APS.
        The identified problems needed to be corrected by executive
    management promptly. The Board of Directors encouraged the Corporation
    to select a Chief Human Capital Officer (CHCO), a position which the
    Corporation filled with an individual who is highly regarded by OPM.
    The CHCO was tasked with, among other things, going about the detailed
    business of making the enterprise work better. The Board was generally
    informed that changes were occurring, though it took no vote since the
    issues fell under the statutory authority of the CEO. I believe that
    the CEO and his executive team are well on the way to building an
    effective, performance management culture at the Corporation and that
    their change to the term appointments policy is consistent with that
    progress.
        The board is pleased that the CEO is taking action so quickly to
    address these urgent and widely-discussed issues.
                                     ______

             Question Submitted to the Office of Inspector General
               Question Submitted by Senator Christopher S. Bond

                                ILLEGAL LOBBYING

        Question. The enacted fiscal year 2004 appropriations bill
    contained a provision that required the IG to conduct random audits of
    AmeriCorps grantees to determine if there have been any substantial
    violations of the program rules, including any illegal lobbying
    efforts.
        Mr. George, what is the status of your review and when do you
    expect to complete it? Have you found any improprieties thus far?
        Answer. In response to the Consolidated Appropriations Act of 2004,
    we expanded our audit plan for fiscal year 2004. The fiscal year 2004
    audit plan includes audits of nine State commissions and audits of 10-
    15 AmeriCorps National Direct grantees. We are also auditing a
    cooperative agreement awarded under Subtitle H of the National and
    Community Service Trust Act of 1993, an area of prior Congressional
    interest, with regard to program advocacy.
        Each of these audits focuses on examining whether AmeriCorps
    grantees are complying with applicable laws, program rules, and grant
    provisions, including whether grantees have engaged in prohibited
    political advocacy or lobbying efforts. Each audit also focuses on
    whether costs charged to the Corporation's grant are allowable. If an
    audit identifies prohibited lobbying costs charged to a grant, these
    costs are referred for investigation to determine whether a violation
    of law has occurred. In addition, the OIG continues to analyze the
    results of all of our audits to identify systemic or programmatic
    issues regarding grantee compliance.
        Our work in this area is ongoing. We continually update our audit
    plan, replacing examinations of recently audited grantees with audits
    of other grantees.
        As for improprieties found thus far, an ongoing review of a
    cooperative agreement awarded under Subtitle H has raised concerns
    about the use of Corporation funding for the organization's advocacy
    initiatives. This review is currently underway and involves both audit
    and investigative staff. We will keep you apprised of this review as
    the facts warrant.

                             CONCLUSION OF HEARINGS

        Mr. Eisner. Thank you very much, Mr. Chairman.
        Senator Bond. No further business to come before the
    subcommittee today. The subcommittee is recessed.
        [Whereupon, at 11:28 a.m., Thursday, April 8, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

    DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 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 VA, HUD and Independent Agencies did not appear before the
    subcommittee this year. Chairman Bond requested these agencies
    to submit testimony in support of their fiscal year 2005 budget
    request. Those statements submitted by the chairman follow:]

                         DEPARTMENT OF THE ARMY--CIVIL

     Prepared Statement of the Honorable John Paul Woodley, Jr., Assistant
                      Secretary of the Army (Civil Works)

                THE CEMETERIAL EXPENSES BUDGET FISCAL YEAR 2005

        Mr. Chairman and distinguished members of the subcommittee, thank
    you for the opportunity to provide testimony before this subcommittee
    in support of the President's budget for the Department of the Army's
    Cemeterial Expenses program for fiscal year 2005.
        The Secretary of the Army, is responsible for operating and
    maintaining Arlington and Soldiers' and Airmen's Home National
    Cemeteries, as well as making necessary capital improvements to ensure
    their long-term viability.
        Arlington National Cemetery is the Nation's premier military
    cemetery. It is an honor to represent this cemetery and the Soldiers'
    and Airmen's Home National Cemetery. On behalf of these two cemeteries
    and the Department of the Army, I would like to express our
    appreciation for the support this subcommittee has provided over the
    years.

                        FISCAL YEAR 2005 BUDGET OVERVIEW

        The fiscal year 2005 budget is $29,600,000, which is $600,000 more
    than the fiscal year 2004 appropriation of $29,000,000. The fiscal year
    2005 budget will support Arlington National Cemetery's efforts to
    improve its infrastructure and continue working toward implementation
    of its Ten-year Capital Investment Plan. The funds requested are
    sufficient to support the work force, assure adequate maintenance of
    buildings and grounds, acquire necessary supplies and equipment, and
    provide the high standards of service expected at Arlington and
    Soldiers' and Airmen's Home National Cemeteries.
        The budget also includes funds to pursue expansion efforts needed
    to ensure that Arlington National Cemetery remains an active burial
    place for service men and women into the next century. The following
    table displays how long gravesites will remain available in both
    developed and undeveloped areas that are currently part of the
    Cemetery. It is presented to illustrate the importance of proceeding
    with expansion projects in a timely manner so that there will be no
    disruption in services for deceased veterans and to relieve significant
    crowding of funeral services.
        Note that the gravesite capacity shown in the table for the
    undeveloped area is for currently owned land (i.e., Project 90 and
    utility relocations), but does not include the Millennium Project,
    which requires both land within the Cemetery's boundaries (i.e., the
    old warehouse area and Section 29 land) and land to be transferred to
    the Cemetery (i.e., Fort Myer picnic area). Nor does the table reflect
    future land expansion projects programmed in the Ten-year Capital
    Investment Plan beyond the Millennium Project, such as the Navy Annex
    and Fort Myer parking lot, all of which are currently authorized and
    are addressed in the Concept Land Utilization Plan.

     ARLINGTON NATIONAL CEMETERY GRAVESITE CAPACITY AS OF SEPTEMBER 30, 2003
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Gravesite Capacity--Developed Areas.....................         242,850
    Total Gravesites Used...................................         215,181
    Gravesites Currently Available..........................          27,669
    Year Available Capacity Exhausted.......................            2012
    Gravesite Capacity--Undeveloped Area....................          36,000
    Total Gravesite Capacity................................         278,850
    Year Total Capacity Exhausted...........................            2025
    ------------------------------------------------------------------------

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

                                 BUDGET DETAILS

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

    Operation and Maintenance Program
        The budget for the Operation and Maintenance program is
    $17,846,000. It provides for the cost of operations necessary to
    conduct an average of 25 funeral services per day, accommodate
    approximately 4 million visitors each year, and maintain 652 acres of
    land and associated infrastructure. This program supports 94 of the
    cemeteries' total of 100 full time equivalent (FTE) work-years.
    Contractual services comprise $10,411,000, or 58 percent, of the
    Operation and Maintenance program, as follows:
      --$3,079,000 for tree and shrub maintenance.
      --$2,485,000 for grounds maintenance.
      --$1,400,000 for information/guard services.
      --$1,500,000 to develop an automated system for burial records,
            gravesite locations, financial management, supplies and
            equipment.
      --$485,000 for custodial services.
      --$1,462,000 for recurring maintenance of equipment, buildings,
            headstones, and other facility maintenance contracts.
        The remaining funds in the Operation and Maintenance program
    support the Government workforce, which is primarily responsible for
    all activities associated with preparing gravesites and conducting
    burial services, as well as the cost of utilities, supplies and
    equipment. The cost for utilities includes a credit for previous
    overpayments for water that were made based on estimated usage
    resulting in no charge for water in fiscal year 2005.
        One important aspect of the Operation and Maintenance Program is
    the continuing initiative to automate the administrative functions of
    the cemetery. Since the spring of 2000, the cemetery has contracted for
    a number of business reviews to determine the cost and feasibility of
    undertaking this initiative. These analyses resulted in an Information
    Management Strategy that was presented to the Office of Management and
    Budget (OMB) in May 2003. This strategy set forth the development of
    the Total Cemetery Management System, which is designed to improve
    performance as follows:
      --Transform the cemetery into a more customer service-oriented
            organization that improves coordination among its stakeholders
            and partners.
      --Increase information and services available to its customers
            (family members and visitors).
      --Improve customer satisfaction.
      --Increase the efficiency and effectiveness of cemeterial processes
            while reducing costs.
      --Reduce the risks associated with the manual data access and
            maintenance process.
        The cost to implement the next phase of an automation initiative is
    estimated to be $5,000,000, and is an ongoing project. The $1.5 million
    included in the fiscal year 2005 budget will be used to complete the
    required OMB reports, plan and start the next phase of a multi-year
    automation effort.

    Administration Program
        The budget includes $1,472,000 for the Administration program,
    which provides for essential management and administrative functions,
    including staff supervision of Arlington and Soldiers' and Airmen's
    Home National Cemeteries. Budgeted funds will provide for personnel
    compensation, benefits, and reimbursable administrative support
    services provided by other government agencies. This program supports
    the balance of the cemeteries' workforce of six FTE work-years.

    Construction Program
        The Construction program's budget is $10,282,000, consisting of the
    following projects:
      --$5,000,000 to complete Project 90 land development.
      --$75,000 to update and refine the Ten-year Capital Investment Plan.
      --$200,000 to continue developing property in and adjacent to
            Arlington National Cemetery, in accordance with the Concept
            Land Utilization Plan.
      --$1,640,000 to complete repairs at the equipment and vehicle service
            complex.
      --$500,000 to repair roads and walkways.
      --$450,000 to repair flagstone and sidewalks.
      --$420,000 to continue the grave liner program.
      --$300,000 to repair storm and sanitary sewer lines.
      --$610,000 to design and build a stone boundary wall at the Facility
            Maintenance Complex parking facility.
      --$400,000 to conduct utility surveys.
      --$500,000 to study upgrades for the visitor center and
            administration building.
      --$187,000 to perform minor projects such as painting and cleaning
            facilities.
        Three of the above projects are particularly important to increase
    the capacity of Arlington National Cemetery, so that space is available
    for burials into the next century. They are described further in the
    following paragraphs.
        Project 90 Land Development.--As the table displayed earlier in
    this statement illustrates, capacity in the currently developed area of
    Arlington National Cemetery will be exhausted by 2012. In order to
    extend the Cemetery's useful life to 2025, it is necessary to develop
    the remaining 40 acres of open land within its current boundaries. This
    involves the development of gravesite areas, roads, utilities and a
    boundary wall with niches for the placement of cremated remains.
    Approximately 26,000 additional gravesites and 5,000 niches will be
    provided when the development is complete.
        Significant crowding is already occurring due to the ever-shrinking
    land available in the Cemetery. This is compromising the dignity of
    funerals by distracting families at ongoing nearby services, as well as
    disruptions caused by daily maintenance required to be performed at new
    gravesites.
        The Project 90 land development is fully designed and $9.4 million
    in construction funds for Phase I were appropriated in fiscal year
    2003. Phase I consists of grading the site, relocating utilities,
    constructing roads and landscaping gravesite areas. Construction of
    Phase I is scheduled to begin this spring and be finished within 2
    years.
        The fiscal year 2005 budget includes $5 million for Phase II of
    Project 90. Phase II primarily entails construction of a new boundary
    niche wall that will hold the ashes of cremated remains on the inside
    of the wall. The niches and covers will be the same size and resemble
    those currently used at the existing Columbarium Complex.
        Ten-year Capital Investment Plan.--By our letter of February 5,
    2002, we provided this subcommittee with a 10-year plan that identifies
    the Cemetery's new construction, major rehabilitation, major
    maintenance and study proposals for the next 10 years. It addresses
    projects identified in the 1998 Master Plan and other projects needed
    to ensure that the cemetery remains open for burials into the twenty-
    second century. It also serves as a guide for annually recurring
    maintenance needs of the Cemetery.
        The fiscal year 2005 budget includes $75,000 to continue developing
    and refining this multi-year plan for funding projects in a technically
    sound and financially efficient manner. This is a living document that
    will be periodically updated to reflect the latest information,
    identify new requirements and improve the quality of cost estimates. It
    is an essential tool in developing a credible long-term investment
    strategy and the budget recommendations that emanate from it.
        Concept Land Utilization Plan.--By our letter of October 27, 2000,
    we provided this subcommittee with a plan that identifies the
    requirements for developing adjacent land for future expansion. The
    first site to be developed is the Millennium Project, which consists of
    the development of 36 acres of land into gravesite areas, roads,
    utilities, columbarium walls, and a boundary wall with niches for the
    placement of cremated remains. Approximately 26,000 additional
    gravesites and 15,000 niches will be provided when development is
    complete. Actual yields could change significantly, depending upon
    final design. The Millennium Project would extend the useful life of
    the Cemetery beyond 2025 to somewhere between 2038 and 2047, depending
    upon final implementation.
        The Millennium Project consists of three parcels of land. The first
    parcel (7 acres) is land already within the boundaries of Arlington
    National Cemetery made available by demolition of the old warehouse
    buildings. The second parcel (12 acres) was transferred to the Cemetery
    from the National Park Service on January 28, 2002, pursuant to the
    authority contained in Section 2863 of Public Law 107-107, the National
    Defense Authorization Act for fiscal year 2002. The final piece of the
    Millennium Project is a 17-acre parcel of adjacent land currently owned
    by Fort Myer (picnic area), which is to be transferred to the Cemetery
    in accordance with Section 2882 of the fiscal year 2000 Defense
    Authorization Act (Public Law 106-65). We are working with Fort Myer to
    implement this land transfer in the near future. With this land
    transfer complete $3,300,000 of design will begin this year and the
    first year of construction is anticipated for 2007.
        The Concept Land Utilization Plan also includes the Navy Annex and
    Fort Myer parking lot, which would extend the Cemetery's life to
    somewhere between 2054 and 2068, again depending upon how these sites
    are ultimately developed. Increasing capacity beyond this time frame
    will require additional land expansion for gravesites or more
    columbarium niches.
        The other items listed in the Construction program are needed to
    address aging and deteriorating infrastructure. These are primarily
    repairs and replacements that should be accomplished to avoid further
    cost increases and potentially disruptive emergency repairs.

                                    FUNERALS

        In fiscal year 2003, there were 3,903 interments and 2,342
    inurnments. In fiscal year 2004, we estimate there will be 3,925
    interments and 2,775 inurnments. Looking ahead to fiscal year 2005, we
    estimate there will be 3,975 interments and 2,825 inurnments.

                           CEREMONIES AND VISITATION

        Millions of visitors, both foreign and American, come to Arlington
    to view the Cemetery and participate in ceremonial events. During
    fiscal year 2003, about 3,100 ceremonies were conducted, with the
    President of the United States attending the ceremonies on Veterans Day
    and Memorial Day.
        During fiscal year 2003, Arlington National Cemetery accommodated
    approximately 4 million visitors, making it one of the most visited
    historic sites in the National Capital Region. A study conducted in the
    1998-1999 time frame confirmed this estimate. A customer survey system
    will be designed and implemented in conjunction with the Cemetery's
    overall automation plan and will be used to collect, enter and analyze
    the survey data.

                         FISCAL YEAR 2004 APPROPRIATION

        The additional $2,868,000 provided in the fiscal year 2004
    appropriation will be used to accelerate the Cemetery's automation
    project ($2,668,000), and address distressed headstones ($200,000). The
    0.59 percent rescission included in the fiscal year 2004 appropriation
    act (Public Law 108-199), amounts to $171,000 for Arlington National
    Cemetery, which has been applied to those additional funds provided.

                                   CONCLUSION

        The funds included in the fiscal year 2005 budget are necessary to
    maintain the existing infrastructure at Arlington National Cemetery,
    provide quality services for its many visitors, make the capital
    investments needed to accommodate burials, and preserve the dignity,
    serenity and traditions of the cemetery. I respectfully ask the
    subcommittee's favorable consideration of our budget.
        Mr. Chairman, this concludes my testimony. We will be pleased to
    respond to questions from the subcommittee.
                                     ______

                      NATIONAL CREDIT UNION ADMINISTRATION

          Prepared Statement of the Honorable Dennis Dollar, Chairman

        Mr. Chairman, Ranking Member Mikulski, and members of the
    subcommittee. As Chairman of the National Credit Union Administration
    (NCUA), I am pleased to submit testimony that presents NCUA's request
    for fiscal year 2005 funding of the Community Development Revolving
    Loan Fund (CDRLF) and to request $1.5 billion in fiscal year 2005
    borrowing authority for our Central Liquidity Facility (CLF), and
    slightly increased CLF operational expenses for the year.

     NATIONAL CREDIT UNION ADMINISTRATION COMMUNITY DEVELOPMENT REVOLVING
                                   LOAN FUND

        The National Credit Union Administration (NCUA) would like to thank
    the subcommittee for continuing its strong support of NCUA's Community
    Development Revolving Loan Fund (CDRLF).
        NCUA remains committed in our efforts to promote and facilitate the
    extension of affordable financial services to individuals and
    communities throughout America as demonstrated by the implementation of
    the agency's successful Access Across America initiative. The CDRLF
    plays a vital role in the success of Access Across America, which is
    designed to reach out to underserved communities and create economic
    empowerment for people from all walks of life. Low-income designated
    credit unions use the loans to further community development by
    providing funding for member loan demand, additional member services,
    and increased credit union capacity to serve members that has resulted
    in the overall improvement of the financial condition of low-income
    credit union members. The grants are used for verifiable and need-based
    technical assistance purposes by low-income designated credit unions.
        Congress established the CDRLF in 1979 to provide low-interest
    loans to credit unions that have been designated low-income by NCUA.
    NCUA has administered the CDRLF for 14 years. By year-end 2003, the
    CDRLF had provided to 224 loans totaling $33.9 million to low-income
    designated credit unions. In 1992, NCUA initiated a technical
    assistance grant (TAG) program in conjunction with the CDRLF which
    funded grants from the interest generated from outstanding CDRLF loans.
    To date, NCUA has provided 1,206 TAGs totaling $2.8 million.
        NCUA views the CDRLF as a resource for incubation monies for low-
    income designated credit unions to initiate or develop services for
    members, thereby providing further opportunities to self-fund or obtain
    more substantial funding. Low-income designated credit unions use CDRLF
    loans to further community development efforts by funding member loan
    demand, provide additional member services, increase capacity to
    service members and improve the financial condition of low-income
    credit union members. TAGs support many of the services low-income
    designated credit unions provide to their members, including member
    financial literacy programs and electronic delivery systems.

    Background
        The CDRLF was established by Congress (Public Law 96-124, Nov. 20,
    1979) through an initial $6 million appropriation to stimulate economic
    development in low-income communities. In 1990 the sole administration
    of the CDRLF was transferred to NCUA after having been administered by
    various Federal agencies.
        Congress did not provide additional appropriations for the CDRLF
    from 1979 to 1996. For fiscal year 1997, Congress appropriated an
    additional $1 million for the loan program with subsequent
    appropriations as follows:

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

    ------------------------------------------------------------------------
    Fiscal Year 1997...................      $1,000,000  Loans.
    Fiscal Year 1998...................       1,000,000  Loans.
    Fiscal Year 1999...................       2,000,000  Loans.
    Fiscal Year 2000...................       1,000,000  Loans.
    Fiscal Year 2001...................         350,000  TAG.
                                                650,000  Loans.
    Fiscal Year 2002...................         350,000  TAG.
                                                650,000  Loans.
    Fiscal Year 2003...................         300,000  TAG.
                                                700,000  Loans.
    Fiscal Year 2004...................       1,000,000  TAG.
                                                200,000  Loans.
    ------------------------------------------------------------------------

        Administrative expenses related to the CDRLF are fully absorbed by
    NCUA. All appropriations, as well as any earnings generated from the
    CDRLF's assets, are provided to the intended low-income designated
    credit unions after any necessary adjustments to recognize potential
    losses in the loan portfolio.

    Qualifying Applicants
        In order to qualify for participation in the CDRLF, credit union
    applicants must have a low-income designation and must serve
    predominantly low-income members. NCUA regulations define low-income
    members as those persons either earning less than 80 percent of the
    average for all wage earners as established by the Bureau of Labor
    Statistics or those whose annual income falls at or below 80 percent of
    the median household income for the Nation. The NCUA standard for 2003
    income for a household was $35,913 and $21,360 for an individual.

    Revolving Loan Component
        The revolving loan component of the CDRLF is designed to assist as
    many qualifying credit unions as possible. Therefore, loans are limited
    to $300,000 and no credit union may have more than two separate loans
    at any one time. Loans must be repaid within 5 years, although a
    shorter repayment period may be considered.
        Generally, loans are required to be paid in semiannual installments
    with no principal balance repayment due during the first year. To
    combat the potential misuse of funds, NCUA regulations require that
    recipient credit unions must match the loan with funding from member
    share deposits or non-member deposits within the first year.
        Interest rates are set annually by the NCUA Board at a rate between
    1 and 3 percent. Due to the current interest rate environment, the NCUA
    Board has set a 1 percent interest rate for 2004.
        NCUA has authorized an open application period for participation in
    the loan program. This unrestricted application period enables low-
    income credit unions--most of which have very few employees and limited
    resources--to develop and present a viable plan for better serving
    their fields of membership. The open application period also allows
    credit unions to implement projects and services on a more timely
    basis.
        During 2002, NCUA revised the loan program in an effort to achieve
    greater flexibility and mitigate risk. Although loan repayments
    accelerated during this period of time, the revised program offset the
    anticipated loss of loans with increased interest and applications for
    the loan program. During 2003, 11 credit union loan applications were
    received.
        Credit unions most likely to utilize the loan program are generally
    small in size with the median asset size of participating credit unions
    since 1990 being $3.4 million.
        To help ensure equality in loan approvals, a scoring system judges
    the purpose of the proposed use of funds, the financial condition of
    the credit union and management's capability of achieving the stated
    objective and operating the credit union in a safe and sound manner. As
    a regulator, NCUA has the added advantage of using credit union
    examinations to ensure the financial stability of loan grantees.

    Technical Assistance Grants (TAGs)
        TAGs are generally awarded in amounts less than $5,000 and are made
    directly to low-income designated credit unions requiring assistance to
    further their outreach into the communities they serve. The grants
    assist these credit unions, generally less than $3 million in assets,
    in their efforts to improve service to their members by providing
    training opportunities to credit union staff, supplying funds for
    operational upgrades in recordkeeping, offering stipends to credit
    unions for summer student intern programs, promoting credit union
    services, developing training and consulting services for members and
    other worthwhile programs. With assistance provided through the TAG
    program, credit unions have also realized improved service in the
    delivery of financial products and services through enhanced
    technology. In 2003, 114 credit unions received more than $259,000
    specifically designated for technology improvements which includes
    upgrades in hardware and software, debit card programs and automated
    response systems.
        To ensure the funds are used solely for the purpose approved,
    grants are issued as reimbursements for goods or services previously
    approved by NCUA and much like the loan component of the CDRLF, TAGs
    are available to low-income designated credit unions throughout the
    year.
        Beginning in 2001, Congress specifically designated a portion of
    its annual appropriations for TAGs. Prior to 2001, the grant program
    was funded solely through earnings from outstanding CDRLF loans and
    never exceeded $250,000.
        Grant requests continue to exceed all available resources. In 2003,
    NCUA received requests for more than $1.2 million. Due to limited
    resources, NCUA was forced to decline requests for more than $750,000
    that could have been used to provide much needed services in low-
    incomes areas. Earlier this year, Congress, recognizing the high demand
    for technical assistance, specifically designated $1 million of the
    total appropriation for the grant component of the CDRLF for fiscal
    year 2004. The additional funding will assist in expanding two existing
    programs available to participating credit unions--the student intern
    program and the Volunteer Income Tax Assistance program, as well as
    establish a number of new community development initiatives.
        From its inception in 1992, the CDRLF has provided 1,206 technical
    assistance grants totaling $2.8 million to low-income designated credit
    unions. In 2003, NCUA disbursed grants totaling $460,000.

    Student Intern Program
        In 1996, NCUA established a student intern program funded entirely
    by the grant component of the CDRLF. The program is designed to provide
    low-income designated credit unions the opportunity for college
    students to contribute to the operations of the credit union while
    learning about the credit union community. The program makes grants
    totaling an average of $69,000 annually, with 28 low-income designated
    credit unions and their 28 credit union partners participating. Student
    interns participating in the program work at both the low-income
    designated credit unions and their partnering credit unions, affording
    them with the opportunity to share best practices between the
    institutions. Response from student and credit union participants has
    been extremely positive. The program is reevaluated annually to assess
    its ongoing impact and feasibility.

    VITA Program
        In 2003, NCUA designated $50,000 for low-income designated credit
    unions establishing VITA (Volunteer Income Tax Assistance) sites. The
    VITA program is administered by the Internal Revenue Service to assist
    low-income and elderly taxpayers with income tax preparation, and to
    encourage low-wage earners to file for the Earned Income Tax Credit
    (EITC). Last year, NCUA granted 13 credit unions a total of $50,000
    dollars to offset some of the administrative burden associated with
    setting up these taxpayer clinics. With the increase in appropriated
    funds for fiscal year 2004 and expectations for increased
    participation, NCUA designated $75,000 for credit unions to set up VITA
    programs for 2005.

    Other TAG Programs
        With the increased funding for fiscal year 2004, NCUA has
    designated funds for new targeted initiatives. NCUA recently announced
    three new TAG programs. This year, $350,000 has been made available to
    low-income designated credit unions for developing financial education
    programs, homeownership initiatives and training assistance.
        The specialized TAG programs emphasize initiatives that help
    communities develop self-sufficiency. The Financial Education
    Assistance Program is intended to provide members and potential members
    with practical money management skills, as well as an introduction to
    financial planning. Credit unions receiving funds through the
    Homeownership Assistance Program will utilize the funds to enhance
    their partnerships with affiliates of the Neighborhood Reinvestment
    Corporation, referred to as Neighbor Works Organizations, in
    establishing and improving mortgage lending/homeownership programs. The
    training program TAGs will cover tuition and travel costs associated
    with attending recognized training courses for credit union staff and
    leaders. Educated and informed credit union staff and volunteers are
    essential to providing safe and sound services to credit union members.
        NCUA is in the process of developing other TAG initiatives to
    assist credit unions in the enhancement of technology systems,
    expansion of financial services to underserved areas, the creation of
    individual development accounts (IDAs), the establishment of remittance
    programs and credit union mentoring opportunities. These programs will
    be announced in the second quarter.
        The CDRLF continues to provide low-income designated credit
    unions--particularly those of smaller asset size--the opportunity to
    obtain loans and technical assistance grants to improve and enhance
    services to their members. Though a small program, it provides valuable
    aid and assistance for those credit unions benefiting from this support
    while striving for self-sufficiency. Credit unions, through their
    cooperative structure, are funded through the share deposits of their
    members. The CDRLF provides needed assistance to further growth and
    viability of participating credit unions serving low-income fields of
    membership. Access to affordable financial services can provide
    underserved communities with a much needed alternative to high-cost
    lenders, allowing the residents to keep more of their money in their
    communities. NCUA firmly believes that, based upon the amount of loan
    and technical assistance grant applications where the needs were unable
    to be met last year, an increase of an additional $800,000 over last
    year's funding level could provide the CDRLF program even greater
    ability to further growth and long-term viability of credit unions in
    low-income and underserved areas.

        NATIONAL CREDIT UNION ADMINISTRATION CENTRAL LIQUIDITY FACILITY

        The National Credit Union Administration Central Liquidity Facility
    (CLF) was created by the National Credit Union Administration Central
    Liquidity Facility Act (Public Law 95-630, Title XVIII, 12 U.S.C. 1795,
    et seq.). The CLF is a mixed ownership government corporation managed
    by the National Credit Union Administration Board. It is owned by its
    member credit unions who contribute all of the capital by the purchase
    of stock. The CLF became operational on October 1, 1979.
        The purpose of the CLF is to improve general financial stability by
    meeting the liquidity needs of credit unions and thereby encourage
    savings, support consumer and mortgage lending and provide basic
    financial resources to all segments of the economy. To accomplish this
    purpose, member credit unions invest in the CLF through the purchase of
    stock, which is used for investment purposes and the funding of some
    lending activity. The proceeds of borrowed funds from the Federal
    Financing Bank are used to match fund significant loan requests from
    member credit unions.
        In addition to serving its direct members, the CLF complements the
    organizational structure of the U.S. credit union financial system by
    working with its agent members, which are corporate credit unions
    acting as agents of the CLF on behalf of their natural person credit
    union membership. This agent framework consists of a private financial
    network of 29 State and federally chartered corporate credit unions
    with approximately $74.5 billion in assets. The corporate credit union
    network provides operational and correspondent services, investment
    products and advice and short-term loans to its approximately 9,751
    natural person credit unions. The CLF provides this network with
    assurance that if temporary liquidity shortages or public confidence
    issues arise due to external events or internal problems, funds are
    available to meet abnormal savings outflow. By being a specialized
    lender housed within NCUA, the CLF has the ability to draw upon the
    supervisory and insurance resources of the agency. However, CLF
    assistance is generally a secondary source of funds after the corporate
    system or other sources of credit have been utilized. Often the CLF is
    used when other credit sources have been unable to provide the
    appropriate terms and conditions required in a specific situation.
        The borrowings of the CLF have the ``full faith and credit'' of the
    United States Government. The Federal Financing Bank of the U.S.
    Treasury is available as a source for the CLF to fund its lending
    programs. The CLF is financially self-supporting and does not use
    government funds to support any of its administrative and operational
    expenses.

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

    Factors Influencing Credit Union Borrowing Demand
        Under the Federal Credit Union Act, the CLF is intended to address
    unusual or unpredictable events that may impact the liquidity needs of
    credit unions. Since these events are not generally foreseen, it is
    extremely difficult to forecast potential loan demand. Throughout the
    history of the CLF, loan demand has widely fluctuated in both volume
    and dollar amount.
        The CLF is authorized by statute to borrow from any source up to 12
    times its subscribed capital stock and surplus. Since fiscal year 2001,
    a borrowing limit of $1.5 billion has been approved by Congress. The
    continuation of the $1.5 billion cap for fiscal year 2005 will further
    assure that the CLF continues as a reliable, efficient backup liquidity
    source in times of need.
        It is important to note that CLF loans are not used to increase
    loan or investment volumes because by statute the proceeds from CLF
    loans cannot be used to expand credit union portfolios. Rather, the
    funds are advanced strictly to support the purpose stated in the
    Federal Credit Union Act--credit union liquidity needs--and in response
    to circumstances dictated by market events.

    Administrative Expenses
        Total operating expenses for fiscal year 2003 were $208,000, below
    the budget limitation of $309,000. Expenses were under budget due to
    lower travel expenses than anticipated due to a reorganization of CLF
    officers and low group agent fee expense.
        Total operating expenses for fiscal year 2004 are projected to be
    within our budget limitation of $310,000. In fiscal year 2004, pay and
    related benefits are higher than 2003 due to salary increases and
    higher agent fee expenses.
        For fiscal year 2005, the CLF is requesting an administrative
    expense limitation of $309,000. This figure is slightly lower than the
    previous year, a result of reduced expenses associated with projected
    operations for 2005.

    Additional Background
        Credit unions manage liquidity through a dynamic asset and
    liability management process. When on-hand liquidity is low, credit
    unions must increasingly utilize borrowed funds from third-party
    providers to maintain an appropriate balance between liquidity and
    sound asset/liability positions. The CLF provides a measure of
    stability in times of limited liquidity by ensuring a back-up source of
    funds for institutions that experience a sudden or unexpected shortage
    that cannot adequately be met by advances from primary funding sources.
    Two ratios that provide information about relative liquidity are the
    loan-to-share ratio and the liquid asset ratio. Liquid assets are
    defined as all investments less than 1 year plus all cash on hand.
    Managing liquidity risk is a major priority for credit unions and has
    become an increasingly important risk issue in the past decade as the
    charts below indicate.

        Chart 1 shows the ratio of loans to shares in all federally insured
    credit unions. As the ratio of loans to shares increases, the amount of
    funds maintained in short-term liquid investments declines. Liquidity
    risk has increased on average in the past decade as on-hand liquidity
    in federally insured credit unions gradually declined due to increased
    lending. A substantial inflow of shares during 2003 reduced the ratio
    from the year-end 2002 high of 70.8 percent down to a year-end 2003
    level of 69.8 percent. Liquidity risk management remains a significant
    obligation for credit unions.

        Chart 2 shows the ratio of liquid assets to total assets in all
    federally insured credit unions. As this ratio decreases, liquidity
    risk and the potential need for borrowed funds conversely increases.
    Credit unions utilize various market sources for funding needs
    including the repurchase market, correspondent relationships with
    corporate credit unions and other financial institutions, and, to a
    growing extent, membership in the Federal Home Loan Bank system. CLF
    serves as a back-up source of liquidity when an unexpected need for
    funds arises and primary sources are not available.
        The CLF continues to experience infrequent demand for liquidity
    loans from its member credit unions. This is due in no small part to
    the strong financial position of credit unions and the ample levels of
    on-hand liquidity maintained during the 1990's. This is not to say,
    however, that credit unions are not in need of a special purpose
    liquidity lender. The CLF is a very important resource for credit
    unions that experience an unexpected need for liquidity, especially
    when primary funding sources are inadequate or unavailable.
        NCUA cannot foresee the exact circumstances that might necessitate
    a broad-based need for CLF lending but is dedicated to the principle
    that it must be ready and able to fulfill that purpose; a purpose
    established by Congress when it created the CLF. Liquidity remains an
    important priority. Like all depository institutions, credit unions are
    forced to borrow if their on-hand supply of liquidity is depleted
    beyond the level of current funding obligations. Credit unions do plan
    for such borrowing but there are times when contingency funding
    arrangements are potentially inadequate. Such times call for a
    responsive CLF.
        Whether it lends on an isolated basis or whether it is called upon
    to address a more widespread or even systemic demand for loans, the CLF
    is an efficient, effective and low-cost facility well adapted to meet
    the unique needs of its member credit unions.

    Summary
        During 2003, credit union assets and shares grew to $610 billion
    and $528 billion respectively, with net worth remaining a strong 10.72
    percent. The number of federally insured credit union members grew to
    over 82 million. These numbers demonstrate the continued safety and
    soundness of the credit union system.
        NCUA greatly appreciates the subcommittee's continued support of
    its efforts to keep credit unions safe and sound, enhance credit union
    liquidity and provide needed assistance through loans and grants to
    low-income credit unions.
                                     ______

                            SELECTIVE SERVICE SYSTEM

            Prepared Statement of Lewis C. Brodsky, Acting Director

                                    PREFACE

        It is an honor to appear before you today again as Acting Director
    of the Selective Service System. I consider it a privilege to be here,
    but I bring with me the added understanding that events both national
    and international will require fresh perspectives and a clear
    recognition of changing realities in this new century. I welcome this
    opportunity to support the President's fiscal year 2005 appropriations
    request of $26,300,000 for the Selective Service System. I also welcome
    the challenge of meeting Agency goals that are all the more ambitious
    for their setting in today's necessary budgetary constraints.
    Naturally, Selective Service will continue pursuing its traditional
    goal of raising nationwide registration compliance among eligible young
    men. But even as the Agency honors its traditional mandate, it is
    securely focused on the future. Our agenda will be dominated by further
    implementation of our Process Improvement Program 2003, so-called PIP,
    in compliance with the President's Management Agenda. Using this self-
    diagnostic tool, the Selective Service will continue to adjust its
    operational priorities, eliminate all remaining full-time military
    staffing, reduce part-time military officers and full-time civilians,
    and employ more state-of-the-art information technologies to accomplish
    its statutory missions while preserving maximum customer service. All
    personnel decrements will be a result of planned attrition and will not
    involve a Reduction-in-Force. Satisfying both goals would assure a
    Selective Service System that is fair beyond reproach while meeting the
    likely needs of the Department of Defense.
        No one awaits more eagerly than I the arrival of a new Director.
    Mr. William A. Chatfield's nomination by President Bush was sent to the
    Senate last September. And his confirmation hearing before the Senate
    Armed Services Committee took place at the end of January. We are
    awaiting further Senate action.

                                  CAPABILITIES

        Selective Service stands ready to perform its mission. Should the
    President and the Congress authorize a return to a draft, the Agency
    can conduct a draft that is efficient, fair, and accepted by the
    public. It is also ready to administer a program of alternative
    community service for men who are classified as conscientiously opposed
    to military service. With its routine communication with all men in the
    United States, 18 through 25 years old, and its ability to mobilize
    national manpower on a large scale, the Agency is also capable of
    performing additional human resource support missions related to
    national and homeland security or service, if Congress and the White
    House so desire.
        Selective Service continues its close partnership with the
    Department of Defense by providing direct support to Armed Forces
    recruiting and accessions processing. Specifically, Selective Service
    provides names of registrants to the Secretary of Defense for
    recruiting purposes, in accordance with a provision in the Military
    Selective Service Act. As we reported previously to this committee,
    information about Armed Forces opportunities and a business reply card
    are now enclosed with the registration acknowledgment that the
    Selective Service sends to each new registrant. Thus, the Defense
    Department benefits by ``piggy-backing'' on our routine mailings and it
    reimburses us for the additional costs.
        Beyond its compliance with the Military Selective Service Act and
    providing these tangible services, the Agency also promotes an
    intangible national benefit. For present and future generations of
    America's young men, Selective Service is a very critical link between
    society-at-large and today's volunteer military. It is a reminder that,
    as Americans, every young man is personally responsible for ``providing
    for the common defense'' in the time-honored tradition of preceding
    generations.

                                 PRIORITY AREAS

        Since becoming Acting Director 14 months ago, I have made sure
    Agency activities conformed to President Bush's Management Agenda.
    Since I last appeared before you, we have completed a reexamination of
    our processes and begun implementation of a restructuring of the Agency
    to meet the most likely manpower needs of the Department of Defense
    (DOD) while finding improved ways of serving the public. I would point
    to three initiatives that we believe satisfy administration and
    Congressional charges to Federal agencies to evolve into performance-
    based organizations.
        1. Process Improvement Project 2003 (PIP).--Expanding upon our
    fiscal year 2002 Agency's Workforce Restructuring Plan, a comprehensive
    ``bottom-up review'' is completed with contractor assistance. After
    consulting with senior Defense manpower officials, it became apparent
    to me that the Agency's current organizational structure hasn't been as
    responsive or relevant to the contemporary needs of the DOD as it might
    be. Consequently, we shifted our programmatic vision from readiness to
    conscript large numbers of untrained men within 193 days of activation
    to a draft of smaller numbers of critical skills personnel within the
    same time frames. This necessary realignment reflects recognition of
    current realities and the latest DOD thinking. It is being accomplished
    within current resources and will result in less management overhead, a
    merging of offices and programs, and an increased potential for
    outsourcing some Agency functions. We are convinced the benefits
    accrued from strategic management of human capital, competitive
    sourcing, improved financial performance, expanded e-Government, and
    better integration between budget and performance will substantially
    increase Agency efficiency in its core and support processes. PIP
    recognizes no ``sacred cows.'' As I promised in my last appearance
    before you, Selective Service has placed all functions and programs on
    the table. Each structural change and staffing decision is being driven
    by practical, cost-conscious considerations.
        2. Registration Compliance.--The SSS registration compliance rate
    for men 18 through 25 years old declined steadily from a high of over
    98 percent in 1991 to a low point of 87.7 percent in 2000. This
    decrease was cause for serious concern because we believe a compliance
    rate of less than 90 percent would contribute to a lack of public
    confidence. The resulting draft would not be considered fair or
    equitable. The public would believe, rightly so, that not everyone who
    should be in the manpower pool is accounted for; and therefore those
    who are registered have an increased chance of being called for
    involuntary service. This is why Agency Directors since 1992 have
    placed a consistent priority on raising the registration rate. By the
    end of 2001, we had turned the corner and started an upward trend,
    achieving 89.1 percent compliance by 18- to 25-year-old men. In 2002 we
    achieved a level of 90.9 percent. Our final accounting for 2003 is not
    yet complete, but initial indications are that nearly 93 percent of men
    18 to 25 years old were registered at the end of the past calendar
    year. The other good news is that the statistics for calendar year 2003
    are indicating a 77 percent compliance rate for ``on-time''
    registration of men turning 18--a 4 percent increase over the previous
    year. Our recent high compliance rates represent a return to the high
    rates of the early 1990's. Since public trust in the Selective Service
    System is at stake, we will use every resource to continue these upward
    trends in compliance. In pursuit of that goal, we:
      --Continue to develop and distribute public service broadcast
            messages to low compliance markets, together with printed
            materials. To support this effort, we have distributed new
            radio public service announcements in English and Spanish.
            These high-quality products have been praised by listeners
            around the country, and cost us only development, replication
            and distribution--commercial air time valued at $1.8 million is
            provided as free public service time.
      --Have continued revamping the interactive Selective Service pages on
            the World Wide Web (www.sss.gov) where online registration,
            database verification, the ability to file changes of
            information, and a wealth of other Agency information are now
            available to anyone with access to the Internet. For calendar
            year 2003, 76 percent of registrations reached the SSS through
            electronic means, or about 152,000 registrations per month. We
            are also placing links to our site with other Federal, State
            and local agencies and schools to enhance public education and
            facilitate customer responsiveness.
      --Are benefitting from an increasing number of States which link
            obtaining a driver's license or State I.D. card to the
            Selective Service registration requirement. These State laws
            currently provide Selective Service with an average of 61,166
            registrations per month. As of this month, 32 States, two
            territories, and the District of Columbia have laws enacted.
            These jurisdictions represent over 62 percent of the national
            18-year-old male registrant population. We continue to work
            closely with additional States where such legislation is
            pending.
        3. Information Technology (IT).--The PIP resulted in new
    initiatives and significant changes to the current way the Agency does
    business. The resulting business cases will indicate what avenues SSS
    can take to modernize its core and support processes. These changes
    will require that the inventory of automated systems be modernized. The
    Agency is in the process of examining its IT architecture, both
    hardware and software, to identify new technology and to determine how
    best to implement the support structure for the new and revised
    business processes. We remain committed to investing in IT, as today's
    constrained resources permit, because we know that it enhances customer
    service, increases productivity, and compensates for limited human and
    fiscal resources.

                              ADAPTABLE TO CHANGE

        We are also ready to aid the Congress with any initiatives that
    might capitalize upon Selective Service's unique capabilities. There
    has been much dialogue among the public, private groups, and academia
    concerning a draft, volunteerism, homeland security, and national
    service. Selective Service has a wealth of experience in managing
    volunteers, and administering programs of alternative community-based
    service for men classified as Conscientious Objectors throughout its
    nearly 64 years of existence. The Agency also has experience in
    conducting a fair and equitable classification procedure to determine
    who should serve when not all can serve. To ensure fairness and equity,
    each Selective Service Board is a melting pot of civic-minded men and
    women reflecting the racial, cultural and ethnic diversity of the young
    men within the communities it serves. Through these volunteers, a
    unique bond has been formed at the grass roots with young American men,
    society-at-large, and the U.S. Armed Forces. Through the Selective
    Service structure, every American community plays a positive role in
    providing for the common defense. In short, this Agency has extensive
    practical experience in identifying, contacting and classifying people
    to participate in a national security or service program. Selective
    Service can lend its expertise and ample experience to any appropriate
    task.

                                    CLOSING

        Today, Mr. Chairman, thanks in very large measure to your personal
    interest in this Agency and the continuing support of the subcommittee
    and its staff members, the Selective Service System stands prepared to
    perform its time-tested responsibilities, if so directed. The fiscal
    year 2005 appropriation request of $26,300,000 will be invested
    prudently in one of the Nation's important security assets in an
    increasingly dangerous world. Its rationale for existence and its
    credentials have never changed: to provide a compact, cost efficient
    civilian structure capable of rapid expansion in a crisis; to provide
    manpower to our Armed Forces as required; and to do it fairly,
    equitably, and within the necessary time frames. The Selective Service
    System remains resolute in its organizational realignment and
    operational streamlining. It has improved service to its customers,
    reinforced its commitment to America, and remains an active partner in
    the national preparedness community.
        Thank you, Mr. Chairman.
                                     ______

                     FEDERAL DEPOSIT INSURANCE CORPORATION

                          Office of Inspector General

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

        Mr. Chairman and members of the subcommittee, I am pleased to
    present the fiscal year 2005 budget request totaling $29.9 million for
    the Office of Inspector General (OIG) at the Federal Deposit Insurance
    Corporation (FDIC). This OIG budget has a rather unusual distinction in
    the Federal Government in that it reflects a decrease for the ninth
    consecutive year, after adjusting for inflation. This budget has been
    possible because of the improved health of the banking industry since
    the early 1990's, the major staff downsizing at the FDIC and within the
    OIG, and our internal efforts to improve our performance and
    productivity even with reduced budgets.
        As you know, the FDIC was established by the Congress in 1933,
    during the Great Depression, to maintain stability and public
    confidence in the Nation's banking system. Our Nation has weathered
    several economic downturns since that era without the severe panic and
    loss of life savings unfortunately experienced in those times. The
    Federal deposit insurance offered by the FDIC is designed to protect
    depositors from losses due to failures of insured commercial banks and
    thrifts. The FDIC insures individual deposits of up to $100,000.
    According to the Corporation's Letter to Shareholders, issued for the
    4th Quarter 2003, the FDIC insured $3.451 trillion in deposits for
    9,196 institutions, of which the FDIC supervised 5,313. The FDIC also
    promotes the safety and soundness of these institutions by identifying,
    monitoring, and addressing risks to which they are exposed.
        The Corporation reports that financial institutions have recently
    had record earnings. The rate of bank and thrift failures has remained
    at a relatively low level over the past 10 years, and the Corporation
    has substantially reduced its estimates of future losses from failures.
    Assets held in receiverships following bank failures are at
    comparatively low levels, and significant progress has been made at
    closing older receiverships. The insurance funds are now comfortably
    above the designated reserve ratio that could otherwise trigger
    increases in premiums assessed on insured depository institutions.
    These are important indicators of a healthy banking system, and the
    Corporation can take pride in its positive contributions in each of
    these areas.
        The FDIC OIG was established in 1989 in accordance with amendments
    added to the Inspector General (IG) Act. The OIG's program of
    independent audits, investigations, and other reviews assists and
    augments the FDIC's mission. Our efforts promote economy, efficiency,
    and effectiveness of FDIC programs and operations and protect against
    fraud, waste, and abuse.
        I am completing my eighth year as the first FDIC Inspector General
    appointed by the President and confirmed by the Senate and can see the
    fruits of our strategic planning through the results we have achieved
    during fiscal year 2003. I look forward to supporting the Congress, the
    FDIC Chairman, and other corporate management in meeting current and
    future challenges facing the FDIC and the banking industry.
        This statement discusses OIG accomplishments during fiscal year
    2003, our contributions to assist FDIC management, internal initiatives
    to improve the OIG, and management and performance challenges facing
    the FDIC. I am also providing additional details about our fiscal year
    2005 budget and how it will be spent.
          a review of the fdic oig's fiscal year 2003 accomplishments
        The OIG's fiscal year 2003 achievements are impressive, and the
    results include:
      --$96.8 million in actual and potential monetary benefits;
      --193 non-monetary recommendations to FDIC management;
      --35 referrals to the Department of Justice;
      --43 indictments;
      --22 convictions; and
      --5 employee/disciplinary actions.
        More specifically, our accomplishments included 43 completed
    investigations that led to the above indictments and convictions as
    well as fines, court-ordered restitution, and recoveries that
    constitute the bulk of the monetary benefits from our work. Also, we
    issued a total of 47 audit and evaluation reports, which included about
    $431,000 in questioned costs and $2.1 million in recommendations that
    funds be put to better use. The recommendations in these reports aim to
    improve the internal controls and operational effectiveness in diverse
    aspects of the Corporation's operations, including automated systems,
    contracting, bank supervision, financial management, and asset
    disposition.
        Further, the OIG accomplished many of its organizational goals
    during the fiscal year as outlined in our annual performance plan. Our
    2003 Performance Report shows that we met or substantially met 27 of
    our 34 goals, or 79 percent. In a measurable way, this achievement
    shows the progress we continue to make to add value to the Corporation
    with our audits, investigations, and evaluations in terms of impact,
    quality, productivity, timeliness, and client satisfaction. We also met
    or substantially met goals for providing professional advice to the
    Corporation and for communicating with clients and the public.
    Audits, Investigations, and Evaluations
        Examples of the OIG's audit, investigation, and evaluation work
    that contributed to these accomplishments follow.
        Material Loss Review of the Failure of Southern Pacific Bank,
    Torrance, California.--The OIG issued the results of its material loss
    review of Southern Pacific Bank and determined that the failure
    occurred because of ineffective corporate governance at the
    institution, leading to a potential loss of about $91 million. The
    report contained recommendations designed to improve the bank
    supervision process and promote the safety and soundness of FDIC-
    supervised institutions. The report also raised an issue related to
    oversight of parent holding companies of industrial loan companies--one
    that we are pursuing in ongoing work.
        Investigation into the Failure of Oakwood Deposit Bank Company.--
    Following the failure of Oakwood Deposit Bank Company on February 1,
    2002, the OIG, Internal Revenue Service Criminal Investigation, and the
    Federal Bureau of Investigation initiated a joint investigation. The
    ongoing investigation has thus far led to the conviction of the bank's
    former president and Chief Executive Officer. After pleading guilty in
    May 2003 to bank embezzlement and money laundering, the former bank
    president was sentenced in September 2003 for his role in the fraud
    scheme that caused the failure of the 99-year-old bank. The defendant
    was sentenced to 14 years' imprisonment to be followed by 5 years'
    supervised release and was ordered to pay $48,718,405 in restitution.
        The investigation leading to the defendant's plea found that he
    began embezzling funds from the bank in 1993 with a loan to a family
    member. He admitted to altering bank records and creating paperwork in
    order to conceal the embezzlement, which resulted in losses to the bank
    of approximately $48.7 million and led to the bank's insolvency. As
    part of his plea, the defendant forfeited any and all of his interest
    in property controlled by Stardancer Casinos Inc. and its subsidiaries,
    as he was an investor and part owner of Stardancer. In late 1998, the
    defendant began investing embezzled bank funds into Stardancer Casinos
    Inc., a casino gambling operation originally headquartered near Myrtle
    Beach, South Carolina. Over the course of the next 3 years, the
    defendant embezzled over $43 million to purchase casino vessels and
    fund the operations of the casino business. The defendant forfeited
    bank accounts relating to Stardancer and two other companies identified
    in the investigation. He also forfeited real estate and investments in
    Florida, Ohio, Texas, and South Carolina; his interest in any of the
    Stardancer vessels and equipment; $520,450 in currency seized by the
    government; and any substitute properties owned by him but not
    identified in the investigation as the proceeds of criminal activities.
        Investigation of Scheme to Defraud Community Bank of Blountsville,
    Alabama.--In October 2003, an ongoing investigation by the OIG and FBI
    into an alleged fraud scheme at Community Bank of Blountsville,
    Alabama, led to a 25-count indictment against the bank's former
    chairman and chief executive officer (CEO), the bank's former vice-
    president for construction and maintenance, and the owner of a
    construction services company. The indictment charges the three
    defendants with bank fraud, misapplication of bank funds, false
    statements to a financial institution, and false entries in the books
    and records of a financial institution. The indictment also charges the
    former CEO with money laundering and filing false tax returns, and
    seeks from him forfeiture of $3.45 million. The three defendants
    allegedly conspired to use $2.15 million in bank funds for construction
    work on the CEO's personal projects, including a 17,000-square-foot
    home. While the CEO obtained more than $5 million in bank loans to
    build his house, he allegedly used more than $1.34 million of those
    funds for other purposes.
        Previously in the investigation, a couple who owned a construction
    company were found guilty on charges of bank fraud and conspiracy to
    commit bank fraud and were sentenced to 18 months' incarceration and
    ordered to pay restitution totaling $178,000. Our investigation found
    that the couple submitted invoices for construction work purportedly
    performed for Community Bank. Some of the invoices were for work never
    performed, and other invoices were for personal construction work
    performed for the bank's CEO, his relatives, and the bank's vice
    president of construction and maintenance. Evidence was presented at
    trial to show that the records of the bank were falsified to reflect
    that the work was completed at the bank's facilities.
        Investigation of Fraud by Securities Dealer Misrepresenting FDIC
    Affiliation.--Following an FDIC OIG investigation, a securities dealer
    was sentenced in the Riverside County District Court, Riverside,
    California, to serve 6 years' imprisonment and ordered to pay $20,000
    in fines. The sentencing was based on his plea of guilty in October
    2002 to an amended complaint charging him with selling unregistered
    securities, fraud, and theft. The subject, doing business as Jeffco
    Financial Services, was licensed to sell securities through San
    Clemente Services, Inc., another company involved in the sale of
    brokered certificates of deposit (CDs). Relying on information they
    were provided regarding FDIC insurance coverage, investment yields,
    fees, and commissions, investors purchased approximately 1,241 CDs
    totaling $67,390,735 from Jeffco Financial Services. The felony
    complaint to which the subject pleaded guilty lists the names of 59
    individuals or entities to whom he offered or sold unregistered
    securities which are described in the complaint as ``investment
    contracts in the form of interests in custodialized CDs.'' He also
    pleaded guilty to making misrepresentations regarding ``annual average
    yield,'' theft of property exceeding $2.5 million in value, and
    participating in a pattern of felony conduct involving the taking of
    more than $500,000. The FDIC OIG investigation was initiated based on a
    referral by the FDIC's Division of Supervision and Consumer Protection
    of information obtained during the examination of a bank indicating
    irregularities in deposits the bank had placed with San Clemente
    Services.
        Evaluation of the FDIC's Information Technology Security Program.--
    In our 2003 independent evaluation of the FDIC's Information Security
    Program, required by the Federal Information Security Management Act,
    we concluded that the Corporation had established and implemented
    management controls that provided limited assurance of adequate
    security over its information resources. However, we reported that
    continued management attention was needed in several key management
    control areas, including contractor security, enterprise-wide IT
    architecture management, certification accreditation of major IT
    systems, and IT capital planning and investment control. The report
    highlights 10 key areas where the Corporation needed to focus attention
    to address information security weaknesses.
        Our semiannual reports to the Congress provide many other examples
    of OIG accomplishments. These reports can be found on our Web page at
    www.fdicig.gov/semi-reports/oig.pdf or by contacting our office.
    Assistance to FDIC Management
        In addition to 2003 audits, investigations, and evaluations, the
    OIG made valuable contributions to the FDIC in several other ways. We
    strive to work in partnership with Corporation management to share our
    expertise and perspective in certain areas where management is seeking
    to make improvements. Among these contributions were the following
    activities:
      --Reviewed 86 proposed corporate policies and 4 draft regulations and
            offered comments and suggestions when appropriate.
      --Commented on the FDIC's strategic and annual performance plans, and
            annual performance report.
      --Provided advisory comments on the FDIC's 2003 Annual Performance
            Plan and 2002 Annual Report.
      --Provided the Corporation with an updated risk analysis document on
            the Quality of Bank Financial Reporting and Auditing and
            Corporate Governance.
      --Participated in division-level conferences and meetings to
            communicate about our audit and investigation work and
            processes.
      --Assisted an FDIC team in developing a paper on the ``Root Causes of
            Bank Failures from 1997 to the Present.''
      --Provided technical assistance and advice to several FDIC groups
            working on information technology issues, including
            participating at the FDIC's information technology security
            meetings. We also participated in an advisory capacity on the
            Information Technology Subcommittee of the Audit Committee.
      --Conducted an annual review of the Corporation's internal control
            and risk management program.
      --Provided oversight to several major system development efforts.
    OIG Management and Operational Initiatives
        An important part of our stewardship over the funding we receive
    includes our continuous efforts to improve OIG operations. During the
    past couple of years, we took several initiatives that continue to have
    great significance on our work and operations.
        The OIG participated in a significant downsizing and restructuring
    initiative with the Corporation. The new organization, though smaller,
    is now more closely aligned with key FDIC mission areas. For example,
    our Office of Audits underwent a major reorganization and is now
    organized around four operational directorates: Resolution,
    Receivership, and Legal Services; Supervision and Insurance;
    Information Assurance; and Resources Management. A fifth directorate,
    Corporate Evaluations, performs corporate-wide and other evaluations.
        During this past year we have continued to invest in our people and
    the performance capacity of the OIG. During fiscal year 2002, we issued
    a Human Capital Strategic Plan, which outlines four objectives to
    maximize the return on our human capital investments. The objectives
    relate to workforce analysis; competency investments; leadership
    development; and a results-oriented, high-performance culture. Two
    objectives of the plan were substantially met during this past year and
    each will serve as the basis for future important human capital
    projects. The OIG Business Knowledge Inventory System and the OIG Key
    Competencies Project together provide valuable information to the OIG
    on its skills and knowledge and will help identify where we need to
    make investments in training, professional development, and
    recruitment.
        Six competencies were developed that we believe all OIG staff need
    to contribute successfully to the OIG mission and goals. These
    competencies form the basis for performance expectations of every OIG
    employee, including executives. The competencies are: achieves results,
    communicates effectively, demonstrates teamwork, exhibits technical
    competency, demonstrates responsibility and self-development, and leads
    effectively. Each of these competencies has been further defined with
    subsidiary criteria describing the types of performance behaviors
    included under the competency. We believe full integration of these
    core competencies into the OIG's human capital system will help foster
    a greater results-oriented, high-performance culture and enhance
    accomplishment of OIG strategic goals and objectives.
        Our strategic goals are interrelated, as follows:
        Value and Impact.--OIG products will add value by achieving
    significant impact related to addressing issues of importance to the
    Chairman, the Congress, and the public.
        Communication and Outreach.--Communication between the OIG and the
    Chairman, the Congress, employees, and other stakeholders will be
    effective.
        Human Capital.--The OIG will align its human resources to support
    the OIG mission.
        Productivity.--The OIG will effectively manage its resources.
        Other internal initiatives include our hosting an interagency
    symposium on the Federal Information Security Management Act of 2002.
    Representatives from 44 Federal agencies attended the symposium to
    share information, ideas, and best practices related to the
    implementation of FISMA. We also co-sponsored a second Emerging Issues
    Symposium with the Offices of Inspector General of the Department of
    the Treasury and the Board of Governors of the Federal Reserve System,
    bringing together distinguished speakers who shared their perspectives
    on the banking and financial services community with Inspector General
    staff in the interest of enhancing the value that OIGs can add to their
    agencies by successfully addressing risk areas. We also conducted our
    fifth external customer survey regarding satisfaction with OIG
    operations and processes. In keeping with the spirit of the 25th
    anniversary of the IG Act, all OIG staff had an opportunity to recommit
    to the mission of the OIG during an office-wide conference held in
    October 2003. Our conference focused on the FDIC OIG's mission, vision,
    and core values. In pursuit of our mission, vision, and values, we
    designed several sessions at the conference so that our staff could
    discuss how their service contributes to accomplishing our strategic
    goals.
    Other Activities
        I continued my role as Vice Chair of the President's Council on
    Integrity and Efficiency (PCIE) and have held this position since April
    1999. The Council maintains six standing committees to initiate and
    manage audit, investigation, evaluation, legislation, professional
    development, and integrity issues and projects in the Inspector General
    community. The PCIE has been very active in helping the government
    achieve better results and has concentrated many of its activities on
    areas that would facilitate agency efforts related to the President's
    Management Agenda. To enhance the community's ability to continue
    fulfilling its mission, the PCIE co-hosted its annual conference to
    highlight challenges and explore ways to address them. Further, the
    PCIE issued its annual report to the President. In addition, my office
    led the PCIE initiative to update and revise the Quality Standards for
    Federal Offices of Inspector General (Silver Book). I also represented
    the OIG community within government before the Congress, delegations of
    foreign visitors, and professional organizations.
        Also, I played an active role in many of the community's activities
    celebrating the 25th anniversary of the IG Act, including meeting with
    President Bush, participating in IG interviews on C-Span's Washington
    Journal, and awarding 134 individuals and teams at the community's
    annual awards program. On December 1, 2003, the President signed a
    joint congressional resolution recognizing the IG community on its 25th
    anniversary and its accomplishments fostering good government.
        Finally, the FDIC OIG completed a peer review of the nationwide
    audit operations of the Department of Commerce.
             management and performance challenges facing the fdic
        In the spirit of the Reports Consolidation Act of 2000, the OIG
    annually identifies the top management and performance challenges
    facing the FDIC. We have worked with the FDIC to prepare our annual
    assessment. Our update of the challenges as of December 19, 2003, was
    included in the FDIC's performance and accountability report dated
    February 13, 2004. The challenges capture the risks and opportunities
    we see before the Corporation in the coming year or more. In addition,
    these challenges serve as a guide for our work. Notwithstanding the
    current strength of the banking industry, the Corporation must continue
    to be vigilant because challenges are ever-present and can threaten the
    Corporation's success. I will briefly discuss each of the challenges
    and, where appropriate, describe OIG initiatives that address the
    challenge.
        1. Adequacy of Corporate Governance in Insured Depository
    Institutions.--Corporate governance is generally defined as the
    fulfillment of the broad stewardship responsibilities entrusted to the
    Board of Directors, Officers, and external and internal auditors of a
    corporation. A number of well-publicized announcements of business
    failures, including financial institution failures, have raised
    questions about the credibility of accounting practices and oversight
    in the United States. These recent events have increased public concern
    regarding the adequacy of corporate governance and, in part, prompted
    passage of the Sarbanes-Oxley Act of 2002. The public's confidence in
    the Nation's financial system can be shaken by deficiencies in the
    adequacy of corporate governance in insured depository institutions.
        To assist the Corporation in meeting this challenge, we conducted
    two audits this past year that relate to material losses caused by the
    failures of the Connecticut Bank of Commerce, Stamford, Connecticut and
    the Southern Pacific Bank, Torrance, California. The audits concluded
    that these banks failed because of ineffective corporate governance,
    including the external auditors' issuance of unqualified opinions on
    the banks' financial statements, and led to an estimated loss of almost
    $200 million to the insurance funds. Our work on eight other material
    loss reviews we have conducted since 1993 also identified inadequate
    corporate governance as the primary cause of each failure.
        We also conducted two audits related to the FDIC's examination of
    institutions for compliance with anti-money laundering requirements.
    The first audit focused on the FDIC's implementation of the United and
    Strengthening America by Providing Appropriate Tools Required to
    Intercept and Obstruct Terrorism Act of 2001 (Patriot Act). We found
    that the FDIC had not issued guidance to its examiners for those
    provisions of the Patriot Act requiring new or revised examination
    procedures, because the FDIC was either coordinating the issuance of
    uniform procedures with an interagency committee or waiting for the
    Treasury Department to issue final rules. As a result of our audit, the
    FDIC promptly issued interim guidance to its examiners and the uniform
    rules were issued 2 months later. The second audit focused on the
    FDIC's supervisory actions taken to address violations of the Bank
    Secrecy Act of 1970 (BSA). We concluded that the FDIC needs to
    strengthen its follow-up process for BSA violations and has initiatives
    underway to reassess and update its BSA policies and procedures. We
    recommended actions intended to strengthen the FDIC's monitoring and
    follow-up efforts for BSA violations, update guidance for referring
    institution violations to the Treasury Department, and provide
    alternative coverage when State examinations do not cover BSA
    compliance. FDIC management concurred with the recommendations and is
    taking corrective action.
        2. Protection of Consumer Interests.--The availability of deposit
    insurance to protect consumer interests is a very visible way in which
    the FDIC maintains public confidence in the financial system.
    Additionally, as a regulator, the FDIC oversees a variety of statutory
    and regulatory requirements aimed at protecting consumers from unfair
    and unscrupulous banking practices. The FDIC, together with other
    primary Federal regulators, has responsibility to help ensure bank
    compliance with statutory and regulatory requirements related to
    consumer protection, civil rights, and community reinvestment.
        The OIG's recent coverage in this area includes reviews of
    compliance with the Gramm-Leach-Bliley Act, Community Reinvestment Act,
    and the Fair Lending Act. We plan to review new FDIC compliance
    examination procedures in 2004.
        3. Management and Analysis of Risks to the Insurance Funds.--The
    FDIC seeks to ensure that failed financial institutions are and
    continue to be resolved within the amounts available in the insurance
    funds and without recourse to the U.S. Treasury for additional funds.
    Achieving this goal is a significant challenge because the insurance
    funds generally average just over 1.25 percent of insured deposits and
    the FDIC supervises only a portion of the insured institutions. In
    fact, the preponderance of insured assets are in institutions
    supervised by other Federal regulators. Therefore, the FDIC has
    established strategic relationships with other regulators surrounding
    their shared responsibility of helping to ensure the safety and
    soundness of the Nation's financial system. Economic factors also can
    pose a considerable risk to the insurance funds. The FDIC actively
    monitors such factors as interest rate margins and earnings in the
    financial sector in an effort to anticipate and respond to emerging
    risks.
        To assist the FDIC in meeting this challenge, we conducted audits
    that focused on FDIC examiners' assessments of commercial real estate
    loans and high-loan growth, implementation of statutory prompt
    corrective action provisions and a number of other audits related to
    supervision and insurance issues. We also issued a follow-up report to
    an earlier report entitled ``The Effectiveness of Prompt Corrective
    Action Provisions in Preventing or Reducing Losses to the Deposit
    Insurance Funds'', dated March 26, 2002. Our ongoing work relating to
    safety and soundness examinations is assessing the effectiveness of the
    Corporation's examination assessment of bank management. In addition,
    we plan to review examination assessment of capital and supervision of
    industrial loan companies.
        4. Effectiveness of Resolution and Receivership Activities.--One of
    the FDIC's primary corporate responsibilities includes planning and
    efficiently handling the resolutions of failing FDIC-insured
    institutions and providing prompt, responsive, and efficient resolution
    of failed financial institutions. In this regard, the depositors of
    insured banks and savings associations are a unique responsibility for
    the FDIC. These activities maintain confidence and stability in our
    financial system. Notably, since the FDIC's inception over 70 years
    ago, no depositor has ever experienced a loss of insured deposits at an
    FDIC-insured institution due to a failure.
        To address this area we reviewed the FDIC's efforts to ensure that
    bank customers have timely access to their insured deposits at failed
    institutions. Also, we conducted an audit to assess the FDIC's
    Readiness Program to respond to a series of failures exceeding the
    FDIC's capacity to handle with its own resources. A focus of our future
    work will be the Asset Servicing Technology Enhancement Project, which
    is designed to provide an integrated solution that supports the FDIC's
    current and future asset servicing functions based on adaptable
    computing technology and data sharing that is compatible with industry
    standards.
        5. Management of Human Capital.--Human capital issues pose
    significant elements of risk that interweave all the management and
    performance challenges facing the FDIC. The FDIC has been in a
    downsizing mode for the past 10 years as the workload from the banking
    and thrift crisis has been accomplished. As a result, FDIC executives
    and managers must be diligent and continually assess the goals and
    objectives, workload, and staffing of their organizations and take
    appropriate steps to ensure that the workforce has the right experience
    and skills to fulfill its mission. The Corporation has created the
    Corporate University to address skill levels and preserve institutional
    knowledge in its five main lines of business. The Corporation is also
    in the process of revamping its compensation program to place greater
    emphasis on performance-based initiatives.
        The OIG recently completed an evaluation of the Corporation's human
    capital framework and we have a series of reviews planned to address
    the various components of the human capital program, with the next
    being strategic workforce planning.
        6. Management and Security of Information Technology Resources.--
    Management and security of information technology resources remains one
    of the Corporation's most expensive and daunting challenges.
    Information technology (IT) continues to play an increasingly greater
    role in every aspect of the FDIC mission. Our work required under the
    Federal Information Security Management Act of 2002 has shown that the
    Corporation has worked hard to implement many sound information system
    controls to help ensure adequate security. However, daunting challenges
    remain due to the ever-increasing threat posed by hackers and other
    illegal activity. We have urged the FDIC to stay the course in
    developing an enterprise-wide IT architecture that maps current and
    ``to be'' states of business processes and the supporting information
    systems and data architecture. Additionally, we have emphasized
    completing system certification and accreditation processes to test the
    security of deployed IT assets.
        We have addressed this area through our previously mentioned annual
    evaluation of FDIC's Information Security Program. In addition, we have
    completed and ongoing assignments covering the IT capital planning and
    investment control process to assist the Corporation in this area. We
    also plan to routinely test the controls of selected major business
    systems supporting critical functions such as premium assessment,
    resolution and marketing, and human resource management.
        7. Security of Critical Infrastructure.--To effectively protect
    critical infrastructure, the FDIC's challenge in this area is to
    implement measures to mitigate risks, plan for and manage emergencies
    through effective contingency and continuity planning, coordinate
    protective measures with other agencies, determine resource and
    organization requirements, and engage in education and awareness
    activities.
        To assist the FDIC in this area, we reviewed the progress the
    Corporation has made in implementing its Information Security Strategic
    Plan. Also, we conducted a review of the adequacy of the FDIC's
    approach to assessing business continuity planning at FDIC-supervised
    institutions. In addition, our ongoing work includes coverage of
    physical security and business continuity planning for the FDIC.
        8. Management of Major Projects.--The FDIC has engaged in several
    multi-million dollar projects, such as the New Financial Environment,
    Central Data Repository, and Virginia Square Phase II Construction.
    Without effective project management, the FDIC runs the risk that
    corporate requirements and user needs may not be met in a timely, cost-
    effective manner.
        The OIG has performed several reviews of these projects, and our
    results pointed to the need for improved defining, planning,
    scheduling, and control of resources and tasks to reach goals and
    milestones. The Corporation has included a project management
    initiative in its 2004 performance goals and established a program
    management office to address the risks and challenges that these kinds
    of projects pose. We will continue to focus on the major corporate
    initiatives discussed above.
        9. Cost Containment and Procurement Integrity.--As steward for the
    Bank Insurance Fund and Savings Association Insurance Fund, the FDIC
    seeks ways to limit the use of those funds. Therefore, the Corporation
    must continue to identify and implement measures to contain and reduce
    costs, either through more careful spending or assessing and making
    changes in business processes to increase efficiency.
        The Corporation has taken a number of steps to strengthen internal
    control and effective oversight. However, our work in this area
    continues to show that further improvements are necessary to reduce
    risks, such as requirements definition, the consideration of contractor
    security in acquisition planning, incorporation of information security
    requirements in FDIC contracts, oversight of contractor security
    practices, and compliance with billing guidelines. Our audits continue
    to assist the Corporation in this area.
        10. Assessment of Corporate Performance.--The Corporation has made
    significant progress in implementing the Government Performance and
    Results Act of 1993 and needs to continue to address the challenges of
    developing more outcome-oriented performance measures, linking
    performance goals and budgetary resources, implementing processes to
    verify and validate reported performance data, and addressing
    crosscutting issues and programs that affect other Federal financial
    institution regulatory agencies.
        The OIG has played an active role in the evaluation of the
    Corporation's efforts in this area and we have additional reviews
    planned that will look at the Corporation's budgeting and planning
    process and its strategic and annual planning process under the Results
    Act.

                   THE OIG'S FISCAL YEAR 2005 BUDGET REQUEST

        The proposed fiscal year 2005 OIG budget includes funding in the
    amount of $29,965,000 or $160,000 less than fiscal year 2004. This
    budget will support an authorized staffing level of 160, a further
    reduction of 8 authorized staff (5 percent) from fiscal year 2004. The
    budget must also absorb higher projected expenses for salaries,
    employee benefits, and other costs that will increase due to inflation.
    This will become the ninth consecutive year OIG budgets have decreased
    after adjusting for inflation. The graph below shows the OIG's budget
    history since I became the Inspector General in 1996.

        The FDIC has been operating under an appropriated budget since
    fiscal year 1998 in accordance with Section 1105(a) of Title 31, United
    States Code, which provides for ``a separate appropriation account for
    appropriations for each Office of Inspector General of an establishment
    defined under Section 11(2) of the Inspector General Act of 1978.''
    This funding approach is part of the statutory protection of the OIG's
    independence. The FDIC OIG is the only appropriated entity in the FDIC.
    The OIG's appropriation would be derived from the Bank Insurance Fund,
    the Savings Association Insurance Fund, and the FSLIC Resolution Fund.
    These funds are the ones used to pay for other FDIC operating expenses.
    Budget by Strategic Goals and Major Spending Categories
        For fiscal year 2005, the OIG developed the budget based on the
    four strategic goals outlined in its Strategic Plan and discussed
    earlier in this statement. The four strategic goals, along with their
    associated budget dollars, are listed as follows:

        The following chart shows the distribution of the OIG's budget by
    major spending categories. Mostly, the OIG budget is comprised of
    salaries and benefits for its employees and the necessary funding for
    travel and training expenses.

        As I discussed earlier, the OIG has significantly downsized not
    only in the last few years, but also since 1996. The OIG has decreased
    its authorized level of 215 staff for fiscal 2002 to 160 for fiscal
    2005--about a 26-percent reduction. Since I became the FDIC Inspector
    General in 1996, our staff has decreased from 370 to the current level,
    or a total decrease of about 57 percent. Overall, FDIC staffing
    declined from 9,151 to 5,300 from 1996 to 2003. The graph below shows
    the authorized OIG staffing since the merger of RTC in 1996.

                               CONCLUDING REMARKS

        Mr. Chairman and members of the subcommittee, I appreciate the
    support and resources we have received through the collaboration of the
    President, the Congress, this subcommittee, and the FDIC over the past
    several years. As a result, the OIG has been able to make a real
    difference in FDIC operations in terms of financial benefits and
    improvements, and by strengthening our own operations and efficiency.
    Our budget request for fiscal year 2005 is modest in view of the value
    we add. Like many governmental organizations, we are faced with
    succession planning challenges, which are of particular concern in a
    downsizing environment. We have begun to address this issue through a
    modest recruitment program; however, any further downsizing could have
    a serious impact on this effort. We seek your continued support so that
    we will be able to effectively and efficiently conduct our work on
    behalf of the Congress, FDIC Chairman, and the American public.
        Having just celebrated the 25th year since passage of the Inspector
    General Act and the 15th anniversary of the FDIC OIG, I take pride in
    my organization and the entire Federal Inspector General community and
    its collective achievements. Building on this legacy, we in the FDIC
    OIG look forward to new challenges and assisting the Congress and
    corporate officials in meeting them.
                                     ______

                      AMERICAN BATTLE MONUMENTS COMMISSION

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

        Mr. Chairman and members of the committee, thank you for the
    opportunity to provide a written statement on the American Battle
    Monuments Commission's fiscal year 2005 Appropriation Request. The
    special nature of the American Battle Monuments Commission (ABMC)
    places it in a unique and highly responsible position with the American
    people. The manner in which we care for our country's Honored War Dead
    is, and should remain, a reflection of the high regard in which we, as
    a Nation, respect their service and sacrifice.

                                   ABMC FOCUS

        The American Battle Monuments Commission is responsible for
    commemorating the services of American Armed Forces where they have
    served since April 6, 1917 (the date of U.S. entry into World War I)
    through the establishment of suitable memorial shrines; and for
    designing, constructing, operating, and maintaining permanent American
    burial grounds in foreign countries. In performing these functions, we
    administer, operate, and maintain 24 permanent memorial cemeteries and
    25 monuments, memorials, and markers in the United States and 15
    countries around the world.
        We have eight World War I and 14 World War II cemeteries located in
    Europe, the Mediterranean, North Africa and the Philippines. All of
    these cemeteries are closed to burials except for the remains of the
    War Dead who may occasionally be discovered in World War I or World War
    II battlefield areas. In addition, we are responsible for the American
    cemeteries in Mexico City, established after the Mexican War, and in
    Panama.
        Presently, 124,917 U.S. War Dead are interred in these cemeteries--
    30,922 of World War I, 93,245 of World War II and 750 of the Mexican
    War. Additionally, 6,010 American veterans and others are interred in
    the Mexico City and Corozal (Panama) American Cemeteries. Commemorated
    individually by name on stone tablets at the World War I and II
    cemeteries and three memorials on U.S. soil are the 94,135 U.S.
    servicemen and women who were Missing in Action, or lost or buried at
    sea during the World Wars and the Korean and Vietnam Wars.

                                 ABMC SERVICES

        We provide services and information to the public, friends, and
    relatives who visit our cemeteries and memorials. This includes
    information about grave and memorialization sites as well as location,
    suggested routes and modes of travel to the cemeteries or memorials.
    Immediate family members receive from us letters authorizing fee-free
    passports for overseas travel to visit a loved one's grave or memorial
    site. During fiscal year 2003, over 8 million people visited our
    cemeteries and monuments worldwide; more than half of these visitors
    were American citizens. Photographs of individual headstones and
    sections of the Tablets of the Missing on which the service person's
    name is engraved are also available. We mount these photographs on
    large color lithographs of the cemeteries or memorials. In addition, we
    assist those who wish to purchase floral decorations for placement at a
    grave or memorial site in our cemeteries. A photograph of the in-place
    floral arrangement is provided to the donor.
        The care of these shrines to our Armed Forces requires a sizeable
    annual program of maintenance and repair of facilities, equipment, and
    grounds. This care includes upkeep of 131,000 graves and headstones; 73
    memorial structures; 41 quarters and maintenance facilities; 67 miles
    of roadways and walkways; 911 acres of flowering plants, fine lawns and
    meadows; nearly 69 acres of shrubs and hedges and over 11,000
    ornamental trees. Care and maintenance of these resources are
    exceptionally labor intensive, therefore, personnel costs account for
    over 53 percent of our budget for fiscal year 2004. Some of this
    maintenance is performed by casual labor, in peak seasons, since
    permanent cemetery staffs are not sized to provide all the required
    maintenance during the peak-growing season. The remaining 47 percent of
    our budget funds our engineering, maintenance, utilities, equipment,
    and administrative costs.

                                ABMC CHALLENGES

        The most significant challenge facing ABMC for the next several
    years will be the relatively weak position of the U.S. dollar against
    the Euro. This challenge affects our ability to move forward in
    completing our core operating programs.
        From fiscal year 1998 through fiscal year 2001, the dollar was
    strong against foreign currencies with which we dealt. Due to this
    strength, we were able to transfer foreign currency gains to our
    Foreign Currency Fluctuation Account (FCFA) with the U.S. Treasury to
    accommodate future losses. However, since fiscal year 2002, we have
    been faced with significant losses with respect to the Euro, and have
    transferred most of our prior year gains from our FCFA to offset our
    operating accounts.
        At the time preparations of the fiscal year 2005 budget began, we
    anticipated that the dollar was gaining strength against the Euro. At
    the time we submitted our budget to the Office of Management and Budget
    (OMB), we did not believe we would require additional funding to offset
    foreign currency losses because we expected the dollar to strengthen.
    Among other indicators, the European Bank had given indications that it
    would lower interest rates which would have weakened the Euro against
    the dollar. That never happened and based on the current trend; we
    anticipate that our FCFA balance will be depleted by the end of fiscal
    year 2004. Unless we are able to replenish our FCFA, we will have to
    reduce our spending in core operating programs to accommodate foreign
    currency losses, thus slowing the rate that we modernize our
    infrastructure and pushing out our timeline for achieving productivity
    goals. It is most difficult to predict what the strength of the dollar
    versus the Euro will be as we execute fiscal year 2005. However, if the
    dollar ranges from where it is today to as much as 5 percent stronger,
    we can anticipate losses of between $6 and $8 million in fiscal year
    2005 that would have to be offset by realigning funding in all areas
    including the infrastructure modernization and productivity programs.
    Such actions could have a dramatic negative impact on our operations in
    fiscal year 2005.
        As an organization responsible for operating and maintaining
    permanent burial facilities for our country's Honored War Dead, we do
    not have the option of closing or consolidating cemeteries.

           ABMC'S CONTRIBUTIONS TO THE PRESIDENT'S MANAGEMENT AGENDA

        Within the context of the President's Management Agenda, we have
    continued our efforts to achieve greater efficiency and effectiveness
    in the areas where we do have alternatives.

    Strategic Management of Human Capital
        Such efforts demand the strategic management of human capital. We
    analyze our work force to maximize the efforts of employees who deliver
    our services.
        In fiscal year 2000, ABMC and OMB conducted a joint productivity
    study to determine if equipment modernization, leasing, outsourcing,
    and automation improvements could increase the efficiency of our
    cemetery workers. Industry experts from two major turf and grounds-
    keeping equipment manufacturers participated in the study. They
    concluded that opportunities existed to reduce work-hours associated
    with labor-intensive operations, potentially offsetting the requirement
    for additional personnel. During fiscal year 2001, we continued our
    study and began procurement of modern, labor-efficient and safety-
    related equipment identified in fiscal year 2000. During fiscal year
    2002, 2003, and 2004 we continued to replace outdated equipment,
    enhance our automation systems, and make improvements in our
    operations. In order to continue productivity program enhancements, we
    are requesting $1.0 million for fiscal year 2005.
        Managing our human capital demands that we place the right person
    with the right skills in every position. In fiscal years 1998 and 1999,
    we undertook the first comprehensive survey of our overseas personnel,
    their position descriptions, and workloads since the early 1980's. This
    survey identified a variety of discrepancies in how we staffed our
    cemeteries. We took corrective action, and with the concurrence of OMB,
    ensured consistency in staffing. In fiscal year 2002, we began a
    worldwide manpower study which will further identify and
    comprehensively outline our manpower requirements, position
    descriptions, workloads and manpower distribution to ensure our work
    force is properly deployed. We expect this project to be completed
    during fiscal year 2004.
        A key element of recruiting and retaining a talented work force is
    fair compensation. To ensure equal pay for equal work we converted the
    European Region from our legacy Cemetery System for classifying and
    paying most of our foreign employees to the standard Foreign Service
    National (FSN) pay system. This FSN system is used by State Department
    and other Federal departments employing foreign nationals overseas.
    This will ensure that we have a pool of well qualified personnel to
    fill our critical positions, now and in the future.

    Competitive Sourcing
        We have continued efforts to avoid using our work force to perform
    tasks that are not inherently governmental and are readily available in
    the commercial market place. In this area we are well advanced. When
    Congress directed us to establish a World War II Memorial, we
    outsourced the design, construction, data management, fulfillment
    processing, customer servicing, and public relations.
        The success of this effort has been astonishing. It will soon
    result in the first national memorial dedicated to the 16 million who
    served in uniform during the war, the more than 400,000 who gave their
    lives, and the millions who supported the war effort from the home
    front.
        Our competitive sourcing initiatives did not stop there.
    Contributing to our efforts to improve financial management, in April
    2000, we contracted with a software implementation consultant to assist
    in the selection and development of an automated, integrated accounting
    system that conforms to regulatory requirements. Our new commercial-
    off-the-shelf system became operational in October 2001. The use of a
    competitive source contractor allowed our government employees to focus
    on our daily mission while the contractor ironed out the normal
    wrinkles associated with implementing a new system. We are pleased with
    the overall results and will continue to upgrade our capabilities so
    that we will be among the leaders in financial management in the
    Federal Government.
        In addition, our Infrastructure Modernization Program (IMP) has
    made extensive use of outsourcing to ensure that highly qualified firms
    and individuals were contracted to perform engineering analysis and
    reviews. Most construction and engineering projects at ABMC facilities
    are contracted out, since these projects are usually unique and beyond
    the capability of our limited staff.
        Our cemeteries and their infrastructure range from 45 to 80 years
    old. We began an IMP in fiscal year 2001 to examine in detail the
    infrastructure of our facilities and bring them up to today's
    standards. Through this program we can avoid future uncertainty, work
    in a programmed and efficient manner, and protect our investments in
    facilities. The first phase of the IMP consisted of studies to identify
    deficiencies in the various aspects of our infrastructure. In the
    second phase, corrective actions are performed. During fiscal year
    2004, we are dedicating $2 million to IMP, and are requesting $2
    million for fiscal year 2005 to continue these essential projects in
    addition to the $1.8 million needed to continue normal engineering and
    maintenance operations.

    Improved Financial Performance
        Since 1998, the ABMC has been required to produce full financial
    statements. In addition, these CFO Act financial statements are
    independently audited by the Comptroller General. Each year, ABMC has
    earned an unqualified opinion from GAO on our annual financial audits.
        We recognize that improved financial performance is more than
    achieving an unqualified audit opinion. It is about putting useful and
    timely information in the hands of leaders with which they can make
    informed decisions. Our new accounting system moves us toward that
    goal. Looking to the future, we have included funding in our fiscal
    year 2005 budget to continue our transition to a web-based system that
    will enhance our ability to make such information more readily
    available to our decision-makers.
        Closely related to efforts to expand e-government, in partnership
    with the Department of the Treasury, we converted to full electronic
    funds transfer banking for all foreign currency disbursements except
    Tunisian Dinars. Prior to this, we maintained U.S. funds in separate
    overseas foreign currency bank accounts under delegated disbursing
    authority from the Treasury. Now disbursements flow electronically from
    our accounting system through the Treasury's Kansas City Financial
    Center to the overseas bank account of our vendors and employees. The
    initial conversion to this electronic capability was not as seamless as
    expected. However, the process is now stabilized and is allowing
    quicker payments for customers, eliminating funds held outside the
    Treasury in foreign bank accounts, and implementing real-time
    automation to worldwide funds transfers.
        Our new integrated accounting system and our successes on
    international electronic funds payment and full financial audits are
    moving the ABMC toward new levels of financial excellence. We look
    forward to the challenges of fiscal year 2005.

    Expanded E-Government
        Our efforts to expand e-government go beyond the use of electronic
    funds transfers overseas. They include how we deliver our services to
    our customers--the very heart of what we do.
        Over the last several years, ABMC has expanded access to valuable
    information through the use of on-line tools. Our Internet Web site
    allows visitors to gather information on our organization, cemeteries,
    memorials, and their locations. To aid in our internal operations, our
    European Region maintains our intranet web site which provides details
    on our ongoing operations. In addition, we made the WWII Registry
    developed in conjunction with the World War II Memorial project a web-
    based system to make it accessible to a broader audience than those who
    visit the memorial itself. We eventually plan to convert the dated
    video system at the Korean War Veteran's Memorial with a similar web-
    based database of Korean War Dead.
        We are also supporting the administration's efforts to reduce the
    number of payroll providers within the Federal Government. In December
    2003, we converted our internal, manual payroll operations for U.S.
    General Service personnel to a web-based system provided by the General
    Services Administration (GSA). We are currently in the process of
    converting the Foreign Service National (FSN) payroll operations with
    an expected completion date later this calendar year.

    Budget and Performance Integration
        We are pressing forward in the budget process to ensure that our
    funding requests support the objectives of the agency and the
    President's Management Agenda. Our budget clearly ties to our Strategic
    and Annual Performance Plans. In addition, these plans directly link to
    the Commission's Management Discussion and Analysis (MD&A) statements
    which are required as an integral part of the annual audit conducted by
    the Comptroller General.
        To further improve the link between budget and performance we are
    studying the implementation of a Cemetery Evaluation Review System.
    Once fully implemented we expect to use this to measure the impact of
    applied resources to our cemeteries in order to better focus our
    efforts.

                            OTHER IMPORTANT PROJECTS

    Normandy Interpretive Center
        Congress, through Public Law 107-73, provided $5.0 million to ABMC
    for fiscal year 2002, specifically for the partial cost of design and
    construction of a new interpretive and visitor center at the Normandy
    American Cemetery in France. In fiscal year 2003 and fiscal year 2004,
    Congress provided an additional $4.0 million and $9.0 million
    respectively to continue this project. We developed a contract proposal
    and have begun the initial pre-design phase. The President's Budget
    includes $9.1 million in our fiscal year 2005 request, as suggested by
    Congress in our fiscal year 2004 appropriation, to complete funding for
    this important project. Our objective is to achieve an appropriate and
    comprehensive design and begin construction during fiscal year 2005.

    Vietnam Veterans Memorial Plaque
        Public Law 106-214 directed ABMC to oversee the placement of a
    plaque ``within the Vietnam Veterans Memorial containing an inscription
    intended to honor those Vietnam veterans who died after their service
    in the Vietnam War, but as a direct result of that service, and whose
    names are not otherwise eligible for placement on the Memorial Wall.''
    The law clearly stated that Federal funds may not be used to design,
    procure, or install the plaque. Sufficient private funding was received
    to begin installation of the plaque in March 2004. Work should be
    completed by summer 2004.

    World War II Memorial
        For the past 11 years much of the Commission's attention has been
    focused on designing and constructing a World War II Memorial on the
    National Mall in Washington, DC. After 8 years of planning, 6 years of
    public debate, and 4 years of fund-raising, construction of the
    memorial began in September 2001. The memorial will be dedicated on May
    29, 2004.
        In completing this project we ensured that the memorial and its
    components were designed for the maximum service life and for effective
    maintainability. We also contracted for repair work on the adjacent
    Reflecting Pool as an added protection against, and prevention of water
    seepage into the memorial.
        The total estimated cost of the memorial project is $178.3 million,
    which includes site selection and design, construction, a National Park
    Service maintenance fee required by the Commemorative Works Act,
    groundbreaking and dedication ceremonies, fund-raising and
    administration of the project from its inception in 1993 through
    completion in 2004. We have received $195 million in cash and pledges
    from all sources. Congress directed that any funds remaining after all
    project costs have been paid will remain in the World War II Memorial
    Trust Fund to be administered by ABMC. The funds may be used solely to
    benefit the World War II Memorial.

                               ABMC'S COMMITMENT

        Since 1923 the American Battle Monuments Commission's memorials and
    cemeteries have been held to a high standard in order to reflect
    America's continuing commitment to its Honored War Dead, their
    families, and the U.S. national image. The Commission intends to
    continue to fulfill this sacred trust while ensuring the prudent
    expenditure of appropriated funds.
        The American Battle Monuments Commission appropriation request for
    fiscal year 2005 is $41,100,000.
                                     ______

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                Agency for Toxic Substances and Disease Registry

     Prepared Statement of Henry Falk, M.D., M.P.H., Director, Agency for
         Toxic Substances and Disease Registry and National Center for
       Environmental Health, Centers for Disease Control and Prevention,
                    Department of Health and Human Services

        Mr. Chairman, Senator Mikulski, other distinguished members of the
    subcommittee, thank you for the opportunity to provide this testimony
    on behalf of the Agency for Toxic Substances and Disease Registry
    (ATSDR).
        The President's budget for fiscal year 2005 includes $76,654,000
    for ATSDR. This funding will support the Agency's ongoing activities
    and provide additional support for two critical programs.
        This testimony will address: (1) ATSDR's achievements over the past
    year in carrying out its mission under Superfund to evaluate and
    prevent adverse health impacts from exposure to hazardous substances;
    (2) ATSDR's plans for fiscal year 2005, emphasizing programs to enhance
    understanding of the health impacts from exposures to asbestos-
    contaminated vermiculite ore originating in Libby, Montana, distributed
    to more than 200 facilities across the United States; and (3) steps
    taken to maximize the ATSDR's public health impact and efficiency
    through a partial administrative and management consolidation with the
    National Center for Environmental Health of the Centers for Disease
    Control and Prevention (CDC).

                    ATSDR'S ACHIEVEMENTS IN FISCAL YEAR 2003

        Last year was busy and productive for ATSDR. The services ATSDR
    provides to communities help to identify and address possible
    associations between exposures to hazardous substances in the
    environment and health problems. These services are available and
    accessible to the full spectrum of communities, from remote rural areas
    to heavily populated urban neighborhoods, that have been scarred by
    industrial hazardous waste sites, the legacy of mining, or contaminated
    drinking water.
    Leveraging ATSDR's Resources Through Partnerships
        In 2003 ATSDR continued to leverage its resources through a strong
    emphasis on partnerships with a variety of entities including other
    Federal agencies, State, and local health departments, universities,
    and the industrial sector. Partnerships with State health departments
    enhance the Agency's ability to respond in a timely manner to the
    hundreds of community requests and releases of hazardous substances
    that threaten public health each year. Partnerships also serve as a
    mechanism for building Federal, State, tribal, and local public health
    capacity to respond to public health concerns related to environmental
    contamination.
        In fiscal year 2003, ATSDR provided over $10 million to fund
    cooperative agreements with 30 State health departments, one
    commonwealth, and one tribe. ATSDR worked closely with these partners
    to complete 120 public health assessments of potential health threats
    from environmental exposures, including over 50 public health
    assessments related to sites on the United States Environmental
    Protection Agency's (EPA) National Priorities List. ATSDR and its
    partners also issued more than 230 health consultations and numerous
    responses to requests for technical assistance from State or Federal
    agencies, members of Congress, and the public. In addition, ATSDR and
    partners worked on more than 50 health studies in various phases of
    development and implementation. Health studies are peer-reviewed public
    health research activities that serve the dual functions of providing
    important information to communities, and advancing scientific
    understanding of the relationship between exposures to hazardous
    substances and particular health outcomes. Each of these categories of
    activities draws on the unique mixture of expertise at ATSDR that
    bridges the health and environmental fields.
        In all aspects of its work, ATSDR pays particular attention to the
    unique needs of vulnerable subpopulations such as children, pregnant
    women, and economically disadvantaged people that may be exposed to
    contaminants from multiple sources. For example, ATSDR and EPA
    currently fund 11 Pediatric Environmental Health Specialty Units,
    located at academic medical centers throughout the United States.
    Through these units, pediatricians with expertise in environmental
    health are available to consult with physicians and families concerning
    children who may have been exposed to mercury, lead, pesticides, or
    other hazardous substances. The pediatric units also offer referrals,
    and training for health care professionals related to pediatric
    environmental medicine.
        ATSDR also has a longstanding cooperative agreement with the
    Minority Health Professions Foundation (MHPF) to conduct research to
    fill gaps in our knowledge about the effects of hazardous substances on
    human health. The program provides students at MHPF institutions the
    opportunity to conduct groundbreaking research in toxicology,
    epidemiology, and environmental assessment. For example, one recent
    study found that newborns may be at risk for effects from exposure to
    maternal blood lead levels of less than 10 micrograms per deciliter,
    CDC's level of health concern.

    Terrorism Preparedness and Response
        Through more than 20 years experience in addressing public health
    aspects of responding to chemical releases at Superfund sites, ATSDR
    has developed considerable expertise in toxicology and other areas
    directly applicable to chemical terrorism preparedness and response.
        In recognition of its emergency preparedness and response
    capabilities, ATSDR often is looked to by other Federal agencies for
    assistance related to training, environmental sampling, medical
    toxicology and enhancing collaboration between the emergency response
    and the public health and medical communities. For example, in April of
    2004 the Chemical Safety and Hazard Investigation Board requested
    assistance from ATSDR in coordinating with the medical community in
    connection with a large release of allyl alcohol (used in the
    manufacture of polymers, pharmaceuticals, and pesticides) from a
    manufacturing plant in Dalton, Georgia, which resulted in the
    evacuation of several hundred citizens. In particular, the Board had
    concerns about inconsistencies in the number of people reporting to the
    local hospital for treatment. In response, ATSDR emergency response and
    other personnel traveled to the location of the chemical release, and
    were able to determine the number of people accessing medical care as a
    result of this event, and the severity of their health complaints. The
    preparedness and response capabilities that enabled ATSDR to contribute
    in responding to this chemical release are the same as would be needed
    in responding to a terrorism-related or other intentional chemical
    release.
        In addition, ATSDR regional staff, located in each of the 10 EPA
    regional offices, work with EPA staff and State partners on a daily
    basis to prepare for emergencies and to conduct response exercises. The
    capacity of ATSDR regional staff to assist in an emergency is enhanced
    through ATSDR's cooperative agreement with the American College of
    Medical Toxicology (ACMT), under which local medical toxicologists are
    available to consult with ATSDR on short notice in planning for and
    responding to chemical emergencies. In addition, in coordination with
    ATSDR, ACMT has provided several informative educational sessions on
    ``Chemical Agents of Opportunity'' and on responding to chemical
    emergencies, for State and local partners, as well as ATSDR, CDC, EPA,
    the Department of Justice, other Federal agencies, and congressional
    staff.
        ATSDR also provides leadership and subject-matter expertise for CDC
    in response to weapons of mass destruction, chemical, radiological and
    bio-environmental contamination events. For example, an ATSDR medical
    toxicologist consulted with the State of South Carolina, U.S. Postal
    Service and EPA following the mailing of the toxin ricin last year.
    Teams are always on call for deployment in the event of a terrorist
    incident or other chemical emergency.

    Building on ATSDR's Experience and Expertise at Superfund Sites
                Libby, Montana
        ATSDR has testified in past years regarding its extensive health
    screening program and related studies documenting the severe health
    impacts resulting from exposure to asbestos-contaminated vermiculite
    ore mined at the W.R. Grace mine in Libby, Montana. On August 26, 2003,
    the Federal District Court in Missoula, Montana ruled that the United
    States is entitled to recover the entire $11.3 million in costs
    incurred by ATSDR through December 31, 2001, as well as future costs
    incurred by ATSDR after that date, in responding to asbestos
    contamination and evaluating and addressing the public health impacts
    of exposure to asbestos from this mine.
        ATSDR is continuing activities related to Libby, including: (1)
    funding the State of Montana to conduct screening and surveillance of
    the at-risk population of the Libby community; (2) the Libby Tremolite
    Asbestos Registry; (3) health education for communities and health care
    providers about vermiculite and asbestos exposure; (4) grants to
    university-based researchers to study disease progression in former
    vermiculite workers so that timely interventions can be developed; and
    (5) a pilot mesothelioma surveillance program in New York, New Jersey,
    and Wisconsin.
        As discussed later in this testimony, ATSDR's work in Libby laid
    the foundation for ATSDR's fiscal year 2005 proposal related to
    evaluating the health threats to former workers and to their family
    members at facilities across the country that processed asbestos-
    contaminated ore from Libby.

                Reducing Childhood Lead Exposure
        The adverse impacts of lead exposure on the developing child are
    well established. ATDSR, in conjunction with State and local public
    health officials, is working to reduce childhood exposure to lead at a
    number of Superfund sites. For example, last year ATSDR expanded the
    scope of its longstanding involvement at the Tar Creek Superfund site
    in Ottawa County, Oklahoma. ATSDR continues to provide support to the
    Oklahoma State Department of Health and the Ottawa County Health
    Department for blood lead screening in children and community education
    on measures to prevent exposure to lead. In addition, ATSDR is
    reviewing available environmental data to determine significant
    pathways of exposure to lead, and assessing the relationship of blood
    lead data to potential environmental lead sources such as residential
    soil and waste piles of mine tailings.
        In Herculaneum, Missouri, ATSDR and the Missouri Department of
    Health Services are providing public health education and conducting
    other activities to address a public health threat posed by
    contamination from a lead smelter. Initial blood-lead screenings
    revealed high levels of lead in the blood of young children. However,
    data from follow-up testing of those children in 2002, analyzed by
    ATSDR in 2003, revealed dramatic declines in the percentage of children
    with blood lead levels equal to or above 10 micrograms per deciliter,
    the CDC recommended level of action. For example, in 2001, 28 percent
    of children younger than 6 years of age who were tested had blood lead
    levels equal to or above 10 micrograms per deciliter. By 2002, that
    percentage had been cut in half, to 14 percent. Moreover, in 2001, 45
    percent of children younger than 6 years of age and living closest to
    the lead smelter had blood lead levels at or above the 10 micrograms
    per deciliter level of action. By 2002, the percentage had been reduced
    to 17 percent.
        In May of 2003, ATSDR and the Missouri Department of Health and
    Senior Services collaborated in convening a workgroup to consider
    options for future health studies in Herculaneum, Missouri. The
    workgroup recommended a two-phase approach, first to reevaluate
    existing environmental and blood lead data, and second to study the
    health effects of lead in the community. Protocol development and study
    details are expected to be complete by the end of fiscal year 2004,
    with data collection slated to begin in the first quarter of fiscal
    year 2005.
        ATSDR also contributed to reducing childhood lead levels in
    children near the Bunker Hill Superfund site in Kellogg, Idaho, where
    blood lead levels were among the highest of children tested near any
    Superfund site. Beginning in 1986, ATSDR funded a lead-intervention
    program of health education, health care provider training and blood
    lead screening, carried out by the local health department. Long-term
    monitoring shows that the blood lead levels in children 6 years of age
    or younger living near the Bunker Hill site decreased to levels found
    in the United States general population. The Panhandle Health District
    reported to ATSDR that its 2003 screenings of children continue to
    reveal blood lead levels within the program goals.

                Studying Health Impacts of Exposure to Volatile Organic
                        Compounds (VOCs)
        ATSDR is undertaking activities at several Superfund sites to more
    fully explain the relationship between exposures to VOCs in drinking
    water, and adverse health outcomes.
        For example, in North Carolina ATSDR is engaged in an extensive
    study of certain birth defects and childhood leukemia among families
    who lived on the base at Camp Lejeune. The study is focused on
    potential in utero exposures of children born to women who lived at the
    base while pregnant between 1968 and 1985. The study was initiated
    because during this time period trichloroethylene (TCE, a degreaser)
    and tetrachloroethylene (PCE, a dry-cleaning solvent) were found in the
    drinking water supply for some of the family base housing. Earlier
    studies involving Superfund sites in Woburn, Massachusetts and Dover
    Township, New Jersey, suggested an elevated risk of childhood leukemia
    in children with prenatal exposure to VOCs.
        The first phase of the study at Camp Lejeune included a survey to
    identify children with specific birth defects and childhood cancers.
    During the first phase, 12,598 surveys were completed. The birth
    defects and cancers reported in those surveys are being verified, with
    permission from the families, through searches of medical records.
        In July 2003, ATSDR issued an interim report on Camp Lejeune
    recommending that a case-control study be conducted to examine the
    relationship between exposure to the contaminated drinking water in
    women who lived on the base while pregnant, and selected birth defects
    and childhood cancers in their children. ATSDR developed the study
    protocol and is acquiring data necessary for historic reconstruction of
    the base drinking water system through computer modeling. This modeling
    will enable ATSDR to identify which base housing units received the
    contaminated water and is necessary for determining whether there is an
    association between the contaminants in drinking water and certain
    birth defects and childhood cancers.
        ATSDR's experience with evaluating exposure to VOCs in Dover
    Township, New Jersey, and more recently at Camp Lejeune, has
    contributed to efforts over the past year in the Village of Endicott,
    in Broome County, New York. ATSDR is assisting the New York State
    Department of Health (NYS DOH) in an effort to address health concerns
    of residents related to potential exposure to VOCs emanating from a
    groundwater plume at the IBM site in Endicott. As first steps, the NYS
    DOH is evaluating the incidence of certain conditions in newborns whose
    parents lived in the study area at the time of the infants' births, and
    estimating the incidence of all types of cancer, including childhood
    cancer, for the areas in Endicott potentially impacted by VOC vapors in
    indoor air.

                Studying Health Impacts of Exposure to Polychlorinated
                        Biphenyls (PCBs) and Dioxins
        ATSDR funds research by State universities and health departments
    under the Great Lakes Human Health Effects Research Program (GLHHERP).
    GLHHERP grantees conduct epidemiologic research and educational
    programs to inform residents about exposure to persistent toxic
    substances, including polychlorinated biphenyls (PCBs). This program
    has helped inform residents about fish-consumption practices to avoid
    unsafe exposures, especially for children, the elderly, and women of
    childbearing age. ATSDR also is supporting the development and
    implementation of a 3-year pilot program in the Upper Peninsula of
    Michigan, to educate vulnerable populations about fish advisories and
    to assess the effectiveness of advisories. Under this pilot program, a
    State university and intertribal council in Michigan will take measures
    to increase awareness about exposures to toxic substances from eating
    contaminated fish, and to evaluate observance of fish consumption
    advisories among American Indian communities, anglers and their
    families, and others who rely on Great Lakes fish as a subsistence
    food.
        Building on its foundation from research regarding exposure to PCBs
    in the Great Lakes, ATSDR is supporting research on health impacts of
    PCB exposure at a Superfund site in Anniston, Alabama. On the basis of
    blood data reviewed by ATSDR, Anniston residents have some of the
    highest levels of exposure to PCBs found in a non-occupational setting
    in the United States. In 2003, ATSDR awarded $1.5 million to
    Jacksonville State University to conduct, with a consortium of
    researchers and community members, a multiyear study of the potential
    health effects of PCB exposure among residents of Anniston. Study
    protocols and initial data collection are scheduled to be completed
    during fiscal year 2004, with data analysis beginning in fiscal year
    2005.

                Health Registries
        One of ATSDR's responsibilities under Superfund is to establish and
    maintain registries of diseases and of people exposed to toxic
    substances. In recent years ATSDR has seen an increase in recognition
    of the important function served by registries and a rise in the demand
    for its expertise in developing and managing registries. ATSDR embarked
    on three new and significant registries in the past year: (1) the
    Tremolite Asbestos Registry; (2) the World Trade Center Health
    Registry; and (3) the Rapid Response Registry.
        In 2003, ATSDR initiated the Tremolite Asbestos Registry, a
    registry of people exposed to tremolite asbestos from Libby, Montana.
    The registry is expected to enroll 10,000 to 15,000 people, including
    former Libby vermiculite mining and mill workers, family members and
    others who shared a residence with a vermiculite worker, and community
    members who meet eligibility criteria. The Tremolite Asbestos Registry
    will provide a means to locate and provide information to participants
    to ensure that they and their health care providers receive the latest
    medical recommendations and research findings pertaining to asbestos-
    related diseases. The registry will also be an invaluable resource for
    future research related to the health impacts of asbestos exposure.
        In September of 2003, the New York City Department of Health and
    Mental Hygiene (NYC DOHMH), in partnership with ATSDR, began data
    collection for the World Trade Center Health Registry. Data collection
    for the Registry will continue for 1 year. The purpose of the Registry
    is to provide a central database for research to assess injuries and
    other physical and mental health effects among people exposed to the
    World Trade Center disaster. Information obtained will provide a more
    complete picture of health effects among a broad spectrum of the
    impacted population, including residents, office workers, school
    children, and emergency responders. Approximately 79,810 potential
    registrants have been identified through employee lists and telephone
    and website registrations. As of April 20, 2004, interviews of 31,921
    people had been completed.
        ATSDR developed the Rapid Response Registry to provide the capacity
    to timely identify and obtain information in a timely fashion from
    persons potentially exposed to environmental chemicals in an emergency
    event. Having obtained prior approval of the registry and associated
    questionnaires, and by training staff in its rapid use and deployment,
    we will be able to significantly reduce the time needed to collect
    potentially time-sensitive information in an emergency. Teams, in
    collaboration with State and local government agencies and private
    response organizations, will identify and enroll exposed and
    potentially exposed individuals within hours of an incident, to help
    document their presence at or near an emergency event. This
    information, maintained in a central registry, will provide health
    officials with essential information necessary for both short-term and
    long-term follow-up with exposed or injured individuals, or their
    survivors. Contact information will enable officials to provide
    information to affected individuals about possible exposures, potential
    health impacts, updates, and available educational information, and
    will allow for follow-up contacts by health officials to assess current
    and future medical needs.

                     PRIORITY PROJECTS FOR FISCAL YEAR 2005

        The President's fiscal year 2005 budget request includes an
    increase of approximately $3 million to support two critical
    initiatives.
    Evaluating and Tracking the Health Consequences of Exposure to Asbestos
        Results of ATSDR's medical screening program and studies of
    residents in Libby, Montana highlight the seriousness of the health
    threat from exposure to the asbestos-contaminated vermiculite ore mined
    in Libby. ATSDR's medical screening program in Libby revealed that
    nearly 18 percent of the approximately 7,300 people evaluated have
    abnormalities of the lining of the lung consistent with exposure to
    asbestos. Among workers and household contacts evaluated, the
    prevalence of these abnormalities was 51 percent and 26 percent,
    respectively. ATSDR's review of 20 years of death certificates showed
    that mortality in the Libby area due to asbestosis was 40 to 80 times
    higher than expected, and lung cancer mortality was 20 percent to 30
    percent higher than expected. Mortality due to mesothelioma was also
    elevated.
        The vermiculite ore mined in Libby, Montana was shipped to more
    than 200 sites around the United States for processing. ATSDR and its
    State partners are conducting detailed exposure pathway evaluations and
    health statistics reviews at 28 of the highest priority sites. These 28
    priority sites were selected either because EPA determined further
    action was necessary to address current contamination, or because a
    site processed 100,000 tons or more of vermiculite from the Libby mine.
    The findings from these priority sites will be used to inform future
    decisions related to evaluation of the remainder of the more than 200
    sites.
        To date, ATSDR and State partners have completed evaluations for 7
    of the 28 priority sites, including sites in Beltsville, Maryland,
    Denver, Colorado, Santa Ana, California, West Chicago, Illinois, and
    Minot, North Dakota. Each of the 7 completed health consultations
    concludes that former workers were exposed to significantly elevated
    levels of asbestos from vermiculite exfoliation (``popping'')
    operations: historical data indicate airborne fiber levels within these
    facilities at concentrations as high as 700 times the Occupational
    Safety and Health Administration's current permissible exposure limit
    for asbestos. ATSDR expects health consultations for the remainder of
    the 28 sites to be completed this year.
        Each of the 7 health consultations includes a recommendation to
    identify and locate former workers and their household contacts for the
    purpose of evaluating potential health effects and providing health
    education. Many workers and household contacts may be unaware of their
    exposure, and many have moved away from the location where the
    processing occurred. Knowledge of past exposure may be beneficial for
    implementation of proactive public health interventions, such as
    smoking cessation, which are known to be effective to some extent in
    limiting adverse health impacts of asbestos exposure.

                Fiscal Year 2005 Initiative
        Of the approximately $3 million increase for ATSDR in the
    President's budget request, $2.5 million is requested for pilot medical
    screening related to a subset of the 28 priority sites. ATSDR will
    identify and locate former workers and their household contacts at each
    pilot site. Eligible workers and household contacts will be offered
    baseline medical screening (such as pulmonary function testing and
    chest X-rays) to evaluate the presence of asbestos-related pleural
    abnormalities. In addition, ATSDR will expand the Tremolite Asbestos
    Registry to enroll eligible persons from sites outside of Libby,
    Montana, and will offer health education on managing risks associated
    with asbestos exposure. Further evaluation and follow-up of former
    workers from other priority sites may be conducted in the future, if
    indicated, on the basis of pilot site results.

    Supporting the World Trade Center Health Registry
        Another ATSDR priority for fiscal year 2005 is to continue support
    of the World Trade Center Health Registry. The Registry is at this
    point the second largest of its kind in United States history, behind
    the Three-Mile Island Registry. Ultimately, data from the health
    registry on the health of registrants exposed to smoke, fumes, and
    other hazardous substances released by the World Trade Center collapse,
    will enable researchers to observe exposure and health patterns that
    may not be apparent to individual physicians. The Registry will enable
    the NYC DOHMH to contact members of the exposed population with
    educational and other information.
        With the additional funds, ATSDR and the NYC DOHMH can continue the
    core functions of the Registry, including maintaining a Registry office
    in New York City; retaining trained staff to maintain the database,
    conducting follow up interviews and community outreach activities;
    performing basic data analyses; developing quarterly reports;
    responding to public inquiries; and disseminating findings and health
    alerts as necessary.
        ATSDR will use $500,000 of the approximately $3 million increase in
    the President's fiscal year 2005 budget, along with $1 million of base
    funds, for a total spending level of $1.5 million to cover the entire
    expected cost of this project for fiscal year 2005. This will continue
    the maintenance work of the World Trade Center Health Registry,
    supported in fiscal year 2004 by $500,000 from ATSDR and a commitment
    of $1.5 million under a Memorandum of Understanding with EPA.

         MAXIMIZING ATSDR'S IMPACT AND EFFICIENCY THROUGH CONSOLIDATION

        In January of 2003, Dr. Julie L. Gerberding, Director of the CDC
    and Administrator of ATSDR, issued a Statement of Intent committing to
    the administrative and management consolidation of ATSDR and the CDC's
    National Center for Environmental Health (NCEH) to achieve a
    coordinated structure and common leadership. The consolidation is based
    on major concepts in the December 2000 Report Shared Vision for
    Environmental Public Health at CDC and ATSDR. The purpose of the
    consolidation is to enhance the environmental public health programs
    and activities at CDC and ATSDR, by building on the complementary
    expertise of NCEH and ATSDR.
        ATSDR continues to be a separate Agency and implements its
    authorities under Section 104 of CERCLA through its existing Divisions,
    which have not been changed by the consolidation. The ATSDR Office of
    the Assistant Administrator and the NCEH Office of the Director were
    merged to join like functions while maintaining the existing
    organizational construct of the Divisions and Program Offices within
    each respective organization.
        I am pleased to report that the Department of Health and Human
    Services approved our proposed organizational structure, and
    implementation of the consolidation is going very well. Key positions
    in the consolidated Office of the Director have been filled. Personnel
    who performed similar administrative duties in the separate
    organizations are now working together in consolidated offices.
        ATSDR's funding continues to be maintained separately from NCEH and
    tracked in accordance with appropriations, budget, and accounting
    requirements. ATSDR has hired an outside accounting expert to provide
    recommendation on how best to allocate the costs of the joint Office of
    the Director.
        We have also created a joint terrorism preparedness and response
    coordinating office to oversee terrorism and emergency activities
    across NCEH and ATSDR. This has led to improvements in our preparedness
    and ability to respond to events promptly. For example, NCEH and ATSDR
    physicians and other staff members receive joint training on emergency
    health care methods and techniques. Joint training is underway on the
    care and treatment of people exposed in radiation emergencies. Our
    response to the recent ricin incident in the Senate Office Building
    benefited from a team that included ATSDR regional and headquarters
    staff, as well as NCEH medical toxicologists.
        ATSDR has also made a number of structural changes, including
    creation of a new division, the Division of Regional Operations, which
    previously operated within the Office of the Director. This change will
    result in additional support of front-line staff and more efficient and
    effective services for State and local health departments.
        We expect that the administrative and management consolidation of
    ATSDR and NCEH will enhance environmental health programs and services
    in this country. Through improved coordination and increased
    efficiencies, the consolidation will allow us to redirect resources to
    front-line public health service.
        Thank you for the opportunity to provide this testimony.
                                     ______

                     NEIGHBORHOOD REINVESTMENT CORPORATION

           Prepared Statement of Kenneth D. Wade, Executive Director

        Neighborhood Reinvestment Corporation is pleased to submit its
    testimony for the record. This testimony is based on the experience and
    considerable successes of 228 community development organizations
    serving nearly 2,500 urban, suburban, and rural communities. These
    nonprofit partnerships are collectively known as the NeighborWorks
    network and operate in 49 States, the District of Columbia, and Puerto
    Rico.
        In January, Neighborhood Reinvestment Corporation's Board of
    Directors appointed Kenneth D. Wade as its fourth executive director.
    While he is new to the position of Executive Director of Neighborhood
    Reinvestment, Ken Wade has been actively engaged in the senior
    management of the Corporation for over 13 years. Most recently, he held
    the position of Director of National Initiatives, Programs and
    Research, and previously the position of New England District Director.
    Under the leadership of our former executive director, Ellen Lazar, Ken
    was closely involved in developing the Corporation's strategic plan
    that will continue to guide the work of Neighborhood Reinvestment.
    Thanks to his career experiences with youth programs and neighborhood
    revitalization in Boston's communities, Ken understands the unique
    challenges facing America's communities. Also, having served at the
    neighborhood level, he has a personal understanding and appreciation of
    the support provided by Neighborhood Reinvestment Corporation, with its
    commitment to providing timely and flexible assistance to its national
    network of locally-controlled NeighborWorks organizations.
        The Neighborhood Reinvestment Corporation was created by Congress
    in 1978. Since then, Neighborhood Reinvestment and its affiliated
    NeighborWorks network have worked to expand housing opportunities for
    low- and moderate-income Americans, to revitalize distressed
    communities, and create a network of excellence in the community
    development field. In fiscal year 2003, the NeighborWorks system
    leveraged its $104 million appropriation to generate nearly $2 billion
    of direct investment in communities. These funds helped more than
    83,000 families obtain and maintain safe and affordable rental and
    homeownership units and provided over 75,000 families with high-quality
    pre- or post-purchase homebuyer educational services. This could not
    have been accomplished without this subcommittee's support. For fiscal
    year 2004, Neighborhood Reinvestment Corporation received an
    appropriation of over $114 million, and Neighborhood Reinvestment looks
    forward to reporting our outcomes to you next year.

                      OVERVIEW OF THE NEIGHBORWORKS SYSTEM

        Over its 25-year history, the NeighborWorks System has proven to be
    an increasingly effective and efficient vehicle for leveraging
    significant private-sector resources in support of community
    revitalization and affordable-housing efforts. Comprised of
    Neighborhood Reinvestment Corporation, local nonprofit organizations in
    our NeighborWorks network, and the specialized secondary market
    Neighborhood Housing Services of America, the NeighborWorks System
    relies on public-private partnerships and uses modest Federal funds to
    leverage significant private investment. Innovations that are generated
    in response to locally identified needs are a hallmark of the
    NeighborWorks System.

    Neighborhood Reinvestment Corporation
        Neighborhood Reinvestment Corporation's partnerships with local
    housing and community development organizations support residents,
    businesses, and local governments in their efforts to revitalize their
    communities and provide affordable housing opportunities for low- and
    moderate-income families. Neighborhood Reinvestment engages in four
    core activities:
      --Build and Sustain a Network of Excellence.--The Corporation
            provides competitive grant funding, training, technical
            assistance and access to specialized secondary market services
            to NeighborWorks organizations. These organizations are closely
            monitored and thoroughly reviewed to maximize both the
            efficiency and effectiveness of the system and steward Federal
            dollars.
      --Foster Innovation.--The Corporation nurtures new ideas from within
            the NeighborWorks network and the affordable housing and
            community development field. By strategically allocating
            resources, the Corporation has developed innovative programs
            such as the NeighborWorks Campaign for Homeownership and the
            Multifamily and Rural Initiatives.
      --Build Skills and Performance in the Housing and Community
            Development Field.--The Corporation operates national
            NeighborWorks Training Institutes in major cities throughout
            the United States open to anyone involved in affordable housing
            and community revitalization, particularly private- and public-
            sector practitioners and community leaders.
      --Leverage Strategic Partners and Resources.--Founded on a three-
            component partnership model of government, private corporations
            and residents, Neighborhood Reinvestment accomplishes its
            mission by using its Federal appropriation to leverage private
            investment and involvement.
        These activities individually and collectively build the
    productivity and strength of the NeighborWorks network and the broader
    community development field.

    NeighborWorks Network
        NeighborWorks organizations are located in our Nation's largest
    cities, as well as suburban neighborhoods, small towns and rural areas.
    Regardless of their target communities, each of the 228 NeighborWorks
    organization operates under the direction of a local board of directors
    comprised of local residents, lenders and other business leaders, and
    representatives from local government. This three-pronged, public-
    private partnership approach to community development is crucial to the
    NeighborWorks system's successes. To achieve their locally-identified
    goals, members of the NeighborWorks network utilize the laboratory
    environment that Congress intended to achieve creative strategies,
    collaborate on best practices, and develop flexible financing
    mechanisms.
        Each NeighborWorks organization is responsible for setting its own
    strategies, raising its own funds, and delivering its own services.
    Most NeighborWorks organizations also operate a revolving loan fund to
    meet community credit needs such as gap financing for home purchase
    loans, second mortgages for home rehabilitation or repair, small-
    business loans, and loans for the acquisition and development of
    residential and commercial real estate. The NeighborWorks network is
    the leading national community development nonprofit network with
    extensive expertise in designing, originating, and servicing small non-
    conventional loans to lower-income families. However, clients often
    require more than a loan. NeighborWorks organizations also provide
    extensive training, counseling and personalized assistance. This
    concentrated effort pays dividends by creating comprehensive
    opportunities for families to build assets, which on a large scale also
    help to revitalize distressed communities.

    Neighborhood Housing Services of America
        Neighborhood Housing Services of America (NHSA) works in
    partnership with Neighborhood Reinvestment Corporation to meet the
    special secondary market needs of NeighborWorks organizations and their
    clients. NHSA is governed by an independent board of directors,
    composed of representatives from these private sector investors,
    NeighborWorks organizations, and local civil servants. The primary
    mission of NHSA is to operate a specialized secondary market created to
    replenish the revolving loan funds and capital pools of local
    NeighborWorks organizations.
        With administrative and capital support provided by Neighborhood
    Reinvestment, NHSA purchases loans from NeighborWorks organizations,
    thereby allowing organizations to originate loans with flexible rates
    and terms based on the borrowers' needs. NHSA's loan purchases provide
    an ongoing stream of capital into NeighborWorks organizations'
    revolving loan funds, allowing them to meet additional needs within
    their communities.
        NHSA leverages Neighborhood Reinvestment's financial support by
    securing private-sector capital from a pool of socially-responsible
    national institutional investors, including insurance companies,
    financial institutions, foundations and pension funds. Proceeds from
    these investments are used to purchase NeighborWorks loans.

                     SELECTED OUTCOMES FOR FISCAL YEAR 2003

        Thanks to your continued support, Neighborhood Reinvestment's 25th
    anniversary year produced new levels of achievement. Congress provided
    Neighborhood Reinvestment Corporation with an appropriation of $104.3
    million. The NeighborWorks network leveraged these resources to:
      --Generate nearly $2 billion of direct investment in targeted
            communities;
      --Leverage $18 in direct investments in communities for each dollar
            Congress appropriated to Neighborhood Reinvestment;
      --Provided affordable housing opportunities to more than 83,000
            families; and
      --Provided pre- and post-purchase homebuyer education and counseling
            services to over 75,000 families.

                    PROJECTED OUTCOMES FOR FISCAL YEAR 2005

        For fiscal year 2005, the Corporation requests an appropriation of
    $115 million. At this funding level, Neighborhood Reinvestment will be
    able to maintain its current level of services to the NeighborWorks
    network, including continued support of increasing homeownership, with
    a particular focus on increased and improved housing counseling
    efforts.
        A $115 million appropriation will allow the NeighborWorks system
    to:
      --Leverage nearly $2.3 billion in direct total investment in
            distressed rural, suburban and urban communities;
      --Use each dollar Congress appropriates to leverage nearly $20 from
            other sources;
      --Assist more than 83,000 families obtain and maintain safe and
            affordable rental and homeownership housing;
      --Provide pre- and post-purchase homeownership counseling and
            financial literacy training to nearly 86,000 families; and
      --Own and/or manage 41,000 units of affordable rental housing.
        To support these accomplishments, the Neighborhood Reinvestment
    Corporation and NHSA will:
      --Conduct 240 organizational assessments of member organizations;
      --Provided almost 11,000 individuals with training, amounting to more
            than 210,000 contact hours;
      --Disburse 71 percent of Neighborhood Reinvestment's congressional
            funding in the form of grants; and
      --Purchase $66 million in loans from NeighborWorks organizations.
                        priorities for fiscal year 2005
        In developing the Corporation's fiscal year 2005 budget,
    Neighborhood Reinvestment sought to continue its work from prior years,
    while defining more aggressive expectations for the NeighborWorks
    system. Neighborhood Reinvestment has always worked to be good stewards
    of the funds that Congress has entrusted to us, and the Corporation
    continues to diligently work to maximize our efficiency and
    effectiveness. In order to meet these expectations, Neighborhood
    Reinvestment and the NeighborWorks system will continue to:
      --Build and sustain a network of excellence;
      --Foster innovation;
      --Build skills and performance in the housing and community
            development field; and
      --Leverage strategic partners and resources.

    Build and Sustain a Network of Excellence
        Although the larger environment in which the NeighborWorks system
    operates has changed dramatically over the years, the Corporation's
    role as a bridge between mainstream financial institutions and lower-
    income communities and families remains relevant and critical.
    Neighborhood Reinvestment and the NeighborWorks network continue to
    operate in underserved communities that are home to a variety of
    citizens who lack access to decent, affordable housing, financial
    products, services, and the kind of investments that sustain
    communities.
        NeighborWorks organizations function as partnerships of local
    residents, lenders and other business leaders, and local government
    representatives. They produce creative strategies, share innovative
    best practices, and develop flexible financing mechanisms. When these
    organizations are supported and work together, they create a nimble
    network of high performing nonprofits, where the whole is greater than
    the sum of its parts. In order to facilitate, encourage and promote
    this network of excellence, the Neighborhood Reinvestment Corporation
    provides guidance, assistance and oversight of the NeighborWorks
    network in the following ways.

                Financial Support
        Equity capital grants are a critically important financing vehicle
    that Neighborhood Reinvestment provides on a competitive basis to
    NeighborWorks organizations for capital and revolving loan funds that
    support real estate development and lending. NeighborWorks
    organizations use these grants to provide the equity and gap financing
    necessary to originate loans for home purchases, property
    rehabilitation and small businesses, and provide equity and financing
    for real estate development. Eligible activities also include capital
    costs associated with the acquisition and development of residential
    and commercial real estate for long-term ownership by a NeighborWorks
    organization.
        Neighborhood Reinvestment also provides expendable grants to
    NeighborWorks organizations to strengthen and increase their ability to
    develop and administer responsive products and services. These
    competitive grants are awarded for activities that address the full
    range of organizational, administrative and financial management and
    development issues faced by nonprofit housing and community development
    organizations. Particular emphasis is placed on activities crucial to
    increasing production and efficiency, thereby generating sustained
    community impact and ensuring the long-term success of the organization
    and its initiatives.

                Technical Assistance
        In tandem with financial assistance, Neighborhood Reinvestment
    provides a wide range of technical assistance. NeighborWorks
    organizations request practical, systems-based assistance in
    programmatic, organizational, administrative, financial or management
    areas of strategic importance to their organization. Neighborhood
    Reinvestment responds with a team of professionals familiar with each
    organization's local market, environmental challenges, structure and
    mission. These professionals provide technical assistance in six key
    programmatic areas: organizational development; resource development
    and marketing; community revitalization, economic development and
    business planning; technology and financial management systems; single-
    family housing and lending; and real estate development and management.
    The guiding principles observed by Neighborhood Reinvestment include a
    mandate to design and deliver our services in a manner that
    consistently builds the capability of network organizations to fulfill
    their vitally important missions and increases their capacity to
    sustain their efforts over time. Our goal is to increase self-reliance
    and programmatic expansion among network members.

                Organizational Assessment
        As part of our responsibility to act as a good steward of Federal
    funding, and to protect the investment of other partners as well as the
    high standards and the reputation of the NeighborWorks network as a
    whole, Neighborhood Reinvestment Corporation is committed to promoting
    and maintaining a network of high-performing, well-managed, nonprofit
    housing and community development corporations that deliver high
    quality services responsive to local needs and have a measurable impact
    on their communities. One of the tools employed in doing this is a
    uniform program review and assessment system.
        Organizational assessment enhances the performance and productivity
    of NeighborWorks organizations, while assisting in building the
    capacity of our affiliates to function in a highly effective manner.
    Assessments also offer the opportunity to evaluate the use of
    Congressionally appropriated funds from Neighborhood Reinvestment, and
    evaluate the capacity of affiliate organizations to meet NeighborWorks
    network membership standards and performance objectives.
        Through a system of continuous monitoring, each NeighborWorks
    organization is subject to an annual organizational assessment through
    either off-site or on-site program reviews. Off-site reviews involve
    the collection and analysis of data about the organization. These data
    are analyzed in eight risk areas on a quarterly basis. If a risk alert
    is identified, the degree to which the organization has the capacity to
    manage the risk is determined, and appropriate action is taken.

                Expansions, Organizational Mergers and New Affiliates
        In today's community development industry, employing an effective
    and efficient growth strategy does not necessarily mean creating or
    adding new organizations. In many underserved areas, the most sensible
    and cost-effective approach is to expand the reach or programmatic
    services of an existing network member, or to facilitate a merger of
    two organizations to create a more powerful organization with greater
    impact and efficiency. Neither of these approaches results in the
    addition of new organizations, yet both can result in productive
    outcomes, more efficient use of resources, responsive service delivery,
    and expanded coverage. Mergers of local housing and community
    development organizations are becoming an increasingly common practice.
    The combined efforts resulting from mergers can result in achieving
    greater impact at equal or less cost.
        Neighborhood Reinvestment receives a far greater number of requests
    for new affiliations than it can hope to satisfy responsibly. To
    prioritize requests from new applicants, the Corporation seeks those
    environments where its resources and assistance are likely to add the
    greatest value to local efforts and produce the most pronounced impact.
    Through a careful affiliation process, Neighborhood Reinvestment works
    with interested existing community-based organizations to ensure that
    before any organization is chartered as a NeighborWorks entity, it is:
    sound and productive; led by a responsible board of directors
    reflective of the community it serves; and, committed to a mission with
    goals, values, programs and accomplishments compatible with the focus
    and priorities of the NeighborWorks network. In a given year,
    Neighborhood Reinvestment extends an invitation to join the
    NeighborWorks network to up to 10 organizations.
        Through the affiliation process, Neighborhood Reinvestment enables
    an organization to increase its productivity and realize a greater
    return on the investment of time and money. Chartering a new
    NeighborWorks organization requires extensive educational and
    partnership-building efforts, usually over a period of about 12 to 18
    months.

    Foster Innovation
                Providing Affordable Rental Opportunities
        Understanding the importance of multifamily rental housing in a
    comprehensive neighborhood revitalization strategy, a group of
    NeighborWorks organizations formed the NeighborWorks Multifamily
    Initiative in 1999. Together, these organizations own and/or manage
    more than 44,000 units of affordable and well-maintained rental
    housing. The members of the NeighborWorks Multifamily Initiative make
    it their mission to provide sustainable multifamily homes, which are
    characterized over the long-term by:
      --Affordability, as defined by local market conditions;
      --Ongoing economic viability;
      --High quality maintenance and management; and
      --Access to on-site learning centers designed to advance the personal
            assets of residents--academic success of youth, employability
            of adults, financial savings, and homeownership.
        With $5 million appropriated by Congress in fiscal year 2002, the
    Corporation embarked on an ambitious effort to create mixed-income
    multifamily properties serving families and individuals below 30
    percent of area median income. With that funding, Neighborhood
    Reinvestment provided 14 grants, which funded the development of 121
    units affordable to families with extremely low-incomes. In fiscal
    years 2003 and 2004, Congress appropriated an additional $10 million
    set-aside for multi-family housing. These investments will enable
    NeighborWorks organizations to expand these precious affordable rental
    opportunities to new communities, thus enhancing the impact of
    federally-appropriated funds. The rental housing has been, and will
    continue to be, developed in diverse settings--urban, suburban, rural,
    large and small developments as well as scattered site. Most
    importantly, many of these units will be affordable to extremely low-
    income families without need for a Section 8 voucher or certificate or
    other form of on-going subsidy.

                Championing Homeownership for Lower-Income Americans
        For years, the NeighborWorks system has led the nonprofit
    homeownership industry, bringing homeownership opportunities to all
    Americans. Research confirms what common sense suggests: responsible
    homeownership is good for families, neighborhoods, the economy and the
    Nation. Homeownership is the largest source of wealth for the majority
    of American families, and therefore, their key toward improving their
    lives and the opportunities for their children. Lack of access to
    homeownership adversely affects minority citizens, female-headed
    households and immigrant families.
        From its inception in 1993, the NeighborWorks Campaign for Home
    Ownership has brought lower-income families into the economic
    mainstream by helping them achieve one of their primary life goals:
    owning a home. Neighborhood Reinvestment achieved this by partnering
    with lenders, insurance companies, secondary markets, government, and
    the real estate community.
        Over the last 10 years, the NeighborWorks Campaign for Home
    Ownership has created more than 71,000 new homeowners and provided
    counseling to over 413,000 individuals. As a result, $6.6 billion is
    invested in America's communities, serving to help families build
    wealth and to revitalize neighborhoods.
        The Campaign for Home Ownership has established high standards for
    service delivery, training, and technical assistance, and encouraged
    local NeighborWorks leaders to engage in peer-mentoring. Key to the
    Campaign's success, NeighborWorks organizations establish clear,
    aggressive goals, while maintaining high quality standards. Innovative
    tools, such as Full Cycle LendingSM, NeighborWorks
    HomeOwnership CentersSM, Financial Fitness, and Housing
    Choice Voucher-Section 8 homeownership, have also been developed.
        In June 2002, President Bush announced a national goal of
    increasing the number of minority homeowners by at least 5.5 million by
    the end of this decade. The NeighborWorks system has been an active
    partner in the development of the White House's initiative on
    increasing minority homeownership. The Corporation has held a national
    symposium, conducted targeted case studies with leading housing
    researchers, and set national goals for serving minority first-time
    homebuyers. Since the President announced the goal, the NeighborWorks
    network has helped 10,000 minority families achieve the American dream
    of home ownership.
        Building on a strong record of success, the Campaign for Home
    Ownership has set the following goals from 2003-2007:
      --Create 50,000 new homeowners, including 30,000 minority homebuyers.
      --Assist 50,000 families to preserve homeownership and improve their
            homes through home maintenance and repairs, delinquency
            counseling and foreclosure prevention, and mortgage
            refinancing.
      --Establish a coordinated outreach, public information and counseling
            effort to reach 500,000 families through educational programs,
            such as Financial Fitness classes, anti-predatory lending
            efforts, and homeowner counseling.
                Financial Fitness
        More recently, Neighborhood Reinvestment and members of the
    NeighborWorks network have developed a new financial education program
    called Financial FitnessSM. Neighborhood Reinvestment has
    developed a partnership with the Federal Deposit Insurance Corporation
    for use of the FDIC's ``Money Smart'' financial literacy program to
    teach money management skills. The Corporation has developed standards,
    training materials, and developed 420 trainers through the
    NeighborWorks Training Institute. Since 2001, more than 8,100 consumers
    have graduated from the program, 58 percent of whom are minorities and
    67 percent are women. This program intends to give participants an
    increased understanding of basic finances and healthy financial
    relationships that benefit both the individual and the community.
        While 91 percent of participants are current renters hoping to
    bolster their credit and savings in preparation to purchase a home in
    the future, Financial Fitness has also proven a successful strategy to
    preserve homeownership for existing owners facing income instability or
    high debt. Since 2002, the Campaign for Home Ownership has enhanced its
    emphasis on not just promoting, but also sustaining homeownership. In
    addition to Financial Fitness, the NeighborWorks Campaign for
    HomeOwnership is working with the Fannie Mae Foundation to develop new
    post-purchase standards and best practices. This effort will help
    NeighborWorks organizations better provide home maintenance services,
    delinquency and foreclosure prevention counseling, and mortgage
    refinance loans. This expanded effort serves the interests of not only
    the homeowner, but also the community as a whole.

                Housing Choice Voucher Homeownership
        The NeighborWorks system is dedicated to expanding homeownership
    opportunities across the country, particularly for families and
    individuals with low and moderate incomes. One of the most innovative
    programs used towards this effort is the Section 8 homeownership
    option. Strong technical and financial support from the Neighborhood
    Reinvestment Corporation has enabled NeighborWorks organizations to
    serve a critical role as a bridge between private lenders and public
    housing authorities to make homeownership a reality for qualified
    Section 8 voucher holders. Congress has propelled the NeighborWorks
    network's efforts by providing funding specifically targeted to
    NeighborWorks organizations who partner with Public Housing Authorities
    (PHAs).
        In recognition of the early success of this effort, the
    Corporation's fiscal years 2001, 2002 and 2003 appropriation included a
    total of $20 million set-aside to develop capacity and effective
    partnerships in support of the U.S. Department of Housing and Urban
    Development's Section 8 homeownership option. Most of the set-aside
    funds were used to capitalize NeighborWorks organizations' revolving
    loan funds serving as a source for second mortgages, with a smaller
    portion of the set-asides being used for capacity-building grants.
    These grants helped some NeighborWorks organizations tailor their pre-
    and post-purchase services to the specific needs of their Section 8
    population, develop unique systems to work with a Section 8 voucher and
    the PHA, or defray a portion of the costs associated with hiring
    additional staff to implement the program. The appropriated set-asides
    also supported a performance-monitoring component with assistance from
    a third-party consulting and research firm. Additionally, Neighborhood
    Reinvestment's local, regional and national training efforts on the
    Housing Choice Voucher Homeownership Program have served an important
    role in influencing the Public Housing Authorities across America to
    develop and implement homeownership programs.
        As of September 2003, the set-asides helped fund more than 60
    NeighborWorks organizations develop partnerships with 73 PHAs, which
    provided 2,204 families with pre-purchase homebuyer education, and
    resulted in over 378 new homeowners. The income of these families was
    between 60 and 80 percent of their area's median income. These
    entrepreneurial partnerships are built upon the NeighborWorks network's
    solid homeownership experience in pre- and post-purchase counseling,
    innovative mortgage financing and in leveraging public resources and
    private investment. The results of this program offer evidence of that
    this powerful local public-private partnership can assist those
    Americans who are often locked out of homeownership.

                Supporting Rural Development
        In 1990, three NeighborWorks affiliates identified their primary
    service areas as rural communities. By the end of fiscal year 2003,
    that number had grown to 73 organizations, which is approximately one-
    third of the NeighborWorks network and comprises the fastest growing
    segment of the network. Moreover, as our existing NeighborWorks
    organizations expand their target areas, they begin to capture rural
    areas with their services.
        In fiscal year 2003, NeighborWorks organizations serving rural
    areas assisted more than 5,000 families in buying or rehabilitating
    their homes, and leveraged more than $500 million in direct investment.
    The network has also enhanced its ability to address the unique needs
    in rural communities by creating a capital fund for rural development.
    With seed funding from Neighborhood Reinvestment and the Northwest Area
    Foundation, rural NeighborWorks organizations have grown a shared
    revolving loan fund that provides bridge financing for local housing or
    economic development projects at below-market rates. With current loan
    assets of $2.5 million, 45 loans have been closed since 1994, totaling
    more than $4.4 million. These loans have supported the production of
    432 units of affordable housing and 22 units of commercial space and
    community facilities, and leveraged more than $35.8 million in total
    project financing.

    Build Skills and Performance in the Housing and Community Development
            Field
        A comprehensive, systematic program of training and informing
    powerfully augments on-site technical assistance. The Neighborhood
    Reinvestment Corporation is nationally recognized as the premier
    provider of training in the housing and community development field,
    having founded its Training Institute 15 years ago. Today, the
    NeighborWorks Training Institute offers more than 150 courses and
    reaches more than 5,000 people a year from more than 4,000 communities
    across America. Participants at the Training Institutes come from all
    50 States, Puerto Rico and the District of Columbia.
        The NeighborWorks Training Institutes are typically scheduled four
    to five times each year at various locations around the country.
    Courses are offered in eight tracks: homeownership and community
    lending, affordable housing, community building, community economic
    development, construction and production management, management and
    leadership, and neighborhood revitalization and rural development. The
    Institutes also host symposia on cutting-edge topics involving
    nationally recognized experts, special-issue workshops, and peer-to-
    peer networking opportunities. Approximately half of the attendees of
    the Institutes come from organizations external to the NeighborWorks
    network. This is one of the many ways that the support Congress
    provides Neighborhood Reinvestment Corporation reaches not only the
    2,500 NeighborWorks-assisted communities, but also the broader
    community development field.
        Neighborhood Reinvestment has recognized that experienced housing
    and community development practitioners have few options for continuing
    education and skill development. Neighborhood Reinvestment's own
    Training Institutes, like others in the field, focus primarily on
    meeting the critical needs of less seasoned professionals.
        Beginning in 2002, Neighborhood Reinvestment introduced a unique
    program for Executive Directors of community development organizations
    practitioners, in partnership with Harvard University. The Advanced
    Practitioner Program requires participants to shape and focus their
    efforts on challenges that can make a tangible difference for their
    organizations, and for the housing and community development field.
    Participants establish ambitious goals and hold themselves and each
    other accountable for achieving them. This self-motivated and
    disciplined approach is fully focused on ensuring the success of
    participants as they advance their own work in building strong
    community-based organizations.

    Leverage Strategic Partners and Resources
                Partnerships
        Neighborhood Reinvestment Corporation embodies the principle of
    cross-sector partnership in all major projects and programs.
    Nationally, the Corporation is engaged in partnership with many major
    financial institutions such as Bank of America and Citibank, both
    government-sponsored enterprises, and large retailers such as Sears.
    The benefits of these partnerships accrue to local NeighborWorks
    organizations, receiving financial assistance, in-kind support, and
    business opportunities.

                Financial Resource Leverage
        In fiscal year 2005, the NeighborWorks System will use the $115
    million appropriation to leverage more than $2.3 billion in other
    sources. The Federal appropriation provides unique flexibility to be
    the ``first in'' on large-scale development projects, which then
    stimulates private sector interest to support the majority of
    development costs. The strong partnership base of the NeighborWorks
    system has built a solid national reputation for quality and stability.
    In 2005, Neighborhood Reinvestment will nurture and grow these
    partnerships locally and nationally, in order to meet the aggressive
    goal of leveraging almost $20 for each $1 of Federal appropriation.

                Revolving Loan Funds
        Because of their flexibility and local control, revolving loan
    funds are central to the impact of the NeighborWorks system. These
    loans are local pools of money administered by NeighborWorks
    organizations to meet the lending needs of borrowers who do not qualify
    under conventional loan underwriting criteria--and to serve as equity
    capital in support of major capital projects. Money for the revolving
    loan funds comes from private- and public-sector investors as well as
    from Neighborhood Reinvestment's equity capital grants. Most revolving
    loan fund capital comes from local sources--loans and grants made by
    banks, insurance companies, foundations, local governments and other
    local investors. In fiscal year 2003, more than $113 million from local
    NeighborWorks organization's revolving loan funds was invested in
    communities.
        Loans are made at flexible rates and terms that fit the lower-
    income borrower's ability to repay, and are typically secured by a lien
    on the property, often a second or third lien to allow for investment
    by other public and private sector entities. Sixty-eight percent of
    loans made through NeighborWorks revolving loan funds are made to very
    low- or low-income households, 51 percent to minority-headed
    households, and 46 percent to female-headed households. The liquidity
    of many local revolving loan funds is supported by selling loans to
    NHSA.

    Conclusion
        Neighborhood Reinvestment Corporation thanks the committee for the
    opportunity to brief you on our work, and the outcomes that were
    generated as a result of Neighborhood Reinvestment's congressional
    appropriation. The NeighborWorks System and Neighborhood Reinvestment's
    congressional appropriation represents a precious asset for 228
    community development organizations and more than 2,500 communities
    across America. With our leveraging of dollars, NeighborWorks has been
    efficient and effective in ensuring the maximum impact of our Federal
    appropriation. Congress has allowed Neighborhood Reinvestment to be
    flexible and responsive to local needs; as a result, families and
    communities are stronger and more self-reliant.
        Neighborhood Reinvestment Corporation is committed to continuing to
    build healthy, strong and safe communities all across America. Your
    continued support is vital to us in accomplishing this goal.
                                     ______

                   U.S. COURT OF APPEALS FOR VETERANS CLAIMS

         Prepared Statement of Honorable Kenneth B. Kramer, Chief Judge

        Mr. Chairman and distinguished members of the committee, on behalf
    of the Court, I appreciate the opportunity to present for your
    consideration the fiscal year 2005 budget request of $17,623,000 for
    the United States Court of Appeals for Veterans Claims.
        The Court's fiscal year 2005 budget request includes $1,100,000
    requested by the Veterans Consortium Pro Bono Program (Representation
    Program). In accordance with practice since fiscal year 1997, the
    Representation Program has provided its own budget request, which the
    Court has forwarded (without comment) along with the Court's budget
    request.
        The fiscal year 2004 appropriation to the Court in Public Law No.
    108-199 was $15,938,000, of which $1,175,000 was the amount requested
    by the Representation Program. Our fiscal year 2005 budget request
    reflects an increase over the budget authority for Court operations for
    fiscal year 2004. Three factors account for the increase. The first
    reflects a budgeted pay adjustment for all Court personnel consistent
    with that generally anticipated for all Washington, DC, area government
    employees and also taking into consideration the differential between
    the amount budgeted in this category for fiscal year 2004 and the
    actual pay adjustment mandated during fiscal year 2004. The second
    factor is the statutory authorization for a temporary increase in the
    number of judges. The third is a request for funding for feasibility
    studies preparatory to the design and construction of a Veterans
    Courthouse and Justice Center (Veterans Courthouse). I will discuss
    each of these matters further.
        The first significant increase in the Court's budget request for
    fiscal year 2005 is in personnel compensation and benefits. The
    increase in pay and benefits ($590,000 over the Court's fiscal year
    2004 appropriation) is caused by three major factors: (1) The budgeted
    pay increase in fiscal year 2004 was 2.2 percent while the actual
    increase used as a base is 4.1 percent (pursuant to the Omnibus
    Appropriations Act, Public Law No. 108-199), an increase of almost 90
    percent--1.9 percentage points--over the fiscal year 2004
    appropriation; (2) the budgeted fiscal year 2005 pay adjustment of 1.5
    percent for all personnel (based on OMB recommendations); and (3) the
    amount, based on valuation by an outside actuary, that must be
    contributed to the Court's retirement system (JRS). As in the past, the
    budgeted fiscal year 2005 pay-adjustment assumption for all nonjudicial
    Court personnel is in conformance with OMB assumptions, with no
    differentiation between the Economic Cost Indicator and locality pay,
    including necessary funding for benefits. We have used the 1.5-percent
    pay adjustment requested in the President's budget. If the Congress
    decides, as it did for fiscal year 2004, that the civilian pay
    adjustment should be the same as that for the uniformed services, the
    additional cost to the Court would be $162,000. The Court's
    contribution to the JRS assumes, based on prior practice, that all
    judges will participate and that once participation is effectuated it
    will include opting into the survivor annuity program. The fund is
    invested solely in government securities.
        The second important factor is the result of the enactment of
    Public Law No. 107-103 (Dec. 27, 2001), calling for the temporary
    addition of two judges. Since its inception, the Court has been
    composed of seven judges, one of whom serves as chief judge; however,
    Public Law No. 107-103, temporarily increased the number of judicial
    positions from seven to nine. This law was designed to smooth the
    transition period when the then five, now four, remaining original
    judges would be eligible to retire in a very short span of time; at the
    end of that period, in August 2005, the size of the Court will return
    to seven judges (because one or both of the last two of the original
    judges to retire will not be replaced). We have attempted to budget as
    prudently as possible for this temporary judicial increase. As with our
    fiscal year 2004 budget request and appropriation, we have included, as
    part of the fiscal year 2005 budget request, funding for two additional
    chambers for use during fiscal year 2005 (personnel and benefits,
    office buildout, furnishings, equipment, and supplies).
        The Court requests funding for 98 full-time equivalent (FTE)
    positions. As with our fiscal year 2004 budget request and
    appropriation, the increase in staffing over the fiscal year 2003 level
    results solely from the new judgeships. The Court, as always, will
    monitor staffing to ensure that it is kept at the minimum level
    necessary to review in a timely fashion the cases brought before the
    Court. To provide further background on the workload before the Court,
    the Court's caseload history (of appeals and petitions) over the past
    12 years is summarized in the following table, which also appears on
    page 4 of the Court's fiscal year 2005 Budget Request:

    ----------------------------------------------------------------------------------------------------------------
                                                                                                       New Cases as
                                                                         BVA Total     New Cases to   Percent of BVA
                                                                          Denials         USCAVC          Denials
    ----------------------------------------------------------------------------------------------------------------
    Fiscal year 1992................................................          10,946           1,742            15.9
    Fiscal year 1993................................................           9,734           1,265            13.0
    Fiscal year 1994................................................           6,194           1,142            18.4
    Fiscal year 1995................................................           6,407           1,279            20.0
    Fiscal year 1996................................................          10,444           1,620            15.0
    Fiscal year 1997................................................          15,865           2,229            14.0
    Fiscal year 1998................................................          15,360           2,371            15.4
    Fiscal year 1999................................................          14,881           2,397            16.1
    Fiscal year 2000................................................          14,080           2,442            17.3
    Fiscal year 2001................................................           8,514           2,296            27.0
    Fiscal year 2002................................................           8,606           2,150            25.0
    Fiscal year 2003................................................          10,228           2,532            24.7
    ----------------------------------------------------------------------------------------------------------------

        Appeals to the Court come from the pool of cases in which the Board
    of Veterans' Appeals (BVA or Board) has denied some or all benefits
    sought by claimants. The Court is also empowered to entertain petitions
    for extraordinary relief where the Court action sought would be in aid
    of its jurisdiction. Over the last 3 fiscal years, the number of new
    cases as a percentage of BVA denials has risen substantially over the
    level in fiscal year 2000 and earlier years.
        Furthermore, since Congress extended the Equal Access to Justice
    Act (EAJA) to the Court in 1992, there has been a substantial number of
    EAJA applications. The case-filing figures provided in the table,
    above, however, do not reflect the number of EAJA applications filed
    and EAJA cases pending, even though these applications initiate a
    separate proceeding requiring Court action. In fiscal year 2003, the
    Court acted on 1,559 applications, up from 1,104 applications in fiscal
    year 2002 (a 41 percent increase), more than double the 776
    applications in fiscal year 2000 (the first year for which EAJA-
    application figures are available). The potential availability of EAJA
    fees has encouraged a greater number of attorneys to develop expertise
    in veterans benefits law, and the professional assistance of the
    growing appellants' (benefits claimants) bar has proven very valuable
    in litigation before the Court. However, there is a tradeoff: Some EAJA
    applications can demand considerable time because they present very
    complex issues, and resolving these issues continues to require
    substantial judicial and staff resources. Consequently, processing and
    disposing of EAJA applications has become an important workload factor.
        In addition to the factors addressed above, a third matter has
    contributed to the amount of the Court's fiscal year 2005 budget
    request. The budget for all other objects reflects a net increase of
    $1,170,000. Of this increase, $915,000 would be used for feasibility
    studies preparatory to design and construction of a Veterans
    Courthouse. The Court has requested the Department of Defense (DOD) to
    consider using for this purpose a site on presently available Pentagon
    Reservation land (either the Hayes, Eads, or Fern Street parking lot,
    located south of Interstate 395, just north of Army Navy Drive). It is
    my understanding that the DOD has initiated a feasibility study to
    determine the ``highest and best possible use'' of these three sites in
    Arlington, Virginia. On March 11, 2004, the Chairman and ranking
    minority member of the House Committee on Veterans' Affairs introduced
    a bill (H.R. 3936) to require DOD to report on the feasibility of
    locating a new courthouse for the Court on or proximate to the Pentagon
    reservation; this would include, of course, the feasibility of the
    Court's participation in any DOD development project involving these
    parking-lot sites. That committee held a hearing on this bill on April
    29, 2004, at which I presented testimony in support of this bill.
        In addition to the Court, occupants of the Courthouse would be
    members of those constituencies that regularly practice before the
    Court--VA General Counsel Group VII, the Representation Program, and
    the appellate litigation staff of the Disabled American Veterans (DAV),
    the Paralyzed Veterans of America (PVA), and the National Veterans
    Legal Services Program (NVLSP). The Court has been working with the
    General Services Administration (GSA) and exploring various courthouse
    alternatives; the GSA has preliminarily estimated that the Veterans
    Courthouse would require 121,000 gross square feet or 112,000 rentable
    square feet of interior space. (It is not anticipated that, if
    additional veterans organizations were to occupy space, there would be
    any significant impact on square-footage requirements.) The GSA could
    work with the DOD to coordinate predesign and preconstruction studies
    to determine the feasibility of use of one of the sites for the
    Veterans Courthouse and would provide input during design and
    construction based on guidelines for Federal courthouses and act as the
    Federal leasing agent once construction was completed. The Court and
    its constituencies that have expressed an intent to relocate to the
    Veterans Courthouse pay (or expressed a willingness to pay, based upon
    present rental costs) over $3.7 million per year for rent. The GSA
    anticipates that, at least for the Court and VA, rental costs at our
    present location will increase substantially in the not-too-distant
    future. Arlington County government officials have indicated that they
    support the location of the Veterans Courthouse on one of these sites
    and have offered to assist in this project.
        As H.R. 3936 recites, the Courthouse ``would express the gratitude
    and respect of the Nation for the sacrifices of those serving and those
    who have served in the Armed Forces, and their families.'' Given these
    past, present, and future sacrifices, I cannot imagine a higher or
    better use for one of these present parking-lot sites than a stand-
    alone, dedicated Veterans Courthouse and Justice Center, which would
    express our Nation's strong commitment to ensuring justice for every
    veteran who--in Abraham Lincoln's words--``shall have borne the battle
    and for his widow and his orphan.'' The Pentagon Reservation site would
    be the ideal setting, given its proximity to the Pentagon, Arlington
    Cemetery, and the soon-to-be-constructed Air Force Memorial and would
    be a timely and tangible means of demonstrating to the Nation's
    veterans and their families how much their sacrifices are valued.
        The request for funding also anticipates essentially uncontrollable
    increased costs for rent and for other services. These services include
    cross-servicing for payroll and finance and accounting support and for
    GSA property and disposal services; also included are increases in the
    cost of the contract with the U.S. Marshals Service for court security
    officers and in the Court's share of the cost of paying for guards in
    the building and garage pursuant to a GSA contract with the Federal
    Protective Service. In addition, a $15,000 increase for travel reflects
    an increase in the cost of travel, the temporary addition of judges,
    plans to conduct oral arguments at law schools and thereby promote
    education in veterans' law (as discussed further in the next
    paragraph), and training and possible relocation costs associated with
    the new judicial appointments. Finally, there is a net decrease of
    $10,000 realized in the supplies and materials and equipment
    categories.
        Last year, in my statement in support of the Court's budget request
    for fiscal year 2004, I updated you on two continuing Court
    initiatives: To promote study of veterans benefits law in the Nation's
    law schools and to support practitioners in their effort to organize a
    voluntary bar association. During the past 2 years, the Court held oral
    argument at five area law schools (Catholic University, Georgetown
    University, the University of Baltimore, American University, and
    Howard University), and one of the schools (Catholic University)
    offered an evening course in veterans benefits law during the Fall 2002
    semester (the course is scheduled to be repeated in Fall 2004). The
    voluntary bar association continues to operate successfully, drawing
    its dues-paying members (currently over 240) from the appellants' bar,
    VA, veterans service organizations, and the Court. As one of its
    activities, the bar association has established a law school education
    committee, with membership from among the Court's practitioners,
    including members outside the Washington, DC, geographic area, to
    support the Court's initiative to promote education in veterans
    benefits law. These practitioners are working with law professors and
    law schools throughout the country in exploring various means to expose
    future attorneys to this practice area.
        In conclusion, I appreciate this opportunity to submit this
    testimony on the Court's budget request for fiscal year 2005. On behalf
    of the judges and staff, I thank you for your past support and
    continued assistance. I will be happy to answer any questions that you
    might have.
                                     ______

                       CONSUMER PRODUCT SAFETY COMMISSION

                  Prepared Statement of Hal Stratton, Chairman

        Thank you for this opportunity to present to the subcommittee the
    appropriation request for the Consumer Product Safety Commission (CPSC)
    for fiscal year 2005. The Consumer Product Safety Commission is an
    independent agency charged with protecting the public from unreasonable
    risks of serious injury or death from more than 15,000 types of
    consumer products under the agency's jurisdiction. Deaths, injuries and
    property damage from consumer product incidents cost the Nation more
    than $700 billion annually.
        Since its inception, the Consumer Product Safety Commission has
    delivered critical safety benefits to America's families and has made a
    significant contribution to the 30 percent decline in the rate of
    deaths and injuries related to hazardous consumer products. We are
    proud of our mission, and we appreciate the subcommittee's strong
    support of the Commission and its goals over the years.
        The CPSC budget request for fiscal year 2005 is $62,650,000. This
    year's requested level of funding is an increase of $3 million over our
    fiscal year 2004 budget and is almost exclusively to be used for
    mandated staff salary and benefit increases and General Services
    Administration office space rent increases.
        Mandated Federal pay increases are the largest part of this request
    at $1.8 million. This figure is based on the estimated 1.5 percent
    increase proposed by the President for 2005. Additional mandated salary
    costs also include staff within-grade increases, staff retirement
    benefit increases, and staff health insurance benefits increases. Taken
    together, these increases total over $2.3 million.
        Additionally, the General Services Administration's proposed annual
    increase for space occupied by CPSC in our headquarters, laboratory and
    field locations is $339,000. We are not increasing our space; in fact,
    in the past 5 years, CPSC avoided space rent increases of over $1
    million annually because our field telecommuting initiative allowed us
    to reduce space requirements.
        Finally, we are requesting $80,000 for operation of a new fire data
    system. Reduction of fire deaths and injuries is a major effort by the
    agency and accurate data on consumer product involvement is critical.
    This initiative builds on a successful pilot conducted in 2002 designed
    in response to a General Accounting Office criticism of the statistical
    deficiencies of the National Fire Incident Reporting System (NFIRS)
    operated by the U.S. Fire Administration and used by CPSC for our fire
    death and injury estimates.
        I would also like to call to your attention the planned
    modernization of CPSC's aging laboratory facility. While we are not
    seeking funding in our current budget request for this project, I want
    to take this opportunity to update the subcommittee on our progress.
    GSA studies have shown that simply maintaining the existing structures
    is not cost effective. We have been working with GSA since 1999 to
    develop a modernization plan for the former military installation built
    in the 1950's that serves as our laboratory facility. An architectural
    firm under contract to GSA is now developing the full costs for
    implementing the master plan approved last year by the local planning
    commission. As these cost estimates become available, we will keep you
    further advised.
        A number of Senators have expressed interest in our largest hazard
    reduction activity, and that is reducing fire injuries and deaths.
    Under our previous Strategic Plans, we had a target to reduce the rate
    of fire deaths by 10 percent from 1995 to 2005. I am pleased to report
    that from 1995 to 1998, the fire death rate was reduced by nearly 15
    percent. Because of this success, we decided to retain this as a
    strategic goal with a new target of an additional 20 percent reduction
    from 1998 to 2013. Past standard-setting and compliance activities have
    contributed to the general decline in fires and fire deaths and show
    that the agency is effective in reducing fire hazards. For this reason,
    we are accelerating our efforts.
        I would also like to update the subcommittee on our efforts with
    regard to enhancing our ability to measure the number of clothing-
    related burn injuries, including sleepwear related injuries, to
    children. In July of last year, CPSC launched the Burn Center Reporting
    System. This system is capturing information on clothing-related burn
    injuries to children directly from burn centers throughout the country.
    All burn centers that treat children have been asked to report to CPSC.
        The system went into operation on July 1, 2003. As of this date,
    participating centers have reported over 100 cases. CPSC staff are
    investigating every one of these cases to determine the hazard
    mechanisms and the role of the clothing in the incident. This
    additional reporting tool supplements data collected by CPSC's other
    systems and enhances our ability to measure the number of clothing
    related burn injuries to children. For the record, I would like to
    thank publicly the American Burn Association and the Shriners Hospitals
    for Children for their substantial support in making this effort a
    success. We will be submitting a full written report to the
    subcommittee later this year.
        CPSC has added a new strategic safety goal this year, and that is
    to reduce the rate of pool and in-home drowning of children under 5
    years of age. Annually, an average of 248 children younger than 5
    drowned in swimming pools. In addition, an average of 167 children of
    that age group drown each year from other hazards in and around the
    house including such common household products as large buckets. It is
    the second leading cause of death in the home for children under the
    age of 5.
        CPSC is currently developing an action plan to foster greater
    consumer awareness and learn more about the circumstances and trends
    relating to childhood drownings. In addition, the staff is developing
    new guidelines that will be helpful to communities, code developers,
    and industry in further addressing this drowning hazard in pools and
    spas. We will be launching a safety campaign and public education
    initiative this summer, as well as looking at potential new standards
    and engaging in rigorous compliance enforcement to reduce the number of
    childhood drownings.
        Our proposed budget seeks to build on recent accomplishments and
    allow the flexibility to initiate new efforts when hazards emerge. Last
    year, CPSC completed 280 cooperative recalls involving about 40 million
    product units. In 2003 we completed four civil penalty cases that
    resulted in almost $2 million in fines. In addition, we secured five
    criminal convictions for violations of the Federal Hazardous Substances
    Act.
        CPSC sampled and tested shipments containing over 32 million
    fireworks in 2003. We prevented over 1 million illegal firework devices
    from entering the United States in 2003. In addition, CPSC in
    conjunction with the Department of Justice and the Bureau of Alcohol,
    Tobacco and Firearms and Explosives seized tens of thousands of illegal
    devices. In addition, other port surveillance activities prevented
    nearly 400,000 lighters that failed to have child-resistance safety
    devices from entry.
        In 2003 our public information initiatives were supported by 232
    press releases, our consumer hotline, radio and TV interviews, almost 2
    million distributed publications, e-mail alerts and our National Injury
    Information Clearinghouse. In just the first 4 months of 2004, our
    award winning website, www.cpsc.gov has seen more than 12.6 million
    hits. Each of these visits to our website has the potential to save a
    life.
        Also in 2003 CPSC was pleased to join forces with Amazon.com and
    eBay to call their customers attention to products offered for sale on
    their auction sites that might have been recalled and to direct them to
    CPSC's web site for recall information. Another innovative outreach
    program is our national campaign, in partnership with the National
    Association of Resale and Thrift Shops, Goodwill Industries
    International and the National Safekids organization, to alert the
    public to the sale by thrift stores and other resale stores of
    hazardous products that have been recalled or banned or do not meet
    current safety standards. Our goal is to eliminate thousands of
    hazardous and recalled products from the secondary market. Our video
    news release for this new initiative on thrift and retail stores
    reached over 24 million viewers.
        The creation of Recalls.gov is another significant CPSC safety
    effort. This is a partnership that CPSC initiated with six other
    Federal agencies to develop a one-stop-shop for all Federal product
    recalls. This new website is an easy to use portal for your
    constituents to access and find out all recall actions on one single
    website.
        We will continue to work hard at the Consumer Product Safety
    Commission to reduce the deaths, injuries and property loss associated
    with hazardous products. They cost the Nation hundreds of billions of
    dollars every year. Our budget request will help us to reduce these
    costs and the tragic injuries and loss of life they represent. Thank
    you.
                                     ______

                        GENERAL SERVICES ADMINISTRATION

                       Federal Citizen Information Center

                  Prepared Statement of Teresa Nasif, Director

        Mr. Chairman and members of the subcommittee, thank you for the
    opportunity to present the fiscal year 2005 budget request for the
    Federal Citizen Information Center (FCIC).
        For millions of people, FCIC embodies the best of government--
    practical, down-to-earth, and dedicated to meeting their needs. In
    dramatically increasing numbers, citizens are visiting FirstGov.gov,
    the official portal of the U.S. government, for instant, free access to
    a great variety of government information and services--from Federal,
    State, and local agencies. They are also e-mailing or calling FCIC's
    toll-free National Contact Center with questions about how to check
    social security benefits, find specialized tax forms, learn about the
    latest product recalls, or apply for a student loan. And, as they have
    for more than 30 years, they continue to send for publications from the
    distribution center in Pueblo, Colorado. As technology provides new
    ways for citizens to access information and interact with their
    government, FCIC has responded by developing simple, user-friendly
    services that millions of citizens rely on each year.
        In fiscal year 2003, citizens placed 1.76 million calls, requested
    5.92 million print publications, received 990,000 e-letter subscription
    mailings, made 60,000 e-mail inquiries, and completed 202 million web
    page views, for a program total of 210.73 million contacts, as compared
    to a fiscal year 2002 total of 123.57 million contacts. A significant
    reason for the large increase from fiscal year 2002 to fiscal year 2003
    is that FirstGov.gov, the official portal to the U.S. Government,
    became part of FCIC on June 30, 2002, and fiscal year 2003 shows the
    first full year impact of having FirstGov.gov page views included in
    FCIC public contacts.
        The Federal Citizen Information Center program mission and goals
    are also interwoven with the administration's E-Gov initiative, USA
    Services. The aims of USA Services are to present a single government
    face to citizens who need timely and consistent responses about
    government programs, and in so doing, enable the Federal Government to
    become more citizen-centric. An important component of USA Services is
    its ``front door,'' a well publicized, easy-to-access point of contact
    for all citizens.
        In fiscal year 2004, FCIC entered its first full year of operations
    as the infrastructure provider for USA Services, the ``front-door'' to
    the government. As such, FCIC operates the service delivery channels by
    which citizen questions are answered via the web, phone, e-mail, or
    print publications.
        In a move that will save Federal dollars as well as streamline
    citizen access to government services, FCIC will also receive and
    respond to telephone calls, and e-mails that are misdirected within the
    Federal Government. As of March 2004, USA Services has 20 Federal
    partners who have formally agreed to forward misdirected citizen
    inquiries to the National Contact Center (NCC), and who are working
    with USA Services to streamline citizen access to Federal information.
    FCIC uses its well-established agency liaison program to offer these
    services to Federal agencies, as well as to offer to set up a system
    for handling basic, frequently asked questions that can be answered
    directly by FCIC without a referral to another agency. Just as agencies
    save money and time by participating in FCIC's publication distribution
    program, they can also benefit by taking advantage of FCIC's telephone
    and e-mail answering services.
        FCIC uses a variety of methods to measure the quality of its
    service to citizens. Among these are the volume of contacts; the
    results of the American Customer Satisfaction Index (ACSI) survey;
    direct feedback from users via e-mail, telephone, and usability
    testing; the amount and nature of press coverage and awards received.
    In fiscal year 2003, FirstGov.gov received the coveted Innovations in
    American Government Award from Harvard University and the Ford
    Foundation. FirstGov.gov's January 2004 ACSI scores averaged 74.5. This
    puts it within reach of top-ranked Google at an ACSI average of 80. It
    far exceeds the current average for all of the government websites
    using the ACSI, which is 69.
        The pueblo.gsa.gov website, the Pueblo, Colorado publications
    center, and the National Contact Center also continue to receive highly
    favorable recognition and press coverage throughout the United States.
    Citizens have given FCIC high marks on the accessibility and usefulness
    of information, as FCIC scored a 79 on the 2003 American Customer
    Satisfaction Index for citizens who ordered print publications. The
    toll-free National Contact Center received the 2003 Government Customer
    Support Excellence Award for Overall Customer Support Excellence. Also,
    FCIC received free advertising space and airtime worth $9.6 million
    during fiscal year 2003.
        Taken all together, these performance measures provide a clear
    picture of how FCIC is using new technology and innovation, combined
    with proven practical programs, to provide the highest quality service
    and the best value to increasing numbers of American citizens.
        In fiscal year 2004, FCIC will award a new contact center contract
    to provide an expanded range of services in support of its ongoing
    mission, the mission of USA Services, and the missions of other Federal
    agencies. During fiscal year 2005, FCIC will conduct pilot studies of
    web chat and co-browsing to assess the public's demand for these
    services and determine the best ways of offering them in the future. As
    NCC capabilities expand, the amount of information it provides to the
    public will grow, both through normal day-to-day operations and through
    services provided to a variety of customer agencies and E-Government
    initiatives.
        The requested appropriation for fiscal year 2005 totals $14.907
    million, an increase of $990,000 from fiscal year 2004. This amount
    covers 6 additional FTE that will enable FCIC to enhance web content
    and security and to provide account services to customer agencies.
        In fiscal year 2005, FCIC will be responding not only to the ever-
    changing needs of citizens, but will also be assisting other government
    agencies in meeting those needs. In keeping with the goals of the E-Gov
    initiative USA Services, FCIC will provide an expanded array of
    services to a growing number of Federal agencies. From publication
    development and distribution, to educational media promotion, to Web
    site posting, to handling of toll-free telephone calls, to responding
    to citizen e-mail inquiries, FCIC will enable Federal agency clients to
    deliver their information and services to citizens through programs
    that have been proven to be responsive, efficient and cost effective.
    The end result of all FCIC activities in fiscal year 2005 will be a
    higher standard of government service that builds public confidence and
    trust in all citizens.
        Mr. Chairman, again I thank you for the privilege of presenting the
    Federal Citizen Information Center's budget request for fiscal year
    2005. I hope the committee will agree that FCIC is a valuable program
    and that it will look favorably upon our request.
                                     ______

              U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

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

        Senator Bond, Senator Mikulski, and distinguished members of the
    committee, in the last 12 months, the U.S. Chemical Safety Board has
    continued to advance its life-saving mission of preventing serious
    accidents at facilities that produce and use chemicals. We thank the
    committee for having provided the Board with increased resources for
    the current fiscal year. Our current budget of $8.2 million with a
    $447,000 emergency fund allows the Board to take on an unprecedented
    number of significant accident investigations and studies.
        The Committee's growing investments in this agency are paying off.
    Earlier this year, we achieved probably the most noteworthy success in
    our 6\1/2\-year history. On September 30 of last year, the Board voted
    to recommend that New York City modernize the control of hazardous
    materials under its existing 86-year-old municipal fire code. The
    recommendation followed an 18-month Board investigation of a chemical
    accident in downtown Manhattan, where at least 36 people were injured
    when hazardous chemicals--improperly mixed in the basement of a
    commercial building--exploded and caused the building to partially
    collapse. The Board's investigation showed how weaknesses in the
    antiquated fire code were handicapping New York City fire inspectors,
    preventing effective oversight and enforcement of good hazardous
    material safety practices in the city.
        The Board's September meeting in New York City received extensive
    public attention, and within weeks legislation was introduced in the
    city council to begin the process of modernizing the fire code. The
    Board testified twice before the city council in support of our
    recommendations, and in March 2004 the city announced that it will be
    hiring a new staff to spend the next couple of years overhauling the
    entire city fire code. This process is expected to lead to city's
    adopting an accepted model code, like the International Fire Code, as
    other cities have done. At the end of this process, 8 million New
    Yorkers will be considerably safer.
        What is happening right now in New York City is a striking proof of
    the value of independent, non-regulatory, root-cause investigations of
    accidents. While society has a strong impulse to find fault and punish
    wrongdoing when accidents like this occur, our own small agency is
    dedicated to discovering the true root causes of these events and
    promoting real safety in the future.
        The Board's budget is modest in comparison with the cost of even a
    single large chemical accident. As you know, we are now engaged in two
    of the most complex and difficult investigations the CSB has ever
    undertaken. These are the investigations of last year's catastrophic
    dust explosions at West Pharmaceutical Services in Kinston, North
    Carolina, and CTA Acoustics in Corbin, Kentucky. These accidents took
    13 lives and injured scores of workers. Two large industrial plants
    were idled, disrupting hundreds of jobs and undermining the fragile
    economies of two small towns. The overall cost from these two accidents
    alone will run to hundreds of millions of dollars.
        The Board's independent investigations and recommendations help
    prevent costly disasters like those in North Carolina, Kentucky, and
    New York City. We seek additional funds for the Board's work in fiscal
    year 2005 to further advance this mission. One of our main strategic
    challenges over the next several years is to gain greater awareness and
    acceptance of the safety improvements we have recommended, based on our
    accident investigations. Many of our specific safety recommendations
    are directed to individual companies that have experienced major
    accidents.
        It is vitally important, however, that we transmit our lessons and
    recommendations to other audiences beyond the specific recommendation
    recipients. To make progress nationally, we need thousands of other
    companies to learn about the causes of accidents, study our findings,
    and make changes in their operations--before more accidents occur.
    Promoting those actions will fulfill an important part of our mission.
    That is why we have requested additional funding of $450,000 for fiscal
    year 2005--to disseminate our safety information in ways that lead to
    new prevention initiatives. These funds will allow us to hire three new
    staff and establish a working program.
        I offer several examples where the Board's safety findings--put
    into the right hands--can help prevent future accidents and save lives.
    First, there may be hundreds of other plants around the country today
    that have hidden hazards from combustible dust--chemical dust that can
    explode as it recently did in North Carolina and Kentucky. Many
    engineers and managers remain unaware of this danger. Getting them the
    right information promptly is critically important. Despite the
    notoriety surrounding the major dust explosions early in 2003, dust
    explosions continue to occur with great frequency. We receive reports
    of smaller dust fires and explosions on virtually a weekly basis. On
    October 29, 2003, 8 months after the explosion in Kentucky, the Board
    began investigating yet another fatal dust explosion, this time at an
    automotive parts factory near Fort Wayne, Indiana. Two men were burned
    severely; one of them later died. Clearly more needs to be done.
        There are many other examples where the Board has potentially life-
    saving information that needs wider understanding, especially among
    small businesses that have limited resources and limited expertise in
    process safety, engineering, and risk assessment. In March 2004 we held
    a public meeting in Louisville, Kentucky, to approve our final report
    on a fatal explosion at a food additive plant there. People in the
    community were distressed to learn that straightforward, inexpensive
    safety equipment could have prevented the blast. As one plant neighbor
    lamented, ``For the want of a safety valve, a man was killed.'' It
    sounds simple enough: providing a pressure relief system for any vessel
    exposed to dangerous internal pressure. Yet in 7 of the 19 major
    accidents the Board has investigated since 1998, inadequate pressure
    relief was either a primary cause or a contributing factor. Once again,
    more needs to be done to get the word out.
        As a former industrial manager, let me tell you that nothing
    motivates you to act--to make any investments, arrange any training,
    install any safety equipment--like the knowledge of what terrible
    disaster may happen if you fail to act. That is where the CSB, with its
    almost 7 years of experience investigating the worst accident sites in
    the country, has unique credibility and value.
        Investigations will continue to be the mainstay of our work, and
    you can see from the number of investigations begun and completed since
    2002 that I have put the main emphasis in that area, consistent with
    the direction from this committee. Our request seeks additional funding
    to continue to bolster the Board's investigative work. First, we ask
    your support to hire a new accident investigator with expertise in the
    area of human factors. As many of you know who follow aviation safety,
    the interface between fallible human beings and complex technological
    equipment is the source of many accidents. Adding a new specialist
    investigator will allow the CSB to investigate the ``human factors''
    that contribute to deadly chemical accidents in complex manufacturing
    plants.
        Next, we also request funds to hire a new technical writer-editor.
    The CSB's main products are lengthy written reports. To date, all these
    reports have been funneled through a single technical writer, creating
    a bottleneck to report production. Additional funds will support hiring
    a second individual to accelerate report production and maintain report
    quality. We also plan to further expand work to put our reports and
    findings into plain language, useful to workers, members of the public,
    and other non-technical users.
        Over the past year, we have begun by publishing two-page plain-
    language Investigation Digests of our investigative reports. Seven
    digests have already been published and we are now planning to issue
    digests of each of our investigation reports, in both English and
    Spanish. These digests are receiving extremely positive feedback from
    trade associations, labor leaders, educators, and safety trainers.
    Recently, the PACE International Union requested 12,000 copies of one
    of our digests for training workers on how to maintain safety during
    process changes. I believe that we have just begun to tap the demand
    for this kind of plain-language product.
        In keeping with our primary focus on investigations, I am also
    seeking an increase of $400,000 to our new investigative emergency
    fund. As the committee recognizes, major accident investigations--like
    our investigation in North Carolina where an entire plant was leveled--
    have significant and unforeseeable costs. Physical evidence and the
    recollections of eyewitnesses are short-lived, and when a major
    accident occurs the Board cannot realistically await a supplemental
    appropriation from Congress before beginning its work.
        In this year's budget, the committee has created a $447,000
    emergency fund of ``no-year money''--available until it is expended.
    The use of the money is restricted to extraordinary investigative
    expenses, and we have not as yet tapped any of the funds. In seeking an
    increase to this fund, we recognize that extraordinary expenses for
    testing and contractual support of a major investigation can easily run
    over the $447,000 ceiling currently in place. For example,
    extraordinary expenses from our North Carolina and Kentucky dust
    explosion cases last year exceeded $450,000. Therefore we are
    requesting an additional $400,000 in no-year money for fiscal year
    2005, to bring the total emergency fund to $847,000. The Board is
    confident that this sum will be sufficient to initiate investigations
    of any major disasters that may occur.
        Additional increases, detailed in our agency's Budget
    Justification, will fund an expected January 2005 civilian pay increase
    and modestly increased contract costs associated with the Board's
    investigations, public affairs, and information technology programs.
    Increased costs for the latter items are a direct result of the Board's
    increased investigative workload.
        The past year has been one of significant achievement by the
    Chemical Safety Board. I believe that, with the committee's strong
    support, the agency has become a powerful voice for the protection of
    workers, plants, and communities from deadly chemical hazards. I ask
    for your continued support so that the CSB may fulfill the full breadth
    of responsibilities that Congress has envisioned. The remainder of my
    statement provides additional details on the accomplishments of the
    past year and the work that lies ahead.

                      HIGH LEVEL OF MISSION ACCOMPLISHMENT

        In fiscal year 2003, the Board initiated a total of twelve accident
    investigations, completed five accident investigations, a case study,
    and a safety bulletin. The investigation reports included a total of 90
    new safety recommendations to government, industry, labor, and other
    organizations. A summary of the current and recently completed
    investigations follows.
    Recently Completed Investigations
        D.D. Williamson & Co. (Louisville, Kentucky).--On the morning of
    April 11, 2003, one worker was killed at a food additive plant when a
    process vessel became over-pressurized and failed catastrophically. The
    explosion caused extensive damage to the plant and triggered a
    secondary release of 26,000 pounds of aqueous ammonia, requiring a
    community evacuation. The Board approved the final investigation report
    on March 12, 2004, at a public meeting in Louisville. Recommendations
    were issued to the company and also to the Commonwealth of Kentucky to
    increase awareness about existing regulations on the importation and
    inspection of used pressure vessels.
        Catalyst Systems (Gnadenhutten, Ohio).--On January 2, 2003, a
    vacuum dryer containing nearly 200 pounds of benzoyl peroxide exploded,
    injuring one worker and damaging a production facility. The Board
    approved a case study report in October 2003 describing good practices
    for handling of explosive peroxides, which are widely used in industry.
        First Chemical Corp. (Pascagoula, Mississippi).--On October 13,
    2002, a violent explosion occurred in a nitrotoluene distillation tower
    sending heavy debris over a wide area. Debris damaged the control room
    and narrowly missed a large storage tank that contained highly toxic
    anhydrous ammonia. The final CSB report on this investigation was
    approved at a Board public meeting in Pascagoula on October 15, 2003.
    In addition to recommendations to the facility and its new owner,
    Dupont, the CSB recommended that Jackson County improve its emergency
    notification system to better protect and inform residents about
    chemical accidents. CSB also recommended that the American Chemistry
    Council improve its Responsible Care voluntary safety program to ensure
    that companies like First Chemical are fully analyzing process hazards.
        Kaltech Industries (New York City).--On April 25, 2002, an
    explosion occurred at a sign manufacturer in the Chelsea neighborhood
    of downtown Manhattan, injuring 36 people, including 14 members of the
    public. The sign company occupied the basement of a mixed-use
    commercial building. The CSB found that the accident resulted from
    mixing two incompatible waste chemicals, lacquer thinner and nitric
    acid, without following basic safety procedures.
        In the course of the investigation, the Board held a public hearing
    on April 16, 2003, in New York City, where city officials and fire code
    experts discussed the adequacy of hazardous materials controls under
    New York City's 1918-era municipal fire code. On September 30, 2003,
    the full Board met again in New York City, approving its final report
    and citing the city's fire code as a contributing factor in the
    explosion. The Board called on the Mayor and City Council of New York
    to adopt a modern set of control measures for hazardous materials, such
    as those contained in the International Fire Code. On March 5, 2004,
    the city announced its decision to move forward with a complete
    revision of the code.
        BLSR Operating Ltd. (Rosharon, Texas).--On January 13, 2003, a
    vapor cloud deflagration and fire erupted at a small petroleum waste
    disposal facility in rural Texas south of Houston, killing three
    workers and injuring four. The CSB concluded that the fire could have
    been prevented if the companies involved had recognized the hazards of
    the wastes being handled and transported; had safer procedures for
    handling flammable wastes; and if the companies and regulators had
    better oversight of the operations. On September 17, 2003, the Board
    made a series of safety recommendations to prevent a recurrence,
    calling on the Texas Railroad Commission to require all permitted
    drillers and producers in the State to furnish workers with appropriate
    hazard information.
        DPC Enterprises (Festus, Missouri).--On August 14, 2002, a chlorine
    transfer hose ruptured during a rail car unloading operation at a
    chlorine repackaging facility near St. Louis. Automatic emergency
    shutdown valves malfunctioned and the leak continued. Several hours
    elapsed before outside emergency responders in full protective gear
    were able to reach the rail car and contain the leak. By that time,
    48,000 pounds of potentially deadly chlorine had been released to the
    atmosphere. Three workers and 63 residents sought medical treatment.
        Investigators determined that the ruptured hose had the wrong
    materials of construction. On December 4, 2002, the CSB issued a safety
    advisory to all users of chlorine transfer hoses, urging them to verify
    their hoses are correctly constructed. On May 1, 2003, the Board
    approved its final report on the DPC Enterprises investigation at a
    public meeting in Festus. The CSB found that better equipment
    maintenance and quality assurance procedures would have prevented the
    release. In addition to recommending changes at DPC Enterprises, the
    Board called on Jefferson County to improve its community notification
    systems for chemical emergencies. The CSB also called on the chlorine
    industry and hose distributors to collaborate in making chlorine hoses
    more readily identifiable throughout the supply chain.
    Current Investigations
        Formosa Plastics (Illiopolis, Illinois).--On April 23, 2004, five
    workers were fatally killed and three others were seriously injured
    when an explosion occurred in a polyvinyl chloride (PVC) production
    unit at a Formosa Plastics plant located east of Springfield, Illinois.
    The explosion forced a community evacuation and lighted fires that
    burned for several days at the plant. The CSB is conducting a full
    investigation of this accident.
        MFG Chemical Inc. (Dalton, Georgia).--On the evening of April 12,
    2004, a chemical reactor overheated at the MFG Chemical manufacturing
    plant, releasing hydrochloric acid and allyl alcohol. The resulting gas
    cloud sent 184 people to a local hospital and forced the evacuation of
    nearby residents. The CSB is conducting a full investigation of this
    accident.
        Giant Industries (Gallup, New Mexico).--On April 8, 2004, four
    workers were seriously injured when highly flammable gasoline
    components were released and ignited at the Giant Industries Ciniza
    refinery in northwestern New Mexico. Unknown to personnel, a shut-off
    valve connecting to a distillation column was apparently in the open
    position, leading to the release and subsequent explosions. The CSB is
    conducting a full investigation of this accident.
        DPC Enterprises (Glendale, Arizona).--On November 17, 2003, there
    was a release of chlorine gas from a DPC Enterprises chlorine
    repackaging facility near Phoenix. Fourteen people, including ten
    police officers, required medical evaluation for possible chlorine
    exposure. More than 4,000 households and businesses were ordered to
    evacuate. The release occurred when excess chlorine vapors from a rail
    car unloading operation were diverted to a recapture system known as a
    scrubber. The scrubber malfunctioned, releasing the gas.
        Hayes Lemmerz (Huntington, Indiana).--On the evening of October 29,
    2003, a series of aluminum dust explosions severely burned two workers,
    injured a third, and caused property damage to an automotive parts
    manufacturing plant in Huntington, Indiana, near Fort Wayne. One of the
    severely burned men subsequently died. CSB plans to issue its final
    investigation report on this accident in fall 2004.
        Isotec (Miamisburg, Ohio).--On September 21, 2003, a violent
    explosion destroyed an underground distillation tower at the Isotec
    chemical manufacturing plant in Miamisburg, Ohio, injuring one worker.
    The explosion ruptured a carbon monoxide gas pipe and led to a
    precautionary overnight evacuation of about 2000 residents. CSB expects
    to issue a case study report on this accident in summer 2004.
        Honeywell (Baton Rouge, Louisiana).--On July 20, 2003, there was a
    release of chlorine gas from the Honeywell chemical plant in Baton
    Rouge, Louisiana. The accident resulted in the hospitalization of four
    plant workers and required residents within a half-mile radius to
    shelter in their homes. On July 29, 2003, a worker was fatally injured
    by exposure to antimony pentachloride when a gas cylinder released its
    contents to the atmosphere. On August 13, 2003, two plant workers were
    hospitalized for exposure to hydrofluoric acid. CSB is investigating
    all three incidents; on March 30, 2004, the Board convened a community
    meeting in Baton Rouge to present its preliminary findings and receive
    comments from residents.
        CTA Acoustics (Corbin, Kentucky).--On February 20, 2003, an
    explosion and fire seriously damaged the CTA Acoustics manufacturing
    plant, fatally injuring seven workers. The facility produced fiberglass
    insulation for the automotive industry and used a combustible phenolic
    resin powder as a binder for the fiberglass. CSB investigators have
    found that the initial explosion and fire occurred on a production line
    that was partially shut down and being cleaned at the time of the
    incident. During the cleaning, a thick cloud of dust dispersed around
    the line. The dust was likely ignited by a fire that spread from the
    production line's oven, which had malfunctioned earlier and was being
    operated with its door open.
        On July 8, 2003, the Board held a community meeting in Corbin
    attended by several hundred people. Board investigators presented their
    preliminary findings and fielded questions and comments from concerned
    residents and workers. The Board's investigation is now continuing with
    a detailed examination of components of the malfunctioning oven.
    Investigators are also examining why many CTA personnel were unaware of
    the catastrophic potential of resin dust that had accumulated on
    surfaces around the plant. The Board expects to issue its final report
    on this investigation in late 2004.
        Technic Inc. (Cranston, Rhode Island).--On February 7, 2003, a
    worker was seriously injured in an explosion at a plant that
    manufactures precious metal processing chemicals. The explosion
    occurred during maintenance on a ventilation system connected to
    multiple chemical reactors, evidently due to an accumulation of
    reactive material inside. CSB plans to issue its final report on this
    investigation in summer 2004.
        West Pharmaceutical Services (Kinston, North Carolina).--On January
    29, 2003, an explosion and fire destroyed the West Pharmaceutical
    Services plant causing six deaths, dozens of injuries, and hundreds of
    job losses. CSB investigators have found that the fuel for the
    explosion was a fine plastic powder used in producing rubber goods.
    This polyethylene dust accumulated above a suspended ceiling over a
    manufacturing area at the plant and provided the major energy for the
    blast.
        On June 18, 2003, the Board held a community meeting in Kinston,
    attended by several hundred people. Board investigators presented their
    preliminary findings and took questions and comments from the audience.
    The Board's final report is expected in late 2004.
    Hazard Studies and Bulletins
        Dust Hazards.--Prompted by the fatal dust explosions at West
    Pharmaceutical Services, CTA Acoustics, and Hayes Lemmerz in 2003, the
    CSB has launched a systematic investigation of dust explosion incidents
    over the last several decades. Preliminary reviews point to a number of
    other tragic events in recent years, including major fires and
    explosions at the Malden Mills factory in Lawrence, Massachusetts
    (December 1995); the Ford Motor River Rouge plant in Dearborn, Michigan
    (February 1999); the Jahn Foundry in Springfield, Massachusetts
    (February 1999); and Rouse Polymerics International in Vicksburg,
    Mississippi (May 2002). These accidents caused numerous deaths and
    injuries as well as extensive property damage and economic losses.
        A main purpose of the hazard study will be to assess the overall
    effectiveness of current codes and standards for preventing dust
    explosions. At present, the U.S. Occupational Safety and Health
    Administration (OSHA) does not have specific standards for controlling
    combustible dust hazards in many industrial facilities. National
    standards are in place for dust hazards in coal mines and grain
    handling facilities. The Board plans to examine whether current
    regulations are adequate and also how to improve awareness of dust
    hazards among industrial managers nationwide.
        Sodium Hydrosulfide Handling.--As an outgrowth of the Board's
    November 2002 Georgia Pacific investigation, CSB staff are conducting a
    review of other incidents involving sodium hydrosulfide, the chemical
    which reacted at a Georgia Pacific paper mill to release toxic hydrogen
    sulfide gas from a process sewer, killing two contract workers and
    injuring eight others. CSB expects to issue a safety bulletin
    highlighting good practices for handling sodium hydrosulfide in summer
    2004.
        Nitrogen Asphyxiation Hazards.--In June 2003 the CSB completed a
    nationwide review of incidents similar to the March 1998 nitrogen
    asphyxiation incident at Union Carbide in Hahnville, Louisiana, which
    the CSB investigated. The new CSB study identified a total of 85
    incidents that occurred in the United States between 1992 and 2002 and
    involved exposure to dangerous nitrogen-enriched, oxygen-poor
    atmospheres. Together these incidents caused 80 deaths and 50 injuries.
    The CSB developed a safety bulletin on nitrogen asphyxiation hazards,
    highlighting a variety of good practices to avoid such incidents. The
    CSB also developed a short safety pamphlet and training slide
    presentation on nitrogen hazards.
    Safety Recommendations Program
        Recommendations are the CSB's principal tool for promoting chemical
    safety. Each recommendation has one or more specific recipients, who
    are the parties best able to carry out the recommended action to
    improve safety. Once the Board has issued a recommendation, CSB
    recommendations staff encourage adoption and track implementation
    activities. The Board aims for a cumulative 80 percent acceptance rate
    for our recommendations.
        We have continued to receive excellent cooperation from
    recommendation recipients over the past year and have received numerous
    responses indicating positive actions underway or planned. In fiscal
    year 2003, the CSB successfully closed 10 outstanding safety
    recommendations. While these safety actions represent important
    progress that will help prevent accidents, the Board will continue to
    work for faster progress in this area. As we have increased our output
    of investigation reports and safety recommendations, our ability to
    track adoption of those recommendations has not kept pace. As a result,
    the CSB will this year be doubling the amount of staff time allocated
    for closing recommendations. The Board has just completed hiring a
    senior-level recommendations staff supervisor, who will oversee the
    program and will report directly to the CEO.
        The recommendations program continues to deliver important safety
    improvements around the country. Earlier, I mentioned how the Board's
    recommendations have motivated New York City to modernize its 86-year-
    old fire code. Earlier, in March 2003, the Board completed an
    investigation of a catastrophic chemical fire in Brazoria County,
    Texas, south of Houston. The Board found that the county had no fire
    code for unincorporated areas, and as a result a facility that stored
    more than a million gallons of combustible petrochemicals lacked basic
    fire protection--such as smoke alarms, sprinklers, and fire walls. A
    small fire that started overnight spread to engulf and destroy the
    entire multi-acre facility, which had employed about 100 workers. Less
    than a week after receiving a safety recommendation from the CSB,
    Brazoria County supervisors voted to adopt the International Fire Code.
        The Board continues to press for effective actions on the control
    of reactive hazards--the dangers associated with uncontrolled chemical
    reactions at industrial sites. The Board's 2002 hazard study, Improving
    Reactive Hazard Management, documented 167 serious reactive chemical
    accidents over the past two decades. Those accidents caused more than
    100 fatalities as well as numerous injuries and huge property losses.
    The CSB found that more than half the chemicals involved in these
    accidents are currently exempt from Federal process safety regulations.
    In September 2002 the Board called on OSHA and EPA to revise those
    rules to broaden coverage of reactive hazards.
        In June 2003, the Board organized and co-sponsored (with OSHA and
    EPA) a daylong stakeholder roundtable meeting in Washington, DC, to
    discuss possibilities for reforming the process safety rules. The Board
    was highly encouraged by statements from both industry and labor
    representatives at the meeting in favor of broader regulatory coverage
    for reactive chemicals. All parties recognized the seriousness of the
    problem and the need for more actions to prevent catastrophic
    accidents. In August 2003, 2 months after the meeting and less than a
    year after the Board's hazard study, New Jersey acted to add reactive
    chemicals to the State's list of regulated ``extraordinarily hazardous
    substances''--an action that will result in additional safety controls
    among New Jersey chemical plants. The Board continues to hope that
    similar action will be forthcoming at the Federal level and is working
    toward that end.
    CSB Expands Community and Web-Based Outreach
        The CSB has found great value in conducting its public business in
    the communities that are directly impacted by chemical accidents. CSB
    public and community meetings have garnered hundreds of audience
    participants and received widespread news coverage among local and
    regional news media, reaching audiences that number in the millions.
    The CSB's objective, scientific investigations are proving to be one of
    the most important ways that community members can learn about the
    causes of chemical accidents and ways they can participate with
    companies to help prevent future occurrences.
        Over the past year, the Board has held public meetings, community
    meetings, and hearings in Louisville, Kentucky; Pascagoula,
    Mississippi; Festus, Missouri; Kinston, North Carolina; Corbin,
    Kentucky; Baton Rouge, Louisiana; and twice in New York City. The Board
    has continued to offer free webcasts of significant public meetings,
    which reach hundreds of additional viewers who are unable to attend the
    meetings in person.
        In August 2003, the Board launched a completely revised version of
    its popular website, CSB.gov, with streamlined access to CSB accident
    reports, video webcasts, safety recommendations, and other information.
    Selected information is now being made available in the Spanish
    language as well as English, and we plan to increase this service in
    coming months. In December 2003 the Board launched a new live incident
    news service from CSB.gov, with updates from around the world every 15
    minutes, a popular feature among safety professionals who track
    chemical accidents.

                          INSPECTOR GENERAL OVERSIGHT

        During fiscal year 2004, the CSB will be transitioning to a new
    Inspector General (IG) shared with the Environmental Protection Agency.
    In January 2004, the CSB received its last program audit report from
    its outgoing Inspector General, the IG of the Department of Homeland
    Security (formerly the IG of the Federal Emergency Management Agency).
    That report included 11 new recommendations for improving agency
    operations. The CSB responded to all 11 recommendations and will be
    moving forward with implementation over the coming year.
        While the report highlights some important areas for improvement,
    particularly in the tracking of chemical incidents and open safety
    recommendations, I was pleased by the generally positive conclusions of
    this final audit report. The Inspector General found, for example, that
    ``. . . the CSB increased its productivity and stability under new
    management during the past year. The CSB is progressing toward meeting
    its statutory responsibilities and has increased the number of
    investigations it performs.'' (IG Report, p. 1) Of note to the
    committee will be the outgoing Inspector General's assessment that
    ``the CSB lacks the resources to investigate all accidents within its
    purview.''

                               HOMELAND SECURITY

        In accordance with new committee report language this year, the CSB
    has sought discussions with the Department of Homeland Security (DHS)
    on a new Memorandum of Understanding (MOU). The MOU will describe terms
    of cooperation between the two agencies. The Board will report back to
    the committee by June 2004 on its progress, and we look forward to
    further support and encouragement from the committee to promote the
    swift negotiation and completion of this agreement.
        I also draw the committee's attention to recent Board findings that
    have important ramifications for homeland protection. CSB's
    investigations typically include an examination of the adequacy of
    local emergency response to chemical accidents. Three of our recent
    investigations revealed a lack of sufficient local preparation for a
    major chemical event. I refer to Board investigations at First Chemical
    Corporation in Pascagoula, Mississippi; Isotec in Miamisburg, Ohio; and
    DPC Enterprises in Festus, Missouri.
        These investigations found that local authorities have difficulty
    notifying residents of a chemical release and informing them of the
    appropriate safety actions, such as evacuation or sheltering. In
    Missouri, lack of adequate planning beforehand prevented emergency
    responders from containing a serious chlorine release for several
    hours. If the wind had been blowing in a slightly different direction
    that day, the plume would have drifted over a residential area, with
    potentially grave consequences. While I believe all these communities
    are working aggressively to address the gaps that were uncovered, it is
    likely that other communities around the country may have similar
    shortcomings in their preparations to survive a terrorist attack on a
    chemical plant.
        We communicated the Board's concerns in this area to Homeland
    Security oversight committee members in correspondence last year. We
    also anticipate discussing these concerns with DHS officials as we
    proceed with an interagency agreement. I thank the committee for
    seeking the Board's assistance and cooperation on these vital homeland
    security issues. As the foregoing examples show, I believe this is an
    area where the Board can make a positive contribution.

                                   CONCLUSION

        The last 18 months mark a major turnaround for the Chemical Safety
    Board. Following several years of organizational challenges, the CSB is
    now producing considerable value for the taxpayers--issuing reports,
    studies, and recommendations that safeguard workers, plants, and the
    public from chemical accident hazards. The Board is back on track as a
    strong, nimble Federal agency that works closely with industries and
    communities that suffer deadly chemical disasters. The CSB's work helps
    to save lives and make plants and communities safer. I urge the
    committee's support for modest budget increases that will allow the
    Board to be even more effective in the future.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's Note.--The following testimonies were recieved by
    the Subcommittee on VA, HUD and Independent Agencies for
    inclusion in the record. The submitted materials relate to the
    fiscal year 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 American Society for Microbiology

        The American Society for Microbiology (ASM) appreciates the
    opportunity to submit testimony on the fiscal year 2005 appropriation
    for the Environmental Protection Agency (EPA). The ASM is the largest
    single life science organization in the world, comprised of more than
    43,000 members. ASM members are involved in research to improve human
    health and the environment and work in academic, industrial, medical,
    and governmental institutions worldwide. The ASM's mission is to
    enhance the science of microbiology, to gain a better understanding of
    life processes, and to promote the application of this knowledge for
    improved health, and for economic and environmental well-being.
        The EPA's mission is to protect human health and to safeguard the
    natural environment (air, water, and land). The ASM believes that sound
    public policy for environmental protection depends on adequately funded
    programs of intramural and extramural research based on scientific peer
    review to assure that support is awarded to research that has both
    quality and relevance. The Nation spends comparatively little on
    environmental research, even though health and the environment are
    often integrally related. It is essential that the EPA's Science to
    Achieve Results Research (STAR) program and Indoor Air Quality
    research, Clean and Safe Water research, and Surface Water Protection
    and Drinking Water research programs be adequately funded in the EPA
    budget.
        Unfortunately, the EPA budget proposes a 12 percent funding cut for
    EPA science and technology programs below the fiscal year 2004
    allocation, despite the importance of these programs to addressing
    increasingly complex environmental problems. ASM urges Congress to
    provide increased funding for EPA science and technology programs. EPA
    depends on excellent research programs to evaluate risk, develop and
    defend protective standards, anticipate future health and environmental
    threats, and to identify solutions to environmental problems.

                              STAR GRANTS PROGRAM

        EPA's Office of Research and Development (ORD) manages the STAR
    grants program, which is a competitive, peer-reviewed, extramural
    research grants program intended to increase access to the Nation's
    best scientists and engineers in academic and other non-profit research
    institutions. Research sponsored by the STAR program allows the EPA to
    fill information gaps that are not addressed completely by its
    intramural research programs, and to respond to new and emerging issues
    that the agency's laboratories are not able to address.
        The EPA budget requests a 35 percent, or $35 million, cut in
    funding for the STAR grants program from fiscal year 2004. The National
    Academy of Sciences (NAS) has urged the continuation of and investment
    in the STAR program. In 2003, the NAS released a report titled, ``The
    Measure of STAR: Review of the U.S. Environmental Protection Agency's
    Science to Achieve Results (STAR) Research Grants Program'', which
    argues that the STAR grants are a critical means for the agency to
    access scientific expertise that it does not have in-house, and to
    respond quickly to emerging issues.
        Since its inception in 1995, STAR research projects have resulted
    in articles in highly respected, peer-reviewed journals, and have
    already helped to improve our understanding of the causes, exposures
    and effects of environmental pollution and microorganisms in the
    environment. ASM urges Congress to fully restore funding for the STAR
    grants program to the fiscal year 2004 level of $100 million. At
    present, STAR focuses on critical research areas, including the health
    effects of particulate matter, drinking water, water quality, global
    change, ecosystem assessment and restoration, human health risk
    assessment, endocrine disrupting chemicals, pollution prevention and
    new technologies, children's health, and socio-economic research.
        A typical STAR grant is funded at $500,000, with full funding the
    first year, and may last up to 3 years. With the proposed budget
    request, approximately 70 fewer individual research projects will be
    awarded. The proposed 35 percent cut in funding for the STAR program
    would:
      --Eliminate 50 grants in fiscal year 2005 across all areas of the
            ecological research program.
      --Redirect $5 million from research to a pollution prevention
            outreach program in another part of the EPA. Redirecting these
            funds would eliminate $3 million in STAR funding, which is
            EPA's contribution to the EPA-National Science Foundation (NSF)
            partnership.
      --Cut $4.9 million, which would eliminate the entire STAR grant
            research program on endocrine disruptors. The funds would
            otherwise have supported research on the extent to which humans
            and wildlife are exposed to endocrine disruptors, an area that
            the NAS and the World Health Organization have identified as an
            important research gap.
      --Eliminate STAR research in fiscal year 2005 on how and where
            mercury moves through the environment.
      --Eliminate ORD's contribution to the five EPA established,
            university-based centers affiliated with 22 universities to
            address concerns about hazardous substances in the environment.

                            STAR FELLOWSHIP PROGRAM

        The EPA's Graduate STAR Environmental Fellowship Program has been
    an outstanding success in attracting some of the best young talent to
    environmental research. Examples of research conducted in the STAR
    program include new methods of classifying biologically impaired
    watersheds and the human health effects of particulate matter. This
    type of research is unique to the EPA and is integral to its role as
    steward of the environment. Unfortunately, the EPA budget proposes a 40
    percent, or $4 million, cut for fiscal year 2005.
        ASM believes the Fellowship program is one of the initiatives the
    Federal Government must fully support to ensure that the Nation is
    prepared to answer the complex scientific questions of the future. Both
    the public and private sectors will benefit from a steady stream of
    well-trained environmental specialists. More than 1,300 applicants
    compete each year for approximately 100 fellowships through a rigorous
    merit review process.
        The proposed cut of the fellowship program will significantly
    reduce the number of fellowships granted. ASM urges Congress to restore
    funding for the STAR fellowship program to its fiscal year 2004 level
    of $10 million. Additionally, ASM shares the concern raised by the
    EPA's Science Advisory Board (SAB) that without the Fellowship program,
    the EPA may be unable to replace many of the EPA scientists nearing
    retirement with top-level scientists. This issue will become more
    pronounced as time goes on, increasing the need for more support for
    this fellowship program.

                              WATERBORNE PATHOGENS

        Although the American public enjoys safe drinking water, waterborne
    disease outbreaks caused by pathogenic bacteria, viruses, and parasites
    continue to be reported periodically. Surface water and groundwater
    sources can be contaminated with many different types of chemical
    substances and microorganisms. Furthermore, the disinfection process
    itself creates a number of potentially toxic chemical byproducts. EPA
    conducts the necessary research to provide a strong scientific
    foundation for standards that limit the public's exposure to drinking
    water contaminants and disinfection byproducts. This research supports
    major regulatory activities including the Microbial/Disinfection
    Byproduct Rules, and future decisions on unregulated pathogens and
    chemicals. EPA is conducting research on waterborne pathogens, arsenic,
    disinfection byproducts, and other chemical contaminants to protect the
    Nation.

                               INDOOR AIR QUALITY

        Every breath we take, indoors and out, we inhale not just life-
    sustaining oxygen but dust and smoke, chemicals, microorganisms, and
    particles and pollutants that float on the air. The average human
    inhales approximately 10 cubic meters of air daily. Because most people
    spend about 22 hours each day indoors, poor indoor air quality (IAQ)
    affects both public health and national productivity. At present, a
    shortage of IAQ research leaves much unknown about cause-and-effect
    specifics, but there is little doubt that contaminated buildings are
    attracting more attention as occupants develop often vague symptoms
    followed by remediation, litigation, and other costly outcomes.
        Although IAQ issues are often viewed as a problem of modern
    buildings, connections made between air and disease date to ancient
    times. Long before the germ theory of disease and its indictment of
    pathogenic microorganisms, humans associated foul miasmas like ``sewer
    gas'' with infectious diseases such as malaria. Initially, prevention
    of disease transmission by infectious pathogens became the principal
    concern of early public health advocates. Today we understand that
    airborne non-pathogenic organisms, fragments of microbial cells, and
    by-products of microbial metabolism also cause problems. ASM believes
    that more research is needed in this area for the safety and protection
    of human health.

                                   CONCLUSION

        Well-funded research is needed to address emerging issues affecting
    the environment and human health. For EPA to fulfill its mission to
    protect human health and to safeguard the natural environment, ASM
    urges Congress to increase funding for the EPA's science and technology
    programs to their fiscal year 2004 level.
        The ASM appreciates the opportunity to provide written testimony
    and would be pleased to assist the subcommittee as it considers its
    appropriation for the EPA for fiscal year 2005.

                                                                 SCHEDULE OF FEDERAL AWARDS 2004
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Federal                       Grants        Receipts or                       Grants
    Federal Grantor/Pass-through Grantor/Program Title     Cost       CFDA      Program or    Receivable  1/      Revenue     Disbursements/  Receivable  12/
                                                          Center     Number    Award Amount       1/2004        Recognized     Expenditures       31/2004
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    MAJOR PROGRAMS:
        Resident Postdoctoral Research................        783     93.283     $999,381.00      $89,902.49  ..............  ..............      $89,902.49
                                                       -----------------------------------------------------------------------------------------------------
          Total Major Programs........................  .........  .........      999,381.00       89,902.49  ..............  ..............       89,902.49
                                                       -----------------------------------------------------------------------------------------------------
    OTHER FEDERAL ASSISTANCE:
        HHS:
            NIGMS-MARC................................        789     93.88       431,300.00  ..............  ..............  ..............               0
            Environmental Micoorganisms...............        694     93.856       10,000.00  ..............  ..............  ..............               0
            DNA Repair and Mutagenesis................        457     93.393       25,000.00  ..............  ..............  ..............               0
            Summer Institute..........................        848     93.856       24,000.00          532.99  ..............  ..............          532.99
            Conf Biofilms.............................        425     93.121       25,000.00       25,000.00  ..............  ..............       25,000.00
            Environmental Pathogens...................        694     93.856       10,000.00  ..............  ..............  ..............               0
            Microbial Triggers of Disease.............        666     93.855        5,000.00  ..............  ..............  ..............               0
            Candida and Candidiasis...................        434     93.121       10,000.00  ..............  ..............  ..............  ..............
        National Science Foundation:
            Plant Biotechnology.......................        678     47.074       15,000.00  ..............  ..............  ..............               0
            Pathogens.................................        697     47.074      110,000.00       33,608.72  ..............  ..............       33,608.72
            Sub Contract BioSciEd Net.................        787     47.076      100,000.00       30,838.75  ..............  ..............       30,838.75
            Beyond Microbial Genomics.................        691     47.074       15,000.00  ..............  ..............  ..............  ..............
        U.S. Department of Energy:
            DNA Repair and Mutagenesis................        457     81.049       20,000.00  ..............  ..............  ..............               0
            Prokaryotic Development...................        472     81.049       10,000.00  ..............  ..............  ..............               0
            Geobiology................................        675     81.049       15,000.00  ..............  ..............  ..............               0
            Microbial Ecology and Genomics............        676     81.049       25,000.00  ..............  ..............  ..............               0
            Multicellular Cooperation.................        671     81.049       15,000.00  ..............  ..............  ..............               0
            Systems Microbiology......................        691  .........       10,000.00        6,461.06  ..............  ..............        6,461.06
        USDA:
            Conference Salmonella.....................        421     10.206       10,000.00       10,000.00  ..............  ..............       10,000.00
            Pre-harvest Food Safety...................        663     10.001        5,000.00        5,000.00  ..............  ..............        5,000.00
            Pre-harvest Food Safety...................        663     10.2         25,000.00       19,350.00  ..............  ..............       19,350.00
            Pre-harvest Food Safety...................        663     10.206       10,000.00        7,000.00  ..............  ..............        7,000.00
            Conf Salmonella Pathogenesis..............        421     10.206       10,000.00  ..............  ..............  ..............               0
        EPA:
            Microbial Eolocy..........................        676     66.5         20,000.00  ..............  ..............  ..............               0
            Infectious Disease GI Tract...............        670     66.606       50,000.00  ..............  ..............  ..............               0
            PO HHS/FDA Pre-harvest Food...............        663  .........       10,000.00       10,000.00  ..............  ..............       10,000.00
            PO US Dept of Army........................        475  .........       10,000.00  ..............  ..............  ..............               0
                                                       -----------------------------------------------------------------------------------------------------
              Total Other Awards......................  .........  .........    1,025,300.00      147,791.52            0.00            0.00      147,791.52
                                                       -----------------------------------------------------------------------------------------------------
              Total Federal Awards....................  .........  .........    2,024,681.00      237,694.01            0.00            0.00      237,694.01
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                                     ______

          Prepared Statement of the American Society for Microbiology

        The American Society for Microbiology (ASM) appreciates the
    opportunity to submit testimony on the fiscal year 2005 appropriation
    for the National Science Foundation (NSF). The ASM is the largest
    single life science membership organization in the world, comprised of
    more than 43,000 members. The ASM's mission is to enhance the science
    of microbiology, to gain a better understanding of life processes, and
    to promote the application of this knowledge for improved health, and
    for economic and environmental well-being.
        The NSF is the premier source of Federal support for mathematic,
    scientific, and engineering research and education across many
    disciplines. NSF support plays a critical role in the health of the
    Nation's academic system, which is the source of new ideas and human
    resources in science. Although NSF represents less than 4 percent of
    the total Federal funding for research and development (R&D), it
    accounts for approximately 13 percent of all Federal support for basic
    research and 40 percent of non-life-science basic research at U.S.
    academic institutions. NSF's broad support for basic research,
    particularly at U.S. academic institutions, provides not only a key
    source of funds for discovery in many fields, but also unique
    stewardship in developing the next generation of scientists and
    engineers. NSF is also the principal Federal agency charged with
    promoting science and engineering education at all levels and in all
    settings, from pre-kindergarten through career development. This helps
    ensure that the United States has world-class scientists,
    mathematicians and engineers, and well-prepared citizens.
        ASM appreciates the support that both the Congress and the
    administration have demonstrated for the National Science Foundation
    through the enactment of the NSF Authorization Act of 2002 (Public Law
    107-368). Public Law 107-368 authorizes a 5-year period of 15 percent
    annual budget increases for the NSF. We encourage Congress to act upon
    their commitment and increase funding for NSF by 15 percent, or $837
    million, for fiscal year 2005, raising the NSF budget to $6.4 billion.
    Increasing NSF's budget by 15 percent will allow for additional
    investments in grants, fellowships, and in cross-cutting research
    priorities like Biocomplexity in the Environment, and Nanoscale Science
    and Engineering. This recommendation is consistent with that of the
    Coalition for National Science Funding.

                             RESEARCH GRANT FUNDING

        Fundamental research in the biosciences has laid the foundation for
    exploring the human genome and now offers new possibilities for
    understanding the living world from molecules to organisms to
    ecosystems, providing new discoveries applicable to health,
    environment, agriculture, and energy. The fiscal year 2005 budget
    request for NSF is $5.57 billion, a 3 percent or $167 million increase
    over fiscal year 2004. This current level of funding will provide for a
    2.2 percent increase in the average size of awards to $142,000 per year
    for an average duration of 3 years, assuming there will be a decrease
    in the number of awards from fiscal year 2004. For core research areas
    of the biological sciences, it will increase the average size of awards
    to $190,750 (median award size $140,250) per year for 3 years from
    $181,670 (median award size $138,070) per year in fiscal year 2004.
    However, the number of research grants will drop by 2.5 percent, and
    the funding rate will drop by 1 percent to 19 percent.
        Improving productivity of researchers requires increasing the
    average award size. ASM applauds efforts to increase the average award
    size, but is disappointed with the decrease in the number of research
    grants that will be funded. Increasing NSF's budget by 15 percent would
    allow NSF to increase the size of the awards and increase the number of
    grants awarded.
        The biological sciences program provides support for research to
    advance understanding of the underlying principles and mechanisms
    governing life. Research ranges from the study of the structure and
    dynamics of biological molecules, such as proteins and nucleic acids,
    through cells, organs and organisms, to studies of populations and
    ecosystems. It encompasses processes that are internal to the organism
    as well as those that are external, and includes temporal frameworks
    ranging from measurements in real time through individual life spans,
    to the full scope of evolutionary time.

                        BIOCOMPLEXITY IN THE ENVIRONMENT

        As the world faces significant scientific and societal challenges,
    including the prospect of rapid environmental and climatic changes,
    biological threats, and the complicated question of long-term
    environmental security, the NSF has developed an interdisciplinary
    program called Biocomplexity in the Environment (BE). BE is designed to
    give NSF the capability to respond to the demand for new approaches to
    investigating the interactions of all living things at all levels--from
    their molecular structures to genes to organisms to ecosystems to urban
    centers--and the environment. Fundamental study of complex
    environmental systems is a key element of local, national, and global
    security and critical to the development of new scientific and
    technological capabilities.
        Microorganisms are key components of soils and aquatic
    environments, and play profoundly important roles in the distribution
    and activity of plants and animals. Understanding the distribution and
    activities of microorganisms is essential for addressing numerous
    environmental challenges. However, only a small percentage of Earth's
    microbial species are known, which leaves large gaps in our ability to
    predict the directions of environmental change.
        Two priority areas within BE are relevant to the enhanced
    fundamental understanding of microorganisms important to nature and to
    human health. These priority areas are:
      --Microbial Genome Sequencing is an interagency effort with the U.S.
            Department of Agriculture (USDA) which uses high throughput
            sequencing of microorganisms of fundamental biological
            interest, agriculture, forestry, food and water quality, or
            value in understanding potential agents of bioterrorism. Genome
            sequence information will provide the basis for understanding
            the physiology, pathology, and ecology of these organisms. This
            knowledge can be applied to detection of organisms and to
            understanding microbial adaptation to extreme environments,
            which could lead to the economic uses of microorganisms.
            Emphasis will also be placed on sequencing of microbes and
            their association with other organisms, such as plants,
            animals, and other microbes.
      --Ecology of Infectious Diseases is an interagency partnership with
            the National Institutes of Health (NIH) for the development of
            predictive models and discovery of principles for relationships
            between environmental factors and transmission of infectious
            agents. Potential benefits include the development of disease
            transmission models, understanding unintended health effects of
            environmental change, and improved prediction of disease
            outbreaks, emergence, and reemergence. Examples of
            environmental factors include habitat transformation,
            biological invasion, biodiversity loss, and contamination.
        This effort to expand multidisciplinary research will result in
    more complete understanding of natural processes, of human behaviors
    and decisions in the natural world, and ways to use new technology
    effectively to sustain life on earth. The President has requested level
    funding for BE in fiscal year 2005. Increasing NSF's budget by 15
    percent would allow NSF to increase its investment in the BE effort.

                       NANOSCALE SCIENCE AND ENGINEERING

        The Nanoscale Science and Engineering effort encompasses the
    systematic organization, manipulation and control of matter at atomic,
    molecular, and supramolecular levels. With the capacity to manipulate
    matter at the nanometer scale (one-billionth of a meter), science,
    engineering, and technology are realizing revolutionary advances, in
    areas such as individualized pharmaceuticals, new drug delivery
    systems, more resilient materials and fabrics, catalysts for industry
    and computer chips.
        NSF has been a pioneer among Federal agencies in fostering the
    development of nanoscale science. ASM supports the President's request
    of $305 million in fiscal year 2005, a 20.3 percent increase over
    fiscal year 2004, for the Nanoscale Science and Engineering effort. Of
    this amount, $5.85 million will go the Biological Sciences, a 10.2
    percent increase over fiscal year 2004. A total of $174 million will be
    used for Fundamental Research and Education, and of this:
      --$24.5 million will be devoted to Biosystems at the Nanoscale, a
            $3.5 million increase over fiscal year 2004. Biosystems at the
            Nanoscale support the study of biologically based or inspired
            systems that exhibit novel properties and potential
            applications. Potential applications include improved drug
            delivery, biocompatible nanostructured materials for
            implantation, exploiting functions of cellular organelles,
            devices for research in genomics, proteomics and cell biology,
            and nanoscale sensory systems, such as miniature sensors for
            early detection of cancer.
      --$11.5 million for Nanoscale Processes in the Environment to support
            studies on nanoscale physical and chemical processes related to
            the trapping and release of nutrients and contaminants in the
            natural environment. Potential benefits include artificial
            photosynthesis for clean energy and pollution control, and
            nanoscale environmental sensors and other instrumentation.
      --$22.2 million devoted to Multi-scale, Multi-phenomena Theory,
            Modeling and Simulation at the Nanoscale, to support theory,
            modeling, large-scale computer simulation and new design tools
            and infrastructure in order to understand, control, and
            accelerate development in new nanoscale regimes and systems.
        Research at the nanoscale is needed to advance the development of
    the ultra-small technology that will transform electronics, materials,
    medicine and many other fields.

                    NATIONAL ECOLOGICAL OBSERVATORY NETWORK

        The National Ecological Observatory Network (NEON) will be a
    continental scale research instrument consisting of geographically
    distributed infrastructure, networked via state-of-the-art
    communications, for integrated studies to obtain a predictive
    understanding of the Nation's environment. It will transform ecological
    research by enabling studies on major environmental challenges at
    regional to continent scales. Scientists and engineers will use NEON to
    conduct real-time ecological studies spanning all levels of biological
    organization and temporal and geographical scales.
        The President has requested a $12 million increase for NEON over
    fiscal year 2004 for a total of $16 million in fiscal year 2005. In
    fiscal year 2004, $4 million was allocated to the Biological Sciences
    Directorate to develop the NEON Coordinating Consortium (NCC) and
    Project Office. These units will refine the NEON project, scope,
    budget, and schedule for research infrastructure. The President has
    requested level funding for fiscal year 2005 for finalizing the
    development of the NCC and Project Office, and for funding research on
    enabling technologies. The remaining $12 million will go to the Major
    Research Equipment and Facilities Construction Account to initiate
    construction of the first two NEON observatories.
        It is estimated that 1,400 field biologists will use NEON annually.
    A larger number of scientists, students, resource managers, and
    decision makers will make use of NEON data, both directly and
    indirectly, through the network capabilities and data distribution and
    sharing technologies via the network and the internet. Increasing NSF's
    budget by 15 percent would allow NSF to increase its investment in
    NEON. NEON is a resource that has the potential to transform ecological
    research.

                                   CONCLUSION

        The NSF plays a key role in support of basic science in the United
    States and knowledge gained from NSF studies directly benefits industry
    and contributes to the Nation's economy and international competitive
    position. The NSF is in a singular position among all the Federal
    research and development agencies to support fundamental research in
    important areas including, microbiology and molecular biology. ASM
    urges Congress to protect ongoing and future U.S. scientific and
    technological advancements by supporting a 15 percent budget increase
    in fiscal year 2005 for the NSF. The ASM also believes NSF should
    continue to emphasize fundamental, investigator initiated research,
    research training, and science education as its highest priorities.
        The ASM appreciates the opportunity to provide written testimony
    and would be pleased to assist the subcommittee as it considers its
    appropriation for NSF for fiscal year 2005.
                                     ______

         Prepared Statement of the Association of State Drinking Water
                                 Administrators

                                  INTRODUCTION

        The Association of State Drinking Water Administrators (ASDWA) is
    pleased to provide testimony to the VA, HUD and Independent Agencies
    Subcommittee on Fiscal Year 2005 Appropriations for the U.S.
    Environmental Protection Agency. ASDWA represents the State drinking
    water programs in each of the 50 States and territories in their
    efforts to ensure the provision of safe, potable drinking water to more
    than 275 million consumers nationwide. ASDWA's primary mission is the
    protection of public health through the effective management of State
    drinking water programs that implement the Safe Drinking Water Act
    (SDWA).

                                TODAY'S MESSAGE

    States Need Increased Federal Support
        State drinking water programs strive to meet their public health
    protection goals through two principal funding programs--the Public
    Water System Supervision Program (PWSS) and the Drinking Water State
    Revolving Loan Fund Program (DWSRF). Since enactment of the 1996 Safe
    Drinking Water Act Amendments, the State role in public health
    protection has increased dramatically in both scope and complexity.
    Since September 2001, State drinking water programs have accepted
    additional responsibilities to work with all public water systems to
    ensure that critical drinking water infrastructure is protected and
    that plans are in place to respond to a variety of possible emergency
    scenarios.

                          HOW STATES USE FEDERAL FUNDS

    The PWSS Program
        To meet the requirements of the SDWA, States have accepted primary
    enforcement authority for oversight of ongoing regulatory compliance
    and technical assistance efforts for 160,000 public water systems to
    ensure that potential health based violations do not occur or are
    remedied in a timely manner. Going beyond these longstanding core
    responsibilities, since 1996, State drinking water programs have
    participated in the development and implementation of more than 20 new
    regulations and strategic initiatives designed to enhance the
    protection of public health. States are also implementing an array of
    proactive initiatives to protect public health from ``source to tap''--
    including source water assessments and controls; technical assistance
    with water treatment and distribution; and enhancement of overall water
    system capacity. State activities go far beyond simply ensuring
    compliance at the tap.

    The DWSRF Program
        The DWSRF program is less than 10 years old, having been created
    under the SDWA Amendments of 1996. In that short period of time, State
    drinking programs have accomplished much. Through prudent fiscal
    management and oversight, States have managed to leverage their
    resources to fund nearly $7 billion in low or no interest loans to more
    than 3,000 communities. Of those totals, approximately 74 percent of
    the loans and 40 percent of the dollars have gone to smaller
    communities serving populations of less than 10,000 people.

    New Security Responsibilities
        Since the terrorist attack in September 2001, States have taken
    extraordinary measures to meet the security-related needs of the
    drinking water community. State drinking water programs have endeavored
    to respond to the significant number of requests for assistance,
    information, and financial support from the systems under their purview
    and to determine how best to ensure that drinking water supplies are
    protected in the event of further terrorist activities. States have
    also been instrumental in providing support and assistance to systems
    in assessing whether a contamination event has occurred and, if so,
    evaluating the magnitude of the public health implications. States have
    devised training and technical assistance programs, initiated new
    communications structures, and begun the work of integrating the
    concepts of enhanced security concerns throughout all aspects of the
    drinking water program.

                        WHY INCREASED FUNDING IS NEEDED

        States must accomplish all of the above-described activities and
    take on new responsibilities while responding to escalating pressures
    to further cut their budgets, streamline their workforces, and operate
    with less State-provided financial support. State drinking water
    programs have always been expected to do more with less and States have
    always responded with commitment and ingenuity. However, State drinking
    water programs are now in crisis.
        In 2002, ASDWA asked each State to complete a self-analysis of
    their program needs. All 50 State drinking water programs responded.
    The results, compiled into a document entitled ``Public Health
    Protection Threatened by Inadequate Resources for State Drinking Water
    Programs: An Analysis of State Drinking Water Programs Resources,
    Needs, and Barriers'', document a shortfall of approximately $230
    million between the funds available to States and the amount needed to
    fully implement State drinking water programs. This ever-widening gap
    is projected to grow to approximately $370 million by 2006.
        Although the 1996 SDWA Amendments authorized the PWSS Program at
    $100 million per year and the DWSRF at $1 billion per year; through
    fiscal year 2003, the last year for which comparable figures are
    available, funds for neither program were requested or appropriated at
    the authorized amount. Through fiscal year 2003, States and territories
    received only 87 percent of the PWSS authorization and just 82 percent
    of authorized levels for DWSRF funds that enable them to make loans to
    drinking water systems. In fiscal year 2003, although the PWSS
    appropriation was increased to $102.6 million, the amount has been
    reduced by an across-the-board rescission and the approximately 7
    percent taken off the top to meet EPA tribal and direct implementation
    needs. No increase was provided for the DWSRF. These actions, in
    effect, have amounted to a net decrease in funds each year as the
    spending power of these dollars steadily declined due to inflation and
    cost of living increases. Meanwhile, the demands on State drinking
    water programs have increased exponentially, as discussed earlier.
        States must contribute a 25 percent match to be able to receive
    Federal PWSS program funds and 20 percent to receive their DWSRF
    funding allocation. Because the needs are so great, States also bring
    additional dollars to the table through fee programs, general fund
    allocations, and other sources. However, many States no longer have the
    luxury--or ability--to continue to overmatch their contributions to
    support and sustain Federal programs.
          fiscal year 2005 request levels and sdwa program obligations

    The PWSS Program
        This year, the State PWSS program request level in the
    administration's budget has increased to $105.1 million. If approved,
    and unless the request amount suffers another rescission, this action
    would provide an additional $2 million for States to use for public
    health protection activities. While States are appreciative of these
    new funds, they are a literal drop in the bucket (an average of $40,000
    per State), in view of the magnitude of the needs documented in the
    aforementioned State resource needs report. Substantial new
    appropriations are needed for the PWSS program and we would recommend
    that the subcommittee double the requested level to begin to address
    the State resource gap or at least provide funding that would represent
    substantial movement in that direction. These new dollars are sorely
    needed so that States can manage to maintain effective implementation
    of all of their pre-1996 core responsibilities and take on an
    overwhelming list of additional tasks, programs, and regulatory
    implementation requirements such as those for the arsenic,
    radionuclides, and microbial disinfection byproducts rules. States also
    must continue in their responsibilities to ensure that public health is
    protected through preventive measures such as waterborne disease
    surveillance, risk communication, sanitary surveys, laboratory
    certification, permitting, and emergency response.
        ASDWA respectfully requests that the subcommittee appropriate an
    amount substantially greater than the requested amount of $105.1
    million in recognition of the current State drinking water resource gap
    in order to support the PWSS Program for fiscal year 2005. (Doubling of
    the requested amount would be in the range of the current gap.)

    The DWSRF Program
        The fiscal year 2005 DWSRF program request in the President's
    budget is once again $850 million. The primary purpose of the DWSRF is
    to improve public health protection by facilitating water system
    compliance with national primary drinking water regulations through the
    provision of loans to improve drinking water infrastructure. The 1999
    EPA Drinking Water Infrastructure Needs Survey indicated that water
    system needs total $150.9 billion over the next 20 years to comply with
    SDWA mandates and that $102.5 billion is needed today to address
    pressing public health needs. In 2002, EPA developed its own ``gap
    analysis'' and reported that drinking water capital needs over a 20-
    year period (2000-2019) are estimated to range from $154 billion to
    $446 billion with a point estimate of $274 billion. Of note is that
    neither of these assessments included the impacts of security upgrades
    now being required of water systems. Despite these documented needs,
    the maximum DWSRF appropriation has been $850 million. Without
    significant increases, the DWSRF will never be able to meet the SDWA
    compliance and public health protection goals for which it was
    designed.
        ASDWA respectfully requests that the subcommittee appropriate at
    least $2 billion to support the DWSRF Program for fiscal year 2005 and
    further requests that, in the absence of authorizing legislation for
    fiscal year 2004 and beyond, the backlog of $3.48 billion in unfunded
    authorizations through fiscal year 2003 also be appropriated to assist
    States and water systems in meeting current public health and security
    related infrastructure needs.

    Security Responsibilities
        The fiscal year 2005 budget request includes $5 million for State
    drinking water programs to continue to expand their security
    activities, particularly for small and medium systems. States are
    obligated to provide technical assistance, training, and support as
    drinking water systems strive to meet the security requirements imposed
    by the Bioterrorism Act of 2002. Since September 11, States have worked
    to provide accurate and timely information to the drinking water
    community on potential threats, effective countermeasures, and
    available technical assistance to enhance the physical and cyber
    security programs of water utilities. States have developed coordinated
    communications processes within and across State government, with
    appropriate Federal agencies, and with the drinking water utilities
    under their purview to ensure that immediate response can be made in
    the event of a credible threat or event.
        ASDWA respectfully requests that the subcommittee appropriate at
    least $5 million to support State drinking water program security
    initiatives in fiscal year 2005.

                          STATE ACCESS TO DWSRF FUNDS

        ASDWA's own research into State program needs to sustain the
    effectiveness of this public health program under the DWSRF shows that
    States face significant barriers in accessing and utilizing the funds
    effectively: 62 percent of the States cannot meet the multiple match
    requirements (basic program access plus additional match dollars to be
    able to use certain set-aside funds) attached to the DWSRF and 76
    percent of all State drinking water programs have difficulty in
    overcoming the inherent tension between use of the fund for
    administrative versus infrastructure needs. One ``no cost'' solution
    would be to eliminate the dollar-for-dollar match requirement for the
    10 percent program management set-aside. (The current dollar-for-dollar
    match requirement is on top of an existing 20 percent match for the
    fund as a whole; thus making it, in reality, a 120 percent match
    requirement.) This action would require no new funds and would go a
    long way toward helping State drinking water programs meet their
    obligations under the SDWA.
        ASDWA advocates an amendment to the DWSRF provisions at SDWA
    Section 1452(g)(2) that would eliminate the additional dollar-for-
    dollar match requirement for States to access the 10 percent set-aside
    for program implementation activities and would appreciate the support
    of the Appropriations Committee in this regard.

                                   CONCLUSION

        A strong drinking water program supported by the Federal-State
    partnership will ensure that the quality of drinking water in this
    country will not deteriorate and, in fact, will continue to improve--so
    that the public can be assured that a glass of water is safe to drink
    no matter where they travel or live. States are willing and committed
    partners. Additional Federal financial assistance is needed, however,
    to meet new regulatory and security needs. In 1996, Congress provided
    the authority to ensure that the burden would not go unsupported. In
    2004, ASDWA asks that the promise of that support be realized.
        ASDWA appreciates the opportunity to provide this testimony to the
    subcommittee for its consideration and stands ready to work with the
    subcommittee to ensure the continued protection of public health
    through provision of safe drinking water.
                                     ______

            Prepared Statement of the American Geological Institute

        Chairman and Members of the subcommittee, I appreciate this
    opportunity to present testimony on behalf of the American Geological
    Institute (AGI) in support of fiscal year 2005 appropriations for the
    National Science Foundation (NSF). The fundamental research funded by
    NSF has fueled our Nation's economic growth and contributes to
    improvements in our health, safety, and quality of life. This
    subcommittee has shown leadership in expanding the Federal investment
    in fundamental research, leadership that will be even more critical in
    the coming year. AGI urges the subcommittee to provide the requested
    amount for the EarthScope project in the Major Research Equipment,
    Facilities and Construction account and to go beyond the President's
    request by expanding support for the Geosciences Directorate within the
    Research and Related Activities account. Both EarthScope and the core
    programs of the Geosciences Directorate represent an important
    investment in the future of our Nation and our planet.
        AGI also supports the Coalition for National Science Funding and
    its stated target of a 15 percent increase in total funding for the
    Foundation. This is the amount specified in Public Law 107-368 enacted
    in December 2002.
        AGI is a nonprofit federation of 42 geoscientific and professional
    societies representing more than 100,000 geologists, geophysicists, and
    other earth scientists. Founded in 1948, AGI provides information
    services to geoscientists, serves as a voice for shared interests in
    our profession, plays a major role in strengthening geoscience
    education, and strives to increase public awareness of the vital role
    the geosciences play in society's use of resources and interaction with
    the environment.
        Geoscience research plays an increasingly important role in an
    ever-growing range of scientific and societal problems, and Federal
    investments in geoscience research should increase accordingly. Global
    climate change, natural disasters, energy resources, and water quality
    are just a few of the issues that benefit from improved geoscience
    knowledge and understanding. Federal investments in geoscience R&D
    continue to pay enormous dividends, and both the Federal Government and
    the Nation clearly have a stake in maintaining the health of the basic
    science on which applications and policy decisions ultimately must be
    based.
        NSF support for geoscience research activities covers the entire
    spectrum from individual investigators to major research centers and
    large research programs. Many of the most creative and important
    advances in geoscience research continue to be made by individual
    investigators and small research teams that are the backbone of the
    research and graduate education system. NSF should maintain and enhance
    support for this vital component of geoscience research.
        As noted in the NSF budget request, the Foundation has placed a
    special emphasis on investments in the physical sciences. We applaud
    the foundation's emphasis on the need to restore balance and hope that
    the subcommittee views this commitment to the physical sciences
    broadly, including the many subdisciplines of the geosciences within
    that terminological umbrella. While the decline in funding for many
    non-biomedical disciplines is real, any such refocusing should remain
    broad enough to ensure the multidisciplinary nature of today's science,
    mathematics, engineering, and technology research. A balance must be
    found that maintains NSF's hallmark of supporting the most promising
    ideas in research and education.

                          NSF GEOSCIENCES DIRECTORATE

        The NSF Geosciences Directorate is the principal source of Federal
    support for academic earth scientists and their students who are
    seeking insight into the processes that ultimately sustain and
    transform life on this planet. The President has requested a small
    increase (about 2 percent) for this directorate as a whole, including a
    2.7 percent increase to the Earth Sciences Division and a 2 percent
    increase to the Ocean Sciences Division. Moreover, within the $728
    million requested for the directorate, there are funds targeted at NSF-
    wide priorities, which are primarily broad interdisciplinary research
    and education efforts. Recognizing that these agency priorities areas
    can result in cutting-edge research and technology, we are nonetheless
    concerned that the President's request would jeopardize the
    directorate's core programs to fund what should be complementary
    initiatives. By meeting the authorized funding level within the
    Research and Related Activities account, the subcommittee would allow
    NSF to strengthen core research by increasing the number and duration
    of grants.

                NSF MAJOR RESEARCH EQUIPMENT ACCOUNT: EARTHSCOPE

        AGI urges the subcommittee to support the NSF Major Research
    Equipment, Facilities and Construction budget request of $50.8 million
    for EarthScope. Taking advantage of new technology in sensors and data
    distribution, this multi-pronged initiative--begun thanks to the
    subcommittee's support in fiscal year 2003--will systematically survey
    the structure of the Earth's crust beneath North America. The fiscal
    year 2005 request includes continued support for deployment of three
    components: a dense array of digital seismometers that will be deployed
    in stages across the country; a 4-km deep borehole through the San
    Andreas Fault, housing a variety of instruments that can continuously
    monitor the conditions within the fault zone; and a network of state-
    of-the-art Global Positioning System (GPS) stations and sensitive
    strainmeters to measure the deformation of the constantly shifting
    boundary between the Pacific and North American tectonic plates. AGI
    supports development in conjunction with NASA of the fourth component,
    a satellite-based Synthetic Aperture Radar mission that can measure
    changes in the Earth's crust after earthquakes and volcanic eruptions.
        EarthScope has broad support from the earth science community with
    endorsements from a number of AGI's member societies, including the
    Association of American State Geologists, Geological Society of
    America, Seismological Society of America and Society of Exploration
    Geophysicists. EarthScope has received a very favorable review from the
    National Research Council, which released a report in 2001 entitled
    Review of EarthScope Integrated Science.
        All data from this project will be available in real time to both
    scientists and students, providing a tremendous opportunity for both
    research and learning about the Earth. Involving the public in earth
    science research will increase appreciation of how such research can
    lead to improvements in understanding the environment and a better
    quality of life. As noted by the National Research Council report:
    ``EarthScope provides an excellent opportunity to excite and involve
    the general public, as well as K-12 and college students, to work
    together with the earth science community to understand the earth on
    which they live.'' EarthScope can also provide a mechanism to integrate
    a broad array of earth science research data in a unified system to
    promote cross-disciplinary research and avoid duplication of effort.

                    NSF SUPPORT FOR EARTH SCIENCE EDUCATION

        Earth science plays a unique and essential role in today's rapidly
    changing world. Most human activities involve interactions with the
    planet Earth, and citizens need a basic understanding of our planet in
    order to make informed decisions about the delicate balance between
    resource use and environmental protection. NSF can improve the Nation's
    scientific literacy by supporting the full integration of earth science
    information into mainstream science education at the K-12 and college
    levels. The inclusion of earth science as a key component in the
    National Science Education Standards developed by the National Academy
    of Sciences presents a tremendous opportunity to achieve this goal.
        AGI strongly supports the Math and Science Partnership (MSP)
    program as it has existed at NSF. This is a competitive peer-reviewed
    grant program and funds are only awarded to the highest quality
    proposals. Shifting the MSP program entirely to the Department of
    Education would mean that all MSP funds would be distributed to States
    on a formula basis. This would provide no incentive for top researchers
    to continue to participate in this important program and would limit
    the flexibility of States to target areas of greatest need. The NSF's
    MSP program focuses on modeling, testing and identification of high-
    quality math-science activities whereas the Department of Education
    program does not. Both the NSF and Department of Education MSP programs
    are complimentary to each other and are both necessary to continue to
    reach the common goal of providing world-class science and mathematics
    education to elementary and secondary school students. AGI opposes the
    transfer of the MSP from NSF to the Department of Education.
        We encourage the Education and Human Resources directorate to
    expand its interaction with the Geosciences directorate to further
    integrate research and education activities in the geosciences.
    Improving geoscience education to levels of recognition similar to
    other scientific disciplines is important because:
      --Geoscience offers students subject matter that has direct
            application to their lives and the world around them.
            Civilization depends on responsible use of Earth's natural
            resources, including energy, minerals, and water. Moreover,
            geoscience plays a key role in environmental protection.
      --Geoscience exposes students to a diverse range of interrelated
            scientific disciplines. It is an excellent vehicle for
            integrating the theories and methods of chemistry, physics,
            biology, and mathematics.
      --Geoscience awareness is a key element in reducing the impact of
            natural hazards on citizens--hazards that include earthquakes,
            volcanic eruptions, hurricanes, tornadoes, and floods.
        We urge NSF to continue playing an active role in the major
    transformation that is taking place in geoscience education. For
    example, at the college level, geoscience curricula are changing to
    better incorporate environmental issues and changing employment
    opportunities. Improved teaching methods and new educational
    technology, combined with improvements in college and pre-college
    geoscience curricula, may help capture and hold the curiosity and
    enthusiasm of students and better prepare them for the workplace of the
    21st century. At the graduate and postdoctoral level, fellowships are
    increasingly critical in the geosciences because students, following
    the lead of industry and consumer needs, are conducting research that
    crosses traditional departmental, disciplinary, and funding boundaries.
        Yet some Americans, particularly those of lower income, are still
    significantly underrepresented in geoscience education. The problem is
    substantially worse at the graduate level. It is unlikely that any
    profession, including the geosciences, can flourish without greater
    participation by all Americans, including those from historically
    underrepresented groups such as ethnic minorities, women, and people
    with disabilities. Continued NSF leadership is needed to increase
    recruitment and retention of students from these groups through
    improved access to education and research experiences. We must all work
    together to address the underlying factors that prevent such
    participation.
        I appreciate this opportunity to provide testimony to the
    subcommittee and would be pleased to answer any questions or to provide
    additional information for the record.
                                     ______

      Prepared Statement of the Upper Mississippi River Basin Association

        The Upper Mississippi River Basin Association (UMRBA) is the
    organization created in 1981 by the Governors of Illinois, Iowa,
    Minnesota, Missouri, and Wisconsin to serve as a forum for coordinating
    the five States' river-related programs and policies and for
    collaborating with Federal agencies on regional water resource issues.
    As such, the UMRBA has an interest in the budget for the water programs
    of the U.S. Environmental Protection Agency (EPA).

                  STATE POLLUTION CONTROL GRANTS (SECTION 106)

        UMRBA supports the administration's proposed 11 percent increase in
    funding for Section 106 State Pollution Control Grants. However, it is
    important to recognize that this $22 million increase would be
    dedicated entirely to two specific efforts--i.e., grants to enhance
    State monitoring and support for implementing confined animal and
    stormwater permitting. Special monitoring grants totaling $17 million
    would be targeted to critical information needs, including refined
    biological assessment methods, probability-based designs, landscape
    models and other predictive tools, remote sensing to determine where
    additional monitoring is needed, and targeted monitoring to support
    implementation of total maximum daily loads (TMDLs). Addressing these
    critical monitoring needs is at the foundation of the States' ability
    to successfully implement their Clean Water Act responsibilities.
    Elsewhere in its budget, EPA is also requesting an additional $3
    million for complementary information management efforts within EPA,
    including improvements to the Storage and Retrieval System (STORET)
    that the States and others use to archive, analyze, and exchange water
    quality data.
        The other $5 million in new Section 106 funding would help the
    States meet the increased permitting workload associated with new
    Federal requirements for concentrated animal feeding operations (CAFOs)
    and Phase II stormwater regulations. EPA estimates that the universe of
    regulated facilities has increased ten-fold, further stressing the
    States' already under-resourced permitting programs. This additional
    funding, while not sufficient to fully meet the increased demands, is
    absolutely essential to the States' ability to serve the regulated
    community.
        Under the President's budget, funds in the baseline Section 106
    program would remain static. This is the Federal money that is combined
    with the States' matching dollars to support the core State water
    quality programs, including water quality assessment and monitoring,
    water quality planning and standard setting, total maximum daily load
    development, point source permitting, and training and public
    information. Adequate funds are particularly critical to supporting the
    States' development and implementation of TMDLs. The tasks associated
    with developing TMDLs for impaired waters include watershed
    characterization, computer modeling and related analyses, allocation of
    permissible loads, development of TMDL reports and plans, and public
    outreach and stakeholder development. These responsibilities have the
    potential to overwhelm State agency resources that are in many cases
    already strained. Under the fiscal year 2004 budget of approximately
    $200 million, the five States in the Upper Mississippi River Basin
    received $21.5 million in Section 106 funding. Continuation of this
    funding is fundamentally important to the States' ability to carry out
    their responsibilities under the Clean Water Act.

                       CLEAN WATER STATE REVOLVING FUNDS

        The UMRBA is deeply concerned about the lack of support in the
    administration's fiscal year 2005 budget proposal for the Clean Water
    State Revolving Fund (CWSRF), which helps address wastewater
    infrastructure needs. The CWSRF is widely acknowledged as having been
    pivotal in improving the Nation's water quality. In fiscal year 2004,
    the five Upper Mississippi River Basin States received a total of
    approximately $177 million in CWSRF funding. However, the President is
    again proposing to cut the CWSRF by almost 37 percent in fiscal year
    2005. This would mean $850 million for the CWSRF, rather than its
    authorized and historical level of $1.35 billion. Given the flexibility
    to redirect wastewater funds to the Drinking Water State Revolving Fund
    (DWSRF), even less than $850 million might well be available for the
    wastewater SRFs. While the flexibility to shift between these two
    programs can help the States address their most pressing needs, it is
    no substitute for adequate funding. EPA's own estimates show multi-
    billion dollar annual funding gaps for clean water and drinking water
    infrastructure over the next 20 years. While the Upper Mississippi
    River States would agree with EPA's fiscal year 2005 budget
    justification that ``successfully closing this gap will require more
    than federal financial assistance,'' they most definitely do not agree
    that the appropriate response to this daunting challenge is to reduce
    the current level of Federal support still further. The high demand for
    these funds underscores the need to reauthorize CWSRF funding and
    increase annual Federal appropriations to at least $3 billion.

                   STATE NONPOINT SOURCE GRANTS (SECTION 319)

        Citing increased resources for the USDA's agricultural conservation
    programs, the administration has requested $209.1 million for the
    Section 319 state nonpoint source grant program, a 12 percent cut from
    the $237.5 million appropriated in fiscal year 2004. Nonpoint sources
    are one of the major causes of water pollution in the Upper Mississippi
    River Basin, which drains the Nation's agricultural heartland.
    Consequently, the proposed reduction in Section 319 funding is
    particularly troubling to the UMRBA. For each of the past 4 years, the
    five States in the Upper Mississippi River Basin have been allocated a
    total of $34 million in nonpoint source grants. While the UMRBA
    welcomes and supports the expansion of USDA conservation programs, it
    continues to be essential to fund the Section 319 program as well.
    Without adequate funding, Section 319 cannot work in tandem with the
    USDA's conservation programs, and certainly cannot address other
    pressing nonpoint source needs unrelated to agriculture, such as Phase
    II stormwater work. Thus, at a minimum, UMRBA urges Congress to
    maintain funding for State nonpoint source grants at the fiscal year
    2004 level of $237.1 million, recognizing that continued progress in
    addressing nonpoint pollution will require significantly increased
    resources.

                WATER QUALITY INDICATORS AND ASSESSMENT METHODS

        Developing sound, scientifically defensible water quality
    indicators and assessment methods is a nationwide challenge, but
    nowhere more so than on the country's big rivers. In order to make real
    progress in meeting this challenge, EPA must exhibit strong and
    consistent leadership. However, while the need for improvements in this
    area is broadly acknowledged, the President's fiscal year 2005 budget
    request represents a significant diminution in EPA's commitment to the
    very programs that fund this research. Specifically, under the
    administration's proposal, $22.7 million in ecosystems research under
    the Science to Achieve Results (STAR) program would be eliminated. This
    program of competitive, peer-reviewed grants funds cutting edge
    research on a variety of critical questions, including the development
    of biological indicators for use in assessing water quality on big
    rivers. Similarly, the Central Basin Integrated Assessment, part of
    EPA's Environmental Monitoring and Assessment Program (EMAP), has been
    significantly curtailed and EPA does not intend to provide any
    additional funding in fiscal year 2005. However, the Central Basin EMAP
    still offers promise in advancing monitoring and assessment for the
    large rivers of the Mississippi River Basin. It is critical to maintain
    funding for STAR grants and EMAP if we are to advance the science
    behind water quality indicators and assessment methods. Without such
    funding, the States' ultimate ability to implement their Clean Water
    Act responsibilities on the Upper Mississippi and other big rivers will
    be jeopardized.

                    HYPOXIA ACTION PLAN AND WATERSHED GRANTS

        The UMRBA is disappointed that the administration's fiscal year
    2005 budget proposal does not include additional new resources to
    address the recommendations in the Hypoxia Action Plan, submitted by
    the Mississippi River/Gulf of Mexico Watershed Nutrient Task Force in
    January 2001. The States in the Upper Mississippi River Basin have
    consistently said that reductions in nutrient inputs to the Gulf of
    Mexico and monitoring to evaluate the effectiveness of these efforts
    will only be possible if significant new budgetary resources are
    provided by the Federal Government. While the States continue to
    support the goals and strategies set forth in the Action Plan, little
    progress will be made to reduce the Gulf hypoxic zone and improve water
    quality conditions throughout the basin without a major Federal
    financial commitment.
        If anything, there is even less emphasis on Gulf hypoxia than in
    the administration's fiscal year 2004 budget proposal, which identified
    implementation of the Hypoxia Action Plan as a focus of its Targeted
    Watershed Grants. While the President is requesting an increase of $5
    million for the watershed grants, $10 million of the $25 million total
    would be set aside for efforts to reduce nutrients from wastewater
    treatment plants on the Chesapeake Bay. Another $4 million would be
    reserved for projects involving water quality trading, leaving only $11
    million for other priorities nationwide. This level of resources is
    simply not adequate to make progress on a problem with the complexity
    and spatial scope of Gulf hypoxia.
                                     ______

          Prepared Statement of the Santa Clara Valley Water District

                   PERCHLORATE CLEANUP IN SANTA CLARA COUNTY

        Background.--The perchlorate originated from a former highway
    safety flare manufacturing plant owned by Olin Corporation, which was
    operated for 40 years. Operations ceased in 1996, and perchlorate
    contamination was discovered in 2000. The Central Coast Regional Water
    Quality Control Board (Regional Board) is providing regulatory
    oversight of the contamination case, which has affected several hundred
    drinking water supply wells. Groundwater is currently the only source
    of drinking water in this area and over 2,000 families are being
    provided with bottled water or treated groundwater. Significant
    concerns remain regarding this community's exposure to perchlorate in
    their drinking water and perchlorate accumulation in agricultural crops
    and livestock. To address these concerns and ensure that the
    groundwater basin in this area is aggressively restored and cleaned up,
    the Santa Clara Valley Water District (District) is requesting Federal
    assistance. We request funding to facilitate a prompt and complete
    cleanup of groundwater resources in the Llagas Valley, Santa Clara
    County.
        Perchlorate Investigation and Cleanup Status.--To date, the
    District has sampled about 1,000 water supply wells in the Llagas
    Valley. In addition, Olin Corporation has sampled about 600 wells.
    Results to date show more than 450 wells with detectable perchlorate
    above 4 parts per billion. Bottled water is currently being delivered
    to over 1,200 families and businesses in the area. Olin Corporation has
    installed perchlorate removal systems on three wells for two small
    water systems in the San Martin area that serve a total of about 450
    customers.
        The full extent of perchlorate contamination has not yet been
    determined. Olin Corporation has installed a groundwater cleanup system
    at their former manufacturing facility. However, they have not yet
    presented a plan for cleaning up the 9\1/2\ mile long plume of
    contamination, controlling additional plume movement, or long-term
    solutions for well water users who currently rely on bottled water.
    Olin has advised State officials that they are not prepared to commit
    to cleanup of perchlorate impacts to private wells until a State or
    Federal Maximum Contaminant Level (MCL) for perchlorate is established.
    Adoption of an MCL at the State and Federal levels has been delayed.
        Additional funding is necessary to determine the best long-term
    solution for the entire groundwater basin and initiate cleanup efforts.
    Funding for District-led initiatives will help break a regulatory
    deadlock with Olin that is currently preventing meaningful action to
    protect well owners.
        Fiscal Year 2004 Funding.--One and three quarters of a million
    dollars was appropriated for Perchlorate activities ($1 million under
    State and Tribal Assistance Grants and $750,000 under Environmental
    Programs and Management account). The 2004 funding will be used to
    further the District efforts to restore clean water supplies to local
    families whose wells are affected by perchlorate. Project ideas include
    a point-of-use drinking water treatment system installation program,
    residential wellhead treatment pilot studies, and well installation to
    provide design criteria for a remediation system.
        Fiscal Year 2005 Funding Recommendation.--It is requested that the
    committee support an appropriation add-on of $4 million from the United
    States Environmental Protection Agency in fiscal year 2005 ($2 million
    under State and Tribal Assistance Grants and $2 million under
    Environmental Programs and Management account).
                                     ______

              Prepared Statement of the City of Avondale, Arizona

                     AVONDALE WASTE WATER EXPANSION PROJECT

        Chairman Bond, Ranking Member Mikulski, subcommittee members, thank
    you for allowing me to testify in support of $3.2 million in funding
    for the expansion of the City of Avondale's waste water treatment
    facility through the fiscal year 2005 VA, HUD and Independent Agencies
    Appropriations bill. We are grateful that the subcommittee funded this
    important project at $600,000 to begin designing this mandated
    expansion, and we look forward to your continued support of this
    important project.
        Mr. Chairman, let me state it bluntly--we are in a desperate
    situation. The City of Avondale has experienced exponential growth as
    the sixth fastest growing city in the second fastest growing State in
    the Nation. In 1990, the population was approximately 16,800. Today,
    the City has nearly tripled in size to more than 50,000 residents. It
    is estimated that the population will almost double to 80,000 by 2010.
    In 1995, it was estimated that the City's population growth would not
    reach 80,000 until 2020. This rapid and sudden expansion, in
    conjunction with the economic downturn, places City finances at a
    premium to meet its needs to provide water and wastewater capacity that
    serves the expected population growth. As you may know, Avondale has a
    majority of minority races (overwhelmingly Hispanic), and a population
    that is moderate- to low-income. Fourteen percent of Avondale's
    residents live at or below the poverty line.
        The City of Avondale has exhausted all State and local funding
    options prior to seeking Federal assistance. In fact, in 2000, the city
    passed a one-half of 1 cents sales tax to fund street, water and sewer
    projects. The City used this funding source for the first expansion of
    the Wastewater Treatment Plant, which was completed in January 2003.
    The previous 2 years' economic downturn, resulting in declining sales
    tax revenue, has left the city with limited local funds for the next
    expansion of the Treatment Plant, and the City does not have voter
    authorization to issue bonds required by the State Revolving Fund.
        As you know, the EPA mandates that current treatment facilities
    must be expanded once they reach 80 percent capacity. Even with the
    recently completed expansion of the facility, it is estimated that the
    Avondale facility will reach over 80 percent by 2008. Knowing that time
    and money is needed to design such a large project, the City has begun
    the necessary preliminary permitting, environmental and pre-design
    processes in anticipation of the master plan and construction, which
    will be aided by the $600,000 of Federal STAG funds received in fiscal
    year 2004, and the fiscal year 2005 request. With Federal funding,
    however, the city will increase the current 6.4 MGD capacity of the
    plant to 10 to 12 MGD, while also increasing the capacity of the plant
    to reuse treated water for irrigation or recharge purposes, and allow
    the plant to treat effluent to supplement the city's potable water
    supply.
        Furthermore, under the Clean Water Act's outdated formula Arizona
    ranks last in per-capita and per-need funding under the State Revolving
    Fund that is designed to help communities finance infrastructure
    projects. This funding inequity has created problems for communities
    like Avondale that have limited means but that must still meet Federal
    water quality standards. The only fair way to rectify this inequity
    would be for the Federal Government to provide the necessary funds to
    complete the mandated expansion of the facility.
        It is important to note that the City of Avondale's improved and
    expanded wastewater treatment facility will do more than provide
    wastewater services to the residents. It will also provide treated
    effluent that will dramatically reduce its need for potable water
    supplies. The expansion will also enable the City to better meet its
    State-mandated 100-year water supply by recharging the remaining
    effluent into the ground for future use, allowing nature to further
    purify the water in order for it to be used for future potable
    purposes.
        Not only will this expansion allow the City to remain in compliance
    with strict local, State and Federal regulatory requirements, it will
    also add treatment processes that will allow the City to reuse the
    treated wastewater for irrigation purposes, thereby recharging this
    valuable resource. Recharging treated wastewater will allow the City to
    reduce its dependence on imported water sources such as the Colorado
    River, which benefits all municipalities relying on the river.
        Finally, it is important to note that $600,000 included in the
    fiscal year 2004 VA, HUD and Independent Agencies Appropriations bill
    was a critical first step because the waste water plant is reaching
    full capacity. However, it is critically important to keep this project
    on an optimal funding schedule to ensure the project is completed
    before the treatment plant reaches maximum capacity. With that in mind,
    we can utilize $3.2 million in fiscal year 2005 toward completion of
    this $20 million project of which the City will provide 53 percent of
    the funding.
        This project serves a broad public purpose in three ways: (1) it
    will allow the City to continue to provide the necessary sewer service
    for our residents; (2) will benefit the rest of Arizona by helping to
    cut down on the amount of scarce water the City uses, because the plant
    also treats the water to allow it to be re-used for irrigation
    purposes; and (3) will allow the city to treat the effluent to bring it
    up to Class A standards and to recharge it into the ground to be
    withdrawn later as potable water.
        Again, I ask that you support the City's request for $3.2 million
    from the STAG account in the fiscal year 2005 VA, HUD and Independent
    Agencies Appropriations bill for the expansion of our waste water
    treatment plant. Thank you in advance for your consideration of this
    request.
                                     ______

       Prepared Statement of the K-12 Science, Technology, Engineering &
                        Mathematics Education Coalition

        We encourage you to continue the Federal commitment to math and
    science education by maintaining the peer-reviewed Math and Science
    Partnerships (MSPs) at the National Science Foundation (NSF) and
    supporting robust funding for both the U.S. Department of Education
    (ED) and the NSF Math and Science Partnership programs.
        We urge you to oppose the administration's budget proposal that
    would phase-out the NSF MSP program and establish a new Federal grant
    administered by the Secretary of Education that would, in effect, limit
    individual States' discretion to target much-needed funds for local
    science and mathematics education reforms.
        We believe that the MSPs at both the Department of Education and at
    NSF are necessary and complementary. Without one, the other is
    significantly weakened.
        The competitive, peer-reviewed, NSF MSPs seek to develop
    scientifically sound, model, reform initiatives that will improve
    teacher quality, develop challenging curricula, and increase student
    achievement in mathematics and science. The funds appropriated under
    NCLB for the ED MSPs go directly to the States as formula grants,
    providing funds to all States to replicate and implement these
    initiatives throughout the country.
        While we support the administration's proposal to increase funding
    for the ED MSPs, we oppose the creation of a new $120 million ED grant
    program that runs counter to congressional intent by focusing only on
    math and reducing State flexibility to target funds to areas of
    greatest need. We encourage you to oppose new restrictions on the
    additional funding slotted for the State-based ED MSPs.
        In summary, we strongly urge Congress to: (1) reject the
    administration's proposed phase-out of the NSF MSP program; (2) oppose
    additional restrictions to the ED MSP program; and (3) provide robust
    funding for both MSP programs.
                                     ______

            Prepared Statement of the Village of Wellington, Florida

        Mr. Chairman and members of the subcommittee, on behalf of the
    Village of Wellington, we are pleased to submit this statement for the
    record in support of our request for funding in the amount of
    $3,000,000 for The Village's Water Cleanup and Phosphorus Removal
    Project. We respectfully request that this funding be provided through
    an appropriation to the Environmental Protection Agency and that the
    funding be included in the fiscal year 2005 Appropriation Bill for VA/
    HUD and Independent Agencies.

                           PROJECT EXECUTIVE SUMMARY

        The 1994 Everglades Forever Act (EFA) established water quality
    goals for the restoration and preservation of the Everglades Protection
    Area. It also identified Basin B within the Village of Wellington as an
    area that will need to meet the new phosphorus standard by December 31,
    2006 for its stormwater discharges into the Arthur Marshall Loxahatchee
    National Wildlife Refuge (Conservation Area No. 1).
        The Acme Basin B Discharge project is one of 55 that comprise the
    Comprehensive Everglades Restoration Plan (CERP). The Basin B drainage
    area is part of the Acme Improvement District, which was created by the
    State of Florida in 1953 to provide drainage for agricultural land in
    central Palm Beach County. During the 50 years since its inception,
    land uses within the improvement district have changed dramatically.
    The Acme Improvement District now serves the Village of Wellington and
    over 50,000 residents. Basin B consists of 8,680 acres of low-density
    development located in the southern half of the Improvement District.
    The western boundary of Basin B abuts the Loxahatchee Refuge.
        The benefits created by the CERP Acme Basin B Discharge project are
    largely related to restoration of the natural environment. The health
    of the Loxahatchee Refuge and Everglades National Park will be enhanced
    with improved quality and quantity of water generated from within the
    basin. Specifically, the project will provide the equivalent of 28.5
    million gallons of water per day to the Everglades, which, without the
    project, would be needlessly sent to the ocean via the Lake Worth
    Lagoon.
        The Village has been working diligently to arrive at a solution to
    meet the EFA requirements in an economic and technically feasible
    manner. The actual phosphorus standard will be adopted by the Florida
    Department of Environmental Protection (FDEP) through the Environmental
    Regulatory Commission (ERC). Therefore, the Village has been evaluating
    numerous alternatives to be used, to arrive at a Basin B Water Quality
    Clean Up Solution.
        Some of these alternatives that have been, or are still being,
    evaluated, are:
      --A water quality improvement Pilot Program with CH2M Hill
            Constructors, Inc.
      --Development of a Best Management Practices (BMP) Ordinance with
            phosphorous fertilizer limitations and livestock waste handling
            procedures among others.
      --Preparation of a Request for Proposals and obtaining responses for
            a ``Multi-Purpose Stormwater Management Program'' as a design/
            build/operate (DBO) contract.
      --Development of Basin B Water Quality Clean Up alternatives for
            further evaluation by the South Florida Water Management
            District (SFWMD) through its study consultants, Burns &
            McDonnell, and Brown & Caldwell.
      --Work with SFWMD and the U.S. Army Corps of Engineers through a
            Cooperation Agreement with SFWMD to develop a Basin B Water
            Quality Clean Up Plan as an already federally authorized Other
            Project Element (OPE) of the Comprehensive Everglades
            Restoration Plan (CERP).
      --Implementation of a detailed water quality monitoring program to
            identify ``hot spots'' within Basin B for potential individual
            site specific clean up.
        As part of its Basin B Water Quality Clean Up Initiative, the
    Village of Wellington assembled a ``Surface Water Action Team'' (SWAT)
    comprised of key personnel and expert consultants. The SWAT Team, while
    continuing to work on many of the above initiatives, is presently
    working on a Phase II BMP Ordinance, along with an updated Cooperative
    Agreement with SFWMD.
        The ongoing water quality monitoring program has indicated a fairly
    significant decrease in average phosphorus concentrations since 1999.
    In 1999, the average Basin B phosphorous concentration discharged to
    the Loxahatchee Refuge was 189 parts per billion (ppb). In 2002, the
    average concentration has dropped to 88 ppb, which is a 53.4 percent
    decrease in phosphorus levels. Although inconclusive, it is likely that
    the implementation of the BMP Ordinance played a part in this decrease
    in phosphorus concentrations.
        To date, the Village of Wellington has made a considerable
    financial investment of approximately $3.25 million, not including
    internal staff hours, in an effort to meet the standards set by the
    Everglades Forever Act requirements.

                                   CONCLUSION

        The Village of Wellington would appreciate the subcommittee's
    favorable consideration of our request for $3 million for fiscal year
    2005 in the EPA portion of the subcommittee's bill to support the
    Village's Water Cleanup and Phosphorus Removal Project.
        Thank you for your consideration of our request.
                                     ______

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

        Chairman Bond, Ranking Member Mikulski, and Members of the
    subcommittee, People for the Ethical Treatment of Animals (PETA) is the
    world's largest animal rights organization, with 800,000 members and
    supporters. We greatly appreciate this opportunity to submit testimony
    regarding the fiscal year 2005 appropriations for the Environmental
    Protection Agency (EPA). Our testimony will focus non-animal chemical
    toxicity tests that are available to replace animal tests currently
    required by the EPA.
        As you know, the EPA requires substances such as pesticides,
    industrial chemicals, and others to be tested for, among many other
    hazards, their rates of skin corrosion, skin absorption, and skin
    irritation. Traditionally, these particular tests have involved
    smearing chemicals on animals' shaved backs, often causing effects
    ranging from swelling and painful lesions to wounds where the skin is
    totally burned through.
        Fortunately, there are non-animal test methods that are just as
    effective, if not more so, for these three endpoints. ``Human skin
    equivalent'' tests such as EpiDermTM and
    EpiSkinTM have been scientifically validated and accepted in
    Canada, the European Union, and by the Organization for Economic
    Cooperation and Development (OECD), of which the United States is a key
    member, as total replacements for animal-based skin corrosion studies.
    Another non-animal method, CorrositexTM, has been approved
    by the U.S. Interagency Coordinating Committee on the Validation of
    Alternative Methods. Various tissue-based methods have been accepted in
    Europe as total replacements for skin absorption studies in living
    animals. In fact, in 1999 the EPA itself published a proposed rule for
    skin absorption testing using a non-animal method that, as of this
    writing, has still not been finalized. Government regulators in Canada
    accept the use of a skin-patch test in human volunteers as a
    replacement for animal-based skin irritation studies (for non-corrosive
    substances free of other harmful properties).
        However, the EPA continues to require the use of animals for all
    three of these endpoints, despite the availability of the non-animal
    tests.\1\
    ---------------------------------------------------------------------------
        \1\ The EPA may allow the use of EpiDermTM, however it
    will apparently require confirmatory testing on animals of any negative
    non-animal test results. This sets an unjustified precedent of
    requiring confirmatory testing of validated non-animal tests with non-
    validated animal tests.
    ---------------------------------------------------------------------------
        In fiscal year 2002, the subcommittee allocated the first-ever
    appropriation for the EPA to research, develop, and validate non-animal
    methods. The appropriation was in the amount of $4,000,000 and was to
    be used for ``non-animal, alternative chemical screening and
    prioritization methods, such as rapid, non-animal screens and
    Quantitative Structure Activity Relationships.'' However, to date, the
    EPA has refused to provide a detailed accounting of how this
    appropriation was spent and exactly what non-animal testing methods
    received these funds.
        We respectfully request that the subcommittee include the following
    report language:

        ``The Administrator of the EPA is required to report to Congress no
    later than December 1, 2004, regarding the use of
    CorrositexTM and `human skin equivalent' tests such as
    EpiDermTM and EpiSkinTM for skin corrosion
    studies, in vitro methods using skin from a variety of sources (e.g.
    human cadavers) for skin absorption studies, and human volunteer
    clinical skin-patch tests (for chemicals first determined to be non-
    corrosive and free of other harmful properties) for skin irritation
    studies. The Administrator should describe the reasons for which the
    agency has delayed accepting the aforementioned methods for regulatory
    use as total replacements for their animal-based counterparts, exactly
    what steps the agency is taking to overcome those delays, and a target
    date by which the agency intends to accept these methods for regulatory
    use.''

        PETA also supports the testimony submitted by the Doris Day Animal
    League requesting that targeted existing resources in the EPA's Science
    and Technology account for the Office of Research and Development be
    used to fund specific validation studies of non-animal test methods to
    speed their acceptance by the agency.

    Animal Tests Cause Immense Suffering
        Traditionally, the degree to which corrosive materials are
    hazardous has been measured by the very crude and cruel method of
    shaving rabbits' backs and applying the test substance to the animals'
    abraded skin for a period of hours. As one can imagine, when highly
    corrosive substances are applied to the backs of these animals, the
    pain is excruciating. In skin absorption tests, the rate at which a
    chemical is able to penetrate the skin is measured by shaving the backs
    of rats and smearing the substance on them for an exposure period of up
    to 24 hours. They are eventually killed, and their skin, blood, and
    excrement are analyzed. A similar method is used to test for skin
    irritation, except the unfortunate subjects are again rabbits, who are
    locked in full-body restraints. A test chemical is applied to their
    shaved backs, and the wound site is then covered with a gauze patch for
    normally 4 hours. A chemical is considered to be an irritant if it
    causes reversible skin lesions or other clinical signs, which heal
    partially or totally by the end of a 14-day period. Animals used in the
    above tests are not given any painkillers.

    These Tests Have Never Been Proven to be Relevant to Humans
        None of the animal tests currently used for skin corrosion,
    absorption, or irritation has ever been scientifically validated for
    its reliability or relevance to human health effects. Animal studies
    yield highly variable data and are often poor predictors of human
    reactions. For example, one study, which compared the results of rabbit
    skin irritation tests with real-world human exposure information for 65
    chemicals, found that the animal test was wrong nearly half (45
    percent) of the time in its prediction of a chemical's skin damaging
    potential (Food & Chemical Toxicology, Vol. 40, pp. 573-92, 2002).

    Validated Methods Exist Which do not Harm Animals
        Fortunately, test methods have been found to accurately predict
    skin corrosion, absorption, and irritation.
        EpiDermTM and EpiSkinTM are test systems
    comprised of human-derived skin cells, which have been cultured to form
    a multi-layered model of human skin. The CorrositexTM
    testing system consists of a glass vial filled with a chemical
    detection fluid capped by a membrane, which is designed to mimic the
    effect of corrosives on living skin. As soon as the corrosive sample
    destroys this membrane, the fluid below changes color or texture.
        For skin absorption tests, the absorption rate of a chemical
    through the skin can be measured using skin from a variety of sources
    (e.g. human cadavers). The reliability and relevance of these in vitro
    methods have been thoroughly established through a number of
    international expert reviews, and have been codified and accepted as an
    official test guideline of the OECD.
        Instead of animal-based skin irritation studies, government
    regulators in Canada accept the use of a skin-patch test using human
    volunteers. (The chemical is first determined to be non-corrosive and
    free of other harmful properties before being considered for human
    studies.)

    Non-animal Test Methods Can Save Time, Money, and Yield More Useful
            Results
        Whereas animal testing can cost more than $1,800,
    EpiDermTM costs on average less than $800. Unlike animal
    testing that can take 2 to 4 weeks, CorrositexTM testing can
    provide a classification determination in as little as 3 minutes and no
    longer than 4 hours, and costs less than $200 per chemical tested.
        Tissue culture methods to test for skin absorption allow
    researchers to study a broader range of doses, including those at the
    actual level of exposure that occurs in the occupational or ambient
    environment, which is not possible with the animal-based method.
        Many non-animal methods can yield results with greater sensitivity
    and at a lower cost than animal-based methods. Protocols are more
    easily standardized, and the variations among strains and species are
    no longer a factor.

    The EPA Continues to Require the Use of Animals
        Despite the ethical, financial, efficiency, and scientific
    advantages of the above non-animal methods, the EPA continues to
    require and accept the unnecessary use of animals in tests for skin
    corrosion, absorption, and irritation.

    Summary
        Non-animal methods are available now to replace animal-based
    methods to test substances for skin corrosion, absorption, and
    irritation. There simply is no excuse for continuing to cause animals
    to suffer when non-animal tests are available.
        We therefore hereby request, on behalf of all Americans who care
    about the suffering of animals in toxicity tests, that you please
    include language in the report accompanying the fiscal year 2005 VA,
    HUD and Independent Agencies Appropriations bill stating that:

        ``The Administrator of EPA is required to report to Congress no
    later than December 1, 2004, regarding the use of
    CorrositexTM and `human skin equivalent' tests such as
    EpiDermTM and EpiSkinTM for skin corrosion
    studies, in vitro methods using skin from a variety of sources (e.g.
    human cadavers) for skin absorption studies, and human volunteer
    clinical skin-patch tests (for chemicals first determined to be non-
    corrosive and free of other harmful properties) for skin irritation
    studies. The Administrator should describe the reasons for which the
    agency has delayed accepting the aforementioned methods for regulatory
    use as total replacements for their animal-based counterparts, exactly
    what steps the agency is taking to overcome those delays, and a target
    date by which the agency intends to accept these methods for regulatory
    use.''

        PETA also supports the testimony submitted by the Doris Day Animal
    League requesting that targeted existing resources in the EPA's Science
    and Technology account for the Office of Research and Development be
    used to fund specific validation studies of non-animal test methods to
    speed their acceptance by the agency.
        Thank you for your consideration of our request.
                                     ______

     Prepared Statement of the State and Territorial Air Pollution Program
       Administrators and the Association of Local Air Pollution Control
                                   Officials

        The State and Territorial Air Pollution Program Administrators
    (STAPPA) and the Association of Local Air Pollution Control Officials
    (ALAPCO) appreciate this opportunity to provide testimony regarding the
    fiscal year 2005 proposed budget for the U.S. Environmental Protection
    Agency (EPA), particularly regarding grants to State and local air
    pollution control agencies under Sections 103 and 105 of the Clean Air
    Act.
        STAPPA and ALAPCO are the national associations of air quality
    officials in 53 States and territories and more than 165 metropolitan
    areas across the country. The Clean Air Act gives State and local air
    quality officials the primary responsibility for implementing our
    country's clean air program. These agencies must work to limit or
    prevent emissions of a variety of pollutants from many different
    sources. These include particulate matter, ground-level ozone, toxic
    air pollution, and acid rain, among others. In order to protect public
    health, State and local air pollution control agencies are responsible
    for implementing myriad activities and programs. These include, among
    others, developing State Implementation Plans, monitoring ambient air
    quality, developing inventories of emissions, formulating air pollution
    control strategies, providing compliance assistance to the regulated
    community, issuing permits to sources, inspecting facilities, carrying
    out enforcement actions, and providing public education and outreach.
    In addition to maintaining the fundamental and ongoing elements of
    their programs, State and local air agencies must, at the same time,
    address new and emerging problems.

                                 RECOMMENDATION

        Section 105 of the Clean Air Act authorizes the Federal Government
    to provide grants up to 60 percent of the cost of State and local air
    quality programs, while State and local agencies must provide a 40
    percent match. The reality is that the Federal share represents only
    approximately 25 percent of the total State/local air budget, while
    State and local governments provide 75 percent (not including income
    from the Title V permit fee program).
        It is estimated that the total amount spent on State and local
    efforts to implement the Clean Air Act is approximately $900 million. A
    study that the U.S. Environmental Protection Agency (EPA) and STAPPA
    and ALAPCO conducted several years ago concluded that State and local
    programs faced a deficit of approximately $163 million, meaning that
    the total needed is over $1 billion. If EPA were to support 60 percent
    of that total, as the Clean Air Act envisioned, Federal grants would
    amount to $600 million annually.
        Unfortunately, the administration has recommended a total of $228.6
    million in fiscal year 2005 for grants to State and local air quality
    agencies under Sections 103 and 105 of the Clean Air Act, which is far
    short of the $600 million that is needed. To make matters worse, over
    the past decade, Federal grants for State and local air agencies to
    operate their programs have decreased by 25 percent in terms of
    purchasing power (when adjusted for inflation).
        In light of the need for a substantial increase, the budget request
    is insufficient to support State and local air agency efforts. However,
    we recognize that Congress must address many competing needs and cannot
    fund many activities and programs as fully as necessary. Therefore,
    although we believe that air pollution poses a significant threat to
    public health and should be among our highest priorities, we are
    recommending that Federal grants to State and local air quality
    agencies be increased by only $100 million above the President's
    request in fiscal year 2005, for a total of $328.6 million. While this
    will not fill the gap entirely, it will provide a much needed increase
    to State and local air quality efforts. Unless State and local air
    quality programs receive a substantially greater boost in funding, they
    will continue to face a serious financial shortfall, which will
    adversely affect their ability to protect and improve air quality. This
    shortfall will only become worse as greater demands are placed on their
    programs.

           AIR POLLUTION POSES SEVERE HEALTH AND ENVIRONMENTAL RISKS

        In spite of the best efforts of air quality regulators, air
    pollution poses a serious threat to public health and the environment.
    In fact, we know of no other environmental problem that presents a
    greater risk. It is a pervasive and universal danger--all of us
    breathe. We have no choice in the matter. While some of us can choose
    to eat certain foods or select what we drink, we have no option but to
    breathe the air that is in our midst.
        Unfortunately, the fact is that many, if not most, people in the
    United States are exposed to unhealthful levels of air pollution. In
    this country, over 170 million tons of pollution are emitted into the
    air each year. An astounding 133 million people live in areas of the
    country that violate at least one of the six health-based National
    Ambient Air Quality Standards (NAAQS). Many millions are exposed to
    toxic air pollutants that cause cancer and other health problems. When
    we consider our children, who are among our most sensitive and precious
    populations, the bad news mounts. In 1996, all children lived in
    counties in which the combined estimated concentrations of hazardous
    air pollutants exceeded a 1-in-100,000 cancer risk benchmark;
    approximately 95 percent lived in counties in which at least one
    hazardous air pollutant exceeded the benchmark for health effects other
    than cancer. Between 1980 and 1995, the percentage of children with
    asthma doubled, to 7.5 percent, and by 2001, 8.7 percent of all
    children had asthma. These figures are nothing less than shocking.
        The following is greater detail about just a few types of air
    pollution that we face.
        The first is fine particulate matter--or PM2.5. The U.S.
    Environmental Protection Agency has established a new standard for
    PM2.5. While the agency has not yet officially designated
    which areas of the country violate the standard, we know one thing:
    PM2.5 poses the greatest health risk of any air pollutant,
    resulting in as many as 30,000 premature deaths each year.
    Additionally, fine particles are responsible for a variety of adverse
    health impacts, including aggravation of existing respiratory and
    cardiovascular disease, damage to lung tissue, impaired breathing and
    respiratory symptoms, irregular heart beat, heart attacks and lung
    cancer. Based on preliminary data, it appears that PM2.5
    concentrations in over 120 counties throughout the United States exceed
    the health-based standard.
        We have faced an uphill battle against ground-level ozone, or
    ``smog.'' In spite of our efforts, levels of ozone in some parts of the
    country actually increased during the past 10 years, and in 33 national
    parks, ozone has risen by more than 4 percent. A significant factor in
    this trend is the increase we have experienced in nitrogen oxide
    (NOX) emissions, which are not only a precursor to ozone,
    but also a contributor to such public health and welfare threats as
    acid rain, eutrophication of water bodies, regional haze and secondary
    PM2.5. Over the past 20 years, NOX emissions have
    increased by almost 9 percent, largely due to emissions from nonroad
    engines and diesel vehicles. Current data show that almost 300 counties
    measure exceedances of the 8-hour ozone standard.
        Another concern is the serious public health threat posed
    nationwide by emissions of hazardous air pollutants (HAPs). According
    to EPA's most recent National-Scale Air Toxics Assessment, more than
    200 million people in the United States live in areas where the
    lifetime cancer risk from exposure to HAPs exceeds 1 in 100,000 and
    approximately 3 million face a lifetime cancer risk of 1 in 10,000. To
    put this in context, consider that EPA has established 1 in 1,000,000
    as the generally acceptable level of risk. These figures demonstrate
    that HAP emissions are a nationwide threat. It will require a
    significant level of effort to reduce the risk they pose to all of us.
        One HAP that is especially worrisome is mercury. Air emissions are
    responsible for much of the mercury that is found in fish. This is a
    significant problem, especially for those who rely on fish as an
    important part of their diets. In this country, in 1999-2000,
    approximately 8 percent of women of child-bearing age had at least 5.8
    parts per billion of mercury in their blood (children born to women
    with blood concentrations above that number are at some increased risk
    of adverse health effects). Due to public health concerns about the
    consumption of mercury in contaminated fish, 45 States, territories and
    tribes have issued advisories to the public about elevated
    concentrations of mercury in the fish that is caught in their water
    bodies.
        The magnitude of the air quality problem and the associated health
    effects make it clear that significantly increased funding for the
    control of air pollution should be a top priority.

     SOURCES OF FUNDING FOR STATE AND LOCAL AIR POLLUTION CONTROL PROGRAMS

        State and local air pollution control programs are funded through a
    variety of sources. These include State and local appropriations; the
    Federal permit fee program under Title V of the Clean Air Act; State
    and local permit and emissions fee programs and Federal grants under
    Sections 103 and 105 of the Clean Air Act. Section 103 traditionally
    funds specific monitoring efforts (e.g., particulate matter or air
    toxics monitoring). Section 105 supports the fundamental elements of
    State and local air quality efforts, including, but not limited to, the
    personnel needed to run the programs.
        As discussed above, State and local contributions provide a
    disproportionate share of air budgets. Unfortunately, not only have
    Section 105 grants failed to equal the percentage of the total air
    budget that the Clean Air Act envisioned, they have actually declined
    by 25 percent in terms of purchasing power during the past decade, from
    $224 million to $168 million in 2003 dollars. This decrease has come at
    the same time that State and local responsibilities have steadily
    increased. We have attached to this testimony a chart that illustrates
    Section 105 grants from fiscal year 1993-fiscal year 2003, adjusted for
    inflation (based upon U.S. Department of Labor inflation statistics).
        Since Federal grants to State and local air agencies have not risen
    commensurately with their needs, and in fact have declined in terms of
    purchasing power, State and local air agencies have attempted to
    accommodate deficiencies in their budgets. They have tried to maximize
    efficiencies (i.e., working better and smarter), trim any ``fat'' from
    their budgets, disinvest programs that are not essential and raise
    revenues on the State and local levels. Unfortunately, even those
    measures are not enough to accommodate the shortfall.
        Many believe, mistakenly, that the permit fee program under Title V
    of the Clean Air Act Amendments of 1990 was the answer to the State and
    local air agencies' financial problems. Unfortunately, those revenues
    do not solve the funding problems for several reasons. First, the fees
    only support the operating permit program and must not be used for
    other activities. Second, fees only apply to major sources and do not
    cover the significant costs related to non-major sources, which include
    minor source permits, monitoring, enforcement, compliance assistance,
    etc. Third, the current fees already are substantial and there would be
    considerable resistance to any increases. Fourth, fee revenue is
    decreasing due to reductions in emissions, on which they are based.
    Finally, increases in costs for air quality programs (except for permit
    programs themselves) are not addressed by permit fee programs.
        The Title V fee program, while essential to State and local
    efforts, is not the solution to the funding shortfall. Federal grants
    must be expanded to meet the significant resource requirements.

     EPA/STATE/LOCAL STUDY RECOGNIZED NEED FOR FEDERAL AIR GRANT INCREASES

        Several years ago, EPA, in cooperation with STAPPA and ALAPCO,
    conducted an intensive effort to identify the activities that are
    necessary for State and local agencies to carry out and estimate the
    amount of Section 105 grants needed. The study concluded that a total
    increase of approximately $163 million over Federal grant levels would
    be needed for State and local air agencies to operate a good (not
    perfect) program in fiscal year 1999. In spite of the significant
    funding shortfall identified by the EPA needs assessment study,
    sufficient budget increases in operating programs have not been
    forthcoming. Furthermore, since that time, State and local
    responsibilities have continued to increase, only widening the funding
    gap.

                         HOW WOULD AN INCREASE BE USED?

        State and local air agencies have identified several high-priority
    activities on which they would spend increased grant funds. For
    example, they will be required to develop State Implementation Plans--
    plans to implement the 8-hour ozone standard, which is an effort that
    will require significant resources. This will be especially onerous for
    smaller agencies, including local agencies, that have very limited
    resources. In addition, State and local air quality agencies are facing
    many other responsibilities for which additional funds are needed.
    These include the following, among others: improve emission inventories
    of toxic air pollution; increase the frequency of inspections of major
    and minor sources; meet the various Federal and public expectations
    under Section 112 (air toxics); expand criteria pollutant monitoring;
    improve risk assessment capacity; reduce concentrations of fine
    particulates; increase public outreach efforts; improve small business
    compliance assistance; purchase replacements for equipment that has
    outgrown its expected usage; increase the number of air toxics
    monitoring locations to better characterize baseline concentrations and
    localized impacts; and improve modeling tools to determine emission
    reductions needed.

                                   CONCLUSION

        Federal grants to State and local air pollution control agencies
    are severely inadequate; accordingly, there are many critical
    activities that are not being carried out, or implemented as well as
    could be. Many of these activities are the foundation of the Nation's
    air quality program and are, therefore, essential. Without additional
    Federal grants, and the flexibility to target them to the activities
    that are most appropriate in individual States and communities, State
    and local air agencies will find it increasingly difficult to obtain
    and maintain healthful air quality. Accordingly, we recommend an
    increase of $100 million above the President's fiscal year 2005 request
    for grants to State and local air quality agencies.
        Thank you for this opportunity to provide our testimony. We will
    also supply you with a report entitled, ``The Critical Funding
    Shortfall of State and Local Air Quality Agencies'', which we have
    prepared to provide additional detail about State and local air
    agencies' funding difficulties. Please contact us if you have questions
    or require any additional information.

                                     ______

     Prepared Statement of the National Association of State Universities
                            and Land-Grant Colleges

        On behalf of the National Association of State Universities and
    Land-Grant Colleges (NASULGC), thank you for your support of academic
    research. We appreciate the opportunity to provide recommendations for
    science and technology funding at NSF, EPA and NASA for fiscal year
    2005.

                          NATIONAL SCIENCE FOUNDATION

        As a member of the Coalition for National Science Funding, NASULGC
    supports a 15 percent increase for NSF over the fiscal year 2004
    enacted level, for a total of $6.415 billion. This increase is
    necessary to put NSF on the ``doubling'' track that Congress and the
    President endorsed less than 18 months ago by passing the National
    Science Foundation Authorization Act of 2002. We also oppose the
    proposed transfer of the Math-Science Partnership to the Department of
    Education, because it is well-run by NSF and should remain a
    competitive grant program rather than shifting to block grants. The
    current system, in which NSF's program focuses on the modeling, testing
    and identification of high-quality math and science activities whereas
    the Department of Education focuses on their dissemination, is the most
    desirable and effective approach to address our nation's math-science
    education needs.
        Within the Research and Related Activities (R&RA) account, we would
    like to call your attention to three Directorates of particular
    interest to the environmental science community: Geosciences, Polar
    Programs and Biological Sciences. We ask that you provide these
    accounts with increases equal to the overall R&RA increase. The
    President's budget proposal restricts them all to miniscule increases
    of approximately 1 or 2 percent. We support the President's requested
    $58.3 million increase for Major Research Equipment, Construction and
    Facilities, and urge you to fully fund EarthScope, the National
    Ecological Observatory Network, the Scientific Ocean Drilling Vessel,
    and the Rare Symmetry Violating Processes projects.

                        ENVIRONMENTAL PROTECTION AGENCY

        NASULGC recommends $790 million in fiscal year 2005 for the EPA
    Science and Technology account and $10 million for the Office of
    Environmental Education (OEE). This amount would restore the proposed
    12 percent cut in the President's budget and provide a small increase
    to maintain ongoing programs. Without sound science, EPA will be unable
    to correctly identify and develop sound management and mitigation
    strategies for critical environmental problems. Cuts to EPA S&T account
    would result in drastic reductions in essential extramural research
    funded by the Office of Research and Development (ORD) and education
    and outreach carried out by OEE.
        One of the most effective programs for improving the agency's
    science capabilities is the Science to Achieve Results (STAR) program.
    Despite the National Research Council's recent strong endorsement of
    STAR in its report, ``The Measure of STAR,'' the President's budget
    proposes a cut of approximately 35 percent. We urge you to restore STAR
    funding to $100 million for competitive grants and $10 million for
    graduate fellowships. The small investment EPA ORD makes in STAR is
    functionally one of its most important, because STAR is not a stand-
    alone grants program. It is coordinated with EPA program and regional
    offices, and targeted at high-priority needs that support the agency's
    mission. The program is leveraged by the participation of other Federal
    agencies and the private sector, and involves thousands of research
    scholars in universities. These investigator-initiated research grants
    are significantly expanding the number of scientists conducting EPA-
    related research and enhancing the overall quality of EPA S&T. STAR
    graduate fellowships are also an excellent investment in the next
    generation of scientists and engineers, and provide opportunities for
    some of the brightest minds to develop the skills to enhance and
    replenish this Nation's environmental science expertise. STAR funding
    is a very important tool in the effort to address the future workforce
    needs of EPA.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

        NASULGC opposes the delays in planned scientific missions and the
    long-term cuts to the Earth Science Enterprise (ESE) proposed in the
    President's budget. While we appreciate the President establishing
    space exploration as a priority, the shifts in funding proposed would
    impact a number of missions that have been carefully planned for years,
    in both Space and Earth Science. This change in priorities was
    developed over a comparatively short time with little community input.
    Therefore, we recommend that NASA engage the National Academy of
    Sciences to set the science goals of the exploration initiative and
    examine the impact of deferred programs, including within ESE.
        The long-term decline in funding for ESE forecast in the fiscal
    year 2005 proposal is very distressing. ESE plays a key role in our
    understanding of the earth and its atmosphere, and sustainable funding
    for these programs should not be abandoned. The proposed cuts to Earth
    Science Application programs would adversely affect funding for
    partnerships that are turning important findings into practical
    applications--such as fire hazard prediction and water availability,
    farming and forestry, and urban and regional planning. Partnerships
    between NASA and the academic community provide the agency with
    flexibility to deal with an aging workforce and the wave of anticipated
    retirements. We urge you to provide, at a minimum, the fiscal year 2004
    appropriated level of $91 million for Earth Science Applications. We
    support the requested levels of $141 million for the NPOESS Preparatory
    Project and $99 million for the Climate Change Research Initiative.

                                 ABOUT NASULGC

        NASULGC is the Nation's oldest higher education association.
    Currently the association has over 200 member institutions--including
    the historically black land-grant institutions--located in all 50
    States. The Association's overriding mission is to support high quality
    public education through efforts that enhance the capacity of member
    institutions to perform their traditional teaching, research, and
    public service roles.
        Thank you for the opportunity to share our views with the
    committee.
                                     ______

       Prepared Statement of the National Coalition for Homeless Veterans

        The National Coalition for Homeless Veterans appreciates the
    opportunity to submit recommendations on fiscal year 2005
    appropriations for and program management issues related to the U.S.
    Department of Veterans Affairs (VA), U.S. Department of Housing and
    Urban Development (HUD), and U.S. Interagency Council on Homelessness
    (ICH).
        The National Coalition for Homeless Veterans (NCHV), established in
    1990, is a nonprofit organization with the mission of ending
    homelessness among veterans by shaping public policy, promoting
    collaboration, and building the capacity of service providers. NCHV's
    nearly 250 member organizations in 42 States and the District of
    Columbia provide housing and supportive services to homeless veterans
    and their families, such as street outreach, drop-in centers, emergency
    shelter, transitional housing, permanent housing, recuperative care,
    hospice care, food and clothing, primary health care, addiction and
    mental health services, employment supports, educational assistance,
    legal aid and benefit advocacy.
        The VA estimates that more than 299,000 veterans are homeless on
    any given night; more than 500,000 experience homelessness over the
    course of a year. Conservatively, 1 of every 3 homeless adult males
    sleeping in a doorway, alley, box, car, barn or other location not fit
    for human habitation in our urban, suburban, and rural communities has
    served our Nation in the Armed Forces. Homeless veterans are mostly
    males (2 percent are females). Fifty-four percent are people of color.
    The vast majority are single, although service providers are reporting
    an increased number of veterans with children seeking their assistance.
    Forty-five percent have a mental illness. Fifty percent have an
    addiction.
        America's homeless veterans have served in World War II, Korea, the
    Cold War, Vietnam, Grenada, Panama, Lebanon, anti-drug cultivation
    efforts in South America, Afghanistan, and Iraq. Forty-seven percent of
    homeless veterans served during the Vietnam Era. More than 67 percent
    served our Nation for at least 3 years and 33 percent were stationed in
    a war zone.
        Male veterans are twice as likely to become homeless as their non-
    veteran counterparts, and female veterans are about four times as
    likely to become homeless as their non-veteran counterparts. Like their
    non-veteran counterparts, veterans are at high risk of homelessness due
    to extremely low or no income, dismal living conditions in cheap hotels
    or in overcrowded or substandard housing, and lack of access to health
    care. In addition to these shared factors, a large number of at-risk
    veterans live with post traumatic stress disorders and addictions
    acquired during or exacerbated by their military service. In addition,
    their family and social networks are fractured due to lengthy periods
    away from their communities of origin. These problems are directly
    traceable to their experience in military service or to their return to
    civilian society without appropriate transitional supports.
        Contrary to the perceptions that our Nation's veterans are well-
    supported, in fact many go without the services they require and are
    eligible to receive. One-and-a-half million veterans have incomes that
    fall below the Federal poverty level. Neither the VA, State or county
    departments of veteran affairs, nor community-based and faith-based
    service providers are adequately resourced to respond to these
    veterans' health, housing, and supportive services needs. For example,
    the VA reports that its homeless treatment and community-based
    assistance network serves 100,000 veterans annually. With an estimated
    500,000 veterans experiencing homelessness at some time during a year
    and the VA reaching only 20 percent of those in need, 400,000 veterans
    remain without services from the department responsible for supporting
    them. Likewise, other Federal, State, and local public agencies--
    notably housing and health departments--are not adequately responding
    to the housing, health care and supportive services needs of veterans.
    Indeed, it appears that veterans fail to register as a target group for
    these agencies.
        We urge Congress to make a public commitment and take immediate
    action to ensure access to housing, income, and health security for
    those who have nobly served our Nation.

     VETERANS AFFAIRS APPROPRIATIONS AND PROGRAM MANAGEMENT RECOMMENDATIONS

        Appropriations for VA Homeless Programs.--The landmark Homeless
    Veterans Comprehensive Assistance Act of 2001 (Public Law 107-95)
    establishes new program authorities and reauthorizes long-standing
    homeless programs within the VA. While the authorization law set
    explicit funding levels for many of the VA homeless programs and
    authorities, actual annual spending levels are set by the VA Secretary
    via allocation of funds from the VA health care account, which are
    appropriated by Congress.
        We are extremely disappointed that the VA, in the three budget
    cycles since passage of Public Law 107-95, has neither implemented each
    of its provisions nor allocated funds from the VA health care account
    to the Department's homeless programs at the levels authorized in the
    statute.
        Accordingly, we request the subcommittee to ensure that sufficient
    funds are included in the fiscal year 2005 VA budget for the
    Department's homeless programs. Further we urge the subcommittee to
    include specific instructions in bill language or report language (as
    appropriate) directing the Secretary to allocate specific funding
    amounts from the VA appropriation to the following VA homeless
    programs:
      --$75 million for the Homeless Provider Grant and Per Diem program,
            the fiscal year 2005 level authorized by Public Law 107-95. The
            GPD program provides competitive grants to community-based,
            faith-based, and public organizations to offer transitional
            housing or service centers for homeless veterans.
      --$45 million for the Health Care for Homeless Veterans (HCHV)
            program. This level of funding would enable VA to continue to
            support 134 existing HCHV teams across the country that provide
            targeted outreach, medical treatment, and referral services to
            homeless veterans.
      --$51 million for the Domiciliary Care for Homeless Veterans (DCHV)
            program. This level of funding would enable VA to continue to
            support 35 existing DCHVs across the country that provide
            residential rehabilitation supports to homeless veterans.
      --$10 million for the purpose of expanding domiciliary care capacity
            (either directly or via contract with nonprofit homeless
            veteran service providers), the total level authorized for DCHV
            expansion in fiscal year 2003 and fiscal year 2004. VA did not
            exercise this authority in either fiscal year.
      --$10 million for Compensated Work Therapy and CWT/Therapeutic
            Residences. This level of funding would enable VA to continue
            to support existing CWT and CWT/TR activities.
      --$6 million for the VA staffing component of the HUD-VASH program.
            Under this program VA disburses Housing Choice Vouchers and
            provides case management services to 1,780 chronically homeless
            veterans.
      --$5 million for a demonstration grant program for homeless veterans
            with special needs, the fiscal year 2005 level authorized by
            Public Law 107-95.
      --$6 million to establish dental care services for certain homeless
            veterans, as authorized by Public Law 107-95. The CBO estimate
            that accompanied Public Law 107-95 estimated this provision to
            cost $6 million annually. VA implementation of this authority
            has been mixed.
      --$750,000 for technical assistance grants for nonprofit community-
            based groups, the fiscal year 2005 level authorized by Public
            Law 107-95.
      --$500 million increase over the fiscal year 2004 level of VA
            spending on mental health and substance abuse care, in part to
            implement provisions of Public Law 107-95 requiring the VA to
            ensure that each primary care facility of the Department
            develops and carries out plans to provide mental health
            services and substance abuse services.
      --$27 million for additional comprehensive homeless service centers,
            as authorized in Public Law 107-95. The CBO estimate that
            accompanied Public Law 107-95 estimated this provision to cost
            $27 million annually.
        Of the programs and authorities above, we call special attention to
    our recommendations for the Homeless Provider Grant and Per Diem
    program and the Homeless Veteran Service Provider Technical Assistance
    program, as these are most germane to the community-based, faith-based,
    and local public organizations we represent.
        The Homeless Provider Grant and Per Diem Program provides
    competitive grants to community-based, faith-based, and public
    organizations to offer transitional housing or service centers for
    homeless veterans. The GPD program is an essential component of the
    VA's continuum of care for homeless veterans, assuring the availability
    of social services, employment supports, and direct treatment or
    referral to medical treatment. VA reports that in fiscal year 2002, GPD
    grantees provided 11,013 ``episodes of care'' at an average 85 days
    length of stay per episode--and at an average cost of only $1,674 per
    episode. Using this figure, an increase of the GPD allocation from its
    current $70 million to its full authorized level would enable VA to
    provide a bridge from homelessness to long-term rehabilitation or
    permanent housing for 3,345 more homeless veterans. We urge the
    subcommittee to include report language with the fiscal year 2005 VA-
    HUD appropriations measure urging the Secretary to allocate VA
    appropriations to the GPD program at the $75 million authorized level.
        The Homeless Veteran Service Provider Technical Assistance Program
    makes competitive grants to organizations with expertise in preparing
    grant applications to provide technical assistance to nonprofit
    community-based and faith-based groups with experience in providing
    assistance to homeless veterans in order to assist such groups in
    applying for homeless veterans grants and other grants addressing
    problems of homeless veterans. Community-based and faith-based
    organizations serving homeless veterans rely on a complex set of
    funding and service delivery streams with multiple agencies in order to
    assemble comprehensive housing and supportive services. These providers
    face a capacity gap around managing this complexity. We are proud to
    have successfully competed for funding under this program. We believe
    we have been effective stewards of the TA funds and look forward to
    participating in future competitions. We urge the subcommittee to
    include report language with the fiscal year 2005 VA-HUD appropriations
    measure urging the Secretary to allocate VA appropriations to the
    homeless veteran service provider TA program at the $750,000 authorized
    level.
        Capital Asset Realignment (CARES).--We are committed to assisting
    the men and women who have served our Nation in the military in
    accessing adequate nutrition, decent shelter, safe, affordable, and
    permanent housing, health care, and employment assistance or income
    supports. With that goal in mind, we work to ensure that organizations,
    agencies, and groups desiring to assist veterans with these most
    fundamental human needs secure the public and private resources,
    including capital assets, necessary to provide opportunities and
    supports to them. Hence we were and remain quite active in
    participating in the VA's Capital Asset Realignment for Enhanced
    Services (CARES) process.
        With an estimated 500,000 veterans homeless at some time during a
    year and the VA reaching only 20 percent of those in need, 400,000
    veterans remain without services from the department responsible for
    supporting them. In the mean time, numerous VA properties sit vacant or
    underutilized. We had hoped that the CARES process would have been the
    moment when homeless veteran needs could be finally aligned with VA
    property availability, thus making a major stride toward ending
    homelessness for our Nation's veterans. In particular, we had hoped
    that the process would have elicited from the VA a commitment to fully
    implement the McKinney-Vento Title V (surplus property) program. Sadly,
    the Draft National CARES plan submitted by the Department to the CARES
    Commission failed to articulate a coherent national plan to deploy its
    capital assets to maximize housing and supportive services
    opportunities for homeless veterans, and further, neglected to even
    reference the McKinney-Vento Title V program.
        We are pleased that the Commission surfaced our concern in its
    final report to the Secretary. The Commission recommended that ``any
    study involving excess or surplus property should consider all options
    for divestiture, including outright sale, transfer to another public
    entity, and a reformed EUL process. VA should also consider using
    vacant space to provide supportive services to homeless veterans'' (p.
    3-33).
        While the Commission recommends a helpful first step, we are urging
    the Department to be even more vigorous in ensuring that vacant or
    underutilized VA properties are first made available to organizations
    serving those in greatest need rather than continuing to gather dust or
    being converted to commercial purposes. We urge the subcommittee to
    include report language with the fiscal year 2005 VA-HUD appropriations
    measure urging the Secretary to take the following actions with regard
    to management of capital assets:
      --issue a Department-wide directive that articulates that surplus,
            excess, unutilized or underutilized VA properties shall first
            be made available on a no-cost or lowest-cost basis to
            nonprofit or public organizations responding to the human needs
            of veterans (and low-income persons in general secondarily),
            with a preference for organizations experienced in serving
            homeless veterans;
      --establish as a Departmental goal the establishment of at least
            50,000 additional supportive housing units for homeless
            veterans on VA property and instruct VISNs to develop concrete
            action plans for reaching this goal;
      --instruct VISNs to identify and advertise properties currently or
            potentially suitable and available for disposition under the
            McKinney-Vento Title V program;
      --instruct VISNs to use the Title V criteria for determining
            suitability for homeless uses when conducting these property
            assessments; and
      --take action to ensure the Department's full compliance with the
            Title V program; prepare an analysis of VA property acquisition
            and disposition statutes, regulations, and policy guidance and
            their intersection with the Title V program; and recommend or
            adopt any changes needed in order for the VA to fully
            participate in the Title V program.
           hud appropriations and program management recommendations
        Appropriations for HUD-VASH.--The Housing and Urban Development-
    Veterans Affairs Supportive Housing (HUD-VASH) program provides
    permanent housing subsidies and case management services to homeless
    veterans with mental and addictive disorders. VA screens homeless
    veterans for program eligibility and provides case management services
    to enrollees. HUD allocates rental subsidies from its Housing Choice
    Voucher program to the VA, which then distributes them to the
    enrollees. Rigorous evaluation of the program conducted by the VA's
    Northeast Program Evaluation Center (NEPEC) indicates that HUD-VASH
    significantly reduces days of homelessness for veterans plagued by
    mental and addictive disorders. HUD currently allocates 1,780 housing
    choice vouchers under this program.
        The Homeless Veterans Comprehensive Assistance Act of 2001 (Public
    Law 107-95) authorizes HUD to allocate 500 additional HUD-VASH vouchers
    to VA in each of fiscal year 2003 through fiscal year 2006. Congress
    authorized the additional vouchers because those currently in
    circulation have been fully utilized by formerly homeless veterans, and
    only a small number become available each year to veterans who are now
    ready to resume living in the community. Inexplicably, HUD has not
    requested funding for additional HUD-VASH vouchers in any of its past
    three budget submissions to Congress. This failure is particularly
    perplexing given that the administration, with Congressional support,
    has made a commitment to ending chronic homelessness. Yet, the HUD-VASH
    program, which addresses the very population addressed by the chronic
    homeless initiative, remains frozen.
        We urge the subcommittee to include in the fiscal year 2005 HUD
    appropriation at least $13.5 million explicitly for the HUD-VASH
    program. This level of funding assumes an average annual cost per
    voucher of $7,000 and would sustain the current 1,780 HUD-VASH vouchers
    in circulation, fill the backlog of 1000 additional authorized vouchers
    that were not put into circulation in fiscal year 2003 and fiscal year
    2004, and fund 500 additional HUD-VASH vouchers authorized for fiscal
    year 2005.
        Appropriations for HUD McKinney-Vento Programs.--HUD McKinney-Vento
    programs (Emergency Shelter Grant, Supportive Housing, Shelter Plus
    Care, and Section 8 Moderate Rehabilitation Single Room Occupancy for
    Homeless Individuals) provide access to emergency shelter, transitional
    and permanent housing, and support services for homeless people across
    the Nation. From a veteran perspective, HUD McKinney-Vento programs are
    especially important for financing housing and services that the VA
    itself is not authorized to offer (e.g., emergency shelter, permanent
    housing), services that VA is not authorized to delegate to nonprofit
    organizations (e.g., case management services), and health and
    supportive services to homeless veterans who live far from VA medical
    centers or outside the range of VA homeless outreach teams. We urge the
    subcommittee to include at least $1.8 billion for HUD McKinney-Vento
    programs in fiscal year 2005 VA-HUD appropriations legislation. In
    addition, we support the administration's request for the Samaritan
    Initiative, which includes a $50 million component for HUD and a $10
    million component for VA.
        HUD McKinney-Vento Program Management.--HUD McKinney-Vento programs
    are the largest source of Federal funding for emergency shelter,
    transitional and permanent housing, and support services for homeless
    people. Despite comprising between one-quarter and one-third of the
    homeless adult population overall, homeless veterans do not receive
    nearly that proportion of McKinney-Vento resources. Homeless veterans
    are inadequately served by many general homeless assistance
    organizations because such agencies fail to identify veterans as they
    enter their programs and thus do not know to refer them to VA programs
    for which they may eligible or to homeless veteran service providers
    with specialized expertise. In addition, some regional and local
    homeless assistance planning bodies are not permitting homeless veteran
    service providers or VA representatives to participate meaningfully in
    their planning and priority setting processes. Our efforts to persuade
    HUD to take action to ensure fairness in the allocation of resources
    for and focused attention to veterans experiencing homelessness have
    fallen on deaf ears. We urge the subcommittee to include report
    language with the fiscal year 2005 appropriations measure urging the
    Secretary to issue HUD McKinney-Vento application or program guidance
    as follows:
      --require applicants for HUD McKinney-Vento homeless assistance funds
            to develop specific plans for housing and services to homeless
            veterans. The veteran plans should inventory existing and
            proposed targeted homeless veteran programs in the service
            area; identify the unique housing and services needs of
            homeless veterans in the service area; outline a strategy for
            addressing services gaps; address how homeless assistance
            providers will screen housing and services users for military
            service experience; and describe processes for referring
            homeless veterans to VA or nonprofit homeless veteran service
            providers in the service area (if any exist).
      --require collaboration between continua of care established for the
            purpose of competing for HUD McKinney-Vento homeless assistance
            funds and Community Homelessness Assessment, Local Education,
            and Networking Groups (CHALENGs) established by VA medical
            centers for the purpose of identifying and addressing unique
            needs of homeless veterans in their service areas.
      --require that continua of care established for the purpose of
            competing for HUD McKinney-Vento homeless assistance funds
            include at least one homeless veteran service provider, at
            least one homeless veteran, and representatives of the VA
            medical center(s) and Veterans Benefit Administration regional
            offices within the service area of the continuum.
        Housing Assistance for Low-Income Veterans.--While the Federal
    Government makes a sizeable investment in homeownership opportunities
    for veterans, there is no parallel national rental housing assistance
    program targeted to low-income veterans. Veterans are not well-served
    through existing housing assistance programs due to their program
    designs. Low-income veterans in and of themselves are not a priority
    population for subsidized housing assistance. And HUD devotes minimal
    attention to the housing needs of low-income veterans, as exemplified
    by the long-standing vacancy in the position of special assistant for
    veterans programs within the Office of Community Planning and
    Development. It is imperative that Congress elevate national attention
    to the housing assistance needs of our Nation's low-income veterans. We
    urge the subcommittee to include report language with the fiscal year
    2005 VA-HUD appropriations measure instructing the Secretary to:
      --conduct a quantitative and qualitative study of a representative
            sample of low-income veterans to determine the extent of
            housing insecurity among this population, including their
            barriers to rental housing assistance and homeownership and
            their past or current homelessness or risk for future
            homelessness.
      --amend the guidelines for public housing authority plans for public
            housing and Section 8 and consolidated plans to include
            veterans sections. The new sections should identify veteran
            housing needs, priority veteran housing needs, and articulate a
            veteran housing strategy. In addition, the guidelines should
            instruct jurisdictions to include veterans, veterans service
            organizations, homeless veteran service providers, and VA
            representatives in the public participation processes used to
            develop the plans.
      --develop a guide for assisting low-income veterans in accessing
            Federal, State, and local housing assistance resources and
            services.
      --develop a guide for assisting veterans service organizations and
            homeless veteran service providers in accessing Federal, State,
            and local housing assistance funds and housing and community
            development planning processes.
      --fill the vacancy in the Special Assistant for Veterans Programs
            position within the Office of Community Planning and
            Development.
           ich appropriations and program management recommendations
        We are pleased that the Secretary of Veterans Affairs will assume
    the position of Chair of the U.S. Interagency Council on Homelessness
    in April 2004. This occasion provides a tremendous opportunity for the
    Federal Government to focus on the needs of homeless veterans that are
    best met through agencies other than the VA itself. We have urged the
    VA Secretary to use his position as ICH Chair to focus on the following
    interagency efforts: prevent future homelessness of separating service
    members (DOD, DOL, VA), ensure the housing security of low-income
    veterans (HUD, Ag), ensure homeless veteran and veteran service
    provider access to mainstream programs and funding streams (DOL, HHS,
    HUD); and deploy excess and surplus Federal capital assets to best
    address the needs of homeless persons (DOD, VA, GSA, HUD, HHS). We urge
    the subcommittee to include report language with its fiscal year 2005
    appropriation measure urging ICH to declare its 2004-2005 operating
    cycle as the ``year for homeless veterans'' and charging ICH to address
    homelessness prevention among separating service members, housing
    security of low-income veterans, veteran and veteran service provider
    access to mainstream resources and services, and government-wide
    capital asset management. In addition, we urge the subcommittee to
    include $1.5 million for ICH as requested by the administration.

                                   CONCLUSION

        The National Coalition for Homeless Veterans appreciates the
    opportunity to submit recommendations to Congress regarding the
    resources and activities of HUD, VA, and ICH. We look forward to
    continuing to work with the Appropriations Committee in ensuring that
    our Federal Government does everything within its grasp to prevent and
    end homelessness among our Nation's veterans. They have served our
    Nation well. It is beyond time for us to repay the debt.
                                     ______

              Prepared Statement of the Save AmeriCorps Coalition

        As members of the Save AmeriCorps Coalition, we are writing to urge
    you to support the President's fiscal year 2005 funding request of $452
    million for AmeriCorps grants and the National Service Trust. We very
    much appreciate the increase in funding that you provided last year.
    This year's request reflects a 2 percent increase over last year's
    funding level. These funds are critical if AmeriCorps is to continue to
    strengthen and renew our communities through service, and achieve the
    goal of having 75,000 AmeriCorps members this year.
        In his 2002 State of the Union address, President Bush called upon
    ``every American to commit at least 2 years . . . to the service of
    your neighbors and your Nation.'' Community based organizations and
    national nonprofit organizations responded to the President's call.
    They reported large increases in the number of people wanting to serve
    their communities through AmeriCorps programs across the Nation.
        AmeriCorps members serve with more than 2,100 local and State
    nonprofit organizations, public agencies, and faith-based organizations
    funded through State commissions as well as with national nonprofit
    AmeriCorps programs including Teach for America, the National
    Association of Community Health Centers, the Red Cross, Habitat for
    Humanity, City Year, and Public Allies, the National Association of
    Service and Conservation Corps, and Jumpstart.
        AmeriCorps members teach in underserved schools, tutor and mentor
    youth, build affordable housing, provide public health services,
    prevent forest fires and do disaster relief, run after-school programs,
    and help communities respond to disasters. Hundreds of AmeriCorps State
    programs clean rivers and streams, enrich after school programs,
    support local law enforcement, deliver services to the elderly, and
    meet other needs defined by the communities they serve. Since September
    11, the AmeriCorps program has expanded its work in public safety,
    public health and disaster relief to assist in homeland security.
        During the funding debate last year, virtually every governor, more
    than 150 mayors, hundreds of university presidents, and corporate and
    civic leaders publicly recognized the good that AmeriCorps has
    accomplished since its creation 10 years ago. More than 100 editorials
    provided ample evidence of how AmeriCorps members improved their
    communities.
        This overwhelming bipartisan support reinforced support for the
    programs. Because of your efforts last year, local communities
    throughout the Nation will continue to be served by as many as 75,000
    AmeriCorps members. To sustain this level of service, we urge you to
    fund AmeriCorps at the level proposed by President Bush in his fiscal
    year 2005 budget.
        This year the Corporation for National and Community Service has
    embarked on a rulemaking process that could affect the future of
    AmeriCorps as much as any substantial reduction in funding. The
    Coalition has submitted a series of recommendations to the Corporation
    that we believe can make AmeriCorps stronger, more efficient, and more
    responsive. A summary of that statement follows. We have attached the
    entire submission for the Record.

     RECOMMENDATIONS FOR RENEWING AMERICORPS--AND DELIVERING ON PRESIDENT
               BUSH'S NATIONAL CALL TO SERVICE THROUGH AMERICORPS

        In response to the questions raised in the Notice Inviting
    Preliminary Public Input in Advance of Rulemaking, which appeared in
    the Federal Register on March 4, 2004, the Save AmeriCorps Coalition
    has prepared recommendations based on the following principles:
      --Affirm the intentions of the National and Community Service Trust
            Act of 1993 with regard to the purpose, quality and
            sustainability of AmeriCorps programs;
      --Support the role of Governors and States to decide what is best for
            their communities;
      --Promote competition and reward quality;
      --Encourage innovation, entrepreneurship and replication of
            successful programs;
      --Protect and strengthen the public-private partnership that is the
            hallmark of AmeriCorps; and
      --Build-up and improve the national service infrastructure based on
            14 years of experience.
        New rules should support the intent of Congress as reflected in the
    National and Community Service Act of 1990, later amended in 1993, and
    should build on what we have learned over the last 14 years about what
    works. We believe that the law must serve as a point of reference in
    considering any reforms to AmeriCorps. We are concerned that some of
    the proposals, especially those related to sustainability, reflect
    neither the spirit nor the letter of the enacted legislation and are
    being considered without hearings or review by the authorizing
    committees in the Senate and the House.
        In the National and Community Service Trust Act of 1990, as amended
    in 1993, Congress set the following goals for AmeriCorps:
      --``To meet the unmet human, educational, environmental and public
            safety needs of the United States;
      --``To renew the ethic of civic responsibility and the spirit of
            community throughout the United States;
      --``To expand educational opportunity by rewarding individuals who
            participate in national service with an increased ability to
            pursue higher education or job training;
      --``To encourage citizens of the United States, regardless of age,
            income, or disability, to engage in full-time or part-time
            national service;
      --``To reinvent government to eliminate duplication, support locally
            established initiatives, require measurable goals for
            performance, and offer flexibility in meeting those goals;
      --``To expand and strengthen existing service programs with
            demonstrated experience in providing structured service
            opportunities with visible benefits to the participants and
            community;
      --``To build on the existing organizational service infrastructure of
            Federal, State and local programs and agencies to expand full-
            time and part-time service opportunities for all citizens; and
      --``To provide tangible benefits to the communities in which national
            service is performed.'' Sec. 2. [42 U.S.C. 12501].
        We are confident that by working together we can succeed in
    strengthening, rather than weakening, the national service field
    through rulemaking. It is in this spirit that we offer the following
    recommendations:
      --We support a definition of sustainability that reflects the
            language in the original law and includes strong and broad
            based community support.--New rules should affirm the
            definition of sustainability--which includes ``strong and broad
            based community support'' as a criterion--in the 1993 amendment
            to the National and Community Service Act of 1990.
            Demonstration of such support may include but not be limited
            to: partnerships at the local level; volunteers serving with,
            and supported by, AmeriCorps members; endorsement from public
            officials; funding diversification; etc. Several of the
            rulemaking proposals being considered with regard to
            sustainability including time limits and reducing the Federal
            share of the cost per member are not consistent with current
            law. The National and Community Service Trust Act of 1993
            defines sustainability as ``evidence of the existence of (A)
            strong and broad-based community support for the programs; and
            (B) multiple funding sources or private funding for the
            program.'' We strongly support this definition of
            sustainability and oppose any definition that eliminates strong
            and broad-based community support as a criterion or that
            suggests that sustainability should mean operating AmeriCorps
            programs with declining levels of Federal support.
            Congressional authorizers wisely understood that sustainability
            involves more than financial support and is critical to the
            sustainability and success of AmeriCorps programs.
      --Time limits on program participation in AmeriCorps would decrease
            sustainability, stifle competition, and discourage private
            investment.--Time limits contradict the original legislative
            intent to invest in quality programs that meet community needs.
        --(A) Time limits go against the fundamental, American idea of
                competition.--CNCS should fund quality programs that offer
                the best return on taxpayer dollars by ensuring that
                competition for funding is in no way limited or restricted
                by time or amount. Evidence indicates that competition is
                bringing new programs into AmeriCorps. A recent survey
                conducted by America's Service Commissions, reported that
                90 percent of the AmeriCorps portfolio has turned over
                since the first funding cycle. (Only 64 of over 800 current
                AmeriCorps State grantees have been funded since 1994). Of
                the 40+ national nonprofit grantees, only a handful
                received their first funding in 1994. Competition has
                ensured a dynamic ``marketplace'' for AmeriCorps funding.
        --(B) Time limits would lead to a decrease in sustainability.--The
                presumption that in order to increase a grantee's
                sustainability, the Corporation's support for a program or
                project should decrease over time contradicts the original
                legislation, which seeks to, ``expand and strengthen
                existing service programs with demonstrated experience in
                providing structured service opportunities with visible
                benefits to participants and the community.'' Gradual
                reductions in program funding would disinvest in programs
                that are meeting the sustainability objectives as defined
                in current law.
        --(C) When Federal funding is cut over time, private sector funding
                disappears--killing AmeriCorps' hallmark of a public-
                private partnership that works.--Many private sector
                funders contribute to AmeriCorps because they know their
                funding is leveraged through public sector support. Some
                private funders would withdraw support if CNCS funding was
                no longer available, as demonstrated by a decrease in
                private sector support for some AmeriCorps programs in
                2003-2004, when Federal AmeriCorps funding was cut. Rather
                than promoting sustainability, setting time limits decrease
                sustainability and result in the closure of some programs.
      --States know best.--The Corporation should support the spirit and
            practice of devolution and allow governors, State commissions,
            and parent organizations--which best understand local need and
            capacity--the maximum flexibility to manage for sustainability
            and inform national guidelines set by the Corporation. Specific
            calibrations should be managed by State commissions, as well as
            national directs who should be held to the same standards as
            these commissions. States must be given maximum flexibility to
            ensure quality, accountability, and effectiveness, including
            the ability to devise matching requirements with aggregate
            percentages as a goal. State commissions are best able to
            determine how to balance their State-wide portfolio between
            programs struggling to meet match requirements with those that
            can overmatch, thus effectively sharing resources throughout
            their diverse regions.
          The Corporation should also devise rules that recognize that
            certain regions of the country, including many low-income,
            minority, and rural communities, lack private sector funders to
            offset program costs. A ``one-size-fits-all'' match--
            particularly a large non-Federal match--would pose such a
            hardship that the communities that most need AmeriCorps
            services would almost certainly lose them. Community members
            could no longer serve to improve their own communities.
      --AmeriCorps is a public-private partnership that works--but is
            easily destroyed by abandoning Federal investment.--It is
            imperative that the Corporation not abandon the public-private
            partnership by dramatically scaling back Federal support over
            time. Private sector partners insist that one of their primary
            motivations for investing in specific AmeriCorps programs is
            that the public-private partnership enables all parties to
            leverage their investments. AmeriCorps program directors
            continually stress that Federal funds attract private dollars.
            There is no evidence that shows the private sector is either
            willing or able to absorb the Federal Government's share in the
            AmeriCorps partnership. Congress never intended that non-
            Federal sources would pick up the lion's share of AmeriCorps
            costs. It is essential that CNCS accurately count all private
            sector investment in AmeriCorps. Currently, the Corporation
            only requires organizations to report on funding raised to meet
            the required match, and additional leverage is not accounted
            for. Only by full accounting of all contributions to AmeriCorps
            can the Corporation have a true understanding of how Federal
            investment is leveraged.
      --Use AmeriCorps members as tools to build capacity.--One way to
            increase sustainability is to allow AmeriCorps members to
            perform the same capacity building activities that VISTA
            members do, including raising funds to support programs and
            services. We propose that AmeriCorps members be permitted to
            enhance their program's sustainability--and develop new
            skills--by allowing them to participate in the same capacity-
            building activities as AmeriCorps*VISTA members. We support
            extending these long-standing authorities to all AmeriCorps
            members, without making them the exclusive focus of the
            program.
      --AmeriCorps is highly cost-effective when compared to other
            successful service providers.--The Corporation should revert to
            the fiscal year 2003 cost per member of $12,800 and should
            adjust for inflation thereafter. The Federal share of the cost
            per member has already declined in real terms over the past
            decade. In 7 years, the cost per FTE has increased only 9
            percent (from a low of $11,250 in 1998 to $12,400 in 2004)
            while the mandatory minimum living allowance has been cost-of-
            living-adjusted by 18 percent in the same time frame (from
            $8,340 in 1998 to $10,200 in 2004). This means that increasing
            percentages of program operating costs have been absorbed by
            private and other public sector funders. In 2004, the minimum
            living allowance has been increased while the cost per member
            was decreased, resulting in a $700 per member cut to programs.
            Furthermore, mandated health insurance costs have risen by over
            100 percent while the average cost per member grew by only 3
            percent. The net result is that programs are being starved of
            operating dollars. Such changes are so destabilizing that some
            programs have already closed.
      --To leverage non-Federal funds, the Coalition supports increasing
            the match requirement for program costs from the statutory set
            level of 25 percent to 33 percent.--Programs, especially those
            in rural and poor urban areas, already find it difficult to
            secure private sector support. The Coalition would nonetheless
            support increasing the match requirement from the 25 percent
            supported by the statute to 33 percent, provided governors,
            States and parent organizations have maximum flexibility to
            meet or exceed match requirements in the aggregate. Programs
            have already exceeded the statutory requirement of 25 percent
            by meeting a 33 percent match for program operating costs over
            the last several years. Further increases to the match
            requirement would penalize programs for success and limit the
            number of new applicants who can afford to participate in
            AmeriCorps, especially those in areas where resources are
            scarce. Instead, the Corporation should create incentives to
            capture the true extent to which AmeriCorps programs are
            leveraging resources.
      --Challenge grants promote competition and leverage private funds.--
            We agree with the goal of trying to stimulate private sector
            investment through incentives, such as challenge grants. The
            Corporation's challenge grant fund should be increased to $50
            million. The National and Community Service Trust Act allowed
            for Federal challenge grants. We understand that the response
            was an overwhelming. We suggest that the Corporation provide
            incentives to programs by expanding the challenge grant
            program.
      --More efficiency and less administrative burden from the Corporation
            will make programs more sustainable.--The Corporation should
            devise strategies for reducing the administrative burden on new
            programs and give States more flexibility to manage match
            requirements across portfolios. CNCS should disaggregate
            planning grants from a State's costs per FTE, and/or ensuring
            that States annually receive a fixed number of Education Award
            Only slots that they may award after a local competitive
            process. These two strategies will specifically benefit new
            grantees and will prepare them for managing larger grants and
            programs. New grantees require extensive training and
            oversight. Their expense inflates the average cost per member,
            and actually deters States from awarding planning grants and
            discourages them from bringing new programs into the AmeriCorps
            portfolio. State commissions report that a year of planning is
            advisable prior to program implementation. States should be
            offered a set number of EAO slots by formula allocation to
            allow them to gradually start new programs, bring down their
            average cost per member and use the remainder where it is most
            needed.
      --Healthcare and childcare are essential to ensuring that all
            Americans can serve their country.--The Corporation should
            maintain the current statutory requirements for the Federal
            share of health costs and childcare costs to preserve equal
            access to AmeriCorps for all Americans. Healthcare and
            childcare are critical to ensuring that all Americans,
            regardless of income level, have the opportunity to participate
            in AmeriCorps. Means testing would add a significant
            administrative burden and expense to programs stretched thin by
            complex requirements. In addition, AmeriCorps members that have
            no other means of support would not be able to afford health
            coverage on the subsistence level living allowance they receive
            in exchange for a year of full-time service.
          If childcare benefits are reduced, it is likely that low-income
            parents would not be able to participate in AmeriCorps. This
            kind of rule change would have a dramatic impact on areas like
            rural Mississippi, an economically depressed area where the
            Delta Reading Corps is composed almost exclusively of young
            single mothers. Members must already demonstrate that they are
            income eligible and have children under 13 to receive the
            childcare benefit and reimbursement rates are based on State
            parameters.
          Participation in AmeriCorps should not be denied to citizens from
            low-income communities. AmeriCorps programs offer many
            disadvantaged young people the chance to develop employment and
            leadership skills and further their education. Therefore, rules
            should ensure that AmeriCorps programs allow the largest number
            of individuals from diverse backgrounds to serve; in
            particular, youth who are low-income and/or out of school.
            Rules should be sensitive the fact that programs whose
            enrollment focus is on low-income, out of school, and minority
            young people are likely to have challenges in certain areas
            including recruitment and retention of members.
      --Programs depend on the Federal contribution to member living
            allowance.--The Corporation should maintain the current
            statutory requirements for the Federal share of the living
            allowance at 85 percent, which is already burdensome for many
            programs. The match share of the living allowance must be
            provided in cash and from non-Federal sources. Many programs,
            particularly new programs, those in rural or poor areas, stand
            alone national service programs and those operating within
            small nonprofit organizations, rely on in-kind donations to
            meet match obligations and raising a cash match is already a
            struggle.
      --The Corporation should strengthen and simplify performance
            measurement.--The current performance measurement system is
            burdensome, confusing and time consuming and does not allow the
            Corporation to make most effective use of the date it collects.
            The Corporation should develop a standardized list of outcomes
            and benchmarks for which they want to collect data, and require
            grantees to report on those that are applicable to their
            program's mission and model. Performance measures are critical
            and grantees should be held accountable, but the process needs
            a more realistic timeframe and simplified directions. The
            Corporation should design aggregated performance measurement
            tools for the field and provide grantees with relevant training
            and technical assistance. It should design separate performance
            measures for intermediary organizations to ensure that
            appropriate outcomes are designated without additional
            administrative burden. In addition, the Coalition urges the
            Corporation to require end outcomes within a more realistic and
            useful time frame instead of during the first year of a grant.
            We recommend creating standard performance measures to
            aggregate data in the areas of civic education and volunteer
            generation to eliminate time-consuming guesswork for programs.
            We also recommend that the Corporation allow more flexibility
            in WBRS reporting.
      --The ``No-Refill'' Rule hurts communities and schools that depend on
            AmeriCorps members.--The Corporation should allow States and
            programs to refill AmeriCorps positions following attrition of
            members or to re-budget between categories. In the current
            system, programs cannot re-budget unused stipends and benefits
            or recruit or enroll new members to fill the slots left open by
            attrition. This rule undermines commitments to communities and
            schools. Programs are faced with an even larger burden as they
            must raise additional dollars to cover fixed costs, such as
            staff and administration. Because attrition is a natural and
            expected occurrence for every program, organizations are
            guaranteed a revenue shortfall by the end of the year.
            Administrative funds, capped at 5 percent, are also reduced
            proportionately to what is recovered. True costs are never
            captured. The inability to provide a contracted number of
            members to a site may mean that match funding from the site
            will dry up. This can put small programs out of business.
            According to a recent GAO survey, 80 percent of programs
            surveyed commented that the no-refill rule will have a
            generally or very negative effect on their program (Management
            of AmeriCorps and the National Service Trust, January 2004, pp.
            25-26).
          This regulation devised in response to a crisis, has had clear,
            unfortunate, and unintended consequences. Refilling slots has
            been the practice in the past, with an historic usage rate of
            75 percent. Flexibility to refill will therefore produce good
            results for programs and communities and will not cause a
            surplus to accumulate in the Trust.
      --Education Award Only slots should be a tool for State flexibility
            and cost-effectiveness.--A maximum of 40 percent of the
            AmeriCorps portfolio should be allocated to Education Award
            Only programs, allowing States to reduce cost per member, and
            be responsive to both local resources and local needs. The
            Education Award Only Program was introduced in 1998 to engage
            more citizens in service and to lower the average cost per
            member. State commissions should have the flexibility to award
            Education Award Only slots to ensure that the overall portfolio
            cost per member is within the prescribed maximum and that
            programs that need funding or provide more comprehensive
            service have the funding they need. This allows for wide
            variation in geographic location, market analysis and funding
            capacity.
      --Properly trained corps members from all educational levels and
            backgrounds can be successful tutors and mentors.--
            Paraprofessional requirements for tutoring programs will
            unnecessarily reduce the number of opportunities to serve and
            limit the number of citizens who can give back to their
            communities. The Corporation should focus on the quality,
            frequency and effectiveness of member training and performance
            measurement rather than imposing paraprofessional requirements
            on individual members. AmeriCorps members--senior citizens as
            well as young people--make excellent and effective tutors for
            children and youth. In addition to tutoring young people, these
            members offer a consistent presence for children and often
            serve as informal mentors to their tutees. An independent
            evaluation of Experience Corps, a program that engages
            Americans over the age of 55 in vital public and community
            service, showed that 69 percent of students that were tutored
            by Experience Corps members, who receive rigorous training but
            are not required to be paraprofessionals, improved by at least
            one grade level. The Corporation should not require that every
            member be a high school graduate or have earned a GED because
            this may disqualify people who have the capacity to be
            successful tutors.
      --To improve efficiency and effectiveness, grant cycles should match
            needs of programs and the Corporation.--To accommodate the
            large number of programs that serve in schools, the Corporation
            should adjust the timing of the grants cycle to a full year
            between the date of the RFP and the date of the grant award,
            from June to June. The Corporation should award grants no later
            than June 1 so that members may be recruited on or very near
            that date and enrolled. CNCS should clarify that members are
            allowed to be enrolled as of the award notification date, not
            the contract execution date. The current time frame does not
            work for programs with a July 1 start date, who need to recruit
            members to begin service at the start of the school year.
            Currently the Corporation requires grantees to have a signed
            contract in place prior to charging costs or earning hours, and
            in some States, programs have waited as many as 8 months for
            contracts to be in place because of the involvement of other
            government agencies or fiscal agents.
      --The Corporation should simplify the grant process by offering 3-
            year grants with a simple renewal process.--A longer grant
            cycle would increase efficiency, reduce administrative burdens
            and costs, reduce paperwork, and ensure continuity in planning.
            The Corporation can simplify the grants process and reduce the
            administrative burden on programs by maximizing the use of
            Progress Reports, developing 3-year budgets from the beginning
            with new budgets annually, and allowing State commissions to
            approve continuations and changes. For new grantees, the
            Corporation should consider amending the initial grant term to
            2 years to weed out underperforming programs. Those programs
            that are successful after 2 years would be eligible to compete
            for 3-year funding.
      --The Corporation should develop separate guidelines to foster the
            development of both new and existing professional corps.--While
            professional corps programs can and should meet many of the
            criteria that other AmeriCorps programs meet, there are some
            critical distinctions between professional corps and other
            service corps that should be addressed, including the timing of
            the grants cycle, which adversely affects teacher corps and
            other programs operating in schools. In addition, some of the
            guidelines designed for AmeriCorps programs do not fit
            professional corps and should be modified.
      --The Corporation should build on the systems and efficiencies
            offered by State commissions, not repeat them.--The Corporation
            has a network of State commissions that act as grantmaking
            entities in every State save one. These organizations have
            boards that provide diverse views to policy and program
            development and serve as stewards of the grant-making
            processes, ensuring their integrity. The Corporation should
            eliminate processes that repeat these activities at the Federal
            level and focus some of those resources on the existing State
            commission network. In addition to saving the resources spent
            on the peer review process, it could include a reconstruction
            of the recruitment, training and technical assistance systems
            as well.
        We offer these suggestions in the spirit of strengthening
    AmeriCorps within the bounds of the current law. We appreciate the
    invitation to offer our comments, and look forward to continuing the
    conversation with the Corporation as the rulemaking process progresses.
    We would be happy to provide more detail or additional information
    about any of the above suggestions.
                                     ______

        Prepared Statement of the Federation of American Societies for
                              Experimental Biology

        Mr. Chairman and distinguished members of the subcommittee, I am
    Robert D. Wells, Ph.D., President of the Federation of American
    Societies for Experimental Biology (FASEB) and the Director of the
    Center for Genome Research at the Institute of Biosciences and
    Technology, Texas A&M University, Texas Medical Center in Houston.
        Thank you for the opportunity to testify on behalf of FASEB, the
    largest coalition of biomedical research associations in the United
    States. FASEB, comprised of 22 scientific societies with more than
    65,000 scientists, serves as the voice of biomedical scientists
    nationwide. Our mission is to enhance the ability of biomedical and
    life scientists to improve, through their research, the health, well-
    being and productivity of all people.
        Let me express thanks on behalf of FASEB for the support that this
    committee has made to the National Science Foundation (NSF) and the
    Department of Veterans Affairs (VA). We believe that it has been money
    well spent in the public interest and that sustained investment will
    continue to pay extraordinary dividends in the years to come.
        NSF has been the steward of America's science and engineering
    investments for more than 50 years and continues to support the
    fundamental research that leads to groundbreaking advances in science,
    engineering and mathematics. For this reason, we urge the subcommittee
    to sustain the vitality of NSF and set the Foundation's budget on the
    doubling path, which was authorized in 2002, with an increase of 15
    percent to $6.39 billion for fiscal year 2005.
        For the Department of Veterans Affairs (VA), I recommend that you
    support an fiscal year 2005 appropriation of $460 million for the
    direct costs of the Medical and Prosthetics Research Program. I also
    urge you to support an appropriation of $45 million for improvements,
    upgrades and renovation of the VA's increasingly outdated research
    facilities. With thousands of military personnel engaged in overseas
    combat, this is the optimum time to invest in research that could have
    a direct impact on their post-deployment quality of life.

     SUPPORT OF THE NATIONAL SCIENCE FOUNDATION IS CRITICAL FOR OUR NATION
               TO REMAIN AT THE FOREFRONT OF SCIENTIFIC DISCOVERY

        The National Science Foundation is one of our Nation's most
    important agencies for promoting and funding scientific, mathematical,
    and engineering research and education. This support is across all
    fields of science, as well as for interdisciplinary partnerships and
    new frontiers of scientific inquiry, such as nanotechnology and
    biomedical research.
        Many new products, procedures, and methods have accrued from the
    NSF investment in basic research. Therefore, research of this kind is
    essential to breakthroughs relevant to our modern world even though at
    the time of discovery its relevance is not suspected.
        As an example, Magnetic Resonance Imaging--a technology that is
    highly valued in health care today--is the result of five decades of
    advances in mathematics, physics, chemistry, and biology. And not
    surprisingly, NSF supported much of the research that made MRI
    possible. We must continue to nurture the seed of scientific discovery
    from which today's technology flows.
        The recent budget request proposes a 0.6 percent increase in the
    overall Federal basic research budget of the U.S. Non-medical Federal
    basic research budget will decline by 2.5 percent in fiscal year 2005.
    NSF is an important agency for supporting basic research. In fact,
    although the NSF accounts for only 4.0 percent of Federal spending for
    research and development, it supports nearly 50.0 percent of the non-
    medical basic research at our colleges and universities.
        Federal support, applied broadly across all disciplines, is
    critical for the U.S. scientific enterprise to remain healthy and be a
    contributor to innovation 20 to 30 years from now. Neglect of basic
    inquiry, over time, will inhibit the growth of innovation and affect
    the country's economic stability as well as our national security.
        Furthermore, the foundation's mission is imperative to ensuring the
    continuous stream of technological innovations that are essential to
    reinforcing and expanding one of America's main competitive advantages,
    technological leadership in the global economy.
        NSF programs not only provide the underpinnings for technological
    innovation, but also help prepare the next generation of scientists and
    engineers for the jobs of the future. In a recent Department of
    Commerce report, manufacturers have expressed serious concerns about
    whether the United States was adequately preparing the next generation
    of workers for an increasingly high-tech workplace that requires
    advanced labor skills. NSF's Education Directorate provides critical
    support for the education and training of scientists and researchers at
    all levels.
        NSF prides itself on investing in the best ideas from the most
    capable scientists and engineers, as determined by outside reviewers
    through a rigorous, merit-based competitive process. In 2003, it
    evaluated proposals based on both intellectual merit and broader
    society impacts and selected almost 11,000 new awards from more than
    40,000 proposals. This is the lowest funding rate in a decade. Greater
    support would allow NSF to pursue many unmet opportunities, including
    the funding of more highly-rated proposals that will provide the
    potential for the pioneering of dramatic scientific advances.
        We have all benefited from the investment in NSF, but we must not
    be complacent with our past successes. Increased support of basic
    research and the education of the next generation of scientists will be
    critical in expanding the United States' place at the forefront of
    scientific and technological innovation.

     THE VA MISSION IS CENTRAL TO THE HEALTH OPPORTUNITIES AND CHALLENGES
                          FACING OUR NATION'S VETERANS

        A fundamental responsibility of the Department of Veterans Affairs
    (VA) is to ensure that the Nation's veterans receive the highest
    quality of medical care. The success of this mission is dependent upon
    the quality and dedication of the physicians and researchers who work
    at the VA Medical Centers (VAMCs). By providing a strong environment
    for medical research, the VA has been enormously successful in
    attracting outstanding physicians to serve our veteran population.
    Cooperation between medical schools and VAMCs has flourished because of
    the ongoing state-of-the-art scientific research at the VAMCs.
    Furthermore, the outstanding quality of patient care in VAMCs can be
    directly correlated with the availability of VA research funding and
    the close connection with affiliated medical schools.
        VA research has underwritten both the recruitment and the retention
    of talented physicians, including those hard-to-attract subspecialists
    needed to care for the aging and challenging VA patient population. VA
    subspecialists are predominantly bench researchers who have chosen to
    locate at VAMCs where they can develop and expand their research
    laboratories. The availability of research opportunities helps the VA
    to fulfill its tri-fold obligation to provide optimal care to patients,
    perform cutting edge research and train the next generation of
    clinician-scientists who are so needed to bring insight from the
    patient's bedside to the laboratory bench and back again to the
    patient.
        Federally funded advances in the biological sciences have created
    an unprecedented opportunity for progress against the diseases and
    disorders that plague the veteran population. The administration's
    fiscal year 2005 budget proposes a devastating $20 million (5 percent)
    cut in the R&D appropriation. If enacted by Congress, the VA would be
    unable to maintain its current level of effort in advancing treatments
    for conditions particularly prevalent in the veteran population,
    including prostate cancer, diabetes, heart diseases, Parkinson's
    disease, mental illnesses, spinal cord injury and aging related
    conditions. The VA would also have to suspend its major new initiative
    in military deployment health research as well as delay plans to expand
    efforts in areas such as rehabilitation from traumatic injury, quality
    improvement, chronic diseases and diseases of the brain.
        Three types of researchers, working together, are required for this
    state-of-the-art progress in clinical practice: (1) laboratory
    scientists, who have the knowledge and skills to unravel biological
    complexities and to translate their discoveries into drugs that
    ameliorate disease; (2) clinical researchers, who test whether new
    drugs and approaches are beneficial and safe; and (3) health services
    researchers, who evaluate the most effective and efficient ways to
    utilize new discoveries. No one researcher can function or translate
    new scientific findings without an integrative and collaborative
    approach to the pursuit of new medical knowledge.
        Few research environments attract all three of these types of
    researchers. If properly supported, the VA research enterprise can
    continue to provide the distinctive opportunity to facilitate and
    nurture the important collaborations of the three, while assuring the
    veteran population of the best medical care.
        The veterans, who have made extraordinary sacrifices for our
    Nation, so that we can live in freedom, have relied heavily on
    scientific advances for carrying out their missions, in fighting wars
    and defending threats to our homeland. They have also relied heavily on
    scientific advances for medical diagnoses and treatments they have
    received in the VA hospitals. The next generation of veterans will be
    no less reliant, and research supported by NSF today will surely
    provide significant benefits for them tomorrow.

                  RESIST PRESSURES TO DEPART FROM MERIT REVIEW

        The last issue that I would like to discuss with the subcommittee
    does not emanate from the President's budget, but may continue to arise
    during congressional consideration. Congress should continue to resist
    pressures to depart from merit review at all Federal agencies that
    support scientific research, including the VA and NSF. Scientific merit
    review remains the best process for allocating research funds to
    research projects with the greatest promise. Merit review promotes an
    efficient and effective allocation of funds.
        A foundation of modern science is the principle that scientific
    merit is best evaluated by peer review. Whether judging the suitability
    of a manuscript for publication, the selection of grants to be funded,
    or programmatic allocation of research funds within an organization,
    decisions should be based on the advice of experts who are most
    familiar with the science. Recognition by Congress that peer review is
    the fairest and most efficient mechanism for allocation of public
    resources to support scientific research is a major reason why the
    United States leads the world in biomedical research.
        If departures from merit review are permitted, pressure will only
    intensify--and scientific opportunities will be lost. Investing scarce
    resources in anything other than the highest-quality science would be a
    disservice to the taxpayers who are funding this investment in future
    scientific and health improvements.
        We all know that this is an incredibly difficult year for Federal
    budgets and that this committee's task will not be very pleasant. But
    as you decide how to divide up the allocation among the various
    agencies and programs for which you have responsibility, I would ask
    you to consider how interrelated these activities truly are. The
    investments you make in NSF are investments made in the rest of the VA-
    HUD bill. I cite just two examples.

                                   CONCLUSION

        Mr. Chairman, I thank you and the subcommittee again for this
    opportunity to emphasize the need to adequately support the VA and NSF.
    While these agencies are different in purpose, I would like to again
    point out that scientific research is at the foundation of both of
    their missions. Furthermore, I encourage your support of the merit
    review process, which ensures the quality of work and helps maximize
    the public's investment in both agencies.
        Thank you.
                                     ______

       Prepared Statement of the American Society of Mechanical Engineers

                               AEROSPACE DIVISION

        Mr. Chairman and members of the subcommittee, the Aerospace
    Division of the American Society of Mechanical Engineers (ASME) is
    pleased to provide this testimony on the President's fiscal year 2005
    budget for the National Aeronautics and Space Administration.

                INTRODUCTION TO ASME AND THE AEROSPACE DIVISION

        ASME is a nonprofit, worldwide engineering Society serving a
    membership of 120,000. It conducts one of the world's largest technical
    publishing operations, holds more than 30 technical conferences and 200
    professional development courses each year, and sets many industrial
    and manufacturing standards. The work of the Society is performed by
    its member-elected Board of Governors through five Councils, 44 Boards,
    and hundreds of committees operating in 13 regions throughout the
    world.
        The ASME Aerospace Division has approximately 15,000 members from
    industry, academia and government. ASME members are involved in all
    aspects of aeronautical and aerospace engineering at all levels of
    responsibility. They have had a long-standing interest and expertise in
    the Nation's federally funded aerospace research and development
    activities at the National Aeronautics and Space Administration (NASA).
    In this statement, the ASME Aerospace Division's Executive Committee
    (herein referred to as ``the Committee'') will address programs that
    are critical to the long-term health of the Nation's aerospace
    enterprise.

                     NASA'S FISCAL YEAR 2005 BUDGET REQUEST

        The Committee applauds the administration for its new space
    exploration initiative. One of the greatest achievements of the United
    States is its position of leadership in space technology, and NASA
    guarantees the United States a competitive edge on the world's
    technological stage. However, while this is potentially a great
    endeavor, we must not neglect other aspects of NASA's responsibilities,
    especially aeronautics.
        While we are pleased with the administration's support for the
    space program, we remain concerned about the relative lack of support
    for the aeronautics research and technology (R&T) programs contained
    within NASA's Office of Aeronautics. This is the portion of the NASA
    budget that has the most immediate and practical benefit to the Nation,
    and yet the administration proposes to reduce those programs by $115
    million from the fiscal year 2004 appropriation of just over $1 billion
    (even with fiscal year 2004 earmarks removed, this still represents a
    reduction of $43 million or 4.5 percent).
        We appreciate that Congress faces a trying budgetary climate this
    year, but we urge you to not only fully fund NASA's fiscal year 2005
    budget request, but to ensure adequate funding for aeronautics R&T. It
    is the Committee's recommendation that the aeronautics portion of the
    NASA budget be increased to $2 billion over the next 8 years, with a
    long-term target of attaining a level of 10 percent of the total NASA
    budget. Achieving this target would re-establish aeronautics funding,
    as a percentage of the NASA budget, at its pre-1990 level. Strong
    investments are required in fundamental engineering research in
    aeronautics, so as to maintain core competency and produce the
    technological advances needed to maintain U.S. long-term leadership.
        There are also important and needed first steps being taken to
    focus our Nation's aeronautics research in government, as well as
    industry and academia, such as the formation of the Joint Planning and
    Development Office to develop a national plan to transform the U.S. air
    transportation system. Our concern is that these first steps come at a
    time of decreasing budgets in aeronautics and that without the
    investment to follow through on these first steps, nothing will happen.

                      AERONAUTICS RESEARCH AND TECHNOLOGY

        The U.S. aeronautics enterprise is confronted with several critical
    challenges--a sharp decrease in the number of new commercial and
    military aircraft programs, a decline in the quality of the research
    infrastructure, and erosion in the technologically literate workforce
    needed to ensure pre-eminence in an increasingly competitive
    marketplace. The issues are not unrelated, and all are driven by
    dramatic reductions in Federal funding for research in aeronautics over
    the past decade.
        Infrastructure.--There is a need to refocus on the infrastructure
    required to develop a new generation of advanced flight vehicles. In an
    era of budget cuts and fewer defense contracts, the Nation has embarked
    on a path where key wind tunnel and other ground test facilities are
    being retired. Our Committee recommends a team of experts from
    industry, government and academia be chartered to identify the
    infrastructure requirements for a robust national aeronautical R&D
    program aimed at developing a new generation of advanced aeronautical
    vehicles. In parallel, funded R&D adequate to sustain or build this
    infrastructure should be identified. The Nation should guard against a
    loss of technical expertise in the critical field of wind tunnel
    testing, a very real possibility in the current climate of attrition.
        Workforce.--Aeronautics faces the same pressures being felt by the
    space industries: fewer research dollars over time has resulted in
    fewer companies with skilled workers capable of designing and building
    complex aeronautical systems. An investment in aeronautics is a matter
    of national welfare and strategic importance. These investments lead to
    high paying jobs for American workers. For example, in the
    manufacturing sector aerospace workers earn 50 percent more than the
    sector average. Also, for every aerospace job created, two additional
    jobs are created in the supplier base.
        Aerospace companies have an aging workforce, a high percentage of
    which will reach retirement age in this decade. Aerospace suffers from
    a lack of available young workers with advanced technology degrees who
    can step in to replace retiring, experienced workers. The aerospace
    industry looks to NASA to create a demand for long-term R&T to
    encourage students to go to graduate school and on to companies who are
    doing aeronautical research.
        Aeronautical Technologies Critical to U.S. Leadership.--Contrary to
    perception, aeronautics is not a mature industry. Exciting new
    opportunities exist for major advances in many areas of aeronautical
    technology, including automated flight vehicles, ``fail-safe''
    avionics, new platforms/configurations, efficient propulsion, ``quiet''
    aircraft, enhanced safety, and ``zero'' emissions aircraft. The
    Committee identified numerous technologies that are critical to the
    long-term health of the Nation's civil and military aviation and
    aeronautics technology enterprise including:
      --Flight demonstrations (jointly funded by DOD and NASA) should be
            sustained at an annual budget level sufficient to determine the
            integrated performance of promising and dramatic new emerging
            technology opportunities.
      --Research into avionics systems and their applications should be
            aggressively pursued because their use is pervasive and is
            often critical to the success of advanced aircraft
            developments.
      --Research and development into Uninhabited Air Vehicles (UAVs)
            should be given sustained support addressing issues of
            reliability, maintainability and cost, so that the full
            potential of these promising aircraft can be realized.
      --Quieter, more environmentally friendly aircraft engines are not
            only possible, but highly desirable over the near- and longer-
            term. More distant, but intriguing, are the possibilities for
            engines using alternative fuels, including hydrogen. A vigorous
            pursuit of these technologies is likely to pay rich dividends
            to the United States air transportation system and the national
            economy.
      --Research on new and more effective prediction methodologies are
            sorely needed to meet the challenge of addressing the increased
            complexity of design decisions. Computational Fluid Dynamics
            (CFD) methods, for example, have evolved to the point of
            achieving good correlation with test results, but are so
            computer-time intensive as to be currently impractical for the
            multiplicity of calculations needed for design of optimum
            configurations.
      --Methodologies that facilitate the development of cost-effective,
            extraordinarily reliable software and systems for safety
            critical operations should receive the strongest possible
            support.
      --Composite-Structures research is a critical enabling technology for
            advanced aeronautical development, and should be vigorously
            supported. In particular, new advances in manufacturing
            techniques for large-scale composite structures are required to
            promote the development of a new generation of aeronautical
            vehicles.
      --Significant new aerodynamics research is required in support of
            innovative and promising applications ranging from micro UAVs,
            to Vertical Takeoff and Landing (VTOL) regional transports to
            Single Stage to Orbit (SSTO) launch vehicles and hypersonic
            missiles.
      --Essential simulation, ground, and flight-testing capabilities must
            be preserved and new, more productive capabilities should be
            developed--including physical infrastructure and personnel--so
            that new generations of advanced aircraft can be designed
            safely to be competitive in the world market.
      --There is a continuing need for R&D into flight mechanics and
            control for new, innovative configurations including un-piloted
            aircraft. Research to minimize if not entirely eliminate the
            impact of pilot and operator errors on flight safety should be
            a primary focus.
        We urge you to read our more detailed report on ``Persistent and
    Critical Issues in the Nation's Aviation and Aeronautics Enterprise,''
    prioritizing technologies critical to the long-term health of the
    Nation's civil and military aviation and aeronautics technology
    enterprise which is located on our website at http://www.asme.org/gric/
    ps/2003/ASMEPolicyPaper.pdf

                                   CONCLUSION

        In conclusion, we applaud the proposed fiscal year 2005 NASA budget
    request as the first step towards reinvigorating the Nation's space
    policy. We urge Congress to continue its support for NASA's long-range
    goals and to support real increases in the NASA Space and Aeronautics
    budget. NASA's fiscal year 2005 budget is the start of many
    opportunities and challenges and we hope that NASA's track record of
    meeting and exceeding the Nation's expectations will be continued into
    the 21st century.
                                     ______

       Prepared Statement of the American Society of Mechanical Engineers

                       ENVIRONMENTAL ENGINEERING DIVISION

        The Environmental Engineering Division (EED) of the Council of
    Engineering, ASME, is pleased to have this opportunity to provide
    written comments on the fiscal year 2005 budget request for the
    Environmental Protection Agency (EPA).

                                  INTRODUCTION

        ASME is a 120,000-member professional organization focused on
    technical, educational, and research issues of the engineering and
    technology community. ASME conducts one of the world's largest
    technical publishing operations, holds numerous technical conferences
    worldwide, and offers hundreds of professional development courses each
    year. ASME sets internationally recognized industrial and manufacturing
    codes and standards that enhance public welfare and safety.
        This testimony represents the considered judgment of the ASME
    Environmental Engineering Division (EED), and does not represent a
    position of ASME as a whole. The ASME EED promotes the art, science,
    and practice of environmental engineering in all issues pertaining to
    the environment. Its members are engaged in a broad range of
    environmental engineering issues, including air, water, and waste
    management.

                                   BACKGROUND

        Scientists and engineers have a long-standing professional interest
    in research and technology to protect the environment and human health.
    Mechanical engineers have a breadth of subspecialties, from combustion
    and fluid mechanics to machine and process design and increasingly
    collaborate with other professionals in the course of their work. The
    opinions of the ASME EED reflect a diversity of opinions from ASME
    members who represent many disciplines. Mechanical engineers working in
    various subspecialties form a significant proportion of the technical
    workforce tackling current environmental problems.
        The EPA plays an essential role in the Nation's efforts to protect
    human health and safeguard the natural environment. Protection of the
    environment is defined as action that directly or indirectly protects
    human health and the health of the larger ecosystem, and includes
    conservation and pollution prevention. Accordingly, research and
    development (R&D) in environmental protection includes studies
    pertinent to environmental health, ecology, environmental monitoring,
    environmental technology, pollution prevention, and related topics.
        Given the impact that EPA has on the residents of the United States
    it is encouraging to see that the administration has requested over
    $100 million more for the agency in fiscal year 2005 than it did in the
    previous fiscal year. We note, however, that within this larger budget,
    the request for Science and Technology (S&T) shows a reduction of over
    $42 million. That is a troubling decline, and incongruous with the
    agency's stated goal ``to further strengthen the role of science in
    decision-making by using sound scientific information and analysis to
    help direct policy and establish priorities.'' With this reduction,
    Science and Technology represents less than 9 percent of the requested
    EPA appropriation.
        The EPA fiscal year 2005 budget is organized to support five
    strategic goals supported by a dedicated budget line titled ``Enhance
    Science and Research.'' The resource request to support ``Enhance
    Science and Research'' for each goal and the differences in requests
    (in millions of dollars) between fiscal year 2004 and fiscal year 2005
    are:
      --Clean Air and Global Climate Change: $130.9; +2.8.
      --Clean and Safe Water: $121.0;+0.5.
      --Land Preservation and Restoration: $57.6;-2.3.
      --Healthy Communities and Ecosystems: $394.8;-25.2.
      --Compliance and Environmental Stewardship: $70.1;-7.1.
        Thus the total budget request to ``Enhance Science and Research''
    for the five strategic EPA goals represents a reduction of over $30
    million when compared with funds allocated in the fiscal year 2004
    appropriation.
        The majority of the fiscal year 2005 S&T budget requested by EPA is
    allocated to the Office of Research and Development (ORD). In fiscal
    year 2005 this amounts to $572 million. Through research and technical
    assistance, ORD provides the scientific foundation for EPA's regulatory
    programs and decisions, assesses the state of the environment,
    identifies emerging issues of potential concern, and provides
    information and tools to support risk-based decisions. Hence the ORD
    administers programs addressing foundational research to improve the
    scientific tools used to understand and evaluate environmental health
    and problem-driven research designed to provide scientific solutions to
    high-priority environmental problems. It is a valuable national
    resource.
        The EPA budget documentation dwells more on attempts to ``prove''
    the quality of ORD research than on describing the fruits of ORD work.
    While it is essential to insure that Federal funds are used wisely and
    efficiently, it is extremely difficult to demonstrate the worth of
    research and development relying solely on current metrics. Often the
    true value of such investments is only apparent years after the
    investment is made. We hope that ORD is not overly diverted from its
    true mission by constant calls to prove the unprovable. The Science
    Advisory Board (SAB), a collection of eminent scientists that EPA has
    assembled, should be relied upon to provide a quality metric.
        ASME EED notes that many of this administration's most
    controversial proposals (e.g., oil exploration in the Arctic, the
    reduction of allowable arsenic groundwater concentrations, the non-
    endorsement of the Kyoto Accords) have environmental dimensions. It is
    critical to protect ORD from political forces so that its peer-reviewed
    research results can be beyond political dispute.

    Goal 1--Clean Air and Global Climate Change
        The protection and rehabilitation of stratospheric ozone is one of
    the singularly most important global environmental issues over the long
    term. The budget for this aspect of the Clean Air and Global Climate
    Change strategic goal would increase 14.4 percent from this year to
    next. That is a very positive step in a year of flat overall funding.
    Nonetheless, proposed fiscal year 2005 funding for this program is only
    2.2 percent of the total budget for the Clean Air and Global Climate
    Change goal. The level of funding belies the gravity of the problem it
    addresses.

    Goal 2--Clean and Safe Water
        The stated goal of the safe water aspect of this strategic goal is
    to ``restore and maintain oceans, watersheds, and their aquatic
    ecosystems to [1] protect human health, [2] support economic and
    recreational activities, and [3] provide healthy habitat for fish,
    plants, and wildlife.'' While compelling arguments can be made for
    making the protection of human health the agency's primary concern, it
    is disconcerting that economic and recreational activities may hold a
    higher priority than do those of native flora and fauna. Promotion of
    economic and recreational interests is best left with other departments
    within the government. The EPA should concentrate on its role as
    environment steward.

    Goal 3--Land Preservation and Restoration
        An ounce of prevention is worth a pound of cure. Thirteen-point-two
    percent ($237 million) of the Land Preservation and Restoration
    strategic goal budget in fiscal year 2005 is devoted to preserving
    land. While this amount is minor compared to the $1.5 billion (83.6
    percent of the Land Preservation and Restoration budget) devoted to
    land restoration, it is positive to see that the land preservation
    portion of the budget has increased a healthy 12.4 percent from the
    fiscal year 2004 level of $211 million. The better land is preserved in
    the present, the lesser the land restoration bills will be in the
    future. It is reassuring to see the foresight of pollution prevention
    and land preservation becoming key aspects of EPA's approach to
    preserving the environment.

    Goal 4--Healthy Communities and Ecosystems
        It appears in fiscal year 2005 a greater focus will be placed on
    the ecosystems portion of the Healthy Communities and Ecosystems
    strategic goal. The funding level for ecosystems increases by 25
    percent to $201 million, compared to an increase in funding for
    communities of only 0.2 percent. This level is still only 63 percent of
    the funding for communities, but is a big step towards more equitable
    funding between the two aspects of this strategic goal. The long-term
    benefits of environmental health enhance human communities as well as
    the natural world.
        As with the 3.8 percent decline in science and research under the
    Land Preservation and Restoration goal, the 6.0 percent decline in
    Science and Research for Healthy Communities and Ecosystems from fiscal
    year 2004 to fiscal year 2005 is a harbinger of future problems.
    Tomorrow's solutions are found in today's research and development.
    Delaying the discovery and implementation of new, novel approaches to
    environmental management only increase their cost and the environmental
    losses incurred in the interim.

    Goal 5--Compliance and Environmental Stewardship
        The budget for Pollution Prevention and Innovation would grow by
    22.6 percent from fiscal year 2004 to fiscal year 2005. That budget
    shift indicates a commitment to the concept that ``pollution prevention
    has become a key element of initiatives to improve federal
    environmental management.'' Further, it supports EPA's stated plan to
    ``work to improve environmental protection and enhance natural resource
    conservation on the part of the government, business, and the public
    through the adoption of pollution prevention and sustainable practices
    . . .''. The EED fully supports the pursuit of this philosophy in
    environmental stewardship. Resource and energy conservation, combined
    with resource recycling, are critical to reducing the future costs of
    environmental remediation and resource recovery.

                              CROSS-CUTTING ISSUES

    Scientific Understanding and Risk Analysis
        The ASME EED notes that EPA continually refers to the need to base
    agency actions on ``sound science.'' We believe that the EPA's risk-
    based approach, which engages all interested parties (i.e.,
    ``stakeholders''), provides a good framework for the formulation of
    environmental policies. The EED supports EPA's continuing effort to
    implement a research program that is aimed at expanding the role, and
    improving the state-of-the-art of environmental science as it pertains
    to decision-making and policy formulation.
        The ASME EED supports the goal of applying ``the best science'' to
    the Nation's environmental problems but we note that many of the
    Nation's problems involve potential risks to the public and the
    environment from low levels of hazardous materials. In these instances,
    the scientific basis for decision making is highly uncertain since the
    health impacts of exposure to low levels of hazardous substances is
    largely unknown. The EED supports increased research in this area and
    notes that EPA has requested a large increase in research funding in
    the area of computational toxicology (+$4 million), which should help
    increase the understanding of the impact of low dose exposures. In the
    absence of definitive knowledge of the biological responses to low
    doses of hazardous materials, the ASME EED feels it important that EPA
    acknowledge the uncertainty in its risk estimates whenever
    communicating risk to the public.

    Interactions with Other Federal Agencies
        In the absence of definitive scientific data about the risks posed
    by small amounts of hazardous materials, EED believes that EPA must
    insure that corrective measures to eliminate exposure to small
    quantities of such materials do not themselves generate greater risks.
    We therefore recommend that EPA coordinate its activities with other
    Federal agencies to develop an integrated policy that minimizes the
    total risk to all parties, particularly workers. This policy must
    consider environmental risks to the public and to ecosystems, along
    with occupational risks and risks to the public due to remediation
    activities. It would be folly to expose workers and the public to real
    risks while attempting to reduce hypothetical risks to the public and
    the environment.

    Oversight of DOE and WIPP
        One of EPA's major radiation-related responsibilities is to certify
    that all radioactive wastes shipped by the Department of Energy (DOE)
    to the Waste Isolation Pilot Plant (WIPP) are permanently and safely
    disposed of, consistent with EPA standards. EPA conducts inspections of
    waste generator facilities and biennially evaluates DOE's compliance
    with applicable environmental laws and regulations. Every 5 years EPA
    must re-certify that WIPP complies with EPA's radioactive waste
    disposal regulations.
        The budget for EPA's oversight of WIPP falls within the protection
    section of its radiation program. The President's request for fiscal
    year 2005 for radiation protection reflects a decrease of approximately
    $1.8 million. The reduction derives from higher priorities within EPA's
    budget. It is not possible to determine from the published documents
    what fraction of the budget reduction EPA's WIPP Program within the
    Office or Radiation and Indoor Air will absorb. However, several
    comments can be made regarding the budget proposal:
      --No mention is made of the ongoing compliance recertification
            effort. The level of effort required to review the application
            for recertification, accept public comment, obtain and review
            additional documentation from DOE, and make a compliance
            decision will be significant. As the Nation's only operational,
            certified repository for permanent disposal of radioactive
            waste, WIPP comprises a key to cleanup of DOE's weapons
            complex.
      --Performance measures for EPA's involvement at WIPP pertain solely
            to certification of a specified number of drums for disposal.
            Certainly this measure represents an important role for EPA.
            However, the EPA's decision to certify WIPP also included four
            conditions requiring continued oversight from EPA, a long-term
            groundwater-monitoring program, and ongoing review of changes
            to WIPP's operations. One of the conditions imposed by EPA on
            its certification of WIPP was construction of panel closure
            systems. Review of documents by an independent oversight group
            (the Environmental Evaluation Group) documents that DOE intends
            to request a revision to the certified panel closure design.
            This would represent a significant change to the EPA compliance
            baseline for WIPP.
        These topics suggest that additional performance measures specific
    to conditions of the certification and the long-term monitoring program
    should be added to EPA's performance measures. These performance
    measures would serve to enhance public confidence in the facility. By
    contrast, the proposed performance measure reflects a desire to meet
    DOE's need to ship waste from its clean-up sites. Given how central a
    viable WIPP is to DOE's cleanup plans, EPA should carefully weigh the
    impact of budget reductions that support WIPP.

               ENVIRONMENTAL EDUCATION/STRENGTHENING THE S&T BASE

        Extramural research grants and graduate fellowships administered by
    the EPA would be severely cut under the President's proposed budget
    request for fiscal year 2005. EPA's Science to Achieve Results (STAR)
    graduate fellowship program would be cut by 33.5 percent relative to
    the fiscal year 2004 appropriation. EPA's larger STAR research grants
    program would be cut by approximately 30 percent, or $36 million.
    Approximately 93 fewer STAR research grants would be awarded, according
    to EPA's budget justification to Congress. Deep budget cuts in EPA's
    STAR programs have been proposed less than 1 year after the National
    Academy of Sciences (NAS) issued a laudatory report entitled The
    Measure of STAR.
        The STAR fellowship program is the only Federal fellowship program
    designed exclusively for students pursuing advanced degrees in the
    environmental sciences and engineering. It provides funding for
    graduate students interested in the solution of environmental problems
    and allows them to undertake research in areas directly relevant to
    EPA's mission and objectives. It is the opinion of the EED that the
    STAR fellowship program is an important investment in the future of
    both EPA and the Nation. The EED fully supports this program.
        In fiscal year 2005, EPA will also support Association of Schools
    of Public Health (ASPH) fellowships. This investment will help EPA to
    better design its programs for human health outcomes. Under a
    cooperative agreement with the ASPH, eligible fellows are placed in EPA
    labs, centers, and offices to conduct projects that contribute to EPA's
    public health mission. EED supports this program and suggests that it
    be a model for additional fellowships in ancillary areas, particularly
    in occupational health.
        The research portion of the Federal budget is the largest share of
    support for U.S. graduate students in fundamental science and
    engineering disciplines, through both fellowships and research grants
    to universities. In areas such as environmental science and national
    defense, a broad view across agencies, rather than a programmatic view,
    is necessary to ensure sufficient graduates and continuing quality in
    graduate programs. The EED encourages lawmakers to consider not only
    current programmatic needs, but also future national needs, when
    determining the number of graduate students to be funded by Federal
    programs, particularly in science and engineering disciplines. A highly
    trained workforce is vital to ensuring future success in resolving
    national science, security, and technology issues.

                                  CONCLUSIONS

        EPA's budget decisions for fiscal year 2005 indicate a
    philosophical commitment to pollution prevention and ecosystem
    preservation that the EED supports. Conversely, the marked decrease in
    funding for science and technology in fiscal year 2005 is disturbing.
    Because of the complex, multidisciplinary nature of environmental
    issues, it is imperative that EPA base its actions on sound science. A
    strong R&D program is essential for the ongoing development of science-
    based decision making. Reduced R&D funding will hurt the science and
    engineering community in the present and will, in the future, only
    cause larger, more expensive environmental problems for society at
    large.
                                     ______

       Prepared Statement of the National Utility Contractors Association

        Chairman Bond, and distinguished members of the subcommittee, thank
    you for the opportunity to provide testimony to your committee on
    issues involving water and sewer infrastructure funding.
        My name is Bill Bowman and I am the President of the National
    Utility Contractors Association (NUCA), which represents thousands of
    companies that provide the materials and workforce to build and
    maintain our Nation's network of water, sewer, gas, telecommunications,
    and other utility systems. I am also the Chairman of the Board of the
    Bowman Group, located in West Berlin, New Jersey, a company I founded
    more than 30 years ago with a handful of men, a backhoe, a dump truck,
    and a small loan. Today my company builds and maintains water, sewer,
    and other underground utility systems in and around Southern New Jersey
    and Southeastern Pennsylvania.
        Let me begin by thanking the committee for its consideration and
    insistence in maintaining level funding for the Clean Water and
    Drinking Water State Revolving Fund (SRF) programs despite what have
    become yearly cuts proposed by the White House budget. This
    subcommittee's efforts to support the SRF programs have benefited
    millions of Americans. I know this because I see it every day I go to
    work.
        I want to voice my industry's strong support for the U.S.
    Environmental Protection Agency's (EPA) Clean Water and Drinking Water
    SRF programs. Simply put, these essential financial programs clean up
    the environment, protect public health, promote economic development,
    and create thousands of jobs. Why then, does the administration
    continually propose to cut the Clean Water SRF by 40 percent when its
    own EPA reports that existing needs exceed $181 billion? We cannot help
    but notice the contradiction between the EPA's needs estimates and the
    President's proposed solution.
        Utility contractors have been called the ``true environmentalists''
    because we are the ones getting our boots dirty installing and
    repairing the infrastructure that help make our lakes and rivers safe
    for public use. And while I understand that your committee is under
    tremendous pressure to keep Federal spending in check, I urge you to
    boost the Federal capitalization of these funds because not only do
    they enhance our Nation's quality of life, but they help create
    thousands of good paying jobs right in our own backyards. These are
    jobs that cannot be exported--this work must be performed in America.

                                   THE NEEDS

        As the committee is well aware, last year the EPA released The
    Clean Watersheds Needs Survey (CWNS) 2000 Report to Congress, which
    painted a bleak picture of America's wastewater infrastructure. The
    CWNS documents State-by-State wastewater infrastructure needs and
    clearly demonstrates that the condition of our Nation's wastewater
    infrastructure is going from bad to worse. The CWNS presents the
    results of a survey of wastewater infrastructure needs conducted
    between April 2000 and January 2002, detailing a total need of $181.2
    billion for publicly-owned wastewater collections, treatment facilities
    and eligible activities to control pollution from storm water and
    nonpoint sources. This figure represents an increase of $26.6 billion
    from the amount reported in the 1996 CWNS. It is important to note that
    previous CWNS reported 20-year modeled needs but that the 2000 CWNS
    represents documented needs. In other words, the 2000 CWNS provides a
    snapshot of what is needed today, not projected over 20 years. This
    change in study methods ``hides'' the true increase because the results
    compare 20-year modeled needs from 1996 against 5-year current
    documented needs from 2000. If the CWNS projected out 20 years, the
    number would be exponentially higher.
        As the committee is well aware, in 2002, the EPA's Clean Water and
    Drinking Water Infrastructure Gap Analysis forecasted a $534 billion
    gap between current spending and projected needs over 20 years for
    water and wastewater infrastructure if Federal funding is not
    increased. To someone in our industry, this is a distressing report
    that in my experience, forecasts an environmental disaster. Even a
    modest 3 percent annual growth in water infrastructure spending will
    project to a $76 billion funding gap over the next 20 years. As a point
    of fact, funding for the Clean Water and Drinking Water SRF programs
    has remained stagnant since 1997. This analysis shows that we are not
    doing enough to tackle this problem.
        The SRF programs are not examples of throwing good money after bad.
    States are making progress in repairing their infrastructure. But the
    infrastructure is failing at a rate that exceeds what the SRFs can
    currently handle.
        As bad as the water infrastructure problems are across America,
    this committee is uniquely positioned to make a change for the better.
    The Gap Analysis clearly shows that a modest increase in Federal
    capitalization grants will limit the funding gap and assist States in
    addressing their water infrastructure problems.

                           PROBLEMS HIT CLOSE TO HOME

        As representatives of NUCA before me have testified, aging
    wastewater infrastructure is failing in every State. Each year, sewers
    back up in basements 400,000 times and municipal sanitary sewers
    overflow on 40,000 occasions, dumping potentially deadly pathogens into
    the Nation's streets, waterways, and beaches. Water and sewer systems
    built generations ago that had projected use periods of 30, 50, and
    even 100 years are all reaching their useful life concurrently. Scores
    of American cities are under consent decrees with the EPA to fix their
    combined sewer overflow problems or face millions of dollars in fines.
    You need not look any further than right here in Washington, DC, where
    we are witnessing a health crisis caused by aging drinking water
    infrastructure resulting in dangerously high lead levels.
        Sometimes it takes the intense media scrutiny during a crisis, like
    the lead problems in the District of Columbia, to get people to notice
    water infrastructure problems. In my business, I see firsthand these
    problems every day. What's out of sight and out of mind to most
    Americans is clearly visible to utility contractors. We regularly
    uncover pipes with gaping holes from which raw sewage escapes into the
    surrounding ground in residential neighborhoods. This leakage can go
    undetected for months, if not years. My colleagues can tell stories of
    finding infrastructure so old that the pipes are made out of hollowed
    tree trunks. To make matters worse, these systems are often within very
    close proximity to lakes and rivers where we swim, fish, and play.
        Conditions grow substantially worse every day. We are knowingly
    failing to refurbish and install vital wastewater infrastructure in a
    meaningful way that maintains public safety, even though we have the
    capability to fix the rotting pipes. It's time we do so before we
    irreversibly contaminate our water supply, before sewer moratoriums
    shut down our communities, and before your constituents' sewer rates go
    through the roof.
        The scenario is becoming increasingly clear: water and wastewater
    infrastructure needs are constantly on the rise while Federal capital
    investment is being sustained but is no longer sufficient. While
    inadequate Federal capitalization is provided every year, the existing
    infrastructure continues to age. Incidents of sewer overflows will
    continue to rise as the declining investment fails to keep up with the
    aging pipes. This financial gap will only get worse unless a firm
    commitment is made and increased Federal resources are provided to
    needy communities.
        Moreover, the current lack of adequate funding unintentionally
    widens the investment gap by sending the implicit message that our
    Nation's environmental infrastructure is not a national priority.

               EFFECTIVENESS OF THE STATE REVOLVING FUND PROGRAMS

        The EPA's SRF programs help ensure the quality of America's
    wastewater and drinking water facilities. Funding from the SRF programs
    provide urgently needed resources for communities across the country to
    address their water and wastewater infrastructure problems.
        Revolving fund programs work in perpetuity. The Clean Water SRF,
    for example, has leveraged approximately $22.4 billion in Federal
    grants into more than $43 billion in revolving loans to communities.
    These loans are then repaid at low interest and redistributed for other
    priority wastewater projects within the State. The Drinking Water SRF
    has provided more than $6.5 billion to communities for drinking water
    projects and State and local activities. These projects are needed to
    maintain compliance with health-based standards, such as installation
    and replacement of failing treatment and distribution systems. The SRF
    programs have been hailed as the most successful federally sponsored
    infrastructure financing program ever.
        As you know, the Clean Water SRF program originated in 1987, but
    authorization lapsed in 1994. Again, I want to commend this
    subcommittee for recognizing the effectiveness of the Clean Water SRF
    by continuing to appropriate funding to the program. When authorization
    expired in 1994, appropriations were just over $2 billion. That funding
    level dropped in 1998 to $1.35 billion, where it has remained.
    Unfortunately, this level is woefully inadequate. Immediate funding
    increases must be provided to begin to close the funding gap.
        The administration's budget request again proposes an appalling
    $850 million for each SRF program. While this would represent level
    funding for next year's drinking water projects, the proposal reflects
    what would be a $500 million cut to the Clean Water SRF.
        NUCA respectfully suggests there is a stark contradiction in the
    administration's estimation of what is needed and what should be
    provided to begin to address the problem. Six months after reporting
    needs that exceed $181 billion, this administration proposes what would
    reflect nearly a 40 percent reduction of an already inadequate funding
    level. These programs need immediate increases, not cuts.

        The Clean Water SRF provides a perpetual source of funding to build
    and improve wastewater treatment plants; control agricultural, rural,
    and urban runoff; improve estuaries; control wet weather overflows; and
    restore brownfield sites. Recognizing its remarkable success in turning
    Federal capitalization grants into revolving loans, the SRF program is
    by all accounts an efficient, fiscally sound, and environmentally
    successful partnership that enhances public health, creates thousands
    of jobs, and improves the quality of life for communities across
    America.
        Nearly a decade ago, our industry commissioned a report that found
    that for every $1 billion spent on water infrastructure, up to 55,000
    jobs are created across the country. As our economy struggles to grow,
    it is important to note how quick and easy it is to create good, long-
    term construction jobs. In most States, due to advance planning and
    engineering work, a backlog of projects are ready to start once money
    arrives from the Federal Government.
        Our industry has worked to move legislation that will reauthorize
    the Clean Water SRF program at higher funding levels in order to better
    ensure the appropriation of these imperative Federal resources. Water
    Resources Subcommittee Chairman John Duncan and Transportation and
    Infrastructure Committee Chairman Don Young introduced the Water
    Quality Financing Act of 2003 (HR 1560) last year, which would
    authorize $20 billion for the Clean Water SRF over 5 years and
    additional resources for ``wet weather'' projects.
        NUCA fully supports HR 1560, and we look forward to advancing this
    legislation through the committee onto the House floor for a vote.
    However, while SRF reauthorization is a priority, we encourage the VA-
    HUD Appropriations Subcommittee to take the necessary steps to provide
    immediate resources to refurbish our environmental infrastructure.
        Recently, the Senate passed an amendment during debate on the
    fiscal year 2005 Budget Resolution that increased fiscal year 2005
    funding for the Clean Water and Safe Drinking Water State Revolving
    Fund to $5.2 billion. NUCA is recommending that the subcommittee
    recognize the dramatic needs and the job creation that comes with
    infrastructure spending and match the amount set forth in this
    amendment--$3.2 billion for the Clean Water and $2 billion for the Safe
    Drinking Water State Revolving Funds.
        The House budget resolution did not include these necessary
    increases in funding for this vital infrastructure. NUCA encourages
    this subcommittee to enact the Senate's approved budget blueprint for
    fiscal year 2005 appropriations to the SRF programs. In fact, a diverse
    coalition of industry groups that includes administrators, labor
    unions, environmental groups, and manufacturers and NUCA has joined
    forces to support the Senate passed budget authorization in the final
    budget conference. These groups rarely work together but this issue
    trumps any differences they may have. Attached to this testimony is a
    copy of their letter sent to fiscal year 2005 budget conferees. Also
    attached is a letter from the Clean Water Council, a coalition of
    construction industry associations, in support of the Senate funding
    levels.
        The fate of America's water quality is in your hands. The
    successful SRF programs play a key role in enhancing public health and
    safety, protecting the environment, and maintaining a strong economic
    base. They increase labor productivity, create scores of jobs,
    rehabilitate local neighborhoods, and ensure the availability of
    recreational use of our waterways and shorelines. They help protect the
    overall quality of life, from preparing a meal, to taking a shower, to
    simply taking a drink of water on a hot day.
        People intuitively understand that their lives are directly linked
    to water quality and the collection and treatment of wastewater. The
    State revolving funds have been demonstrably efficient and effective,
    but clearly, more needs to be done. Sufficient Federal resources must
    be invested to ensure that human and environmental impacts of the
    multi-billion dollar funding gap are prevented. Providing $5.2 billion
    towards our environmental infrastructure would be a big step in the
    right direction.
        This year, Congress is reauthorizing Federal highway and transit
    programs. While important, NUCA hopes the focus on the highway bill
    will not undermine Congress' recognition of the need to address the
    imperative lifelines that exist underneath the roads. The underground
    environmental infrastructure is falling apart by the minute.
        Finally, NUCA members and utility construction industry as a whole
    make a tremendous and vital contribution to the American economy. In
    times of economic difficulty, funding construction projects provide
    effective ways to stimulate growth and development. Economic benefits
    ripple through local economies from manufactures to distributors to
    construction laborers, along with the induced economic benefits to our
    communities. Infrastructure spending is a sound Federal investment.
        We strongly encourage this subcommittee to increase funding of
    EPA's SRF programs to $5.2 billion in fiscal year 2005. Again, thank
    you Chairman Bond and Ranking Member Mikulski, for the opportunity to
    present testimony before your esteemed panel.

        ATTACHMENT.--AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL
       EMPLOYEES; AMERICAN RIVERS; ASSOCIATION OF METROPOLITAN SEWERAGE
     AGENCIES; ASSOCIATION OF STATE AND INTERSTATE WATER POLLUTION CONTROL
    ADMINISTRATORS; COALITION FOR ALTERNATIVE WASTEWATER TREATMENT; NATURAL
     RESOURCES DEFENSE COUNCIL; NATIONAL UTILITY CONTRACTORS ASSOCIATION;
        WATER AND WASTEWATER EQUIPMENT MANUFACTURERS ASSOCIATION; WATER
                             ENVIRONMENT FEDERATION

       The diverse organizations above represent municipal authorities,
    operators of water and wastewater facilities, State water regulators
    and financial officers, labor organizations, contractors,
    manufacturers, and environmental groups dedicated to improving
    America's water and wastewater infrastructure. We write on behalf of
    our millions of members who urge you to protect human health and the
    environment and create hundreds of thousands of jobs by increasing the
    budget authority for the Environmental Protection Agency's (EPA) Clean
    Water and Drinking Water State Revolving Fund (SRF) programs to $5.2
    billion in fiscal year 2005, as provided in the Senate budget
    resolution. The SRF programs help local communities meet water quality
    standards, protect public health, repair and replace old and decaying
    pipelines and treatment plants, and ensure continued progress in
    restoring the health and safety of America's water bodies. Authorizing
    $3.2 billion for the Clean Water SRF and $2 billion for the Drinking
    Water SRF next year would provide a badly-needed down payment to
    improve America's water and wastewater infrastructure.
        Budget authority in the Senate budget resolution would create
    nearly 247,000 American jobs--three times the job creation that would
    come from the House budget resolution. This would aid the national
    economic recovery by keeping good paying jobs in local communities.
    Moreover, it is estimated that there are projects valued at between
    $3.2 billion and $4.1 billion that are ready to move forward in less
    than 90 days. This would create considerable jobs in the near future.
        In 2002, EPA's Clean Water and Drinking Water Infrastructure Gap
    Analysis found that there will be a $534 billion gap between current
    spending and projected needs for water and wastewater infrastructure if
    the Federal investment is not stepped up. Moreover, last year EPA
    issued its Clean Watersheds Needs Survey 2000 Report to Congress, which
    documented existing wastewater infrastructure needs at more than $181
    billion. There is no doubt of the need for increased resources toward
    this vital infrastructure.
        When the Clean Water Act was passed more than 30 years ago, the
    Federal Government made a commitment to the American people to clean up
    the Nation's waters. Since that time the Federal Government's funding
    to maintain clean water infrastructure in America has decreased by 70
    percent; today the Federal Government funds a mere 5 percent of
    national infrastructure costs. In 1996, the Safe Drinking Water Act
    expanded the Federal Government's role in assuring clean water for
    every citizen. Much has been accomplished but there is much left to be
    done. States, localities, and private sources addressing these problems
    cannot do it alone.
        We support this substantial increase in water infrastructure
    funding next year because it takes a step toward a longer-term solution
    for our Nation's water needs. We again urge you to support a $5.2
    billion allocation for the Clean Water and Drinking Water SRFs programs
    in the final Budget Resolution, and we thank you for your
    consideration.

                      ATTACHMENT.--THE CLEAN WATER COUNCIL

        The Clean Water Council (CWC) is a coalition of underground
    construction contractors, design professionals, manufacturers and
    suppliers, and other professionals committed to ensuring a high quality
    of life through sound environmental infrastructure. The CWC strongly
    urges you to increase budget authority for the Environmental Protection
    Agency's (EPA) Clean Water and Drinking Water State Revolving Fund
    (SRF) programs to $5.2 billion in fiscal year 2005, as provided in the
    Senate budget resolution. This funding level will provide a badly-
    needed down payment to improve America's water and wastewater
    infrastructure.
        Unfortunately, the administration's budget has again proposed a
    $500 million cut in funding for the Clean Water SRF at a time when the
    Nation's wastewater infrastructure needs are skyrocketing. In 2002,
    EPA's Clean Water and Drinking Water Infrastructure Gap Analysis found
    that there will be a $534 billion gap between current spending and
    projected needs for water and wastewater infrastructure if the Federal
    investment is not stepped up. Moreover, last year EPA issued its Clean
    Watersheds Needs Survey 2000 Report to Congress, which documented
    existing wastewater infrastructure needs at more than $181 billion. The
    CWC believes it is contradictory for the administration to propose what
    would be close to a 40 percent reduction in funding for clean water
    projects when its own agency studies have shown an overwhelming gap
    between the needs and current spending and provided a snapshot of
    current needs that are approaching $200 billion. America's water and
    wastewater infrastructure needs immediate funding increases, not cuts.
        The SRF programs provide a perpetual source of funding to build and
    improve this vital infrastructure, but the SRFs do more than clean up
    our environment. Funding the SRF programs at this level would create at
    least 238,000 American jobs. It is estimated that there are projects
    valued at between $3.2 billion to $4.1 billion that are ready to move
    forward in less than 90 days that are stalled due to the lack of
    funding. Importantly, the ``revolving'' nature of the SRF makes the
    program a fiscally sound partnership. For example, since its inception
    in 1987, the Clean Water SRF has leveraged approximately $22 billion in
    Federal capitalization grants into more than $44 billion in revolving
    loans to local communities.
        The Senate budget resolution would provide $3.2 billion for the
    Clean Waster SRF and $2 billion for the Drinking Water SRF next year.
    The CWC understands that these are substantial funding increases but we
    believe they are justified and necessary. These funding levels will
    help secure our water and wastewater infrastructure while assisting the
    Nation's economic recovery by providing high paying jobs in local
    communities right here in America. The CWC requests that you support a
    $5.2 billion in budget authority for the Clean Water and Drinking Water
    SRF programs in the final budget resolution.
    Members of the Clean Water Council
        American Council of Engineering Companies; American Concrete
    Pressure Pipe Association; American Rental Association; American Road &
    Transportation Builders Association; American Society of Civil
    Engineers; American Subcontractors Association; Associated Equipment
    Distributors; Associated General Contractors; Association of Equipment
    Manufacturers; Construction Management Association of America; National
    Precast Concrete Association; National Ready Mixed Concrete
    Association; National Society of Professional Engineers; National
    Stone, Sand and Gravel Association; National Utility Contractors
    Association; Portland Cement Association; The Vinyl Institute; Uni-Bell
    PVC Pipe Association; Water and Wastewater Equipment Manufacturers
    Association.
                                     ______

        Prepared Statement of the National Council for Science and the
                                  Environment

                                    SUMMARY

        The National Council for Science and the Environment (NCSE)
    commends the Senate Appropriations Subcommittee on VA, HUD and
    Independent Agencies for its bipartisan leadership in support of
    science to improve environmental decision-making. We ask for your
    continued leadership by appropriating strong and growing funding for
    environmental research and education to address pressing national
    challenges.
        Environmental Protection Agency.--We urge Congress to reject
    drastic budget cuts proposed for competitive research grants and
    graduate fellowships administered by the Environmental Protection
    Agency's Science to Achieve Results (STAR) program. The fiscal year
    2005 budget request would cut the STAR research grants program by
    approximately 30 percent to $65 million in the fiscal year 2005 budget
    request. It would also cut the STAR graduate fellowship program by 33.5
    percent to $6.1 million in the fiscal year 2005 budget request. We ask
    Congress to appropriate at least $100 million for the STAR research
    grants program and at least $10 million for the STAR graduate
    fellowship program in fiscal year 2005.
        National Science Foundation.--NCSE recommends a 15 percent increase
    in funding for the National Science Foundation (NSF), bringing the
    agency's budget to $6.41 billion in fiscal year 2005. This is
    consistent with the National Science Foundation Authorization Act of
    2002 (Public Law 107-368), which authorizes a doubling of the NSF
    budget in 5 years. NCSE emphasizes the need for increased funding for
    NSF's Environmental Research and Education (ERE) portfolio. Although
    the National Science Board identified this area as one of NSF's
    ``highest priorities,'' funding for the ERE research portfolio would
    decrease by 0.2 percent to $930.2 million under the fiscal year 2005
    budget request. Moreover, funding for the priority area on
    Biocomplexity in the Environment--the flagship program of the ERE
    portfolio--would be flat at $99.8 million in fiscal year 2005. NCSE
    urges Congress to increase funding for NSF's Environmental Research and
    Education portfolio by at least the same percentage as the agency's
    overall growth rate.
        National Science Board Report.--NCSE encourages Congress to
    strongly support full and effective implementation of the National
    Science Board (NSB) report, Environmental Science and Engineering for
    the 21st Century, within the context of efforts to double the budget of
    the National Science Foundation. The lagging growth of the NSF
    Environmental Research and Education budget relative to the total NSF
    budget in recent years raises serious concerns about its status of one
    the agency's ``highest priorities.''

                    FEDERAL INVESTMENTS IN ENVIRONMENTAL R&D

        The National Council for Science and the Environment thanks the
    Senate Appropriations Subcommittee on VA, HUD, and Independent Agencies
    for the opportunity to testify before the panel in support of
    appropriations for the Environmental Protection Agency and the National
    Science Foundation.
        NCSE is dedicated to improving the scientific basis for
    environmental decision-making. We are supported by over 500
    organizations, including universities, scientific societies, government
    associations, businesses and chambers of commerce, and environmental
    and other civic organizations. NCSE promotes science and its
    relationship with decision-making but does not take positions on
    environmental issues themselves.
        Federal investments in R&D and science education are essential to
    the future well-being and prosperity of the Nation and deserve the
    highest priority of Congress. The long-term prosperity of the Nation
    and our quality of life are contingent upon a steady commitment of
    Federal resources to science and technology, and especially
    environmental R&D.
        The Appropriations Subcommittee on VA, HUD and Independent Agencies
    plays the largest role in setting funding levels for environmental R&D.
    It has jurisdiction over agencies that account for approximately 45
    percent of Federal funding for environmental R&D. Federal investments
    in environmental R&D must keep pace with the growing need to improve
    the scientific basis for environmental decision-making. In recent
    years, Congress has played a crucial role by supporting strong and
    growing Federal investments in environmental R&D. We appreciate the
    subcommittee's leadership and encourage its continued support in this
    difficult fiscal environment.

                               EPA STAR PROGRAMS

        Extramural research grants and graduate fellowship programs
    administered by the U.S. Environmental Protection Agency would be
    severely cut under the President's budget request for fiscal year 2005.
    Funding for EPA's Science to Achieve Results (STAR) research grants
    program would be cut by approximately 30 percent, from an estimated $92
    million in the fiscal year 2004 enacted appropriations bill to $65
    million in the fiscal year 2005 budget request. As a result of these
    cuts, approximately 93 fewer competitive research grants would be
    awarded to scientists at universities and nonprofit institutions across
    the Nation, according to EPA's budget justification to Congress.
    Funding for EPA's STAR graduate fellowship program--the only Federal
    program aimed specifically at students pursuing advanced degrees in
    environmental sciences--would be cut by 33.5 percent, from $9.17
    million in the fiscal year 2004 enacted appropriations bill to $6.1
    million in the fiscal year 2005 budget request. The National Council
    for Science and the Environment urges Congress to restore full funding
    for EPA's Science to Achieve Results (STAR) research grants and
    graduate fellowship programs.
        Rep. Vernon Ehlers, Chairman of the House Science Subcommittee on
    Environment, Technology and Standards, convened a hearing on March 11,
    2004 that examined the proposed cuts in EPA's STAR programs. At the
    conclusion of the hearing, he said, ``I have not heard a convincing
    reason today for why the STAR program was cut so dramatically. By all
    accounts, it is a well-run, competitive, peer reviewed program that
    produces high quality research. These proposed reductions should not be
    allowed to take effect.''
        EPA STAR Research Grants.--NCSE urges Congress to appropriate at
    least $100 million for the STAR Research Grants program in fiscal year
    2005. This is the funding level proposed in the President's budget
    request for fiscal year 2004. Deep budget cuts in EPA's STAR program
    have been proposed less than 1 year after the National Academies issued
    a laudatory report, The Measure of STAR, which concludes that the
    program supports excellent science that is directly relevant to the
    agency's mission. According to the report, the STAR program has
    ``yielded significant new findings and knowledge critical for
    regulatory decision making.'' The report says, ``The program has
    established and maintains a high degree of scientific excellence.'' It
    also concludes that the EPA STAR program complements research supported
    by other agencies and leverages its resources through partnerships,
    stating ``The STAR program funds important research that is not
    conducted or funded by other agencies. The STAR program has also made
    commendable efforts to leverage funds through establishment of research
    partnerships with other agencies and organizations.''
        The EPA STAR research program compares favorably with programs at
    other science agencies. According to the National Academies report,
    ``The STAR program has developed a grant-award process that compares
    favorably with and in some ways exceeds that in place at other agencies
    that have extramural research programs, such as the National Science
    Foundation and the National Institute of Environmental Health
    Sciences.''
        The STAR research grants program expands the scientific expertise
    available to EPA by awarding competitive grants to universities and
    independent institutions, to investigate scientific questions of
    particular relevance to the agency's mission. The National Academies
    report says, ``The STAR program should continue to be an important part
    of EPA's research program.'' According to the fiscal year 2005 budget
    request, funding for the following STAR grants would be cut.
      --Ecosystems Protection (-$22.2 million).--Approximately 50 STAR
            grants for research on ecosystem stressors and effects would be
            eliminated. According to the agency's budget documents, ``As a
            result of this reduction, STAR efforts designed to establish or
            improve the connection between ecosystem stressors and effects,
            serving as input to decisions at the regional, state, and local
            levels, will be discontinued.''
      --Pollution Prevention (-$5 million).--Over 20 research grants would
            not be funded under the Technology for the Sustainable
            Environment (TSE) program, which is a collaborative effort with
            the National Science Foundation.
      --Endocrine Disruptors (-$4.9 million).--Approximately 18 STAR
            research grants for research on endocrine disrupting chemicals
            would be eliminated.
      --Mercury Research (-$2 million).--The approximately 5 STAR grants
            that support mercury research would be eliminated.
      --Hazardous Substance Research Centers (-$2.3 million).--A 5-year
            program that awarded grants for hazardous substance research
            would not be funded in fiscal year 2005. According to EPA, some
            multi-year grants would not be funded in their final year due
            to this cut.
      --Homeland Security Building Decontamination Research (-$8.3
            million).--Research on building decontamination for homeland
            security would be completely eliminated.
      --Environmental Technology Verification (-$1.0 million).--One or two
            centers for testing the effectiveness of commercial
            environmental technologies would be closed.
        EPA STAR Graduate Fellowships.--NCSE urges Congress to appropriate
    at least $10 million for the STAR graduate fellowship program in fiscal
    year 2005. This is the only Federal program aimed specifically at
    students pursuing advanced degrees in environmental sciences. According
    to the National Academies report, ``The STAR fellowship program is a
    valuable mechanism for enabling a continuing supply of graduate
    students in environmental sciences and engineering to help build a
    stronger scientific foundation for the nation's environmental research
    and management efforts.'' The STAR fellowship program is highly
    competitive, with only 7 percent of applicants being awarded
    fellowships.
        The President's budget request has proposed deep cuts in the STAR
    graduate fellowship program in the past 2 years. The budget request
    would have cut funding for the STAR graduate fellowship program by 50
    percent in fiscal year 2004 and by 100 percent in fiscal year 2003.
    Under the leadership of this subcommittee, Congress restored full
    funding for the EPA STAR graduate fellowship program in both years.
    NCSE encourages Congress to restore full funding for the program again
    in fiscal year 2005.
        Science, Technology and Education at EPA.--EPA's overall Science
    and Technology account faces serious reductions in the President's
    fiscal year 2005 budget request. This account would be cut by 11.8
    percent to $689.2 million in fiscal year 2005. We encourage Congress to
    provide at least $790 million to fund this important function at EPA.
        The fiscal year 2005 budget request proposes no funding for the EPA
    Office of Environmental Education. NCSE strongly encourages Congress to
    restore full funding of at least $10 million to support the
    congressionally mandated programs administered by this office. These
    programs provide national leadership for environmental education at the
    local, State, national and international levels, encourage careers
    related to the environment, and leverage non-Federal investment in
    environmental education and training programs.

                          NATIONAL SCIENCE FOUNDATION

        Implementing the NSF Doubling Act.--The National Council for
    Science and the Environment urges Congress to appropriate the funds
    necessary to implement the National Science Foundation Authorization
    Act of 2002, which was passed by Congress on November 15, 2002 and
    signed into law by the President on December 19, 2002 (Public Law 107-
    368). A central goal of the Act is to double the budget of the National
    Science Foundation in 5 years. It authorizes a budget increase of 105
    percent for the NSF, from $4.8 billion in fiscal year 2002 to $9.8
    billion in fiscal year 2007. The NSF Authorization Act of 2002 is a
    major milestone for the NSF, the scientific community, and the Nation.
    It recognizes the critical connection between science and the long-term
    economic strength of the Nation. In order to achieve the outcomes
    envisioned by this bold legislation, Congress must appropriate the
    funding levels specified in the NSF Authorization Act.
        The National Council for Science and the Environment urges Congress
    to appropriate $6.41 billion for the National Science Foundation in
    fiscal year 2005, which would be a 15 percent increase over fiscal year
    2004. NCSE supports an increase of 15 percent in fiscal year 2005 in
    order to place NSF on the doubling track that Congress deemed
    necessary. Although the authorized funding level is $7.38 billion for
    fiscal year 2005, we understand that this may be beyond reach in the
    current fiscal environment.
        The President's budget request would increase funding for NSF by
    3.0 percent to $5.75 billion in fiscal year 2005. Of the $167 million
    in new funding, 45 percent would be devoted to a management initiative
    that would provide more staff for NSF and improve the security of its
    computer systems. Under the fiscal year 2005 budget request, funding
    for most of the disciplinary directorates, such as Biological Sciences
    and Geosciences, would increase by only 2.2 percent, only slightly more
    than the expected rate of inflation.
        Expanding NSF's Environmental Research and Education Portfolio.--
    The National Science Foundation plays a crucial role in supporting
    environmental R&D. Environmental research often requires knowledge and
    discoveries that reach across disciplinary and institutional
    boundaries. The NSF recognizes this and encourages multidisciplinary
    environmental activities across the entire agency, as well as with
    other Federal agencies. The NSF has established a ``virtual
    directorate'' for Environmental Research and Education (ERE). Through
    this virtual directorate, NSF coordinates the environmental research
    and education activities supported by all the directorates and
    programs.
        Although the National Science Board said environmental research and
    education should be one of NSF's ``highest priorities'' (see below),
    funding for the ERE research portfolio would decrease by 0.2 percent,
    from $932.1 million in fiscal year 2004 to $930.2 million in the fiscal
    year 2005 budget request (Table 1). This is the first time that ERE
    funding would decline since the National Science Board identified it as
    one of NSF's highest priorities in 2000. NCSE encourages Congress to
    support more investment in this important area of research. Given that
    the National Science Board has been identified environmental research
    and education as one of the agency's highest priorities, funding for
    the ERE portfolio should grow at least as rapidly as the total NSF
    budget. In order to achieve the $1.6 billion funding level recommended
    by the National Science Board, NCSE supports rapid growth in NSF's
    Environmental Research and Education portfolio over the next several
    years.

                                        TABLE 1.--NATIONAL SCIENCE FOUNDATION: ENVIRONMENTAL RESEARCH AND EDUCATION (ERE)
                                                            [Budget Authority in Millions of Dollars]
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Environmental R&D                                         Change 2004 to 2005
                                        --------------------------------------------------------------------------------------------------------------------
                                                                                                                       Fiscal Year
                                         Fiscal Year  Fiscal Year  Fiscal Year  Fiscal Year  Fiscal Year  Fiscal Year      2005        Amount      Percent
                                         1999 Actual  2000 Actual  2001 Actual  2002 Actual  2003 Actual   2004 Plan     Request
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Research and Related Activities
     (R&RA):
        Biological Sciences............       $117.9       $125.3       $167.0       $174.5       $188.3       $214.1       $214.1  ...........  ...........
        Comp. & Info. Sci. & Eng.......          4.0          7.0         15.1         15.1         22.1         23.9         23.9  ...........  ...........
        Engineering....................         38.0         50.0         62.7         63.7         76.0         76.0         74.0        -$2.0         -2.6
        Geosciences....................        320.9        327.9        409.4        442.8        499.1        513.1        513.1  ...........  ...........
        Math. and Physical Sci.........         44.3         48.3         56.4         56.4         11.0         32.2         32.2  ...........  ...........
        Soc., Behav. & Econ. Sci.......         17.8         17.3         20.1         21.7          5.0         21.9         21.9  ...........  ...........
        Office of Polar Programs.......         45.3         45.3         47.5         49.8         50.9         50.9         50.9  ...........  ...........
        Integrative Activities\1\......          7.0         50.0  ...........  ...........  ...........  ...........  ...........  ...........  ...........
                                        --------------------------------------------------------------------------------------------------------------------
          Subtotal, R&RA...............        595.2        671.2        778.1        824.0        852.4        932.1        930.2         -2.0         -0.2
    Edu. and Human Res.\2\.............  ...........  ...........  ...........  ...........          2.0          2.0          2.0  ...........  ...........
                                        --------------------------------------------------------------------------------------------------------------------
          TOTAL, ERE Budget............        595.2        671.2        778.1        824.0        854.4        934.1        932.2         -2.0         -0.2
                                        --------------------------------------------------------------------------------------------------------------------
          TOTAL, NSF Budget............      3,690.3      3,923.4      4,459.9      4,774.1      5,369.3      5,577.8      5,745.0        167.2          3.0
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ In fiscal year 1999 and fiscal year 2000, funding for the Biocomplexity and the Environment (BE) Priority Area was included in the Integrative
      Activities account. Beginning in fiscal year 2001, BE funds were distributed across the directorates. Funding for BE was $54.88 in fiscal year 2001;
      $58.10 million in fiscal year 2002; and $79.20 million in the President's Request for fiscal year 2003.
    \2\ Figures for environmental funding in the Education and Human Resources account are not available prior to fiscal year 2003. Although education is
      not generally scored as R&D, $2.0 million for Environmental Education was included in the Education and Human Resources Directorate in the ERE budget
      from fiscal year 2003 to 2005 (request).

    Source: NSF.

        Biocomplexity in the Environment.--NCSE is especially supportive of
    NSF's priority area on Biocomplexity in the Environment, which is the
    flagship of the ERE portfolio. This priority area provides a focal
    point for investigators from different disciplines to work together to
    understand complex environmental systems, including the roles of humans
    in shaping these systems. It includes research in microbial genome
    sequencing and ecology of infectious diseases--to help develop
    strategies to assess and manage the risks of infectious diseases,
    invasive species, and biological weapons crucial to homeland security.
        The Biocomplexity in the Environment priority area was reviewed by
    a Committee of Visitors in February 2004. The committee reported:

        ``This program is highly responsive to a great need for integrative
    research to answer non-linear complex questions. The outcomes are
    helpful to establishing sound science evidence for use in policy
    decisions, in making science relevant to the community, in including
    the human dimension in consideration of environmental change, and in
    integrating these areas of science knowledge and discovery with the
    need for environmental literacy among our students in formal education
    an the education of the general public.''

    We urge Congress to support this critical initiative and to consider
    funding it at a level of $136 million, as proposed in fiscal year 2000
    budget request for NSF. After several years of rapid growth, the fiscal
    year 2005 budget request would provide flat funding of $99.8 million
    for Biocomplexity in the Environment.
     national science board report on environmental science and engineering
        The National Council for Science and the Environment encourages
    Congress to support full and effective implementation of the 2000
    National Science Board (NSB) report, Environmental Science and
    Engineering for the 21st Century: The Role of the National Science
    Foundation, within the context of a doubling of the budget for the NSF.
        The National Science Board report sets out an ambitious set of
    recommendations that could dramatically improve the scientific basis
    for environmental decision-making. The first keystone recommendation is
    as follows:

        ``Environmental research, education, and scientific assessment
    should be one of NSF's highest priorities. The current environmental
    portfolio represents an expenditure of approximately $600 million per
    year. In view of the overwhelming importance of, and exciting
    opportunities for, progress in the environmental arena, and because
    existing resources are fully and appropriately utilized, new funding
    will be required. We recommend that support for environmental research,
    education, and scientific assessment at NSF be increased by an
    additional $1 billion, phased in over the next 5 years, to reach an
    annual expenditure of approximately $1.6 billion.''

        The report says that the National Science Board expects NSF to
    develop budget requests that are consistent with this recommendation.
    At first, growth in the Environmental Research and Education budget
    reflected its priority status: from fiscal year 1999 to 2001, the ERE
    account grew more rapidly than the overall NSF budget. However, the ERE
    growth rate has trailed the total NSF growth rate since that time. From
    fiscal year 2002 to fiscal year 2005 (request), the ERE budget grew by
    only 13.1 percent while the total NSF budget grew by 20.3 percent. The
    lagging growth of the Environmental Research and Education budget
    relative to the total NSF budget in recent years raises serious
    concerns about its status of one NSF's ``highest priorities.''
        The National Science Board envisioned a 167 percent increase in
    funding for the ERE portfolio, from approximately $600 million to $1.6
    billion, within the context of a doubling of the total NSF budget over
    5 years. The doubling has not materialized. Nevertheless, if the
    Environmental Research and Education portfolio is one of NSF's highest
    priorities, then the growth rate of the ERE budget should not lag
    behind the growth rate of the total NSF budget.
        The National Science Foundation has taken many steps to implement
    the recommendations of the NSB. Full implementation of the NSB report
    will require strong support from Congress and a significant increase in
    funding for NSF's portfolio of environmental science, engineering and
    education.
        The National Council for Science and the Environment appreciates
    the subcommittee's sustained support for environmental research at the
    Environmental Protection Agency and the National Science Foundation.
    Investments in these agencies continue to pay enormous dividends to the
    Nation. Thank you very much for your interest in improving the
    scientific basis for environmental decision-making.
                                     ______

    Prepared Statement of the National Association of University Fisheries
                             and Wildlife Programs

        The National Association of University Fisheries and Wildlife
    Programs (NAUFWP) appreciates the opportunity to offer comments on the
    fiscal year 2005 budget for the National Science Foundation. NAUWFP is
    thankful for support that both the Congress and the administration
    demonstrated for the National Science Foundation (NSF) by enacting the
    National Science Foundation Authorization Act of 2002. The Act
    authorizes a 5-year period of 15 percent annual budget increases,
    placing NSF on a ``doubling track,'' which will enhance current and
    future U.S. scientific and technological advancements in science. The
    National Association of University Fisheries and Wildlife Programs
    urges Congress to act on its commitment by increasing fiscal year 2005
    funding for NSF 15 percent over the fiscal year 2004 enacted budget,
    for a total increase of $6.415 billion.
        Despite tough budget times, this kind of investment is critical.
    NSF is one of the Nation's best tools for promoting and advancing
    scientific research and education. Although NSF accounts for only 4
    percent of Federal Research and Development spending, it supports
    nearly 50 percent of the non-medical Biological Sciences research at
    our colleges and universities.

                              BIOLOGICAL SERVICES

        Within the Research and Related Activities (R&RA) account, the
    Biological Sciences Directorate is of particular interest to the
    wildlife conservation and research community. The Biological Sciences
    Activity (BIO) supports research, infrastructure, and education at U.S.
    academic institutions, including NAUFWP universities.
        BIO provides 65 percent of the support for basic research in non-
    medical aspects of the biological sciences at academic institutions.
    Because the majority of Federal support for the life sciences--over 85
    percent--goes to health-related research funded by the National
    Institute of Health, NSF's contribution to the broad array of the
    biological sciences is highly significant and strategically focused,
    particularly in such areas as environmental biology and plant sciences.
    In nationally important issues related to wildlife and wildlife
    habitat, BIO-supported research enhances the understanding of how
    living organisms function and interact with non-living systems.
        Current research includes a project investigating elk-wolf
    interactions in Yellowstone National Park. Results of the project will
    enhance knowledge of large mammalian systems and facilitate design of
    sound endangered species programs. Another BIO-supported research
    project involves modeling population density and foraging behavior of
    Brazilian free-tailed bats. Data from this project have shown that bats
    from two Texas caves provide pest control service for agricultural
    crops such as corn and cotton. The estimated value of protection
    afforded the crops by the bats amounts to as much as $258 million
    annually; thus conserving bat diversity and habitat is both
    biologically and economically beneficial.
        The President's budget proposal restricts the BIO program to an
    increase of approximately 2 percent. We recommend you provide the
    Biological Sciences account with an increase equal to the overall R&RA
    increase, which is 4.7 percent over the fiscal year 2004 enacted level.
    This would equal an increase of $27.58 million for Biological Sciences,
    for a total budget of $614.47 million in fiscal year 2005.

                                     TOOLS

        One of the NSF's strategic goals is to support investment in
    Tools--state-of-the art science and engineering facilities, tools, and
    other infrastructure that enable discovery, learning, and innovation.
    Funds dedicated to this account allow NSF to revitalize and upgrade
    aging infrastructure, and enable progress in research and education.
    NAUFWP supports the President's requested $58.3 million increase for
    the Major Research Equipment and Facilities Construction (MREFC),
    within the Tools account. Increased funding for MREFC will support
    ongoing projects and provide funding necessary to launch proposed
    projects.
        We urge you to support the President's request of $12 million in
    fiscal year 2005 for the National Ecological Observatory Network
    (NEON). NEON will be a continental-scale research instrument consisting
    of geographically distributed observatories, networked via state-of-
    the-art communications allowing scientists and engineers to conduct
    research spanning all levels of biological organization. NEON will
    provide researchers with important tools necessary to address
    ecological questions regarding habitat and wildlife conservation in the
    United States. Examples of research that could be addressed by NEON
    include: the spread of infectious diseases like West Nile Virus and the
    affect of western wildfires on water quality in the central or eastern
    United States.

      ABOUT THE NATIONAL ASSOCIATION OF UNIVERSITY FISHERIES AND WILDLIFE
                                    PROGRAMS

        The National Association of University Fisheries and Wildlife
    Programs represents approximately 55 university programs and their 440
    faculty members, scientists, and extension specialists, and over 9,200
    undergraduate and graduate students working to enhance the science and
    management of fisheries and wildlife resources. Our affiliates conduct
    research on a diversity of subjects, fulfilling the information needs
    of fish, wildlife, and natural resource management. Individual projects
    are used as building blocks in comprehensive research that provides
    applied science information for management.
        Please include this testimony in the official record. Thank you for
    the opportunity to share our views with the committee.
                                     ______

                  Prepared Statement of The Nature Conservancy

                          INTRODUCTION AND BACKGROUND

        Mr. Chairman and members of the subcommittee, I appreciate the
    opportunity to submit written testimony on behalf of The Nature
    Conservancy for fiscal year 2005 appropriations for the U.S.
    Environmental Protection Agency (EPA).
        The Nature Conservancy is an international, non-profit organization
    dedicated to the conservation of biological diversity. Our mission is
    to preserve the plants, animals and natural communities that represent
    the diversity of life on Earth by protecting the lands and waters they
    need to survive. The Conservancy has more than 1,000,000 individual
    members and 1,900 corporate associates. We have programs in all 50
    States and in 27 foreign countries. We have protected more than 15
    million acres in the United States and nearly 102 million acres with
    local partner organization globally. The Conservancy owns and manages
    about 1,400 preserves throughout the United States--the largest private
    system of nature sanctuaries in the world. Sound science and strong
    partnerships with public and private landowners to achieve tangible and
    lasting results characterize our conservation programs.
        Biological diversity is important for a number of reasons. Species
    and natural communities harbor genetic and chemical resources that
    contribute to advances and products in medicine, agriculture and
    industry. The value of these goods is enormous. It represents, however,
    only a fraction of the value these ecosystems provide to humanity in
    terms of services, such as waste assimilation and treatment, climate
    regulation, drinking water, and flood control. One estimate of the
    value of these services for the entire biosphere is $33 trillion, which
    is nearly double the global gross national product (Costanza et al
    1997). In addition to these benefits, the environment serves as an
    instrument through which educational, cultural, aesthetic and spiritual
    values are often expressed.
        In 2000, The Nature Conservancy and the Association for
    Biodiversity Information released a study documenting America's
    astonishing natural abundance. For example, we now know the United
    States is home to more than 200,000 native species of plants and
    animals and ranks at the top in its variety of mammals and freshwater
    fish. Ecosystems in the United States are also among the most diverse.
    They range from tundra, to deserts, prairies, and various forest types.
    However, as many as one-third of the Nation's species are at risk and
    at least 500 species have already gone extinct or are missing. The
    single biggest threat to species survival is loss of habitat, which
    generally occurs as a result of human activities. Almost 60 percent of
    America's landscape is already severely altered.
        Reversing the trend will require working at larger scales and
    across State and other jurisdictional lines. The Nature Conservancy is
    committed to this effort. For example, we have invested $1 billion in
    private funds over the last several years to protect critical natural
    areas around the United States and abroad, and we are committed to
    making similar investments over the next several years. These
    investments alone, however, will not be enough. True conservation
    success will be achieved only through the work of partners, including
    the Federal Government. Funding is needed at the Federal level to
    support on-the-ground conservation projects and to ensure policies that
    promote a sustainable environment.

                           SUMMARY OF RECOMMENDATIONS

        EPA is responsible for administering a number of programs that
    protect public health and the environment. The Nature Conservancy
    recommends level or modest funding increases for seven programs with
    which we have had direct experience and that we believe help preserve
    biodiversity. The seven programs include the following:

      THE NATURE CONSERVANCY'S FISCAL YEAR 2005 FUNDING RECOMMENDATIONS FOR
                              SELECTED EPA PROGRAMS
    ------------------------------------------------------------------------
                                          Fiscal Year 2005 Recommendations
               Program Name            -------------------------------------
                                           EPM Account        STAG Account
    ------------------------------------------------------------------------
    Clean Water Act State Revolving     .................     $1,350,000,000
     Fund (CWSRF).....................
    Coastal Watersheds and National       \1\ $50,000,000  .................
     Estuaries Program................
    Non-point Source Management                16,900,000        250,000,000
     Program (Section 319)............
    Targeted Watershed Program........         25,000,000  .................
    Wetlands Protection Program.......         18,000,000         18,000,000
    Chesapeake Bay Program............         22,000,000  .................
    Great Lakes National Program               17,000,000  .................
     Office...........................
    ------------------------------------------------------------------------
    \1\ Includes $35 million for National Estuaries Programs as authorized
      under the Estuaries and Clean Waters Act of 2000 and $15 million for
      other coastal activities.

        Implementation of these programs produces benefits to public
    health, the environment and, by extension, biodiversity conservation.
    For example, loans made under the CWSRF to establish or restore
    riparian corridors along streams (to address non-point pollution) will
    improve water quality, while also improving or providing important
    aquatic and terrestrial habitat. Section 319 funds can be used to
    produce a similar range of benefits.
        In general, these programs satisfy niches filled by no other
    Federal programs. For example, the Section 319 program, unlike Farm
    Bill programs, can be used to address non-point pollution from diverse
    sources such as urban runoff and leaking septic systems, not just
    pollution from agricultural sources. Its broader focus reaches more
    vulnerable habitats such as grassed swales that are important to
    grassland birds, which as a group are the most threatened in the United
    States.
        In general, the above programs are holistic and non-regulatory in
    approach. The geographically focused programs, in particular, enable
    multiple pollution problems to be addressed in an integrated rather
    than singular fashion, which makes them incredibly important to
    biodiversity conservation. They also provide opportunities for public
    and private parties to collaborate to achieve mutually beneficial
    goals.
        My remaining comments focus on two of the above programs: Coastal
    Watersheds and National Estuaries Program; and the Great Lakes National
    Program Office. Should the subcommittee request it, the Conservancy
    would be happy to provide documentation of the importance of the other
    programs not highlighted in my comments below.

               COASTAL WATERSHEDS AND NATIONAL ESTUARIES PROGRAM

        Through this program, the EPA provides funding to the 29 National
    Estuary Programs (NEPs) for development and implementation of
    Comprehensive Conservation and Management Plans (CCMPs). In addition,
    this program funds other activities benefiting coastal watersheds
    including partnerships to abate threats to coastal habitats and
    recreational waters. Key management issues addressed by the NEPs and
    other local coastal partnerships include habitat loss and degradation,
    introductions of pathogens and toxins that threaten human and aquatic
    health, invasive species, and freshwater inflows. This program also
    funds monitoring and permitting activities, such as dredging, and is
    examining how to curtail point source discharges into coastal waters.
        Coastal watersheds contribute to the Nation's economic,
    environmental, and social well being. They provide habitat for various
    life stages of important plant and animal species, including threatened
    and endangered species and those having commercial or recreational
    value. They also harbor species that filter pollutants from water,
    control sedimentation, and protect against shoreline damage and floods.
        Over half of the United States population lives within areas that
    affect coastal watersheds. Additional resources are needed to enable
    the NEPs and other partnerships to address the complex threats to
    coastal health, such as invasive species and nutrient pollution.
        Increased resources for this program will enable NEPs to implement
    their conservation plans. Additional funding will strengthen the EPA's
    ability to provide seed monies to other important local coastal
    watershed projects that heretofore have had few funding opportunities
    available to them. Financing of these latter projects could perhaps be
    provided through a competitive grants program to State, local, and non-
    governmental organizations. Additional funding could be used to expand
    coverage of the NEP to additional estuaries. Since 1991, 34 additional
    sites have either been nominated by a governor or have expressed
    interest in being designated as a NEP. EPA, however, has been able to
    select only seven nominees due to funding constraints. If the Nation is
    to make progress in addressing the significant management issues facing
    estuaries, additional funding is required for this program.
        The Nature Conservancy respectfully requests an appropriation of
    $50 million for Coastal Watersheds and National Estuaries Program,
    which includes the $35 million authorized level for the NEPs and an
    additional $15 million for other coastal activities. The
    administration's request for these two programs combined is $19.2
    million.

                                THE GREAT LAKES

        EPA's Great Lakes National Program Office (GLNPO) funds and
    conducts programs and projects to protect, maintain and restore the
    chemical, biological and physical integrity of the Great Lakes--the
    largest freshwater ecosystem on Earth. GLNPO serves an important role
    of bringing together Federal, State, tribal, non-governmental and
    industry partners in an integrated ecosystem approach.
        GLNPO collaborates with its multi-State and multi-agency partners
    to accomplish an agenda for ecosystem management which includes
    reducing toxic substances, protecting and restoring important habitats,
    and protecting human/ecosystem health. GLNPO combines research and
    monitoring with education and outreach, and it supports grants for
    specific activities to enhance and protect the Great Lakes environment.
    GLNPO advocates implementation of a community-based ecosystem approach
    to coordinate environmental efforts in the Great Lakes and has favored
    targeting the ecologically significant habitats identified in The
    Nature Conservancy-led Conservation Blueprint for the Great Lakes. Over
    the years, The Nature Conservancy's Great Lakes Program and Great Lakes
    State Chapters have been frequent and substantial partners with GLNPO.
        The Nature Conservancy recommends an appropriation of $17 million
    in base funding for EPA's Great Lakes National Program Office in fiscal
    year 2005. This request is $1.6 million higher than the
    administration's request of $15.4 million. The Conservancy also
    supports the $5.7 million included in the President's request for the
    Remedial Action Plans and Lakewide Management Plans.

                                    CLOSING

        Thank you for the opportunity to provide these brief comments and
    for your attention to the important role EPA's programs play in
    protecting public health and the environment and in conserving
    biodiversity. While the charge to conserve biodiversity is a daunting
    one, public and private partnerships such as those afforded under EPA's
    programs offer a promise of success. The Conservancy would not be
    investing so heavily with its own resources if we did not believe this
    to be true. We look forward to continuing our work with Federal
    agencies, State and local governments, non-governmental organizations,
    and the private sector to ensure the long-term protection and
    sustainable use of the environment toward the ultimate goal of
    preserving the diversity of life on Earth. We appreciate the
    subcommittee's support for the EPA programs that help make this
    important work possible.
                                     ______

     Prepared Statement of the University of Medicine and Dentistry of New
                                     Jersey

        The following is the testimony of the University of Medicine and
    Dentistry of New Jersey (UMDNJ), the largest freestanding public
    university of the health sciences in the Nation. The University is
    located on five State-wide campuses and contains three medical schools,
    and schools of dentistry, nursing, health related professions, public
    health and graduate biomedical sciences. UMDNJ also comprises a
    University-owned acute care hospital, three core teaching hospitals, an
    integrated behavioral health care delivery system, and affiliations
    with more than 200 health care and educational institutions State-wide.
        We appreciate the opportunity to bring to your attention two
    priority projects--the Child Health Institute and the Geriatric
    Research Center--which are consistent with the mission of this
    committee.
        Our first priority is the development of the Child Health Institute
    of New Jersey at the UMDNJ-Robert Wood Johnson Medical School (RWJMS)
    in New Brunswick. RWJMS is one of three schools of medicine at UMDNJ.
    It is nationally ranked among the top ten medical schools in the
    percentage of minority student enrollment, and the top one-third in
    terms of grant support per faculty member. RWJMS is home to major
    research institutes including The Cancer Institute of New Jersey, the
    Center for Advanced Biotechnology and Medicine, the Environmental and
    Occupational Health Sciences Institute, and the Child Health Institute
    of New Jersey.
        The Child Health Institute of New Jersey is a comprehensive
    biomedical research center. It will be the cornerstone institution of a
    major research and clinical effort to understand, prevent and treat
    environmental and genetic diseases of infants and children. Its
    development is integral to the enhancement of research at Robert Wood
    Johnson Medical School (RWJMS) in developmental genetics and biology,
    particularly as it relates to disorders that affect a child's
    development and growth, physically and functionally. The program will
    enable the medical school to expand and strengthen basic research
    efforts with clinical departments at the Robert Wood Johnson University
    Hospital (RWJUH) and, in particular, those involved with the new
    Bristol-Myers Squibb Children's Hospital at RWJUH, especially
    obstetrics, pediatrics, neurology, surgery and psychiatry.
        The Institute builds on existing significant strengths in genetic,
    environmental and neuroscience research within UMDNJ-RWJMS and
    associated joint programs with Rutgers University and other research
    institutes. For example, the Environmental and Occupational Health
    Sciences Institute (EOHSI) is a National Institute of Environmental
    Health Sciences (NIEHS) recognized center of excellence which
    investigates environmental influences on normal and disordered
    functions; the Cancer Institute of New Jersey (CINJ), a National Cancer
    Institute-designated Comprehensive Cancer Center, studies disordered
    cell growth; and the Center for Advanced Biotechnology and Medicine
    (CABM) characterizes gene structure and function.
        The best science requires creative scientists working in state of
    the art buildings using state of the art equipment. The construction of
    the Child Health Institute at RWJMS will fill a critical gap through
    recruitment of new faculty to build an intellectual atmosphere of basic
    molecular programs in child development and health.
        Research conducted by the Institute will focus on the molecular and
    genetic mechanisms that direct the development of human form,
    subsequent growth, and acquisition of function. The scientists and
    students will investigate disorders that occur during the process of
    development to determine how genes and the environment interact to
    cause childhood diseases. Ultimately, we hope to identify avenues of
    prevention, treatment, and even cures for these disorders.
        Investigations by the Institute will address basic and
    translational scientific issues at the molecular and mechanistic levels
    to advance biomedical science and improve health. For example, despite
    effective therapy, asthma-related health needs have risen by almost 50
    percent over the past decade with hospitalization rates 4 to 5 times
    higher for African Americans. Methods of prevention, with attention at
    both micro and macro-environmental conditions, have only been partially
    effective. Treatment regimens are relatively unchanged. Effective
    prevention and treatment will require more exacting understanding of
    the molecular mechanisms of the stimuli-receptor reactions that elicit
    asthmatic attacks as well as more detailed understanding of the
    molecular reactions effected by cells once stimulated by environmental
    factors. The molecular and cellular basis of injury reactions,
    including reactions of an allergic nature, will be a focus of the
    research at the Child Health Institute. Continued exploration of the
    basic molecular underpinnings of injury reactions will lead to more
    rational methods to prevent, minimize and treat asthmatic reactions and
    deaths. Urban academic medical centers such as the Robert Wood Johnson
    Medical School are at the epicenter of the current escalation in asthma
    and the Child Health Institute is well positioned, in conjunction with
    other institutes at the medical school to address this critical issue.
        The Child Health Institute will act as a magnet for additional
    growth in research and healthcare program development in New Jersey.
    The Institute will encompass 150,000 gross square feet and will house
    more than 40 research laboratories and associated support facilities.
    Fourteen senior faculty will direct teams of MDs and PhDs, visiting
    scientists, postdoctoral fellows, graduate students and technicians for
    a full complement of approximately 130 employees. The institutional
    goals of the Child Health Institute are to forge the scientific
    programs at the Institute with hospital based programs into a major
    center for children's health and to partner with pharmaceutical,
    chemical and information industries in growing opportunities in
    biotechnology and bioinformatics.
        Construction costs for the Institute are estimated to be
    approximately $72 million; approximately half of this figure is
    generally associated with local employment. At maturity, the Institute
    is expected to attract $7 to $9 million of new research funding
    annually. The Institute's total annual operating budget is projected to
    be $10 to $12 million, with total economic impact on the New Brunswick
    area projected to be many times this amount.
        The Child Health Institute has assembled over $40 million to fund
    its building and programs through a strong partnership among private,
    corporate and government entities. This support includes more than $6
    million in congressionally directed appropriations for the CHI over the
    past 4 years, including an appropriation from this committee in fiscal
    year 2003; and a $1.9 million facility grant awarded by the National
    Center for Research Resources of the National Institutes of Health. We
    respectfully seek $2 million to complement support already received in
    Federal participation to further advance the development of the Child
    Health Institute of New Jersey. A critical component of the research
    infrastructure being developed within the Child Health Institute is an
    Imaging Core Facility. Through this facility, researchers will be able
    to better visualize the dynamics of structures within cells and cells
    within developing tissues. Understanding these dynamics is crucial to
    expanding knowledge of the processes involved in basic molecular
    underpinnings of normal and abnormal growth and injury reactions.
    Requested funding will be utilized for the purchase of analytical
    equipment, including laser scanning and multi-photon microscopes to
    fit-out this shared facility.
        Our second priority is the development of a Geriatric Research
    Center within the Center for Aging, which is part of the UMDNJ-School
    of Osteopathic Medicine (SOM) in Stratford in southern New Jersey. As
    an osteopathic medical school, SOM places great emphasis on primary
    care, wellness, health promotion and disease prevention in all areas of
    its Mission. Enrolled students receive comprehensive instruction in the
    basic and clinical sciences, emphasizing the primary care of the
    patient. SOM also sponsors the largest graduate medical education
    program of all osteopathic medical schools in the Nation. An active
    continuing medical education program targets primary care physicians in
    the southern region of New Jersey. SOM's longstanding affiliation with
    the Area Health Education Centers provides links to hundreds of
    community-based agencies and health care providers, with whom the
    school works in partnership to address community health care needs and
    policy issues. For more than a decade the school has finished among the
    top three osteopathic schools in the Nation for research funds received
    from the National Institutes of Health.
        In response to the growing number of elderly in New Jersey,
    including nearly 300,000 veterans living in the State over age 65, SOM
    has taken a leadership role in the development of programs and services
    specifically for older individuals. These activities are coordinated
    through the SOM Center for Aging, which was established in 1987 and
    designated as a center of excellence in clinical services, education
    and research in 1989.
        The Center, whose staff represents multiple disciplines, is
    nationally recognized as a leader in quality care for older
    individuals, providing an array of services, varied educational
    experiences for health care professionals and research in the field of
    aging.
        Through a comprehensive continuum of care which includes ambulatory
    sites, acute care, nursing homes, assisted living facilities, hospice
    programs, home care, adult medical day care, and senior citizen
    subsidized housing, the Center for Aging provides health care to both
    well community-residing elderly as well as those who are frail,
    multiply compromised and homebound.
        Recognized for its strength in education and training, the Center
    for Aging and SOM has attained both State-wide and national prominence.
    In 1989 UMDNJ-SOM was the first osteopathic medical school to receive
    Federal funding for a 2-year geriatric medicine and dentistry
    fellowship program. Currently in its 14th year of Federal support, the
    fellowship program has been expanded to include psychiatry and
    psychology. The UMDNJ-School of Osteopathic Medicine, through the
    Center of Aging, was ranked in the top ten best graduate schools in
    geriatric medicine for 2004 in U.S. News and World Report. It was also
    recognized as ``Best Medicine'' in geriatrics for 2004 by Philadelphia
    Magazine. The Center for Aging also serves as the administering agency
    for the State-wide New Jersey Geriatric Education Center (NJGEC), which
    has been federally funded since 1990 and has received Federal
    recognition for its health promotion initiatives. NJGEC has provided
    training to more than 15,000 healthcare professionals of multiple
    disciplines throughout New Jersey.
        As a center of excellence, the Center for Aging continues to build
    its research component. The Center is involved in many clinical drug
    trials and has several clinical and behavioral research projects
    underway. It is in a position to build an extensive patient database
    across its service continuum, and to collaborate with the other schools
    within the UMDNJ system in aging-related research.
        Attracting more researchers to the Center is critical to achieving
    national prominence as a center for excellence in geriatrics. A major
    drawback to that goal is the lack of dedicated space to expand the
    Center's research laboratories.
        The UMDNJ-School of Osteopathic Medicine is seeking $5 million in
    capital and program funds to support dedicated space and faculty for a
    Geriatric Research Center within the Center for Aging. Total project
    costs are estimated at $30 million for capital and program needs.
    External public and private sources, including the U.S. Department of
    Health and Human Services, Health Resources and Service Administration;
    the Administration on Aging; and the State of New Jersey; have
    contributed over $6 million toward activities associated with this
    project.
        Requested fiscal year 2005 funding would provide support for the
    construction of the physical space to house research programs focusing
    on the cellular, biochemical and psychological aspects of aging. Basic
    science research will build on existing programs in nutrition, protein
    loss, free radical injury, genetic determinants of aging and disease,
    the cellular aging process and Alzheimer's disease. Space would also be
    allocated to support behavioral research, where researchers in the
    biopsychosocial aspects of aging will study such areas as caregiver
    stress, mental health problems in the elderly, end of life issues,
    palliative care, and behavioral management intervention strategies.
        The Center's clinical and educational programs will provide the
    synergy needed for the development of a full range of basic science and
    behavioral research in the field of aging. The strength of this dual
    approach underscores the close relationship between the physiological
    and psychological aspects of growing old and will broaden opportunities
    to seek extramural funding for research in a variety of areas. Of key
    importance will be the role of the Center in translating research
    findings into patient care practices, thereby enhancing the health and
    quality of life of older Americans, including those most vulnerable and
    at greatest risk for poor health across our State and Nation. We
    respectfully seek $5 million in capital and program funds to support
    dedicated space for a Geriatric Research Center.
        We want to thank this committee for supporting the critical needs
    of research and economic development throughout the Nation, and for
    recognizing the role that medicine and its associated technologies
    contribute as engines for economic growth. Thank you for your
    consideration of UMDNJ's priority projects--the Child Health Institute
    of New Jersey, and the Geriatric Research Center.
                                     ______

               Prepared Statement of the Alliance to Save Energy

        My name is Kateri Callahan and I serve as the President of the
    Alliance to Save Energy, a bipartisan, nonprofit coalition of more than
    80 business, government, environmental, and consumer leaders. The
    Alliance's mission is to promote energy efficiency worldwide to achieve
    a healthier economy, a cleaner environment, and greater energy
    security. The Alliance, founded by then-Senators Charles Percy and
    Hubert Humphrey, currently enjoys the leadership of Senator Byron
    Dorgan as Chairman; former CEO of Osram Sylvania Dean Langford as Co-
    Chairman; and Representative Ed Markey and Senators Susan Collins, Jeff
    Bingaman, and Jim Jeffords as its Vice-Chairs. Attached are lists of
    the Alliance's Board of Directors and its Associate members, which I
    respectfully request be included in the record as part of this
    testimony.
        I thank the subcommittee for the opportunity to testify on behalf
    of the members and Board of the Alliance to voice our strong support
    for increased Federal funding to the Environmental Protection Agency's
    Energy Star program in fiscal year 2005. The Energy Star program is, in
    our opinion, one of the government's most successful efforts to promote
    marketplace solutions to greater energy efficiency. The Energy Star
    program is an entirely voluntary program that is yielding significant
    economic returns to our Nation's consumers and significant
    environmental benefits to our Nation as a whole. Increased investment
    in the Energy Star program will translate to increased energy savings
    by taxpayers across the country. Studies estimate that every Federal
    dollar spent on the Energy Star program results in an average savings
    of $75 or more in consumer energy bills; the reduction of about 3.7
    tons of carbon dioxide emissions; and an investment of $15 in private
    sector capital in development of energy-efficient technologies and
    products.
        The Alliance has a long history of advocacy, as well as research
    and evaluation, of Federal efforts to promote energy efficiency.
    Congress has enacted important measures, and the administration has
    adopted meaningful regulations and standards that are yielding energy
    savings through energy efficiency; the Energy Star program is of
    particular note, however, as it testifies to the important achievements
    that can be made through cooperative partnerships between government
    and businesses. The Climate Protection Division at EPA, which operates
    the Energy Star program, works closely with manufacturers, retailers,
    building owners, and energy service providers, as well as State and
    local governments, nonprofits, and other organizations to promote
    energy-efficient products and buildings. As you may know, through the
    Energy Star program a set of rigorous guidelines that represent high
    energy efficiency goals are established for the products or services of
    the participants in order to qualify for the Energy Star label. The
    label is, quite simply, the ``good housekeeping seal of approval.''
    Through this important and impressive program, business and
    government--working in lockstep--are achieving national environmental,
    energy security, and economic goals.
        Energy efficiency is an investment. By purchasing more efficient,
    smarter technologies, there is often a modest additional cost, but that
    additional cost is paid back many times to the consumer through lower
    energy bills. Energy Star helps consumers understand and realize these
    benefits. Last year alone, Americans, with the help of Energy Star,
    saved $9 billion on their energy bills. Consumers can use these
    significant savings to invest in the economy, their families, and their
    future.
            energy efficiency is america's greatest energy resource
        Mr. Chairman, energy efficiency is America's greatest energy
    resource. It makes a larger contribution to meeting our energy needs
    than petroleum, natural gas, or even coal. The Alliance to Save Energy
    estimates that energy efficiency gains since 1973 are now saving at
    least 39 quadrillion BTUs of energy each year, or about 40 percent of
    our actual energy use.\1\ The energy savings we are enjoying from
    energy efficiency far exceed consumption of natural gas or coal, and
    far outpace energy produced using oil, nuclear, and other sources.
    ---------------------------------------------------------------------------
        \1\ Energy efficiency savings estimated by Alliance to Save Energy.
    Production quantities from Energy Information Administration, Monthly
    Energy Review, January 2004.

        Every BTU we save is one less BTU that needs to be generated.
    What's more, increasing America's energy efficiency is the quickest,
    cleanest, and cheapest way of increasing our energy supply. Without
    these enormous savings, our difficulties in meeting energy demand would
    be far, far worse than they are today.
        For example, in 2003, Energy Star helped Americans save enough
    energy to power 20 million homes and avoid greenhouse gas emissions
    equivalent to removing 18 million cars from the road. Getting more for
    less is the American way, and Energy Star meets this goal by helping
    millions of Americans get the energy they need, while saving money and
    pollution.
        Despite the introduction of new technologies and the integration of
    energy efficiency into the Nation's energy policies and economy, we
    barely have scratched the surface of energy efficiency's potential. It
    seems that every year technological developments bring more and better
    measures for reducing electricity demand and for making homes,
    buildings, and the devices we use, from washing machines to computers,
    more energy-efficient. Mr. Chairman, Energy Star is an important tool
    for educating American consumers about these emerging, efficient
    products. Consumers are learning to ``look for the Energy Star label''
    as they comparison shop for appliances, homes, electronic devices, and
    other products.
                  how energy star capitalizes on this resource
        Mr. Chairman, EPA's Energy Star program has proven to be an
    extremely effective way for this Nation to capitalize on the potential
    of energy efficiency as a resource. Energy Star's voluntary partnership
    program--which includes Energy Star Buildings, Energy Star Homes,
    Energy Star Small Business, and Energy Star Labeled Products--works by
    removing marketplace barriers to existing and emerging technologies; by
    providing information on technology opportunities; by generating
    awareness of energy-efficient products and services; and by educating
    consumers about life-cycle energy savings. Consumers know that a
    product with the Energy Star label is among the most energy-efficient
    in the market.
        Last year, the Alliance to Save Energy undertook an extensive
    public opinion survey and found that the name recognition of the Energy
    Star program is very high--86 percent among U.S. homeowners.
    Approximately one-third of U.S. consumers report using the Energy Star
    label as an information tool for making purchase decisions; and an even
    higher number report using Energy Star as an information tool to help
    them save energy. Most consumers who are aware of the Energy Star label
    correctly understand that products bearing the Energy Star label use
    less energy and can save them money on energy bills.
        Mr. Chairman, as you may be aware, your State of New York has a
    program to promote, actively, the Energy Star label with consumers.
    This effort has yielded very positive results. Our research indicates
    that New York residents are significantly more likely to have purchased
    an Energy Star labeled product than consumers outside the State. New
    York's efforts are an impressive example of how, by using the Energy
    Star label, government can reduce overall energy use while at the same
    time assuring lower utility bills for constituents.

                       ABOUT THE ENERGY STAR PARTNERSHIPS

        Energy Star is composed entirely of voluntary partnerships, and
    these have grown since the early 1990's to include thousands of product
    manufacturers, private and public building owners and operators,
    homebuilders, small businesses, utilities, and retailers. The sheer
    number of these partnerships demonstrates clearly that energy
    efficiency delivers ``pollution prevention at a profit.''
        Energy Star serves broad constituencies in every State in the
    country. Energy Star includes over 1,250 manufacturing partners who
    make and market over 18,000 different models of Energy Star qualifying
    products. Energy Star assists over 8,000 small businesses with their
    efforts to maximize the energy efficiency of their facilities. Energy
    Star counts more than 3,000 builder partners and partners who supply
    products and services for energy-efficient home construction. To date,
    more than 100,000 Energy Star Homes have been built--locking in
    financial savings for homeowners of more than $26 million annually.
    Energy Star includes more than 12,000 commercial and industrial
    participants representing more than 15 percent of the Nation's total
    commercial, public, and industrial markets and estimated savings of
    more than 47 billion kilowatt hours of energy.
        As you may know, for the last 4 years, the Alliance has asked many
    of Energy Star's supporters to join us in our request for a significant
    increase in funding for the program. The response has been remarkable.
    Joining us in our request are 575 companies and partners of the Energy
    Star program as well as 2,850 individuals from around the country.
    Attached please find a copy of this letter with the names and addresses
    of the supporters for the record.

        MUCH HAS BEEN ACCOMPLISHED, BUT HUGE POTENTIAL REMAINS UNTAPPED

        The Energy Star program has made a significant contribution to
    reducing consumer energy use, but a wide array of important, additional
    opportunities to use the program to promote energy remain untapped.
    Energy Star is a success, poised to provide more savings and enhanced
    environmental protection as soon as the government is ready and able to
    invest more.
        In 2001, the President's National Energy Plan recommended that the
    Energy Star program be expanded and that the Energy Star labeling
    program be extended to cover more products. For the past 3 years, the
    energy bills that have passed the House and Senate have authorized or
    expanded the Energy Star program. And, time and again, the President
    and the Administrator of the EPA have noted that voluntary measures are
    vital to addressing climate change and have held up Energy Star as an
    exemplary program. Notwithstanding these pronouncements of support, for
    the fourth year in a row, the administration has recommended virtually
    level funding for the Energy Star program in fiscal year 2005. In
    addition, over the past several years, the program has been subjected
    to funding rescissions and internal cuts. Yet, even in the face of
    these tight Federal budgets, the number of products and manufacturers
    in the labeling program has greatly expanded, and the number of
    partners in the Buildings, Homes, and Small Business programs has
    soared.
        Mr. Chairman, considering the growing energy prices around the
    country and the concerns about electricity reliability and pollution
    abatement, the Alliance believes that the Energy Star program should
    not only be significantly increased for fiscal year 2005, but that the
    subcommittee also should commit to doubling funding for the program
    over the next 5 years. This would enable the Energy Star program to
    look not only at additional products, but also to address whole-home
    retrofits, including insulation, duct sealing, and home envelope
    sealing. Energy Star has additional market barriers to break through,
    including building homeowner trust in energy-efficient home
    improvements and audit programs. By building on the Energy Star name,
    we can save much more energy.
        In addition to labeling products and buildings, Energy Star has
    begun a successful effort working with State and local organizations to
    help homeowners audit and upgrade the efficiency of their homes. Home
    Performance with Energy Star has been successful in New York,
    Wisconsin, and California. For example, in New York, as of January of
    this year, 4,000 energy upgrades had been completed at a pace of some
    300 homes/month. On average these upgrades save each homeowner some 600
    kWh per year. But much more needs to be done to implement similar
    programs across the country. With additional funding, the Energy Star
    program could develop a supportive infrastructure for contractors
    around the country, share information with interested State
    organizations, and develop marketing efforts in up to 10 metropolitan
    areas per year.

                                RECOMMENDATIONS

        Mr. Chairman, EPA's Energy Star program has clearly demonstrated
    its importance to allowing the United States to capitalize on its
    greatest energy ``resource''--energy efficiency. The program is
    delivering real progress toward meeting our country's environmental and
    energy security goals, while at the same time putting more money in
    consumers' pockets through reduced energy bills. That's a win-win-win-
    win--on four important national fronts. More investment by the Federal
    Government, we believe, would simply expand and increase the benefits
    now being enjoyed by the country and its citizens through this
    important, voluntary partnership between the government and industry.
        The Alliance to Save Energy respectfully recommends the
    subcommittee take the following actions to best leverage the proven
    results that stem from EPA's Energy Star program:
      --First, we ask that the Congress, as it did in fiscal year 2004,
            specify the exact level of Federal funding that is appropriated
            for the Energy Star program. Such direction to EPA will help to
            assure that funding intended by Congress for the program is
            used by the agency for that purpose.
      --Second, we recommend that the Congress increase funding of the
            Energy Star program by $10 million over the administration's
            proposal to expand the number of products, programs, and
            partners involved in the current program. As mentioned earlier
            in the testimony, we believe Congress should double the budget
            for the Energy Star program within 5 years; this can be
            accomplished by adding $10 million per annum over the next 5
            fiscal years.
      --Third, we ask Congress to consider an expansion of the Energy Star
            program to include a ``Home Performance'' component. This new
            component that would bring together the Federal Government
            (EPA, along with the Departments of Energy and Housing and
            Urban Development), the private sector, and State-level
            organizations to extend the Energy Star brand into whole-house
            improvements. Home Performance pilot projects in this area have
            been undertaken successfully in New York, Illinois, and
            Wisconsin. The Alliance believes that the Federal Government
            needs to take leadership in this area to assure that the energy
            efficiency benefits being realized in pilot projects today can
            be translated into a nationwide, whole-home energy savings
            program.

                                   CONCLUSION

        The Energy Star program proves that environmental protection can be
    achieved while simultaneously saving consumers money on their energy
    bills and enhancing the economy. Energy Star provides the catalyst for
    many businesses, State and local government institutions, and consumers
    to invest in energy efficiency, which in turn yields multiple private
    and public benefits. It does this by providing access to information,
    improving brand recognition, and reporting positive publicity.
        While there are many demands on the country's financial resources,
    Energy Star has proven tremendously cost-effective and, more
    importantly, it returns important benefits to the Nation. Every Federal
    dollar invested in Energy Star in fiscal year 2005 will return a
    significant yield in cost-effective pollution reduction; economic
    stimulation through investment in new technology; energy security
    through reduced demand; and consumer savings through lower energy
    bills. It is a program deserving of both expansion and greater Federal
    investment.
        Mr. Chairman and members of the subcommittee, on behalf of the
    Alliance to Save Energy, its Board and its Associates, I appreciate
    this opportunity to appear before you today.
                                     ______

         Prepared Statement of the U.S. Conference of Mayors, National
    Association of Counties, National Association of Local Housing Finance
            Agencies, and National Community Development Association

        Mr. Chairman and members of the subcommittee, this testimony is
    presented on behalf of the U.S. Conference of Mayors, the National
    Association of Counties, the National Community Development
    Association, and the National Association of Local Housing Finance
    Agencies. We appreciate the opportunity to present our views on fiscal
    year 2005 appropriations for the Department of Housing and Urban
    Development, and in particular, the two priority programs for local
    governments--the Community Development Block Grant (CDBG) and the Home
    Investment Partnerships program (HOME).
        We thank you, Mr. Chairman and members of the subcommittee for your
    continuing support for these priority local government programs. Local
    government officials urge you to increase CDBG formula funding in
    fiscal year 2004 to $5 billion and HOME formula funding to $2.25
    billion. These programs work, they make a real difference in people's
    lives, and it is our sincere hope that they will be funded at levels
    that reflect the very real community development and affordable housing
    needs that exist across our country.

                  WHY CDBG IS EFFECTIVE AND CRITICALLY NEEDED

        Now in its 30th year, having been signed into law by President
    Gerald Ford in 1974, CDBG is working in communities across the country.
    The key to its success is the inherent flexibility for it to adapt to
    affordable housing and neighborhood revitalization needs in our
    Nation's urban, suburban and rural areas.
        In fiscal year 2003 alone, 94.8 percent of the CDBG funds allocated
    to entitlement cities and counties went to activities principally
    benefitting low- and moderate-income persons and 96.7 percent of the
    CDBG funds allocated to States went to activities principally
    benefitting low- and moderate-income persons. A total of 184,611
    households were assisted through the program in fiscal year 2003. The
    program created or retained an astounding 108,700 jobs. For every $1 of
    CDBG funding another $2.79 in private funding and $0.77 in public
    funding was leveraged in fiscal year 2003. The program has a good track
    record in business retention, with over 80 percent of the businesses
    assisted through the program still in operation after 3 years. Even
    though the program has performed well the annual formula allocation for
    CDBG has remained relatively static over the last decade, even
    decreasing slightly in the past 2 years. The program has never been
    adjusted for inflation, since its enactment in 1974. With the existing
    cuts to the program, continued project-specific set-asides in the
    program, inflation, and more entitlement communities receiving funds,
    the formula allocation is decreasing nationwide for cities and counties
    that administer the program. In the last 2 years, an across-the-board
    reduction in Federal programs has reduced the program even further.
        We, therefore, urge you to fund the CDBG program in fiscal year
    2005 at a level of at least $5 billion in formula grants.
        Mr. Chairman, we are concerned and take strong exception to the
    Office of Management and Budget's characterization of the Community
    Development Block Grant (CDBG) Program as ``ineffective'', as stated in
    the administration's fiscal year 2005 budget request. OMB reached this
    conclusion through application of its Performance Assessment Rating
    Tool (PART). In the PART review of the CDBG program, it appears that
    OMB chooses to interpret the statute and facts in order to support a
    dogmatic agenda and avoids acknowledgment of any positive achievements
    from the more than $105 billion in CDBG funds spent by cities, counties
    and States since 1975 on their most pressing affordable housing,
    community and economic development needs over the 30 years of the
    program. We urge you to reject it out of hand.

                  HOME INVESTMENT PARTNERSHIPS (HOME) PROGRAM

        The HOME Investment Partnerships (HOME) Program is also an
    effective block grant program with a very impressive track record of
    providing rental housing and homeownership opportunities to low- and
    moderate-income households. According to cumulative HUD data, the
    program has helped to develop or rehabilitate over 785,553 affordable
    housing units. The majority of HOME funds have been committed to
    housing that will be occupied by very low-income people and a
    substantial amount will assist families with incomes no greater than 30
    percent of median. As of the end of February 2004, more than 81 percent
    of HOME assisted rental housing was benefitting families at or below 50
    percent of area median income. And more than 56 percent of all HOME
    assisted rental housing (including tenant-based rental assistance) was
    helping families with incomes at or below 30 percent of area median
    income.
        HOME funds also help low- and very low-income families realize the
    dream of homeownership by providing for construction and rehabilitation
    of housing as well as providing the down payment and or closing cost
    assistance. As of February 2004, the program has assisted 296,197
    families in becoming first-time homebuyers. HOME fund also allows
    existing low- and moderate-income persons to stay in their homes by
    providing rehabilitation assistance. Since 1992, HOME funds have been
    used to rehabilitate 151,920 existing homeowner units.
        Moreover, HOME is cost effective and provides the gap financing
    necessary to attract private loans and investments to projects. For
    each HOME dollar, $3.01 of private and other funds has been leveraged
    since the program's inception. This clearly illustrates the effective
    and judicious use of HOME funds by participating jurisdictions.
        We, therefore, urge you to fund the HOME program in fiscal year
    2005 at a level of at least $2.25 billion in formula grants. In
    addition, we support $200 million in funding for the American Dream
    Downpayment Initiative, which was enacted by Congress last session and
    which is administered by HOME participating jurisdictions.
    Unfortunately, Congress did not provide an administrative fee for
    jurisdictions to operate the program. We urge Congress to provide an
    administrative fee of 10 percent for the program in fiscal year 2005.

                                 HOMEOWNERSHIP

        We applaud the administration's efforts to promote homeownership
    for low-income families. Homeownership provides citizens with a stake
    in their communities, and increases the stability and vitality of
    neighborhoods. As representatives of local elected officials and
    practitioners, we support the concepts of providing housing counseling
    for new and prospective homeowners, as well as a homeownership tax
    credit that would help offset the costs of developing more affordable
    housing. These same concepts may also provide opportunities to
    revitalize distressed communities and increase our members' ability to
    leverage public dollars with private resources.

                          SECTION 108 AND BROWNFIELDS

        We have serious concerns about the administration's decision to
    zero out several important economic development tools in the fiscal
    year 2005 budget proposal, including the Section 108 loan guarantee
    program and the Brownfields Economic Development Initiative (BEDI)
    program. These programs fund much-needed investment in our communities,
    helping to create jobs and reclaim contaminated sites that can be made
    productive again. The Section 108 program provides communities with a
    source of financing for economic development, housing rehabilitation,
    public facilities, and large-scale physical development projects. We
    are seeking at least $7.325 million in credit subsidy funding for
    Section 108, the same level approved for the program in fiscal year
    2004. We are seeking $50 million for BEDI in fiscal year 2005 and ask
    Congress to de-couple the BEDI program from Section 108 so that
    communities can compete for BEDI funds without having to first secure a
    Section 108 loan guarantee.

                            HOMELESS HOUSING FUNDING

        Mr. Chairman, we support a funding level of $1.27 billion for
    homeless housing programs as proposed by the Bush Administration. We
    support legislation that would convert the McKinney Act's homeless
    housing programs into a pure, formula-driven block grant program, like
    the CDBG and HOME block grant programs. In order for such a program to
    give sufficient funds to communities to carry out meaningful projects
    at the local level, it needs an appropriation close to $1.3 billion. We
    support the existing Continuum of Care planning process and would
    recommend that this process be codified as part of the block grant. We
    also urge full funding of the Shelter Plus Care contract renewals. We
    also support the administration's proposed $50 million Samaritan
    Initiative. This initiative is intended to address the most pressing
    homeless issue--chronic homelessness--and is to be a coordinated effort
    with the Department of Health and Human Services and the Veterans
    Affairs and the Interagency Council on Homelessness.

                                   SECTION 8

        Mr. Chairman, we commend the subcommittee and the Congress for
    fully funding all expiring tenant-based and project-based rent subsidy
    contracts in fiscal year 2004. We urge Congress to do the same this
    year. The need for affordable housing continues to grow as housing
    prices increase faster than wages for low-income Americans.
        We oppose the administration's cut in the Section 8 voucher
    program. The budget request falls short by $1.6 billion needed to fully
    fund all vouchers now in use. Approximately 250,000 low-income families
    could lose their vouchers. An analysis by the Low Income Housing
    Coalition of the American Housing Survey revealed that 31 percent of
    all households had housing problems in 2001. A reduced voucher program
    would surely add to the critical need for low-income housing
    assistance.
        We are also concerned about the administration's proposed Flexible
    Voucher Program. While we agree that revisions are needed to the
    Section 8 program so as to reduce and contain program costs that could
    threaten other housing and community development programs, we are
    opposed to the elimination of long-standing rules that benefit low
    income families. Moreover, it is difficult to believe that a lump sum
    of funds to PHAs would be adequate to serve all vouchers holders.

                                    HOPE VI

        Once again the President's budget proposes to zero out the HOPE VI
    program. We oppose this recommendation. The HOPE VI program eliminates
    distressed public housing and replaces it with mixed-income
    developments. It harnesses the private sector, working in partnership
    with public housing agencies. This 10-year-old grant program has
    generated billions of dollars in community investment and revitalized
    neighborhoods over the Nation. Since 1993, $5.6 billion has been
    awarded to revitalize 193 public housing developments which have
    leveraged an additional $9 billion in investments.

                             LEAD HAZARD REDUCTION

        We thank Congress for continuing to provide funding for lead hazard
    reduction. We ask that the Lead Hazard Reduction Demonstration Program
    be funded in fiscal year 2005 at $50 million, the approximate level as
    fiscal year 2004. This small program provides needed assistance to
    local governments in eradicating lead hazards from low-income housing
    units.

                                   CONCLUSION

        Mr. Chairman, local government officials believe that a strong
    Federal role in housing and community development programs must
    continue. Since the Housing Act of 1937, Congress has enunciated, and
    repeated in subsequent housing acts, that, as a matter of national
    policy, the Federal Government has an obligation to assist States and
    local governments in providing decent, safe and sanitary housing for
    lower income households. Perhaps, Congress said it best in a
    ``Declaration of National Housing Policy'' included in Section 2 of the
    Housing Act of 1949:

        ``The Congress hereby declares that the general welfare and
    security of the nation, and the health and living standards of its
    people, require housing production and related community development
    sufficient to remedy the serious housing shortage, the elimination of
    substandard and other inadequate housing through the clearance of slums
    and blighted areas, and the realization as soon as feasible, of the
    goal of a decent home and suitable living environment for every
    American family.''

        We submit to you that, while progress has been made toward this
    goal, it has not been fully achieved. The Federal Government must
    continue its commitment to this National Housing Policy, backed by the
    necessary resources with which to continue the battle against
    neighborhood deterioration and a decaying housing stock.
        Mr. Chairman, we look forward to working with you and the
    subcommittee in adequately funding HUD's housing and community
    development programs for fiscal year 2005.
        Thank you.
                                     ______

          Prepared Statement of the American Public Power Association

        The American Public Power Association (APPA) is the national
    service organization representing the interests of over 2,000 municipal
    and State-owned utilities in 49 of the 50 States (all but Hawaii).
    Collectively, public power utilities deliver electricity to 1 of every
    7 electric consumers (approximately 40 million people), serving some of
    the Nation's largest cities. However, the vast majority of APPA's
    members serve communities with populations of 10,000 people or less.
        We appreciate the opportunity to submit this statement outlining
    our fiscal year 2005 funding priorities within the VA-HUD
    Subcommittee's jurisdiction.

             ENVIRONMENTAL PROTECTION AGENCY: ENERGY STAR PROGRAMS

        Energy Star is a voluntary partnership program pairing EPA with
    businesses and consumers nationwide to enhance investment in
    underutilized technologies and practices that increase energy
    efficiency while at the same time reducing emissions of criteria
    pollutants and greenhouse gases. In particular, APPA member systems
    across the country have been active participants in a subset of the
    Energy Star program called ``Green Lights.'' The Green Lights program
    encourages the use of energy efficient lighting to reduce energy costs,
    increase productivity, promote customer retention and protect the
    environment.
        According to the EPA, Energy Star is saving businesses,
    organizations, and consumers more than $9 billion a year, and has been
    instrumental in the more widespread use technological innovations like
    LED traffic lights, efficient fluorescent lighting, power management
    systems for office equipment, and low standby energy use.
        Because this program has such broad benefits, APPA urges the
    subcommittee to consider a substantial increase above the
    administration's request of $16.1 million for fiscal year 2005.

       ENVIRONMENTAL PROTECTION AGENCY: LANDFILL METHANE OUTREACH PROGRAM

        The Landfill Methane Outreach Program (LMOP) helps to partner
    utilities, energy organizations, States, tribes, the landfill gas
    industry and trade associations to promote the recovery and use of
    landfill gas as an energy source. According to the EPA, LMOP has more
    than 345 organizations that have signed voluntary agreements to work
    with EPA to develop cost-effective landfill gas (LFG) projects,
    including every major LFG project development company. The program has
    also developed detailed profiles for over 1,300 candidate landfills in
    31 States, and has data for more landfills in all States.
        Landfill gas is created when organic waste in a landfill
    decomposes. This gas consists of about 50 percent methane and about 50
    percent carbon dioxide. Landfill gas can be captured, converted, and
    used as an energy source rather than being released into the atmosphere
    as a potent greenhouse gas. Converting landfill gas to energy offsets
    the need for non-renewable resources such as coal and oil, and thereby
    helps to diversify utilities' fuel portfolios and to reduce emissions
    of air pollutants from conventional fuel sources.
        As units of local and State governments, APPA's member utilities
    are uniquely poised to embark on landfill-gas-to-energy projects. EPA's
    LMOP facilitates this process by providing technical support and access
    to invaluable partnerships to our members and the communities they
    serve.
        APPA appreciates the administration's request of $2.6 million for
    fiscal year 2005 as it reflects a small increase from the fiscal year
    2004 budget request and mirrors the fiscal year 2004 allocation by
    Congress. We would urge the subcommittee to again consider an
    allocation for this program over and above the administration's request
    given the ``bang for the buck'' that LMOP initiatives have facilitated.

                        COUNCIL ON ENVIRONMENTAL QUALITY

        APPA supports the administration's request of $3.284 million for
    fiscal year 2005 for the White House's Council on Environmental Quality
    (CEQ). Public power utilities have experienced a general lack of
    consistency in Federal Government regulation, particularly involving
    environmental issues. While additional layers of government should be
    avoided, a central overseer can perform a valuable function in
    preventing duplicative, unnecessary and inconsistent regulation. CEQ is
    responsible for ensuring that Federal agencies perform their tasks in
    an efficient and coordinated manner.
        Again, we appreciate your consideration of our priorities for the
    VA-HUD Subcommittee's fiscal year 2005 appropriations.
                                     ______

         Prepared Statement of the American Society of Plant Biologists

        Thank you, Mr. Chairman for this opportunity to submit testimony on
    behalf of the American Society of Plant Biologists (ASPB). My name is
    Mary Lou Guerinot. I am President of ASPB and professor at Dartmouth
    College, Biological Science Department.
        Founded in 1924, ASPB represents nearly 6,000 plant scientists. The
    largest segment of ASPB members conducts research at universities in
    each of the 50 States. ASPB membership also includes scientists at
    government and commercial laboratories.
        The National Science Foundation (NSF) funds research in new
    frontiers of scientific inquiry and contributes to creating a highly
    skilled workforce. The fundamental breakthroughs that have led to new
    technologies including biotechnology, nanotechnology and information
    technology led to new industries for America's economy and workers.
        Support by the subcommittee for fundamental research supported by
    the National Science Foundation and its Directorate for Biological
    Sciences leads to discoveries that benefit society, the economy and the
    environment. Fundamental plant biology research contributes to
    introduction of new technologies. New technologies, such as plant
    biotechnology, have lead to enhanced plant production and new methods
    of protecting and preserving limited environmental resources, such as
    fresh water supplies.
        The Nation's capabilities in fundamental biology research in
    plants, systematics, physiology, water relations, environmental stress
    and other areas is dependent upon support from NSF and the NSF
    Directorate for Biological Sciences.
        The NSF Directorate for Biological Sciences has sponsored research
    that NSF has identified as being among the 50 breakthroughs that have
    had the most impact or influence on every American's life over the past
    50 years. Five of these breakthroughs cited by NSF in plant biology
    are:
      --NSF-sponsored genomic research on the model plant Arabidopsis
            thaliana. The entire genome sequence was completed well ahead
            of schedule. Now that the sequence has been completed, NSF is
            proceeding with the 2010 Project to determine the function of
            every gene in this model plant.
      --NSF-supported basic research provided a base of knowledge that will
            lead to plants genetically modified to produce lifesaving
            pharmaceuticals.
      --Novel approaches were discovered that could be used to alleviate
            allergic reactions to wheat products and other food-related
            ailments. Hypo-allergenic foods are expected to result from
            NSF-sponsored basic plant research.
      --Up to 12 percent of soils under cultivation around the world
            contain metals that stunt plant growth and development and
            result in poor harvests. NSF-funded researchers are using
            genetic engineering to engineer plants that flourish in metal-
            rich soils.
      --Almost one-third of the irrigated land on earth is not suitable for
            growing crops because it is contaminated with high levels of
            salt. More farmable land is lost annually through high salt
            levels in soil than is gained through the clearing of forest
            resources. Basic research supported by NSF will lead to more
            salt-tolerant crops.
        We mark the 51st anniversary this year of the discovery of the
    structure of DNA by Watson and Crick. This discovery changed the course
    of biology forever, leading to the age of molecular biology, genetic
    engineering and now genomics.
        Today, just as human genome research has advanced medical science,
    the NSF-sponsored Plant Genome Research Program and biotechnology have
    revolutionized the way scientists can improve plants. NSF-sponsored
    genomic research on Arabidopsis, rice, corn and other plants is
    providing valuable fundamental knowledge of plant structure and
    functions. Resulting enhanced plants will be used to better provide
    needed food supplies, renewable energy sources, industrial feed stocks,
    clothing and building materials, and lifesaving medicines.
        ``Plant biology has been transformed completely over the last 50
    years. It is now squarely in the age of genomics, and is constantly
    changing as new concepts emerge and novel technologies develop,'' the
    National Science and Technology Council, Committee on Science,
    Interagency Working Group on Plant Genomes (IWG) noted in the January
    2004 Progress Report on the National Plant Genome Initiative.
    Recognizing the enormous scientific opportunities, the National Plant
    Genome Initiative (NPGI) was established in 1997 under the National
    Science and Technology Council and the Office of Science Technology and
    Policy (OSTP).
        Support led by Chairman Bond together with Ranking Member Mikulski
    and this subcommittee for the Plant Genome Research Program has helped
    place the United States in the forefront of plant genomics in the
    world. Examples of research results from the Plant Genome Research
    Program that the IWG noted were reported the past year include:
      --Construction of a high resolution maize map that integrates genetic
            and physical maps: a culmination of 5 years of hard work that
            will benefit both basic researchers and breeders.
      --Identification of the full encyclopedia of genes necessary for
            mineral nutrition in plants, that forms the foundation for
            understanding the mechanism of plant uptake of both beneficial
            and toxic minerals.
      --Development of the marker-assisted breeding strategies for wheat.
      --Establishment of a comparative cereal genomics database, Gramene,
            which uses the complete rice genome sequence as a reference and
            serves as the information resource for the entire cereal
            research community including maize, wheat, barley and sorghum.
      --Active involvement of plant genome researchers in education and
            training of undergraduates, high school students and K-12
            teachers.
      --Research collaboration between U.S. scientists and scientists in
            developing countries in plant genomics and related fields of
            science.
        Examples of new projects that the IWG noted should further advance
    the field in coming years include:
      --Building of resources and tools for plant genome research.
      --Advances in nutritional genomics that will lead to higher quality
            food products.
      --Identification of networks of genes involved in disease resistance.
      --A new comprehensive database for the entire plant genome research
            community to provide seamless access to relevant information
            resources that are distributed all over the world.
        Plant genome research and research on the applications of plant
    biotechnology, supported by this subcommittee have revolutionized the
    way scientists can improve plants. This is essential to meeting the
    growing national and world needs for food, renewable energy sources,
    industrial feed stocks, clothing and building materials, and lifesaving
    medicines.
        Plant genome research sponsored by NSF that I am conducting in my
    lab is addressing the area of metal transport and regulation of gene
    expression by metals. I have focused on iron because increasing the
    ability of plants to take up iron could have a dramatic impact on both
    plant nutrition and human health. Iron deficiency afflicts an
    astounding number of people with estimates that 3 billion people
    worldwide suffer from iron deficiencies. Plants are the principal
    source of iron in most diets. Fundamental research made possible by the
    NSF Plant Genome Research Program is providing knowledge that could
    lead to new varieties of food crops that would supply more iron needed
    in diets of people throughout the world.
        We commend the tireless efforts of Chairman Bond in traveling to
    developing nations of the world to see first-hand the plight of human
    nutritional deficiencies. The continued leadership of Chairman Bond,
    Ranking Member Mikulski and the subcommittee for plant genome and
    related research will help to alleviate ravages of nutritional
    deficiencies here and abroad.
        The leadership of this subcommittee has put NSF on the path of
    substantial budget increases over recent years! We recognize that the
    realities of this year's budget may make an increase of as much as 15
    percent very difficult to attain. However, the continued strong support
    by the subcommittee of NSF, including the NSF Directorate for
    Biological Sciences and the Plant Genome Research Program is deeply
    appreciated by our science community. Investment in world-leading,
    competitively awarded basic research sponsored by NSF will continue to
    help benefit the future of the Nation's security, economy, and workers.
        Thank you again for the honor of addressing the subcommittee today.
                                     ______

            Prepared Statement of the Ecological Society of America

        As President of the Ecological Society of America, I am pleased to
    provide written testimony for the Environmental Protection Agency
    (EPA). The Ecological Society of America has been the Nation's premier
    professional society of ecological scientists for nearly 90 years, with
    a current membership of 8,000 researchers, educators, and managers. We
    appreciate the opportunity to offer written testimony on behalf of the
    Environmental Protection Agency.
        EPA's dual mission to safeguard human health and the environment
    depends upon the agency's intramural and extramural research programs,
    both of which would suffer significant cuts under the President's
    proposed budget for fiscal year 2005. As the Nation continues to face a
    host of environmental challenges, we believe shortchanging EPA's
    science and technology programs will compromise the agency's ability to
    perform its mission.
        In particular, the Ecological Society of America is concerned about
    proposed cuts to the agency's STAR Grants Program. Managed by the
    agency's Office of Research and Development, this competitive, peer-
    reviewed, extramural grants program generates scientific information
    that supplements the agency's intramural research programs and better
    equips EPA to respond to emerging issues. The proposed fiscal year 2005
    budget would slash this valuable program by $35 million, in spite of
    its excellent track record and recent laudatory review by the National
    Academy of Sciences. ``The Measure of STAR: Review of the U.S.
    Environmental Protection Agency's Science to Achieve Results (STAR)
    Research Grants Program,'' points out that STAR grants fill a critical
    gap in the agency's in-house scientific expertise and enhance EPA's
    ability to respond to new issues. The Ecological Society of America
    encourages Congress to fund the STAR Grants Program at its fiscal year
    2004 level of $100 million.
        Another area of concern is the EPA's STAR Fellowship Program, which
    would decline by 40 percent ($4 million) under the agency's proposed
    budget for the coming fiscal year. This program, which is the only one
    of its kind, funding graduate students conducting applied environmental
    research, has also had an excellent track record since its inception in
    1995. An extremely competitive program--only 7 percent of applicants
    are awarded fellowships--the program has produced high quality research
    and is helping to train the next generation of environmental
    scientists. The Ecological Society of America appreciates the past
    support of this committee in restoring previous cuts to the STAR
    Fellowship Program and we hope committee members will do so again for
    fiscal year 2005, funding the Program at its current level of $10
    million.
        In addition to these extramural programs, we are also concerned
    about the proposed cuts to the agency's intramural Science and
    Technology account and urge the committee to bring this account to the
    fiscal year 2004 level.
        We appreciate the committee's past support of EPA's research
    programs and the opportunity to provide our comments on its proposed
    budget. Thank you for considering our testimony.
                                     ______

               Prepared Statement of the Doris Day Animal League

        Chairman Bond, Ranking Member Mikulski, and members of the
    subcommittee, the Doris Day Animal League represents 350,000 members
    and supporters nationwide who support a strong commitment by the
    Federal Government to research, development, standardization,
    validation and acceptance of non-animal and other alternative test
    methods. Thank you for the opportunity to present testimony relevant to
    the fiscal year 2005 budget request for the U.S. Environmental
    Protection Agency's (EPA) Science and Technology budget for the Office
    of Research and Development (ORD).
        In 2000, the passage of the ICCVAM Authorization Act into Public
    Law 106-545, created a new paradigm for the field of toxicology. It
    requires Federal regulatory agencies to ensure that new and revised
    animal and alternative test methods be scientifically validated prior
    to recommending or requiring use by industry. An internationally agreed
    upon definition of validation is supported by the 15 Federal regulatory
    and research agencies that compose the Interagency Coordinating
    Committee for the Validation of Alternative Methods (ICCVAM), including
    the EPA. The definition is: ``the process by which the reliability and
    relevance of a procedure are established for a specific use.''
        In recent years, thanks to the leadership of Chairman James Walsh
    and Representative David Price, efforts to provide specific funding for
    and prioritization of research, development and validation of non-
    animal and other alternative test methods has helped to guide EPA's
    approach to this necessary thrust for sound science that replaces,
    reduces or refines the use of animals in toxicity testing. However,
    recent dialogue with the EPA has demonstrated a lack of prioritization
    for funding actual validation studies of non-animal and other
    alternative methods. This is the equivalent of developing a new car
    that is intended to provide reduced emissions without assessing the
    validity of the reduced emissions claim, ensuring the car will never be
    marketed.
        For several years, the enacted budget for the Office of Research
    and Development has hovered at approximately $500 million, comprising
    just 9 percent of EPA's total budget. Animal protection organizations
    have consistently supported a mere 1-2 percent of this budget
    specifically for research, development and validation of non-animal,
    alternative test methods. Chairman Walsh secured a $4 million
    appropriation first-ever directive for research, development and
    validation of non-animal test methods in the fiscal year 2002 budget
    for EPA. And while the animal protection community is greatly
    appreciative of this first-ever directive, we have yet to receive a
    detailed accounting of the expenditure of funds. The agency has stated
    that funding has been provided for bench science that may have future
    relevant applications. EPA contends it has used monies from the Science
    and Technology Account for the Office of Research and Development to
    fund research and development of non-animal and other alternative test
    methods; but the funding stops at the stage when a test method must be
    scientifically validated in order to be considered for incorporation
    into recommendations or requirements. Unfortunately this approach does
    little to support the final development or necessary validation studies
    for non-animal test methods with potential current application in
    existing EPA programs.
        We request that the subcommittee support the inclusion of $1
    million specifically for validation studies for non-animal and other
    alternative test methods; with non-animal methods prioritized. In
    addition, we request the following report language be included in bill:

        ``The Committee encourages the agency to prioritize research,
    development, standardization and validation of non-animal and other
    alternative screening and testing methods which have potential to
    reduce, refine or replace animal studies. The Committee also directs
    the agency to provide $1 million from within the existing Science and
    Technology Account specifically for validation of non-animal and other
    alternative test methods, including prioritizing those that replace
    animal-based eye irritation methods, embryotoxicity, carcinogenicity
    and acute toxicity for mammals and fish, for which the scientific
    review of the validation status will be conducted under the auspices of
    the Interagency Coordinating Committee on the Validation of Alternative
    Methods. Any such activities should be designed in consultation with
    EPA's Office of Pollution Prevention and Toxic Substances to ensure
    integration of scientifically valid non-animal and other alternative
    test methods into existing and future programs. The Committee directs
    the agency to provide a report to the Committee by March 30, 2005
    regarding expenditures of fiscal year 2005 funds for research,
    development and validation of non-animal and other alternative
    methods.''

     SKIN CORROSION, SKIN ABSORPTION AND SKIN IRRITATION--NON-ANIMAL TEST
                                    METHODS

        ``Human skin equivalent'' tests such as EpiDermTM and
    EpiSkinTM have been scientifically validated and accepted in
    Canada, the European Union, and by the Organization for Economic
    Cooperation and Development (OECD), of which the United States is a key
    member, as total replacements for animal-based skin corrosion studies.
    Another non-animal method, CorrositexTM, has been approved
    by the U.S. Interagency Coordinating Committee on the Validation of
    Alternative Methods. Various tissue-based methods have been accepted in
    Europe as total replacements for skin absorption studies in living
    animals. In fact, in 1999 the EPA itself published a proposed rule for
    skin absorption testing using a non-animal method that, as of this
    writing, has still not been finalized. Government regulators in Canada
    accept the use of a skin-patch test in human volunteers as a
    replacement for animal-based skin irritation studies (for non-corrosive
    substances free of other harmful properties).
        However, the EPA continues to require the use of animals for all
    three of these endpoints, despite the availability of the non-animal
    tests. In order to assess the progress of the EPA in implementing the
    non-animal replacements for these three endpoints, we concur with our
    colleagues at People for the Ethical Treatment of Animals and
    respectfully request that the subcommittee include the following report
    language:

        ``The Administrator of the EPA is required to report to Congress no
    later than December 1, 2004, regarding the use of
    CorrositexTM and `human skin equivalent' tests such as
    EpiDermTM and EpiSkinTM for skin corrosion
    studies, in vitro methods using skin from a variety of sources (e.g.
    human cadavers) for skin absorption studies, and human volunteer
    clinical skin-patch tests (for chemicals first determined to be non-
    corrosive and free of other harmful properties) for skin irritation
    studies. The Administrator should describe the reasons for which the
    agency has delayed accepting the aforementioned methods for regulatory
    use as total replacements for their animal-based counterparts, exactly
    what steps the agency is taking to overcome those delays, and a target
    date by which the agency intends to accept these methods for regulatory
    use.''

                                    SUMMARY

        While significant progress has been made in nearly every other
    scientific discipline, the field of toxicology has remained wedded to
    antiquated methods dating from the mid-20th century. The United States
    must provide a marked investment in sound science that reflects the
    humane ethic espoused by the majority of Americans. Only by ensuring
    that Federal regulatory agencies fund research, development and
    validation of non-animal and other alternative test methods can the
    number of methods accepted on the basis of scientific merit
    exponentially increase. And in cases where scientific validity is
    demonstrated and non-animal and other alternative methods are
    incorporated into European Union, Canadian or OECD guidelines, the
    United States should expedite its own acceptance of the methods.
                                     ______

     Prepared Statement of the American Indian Higher Education Consortium

        This statement focuses on three areas: Department of Housing and
    Urban Development, National Science Foundation, and National
    Aeronautics and Space Administration.
        Mr. Chairman and members of the subcommittee, on behalf of this
    Nation's 34 American Indian Tribal Colleges and Universities (TCUs),
    which compose the American Indian Higher Education Consortium (AIHEC),
    thank you for the opportunity to express our views and requests for
    fiscal year 2005.

                              SUMMARY OF REQUESTS

    Department of Housing and Urban Development (HUD)
        Since fiscal year 2001, a modest TCU initiative has been funded
    within the Community Development Block Grant program. This competitive
    program enables tribal colleges to build, expand, renovate, and equip
    their facilities available to and used by the larger community. We
    strongly urge the subcommittee to support this program at a minimum $5
    million, an increase of $2 million over the President's fiscal year
    2005 budget request.

    National Science Foundation (NSF) Programs
        Tribal Colleges and Universities Program (TCUP).--Since fiscal year
    2001, this program has provided important assistance to TCUs as they
    build their capacity to provide strong science, technology,
    engineering, and mathematics (STEM) teaching and learning programs for
    American Indians. As of fiscal year 2003, 13 of the 32 eligible TCUs
    have been awarded implementation grants, along with four Alaska Native
    and Native Hawaiian serving institutions, and five new awardees are
    expected in fiscal year 2004. As more than half of the eligible TCUs
    have yet to receive grant awards, we request that Congress expand this
    vital program to $15 million, a $5 million increase over fiscal year
    2004 to help increase the number of TCUs able to participate and to
    support funding of Alaska Native and Native Hawaiian serving
    institutions, which NSF includes in the TCU program and funds to a
    significant extent. Additionally, we seek report language clarifying
    that for any provision of technical assistance under this program,
    eligible organizations are defined as national and regional non-profit
    organizations comprised of TCUs; and further language requiring Science
    and Technology Centers and EPSCoR Institutions to develop and implement
    plans to effectively collaborate with Tribal Colleges and Universities
    in education and research activities.
        Advanced Networking with Minority Serving Institutions (AN-MSI).--
    In fiscal year 1999, NSF funded a project to help MSIs develop campus
    infrastructures and national connections necessary to participate in
    the Internet-based Information Age. The project involves an historic
    and successful collaboration between three minority communities and
    mainstream institutions, which had little or no prior experience
    working together. AN-MSI has developed a successful model for providing
    support and technical assistance and is working with tribal colleges on
    collaborative education and research projects. AN-MSI's funding expires
    in fiscal year 2004, and if new funding is not secured, the project's
    work will cease. We request that the subcommittee include funding
    within NSF's CISE directorate to continue and expand the AN-MSI program
    at $15 million over the next 5 years.

    National Aeronautics and Space Administration (NASA)
        In fiscal year 2001, the tribal colleges established a formal
    cooperative agreement with NASA for a project designed to increase
    access, participation, and success of American Indians in high quality
    K-16 science, technology, engineering, and mathematics programs. The
    agreement includes a TCU liaison between AIHEC and NASA to oversee
    implementation of the project and modest program enrichment grants to
    the colleges. We request that Congress include report language
    encouraging NASA to continue and expand its successful $1.2 million
    cooperative agreement on behalf of TCUs; clarifying that for any
    provision of technical assistance under this program, eligible
    organizations are defined as national and regional non-profit
    organizations comprised of TCUs; and encouraging NASA faculty exchange
    programs and IPA contracts with TCUs to provide needed on-site
    expertise and partnerships. Additionally, we seek further report
    language encouraging the development of new initiatives to address the
    technology infrastructure needs at the TCUs, and further language to
    require Space Grant and EPSCoR Institutions to develop and implement
    plans to effectively collaborate with Tribal Colleges and Universities
    in education and research activities.

                                   BACKGROUND

        As a group, Tribal Colleges and Universities are this Nation's
    youngest institutions of higher education. The first tribal college--
    Navajo Community College (now Dine College) in Tsaile, Arizona--was
    established in 1968. Over the next few years, a succession of tribal
    colleges followed, primarily in the Northern Plains. In 1972, the first
    six tribally controlled colleges established AIHEC to provide a support
    network for member institutions. Today, AIHEC represents 34 TCUs
    located in 12 States. Annually, these institutions serve approximately
    30,000 full- and part-time American Indian students from more than 250
    federally recognized tribes. Yet in comparison with other institutions,
    TCUs benefit from only a handful of dedicated programs and receive only
    a very small portion of overall Federal higher education funding.
        The vast majority of TCUs is accredited by independent, regional
    accreditation agencies and like all institutions of higher education,
    must undergo stringent performance reviews on a periodic basis. In
    addition to associate, bachelor, and master's degree programs, TCUs
    provide much needed high school completion (GED), basic remediation,
    job training, adult education, and vitally needed community-based
    continuing education programs. Tribal colleges function as community
    centers; libraries; tribal archives; career and business centers;
    economic development centers; public meeting places; and child care
    centers. Each TCU is committed to improving the lives of students
    through higher education and community programs and to moving American
    Indians toward self-sufficiency.
        TCUs provide access to higher education for American Indians and
    others living in some of the Nation's most rural and economically
    depressed areas. These institutions, chartered by their respective
    tribal governments, combine traditional teachings with conventional
    postsecondary courses and curricula. They have developed innovative
    means to address the needs of tribal populations and are successful in
    overcoming long standing barriers to higher education for American
    Indians. Over the past three decades, these institutions have come to
    represent the most significant development in the history of American
    Indian education, providing access to underrepresented students and
    promoting achievement among students who may otherwise never have known
    postsecondary education success.
        Despite their remarkable accomplishments, TCUs remain the most
    poorly funded institutions of higher education in the country.
    Chronically inadequate operations funding continues to be the most
    significant barrier to their success. Funding for the basic
    institutional operations of 26 reservation-based TCUs is provided
    through Title I of the Tribally Controlled College or University
    Assistance Act (Public Law 95-471), which was first funded in 1981.
    Today, 23 years later these colleges are operating at $4,230 per full-
    time Indian student count (ISC), just 70 percent of the authorized
    level of $6,000 per ISC. Additionally, TCUs are located on Federal
    trust territories, and therefore States have no obligation to fund them
    even for the non-Indian State-resident students who account for
    approximately 20 percent of TCU enrollments. Yet, if these same
    students attended any other public institution in the State, the State
    would provide basic operating funds to the institution.
        As a result of more than 200 years of Federal Indian policy--
    including policies of termination, assimilation and relocation--many
    reservation residents live in abject poverty comparable to that found
    in Third World nations. Through the efforts of TCUs, American Indian
    communities receive services they need to reestablish themselves as
    responsible, productive, and self-reliant.

                                 JUSTIFICATIONS

    Department of Housing and Urban Development
        We are pleased that the President's fiscal year 2005 budget request
    includes $3 million for HUD-TCU program funded under the Community
    Development Block Grant program. This competitive grants program
    enables tribal colleges to expand their roles and effectiveness in
    addressing development and revitalization needs in their respective
    communities. No academic or student support projects are funded through
    this program; rather, funding is available only for community-based
    outreach and service programs at TCUs. Over the past few years, a
    handful of tribal colleges have been able to build or enhance child
    care centers, social service offices; help rehabilitate tribal housing;
    establish and expand small business development; and enhance vitally-
    needed library services.
        The number of TCUs is continuing to grow. Two additional colleges
    have joined our ranks, Saginaw Chippewa Tribal College in Michigan and
    Tohono O'odham Community College in Arizona. We strongly urge the
    subcommittee to support this program at a minimum $5 million, an
    increase of $2 million over the President's fiscal year 2005 budget
    request, to help ensure that much needed community services and
    programs are expanded and continued.

    National Science Foundation Programs
        Tribal Colleges and Universities Technology Initiative.--In fiscal
    year 2001, NSF launched a new TCU initiative designed to enhance the
    quality of science, technology, engineering and mathematics (STEM)
    instruction and outreach programs, with an emphasis on the leveraged
    use of information technologies at TCUs. The program enables colleges
    to implement comprehensive institutional approaches to strengthen
    teaching and learning in ways that improve access, retention, and
    completion of STEM programs, particularly those that have a strong
    technological foundation. Through this program, colleges gain support
    for their efforts to bridge the ``digital divide'' and prepare students
    for careers in information technology, science, mathematics, and
    engineering fields. The overall goals of the program are to improve
    access, retention, and graduation rates among American Indian students
    and to increase the number of American Indians in the information
    technology, science, mathematics and engineering workforce. In 3 years,
    13 of the 32 eligible TCUs have received implementation grants, along
    with four Alaska Native and Native Hawaiian serving institutions, with
    five additional grants expected to be awarded in fiscal year 2004. We
    request that Congress expand this vital program to $15 million, $5
    million above the President's budget request. This level more
    accurately reflects the true needs of the eligible pool, which NSF
    significantly expanded when it included Alaska Native and Native
    Hawaiian serving institutions in the TCU program. Additionally, we seek
    report language clarifying that for any provision of technical
    assistance under this program, eligible organizations are defined as
    national and regional non-profit organizations comprised of TCUs; and
    further language requiring Science and Technology Centers and EPSCoR
    Institutions to develop and implement plans to effectively collaborate
    with Tribal Colleges and Universities in education and research
    activities.
        Advanced Networking with Minority Serving Institutions (AN-MSI).--
    Five years ago, NSF funded a project within its Computer and
    Information Science and Engineering (CISE) Directorate to help
    minority-serving institutions (MSIs) develop the campus infrastructure
    and national connections necessary to participate in the emerging
    Internet-based Information Age. The project involves an historic and
    successful collaboration between three minority communities and
    mainstream institutions, which had little or no prior experience
    working together. AN-MSI has developed a successful model for providing
    TCUs and other MSIs with technical assistance, education, and training
    programs to improve campus-based information and communications systems
    and strengthen IT staff. While much has been accomplished, TCUs are at
    the beginning stages of technology use, particularly for collaborative
    education and research. AN-MSI's funding expires in fiscal year 2004,
    and if new funding is not secured, the project's work will cease. We
    request that Congress allocate $15 million for this initiative over the
    next 5 years.

    National Aeronautics and Space Administration (NASA)
        In fiscal year 2001, TCUs established a formal cooperative
    agreement with NASA for a project designed to increase access,
    participation, and success of American Indians in high quality K-16
    mathematics, science, engineering, and technology programs. The
    agreement includes a TCU liaison between AIHEC and NASA to oversee
    implementation of the project and modest program enrichment grants to
    the colleges. We request that Congress include report language
    encouraging NASA to continue and expand its successful $1.2 million
    cooperative agreement on behalf of TCUs; clarifying that for any
    provision of technical assistance under this program, eligible
    organizations are defined as national and regional non-profit
    organizations comprised of TCUs; encouraging NASA faculty exchange
    programs and IPA contracts with TCUs to provide needed on-site
    expertise and partnerships. Additionally, we seek further report
    language encouraging the development of new initiatives to address the
    technology infrastructure needs at the TCUs; and further language
    requiring Space Grant and EPSCoR Institutions to develop and implement
    plans to effectively collaborate with Tribal Colleges and Universities
    in education and research activities.

                                   CONCLUSION

        In light of the justifications presented in this statement and the
    overwhelming evidence of inequitable access to technology in rural
    America, we respectfully request Congress increase funding for Tribal
    College and University programs to help bring economic self-sufficiency
    to Indian Country. Fulfillment of AIHEC's fiscal year 2005 request will
    strengthen the missions of TCUs and the enormous, positive impact they
    have on their respective communities. Your support will help ensure
    that they are able to educate and prepare thousands of American Indians
    for the workforce of the 21st Century. TCUs have proven to be very
    responsible with the Federal support they have received over the past
    three decades. It is important that the Federal Government now
    capitalize on its investment. We respectfully request your continued
    support of tribal colleges and full consideration of our fiscal year
    2005 appropriations requests.
                                     ______

    Prepared Statement of the Integrated Petroleum Environmental Consortium

        It is proposed that the U.S. Environmental Protection Agency
    continue to support a focused, university-based program, the Integrated
    Petroleum Environmental Consortium (IPEC), with the goal of increasing
    the competitiveness of the domestic petroleum industry through a
    reduction in the cost of compliance with U.S. environmental
    regulations. Continued Federal support of $2 million is specifically
    requested as part of the fiscal year 2005 appropriation for the
    Environmental Protection Agency through the Science and Technology
    account or other source the subcommittee may determine to be
    appropriate.
        Mr. Chairman, on behalf of the Integrated Petroleum Environmental
    Consortium (IPEC), I would like to take this opportunity to thank the
    subcommittee for providing $8.2 million in funding for IPEC in the
    fiscal year 1998-2004 appropriations bills for the Environmental
    Protection Agency (EPA). Specifically this funding was provided for the
    development of cost-effective environmental technology and technology
    transfer for the domestic petroleum industry. With funding under the
    Science and Technology account of EPA, IPEC is implementing a
    comprehensive mechanism (EPA Research Center) to advance the
    consortium's research expertise in environmental technology. IPEC's
    operating practices and linkages to the independent sector are ensuring
    that real problems in the domestic petroleum industry are addressed
    with real, workable solutions. The consortium includes the University
    of Tulsa, the University of Oklahoma, Oklahoma State University, and
    the University of Arkansas.
        We are pleased to report that, as envisioned and proposed by the
    Consortium, State-level matching funds have been obtained to support
    IPEC, creating a true Federal-State partnership in this critical area.
    Since fiscal year 1998 the Oklahoma State Regents for Higher Education
    have provided over $800,000 in matching funds for IPEC. Significant
    matching funds have also been obtained from industry resulting in a
    total match of $0.84 for every Federal dollar expended or encumbered to
    date.
        Mr. Chairman, IPEC's mission has never been more important than
    today. As the United States imports more oil from politically unstable
    regions of the world our Nation's domestic reserves and production
    become ever more vital to the Nation's economy and our national
    security. However, domestic production and our domestic infrastructure
    are in decline as the major producers and refiners seek greater returns
    for their stockholders overseas. The mature reservoirs that they found
    to be no longer profitable have been taken over by the independent
    producers. To their credit these independent producers together are
    accounting for 85 percent of domestic wells drilled, 40 percent of
    domestic oil production, and 65 percent of domestic natural gas
    production. Although the price of oil is currently up, the instability
    of world crude oil prices takes its toll on these entrepreneurs who
    have only one source of income--the sale of oil and gas. They are
    constantly caught in the squeeze between the cost of production and the
    price they receive for their product. For example, when prices fell to
    historic lows in 1998 and early 1999 the effect on the independent
    producers was markedly worse than on the large integrated oil
    companies. Capital expenditures fell 30 percent, rig counts dropped 50
    percent, employment in exploration and production fell by 65,000, and
    150,000 wells were shut-in (IPAA). As prices have recovered new capital
    has been invested in exploration and production but now there is a
    serious shortage of skilled employees. Once again the cycling of world
    oil prices threatens the development of new resources and further
    weakens our domestic infrastructure. The strategic value of this
    industry demands that action be taken to preserve and expand this
    critical component of our energy supply and reduce our dependence on
    foreign oil. As Vice-President Cheney has said (May, 2001) ``to meet
    our energy challenge we must put to good use the resources around us
    and the talent within us''.

                                NEW TECHNOLOGIES

        With the help and support of Congress IPEC has and will continue to
    answer this call. IPEC works diligently to help independent producers
    reduce their production costs and increase profitability in this
    turbulent market. IPEC responds to the needs of the independents in two
    ways. First, IPEC funds a vigorous research program to develop cost-
    effective environmental technologies. Critical to the effectiveness of
    IPEC is the process by which projects are chosen for funding. IPEC has
    an Industrial Advisory Board (IAB) which is dominated by independent
    producers. The IAB identifies the research needs of the domestic
    industry which form the basis of Calls for Proposals issued to the IPEC
    institutions. But their influence on the selection process does not
    stop there. Investigators respond to the Call for Proposals with what
    is termed a pre-proposal which contains enough information to identify
    the problem to be addressed and the expected advantages of the proposed
    research to the domestic industry. It is the IAB that evaluates these
    pre-proposals for relevance to IPEC's mission. If the IAB believes that
    the research proposed helps to solve a problem that makes a serious
    dent in the independent's profitability it is approved. The Board has
    established a benchmark of 80 percent of voting members for a pre-
    proposal to be selected. Investigators whose pre-proposals are approved
    by the IAB are invited to write a full, detailed technical proposal for
    evaluation by a Science Advisory Committee (SAC) which will assess the
    scientific quality of the proposal. The SAC is composed of nationally
    recognized scientists and engineers from academia and government
    laboratories. An investigator whose proposal passes this second hurdle
    is funded by IPEC to do the research. By the way, any pre-proposal that
    does not pass the IAB is dead in the water!
        In addition to ensuring that project funding is industry driven and
    on target this selection process has had the additional advantage of
    creating a dialog between producers and the regulatory community that
    serves the interest of both groups. The second largest group on the IAB
    is composed of State regulatory agency personnel who serve on the Board
    at the invitation of the independent producers. The discussion of
    industry needs fostered by the review process has resulted in a more
    collegial relationship between the regulators and those who are
    regulated.
        Mr. Chairman, I invite you to visit the IPEC website at http://
    ipec.utulsa.edu to learn more about IPEC's funded research projects. On
    the website you will learn how IPEC has significantly advanced the
    scientific basis for risk-based decision making in the management of
    hydrocarbon spills which allows precious remediation resources to be
    directed to where they will do the most good. You will also find a
    project which, while investigating the natural attenuation of complex
    hydrocarbons mixtures, has actually pointed the way to how we may some
    day convert unrecoverable oil to natural gas using microorganisms. You
    will also see projects that are pioneering the use of plants to
    remediate oil-impacted soil and reduce the costs of remediation of
    brine spills on soil and restoring the productivity of damaged land.
    Thanks to the IPEC Industrial Advisory Board all of these projects are
    expected to reduce the cost of environmental compliance and the cost of
    production and at the same time increase compliance.

                         EFFECTIVE TECHNOLOGY TRANSFER

        IPEC also has an active technology transfer program which makes an
    important contribution to the consortium's mission. Guided by the
    Industrial Advisory Board IPEC has and will continue to develop tools
    for independent producers to empower them to take control of resolving
    their own environmental problems and reducing their cost of doing
    business. One of the first tools produced by IPEC was a training video
    entitled ``Cost Effective Environmental Strategies for Improving
    Production Economics''. This video shows the producer how to do an
    audit of their oil or gas production facilities to help them keep more
    product in the sales line and more money in their pocket. Producers are
    shown that by being proactive they can minimize remediation costs, stay
    out of trouble with the regulatory agencies, reduce future liability,
    and increase the value of their lease. Over 3,000 of these videos have
    been distributed free of charge and the reviews are outstanding.
    Environmental Health and Safety officers of some of the larger
    independent oil companies have remarked that it is the best training
    video of its kind available. IPEC has also produced a training video on
    the bioremediation of oil spills and a video on remediation of brine
    spills will be released this year. Production will start soon on
    additional training videos on the remediation of joint spills of oil
    and brine, emergency response procedures, and on money-saving how-to
    tips from the IPEC Industrial Advisory Board.
        Other tools include a self-assessment checklist to help producers
    identify problems that are going to cause them problems and cost them
    money if not fixed. Again the goal is to help them be proactive and
    take control of their production costs. IPEC also seeks to empower
    independent producers to be able to remediate small spills of oil and
    brine when they occur without spending a lot of money on soil analysis
    or high-priced consultants. Of course the training videos help in this
    regard but we don't stop there. IPEC works with industry organizations
    and State agencies like the Oklahoma Marginal Well Commission to offer
    1-day training workshops on remediation of oil and brine spills. For
    oil spills IPEC shows the producers how to be effective at
    bioremediation of oil spills without having to do TPH analysis and at a
    minimal cost. IPEC also produces a laminated card for producers to
    carry around in their trucks that provides easy to follow, step-by-step
    instructions with photos on how to carry out the bioremediation
    process. IPEC has also developed a staged response to brine spills that
    reduces costs while effectively remediating these spills and at the
    same time more effectively restores the productivity of the impacted
    land. To assist the producer in brine remediation IPEC has developed a
    Soil Salt Analysis Kit and a Water Analysis Kit which are distributed
    free of charge to independent producers. The kits come with laminated
    cards with photo instructions on how to use the kits and how to
    interpret the results. With this field kit producers can follow the
    progress of the remediation and restoration process and identify ``hot
    spots'' which need extra attention without the expense of a lot of
    analytical costs. With these kits producers can determine soil chloride
    concentrations and relate the results of analyses to plant salt
    tolerances. This allows the producer to effectively communicate with
    the regulatory field inspectors and determine what plants could be
    grown on the site at various stages of restoration. IPEC has also
    recently contracted with the Railroad Commission of Texas to bring
    their popular workshop on Waste Minimization in E&P Operations to
    Oklahoma and Arkansas.
        In a program unique in the oil industry IPEC uses the field agents
    of State regulatory agencies to deliver these tools into the hands of
    the producers. Although IPEC tries as much as possible to bring
    training to the producers by offering the soil remediation and waste
    minimization workshops in their back yard, many of the smallest
    producers cannot afford to be away from their business for a training
    workshop. However, these producers see their field inspectors on a
    regular basis. In order to take advantage of this relationship IPEC
    holds training workshops for these field inspectors introducing them to
    all of the latest IPEC tools and establishes with them a tracking
    mechanism to determine where the tools are going and allowing us to
    follow up to assess the effectiveness of these tools. This has proven
    to be an effective mechanism for distribution of IPEC tools to these
    small producers. As a bonus the producers see the field inspectors in a
    helpful role. One of the goals of IPEC's technology transfer program is
    to foster the feeling among small producers that field inspectors
    should be seen as a member of their team and a valuable source of
    information.
        IPEC's technology transfer program also includes some of the more
    traditional elements such as a website, newsletter and annual
    conference. On the website producers can follow the progress of IPEC
    sponsored projects, learn about upcoming training events and tools,
    read the proceedings of IPEC's annual conference, and access other
    useful information. The newsletter is called ``The Connector'' and is
    published quarterly. Each issue features a cover story on new
    technology for petroleum environmental problems. Other articles cover
    new regulations, anticipated regulatory changes, and announcements for
    upcoming events of interest to the domestic industry. Anyone can
    subscribe to ``The Connector'' free of charge or look for the latest
    issue on the IPEC website.
        IPEC's annual conference, the International Petroleum Environmental
    Conference, is fast becoming the premier event of its kind and focuses
    on environmental issues and solutions in oil and gas production and
    refining. Cosponsored by the U.S. Department of Energy National
    Petroleum Technology Office, the conference annually attracts about 350
    participants, 60 percent of who come from industry, 20 percent from
    State and Federal regulatory agencies, and 20 percent from academia.
    The next IPEC conference, the eleventh, will be held in Albuquerque,
    NM, October 12-15, 2004. Check out the proceedings of previous
    conferences on the consortium website and look at the conference
    website at http://ipec.ens.utulsa.edu for the current Call for Papers
    and the program for the eleventh conference.

                            IPEC MAKES A DIFFERENCE

        With the help and support of the industry and Congress IPEC is
    making a real difference in the domestic petroleum industry. We have
    kept faith with our supporters and Congress and are delivering on all
    of the promises and pledges we made during our campaign for funding. We
    are especially proud of the fact that as noted above to date IPEC has
    obtained matching funds from the industry and State governments of
    $0.84 for every Federal dollar expended or encumbered. IPEC is truly a
    Federal-State-industry partnership that works!
        IPEC underwent a site review in May, 2002 by an EPA review panel.
    IPEC passed the review with flying colors. IPEC was especially
    commended for the Center's enthusiasm for its mission, the relevancy of
    the Center's research projects to that mission, the Center's management
    practices, the diversity of constituencies from whom we seek input, and
    the aggressiveness of the Center's technology transfer program. In fact
    IPEC's technology transfer program was termed by the review panel as
    ``tech transfer par excellence''. The chair of the review panel told us
    informally ``I give most EPA Research Centers a 5, I give IPEC an 8''.

                                FUNDING OF IPEC

        Mr. Chairman, the EPA site review panel was so enthusiastic about
    IPEC they suggested that we make an effort to expand to other oil and
    gas producing States, bring in other academic institution as partners
    and consortium members, and expand the range of research projects we
    are working on to further benefit the domestic industry. We could not
    agree more with these goals but this will require additional resources.
    Therefore, IPEC is seeking appropriations of $2 million for fiscal year
    2005 through the Environmental Protection Agency. The consortium will
    be responsible for at least a 50 percent match of Federal
    appropriations with private sector and State support over any 5-year
    period. The Consortium will be subject to annual review to ensure the
    effective production of data, regulatory assessments, and technology
    development meeting the stated goals of the Consortium.
        Thank you for your continued support.
                                     ______

      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 $1,000,000 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 $500,000 from the Environmental Protection Agency (EPA) for
    a public education program related to the Clean Air Act and $500,000
    from the Department of Housing and Urban Development related to
    reduction of emissions from individual residential activities.
        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.
        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 unfounded Federal mandate.
        For fiscal year 2004, our Coalition is seeking funding of $500,000
    from the Environmental Protection Agency (EPA) related to public
    education regarding the Clean Air Act and $500,000 from the Department
    of Housing and Urban Development for the implementation of individual
    residential emission reduction programs.
        First from EPA, the coalition is seeking $500,000 for a public
    education and awareness campaign. The purposes of the campaign are to
    provide information to the public regarding the impact of air quality
    on health and engage the public in voluntary air quality improvement
    efforts. The health-care sector, comprised of many medical
    professionals committed to Operation Clean Air is uniquely positioned
    to both educate the public about the impact of air quality on health
    and collect data on the health effects of air pollution on the
    population.
        The public education and awareness campaign will include a valley-
    wide media campaign to raise awareness of the health effects of poor
    air quality including television, radio, print, Internet, brochures,
    flyers, posters and billboards in English, Spanish and Hmong; school-
    based curriculum including materials to reach new teen drivers with
    information on vehicle maintenance and cost-effective driving habits.
    Fact sheets and videos will be developed on steps that individuals and
    institutions can take to reduce their individual contribution of air
    pollutants. A special effort will be made to collaborate with county
    public health officers to make sure that they have adequate information
    for their education programs.
        From HUD, the coalition is seeking $500,000 to reduce the emissions
    from individual residential activities including heating with non-EPA
    certified wood heaters, use of gasoline lawn and gardening equipment,
    and low efficiency lighting. The co-funding will be made available to
    low-income residents to fund the removal and replacement of non-EPA
    certified wood heaters with new EPA certified unit, and for repair or
    upgrade of sub-standard heating systems to reduce the reliance on wood
    for heat. Co-funding will also be used for programs providing
    incentives to residents and hospitals for battery operated leaf
    blowers, electric lawn mowers, and other replacement equipment to
    displace gasoline or diesel operated landscaping equipment throughout
    the valley. During the winter months 15 percent of the particulate
    matter pollution in the San Joaquin Valley is attributable to
    residential wood smoke. By providing grant funds to low-income
    residents that currently rely on wood for heat we will be able to
    provide them with a more efficient heating source and reduce
    disproportionate impact of wood smoke in low-income neighborhoods.
        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 $1.0
    million from the Environmental Protection Agency (EPA) 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 ($1,000,000 in fiscal year
    2002, $900,000 in fiscal year 2003, and $500,000 in fiscal year 2004)
    as it is necessary in order for the State of California to address the
    very significant challenges it faces to comply with the 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 Nation-wide. 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 as well as the need to
    address air quality modeling of long-term, multi-pollutant scenarios.
    Current air quality modeling practice is to represent an entire ozone
    season by one episode, or in rare cases, a few episodes, which has been
    a limitation of modeling used for the 1-hour ozone standard. However,
    to ensure that air pollution control decisions are based on sound and
    thorough assessments of the available data, improvement in the
    scientific methods that would be used for 8-hour ozone,
    PM2.5, and regional haze standards is imperative. It is
    particularly important that there is an expansion of the number of
    episodes evaluated. The duration, quality, and completeness of the
    combined database of CCOS and CRPAQS offers a unique opportunity to
    assess and improve air quality models and the ability to perform long-
    term air quality simulations that address both ozone and particulate
    matter. This is necessary to comprehensively assess emission control
    strategies for both pollutants and regional haze.
        For fiscal year 2005, our Coalition is seeking funding of $1.0
    million from the Environmental Protection Agency (EPA). The CCOS would
    use the $1.0 million requested for fiscal year 2005, in conjunction
    with other funding, to help address modeling needs for the 8-hour ozone
    and PM2.5 standards. It is particularly important that there
    is an expansion of the number of episodes evaluated. The requested
    funding will allow for significant improvements in computer programming
    and computer processing, both of which are necessary to handle the vast
    amount of data required to be analyzed for evaluating multiple
    episodes. The requested funding will also allow for air quality model
    validation assessments. These assessments are necessary to ensure that
    models are representing the results for the right reasons. The U.S. EPA
    has a direct stake in, and will benefit from, the CCOS program. This
    program will further the fundamental science of air quality modeling
    and advance the use of models for future SIPs Nation-wide.
        Thank you very much for your consideration of our request.

    Current CCOS Study Sponsors
                Private Sector
        Western States Petroleum Association; Pacific Gas and Electric
    Company; Electric Power Research Institute; Nisei Farmers League and
    Agriculture; Independent Oil Producers' Agency; California Cotton
    Ginners and Growers Associations.
                Local Government
        San Joaquin Valley Unified Air Pollution Control District (on
    behalf of local cities and counties); Bay Area Air Quality Management
    District; Sacramento Metro Air Quality Management District; San Luis
    Obispo County Air Pollution Control District; Mendocino County Air
    Pollution Control District.
                State Government
        California Air Resources Board; California Energy Commission.
                Federal Government
        National Oceanic and Atmospheric Administration; Environmental
    Protection Agency; Department of Agriculture; Department of
    Transportation.
                                     ______

            Prepared Statement of the Ecological Society of America

        As the Vice President for Science for the Ecological Society of
    America, I am pleased to provide written testimony for the National
    Science Foundation. The Ecological Society of America has been the
    Nation's premier professional society of ecological scientists for
    nearly 90 years, with a current membership of 8,000 researchers,
    educators, and managers. We appreciate the opportunity to offer written
    testimony on behalf of the National Science Foundation.
        We thank the committee for its strong commitment to the NSF over
    the last several years. Investment in this agency is very much in the
    public interest and your vision will pay extraordinary dividends in the
    years to come. We are also grateful to the 107th Congress for passing
    the NSF Authorization Act, which laid out a plan to boost the Nation's
    investment in this agency.
        We believe that NSF's fiscal health is critical to maintaining the
    Nation's international scientific leadership. Dividends from past
    investments in the NSF are manifested in the individual scientific
    disciplines, as well as in the groundwork that has been laid for
    interdisciplinary research needed to meet present and future scientific
    challenges. Research supported through the NSF has led not only to
    major advancements in all of the sciences, mathematics, and
    engineering, but has repeatedly underpinned new technologies such as
    the use of bar codes for inventory control and bioengineering microbes
    to clean up toxic waste, as well as new techniques, for example
    improving a building's resistance to damage during an earthquake.
        I wish to particularly note that the NSF is responsible for the
    majority of all non-medical biological research, ranging from the
    molecular level to the study of entire ecosystems. Approximately 65
    percent of all academic, non-medical, biological research is supported
    through the National Science Foundation.
        Important accomplishments have resulted through NSF-funded research
    and the potential for future opportunities is immense. Biological
    research will improve our ability to assess and predict the status of
    ecosystems, which provide the United States with goods such as fish,
    and services, such as water purification. Research efforts in the
    social sciences will enhance our understanding of large-scale
    transformations such as globalization and democratization, while work
    in the ocean sciences holds the potential to reveal previously
    unimaginable images of even the deepest oceans. Advances in NSF-
    supported chemistry may lead to cleaner industrial technology and
    address problems of carbon sequestration. Research in the mathematical
    sciences has led to advances in cryptography and improved internet
    security.
        In a time where we find more and more federally funded research
    directed by a particular agency mission, I want to highlight that one
    of NSF's greatest strengths is its support of the best research,
    regardless of its potential use. The NSF peer review system has an
    excellent track record of choosing the best science and the best
    investigators to perform the research, as the significant number of
    Nobel Prize winners who received support from NSF demonstrates.
        As a Professor of Biology and Director of Graduate Studies for Duke
    University's Program in Ecology I have first-hand knowledge of the
    positive impact NSF has on a scientific discipline. Our own NSF-funded
    research on the Central Plains has shown us that historic experience,
    including the 1930's Dust Bowl, is unremarkable in light of climate
    swings of the last few centuries. We've learned many species cannot
    migrate fast enough to track a shifting 21st Century climate and will
    be left behind, with large consequences for biodiversity. This has
    significant implications for agriculture in the Great Plains region.
        Continued advancement in ecological science depends upon healthy
    NSF budgets. Many ecologists whose grant proposals are deemed of very
    high quality are either not funded or go under-funded due to inadequate
    NSF grant funds. Eventually this funding situation is likely to affect
    the choices of U.S. students as to whether or not they choose to enter
    the field of ecology, a science that is crucial to meeting emerging
    environmental challenges ranging from the ecology of disease to the
    likely consequences of human alteration of the nitrogen cycle.
        Other science, mathematics, and engineering fields experience many
    of the same tensions exhibited in the ecological sciences. These
    disciplines share our concern that not enough U.S. students are
    interested in science and engineering-related careers. Many of us in
    the scientific community are worried that the United States may loose
    its preeminent position in science. All science, math, and engineering
    disciplines depend upon a strong National Science Foundation.
        As the only Federal agency to support science and education across
    all disciplines, and as the principal supporter of environmental
    biology, NSF's contributions have been extremely valuable to the U.S.
    research enterprise. We hope that the committee will do its best to
    ensure that the agency continues on this path. Thank you for
    consideration of our testimony and for your concern for the National
    Science Foundation.
                                     ______

         Prepared Statement of the Association of American Universities

        I appreciate the opportunity to submit testimony on behalf of the
    Association of American Universities (AAU). The AAU is an organization
    of 62 leading public and private research universities in the United
    States and Canada.
        I would first like to thank the subcommittee for its strong support
    of the National Science Foundation (NSF) and the National Aeronautics
    and Space Administration (NASA). Universities play a substantial role
    in the research activities of these two agencies, and your efforts to
    increase funding for them is very much appreciated.
        For the National Science Foundation, AAU supports an fiscal year
    2005 budget of $6.415 billion, an $837 million increase over the fiscal
    year 2004 enacted level of $5.578 billion. This would represent a 15
    percent increase over the level appropriated for NSF in fiscal year
    2004, the same growth rate authorized by Congress and the President in
    the NSF Authorization Act of 2002 (Public Law 107-368). AAU realizes,
    however, that such growth in the current fiscal environment would be
    extremely difficult. We hope that the subcommittee will provide as
    large an increase as possible in recognition that the investment is
    both needed and of critical importance to the Nation. The President has
    requested $5.745 billion for NSF in fiscal year 2005, an increase of 3
    percent, an increase which for reasons discussed below we view as being
    somewhat spurious.
        For NASA's Exploration, Science, and Aeronautics (ESA) account, AAU
    supports $8.0 billion, $240 million above the fiscal year 2004 level.
    AAU supports the space exploration vision announced by President Bush
    on January 14, 2004, but feels strongly that NASA's science offices can
    and must play a central role in both the early and long-term stages of
    the initiative. Developed over a relatively short period of time with
    limited input from the community, the space exploration initiative
    substantially delayed a number of opportunities on which the science
    community and NASA had agreed. While NASA has the authority to reset
    priorities, the cuts were made with no review or consultation with the
    community most affected. We urge that the subcommittee encourage NASA
    to engage with the National Academy of Sciences both to set the science
    goals of the exploration initiative and to examine the impact of
    deferred programs and to recommend ways by which the scientific returns
    from the new institutive can be maximized.

                          NATIONAL SCIENCE FOUNDATION

        NSF is the heart of the Federal investment in basic scientific
    research. Since its founding in 1950, NSF has had an extraordinary
    impact on American scientific discovery and technological innovation.
    Despite its size, it is the only Federal agency with responsibility for
    research and education in all major scientific and engineering fields.
    Approximately 95 percent of the agency's total budget directly supports
    the actual conduct of research and education, while less than 5 percent
    is spent on administration and management.
        I cannot overstate the importance to our Nation's future prosperity
    of investment in basic scientific research and in the people who
    conduct this research. From pioneering medical tools to robotics, from
    the invention of the Internet to fiber optics, from discovering how
    children learn to expanding our computing capacity, NSF has had an
    extraordinary impact on scientific discovery that has driven the
    Nation's economy and improved the quality of life.
        AAU recognizes that the VA-HUD and Independent Agencies
    Subcommittees on both the House and Senate side have been
    extraordinarily supportive of the NSF. In fiscal year 2001, with the
    subcommittee's help, Congress provided the single largest funding
    increase, in both percentage and dollar terms, in the history of the
    NSF. Substantial increases were also provided in fiscal year 2002,
    fiscal year 2003 and fiscal year 2004. We thank the subcommittee, and
    in particular Chairman Bond and Ranking Member Mikulski, for their
    critical role in securing these increases. The university community is
    enormously grateful for this support.
        AAU has real concerns about the President's proposed budget for
    NSF. Of the proposed $167 million funding increase requested,
    approximately $75 million is directed to the salaries and expense
    account for internal operations and staffing, making the real increase
    for NSF programs $92 million, an increase of only 1.6 percent. In
    addition, Research and Related Activities (R&RA) would increase to $4.5
    billion, a 4.7 percent increase over the fiscal year 2004 level of 4.3
    billion. Eighty million dollars of this funding comes from a transfer
    of funds to support previous obligations made under the Math Science
    Partnerships program which was previously funded as a part of the
    Education and Human Resources (EHR) account. If this transfer of MSP
    funds is discounted, the RR&A funding increase is only 2.8 percent over
    the fiscal year 2004 level.

    Restoration of the Math Science Partnerships
        AAU is deeply concerned about the administration's proposal to
    transfer NSF's Math Science Partnership (MSP) program to the Department
    of Education. In its current form within the Education and Human
    Resources account, this program links top scientific researchers at
    colleges and universities to elementary and secondary schools in an
    effort to improve the quality of math-science education. As a
    competitive grant program administered by the NSF, money is only
    awarded to the highest quality proposals based upon technical merit and
    a comprehensive peer review process.
        We are concerned that transferring the MSP program entirely to the
    Department of Education will fundamentally change the manner in which
    funds are distributed. The MSP program at the Department of Education
    is primarily a block grant program where funds are distributed to
    States on a formula basis. This would be a significant disincentive for
    the best researchers at our universities to continue to participate in
    this important program. Moreover, as currently constructed, NSF's MSP
    program focuses on the modeling, testing and identification of high-
    quality math-science activities whereas the Department of Education
    focuses on their dissemination.
        Because the MSP program at NSF is a unique program of proven
    effectiveness, we strongly encourage Congress to restore the $80
    million requested for the MSP program to the Education and Human
    Resources account and increase funding for the program to $140
    million--an amount slightly above what Congress provided in fiscal year
    2004.

    Fulfilling the Intent of the NSF Reauthorization Act of 2002 (Public
            Law 107-368)
        In a report to Congress required by the NSF Reauthorization Act of
    2002 (Public Law 107-368), the National Science Board (NSB) notes,
    ``There has never been a more critical or opportune time to invest in
    research and education.'' AAU concurs with this statement and urges
    Congress to fulfill the intent of Public Law 107-368 by increasing NSF
    funding in fiscal year 2005 at the rate suggested by this important
    legislation. Presently, 15 to 20 percent of highly-rated proposals to
    the NSF are not funded because of inadequate resources. In some NSF
    programs, this percentage is even higher.
        The NSB report proposes several areas for additional investment
    including: improving the productivity of researchers and expanding
    opportunities for students; opening new frontiers in research and
    education; building a diverse competitive and globally engaged U.S.
    science and engineering workforce; increasing the number and diversity
    of institutions that participate in NSF-funded activities; and
    providing researchers with advanced tools, facilities, and
    cyberinfrastructure. AAU supports the proportional funding that the NSB
    designates for these activities and urges that NSF funding increases be
    distributed accordingly.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

        NASA has a long history of productive collaboration with
    universities, supporting research that has given the United States the
    undisputed leadership role in the study of space and the earth's
    environment. University-based research, with important technological
    applications, has been supported through research grants, individual
    collaborations between faculty and NASA scientists, and formal
    partnerships between NASA centers and universities.
    A New Vision for Solar System Exploration
        A new vision for space exploration was announced by the
    administration in January. AAU supports NASA's new exploration goals
    and believes that the goals can and should be pursued in the context of
    fulfilling NASA's vision and mission statement. In doing so, science
    must play a key role and be nurtured, both in parallel to and as an
    integral part of exploration. The science programs should remain robust
    and exploration should be aided by the same kind of scientific guidance
    and community support that has consistently served our Nation over the
    years.
        AAU supports a robust human exploration program, guided by science
    and scientific goals. NASA has not had a mandate for its manned
    programs for 30 years, even though it has needed a clear goal to define
    the mission and purpose of that program. Moreover, the new vision for
    exploration is consistent with a recent report by the National Academy
    of Sciences that calls for a clear goal for human spaceflight, the
    exploration of the Moon and Mars as possible goals for human
    spaceflight, and the expectation that exploration will be a long-term
    endeavor accomplished through a series of small steps.
    Seek the Advice of the National Academy of Science
        While the Moon-Mars initiative has many positive aspects, it will
    be years before it yields any payoff in manned missions; all of the
    preparation will be done robotically. Moreover, human exploration is
    more than simply putting astronauts in space. These individuals become
    not only the subjects of studies that advance our knowledge in human
    biology, but also the operators of scientific experiments in a number
    of disciplines, not the least of which are the biological and physical
    sciences. Therefore, as the initiative proceeds, science must be a full
    partner. Scientific milestones--not just technological ones--should
    identified in the implementation plan.
        In addition, the space exploration initiative will have a major
    impact on many planned scientific missions that have been carefully
    developed over a period of years by advisory committees at NASA and the
    national academies. Relying heavily on community input and group
    consensus, the committees have laid out 10-year plans for specific
    scientific disciplines in decadal surveys. The prior advice includes
    explicit sets of consensus priorities for meeting goals that support
    the NASA mission. These efforts include hard choices on priorities and
    are not simply wish lists.
        Developed over a relatively short period of time with limited input
    from the community, the space exploration initiative substantially
    delays a number of opportunities on which the science community and
    NASA have agreed. For example, in the Beyond Einstein program, LISA is
    delayed to 2013, Constellation-X is delayed to 2016, and the Einstein
    Probes, including the Dark Energy Probe or Joint Dark Energy Mission,
    are deferred beyond the current budget 5-year horizon. The Sun-Earth-
    Connections strategic plan has also been affected, particularly the
    Solar-Terrestrial Probe line, the sub-orbital program, and the Guest
    Investigator and Supporting Research & Technology (SR&T) programs.
    Similar delays would also take place in the Earth Sciences.
        Certainly the administration has the authority to redirect NASA's
    priorities. However, funding reductions and delays in existing programs
    have been proposed with little consultation with the communities most
    affected. Therefore it is unlikely that the proposed program would
    realize an optimal science strategy. NASA should engage with the
    National Academy of Sciences to set the science goals of the
    exploration initiative, examine the impact of deferred programs, and
    recommend ways in which the scientific returns from the new initiative
    can be maximized. This review should include science performed under
    all three NASA science offices. The NAS already has underway a review
    of the final Hubble servicing mission at the subcommittee's request,
    but we suggest the National Academy be asked to review all the science
    programs as they relate to the space exploration initiative.
    Restore the Explorer Cut
        Although many of the cuts to existing NASA programs are in the
    outyears, some impacts will be felt immediately. The President proposes
    a reduced budget for the Explorer program resulting in a reduced flight
    rate for future Explorer missions. AAU urges that NASA proceed with the
    number of missions originally planned and that future Explorer
    Announcements of Opportunity (AO) not be slowed from the previously
    planned pace. We ask that $240 million be added for this purpose.
        The Explorer program has been extraordinarily successful, in part,
    because consistent funding and regular flights have provided frequent
    opportunities for scientific investigations from space. This in turn
    has driven NASA technology development with great efficiency. Heavily
    utilized by universities, the Explorer program is small in terms of
    size and budget. Total definition, development, launch service, and
    mission operations and data analysis costs may not exceed $240 million.
    Since the first mission, more than 70 U.S. and cooperative
    international scientific space missions have been flown on Explorer
    satellites, making impressive discoveries about the solar system and
    the universe beyond. Science magazine recently selected the results
    from the WMAP Explorer mission as the scientific breakthrough of the
    year in all areas of science.
        A similar program exists in the Earth Science Enterprise. While the
    Earth Pathfinders do not have as long a heritage as the Explorer
    program, they too have made remarkable advances. The TRMM mission has
    provided unprecedented information on rainfall over the tropics, which
    is leading to significant new scientific discoveries and improvements
    in weather prediction. The Explorer program and its Earth Science
    counterpart show how NASA has applied the concept of ``faster-cheaper-
    better'' most successfully. NASA should seek to maintain and enhance
    these valuable programs.
        I appreciate the opportunity to submit testimony on behalf of the
    AAU, and I hope the subcommittee will continue to provide strong
    funding for NSF and NASA science programs. It is in the best interest
    of the Nation and its scientific and technological strength.
                                     ______

                   Prepared Statement of The Wildlife Society

        The Wildlife Society appreciates the support that both the Congress
    and the administration have demonstrated for the National Science
    Foundation (NSF) through the enactment of the National Science
    Foundation Authorization Act of 2002. The Act authorizes a 5-year
    period of 15 percent annual budget increases and places the NSF on the
    ``doubling track'' in order to protect ongoing and future U.S.
    scientific and technological advancements in science.
        The Wildlife Society urges Congress and the administration to act
    upon their commitment to the NSF by increasing the fiscal year 2005
    funding level for this agency by 15 percent over the fiscal year 2004
    enacted budget, for a total of $6.415 billion.
        The Wildlife Society encourages you to consider our funding
    recommendation for the National Science Foundation's fiscal year 2005
    budget. Despite tough budget times, this kind of investment is
    critical. NSF is one of the Nation's greatest tools for the promotion
    and advancement of scientific research and education. Although NSF
    accounts for only 4 percent of Federal Research and Development
    spending, it supports nearly 50 percent of the non-medical Biological
    Sciences research at our colleges and universities.

                              BIOLOGICAL SERVICES

        Within the Research and Related Activities (R&RA) account, the
    Biological Sciences Directorate is of particular interest to the
    wildlife conservation and management community. The Biological Sciences
    Activity (BIO) supports research, infrastructure, and education at U.S.
    academic institutions.
        BIO provides 65 percent of the support for basic research in non-
    medical aspects of the biological sciences at academic institutions.
    Because the majority of Federal support for the life sciences--over 85
    percent--goes to health-related research funded by the National
    Institute of Health, NSF's contribution to the broad array of the
    biological sciences is highly significant and strategically focused--
    particularly in such areas as environmental biology and plant sciences.
    In nationally important issues related to wildlife and wildlife
    habitat, BIO-supported research enhances the understanding of how
    living organisms function and interact with non-living systems.
        Current research includes a project funded by the Division of
    Environmental Biology that is investigating the elk-wolf interactions
    in Yellowstone National Park. Results of the project will enhance
    fundamental knowledge of large mammalian systems and facilitate design
    of sound endangered species programs. BIO-supported researchers have
    modeled the population density and foraging behavior of Brazilian free-
    tailed bats and determined that bats from two Texas caves provide pest
    control service for crops including corn and cotton. The estimated
    value of the protection afforded the cotton crop by bats from the two
    caves amounts to as much as $258.0 million annually; thus conserving
    bat diversity and habitat is both biologically and economically
    beneficial.
        The President's budget proposal restricts the BIO program to an
    increase of approximately 2 percent. We recommend you provide the
    Biological Sciences account with an increase equal to the overall R&RA
    increase, which is 4.7 percent over the fiscal year 2004 enacted level.
    This would equal an increase of $27.58 million for Biological Sciences,
    for a total budget of $614.47 million in fiscal year 2005.

                                     TOOLS

        Tools, the NSF strategic goal to revitalize and upgrade aging
    infrastructure, enables progress in research and education by providing
    the cutting edge tools necessary for working with today's complex and
    highly variable research tasks. The Wildlife Society supports the
    President's requested $58.3 million increase for the Tools account,
    Major Research Equipment and Construction Facilities (MREFC). Increased
    funding for MREFC will support ongoing projects and provide funding
    necessary to launch proposed projects.
        We urge you to support the President's request of $12 million in
    fiscal year 2005 for the proposed National Ecological Observatory
    Network (NEON) project under the MREFC account. NEON will be a
    continental-scale research instrument consisting of geographically
    distributed observatories, networked via state-of-the-art
    communications allowing scientists and engineers to conduct research
    spanning all levels of biological organization. NEON will provide
    researchers with important tools necessary to address ecological
    questions regarding habitat and wildlife conservation in the U.S.
    Examples of research questions that could be addressed by NEON include:
    the spread of infectious agents like West Nile Hanta virus, and the
    affect of western wildfires on water quality.

                           ABOUT THE WILDLIFE SOCIETY

        The Wildlife Society is the association of nearly 9,000
    professional wildlife biologists and managers dedicated to excellence
    in wildlife stewardship through science and education. Our mission is
    to enhance the ability of wildlife professionals to conserve diversity,
    sustain productivity, and ensure responsible use of wildlife resources
    for the benefit of society. The Wildlife Society supports all aspects
    of Federal programs that benefit wildlife and wildlife habitat through
    research and education.
        Please include this testimony in the official record. Thank you for
    the opportunity to share our views with the committee.
                                     ______

        Prepared Statement of the Great Lakes Indian Fish and Wildlife
                                   Commission

        EPA--Environmental Programs and Management Account.--$300,000 (same
    as fiscal year 2004 enacted) as a stable funding base so that GLIFWC
    can: (1) Bring a tribal perspective to the mix of Great Lakes managers;
    and (2) Use its scientific expertise to study issues that directly bear
    upon the health of tribal members and the ecosystems that sustain
    treaty harvests of fish, wildlife and wild rice. Specifically:
        Lake Superior Binational Program and Lake Superior LaMP.--$80,000
    for continued participation in the Binational Program, in implementing
    the Lake Superior LaMP, and in IJC, SOLEC, and other Great Lakes
    forums.
        Habitat and Human Health Research Projects.--$220,000 for research
    projects in three areas of GLIFWC's particular expertise and
    experience:
      --Lake Superior Habitat and Human Health Research.--$90,000 for
            ongoing research projects on contaminant levels in Lake
            Superior fish and on potentially contaminated whitefish and
            lake trout spawning reefs in Lake Superior.
      --Mercury/Heavy Metals in Biota Research.--$90,000 for a 3-year
            project to assess the risks posed to fish and wild rice by
            habitat disturbances within watersheds.
      --Sulfide Mining Evaluation and Monitoring.--$40,000 to assess the
            impacts of contaminants leaking from the closed Flambeau Mine
            in Wisconsin, to develop a groundwater flow scoping model for
            the proposed Yellow Dog mine in the Michigan Upper Peninsula,
            and generally to continue to gather data regarding other
            identified potential mining sites in northern Wisconsin and the
            Upper Peninsula of Michigan.
        Federal Responsibilities and Funding Authority.--Over the past 10
    years, Congress and EPA have funded GLIFWC's treaty rights
    environmental protection program to meet specific Federal
    responsibilities including: (1) Treaty obligations under the U.S./
    Chippewa treaties of 1836, 1837, 1842, and 1854; (2) Federal trust
    responsibility toward Indian Tribes; (3) Court decisions affirming the
    treaty rights, including a 1999 U.S. Supreme Court decision; and (4)
    Federal statutes requiring integration of Tribes into Federal
    environmental programs, such as the Clean Water Act (33 U.S.C.  1268)
    [EPA and GLNPO to integrate tribal agencies in the development and
    implementation of action plans to carry out the United States'
    responsibilities under the Great Lakes Water Quality Agreement].
        Ceded Territory Treaty Rights and GLIFWC's Role.--Tribal members
    rely upon fish, wildlife, and plants for religious, cultural,
    medicinal, subsistence, and economic purposes. Their treaty rights mean
    little if contamination of these resources threatens the health,
    safety, and economy of tribal members, or if the habitats supporting
    these resources are degraded.
        GLIFWC was established in 1984 as a ``tribal organization'' within
    the meaning of the Indian Self-Determination Act (Public Law 93-638).
    It exercises authority delegated by its member tribes to implement
    Federal court orders and various interjurisdictional agreements related
    to their treaty rights. GLIFWC assists its member tribes in:
      --securing and implementing treaty guaranteed rights to hunt, fish,
            and gather in Chippewa treaty ceded territories; and
      --cooperatively managing and protecting ceded territory natural
            resources and their habitats.

        The requested EPA funds would assist GLIFWC in achieving its
    broader conservation/habitat protection mission by maintaining
    partnerships with other resource managers and scientific/conservation
    organizations and by funding specific environmental research projects.
        For nearly 20 years, Congress and administrations have funded
    GLIFWC through the BIA, EPA and other agencies to meet specific Federal
    obligations under: (a) a number of U.S./Chippewa treaties; (b) the
    Federal trust responsibility; (c) the Indian Self-Determination Act,
    the Clean Water Act, and other legislation; and (d) various court
    decisions, including a 1999 U.S. Supreme Court case, affirming the
    treaty rights of GLIFWC's member tribes.
        GLIFWC serves as a cost efficient agency to conserve natural
    resources, to effectively regulate harvests of natural resources shared
    among treaty signatory tribes, to develop cooperative partnerships with
    other government agencies, educational institutions, and non-
    governmental organizations, and to work with its member tribes to
    protect and conserve ceded territory natural resources.
        As directed by its member tribes, GLIFWC operates a comprehensive
    ceded territory natural resources conservation and protection program
    through its staff of biologists, scientists, technicians, conservation
    enforcement officers, and public information specialists.
        GLIFWC's program includes: natural resource population assessments;
    biological and scientific research; development of natural resource
    management plans and tribal harvest regulations; invasive species
    eradication and control projects; harvest monitoring and reporting;
    enforcement of tribal conservation codes into tribal courts; funding
    for tribal courts and tribal registration/permit stations; negotiation
    and implementation of agreements with State, Federal and local
    agencies; and development and dissemination of public information
    materials.
        GLIFWC Programs Currently Funded by EPA.--GLIFWC currently
    administers EPA funding for a variety of ceded territory environmental
    protection programs and studies.
      --Participation in the Lake Superior Binational Program.--Since
            fiscal year 1996, EPA has provided CEM funds of about $80,000
            per year for a 1 FTE position to facilitate GLIFWC's
            participation in the Binational Program to Restore and Protect
            Lake Superior, including preparation and implementation of the
            Lake Superior LaMP and participation in various International
            Joint Commission (IJC) and State of the Lake Ecosystem
            Conference (SOLEC) forums.
      --Study of Proposed Sulfide Mining in Wisconsin.--Since fiscal year
            2001, EPA funding of over $210,000 has allowed GLIFWC to
            conduct a number of technical studies and assessments (such as
            hydrological modeling, contaminant transport analysis, and
            baseline biomonitoring studies) of a proposed mine in
            Wisconsin, to participate as a ``cooperating agency'' in the
            preparation of the Federal EIS, and to maintain hydrological
            and contaminant transport expertise.
      --Ceded Territory Fish Consumption Mercury Advisory Program.--In
            fiscal year 2004, Congress appropriated $141,000 to continue
            GLIFWC's long-standing program to collect and test fish for
            mercury content and to communicate testing results to tribal
            communities and the public through health care providers and
            Geographic Information System (GIS) maps.
      --Research and Special Projects.--Since fiscal year 1997, EPA has
            provided a combination of CEM, GLNPO, and Environmental Justice
            funds for GLIFWC to conduct scientific research, including the
            testing of several Lake Superior fish species for dioxin and
            persistent organic pollutants, resulting in data relevant to
            the Binational Program/Lake Superior LaMP and to human health.
            In fiscal year 2004, Congress appropriated about $90,000 for
            GLIFWC to study the potential impacts of mine waste (stamp
            sands) on a lake trout and whitefish spawning reef near
            Michigan's Keweenaw Peninsula in Lake Superior.
        Fiscal Year 2005 Funding Needs/Rationale.--GLIFWC would use fiscal
    year 2005 funds for:
      --Participation in the Lake Superior Binational Program.--$80,000 for
            continued funding of GLIFWC staff (1 FTE equivalent, and
            related travel and other expenses) who will participate in the
            Binational Program, in the on-going implementation of the Lake
            Superior LaMP, in IJC and SOLEC forums, and in the
            implementation of the Great Lakes Strategy for 2002--A Plan for
            the New Millennium.
          Rationale.--The purpose of this funding is to help provide basic
            infrastructure for tribal participation consistent with Federal
            treaty obligations and the trust responsibility.
          GLIFWC has been actively involved in the Binational Program since
            1993. GLIFWC currently serves on the Binational Program's Task
            Force and Workgroup, and on the Workgroup's chemical,
            terrestrial and habitat committees. Its staff Co-Chairs the
            Workgroup's habitat committee and terrestrial committee. GLIFWC
            is participating in the on-going review and implementation of
            the Lake Superior LaMP. It also helps to liaison with other
            relevant Great Lakes institutions, such as the Great Lakes
            Fishery Commission, on issues of mutual concern between
            environmental and natural resource managers.
          As for IJC forums, GLIFWC staff regularly attend the biennial IJC
            meetings and provide periodic comments when issues arise in the
            interim, such as on the matter of Great Lakes water diversions.
            Within the last 3 years, GLIFWC staff: (i) addressed the 2000
            plenary session at SOLEC on the topic of wild rice and
            organized a breakout session on wild rice; (ii) participated in
            SOLEC sessions on human health issues related to environmental
            contaminants, Great Lakes bio-monitoring indexes, and
            Traditional Ecological Knowledge (TEK) techniques; (iii)
            participated in the U.S. EPA/American Fisheries Society Fish
            Contaminant Forum; (iv) presented a platform entitled ``PCB
            Aroclors, Methylmercury and Selenium in Lake Superior Fish'' at
            Midwest SETAC's 11th Annual Meeting; (v) participated in the
            FDA and EPA Development of a Joint Advisory for Methylmercury-
            containing Fish Consumption for Women of Childbearing Age and
            Children; and (vi) participated in the Great Lakes Radio
            Consortium ``Native Americans Weigh Contaminated Fish Risks''
            program.
      --Habitat and Human Health-Related Research/Special Projects.--
            $220,000 for Lake Superior habitat and human health research
            projects.
          Rationale.--GLIFWC has undertaken a number of studies over the
            years related to the Lake Superior ecosystem. For example, with
            GLNPO and CEM funds, GLIFWC is preparing a report on the threat
            of wetland and terrestrial exotic plants to Lake Superior, has
            studied sturgeon in the Lake Superior basin, and has prepared
            GIS maps of fish spawning and nursery locations for both native
            and exotic species. In addition, as part of its ongoing natural
            resource contaminant/human health research, GLIFWC used
            Environmental Justice grants to update its fish consumption
            advisory database and to undertake wild rice contaminant
            research for heavy metals.
          For fiscal year 2005, research would be in three areas:
        --Lake Superior Research Projects ($90,000).--Two projects for the
                upcoming year:
          --Keweenaw Peninsula Mining Waste Assessment.--Assess impacts
                from mining waste (stamp sands) dumped into Lake Superior
                near Upper Michigan's Keweenaw Peninsula during the late
                1800's, map important whitefish and lake trout spawning
                reefs, and determine the distribution of stamp sands in
                relation to the spawning reefs. This study specifically
                addresses objectives of the Binational Program's Aquatic
                Communities Committee 2004-2006 work plan to identify and
                quantify critical habitat for key fish species and to
                develop linkages between habitat supply and fish community
                production.
          --Lake Superior Herring Contaminant Assessment.--Assess mercury,
                PCB and organochlorine pesticide levels in lake herring
                harvested by tribes in west-central Lake Superior, and
                evaluate the new data in relation to current fish
                consumption advisories. The Lake Superior LaMP 2000
                identifies the need to improve the effectiveness of fish
                consumption advisories and to test contaminants in
                commercially-sold Lake Superior fish. There is a dearth of
                data on lake herring, yet it accounted for a total harvest
                of almost 1.4 million pounds lakewide in 2000 and was the
                second most harvested fish in the U.S. waters of Lake
                Superior.
        --Mercury/Heavy Metals in Biota Research ($90,000).--Assess whether
                habitat disturbance within a watershed increases the risk
                that contaminants pose to walleye and wild rice. Previous
                GLIFWC research suggests that fluctuating water levels in
                riparian wetland habitat appeared to mobilize methylmercury
                in a number of FERC-regulated reservoirs in northern
                Wisconsin. The fiscal year 2005 funding would allow GLIFWC
                to expand upon previous studies of watershed
                characteristics and heavy metals in biota. This project
                would involve 2 years of baseline data collection and one
                year of analysis and statistical modeling.
        --Sulfide Mining Evaluation and Monitoring ($40,000).--Using the
                expertise and experience it gained in assessing the
                proposed Crandon Mine in northern Wisconsin, GLIFWC would:
          --Flambeau Mine in Northern Wisconsin.--Assess the impact of
                contaminants leaking into the adjacent Flambeau River from
                the re-filled Flambeau Mine pit near Ladysmith, Wisconsin,
                by testing mussels for 1 year and crayfish for 3 years in
                the river above and below the location of the refilled pit.
                Analysis of mussel shells and soft tissue should provide
                both a measure of recent metals exposure and of metals
                exposure over the life of the individuals.
          --Yellow Dog Mine in the Upper Peninsula of Michigan.--Develop a
                groundwater flow scoping model to assess the potential
                impact of a proposed sulfide copper mine on two Lake
                Superior Tributaries--the Salmon-Trout River and Yellow Dog
                River. GLIFWC would explore the impacts of both open pit
                and deep mining activities by identifying which feeder
                streams should be monitored and the geological information
                needed to refine future models to ensure protection of
                aquatic habitats, including water quality and quantity.
          --Sulfide Mining Evaluation and Monitoring.--Continue to gather
                data regarding other identified potential mining sites in
                northern Wisconsin and the Upper Peninsula of Michigan. In
                1997 and 1998, GLIFWC evaluated the likelihood that sulfide
                deposits located in the ceded territories would be
                developed for mineral extraction. Since then, there has
                been new exploration in the western Upper Peninsula of
                Michigan and continued exploration in north-central
                Wisconsin. GLIFWC would collect available records of
                mineral leasing, as well as drilling and land purchases by
                mining/exploration companies, to continue monitoring the
                potential for mining in the 1842 and 1837 Ceded
                Territories. With this information GLIFWC would identify
                watersheds and tribal communities most likely to be
                impacted by mine development.
                                     ______

      Prepared Statement of the American Society for Engineering Education

        On behalf of the American Society for Engineering Education
    Engineering Deans Council (EDC), I would like to express appreciation
    for the opportunity to present testimony for the record on fiscal year
    2005 appropriations for the National Science Foundation. I request that
    my testimony be made part of the record of the hearings on the fiscal
    year 2005 NSF budget. I want to begin by thanking the Chairman
    Christopher Bond and Ranking Minority Member Barbara Mikulski and all
    the other members of this subcommittee for their strong and continuing
    support for a strong budget for the National Science Foundation and for
    supporting the doubling of the NSF budget over 5 years. The NSF plays a
    vital role in supporting and advancing basic research in science and
    engineering and in developing the human capital needed to advance
    science and technology. Funding levels for the agency greatly impact
    engineering educators, as well as the Nation as a whole.
        The Engineering Deans Council thanks the Congress and the
    administration for recognizing the importance of the National Science
    Foundation by enacting the NSF Authorization Act of 2002, which
    provides for doubling the budget of the National Science Foundation
    over a 5-year period. This Act represents a major milestone for the NSF
    and for the scientific community, because it authorizes raising the
    budget of the NSF from its fiscal year 2002 level of approximately $4.8
    billion to the level of $9.8 billion in fiscal year 2007.
        For fiscal year 2005 the EDC advocates raising the NSF budget by 15
    percent above the fiscal year 2004 enacted level of $5.6 billion, to
    $6.1 billion. Even in tough budget years, this kind of investment is
    critical to developing the human and technical infrastructure that will
    continue to be the basis of economic growth and security for the
    country.
        The EDC strongly opposes the administration's proposal to phase out
    the NSF Math and Science Partnership (MSP) Program in favor of a
    similar program in the Department of Education, and instead urges
    Congress to fully fund the NSF MSP. The Engineering Deans Council also
    strongly supports the 5-year Workforce for the 21st Century Initiative
    under which all the NSF directorates will be partnering in an
    integrated research and education effort to address science and
    engineering workforce needs. The EDC supports the $20 million requested
    by the administration for this program.
        The NSF occupies a unique position, with the ability to influence
    the economic strength of the Nation through research and innovation.
    Basic research funded through the NSF opens the doors for further
    discoveries that can advance medical care, improve communication
    equipment, and contribute to creating better civilian and military
    security systems. In the current climate of global economic competition
    and a heightened need to protect our citizens and infrastructure,
    strong support of the NSF serves a vital national interest.
        Science and technology have become a core component of economic
    strength and competitiveness. The NSF brings special expertise to the
    task of identifying and promoting the basic science and engineering
    research that underlies the United States' world economic leadership.
    Research sponsored by the NSF is vital to the Nation's investment
    across the scientific disciplines, and yields short term benefits and
    future advances for our national and homeland security, economic
    prosperity, quality of life, and educational growth. A growing chorus
    touts the importance of this kind of Federal engagement with science
    and technology, including Federal Reserve Chairman Alan Greenspan, the
    Council on Competitiveness, and Business Week, among many others. As
    Chairman Greenspan said before the House Education Committee in March
    2004, ``Technological advance is continually altering the shape,
    nature, and complexity of our economic processes. To effectively manage
    this ever-increasing complexity, our labor force has had to become more
    and more technically oriented.'' To become more technically oriented as
    a society, research is crucial.
        NSF is the sole Federal agency charged with the important task of
    funding a broad range of research, spanning a wide variety of
    disciplines including basic science, engineering, mathematics, and
    computing. It provides necessary financial and intellectual support for
    scientists working on groundbreaking research, much of which will lead
    to innovations that could impact any number of emerging technologies.
    While NSF accounts for less than 4 percent of total Federal research
    and development spending, the agency supports almost half of the non-
    medical basic research at American colleges and universities. In the
    field of engineering, NSF provides nearly one-third of all Federal
    support for basic research and has contributed to important
    developments such as computer-aided design, fiber optics,
    biotechnology, advanced composite materials, and magnetic resonance
    imaging (MRI). Renewing support for research and equipment will allow
    the Nation to take advantage of the opportunities presented by these
    new technologies, creating further economic opportunities and improving
    overall quality of life.
        NSF-sponsored research has led to many of the current developments
    in the area of homeland security. Recent NSF projects ranging from
    improving bomb detection to preventing an attack on our water supply
    help bolster our Nation's ability to prevent and respond to terrorist
    attacks. ``The scientific and engineering community is aware that it
    can make a critical contribution to protecting the nation from
    catastrophic terrorism,'' Lewis M. Branscomb, emeritus professor, John
    F. Kennedy School of Government, said in a 2002 National Academies of
    Science report.
        The benefits of a strong science investment are evident as the men
    and women of our armed forces respond to unprecedented threats to U.S.
    national security. Because of its superiority, much of it brought about
    by investments in S&T, this Nation's military is successfully waging
    war against terrorism. In this new environment, characterized by
    unforeseen and unpredictable threats, maintaining and enhancing
    technological superiority will become even more imperative.
        Across all fields, NSF support for research produces first-rate
    results on modest levels of investment. NSF-supported work is
    exceptionally well managed, and regularly attracts additional funding
    from outside sources. The agency has a diverse, responsive, results-
    oriented staff, efficient business processes that take advantage of
    staff knowledge and technology resources, and state-of-the-art business
    tools and technology. NSF has exceptional business practices, as seen
    by winning two ``greens'' on the President's Management Agenda
    scorecard and receiving the President's 2003 Award for Management
    Excellence. Former OMB Director Mitchell Daniels said that the NSF
    deserves to be strengthened, noting, ``NSF is one of the true centers
    of excellence in the government where 95 percent of the funds that
    taxpayers provide goes out on a competitive basis directly to
    researchers pursuing the frontiers of science at a very low overhead
    cost.'' NSF's management successes include doubling its budget between
    1990 and 2000 while simultaneously decreasing the number of employees
    at the agency.
        Much of NSF's work looks beyond technological innovation by
    engaging new generations of students to aid in discoveries while
    gaining valuable skills that help prepare them for the cutting-edge
    research of the future. Many NSF grants require undergraduate students
    to be involved in performing federally funded research. K-12 teachers
    are invited to join in summer research programs at MIT's Radio Haystack
    Observatory, and then are able to develop lesson plans that integrate
    modern scientific concepts and real life research processes. The NSF's
    Math and Science Partnership Program extends improved science education
    into classrooms by uniting local school districts with the faculties of
    nearby colleges and universities. NSF also helped to sponsor ``Deans
    Summit II: Fostering Campus Collaborations,'' last year. The meeting
    catalyzed the formation of many partnerships between engineering and
    education deans to improve K-12 science and mathematics education. Top
    science teachers, such as those who have won Presidential Awards, have
    singled out the NSF's Math and Science Partnership Program for their
    success. ``I am not an extraordinary teacher, but I have been given
    extraordinary focus and opportunities by NSF,'' said 2003 Presidential
    Awardee Jonathan Roland, a physics teacher at Perry Hall High School in
    Baltimore, Maryland, at a recent House Science Committee hearing.
        Engaging students in science from their pre-kindergarten education
    through college will help endow growing generations of Americans with
    the skills and interests necessary both to maintain U.S. leadership in
    economic, health, and military fields, as well as to function as
    citizens in an increasingly technology-driven society. A vibrant
    engineering education enterprise benefits civic, economic, and
    intellectual activity in the country. Engineering graduates learn to
    integrate scientific and engineering principles to develop products and
    processes that contribute to economic growth, advances in medical care,
    enhanced national security systems, ecologically sound resource
    management, and many other beneficial areas. As a result, students who
    graduate with engineering degrees bring highly prized skills into a
    wide spectrum of sectors in the American workforce. Some conduct
    research that results in socially or economically valuable
    technological applications. Others produce and manage the technological
    innovations said to account for one-third to one-half of growth in the
    American economy. Still more bring advanced analytical abilities and
    knowledge of high technology to fields as diverse as health care,
    financial services, law, and government. Within all of these groups,
    the diversity of engineering graduates' backgrounds and viewpoints
    contributes to their ability to achieve the advances in innovation,
    productivity, and effectiveness that make them valuable contributors to
    the American workplace.
        Engineering graduates in particular bring highly prized skills into
    all sectors of the American workforce. The most advanced carry on the
    research that pays off in many surprising ways. Other engineering
    graduates produce and manage many of the technological innovations said
    to account for one-third to one-half of the recent growth in the
    American economy. Still others bring advanced analytical abilities and
    knowledge of high technology to fields as diverse as health care,
    financial services, law, and government. In the Addendum immediately
    following my testimony, I have attached additional documentation of the
    many ways NSF support is promoting engineering education and research
    at U.S. colleges and universities. This wealth of human capital owes
    much of its capacity to strategic NSF support for engineering
    education.
        A succession of predictable, sizable increases to the NSF budget
    will permit even greater development of human resources. In addition to
    the Math and Science Partnership initiative, NSF programs have become
    important vehicles for broadening the participation of under-
    represented groups such as minorities and women in the fields of
    science, math, and engineering. Through programs like the Experimental
    Program to Stimulate Competitive Research (EPSCoR), NSF works to
    strengthen the research and development infrastructure of many rural
    and low-population States. Consistent growth in the NSF budget will
    permit the allocation and coordination of the activities needed to
    promote the broadest possible development of science, mathematics, and
    technology skills among all Americans.
        A 15 percent increase for the NSF budget will enhance the value of
    the agency's other cross-cutting initiatives. New funding for
    multidisciplinary mathematics research will enhance the transfer of
    results and applications from mathematics and statistics research to
    science and engineering disciplines, expanding the cadre of researchers
    trained in both mathematics and science. Dynamic interdisciplinary work
    across engineering and science disciplines promises startling advances
    in, for example, medicine, manufacturing, and communications. The
    assurance of steady resources over extended periods of time for high-
    risk, high-reward endeavors--such as research in nanotechnology,
    biocomplexity, and high-speed computing--would greatly enhance their
    prospects for success. As Harold Varmus, former Director of the
    National Institutes of Health and currently President of the Memorial
    Sloan-Kettering Cancer Center, has said, ``it is crucial that leaders
    of science agencies be able to anticipate several years of steady
    growth during periods of expansion. These agencies make multi-year
    awards and are responsible for training and research infrastructure, as
    well as the operational costs of doing research.'' In an increasingly
    interdependent research system, the NSF is uniquely situated to
    initiate and promote productive exchanges across the full range of
    scientific and engineering disciplines.
        Thank you for the opportunity to present this testimony to the
    subcommittee. The Engineering Deans Council would be pleased to respond
    to any questions from you and your staff.
        The Engineering Deans Council of the American Society for
    Engineering Education (ASEE) is the leadership organization of more
    than 300 deans of engineering in the United States. Founded in 1893,
    ASEE in a non-profit association dedicated to the improvement of
    engineering and engineering technology education.

       ADDENDUM.--EXAMPLES OF NSF-FUNDED PROGRAMS AT ENGINEERING SCHOOLS

        Voice-Actuated Computers in Police Cars.--Electrical engineering
    professors are helping to create voice-actuated computers for patrol
    cars, to allow officers to quickly access computerized databases, such
    as motor vehicle license records and criminal records, while freeing up
    their hands. The goal of the University of New Hampshire project, which
    is funded in part by the NSF and the U.S. Department of Justice, is to
    improve the protection of officers and augment homeland security
    efforts by allowing safer and quicker access to important security
    databases.
        Improved Bomb Detection.--A Pennsylvania State University
    researcher, through a NSF grant, has developed a bomb detection portal
    capable of ``sniffing'' the air around a person and operates much like
    a conventional airport metal detector. The machine can detect trace
    amounts of explosives from anyone who has handled any explosive
    substance. The machine has been patented and is set to be used in
    airports.
        Preventing Attacks on U.S. Water Supplies.--Some parts of the
    Nation's water supply infrastructure are inherently vulnerable to
    terrorist attack. For example, working from the privacy of a secluded
    basement, a determined terrorist could surreptitiously inject pathogens
    or poisons into a municipal drinking water distribution system. To help
    water utilities anticipate and control this potential threat,
    researchers in Civil and Environmental Engineering at the University of
    Cincinnati are developing a new computer model to simulate contaminant
    movement through a water distribution system. The research, funded in
    part by the NSF, will help both large and small utilities across the
    Nation recognize and minimize the vulnerability of drinking water
    distribution systems to surreptitious terrorist attacks.
        Quickly Identifying Deadly Viruses.--A portable pathogen detector
    is currently being developed by scientists at the Center for
    Biophotonics at the University of California-Davis, through an NSF
    grant, to identify potentially deadly viruses and other biological
    agents in an unknown sample within 15 minutes. Originally developed at
    Lawrence Livermore National Laboratory with industry partners, the unit
    aims to help paramedics, emergency room specialists, police, and other
    first-responders who may unknowingly be exposed to bioterrorism or
    other infectious agents.
        Underwater Monitoring.--A professor of electrical engineering and
    materials science and engineering at Pennsylvania State University has
    developed a network sensor technology that can operate in liquid,
    thanks to a grant from the NSF. The new system allows for underwater
    monitoring that could prove useful for environmentalists,
    manufacturers, and homeland security personnel. Using a node-to-node
    multi-hop information transfer system, the research team was able to
    overcome the problem of water's interference with the radio transfer of
    information.
        Creating Artificial Vision.--A researcher at the University at
    Buffalo has created a silicon chip that mimics the structure and
    functionality of an octopus retina. The ``o-retina'' chip can process
    images just like an octopus eye does, allowing rescue or research
    robots to see more clearly than human eyes can in dark or murky
    conditions. The research, funded in part by the NSF, will help
    researchers build a complete artificial system, including a brain that
    mimics the visual systems of various animals, allowing humans to look
    at the world from different perspectives.
        Increasing Electrical Efficiencies.--In contrast to a large central
    generator that can supply a small city, researchers in Carnegie Mellon
    University's Electricity Industry Center have shown that there are many
    advantages to small generators to supply a neighborhood or even a large
    building. This distributed generation offers greater efficiency since
    it uses the ``waste heat'' from generation to heat water, buildings,
    and even cool buildings. Perhaps of greater importance, it offers lower
    electricity costs and greater reliability in the face of natural
    hazards and terror attacks. The work is funded in part by the NSF and
    the U.S. Office of Naval Research.
        Finding the Shortest Route Among a Set of Points.--The Traveling
    Salesman Problem, finding the shortest route among a set of points, is
    among the most studied in Computer Science. It is of high computational
    complexity, and has applications in logistics, manufacturing,
    transportation, and telecommunications, including airline routing,
    circuit board layout, and job shop scheduling. The Applied
    Computational Intelligence Lab at the University of Missouri-Rolla has
    developed an approximate solution algorithm that solves large instances
    much faster than competing approaches. It uses neural networks to
    divide the problem into subproblems that can then be solved and
    rejoined by more conventional algorithms. For the 10 million city case,
    the algorithm is four times faster than the nearest other known
    approach on a fast personal computer. The advantage rapidly grows even
    more significant with problem size. This work was funded by the
    National Science Foundation and Sandia National Laboratories.
        Improving One's Memory.--The Nation, and indeed, the world are
    undergoing an unprecedented shift in demographics, with the proportion
    of older adults increasing dramatically. To help meet the needs of this
    aging population, researchers from the University of Michigan, through
    an NSF grant, have developed intelligent computer-based technology that
    can assist people with memory impairment, by monitoring their
    performance of daily activities and providing them with flexible,
    adaptive reminders when needed. This technology will enable people to
    maintain their autonomy and remain in their homes longer, thus
    simultaneously increasing quality-of-life and decreasing the costs
    associated with institutionalization.
        Improving Technological Literacy.--As technology becomes integral
    to all aspects of society, the need for a technologically literate
    population becomes apparent. The Tufts (University) Engineering the
    Next Steps (TENS) GK-12 program, funded by the National Science
    Foundation, works from the Center for Engineering Educational Outreach
    to do just that. By pairing graduate and undergraduate Fellows from
    Tufts University's School of Engineering with teachers in K-12
    classrooms, content knowledge and methodologies of engineering and
    computer science are integrated into existing science and mathematics
    curricula. TENS works to increase teachers' knowledge of, comfort with,
    and ability to teach engineering and algorithm design to ultimately
    increase students' engineering knowledge and skills.
        Creating the World's Smallest Engine.--A group of Washington State
    University researchers has developed the world's smallest engine.
    Thinner than a piece of paper and fitting inside the hole of a
    Lifesaver, the engine is radically different in design, fabrication,
    and operation from any existing engine. The researchers hope to use
    their micro-engine as a viable power source for commonly used military
    devices, such as miniaturized radar or mobile robotic sensors, and to
    eliminate the need for problematic batteries, which weigh a lot for the
    power they produce and are difficult to recharge in the field. The work
    was funded in part by the NSF and the DOD.
        Devices for People with Disabilities.--What do a shoulder-steered
    tricycle for a boy born without arms, a foot-operated guitar strummer
    for a boy paralyzed on his right side, and an automatic swing for a
    girl with cerebral palsy have in common? All were built by Duke
    University students, as part of the Biomedical Engineering class
    ``Devices for People with Disabilities,'' funded in part by a grant
    from the NSF. In the past 7 years, small teams of students have
    designed, constructed, and delivered over 40 projects such as these to
    adults and children in the community. Students gain real-world
    engineering experience, and clients benefit by receiving devices that
    meet their needs free of charge.
        Environmental Cleanup of Mines.--Highly acidic drainage from an
    abandoned sulfide mine in Rowe, Massachusetts, is slowly cleaning
    itself over time, and an interdisciplinary research team from the
    University of Massachusetts at Amherst is studying why. The group
    brings together experts from the fields of microbiology, geology,
    engineering, and science education, to determine the extent and rate of
    bioremediation. Researchers say their findings may enable quicker
    natural cleanups not just at this mine, but at others throughout the
    country and the world. The interdisciplinary project is funded by the
    ``Biocomplexity in the Environment'' program of the National Science
    Foundation.
                                     ______

          Prepared Statement of the American Museum of Natural History

                  ABOUT THE AMERICAN MUSEUM OF NATURAL HISTORY

        The American Museum of Natural History (AMNH) is one of the
    Nation's preeminent institutions for scientific research and public
    education. Since its founding in 1869, the Museum has pursued its
    mission to ``discover, interpret, and disseminate--through scientific
    research and education--knowledge about human cultures, the natural
    world, and the universe.'' It is renowned for its exhibitions and
    collections of more than 32 million natural specimens and cultural
    artifacts. With nearly 4 million annual visitors--approximately half of
    them children--its audience is one of the largest, fastest growing, and
    most diverse of any museum in the country. Museum scientists conduct
    groundbreaking research in fields ranging from all branches of zoology,
    comparative genomics, and informatics to earth, space, and
    environmental sciences and biodiversity conservation. Their work forms
    the basis for all the Museum's activities that seek to explain complex
    issues and help people to understand the events and processes that
    created and continue to shape the Earth, life and civilization on this
    planet, and the universe beyond.
        Today more than 200 Museum scientists, in five science divisions
    (Anthropology; Earth, Planetary, and Space Sciences; Invertebrate
    Zoology; Paleontology; and Vertebrate Zoology) as well as the Center
    for Biodiversity and Conservation conduct groundbreaking lab and field
    research. This research includes 100 expeditions each year and field
    station investigations at the Museum's Southwestern Research Station in
    Arizona. The Museum also conducts graduate training programs in
    conjunction with a host of distinguished universities, supports
    doctoral and postdoctoral scientists with highly competitive research
    fellowships, and offers talented undergraduates an opportunity to work
    with Museum scientists.
        The Museum's Center for Biodiversity and Conservation, founded in
    1993, is dedicated to enhancing the use of rigorous scientific data to
    mitigate critical threats to global biodiversity. The CBC draws on the
    strengths of the Museum's scientific, education, and exhibition
    departments to integrate this information into the conservation process
    and to disseminate it widely. It forges key partnerships to conduct
    conservation-related field projects around the world, train scientists,
    organize scientific symposia, present public programs, and produce
    publications geared toward scientists, policy makers, and the lay
    public. Each spring, the CBC hosts a symposium that focuses on
    conservation issues. In 2002, the symposium, ``Sustaining Seascapes:
    the Science and Policy of Marine Resource Management,'' examined the
    large-scale conservation of marine and coastal ecosystems, giving
    special consideration to novel approaches to the sustainable management
    of biodiversity and fisheries. The focus of 2003's symposium was on
    conservation issues related to increased ecotourism in Southeast Asia,
    and 2004's symposium examines the role of invertebrates in
    environmental systems.
        The Museum's vast collections are a major scientific resource,
    providing the foundation for the Museum's interrelated research,
    education, and exhibition missions. They often include endangered and
    extinct species as well as many of the only known ``type specimens''--
    examples of species by which all other finds are compared. Collections
    such as these are historical libraries of expertly identified and
    documented examples of species and artifacts, providing an
    irreplaceable record of life on earth. They provide vital data for
    Museum scientists as well for more than 250 national and international
    visiting scientists each year.
        The Museum interprets the work of its scientists, highlights its
    collections, addresses current scientific and cultural issues, and
    promotes public understanding of science through its renowned permanent
    and temporary exhibits as well as its comprehensive education programs.
    These programs attract more than 400,000 students and teachers and more
    than 5,000 teachers for professional development opportunities. The
    Museum also takes its resources beyond its walls through the National
    Center for Science Literacy, Education, and Technology, launched in
    1997 in partnership with NASA.
        An exciting chapter in the Museum's history occurred last spring
    when one of the flagship and most popular halls--the Hall of Ocean
    Life--reopened after an extensive renovation. Drawing on the Museum's
    world-renowned expertise in Ichthyology as well as other areas of
    vertebrate and invertebrate zoology, the Hall is pivotal in educating
    visitors about the oceans' key role in sustaining life on our planet.
    The renovated Hall of Ocean Life, together with the new Halls of
    Biodiversity, Planet Earth, and the Universe and the rebuilt Hayden
    Planetarium (part of the new Rose Center for Earth and Space), provides
    visitors with a seamless educational journey from the universe's
    beginnings, to the formation and processes of Earth, to the
    extraordinary diversity of life on our planet.

                  COMMON GOALS OF EPA AND THE AMERICAN MUSEUM

        The Environmental Protection Agency (EPA) is dedicated to
    protecting and safeguarding human health and the environment. With a
    focus on environmental results--making the air cleaner, water purer,
    and better protecting our land through the application of sound science
    and the conduct of leading-edge research--the Agency seeks to ensure
    that environmental protection contributes to making our communities and
    ecosystems diverse, sustainable, and economically productive. Its
    fundamental purposes include ensuring that all parts of society have
    access to accurate information sufficient to effectively participate in
    managing human health and environmental risks.
        The American Museum shares EPA's commitment to these environmental
    goals and to the scientific research, technologies, and public
    education that underlie them. Indeed, informed environmental
    stewardship and preservation of our planet's biodiversity and
    resources--in aquatic, wetland, and other natural environments and
    ecosystems--are integral to the Museum's most fundamental purposes.
    Museum scientists conduct research worldwide on conservation biology
    and habitat protection. Their investigations advance scientific
    understanding and public awareness of these vital issues.
        New research tools--including Geographical Information Systems
    (GIS) and remote sensing, molecular technologies, new collection types,
    innovations in computation--are revolutionizing the way research can be
    conducted and data analyzed, as well as the way museum collections can
    be used and accessed by scientists, educators, policy makers, and the
    general public. The Museum has also long been at the forefront of
    developing new research tools and methods, and today the CBC and the
    science divisions are carrying out leading research programs using the
    Museum's unmatched resources and technologies. Museum research
    resources include the following:
        Remote Sensing and Geographical Information Systems Technologies.--
    The CBC houses a Remote Sensing/Geographical Information Systems (RS/
    GIS) lab that has had noted success since it was launched in the fall
    of 1998. Wise conservation policy requires effective knowledge of the
    distribution of species and ecological communities at local, regional,
    and global scales. Without this information, it is difficult to decide
    where to allocate scarce conservation resources. Remote sensing
    technologies can provide essential data on such things as land-cover
    and land-use, as well as sea surface temperatures and chlorophyll
    content. GIS makes it possible for scientists to compare and visualize
    the relationships among satellite and legacy data, raw standardized
    samples, and data obtained through ground truthing. Because it provides
    the database backbone that can connect fieldwork to analysis, GIS is
    becoming an indispensable component in environmental data analysis and
    is thus revolutionizing work in conservation.
        The CBC uses its RS/GIS technologies in biodiversity, ecosystem,
    and environmental research in ways aligned with EPA goals. Its uses of
    RS/GIS include identifying sites suitable for biological inventory;
    providing supplementary quantitative and qualitative data in and around
    study sites (e.g. extent of habitat fragmentation); and developing
    persuasive visual depictions and digital presentations for reports,
    publications, and conferences.
        Molecular Research Program.--The Museum is also home to a
    distinguished molecular systematics program that is at the leading edge
    of comparative genomics and the analysis of DNA sequences for
    biological research. It includes two Molecular Systematics
    Laboratories, with sophisticated technologies for sequencing and
    advancing genomics research. In these laboratories, more than 40
    researchers in molecular systematics, conservation genetics, and
    developmental biology conduct their research on a variety of study
    organisms. Their work is supported by the Museum's new frozen tissue
    collection of biological tissues and isolated DNA stored in a super-
    cold storage facility. This collection is an invaluable resource for
    research in many fields, including conservation biology, genetics, and
    comparative genomics, because it preserves genetic material and gene
    products from rare and endangered organisms that may become extinct
    before science fully exploits their potential. These researchers also
    have onsite access to a 700-processor supercomputing cluster--the
    fastest parallel computing cluster in an evolutionary biology
    laboratory and one of the fastest installed in a non-defense
    environment.
        Southwestern Research Station.--Since 1955, the Museum's
    Southwestern Research Station (SWRS) has served biologists, geologists,
    and anthropologists interested in studying the diverse environments and
    biotas of the Chiricahua Mountains in southeastern Arizona. Today,
    under the direction of the CBC, the Station welcomes scientists and
    advanced students from all parts of the country and from around the
    world to carry out their research projects in such varied fields as
    entomology, herpetology, botany, geology, and population, behavioral,
    and physiological ecology. Projects focus in particular on wetland and
    stream management and on riparian ecosystems.
        Building on the scientific strengths and resources outlined above,
    the Museum now proposes to launch, in partnership with EPA, a multi-
    faceted research, training, and education initiative focused on the
    role of water in healthy communities, ecosystems, and the environment
    as a whole. AMNH scientists will integrate remote sensing, GIS, and
    computational tools in basic and applied research in aquatic ecosystems
    and wetlands assessment, watershed restoration, and habitat loss. These
    activities support EPA's efforts to further strengthen the role of
    science in decision-making by using sound scientific information and
    analysis to help direct policy and establish priorities.
        The proposed initiative involves a variety of projects closely
    aligned with EPA's fundamental goals and whose results will be
    presented to stakeholders as well as the public through conferences,
    through development of technical guidance and information tools to
    support decision-making, and through education and outreach programs.
    Potential projects include:
      --Riparian Ecosystems Research.--Riparian ecosystems research will
            focus on questions of restoration, management, and monitoring,
            drawing on resources of the Museum and facilities of the
            Southwestern Research Station, including work on ephemeral and
            permanent ponds and streams. The research station offers unique
            advantages: Located in an area of high biodiversity, ecosystems
            range from desert to high elevation montane forests and
            riparian habitats that cross five life zone boundaries.
      --Research and Education on Biodiversity in Urbanizing Landscapes.--
            Research will target indicator taxa for particular projects,
            advancing knowledge of development's effects on biodiversity in
            sprawling environments. This is critical to EPA's ongoing work
            on smart growth, anti-sprawl initiatives, development of
            sustainable urban environments, and concern over the loss and
            destruction of habitat due to sprawl and exploitation of
            natural resources, invasive species, and non-point source
            pollution. Expansion of this project to make it applicable to a
            wider constituency would also match directly with EPA's smart
            growth educational offerings.
      --Regional Invertebrate Information Clearinghouse.--With links to
            resources, references, and ongoing research about invertebrates
            in the New York metropolitan region, a Clearinghouse would
            serve as an important source of information for those
            developing projects related to EPA priority research areas such
            as: effects of climate change; restoration monitoring protocols
            (e.g., related to wetlands, riparian corridors or brownfields);
            pollution and pesticide impacts; and water quality monitoring.
      --Freshwater Ecosystems Symposium.--Bringing together researchers,
            practitioners, and policy makers from a broad range of
            academic, government, and private sector entities, the
            symposium will provide an opportunity for diverse stakeholders
            to address current understanding of and approaches to managing
            and conserving freshwater systems. Sessions will address both
            ecological principles (hydrology, biogeochemistry,
            connectivity, etc.) and the resources in the manager's toolbox
            (such as reserves, flow management, riparian buffers,
            headwaters protection, restoration, integrated basin
            management, education and outreach on invasive species, and
            more). Proceedings will be disseminated widely and made
            available on the web.
        The Museum requests $1 million for this research, training, and
    public education initiative on the role of water in sustaining healthy
    communities, ecosystems, and the environment in which we live. In
    partnership with EPA, and with the Museum supporting its participatory
    share with funds from non-Federal as well as Federal sources, we will
    use cutting-edge technologies to advance basic and applied research,
    integrated with public education and outreach, to promote shared goals
    for safeguarding the natural environment.
                                     ______

              Prepared Statement of the Points of Light Foundation

        The Points of Light Foundation and Volunteer Center National
    Network request an appropriation increase from $10 million to $35
    million. $10 million would maintain the allocation to the Points of
    Light Foundation for its work at the national level. $25 million would
    be distributed to Volunteer Center members of the Points of Light
    Foundation for three purposes:
      --to expand the number of people engaged in traditional voluntary
            service;
      --to build the capacity for effective engagement of volunteers by
            training nonprofit agencies in volunteer management;
      --to expand operations so Volunteer Center services, which are
            currently available to approximately 50 percent of the
            population, are available to closer to 100 percent of the
            population of the United States.

                                   BACKGROUND

        Our American ideal is one of democracy, of civic engagement, and of
    individual participation in collective goals. To be successful as a
    form of government and as a society, democracy demands that people take
    responsibility for their communities, that they play an active role,
    that they be informed, and that they weigh and consider options before
    deciding on a course of action. The traditions upon which our country
    was founded and built have influenced the development of our spirit of
    volunteerism. Whether Native Americans, early immigrants, pioneers or
    more recent immigrants, Americans have always placed value and emphasis
    on hard work and self-reliance, on taking responsibility for our own
    life and actions.\1\
    ---------------------------------------------------------------------------
        \1\ Lautenschlager, Janet, Department of Canadian Heritage, 1992.
    ---------------------------------------------------------------------------
        Traditional community volunteering, in which individuals serve
    willingly and without expectation of financial remuneration, is perhaps
    the purest expression of both civic responsibility and civic
    engagement. The altruistic inclinations of individuals and groups are
    both strengthened and fulfilled through voluntary participation in
    activities that meet important needs in local communities. When people
    volunteer, they are indicating that they are part of the solution, not
    part of the problem. The benefits that inure to the traditional
    volunteer are significant and include a sense of fulfillment, of giving
    back to the community, and of inclusion in the broader world. People
    who volunteer feel connected to their society and, as such, have a
    deeper and broader sense of civic responsibility.
        Volunteer Centers in local communities provide the pivotal link
    between this human ideal of connectedness and its expression in the
    real world. They strengthen communities by connecting people with
    important local needs, and they strengthen organizations by building
    their capacity to effectively engage traditional volunteers.
        The work of Volunteer Centers is focused in four areas:
      --connecting people with opportunities to serve by maintaining
            knowledge through database reservoirs of volunteer
            opportunities in local communities; Volunteer Centers presently
            aggregate approximately 1.5 million valid, vetted opportunities
            for traditional volunteer service at public and private
            agencies.
      --building capacity for effective local volunteering by providing
            training for nonprofit agencies in volunteer program
            management. The Points of Light Foundation & Volunteer Center
            National Network have developed an outstanding six-session
            Volunteer Management Training Series that can be delivered by
            skilled Volunteer Center leaders to agencies.
      --promoting volunteering through recognition and awards programs and
            by extensive outreach through traditional and electronic media
            to people in local communities where they live, work, go to
            school, and worship.
      --participating in strategic initiatives that mobilize volunteers to
            meet important needs in local communities; utilizing their vast
            knowledge of communities and problems, the Volunteer Center
            National Network can serve as conveners, bringing relevant
            players to the table to address local issues. For example,
            Volunteer Centers are an integral part of Earned Income Tax
            Credit education and filing, and that they help communities
            prepare for, respond to and recover from disaster. They are
            also collaborators, working closely with stipended service
            programs to ensure integrated services to those engaged in both
            stipended and non-stipended service.

                                  THE PROBLEM

        The current budget includes nearly $1 billion to support domestic
    volunteer programs. However, there is virtually no support at the
    Federal level for the important work of engaging traditional volunteers
    in community service activities.
        The request of the Points of Light Foundation & Volunteer Center
    National Network is that an additional $25 million be allocated to
    support the efforts of Volunteer Centers to reach the 99 percent of
    Americans who will likely never participate in stipended service, but
    who may, if connected to volunteer opportunities and managed
    effectively, participate in traditional volunteer activities.

                THE SOLUTION--A RATIONALE FOR REQUESTED FUNDING

        Several recent studies provide the rationale for this request.
        Connecting people with opportunities to serve.--The Pew Partnership
    \2\ found that not only are many citizens are unaware of whom to turn
    to for information about community needs, but that ``the challenge for
    community problem solving efforts lies in knowing how to connect
    community issues with a public willing to work to solve them.''
    Furthermore, ``almost 40 percent of people who do not volunteer say
    that their lack of knowledge about which organizations needed their
    help or who to call contributed to their inaction.''
    ---------------------------------------------------------------------------
        \2\ http://www.pew-partnership.org/programs/civicengagement.
    ---------------------------------------------------------------------------
        Building capacity for effective volunteering.--The findings of a
    1998 study by UPS \3\ substantiate a crisis in volunteer management
    because volunteers expect the time they donate to be well managed, but
    too many are turned off by what they regard as inefficient use of their
    time by the agencies where people volunteer.
    ---------------------------------------------------------------------------
        \3\ United Parcel Service, 1998.
    ---------------------------------------------------------------------------
        Another study,\4\ prompted by questions raised following President
    Bush's call to service in his January 2002 State of the Union address,
    found that the call for thousands of new volunteers will not, by
    itself, create effective engagement of those volunteers. There must be
    a companion effort to ensure that volunteers are trained effectively,
    deployed in meaningful ways, supervised and recognized appropriately so
    that the volunteers can, in turn, deliver quality services to their
    communities. The study concludes that it will be necessary to increase
    the community capacity to accommodate the gifts of time and service
    provided by volunteers.
    ---------------------------------------------------------------------------
        \4\ The Cost of a Volunteer, Grantmaker Forum on National and
    Community Service, 2003.
    ---------------------------------------------------------------------------
        The Urban Institute \5\ reports that the problems that charities
    face in training and supervising volunteers could be alleviated if
    their staff received training on how to work with volunteers.
    ---------------------------------------------------------------------------
        \5\ The Urban Institute, 2004.
    ---------------------------------------------------------------------------
                      CAPACITY TO CARRY OUT INTENDED WORK

        At the present time, the more than 350 Volunteer Center members of
    the Points of Light Foundation focus on traditional volunteering across
    the country. They vary tremendously in size and structure, but all
    operate within four core areas of competency outlined above: they
    connect people with opportunities to serve, build capacity for
    effective volunteering, promote volunteering, and participate in
    strategic partnerships that mobilize volunteers to meet community
    needs.
        Their budgets vary from $25,000 to $7 million per year, and the
    size of their service areas ranges from small rural communities to
    large metropolitan areas. All Volunteer Centers raise a significant
    amount of local and State funds and Federal resources will be used to
    build upon this foundation. Volunteer Centers provide essential
    infrastructure to support traditional volunteering. Every year
    Volunteer Centers:
      --connect 2 million people with opportunities to volunteer in their
            communities;
      --train more than 200,000 leaders from the public and private sector,
            including many corporate leaders, increasing their ability to
            mobilize more traditional volunteers;
      --build capacity of more than 72,000 community and faith-based
            organizations to productively engage volunteers.
        The first Volunteer Center was founded in Minneapolis in 1919. With
    the formation of the Points of Light Foundation in 1990, Volunteer
    Centers across the country began the process of forming an integrated
    network, beginning with adoption of a common vision and values
    statement:
        Vision.--Volunteer Centers mobilize people and resources to deliver
    creative solutions to community problems.
        Values.--We value:
      --PEOPLE and believe that through volunteer service people have the
            capacity to enrich their own lives and improve the quality of
            life in their communities;
      --DIVERSITY and recognize that all people have time and talents to
            share, and that communities are strengthened when people
            connect across their differences through volunteer service;
      --COLLABORATION and realize that we are at our best when we
            collaborate;
      --EXCELLENCE and commit to implementing innovative and effective
            strategies, holding ourselves accountable for results, and
            sharing our knowledge and best practices with others.
        Building on the vision and values, the Volunteer Center National
    Network developed and now requires that every Volunteer Center meet
    Standards of Excellence in order to be a member of the Points of Light
    Foundation & Volunteer Center National Network.

                                    SUMMARY

        Communities suffer when there is not a strong Volunteer Center to
    serve them. At the present time, some Volunteer Centers--typically the
    larger, more established independent centers with broad-based funding
    from a variety of sources--are able to provide multiple services, are
    often quite entrepreneurial in their approach to programming, and
    operate with a business model. Other Volunteer Centers experience
    difficulty providing optimal levels of service because of their
    continual challenge to raise operating funds. The result is that
    traditional volunteering suffers because fewer individuals and groups
    are aware of the opportunities that exist, and fewer organizations are
    trained in effective volunteer management.
        With increased investment, Volunteer Centers across the country,
    regardless of their age, size or structure, will play a crucial role in
    strengthening communities. Volunteer Centers will enhance and expand
    their activities to engage more people in volunteer service and to
    build the capacity of more organizations in effective volunteer
    management. Where appropriate, Volunteer Centers will also expand
    operations to establish satellite offices providing access where there
    currently is none. In small communities with small Volunteer Centers,
    financial support from the Federal Government can leverage significant
    local donations that result in increases in both volunteering and
    effective volunteer management by enabling the Volunteer Center to
    provide these important services. Finally, where there presently is
    demand, but no Volunteer Center, new Volunteer Centers can be
    established.
        The Points of Light Foundation provides significant program
    support, a decade of experience in regranting funds, and the
    demonstrated ability to effectively establish and monitor performance
    standards. The organization's unique qualifications are also predicated
    on its ability to provide cost-effective regranting and ensure
    compliance with all Federal guidelines.
        Our country is built on the willingness of people to get involved
    and stay involved in their communities. Now, more than ever, we need
    the civic participation of every American to keep our communities and
    our Nation strong. The investment of $10 million in the Points of Light
    Foundation and $25 million in the Volunteer Center National Network
    will reap significant rewards for our country that will resonate--with
    great cost-effectiveness--well into our future.
        We are well poised to strengthen traditional volunteering by
    delivering expanded services to communities across the country.
        We know volunteer services work and we want and need your help to
    make sure all Americans have access to a Volunteer Center that meets
    stringent standards of excellence, can help them connect to meaningful
    volunteer opportunities, and can help local agencies manage their
    volunteers effectively. On behalf of all of those who work in the field
    of volunteer service we want to thank the committee for their strong
    interest and investment in making volunteering a part of every
    American's life. Because of your work on this issue, millions of
    Americans who need help receive aid and assistance from millions of
    local volunteers.
                                     ______

           Prepared Statement of the American Water Works Association

                                REQUEST SUMMARY

        AWWA recommends that the following funding be specifically
    appropriated for the indicated purpose:
      --For community water system training and technical assistance.--An
            additional $2 million for security and compliance-related
            training and technical assistance to community water systems
            with specific direction that EPA work cooperatively with non-
            profit water associations that can provide training to water
            utilities of all sizes in all States, such as AWWA, to provide
            such training and technical assistance.
      --For the drinking water State revolving fund.--A minimum of
            $3,000,000,000.
      --For the AWWA Research Foundation (AwwaRF) drinking water
            research.--$5,000,000.
      --For the WaterISAC and WaterIDS.--$2,9000,000 designated for the
            Water Information Sharing and Analysis Center (WaterISAC) and
            the Water Information Distribution System (WaterIDS) to
            collect, analyze, and disseminate information to help utilities
            protect themselves from terrorism.
      --For public water system supervision (PWSS) grants to States.--At
            least the $105,100,000 requested in the President's fiscal year
            2005 budget.
      --For drinking water research.--$46,118,000 as requested in the
            President's fiscal year 2005 budget.
      --For the EPA drinking water program.--$100,948,000 as requested in
            the President's fiscal year 2005 budget.

                                  INTRODUCTION

        The American Water Works Association (AWWA) appreciates the
    opportunity to present AWWA views on the Environmental Protection
    Agency (EPA) budget for fiscal year 2005. AWWA and its members are
    dedicated to providing safe, reliable drinking water to the American
    people.
        Founded in 1881, AWWA is the world's largest and oldest scientific
    and educational association representing drinking water supply
    professionals. The association's 57,000+ members are comprised of
    administrators, utility operators, professional engineers, contractors,
    manufacturers, scientists, professors and health professionals. The
    association's membership includes over 4,500 public water systems that
    provides over 80 percent of the Nation's drinking water.
        AWWA utility members are regulated under the Safe Drinking Water
    Act (SDWA) and other statutes. AWWA believes few environmental
    activities are more important to the health of this country than
    assuring the protection of water supply sources, and the treatment,
    distribution and consumption of a safe, affordable and healthful supply
    of drinking water. We strongly support adequate levels of funding for
    EPA's drinking water, ground water protection and clean water pollution
    prevention programs in fiscal year 2005.
        The events of September 11, 2001, have added a new dimension to the
    protection of drinking water. In addition to protecting drinking water
    from contamination, America's homeland security requires a secure water
    supply. Public health, fire protection, and sanitation depend on it.
    The role of public water systems for first responders has been largely
    overlooked in the discussions concerning homeland security funding
    priorities. AWWA strongly urges both the Congress and the
    administration to correct this oversight and make the protection of
    public water systems a high priority for homeland security. The al
    Qaeda terrorists network and others are known to have conducted
    research on public water systems in the United States. If the intent is
    to create terror in our society, water systems are targets of
    opportunity for terrorists, not only to contaminate the water supply,
    but also to deny first responders water for fire protection in a
    coordinated terrorist attack.
        Drinking water suppliers have a long history of security
    preparedness. However, the post-September 11 world has added a new
    understanding of security and has added an unprecedented financial
    burden on public water systems for immediate steps needed to protect
    our citizens. AWWA does not believe that the President's budget request
    for EPA is adequate for EPA to meet the security, public health, and
    infrastructure needs of our Nation's public water systems. In the EPA
    fiscal year 2005 appropriation, we respectfully request the Congress to
    appropriate significantly increased funds for public water system
    security and compliance efforts that are essential to help provide a
    safe and secure water supply for our citizens and first responders. Our
    testimony today will highlight some of the major public water system
    needs.

            COMMUNITY WATER SYSTEM TRAINING AND TECHNICAL ASSISTANCE

        Many community water systems need training and technical assistance
    more urgently than ever as world events demand new security
    assessments, planning, and upgrades. Such training is an essential part
    of protecting the security and safety of the Nation's drinking water
    supplies. Adding to those security demands are the increased demands of
    new and very complex drinking water regulations.
        All drinking water utilities are due to complete vulnerability
    assessments of their system's security by June 30 of this year in
    accordance with the Public Health Security and Bioterrorism
    Preparedness and Response Act of 2002 (the Bioterrorism Act). AWWA has
    trained hundreds of community water systems to help them meet these
    requirements. We are also training utilities to create or update their
    emergency response plans as required under the Bioterrorism Act. The
    vulnerability assessments have shown utilities where they need to
    upgrade their physical security systems and introduce or upgrade their
    security training. Now many of those utilities, particularly the small-
    to medium-sized systems, will need training to learn how to use
    upgraded security hardware and how to prevent, meet, and recover from
    attacks on community water systems. They also need to learn new
    communications skills in the event of a public health crisis, such as
    from an assault on a drinking water system.
        In the regulatory arena, a number of complicated regulations have
    been finalized or proposed that may affect each other in
    implementation. For instance, EPA expects to finalize the Long Term 2
    Enhanced Surface Water Treatment Rule (LT2ESWTR) and the Stage 2
    Disinfectants and Disinfection Byproducts Rules in early 2005. These
    rules specify a range of treatment and management strategies to reduce
    disease incidence associated with Cryptosporidium and other pathogenic
    microorganisms, while at the same time avoiding dangerous levels of
    disinfectant byproducts. These rules also may affect compliance with
    existing rules such as the Lead and Copper Rule and the Total Coliform
    Rule when water chemistry is changed to comply with the new rules.
    Intense training and technical assistance will be necessary to assure
    that public water systems of all sizes covered by the rule will be able
    to comply and continue to protect public health.
        EPA does not have the resources to provide this training itself.
    However, there are non-profit organizations such as AWWA that currently
    provide training and technical assistance to public water systems of
    all sizes and in all States. AWWA appreciates the support of the
    chairman and members for providing a directed appropriation of
    $1,000,000 for AWWA in the fiscal year 2003 appropriations for AWWA to
    provide security training for public water system vulnerability
    assessments. This training filled a significant gap in homeland
    security that no Federal or State agency had the capability to do at
    that time. In the fiscal year 2005, AWWA is not seeking a directed
    appropriation for itself. Rather, AWWA recommends that Congress
    appropriate an additional $2 million for such training and technical
    assistance above the levels appropriated last year and direct EPA to
    work with organizations such as AWWA to provide needed training and
    technical assistance for security and compliance.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate an
            additional $2 million for security and compliance-related
            training and technical assistance to community water systems
            with specific direction that EPA work cooperatively with non-
            profit water associations that can provide training to water
            utilities of all sizes and in all States, such as AWWA, to
            provide such training and technical assistance.

                  DRINKING WATER STATE REVOLVING FUND (DWSRF)

        AWWA believes that past funding to capitalize the DWSRF is not
    adequate to meet the Nation's drinking water needs. The SDWA Amendments
    of 1996 authorized for the DWSRF $599,000,000 for fiscal year 1994 and
    $1,000,000,000 for fiscal years 1995 through 2003. Through fiscal year
    2004, Congress has appropriated approximately $6 billion--which is
    approximately $3 billion less than authorized for the DWSRF up to this
    fiscal year. In September 2002, EPA released a Clean Water and Drinking
    Water Infrastructure Gap Analysis which found that there will be a $535
    billion gap between current spending and projected needs for water and
    wastewater infrastructure over the next 20 years. In May 2002, the
    Congressional Budget Office estimated the spending gap for drinking
    water needs between $70 billion and $362 billion over 20 years. AWWA
    estimates the need to be $250-300 billion over the next 30 years. By
    any estimate, the gap is real and is big.
        These figures do not include the new security upgrades that EPA has
    determined are eligible for funding from the DWSRF in defense of public
    health. AWWA has estimated that the need for immediate investment in
    tightened perimeter security and access control in the community water
    systems subject to the Bioterrorism Act is approximately $1.6 billion.
    This does not include the capital costs of upgrades to address
    vulnerabilities identified in vulnerability assessments such as
    hardening pumping stations, chemical storage buildings, transmission
    mains, adding redundant infrastructure or relocating facilities and
    pipelines. Thousands of community water systems must make such
    investments to close vulnerabilities identified in the assessments done
    under the Bioterrorism Act. Nationwide, these needs undoubtedly total
    billions of dollars, and can be considered the cost of a secure water
    supply. Because homeland security is primarily a Federal responsibility
    and the security needs are so large that they would swamp the DWSRF,
    Congress should consider providing water security improvement grants
    separate from the DWSRF.
        We urge Congress to appropriate in fiscal year 2005 at least $3
    billion to assist States and community water systems meet the security,
    public health, and infrastructure challenges they face. Although it
    represents only a fraction of the total need, an appropriation of at
    least $3 billion demonstrates the commitment of the Federal Government
    to stand behind security, public health, and a sound infrastructure for
    the Nation's water supply. It also will provide a source of much needed
    loans for financially disadvantaged communities that cannot obtain
    financing through other means. The Federal funds will leverage State
    and local resources, thus helping communities to comply with the
    mandates of the SDWA.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate a
            minimum of $3,000,000,000 for the DWSRF.

                            AWWA RESEARCH FOUNDATION

        In a separate statement, the American Water Works Association
    Research Foundation (AwwaRF), (an organization independent of AWWA),
    requested that $5,000,000 in drinking water research funds be
    designated specifically for AwwaRF for drinking water research. As
    detailed in their statement AwwaRF proposes to use this grant for
    research programs that address issues such as new and emerging
    contaminants such as perchlorate and MTBE; infrastructure renewal and
    replacement; water utility security; and new sources of water including
    reclaimed wastewater, desalinated seawater and brackish water. From
    fiscal year 1984, when Congress appropriated the first grant for
    AwwaRF, to fiscal year 2004, AwwaRF has received $47,000,000. In
    addition the Foundation has leveraged an additional $277,000,000 from
    its subscribers to support research projects across the country. Each
    dollar appropriated by Congress for AwwaRF produced almost $6.00 in
    drinking water research. AWWA strongly believes that this kind of
    local/Federal research partnership is a wise and cost effective use of
    public funds and the only way to secure science-based drinking water
    regulations in these difficult budgetary times.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate
            $5,000,000 specifically designated for the American Water Works
            Association Research Foundation for drinking water research.

                              WATERISAC & WATERIDS

        The Water Information Sharing and Analysis Center (WaterISAC) is a
    nonprofit service to provide sensitive security information to the
    Nation's drinking water and wastewater agencies. The WaterISAC gathers
    information from law enforcement and intelligence agencies, researchers
    and security experts to help utilities prepare for and respond to
    terrorist attacks such as contamination incidents, cyber attacks or
    physical destruction. The WaterISAC was created pursuant to executive
    orders and presidential directives from Presidents Clinton and Bush
    that urged critical infrastructure sectors to develop ISACs. The
    WaterISAC is the only ISAC serving a primarily nonprofit sector--
    drinking water and wastewater systems. The WaterISAC is hosted on an
    ultra-secure web portal in a U.S. Government-cleared facility and is
    managed by the Association of Metropolitan Water Agencies (AMWA).
    Drinking water and wastewater utilities subscribing to the WaterISAC
    pay a fee based on the population served. However, with increased
    Federal funding, the WaterISAC can significantly reduce subscription
    fees, thereby making it affordable for more utilities to subscribe to
    this much-needed service. AMWA is also developing the Water Information
    Distribution System (WaterIDS), a quick-alert system for ``pushing''
    security information to a larger number of utilities that are not
    WaterISAC subscribers. In separate testimony, AMWA will present
    testimony requesting $2,900,000 for the WaterISAC and WaterIDS in
    fiscal year 2005. AWWA endorses this request.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate
            $2,900,000 for the WaterISAC and WaterIDS.

                     PUBLIC WATER SYSTEM SUPERVISION GRANTS

        To comply with the SDWA, Congress intended that EPA develop
    drinking water regulations and that the States implement and administer
    the program to ensure compliance with and enforcement of its
    provisions. Implementation, administration, compliance and enforcement
    activities are collectively known as ``primacy'' requirements and
    Federal grants to the States are known as Public Water System
    Supervision (PWSS) grants. The massive demands on States arising from
    the SDWA have become increasingly apparent because of the dramatic
    increase in the number of regulated contaminants over the past few
    years. As each regulation is added, State resource shortfalls become
    more acute. Additional regulations are scheduled to be promulgated over
    the next few years and the SDWA Amendments of 1996 added new
    responsibilities for the States such as source water assessments, a
    consumer confidence report program and alternative monitoring programs.
    The SDWA authorizes a Federal share of up to 75 percent, but Federal
    funding has approximated only 35 percent. In a separate statement, the
    Association of State Drinking Water Administrators (ASDWA), documents
    the State drinking water needs and requests a substantial increase
    above the President's fiscal year 2005 budget request. AWWA endorses
    the ASDWA request and strongly urges Congress to appropriate at least
    the $105,100,000 requested in the President's fiscal year 2005 budget
    for PWSS grants as the minimum necessary.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate at
            least the $105,100,000 for Public Water System Supervision
            (PWSS) grants requested in the President's fiscal year 2005
            budget.

                        DRINKING WATER RESEARCH FUNDING

        Over the past several years, public water suppliers have worked
    together with EPA and the Congress to secure increased research funding
    for the Nation's drinking water program. We believe that, through this
    cooperative effort, needed increases in research dollars have been
    obtained for drinking water over the past few years after several years
    of steady decline. The use of good science as the foundation of the new
    drinking water standard-setting process under the SDWA amendments of
    1996 will require extensive drinking water research--particularly
    health effects research. Funding for drinking water research is
    becoming more of a critical issue. Every 5 years EPA is required by the
    SDWA to select at least five contaminants from the Contaminant
    Candidate List (CCL) and determine whether to regulate them. To
    determine whether to regulate a contaminant and establish a maximum
    contaminate level (MCL) or another regulatory approach, EPA will need
    good health effects research. Recognizing the serious burden this
    regulatory mandate presents, the drinking water community has offered
    its time, resources and expertise to work with EPA to develop a
    research plan for the contaminants on the CCL. Given the enormous need
    for immediate research to meet the deadlines of the SDWA amendments of
    1996, AWWA urges Congress to appropriate at least the $46,118,000
    requested in the President's fiscal year 2005 budget for drinking water
    research and specifically designate it in the appropriation.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate
            $46,118,000 for the EPA drinking water research program as
            requested in the President's fiscal year 2005 budget.

                           EPA DRINKING WATER PROGRAM

        EPA's drinking water program took on greatly increased
    responsibilities in the 1996 SDWA amendments. In satisfying these
    requirements, EPA has involved the public in the regulatory process to
    an extent not equaled by another Federal agency and stands as a model
    for Federal rule making. EPA and the Office of Drinking Water and
    Ground Water are to be commended for taking this approach that should
    result in better regulations that protect public health. AWWA believes
    that funding the EPA drinking water program is vital to continue this
    new regulatory approach to developing sound drinking water regulations
    and urges Congress to appropriate the $100,948,000 requested in the
    President's fiscal year 2005 budget for the drinking water program.
      --Recommended Action in the Fiscal Year 2005 Budget.--Appropriate
            $100,948,000 for the EPA drinking water program as requested in
            the President's fiscal year 2005 budget.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Alliance to Save Energy, Prepared Statement of the...............   547
    American Geological Institute, Prepared Statement of the.........   495
    American Indian Higher Education Consortium, Prepared Statement
      of the.........................................................   559
    American Museum of Natural History, Prepared Statement of the....   582
    American Public Power Association, Prepared Statement of the.....   554
    American Society for Engineering Education, Prepared Statement of
      the............................................................   577
    American Society for Microbiology, Prepared Statements of the..485, 490
    American Society of Mechanical Engineers, Prepared Statements of
      the..........................................................524, 526
    American Society of Plant Biologists, Prepared Statement of the..   555
    American Water Works Association, Prepared Statement of the......   587
    Association of American Universities, Prepared Statement of the..   570
    Association of Local Air Pollution Control Officials, Prepared
      Statement of the...............................................   505
    Association of State Drinking Water Administrators, Prepared
      Statement of the...............................................   492
    Ayres, Judith, Assistant Administrator, Office of International
      Activities, Environmental Protection Agency....................   141

    Bement, Arden L., Jr., Acting Director, National Science
      Foundation.....................................................     1
        Prepared Statement of........................................    24
        Statement of.................................................    22
    Bernardi, Roy A., Assistant Secretary, Community Planning and
      Development, Office of the Secretary, Department of Housing and
      Urban Development..............................................   197
        Prepared Statement of........................................   207
        Statement of.................................................   204
    Bloom, David A., Director, Office of Budget, Environmental
      Protection Agency..............................................   141
    Boesz, Christine C., Inspector General, National Science
      Foundation.....................................................     1
        Prepared Statement of........................................    45
        Statement of.................................................    45
    Bond, Senator Christopher S., U.S. Senator from Missouri:
        Opening Statements of.....................8, 77, 142, 197, 315, 381
        Questions Submitted by63, 67, 75, 127, 176, 236, 365, 412, 427, 428
        Prepared Statements of......................................12, 319
    Brodsky, Lewis C., Acting Director, Selective Service System,
      Prepared Statement of..........................................   441
    Burns, Senator Conrad, U.S. Senator from Montana, Questions
      Submitted by.................................................137, 308
    Byrd, Senator Robert C., U.S. Senator from West Virginia,
      Questions Submitted by....................................64, 73, 378

    California Government and Private Sector Coalition for Operation
      Clean Air, Prepared Statement of the...........................   565
    California Industry and Government Central California Ozone Study
      (CCOS) Coalition, Prepared Statement of the....................   567
    Campbell, William H., Assistant Secretary, Management, Department
      of Veterans Affairs............................................   315
    Catlett, D. Mark, Principal Deputy Assistant Secretary,
      Management, Department of Veterans Affairs.....................   315
    City of Avondale, Arizona, Prepared Statement of the.............   500
    Clutter, Mary E., Assistant Director, Biological Sciences,
      National Science Foundation....................................     1
        Statement of.................................................    44
    Cooper, Vice Admiral Daniel L., (USN Ret.), Under Secretary,
      Benefits, Department of Veterans Affairs.......................   315
    Craig, Senator Larry, U.S. Senator from Idaho:
        Questions Submitted by.................................71, 139, 187
        Statement of.................................................   145

    DeLeon, Dona, Acting Associate Administrator, Office of
      Congressional and Intergovernmental Relations, Environmental
      Protection Agency..............................................   141
    Dollar, the Honorable Dennis, Chairman, National Credit Union
      Administration, Prepared Statement of..........................   435
    Domenici, Senator Pete V., U.S. Senator from New Mexico:
        Questions Submitted by................................189, 313, 375
        Statements of..............................................162, 330
    Doris Day Animal League, Prepared Statement of the...............   557

    Ecological Society of America, Prepared Statements of the......557, 569
    Eisner, David, Chief Executive Officer, Corporation for National
      and Community Service..........................................   381
        Prepared Statement of........................................   390
        Statement of.................................................   388

    Falk, Henry, M.D., M.P.H., Director, Agency for Toxic Substances
      and Disease Registry and National Center for Environmental
      Health, Centers for Disease Control and Prevention, Department
      of Health and Human Services, Prepared Statement of............   456
    Federation of American Societies for Experimental Biology,
      Prepared Statement of the......................................   521
    Froehlich, Maryann B., Associate Chief Financial Officer,
      Environmental Protection Agency................................   141

    Gehman, Harold W., Jr., Letter From..............................    83
    Gianni, Gaston L., Jr., Inspector General, Office of Inspector
      General, Federal Deposit Insurance Corporation, Prepared
      Statement of...................................................   443
    Gilman, Paul, Assistant Administrator, Office of Research and
      Development, Environmental Protection Agency...................   141
    Goldsmith, Stephen, Chairman of the Board, Corporation for
      National and Community Service, Letter From....................   397
    Great Lakes Indian Fish and Wildlife Commission, Prepared
      Statement of the...............................................   574
    Griffin, Richard, Inspector General, Department of Veterans
      Affairs........................................................   315
    Grumbles, Benjamin H., Acting Assistant Administrator, Office of
      Water, Environmental Protection Agency.........................   141
    Guillermin, Michelle, Chief Financial Officer, Corporation for
      National and Community Service.................................   381

    Harris, Phyllis, Acting Assistant Administrator, Office of
      Enforcement and Compliance Assurance, Environmental Protection
      Agency.........................................................   141
    Hazen, Susan B., Principal Deputy Assistant Administrator, Office
      of Prevention, Pesticides and Toxic Substances, Environmental
      Protection Agency..............................................   141
    Herrling, Major General John P., USA (Ret), Secretary, American
      Battle Monuments Commission, Prepared Statement of.............   452
    Holmstead, Jeffery R., Assistant Administrator, Office of Air and
      Radiation, Environmental Protection Agency.....................   141
    Horinko, Marianne L., Assistant Administrator, Office of Solid
      Waste and Emergency Response, Environmental Protection Agency..   141

    Integrated Petroleum Environmental Consortium, Prepared Statement

      of the.........................................................   562

    Jackson, Alphonso, Secretary, Office of the Secretary, Department
      of Housing and Urban Development...............................   197
        Statement of.................................................   203
    Johnson, Senator Tim, U.S. Senator from South Dakota:
        Question Submitted by........................................    74
        Statement of.................................................     7
    Johnson, Stephen L., Acting Deputy Administrator, Environmental
      Protection Agency..............................................   141

    K-12 Science, Technology, Engineering & Mathematics Education
      Coalition, Prepared Statement of the...........................   502
    Kramer, Honorable Kenneth B., Chief Judge, U.S. Court of Appeals
      for Veterans Claims, Prepared Statement of.....................   470

    Leahy, Senator Patrick J., U.S. Senator from Vermont:
        Questions Submitted by.......................................   192
        Statements of..............................................148, 348
    Leavitt, Michael O., Administrator, Environmental Protection
      Agency.........................................................   141
        Prepared Statement of........................................   150
        Statement of.................................................   149
    Liu, Michael, Assistant Secretary, Public and Indian Housing,
      Office of the Secretary, Department of Housing and Urban
      Development....................................................   197
        Statements of............................................1, 14, 219

    Marburger, John H., III, Director, Office of Science and
      Technology Policy, Executive Office of the President...........     1
        Prepared Statement of........................................    17
        Statement of.................................................    14
    Merritt, Carolyn W., Chairman and Chief Executive Officer, U.S.
      Chemical Safety and Hazard Investigation Board, Prepared
      Statement of...................................................   476
    Mikulski, Senator Barbara A., U.S. Senator from Maryland:
        Prepared Statements of.......................................4, 156
        Statements of.............................1, 80, 156, 201, 322, 385

    Nasif, Teresa, Director, Federal Citizen Information Center,
      General Services Administration, Prepared Statement of.........   475
    National Association of Counties, Prepared Statement of the......   551
    National Association of Local Housing Finance Agencies, Prepared
      Statement of the...............................................   551
    National Association of State Universities and Land-Grant
      Colleges, Prepared Statement of the............................   509
    National Association of University Fisheries and Wildlife
      Programs, Prepared Statement of the............................   541
    National Coalition for Homeless Veterans, Prepared Statement of
      the............................................................   510
    National Community Development Association, Prepared Statement of
      the............................................................   551
    National Council for Science and the Environment, Prepared
      Statement of the...............................................   535
    National Utility Contractors Association, Prepared Statement of
      the............................................................   530
    Nelson, Kim T., Assistant Administrator, Office of Environmental
      Information, Environmental Protection Agency...................   141
    Nicholson, John W., Under Secretary, Memorial Affairs, Department
      of Veterans Affairs............................................   315

    O'Connor, David, Acting Assistant Administrator, Office of
      Administration and Resources Management, Environmental
      Protection Agency..............................................   141
    O'Keefe, Sean, Administrator, National Aeronautics and Space
      Administration.................................................    77
        Prepared Statement of........................................    88
        Statement of.................................................    86

    People for the Ethical Treatment of Animals (PETA), Prepared
      Statement of the...............................................   503
    Perlin, Jonathan B., M.D., Deputy Under Secretary, Health,
      Department of Veterans Affairs.................................   315
    Points of Light Foundation, Prepared Statement of the............   585
    Principi, Anthony J., Secretary, Department of Veterans Affairs..   315
        Prepared Statement of........................................   335
        Statement of.................................................   333

    Reid, Senator Harry, U.S. Senator from Nevada, Question Submitted
      by.............................................................   139
    Ryan, Michael W.S., Deputy Chief Financial Officer, Environmental
      Protection Agency..............................................   141

    Santa Clara Valley Water District, Prepared Statement of the.....   500
    Save AmeriCorps Coalition, Prepared Statement of the.............   515
    Shelby, Senator Richard C., U.S. Senator from Alabama:
        Prepared Statement of........................................   326
        Questions Submitted by.....................................185, 373
        Statements of...............................................86, 324
    State and Territorial Air Pollution Program Administrators,
      Prepared Statement of the......................................   505
    Stevens, Senator Ted, U.S. Senator from Alaska:
        Prepared Statement of........................................   328
        Question Submitted by........................................    71
        Statements of...............................................96, 326
    Stratton, Hal, Chairman, Consumer Product Safety Commission,
      Prepared Statement of..........................................   473

    The Nature Conservancy, Prepared Statement of....................   542
    The Wildlife Society, Prepared Statement of......................   573
    Tinsley, Nikki L., Inspector General, Environmental Protection
      Agency.........................................................   141

    University of Medicine and Dentistry of New Jersey, Prepared
      Statement of the...............................................   544
    Upper Mississippi River Basin Association, Prepared Statement of
      the............................................................   498
    U.S. Conference of Mayors, Prepared Statement of the.............   551

    Village of Wellington, Florida, Prepared Statement of the........   502

    Wade, Kenneth D., Executive Director, Neighborhood Reinvestment
      Corporation, Prepared Statement of.............................   462
    Washington, Warren M., Chair, National Science Board, National
      Science Foundation.............................................     1
        Prepared Statement of........................................    30
        Statement of.................................................    29
    Weicher, John, Assistant Secretary for Housing--Federal Housing
      Commissioner, Office of the Secretary, Department of Housing
      and Urban Development..........................................   197
        Statement of.................................................   220
    Wolgast, Anna, Principal Deputy General Counsel, Environmental
      Protection Agency..............................................   141
    Woodley, the Honorable John Paul, Jr., Assistant Secretary of the
      Army (Civil Works), Department of the Army--Civil, Prepared
      Statement of...................................................   431

                                 SUBJECT INDEX

                                  ----------

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

                                                                       Page
    Accountability and Management....................................   398
    Additional Committee Questions...................................   412
    Alternative Personnel System..............................406, 414, 428
    AmeriCorps Education Award Program...............................   406
    Chairman Goldsmith Letter........................................   399
    Challenge Grants.................................................   409
    Cost:
        Accounting...................................................   427
        Per FTE/Member...............................................   413
    Criteria for Sustainability......................................   401
    Ed Award Only Program............................................   427
    Executive Order and Rulemaking...................................   393
    Funding Priorities...............................................   412
    Grantee Oversight................................................   425
    Illegal Lobbying.................................................   428
    .................................................................
    Learn and Serve..................................................   403
        Activities...................................................   417
    Management--Accountability.......................................   413
    National Service Trust...........................................   423
    Next Generation Grants...........................................   410
    Peer Review Process..............................................   425
    Performance Measures.............................................   421
    Professional Corps.............................................402, 418
        And Rulemaking Letter........................................   404
    Public Affairs...................................................   415
    Question Submitted to the Office of Inspector General............   428
    Questions Submitted to the:
        Board of the Corporation for National and Community Service..   427
        Corporation for National and Community Service...............   412
    Reassessing the Corporation's Use of APS Term Appointments.......   407
    Reauthorization..................................................   425
    Rulemaking.......................................................   400
        Sustainability...............................................   419
        Timeline.....................................................   402
    Silver Scholarships..............................................   426
    Training and Technical Assistance to State Commissions...........   411
    2005 Budget Proposal.............................................   395
    What We Do.......................................................   394

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                            Office of the Secretary

    Actuarial:
        Criteria.....................................................   304
        Review.....................................................299, 302
        Soundness..................................................299, 303
        Tools........................................................   299
    Additional:
        Committee Questions..........................................   236
        Requirements.................................................   264
    Administrative Receiverships.....................................   259
    Adverse Selection................................................   297
    Affordable Housing...............................................   201
    American Dream Downpayment Initiative (ADDI)...................205, 255
        Funding for Fiscal Year 2004.................................   256
    Analysis of Funding Needed for Samaritan Housing Initiative......   263
    Annual Premiums..................................................   300
    Borrowers........................................................   302
    Brownfields:
        Development Time.............................................   248
        Economic Development Initiative..............................   247
    Capital:
        Fund/Operating Fund..........................................   202
        Fund Technical Assistance and Modernization..................   253
    Cash Flow Assumptions............................................   298
    CDBG.............................................................   206
    Central Reserve Fund.............................................   252
    Chronic Homelessness.............................................   245
    Competition with the Conventional Market.........................   297
    Contract:
        Administrators...............................................   253
        Renewals (HCF)...............................................   251
    Conventional:
        Credit.......................................................   296
        Zero Down Mortgages..........................................   296
    Conversion to Assisted Living....................................   256
    Credit:
        Risk.........................................................   296
        Subsidy Analyses.................................298, 302, 303, 305
    Defaulted Housing................................................   250
    Demand for Zero Downpayment......................................   296
    Demolition Grants................................................   258
    Development Challenge Pilot......................................   261
    Downpayment Assistance...........................................   300
        Programs.....................................................   300
    Effect on MMI Economic Value.....................................   304
    Embracing High Standards of Ethics, Management, and
      Accountability.................................................   217
    Emergency Capital Needs..........................................   254
    Ensuring Equal Opportunity in Housing............................   215
    Faith-based:
        Pilot........................................................   262
        Prisoner Re-entry Initiative.................................   263
    Family Self-sufficiency Coordinator Positions Funding............   310
    Fannie Mae and Freddie Mac.......................................   297
    FHA:
        And REAC.....................................................   229
        Borrowers....................................................   303
        Defaults.....................................................   202
        Foreclosure Rates............................................   232
        Multi-family Dwellings.......................................   203
        Risk.........................................................   249
    First Preston....................................................   309
    Flexible Voucher.................................................   229
        Proposal.....................................................   222
    FMRs.............................................................   227
    Freedom to House Demonstration...................................   258
    Funding Mechanism for Samaritan Housing Initiative...............   262
    GAO:
        Recommendations..............................................   302
        Report on FHA................................................   225
    GI/SRI Fund......................................................   299
    HOME.............................................................   206
    Homeless:
        Demonstration Project........................................   306
        Veterans.....................................................   245
    Homeowner Equity.................................................   298
    Homeownership Counseling.........................................   301
    HOPE VI.........................................199, 201, 220, 223, 242
    Housing Counseling...............................................   296
    HUD-Veterans Affairs Supportive Housing..........................   247
    Impact of ADDI Legislation on Allocation of Funds................   256
    Increasing Homeownership Opportunities...........................   207
    Lead-based Paint.................................................   202
        Reduction Offsets............................................   305
    Loan:
        Monitoring...................................................   297
        Performance..................................................   302
            Assumptions..............................................   298
        Servicers....................................................   301
    Loss Mitigation..................................................   251
    M&M Contractor...................................................   308
    Manufactured Housing Rules.......................................   309
    Meth Homes.......................................................   308
    Montana Section 8 Voucher Program Waiting List...................   308
    Native:
        American Housing Block Grant Program (NAHASDA)...............   243
        Programs.....................................................   220
    Need for Increased Funding for Service Coordinators/Congregate
      Service Programs...............................................   257
    Office of Lead Hazard Control....................................   248
    Older Section 202 Projects.......................................   248
    OMHAR............................................................   307
        Sunset.......................................................   309
    Operating Fund...................................................   220
    Overleasing......................................................   242
    Oversight........................................................   301
    Owner Equity.....................................................   300
    Payment Incentives...............................................   300
    Permanent Supportive Housing.....................................   313
    Planned Improvements/Offsets of Development Challenge Pilot......   262
    Predatory Lending................................................   310
    Premium:
        Earning Period...............................................   304
        Refund Criteria..............................................   304
    Prepayments......................................................   298
    Private Sector Comparisons.......................................   251
    Program:
        Assessment...................................................   301
        Demand.......................................................   303
    Progress in Eliminating Chronic Homelessness.....................   246
    Project-based Section 8..........................................   240
    Promote Decent Affordable Housing................................   210
    Promoting the Participation of Faith-based and Community
      Organizations..................................................   216
    Property:
        Flipping.....................................................   202
        Holding Period and Costs.....................................   250
    Proposed Section 8 Cuts..........................................   310
    Public Housing Capital Fund......................................   220
        Freedom to House Demonstration.............................240, 306
        Operating Fund Cost Study Report.............................   259
        Restructuring................................................   309
    Redlining and Concentration......................................   238
    Reduction in the HOPE VI Program.................................   264
    Rental:
        Assistance (HCF).............................................   252
        Housing (HCF)................................................   252
    Restructuring Public Housing.....................................   309
    Risks............................................................   301
    Ruling on Allocation of ADDI Funds...............................   256
    Rural Housing and Economic Development.........................200, 247
    Safety and Security Funding......................................   309
    Salaries and Expenses............................................   307
    Sale of Property to Owners with Code Violations..................   232
    Samaritan:
        Housing......................................................   313
        Initiative...................................................   207
    Section:
        8:
            Administrative Fees......................................   251
            Certificate Fund--Underlying Analysis....................   236
            Fiscal Year 2004 Shortfalls..............................   239
            Reform(s)..............................................198, 206
            Underfunded--Extremely Low-income Families...............   236
        811 Disabled Housing.........................................   307
    Self-help Homeownership Opportunity Program (SHOP).............205, 257
    Shelter Plus Care................................................   313
    Single Family Property Disposition...............................   202
    Status of:
        Samaritan Housing Initiative.................................   262
        Unexpended Balances:
            (All Programs)...........................................   305
            (HCF)....................................................   305
    Strengthening Communities........................................   213
    Study on Use of Home Funds for Homebuyer Activities..............   256
    Subprime Market..................................................   301
    Subsidy Estimate.................................................   305
    Targeting Low-income and Disabled People.........................   308
    The Elderly and Faith-based Initiatives..........................   233
    Time in Foreclosure..............................................   251
    TOTAL Scorecard..................................................   264
    Underwriting Criteria............................................   264
    Unearned Premium Refunds.........................................   303
    Volume Estimate..................................................   301
    Voluntary Graduation Bonus.......................................   261
    Zero Down Payment.........................................221, 234, 249
        Initiative.................................................200, 205
        Proposal.....................................................   263

                         DEPARTMENT OF VETERANS AFFAIRS

    Access Standards.................................................   368
    Activity-Based Costing...........................................   371
    Additional Committee Questions...................................   365
    Background.......................................................   363
    Burial...........................................................   340
    Capital Asset Realignment for Enhanced Services (CARES)...338, 342, 346
        Capital Costs................................................   371
        Closures.....................................................   366
        General......................................................   369
        Report:
            Outsourcing of Inpatient Services at the Beckley VAMC....   378
            Process..................................................   378
            Wars in Afghanistan and Iraq.............................   378
    Category 8 Veterans..............................................   379
    Claims Processing..............................................361, 369
    Community Based Outpatient Clinics...............................   377
    Compensation and Pension Claim Process.........................325, 373
    Contracting Out Services for Southeastern Alaska Veterans........   329
    CoreFLS..........................................................   360
    Enrollment Fee and Copayments....................................   343
    Iraqi-Afghan Veterans............................................   362
    Management Improvements..........................................   340
    Medical:
        And Prosthetic Research......................................   338
        Care.........................................................   336
            Funding..................................................   341
        Research..............................................325, 349, 376
    Mental Health....................................................   349
    MTF Liaisons for Seamless Transition.............................   363
    Persian Gulf War Veterans........................................   359
    Pharmacy Benefit Management Program..............................   344
    Prescription Drugs Bulk Purchasing...............................   345
    Priorities.......................................................   365
    Research.........................................................   371
        Funding......................................................   373
    Rural Outpatient-based Clinics...................................   332
    Southeastern Alaska..............................................   327
    Staffing in Rural Facilities.....................................   332
    Telehealth.....................................................330, 375
        Pilot in New Mexico..........................................   331
    The Transition Link..............................................   364
    Transitional Pharmacy Benefit (TPB):
        Pilot........................................................   366
        Plan.........................................................   346
    U.S. Interagency Council on Homelessness.........................   359
    VA:
        Guidance on Seamless Transition..............................   364
        Leases in Alaska.............................................   327
    VA-DOD:
        Collaboration................................................   372
        Concurrent Disability Payment and Combat-Related Special
          Compensation...............................................   374
    Veterans' Benefits...............................................   338
    VHA Facility Points of Contact and Case Managers.................   364
    VISN Structure...................................................   370
    Waiting:
        Lines in Specialty Care......................................   357
        Times........................................................   368
    White Paper on VA Seamless Transition Task Force.................   363
    Workforce Shortages..............................................   358

                        ENVIRONMENTAL PROTECTION AGENCY

    Accelerating Environmental Performance...........................   154
    Additional Committee Questions...................................   176
    Anniston, Alabama:
        Clean Up.....................................................   185
        Lead.........................................................   186
        PCB Contamination............................................   186
    Anthrax in the Senate............................................   173
    Arsenic..........................................................   183
        Standard(s)...........................................162, 187, 189
    Backlog of Wastewater Projects...................................   160
    Bay Needs........................................................   158
    Brownfields....................................................157, 175
        Grants to Rural Communities..................................   176
    Carryover........................................................   183
    Chesapeake Bay...................................................   158
        Watershed Initiative.........................................   169
    Clean:
        Air:
            And Global Change........................................   151
            Issues...................................................   176
        And Safe Water...............................................   151
        Water State Revolving Loan Fund (SRF)--Reduction.............   159
    Combined Sewer Overflows.........................................   181
    Community Environmental Stewardship..............................   159
    Compliance and Environmental Stewardship.........................   153
    Confined Animal Feeding Operations (CAFOs).......................   180
    Criminal:
        Cases Not Pursued............................................   172
        Enforcement..................................................   170
            Backlog..................................................   171
        Environmental Enforcement--Backlog...........................   170
    Drinking Water SRF and Clean Water SRF...........................   182
    En Libra Principles..............................................   168
    Enforcement of Environmental Laws................................   158
    Environmental Enforcement and Security Act of 2004...............   182
    EPA's Role in Homeland Security..................................   172
    Interstate Air Quality Rule......................................   167
    Jobs.............................................................   157
    Land Preservation and Restoration................................   152
    Lead Contamination Crisis........................................   178
    Maryland's Needs.................................................   157
    Mercury:
        Reduction--Coal-Fired Power Plants...........................   165
        Rule..................................................155, 164, 166
            Requirements.............................................   192
        Western Coal vs. Eastern Coal................................   167
    MTBE.............................................................   181
    National Needs...................................................   157
    New Source Review................................................   176
    Nonpoint Sources of Pollution....................................   184
    Ombudsman Review of Bunker Hill..................................   188
    Ozone:
        Air Quality Standards........................................   178
        Non-attainment Areas.........................................   167
    Proposed Mercury Rule............................................   164
    Protecting America's Communities and Ecosystems..................   153
    Research.........................................................   158
    Rewarding Results and Increasing Productivity....................   154
    Safe Drinking Water Act..........................................   190
    State Revolving Loan:
        Funds........................................................   154
        Fund--Reduction..............................................   160
    Strong Science...................................................   154
    Superfund........................................................   182
        Cleanups.....................................................   168
    Technologies to Reduce Arsenic...................................   163
    Total Maximum Daily Load(s) (TMDL).............................174, 184
    Water Infrastructure.............................................   157
        Jobs Study...................................................   169
        Needs........................................................   192

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    Additional Committee Questions...................................    63
    Agency Budget Highlights.........................................    18
    Balance Between Funding for Physical and Life Sciences...........    35
    Budget Summary...................................................     5
    Education........................................................     5
    Homestake Mine...................................................    62
    Jobs.............................................................     5
    Managing the Federal Research Budget.............................    21
    Nanotechnology...................................................     5
    Office of Science and Technology Policy (OSTP)...................     7
    Plant Genome Research............................................    42
    Priorities.......................................................     5
    Priority Initiatives.............................................    20
    Questions Submitted to the Office of Science and Technology
      Policy.........................................................    63
    Research.........................................................     5
    Sound Science....................................................    41
    Statement by John Marburger on Allegations Contained in a
      Document Released by the Union of Concerned Scientists.........    42
    The President's Fiscal Year 2005 R&D Budget......................    17
    Workforce Readiness..............................................     6

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    A Renewed Spirit of Discovery....................................    93
    Additional Committee Questions...................................   127
    Advanced Microelectronics........................................   139
    Aeronautics Funding..............................................   106
    Aldridge Commission............................................125, 130
    Arbitrary Date of 2010 for Shuttle Retirement....................   135
    Big Projects Crowding Out Other Research.........................   131
    Cancellation of the Fifth (SM-4) Hubble Servicing Mission........   119
    Cargo Capacity Requirements......................................   108
    Columbia Accident Investigation Board Findings and Impact on
      Future Missions................................................   120
    Cost of the Moon/Mars Vision.....................................   133
    Crew:
        Exploration Vehicle (CEV)..................................105, 138
        Transfer Requirements........................................    97
    Education Programs...............................................   132
    Executive Summary................................................   119
    Experimental Program to Stimulate Competitive Research (EPSCoR)..   137
    Exploration Systems..............................................   104
    Failed Financial Statement.......................................   132
    Final Servicing Mission Study....................................   101
    Fiscal Year:
        2003 Accomplishments.........................................    93
        2005 Budget Summary..........................................    88
    Funding:
        Of ISS Resupply Missions.....................................   128
        Reductions in Physical Science Research......................   105
    Future Plans for Hubble Space Telescope and Astronomy............   122
    Gehman Letter....................................................    83
    Heavy Lift Capability Beyond Shuttle.............................   135
    Hubble:
        Servicing Mission............................................    98
        Space Telescope's Scientific Legacy..........................   122
        Telescope....................................................   130
    Implementation Elements and Budget Highlights....................    89
    Implications for Terminating the Shuttle Program in 2010.........   127
    International:
        Partners in the Moon/Mars Vision.............................   134
        Space Station................................................   138
    Joint Dark Energy Mission (JDEM).................................   139
    New Technologies.................................................   118
    Non-Space Needs of the Program...................................   102
    Organizing for Exploration.......................................    92
    Private Corporations.............................................   137
    Return to Flight:
        And ISS U.S. Core Complete Timeline..........................   121
        CAIB Recommendations.........................................   109
        Cost.........................................................   110
    Russian Soyuz Safety.............................................   136
    Service Mission Risk.............................................   100
    Shuttle Retirement..............................................97, 123
        At 2010......................................................   131
    Soyuz Capabilities...............................................    98
    Space:
        Nuclear......................................................   139
        Science Devotion.............................................   119
        Station Crew/Cargo...........................................   134
    The:
        Nation's Future in Exploration and Discovery.................    93
        President's Vision for U.S. Space Exploration--President
          George W. Bush, January, 2004..............................    93
    Timeline for Enhance Use Lease...................................   128
    Unique Requirements and Increased Risk in the Hubble Servicing
      Mission........................................................   120
    Vision:
        For Space Exploration........................................   125
        Goals........................................................    89
    Webb Telescope...................................................   130
    Workforce Involved with Human Space Flight.......................   128

                          NATIONAL SCIENCE FOUNDATION

    A Statement of the National Science Board: In Support of the Math
      and Science Partnership Program at the National Science
      Foundation.....................................................    33
    Additional Committee Questions...................................    63
    Agenda and Goals of Arden L. Bement, Jr..........................    35
    Award Administration.............................................    47
    Barrow Arctic Global Climate Change Research Facility............    71
    Budget Highlights................................................    27
    Challenge of Serving in Dual Capacities..........................    34
    Consolidation of Math and Science Partnership....................    41
    Danforth Plant Science Center....................................    44
    Engage Public in Emerging Research Fields........................    36
    Experimental Program to Stimulate Competitive Research (EPSCo70, 71, 74
        Research Infrastructure Initiative...........................    71
    Fiscal Year 2005 NSB Budget......................................    32
    Goals as New NSF Director........................................    34
    Homestake Mine...................................................    62
    Informal Science Education.......................................    69
    Information Technology Research..................................    68
    Infrastructure Investments.......................................    40
    Intergovernmental Personnel Act..................................    70
    Management of Large:
        Facilities...................................................    45
        Infrastructure Projects......................................    46
    Math and Science Partnership.....................................37, 69
    Minority-serving Institutions....................................    67
    Nanoscale Science and Engineering................................    49
    National Academy of Sciences Report on NSF Priority Setting for
      Major Research Facilities......................................    67
    NSF Strategic Goals: People, Ideas, Tools and Organizational
      Excellence.....................................................    25
    Overview of NSB Activities During the Last Year..................    31
    Priority Areas...................................................    26
    Questions Submitted to the:
        National Science Board.......................................    75
        National Science Foundation..................................    67
    Role of Community Colleges.......................................    38
    Science, Technology, Engineering, Mathematics Talent Expansion
      (Tech Talent) Program..........................................37, 69
    Selection and Appointment of New NSF Director....................    35
    Sound Science....................................................    73
    Strategic Management of Human Capital............................    48
    Tools--Opening Up New Vistas.....................................    28
    2005 Budget Request..............................................    30
    Workforce Issues.................................................    38