[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

                               __________

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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.
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                  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

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