[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



                THE NEED FOR GRANT REFORM AND THE FASTER
                AND SMARTER FUNDING FOR FIRST RESPONDERS
                              ACT OF 2005

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON EMERGENCY PREPAREDNESS,
                        SCIENCE, AND TECHNOLOGY

                                 of the

                     COMMITTEE ON HOMELAND SECURITY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             April 12, 2005

                               __________

                            Serial No. 109-6

                               __________

       Printed for the use of the Committee on Homeland Security
                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                     Committee on Homeland Security

                 Christopher Cox, California, Chairman

Don Young, Alaska                    Bennie G. Thompson, Mississippi
Lamar S. Smith, Texas                Loretta Sanchez, California
Curt Weldon, Pennsylvania, Vice      Edward J. Markey, Massachusetts
Chairman                             Norman D. Dicks, Washington
Christopher Shays, Connecticut       Jane Harman, California
Peter T. King, New York              Peter A. DeFazio, Oregon
John Linder, Georgia                 Nita M. Lowey, New York
Mark E. Souder, Indiana              Eleanor Holmes Norton, District of 
Tom Davis, Virginia                  Columbia
Daniel E. Lungren, California        Zoe Lofgren, California
Jim Gibbons, Nevada                  Sheila Jackson-Lee, Texas
Rob Simmons, Connecticut             Bill Pascrell, Jr., New Jersey
Mike Rogers, Alabama                 Donna M. Christensen, U.S. Virgin 
Stevan Pearce, New Mexico            Islands
Katherine Harris, Florida            Bob Etheridge, North Carolina
Bobby Jindal, Louisiana              James R. Langevin, Rhode Island
Dave G. Reichert, Washington         Kendrick B. Meek, Florida
Michael McCaul, Texas
Charlie Dent, Pennsylvania

                                 ______

     Subcommitte on Emergency Preparedness, Science, and Technology

                    Peter T. King, New York Chairman

Lamar S. Smith, Texas                Bill Pascrell, Jr., New Jersey
Curt Weldon, Pennsylvania            Loretta Sanchez, California
Rob Simmons, Connecticut             Norman D. Dicks, Washington
Mike Rogers, Alabama                 Jane Harman, California
Stevan Pearce, New Mexico            Nita M. Lowey, New York
Katherine Harris, Florida            Eleanor Holmes Norton, District of 
Dave G. Reichert, Washington         Columbia
Michael McCaul, Texas                Donna M. Christensen, U.S. Virgin 
Charlie Dent, Pennsylvania           Islands
Christopher Cox, California (Ex      Bob Etheridge, North Carolina
Officio)                             Bennie G. Thompson, Mississippi 
                                     (Ex Officio)

                                  (II)


                            C O N T E N T S

                              ----------                              
                                                                   Page

                               STATEMENTS

The Honorable Peter King, a Representative in Congress from the 
  State of New York, and Chairman, Subcommittee on Emergency 
  Preparedness, Science and Technology...........................     1
The Honorable Christopher Cox, a Representative in Congress from 
  the State of California, and Chairman, Committee on Homeland 
  Security.......................................................     3
The Honorable Bill Pascrell, Jr., a Representative in Congress 
  from the State of New Jersey, and Ranking Member, Subcommittee 
  on Emergency Preparedness, Science and Technology..............     2
The Honorable Bennie Thompson, a Representative in Congress from 
  the State of Mississippi, and Ranking Member, Committee on 
  Homeland Security..............................................     4
The Honorable Bob Etheridge, a Representative in Congress from 
  the State of North Carolina....................................    56
The Honorable Michael McCaul, a Representative in Congress from 
  the State of Texas.............................................    58
The Honorable Stevan Pearce, a Representative in Congress from 
  the State of New Mexico........................................    54
The Honorable Mike Rogers, a Representative in Congress from the 
  State of Alabama...............................................    53
The Honorable Loretta Sanchez, a Representative in Congress from 
  the State of California........................................    50
The Honorable Rob Simmons, a Representative in Congress from the 
  State of Connecticut...........................................    60

                               WITNESSES
                                Panel I

Mr. J. Richard Berman, Assistant Inspector General for Audits, 
  Office of Inspector General, U.S. Department of Homeland 
  Security
  Oral Statement.................................................     5
  Prepared Statement.............................................     6
William O. Jenkins, Jr., Ph.D., Director, Homeland Security and 
  Justice Issues, Government Accountability Office
  Oral Statement.................................................    31
  Prepared Statement.............................................    33
Veronique de Rugy, Ph.D., Fellow, American Enterprise Institute
  Oral Statement.................................................    16
  Prepared Statement.............................................    17

                                Panel II

The Honorable Bryan E. Beatty, Secretary, North Carolina 
  Department of Crime, Control and Public Safety
  Oral Statement.................................................    63
  Prepared Statement.............................................    65
Mr. Michael Chapman, Director, Missouri Office of Homeland 
  Security
  Oral Statement.................................................    67
  Prepared Statement.............................................    69
Mr. David L. Miller, Administrator, Iowa Homeland Security and 
  Emergency, Management Division
  Oral Statement.................................................    70
  Prepared Statement.............................................    73

 
                   THE NEED FOR GRANT REFORM AND THE
                  FASTER AND SMARTER FUNDING FOR FIRST
                         RESPONDERS ACT OF 2005

                              ----------                              


                        Tuesday, April 12, 2005

                          House of Representatives,
            Subcommittee on Emergency Preparedness,
                            Science, and Technology
                            Committee on Homeland Security,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:09 p.m., in 
Room 2212, Rayburn House Office Building, Hon. Peter King 
[chairman of the subcommittee] presiding.
    Present: Representatives King, Simmons, Rogers, Pearce, 
McCaul, Cox, Pascrell, Sanchez, Lowey, Norton, Etheridge, and 
Thompson.
    Mr. King. [Presiding.] Good afternoon. The Committee on 
Homeland Security Subcommittee on Emergency Preparedness, 
Science, and Technology will come to order. The subcommittee is 
meeting today to hear testimony on the need for grant reform 
and the Faster and Smarter Funding for First Responders Act of 
2005.
    As the Chairman of the subcommittee and also as someone 
from New York, there is no issue more important to me than this 
as we deal with the threat of homeland security. The purpose of 
this hearing is to look at the need to reform the Federal 
Terrorism Preparedness grant process and particularly we want 
to focus on several widely reported problems with the current 
system. These include, one, the reliance on arbitrary formulas 
rather than risk or need, the lack of federal terrorism 
preparedness standards or goals which would guide the 
expenditure of the terrorism grants, and also the failure of 
current programs to consider the risks of rural jurisdictions 
in allocating such funds, for example, agro-terrorism.
    Another significant issue which has received some coverage 
in recent days is the slow rate of draw-down by state and local 
recipients of terrorism preparedness grants and the failure of 
many states and territories to allocate funds within their 
jurisdictions are on the basis of risk and need.
    As I said at the outset, to me there is no more important 
issue as we go forward in this war against international 
terrorism, that homeland security money be spent properly, that 
it go where it is needed. Money is spent everywhere and thus we 
are spending it nowhere. If we are going to make adequate use 
of the money, effective use of the money, it has to go to the 
areas that have the greatest need. So that is the thrust of 
Chairman Cox's bill.
    I commend him, once again, and also the Ranking Member, Mr. 
Thompson, and as the bill moves forward, it is something that 
we are going to pursue very aggressively. This hearing today is 
the first hearing, and there is a full committee hearing I 
believe coming on Thursday, and it is going to move forward 
from there.
    So with that, I want to thank all of the witnesses for 
agreeing to be here today, and I now recognize the Ranking 
Member, the gentleman from New Jersey, Mr. Pascrell.
    Mr. Pascrell. I thank the Chairman. I am going to hold my 
time to a minimum. After 9/11, the urgency to provide support 
for our first responders finally punctured the collective mind 
of Congress. We began spending over $3 billion annually to help 
our men and women on the frontlines to prevent and prepare for 
future terrorist attacks.
    Unfortunately, the current mechanisms for distributing 
grant funding to the local level is fundamentally broken. We 
have a system where grant funding is distributed to a large 
extent on minimum funding allocations rather than on risk. This 
is wrong. We must prioritize our homeland security grant 
funding so that we are spending federal money where it is 
needed the most, as the Chairman pointed out.
    I am heartened by the bipartisan unity displayed so far and 
I want to commend Chairman Cox and Ranking Member Thompson for 
their efforts in regard to the Faster and Smarter Funding for 
First Responders Act. The foundation of this legislation rests 
on common sense. It will require the Department to work hand in 
hand with first responders to finally determine what ``being 
prepared'' means to different communities. It will mandate that 
we assess both the threats and the vulnerabilities confronting 
America's localities to form a picture of the risks they 
actually face; that recognizes that antiterrorism grant 
decisions could be based primarily on the highest priorities 
for defending America. This is absolutely critical. Dispensing 
terrorism preparedness money on arbitrary political formulas is 
the height of cynicism and counterproductive to national 
security.
    Indeed, the legislation takes large steps to correct many 
of the problems with the current system. We continue to ignore 
the most pressing need of most jurisdictions for homeland 
security, and that is staffing. Personnel shortages are placing 
a strain on local budgets across all levels of government and 
encompassing all first responder disciplines. While we continue 
to prohibit state and local governments from using homeland 
security funding to hire personnel, the administration has 
proposed eliminating much of the COPS program and some of the 
SAFER programs that provide such resources.
    So as we hold hearings on this first responder legislation, 
we must carefully examine not only how funding is distributed, 
but also the uses of that funding. I am very interested in 
hearing from our distinguished witnesses, Mr. Chairman. They 
bring a breadth of experience and knowledge that is vital in 
our efforts to improve our security grant system.
    Thank you, Chairman Cox and Subcommittee Chairman King for 
holding this hearing. Thank you, Mr. Chairman.
    Mr. King. I thank the Ranking Member.
    I recognize the gentleman from California, Chairman of the 
full committee, Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman.
    Good afternoon, and let me join in welcoming our witnesses. 
We have two outstanding panels, first to give us the Washington 
perspective, and second, the perspective from the States. This 
subcommittee hearing is the latest in a series of hearings by 
the Homeland Security Committee and the select committee that 
preceded it, on the need for first responder grant reform. It 
is especially fitting that we are focusing on the needs of our 
nation's first responders this week, just a few days after 
thousands of firefighters from across the country attended the 
Congressional Fire Service Institute's annual national fire and 
emergency services dinner.
    As first responders learn to adapt to our new 
counterterrorism priorities, we have to give them the support 
necessary to fulfill their crucial role in defending the 
country. This is the core of our national security mission. The 
Faster and Smarter Funding for First Responders Act of 2005, 
which was introduced today by myself, Ranking Member Thompson 
and every single Republican and Democratic member of our 
committee, is now numbered H.R. 1544, and will do just that.
    Since the tragic events of 9/11, Congress has appropriated 
over $40 billion to help states, localities and first 
responders improve our nation's preparedness for future acts of 
terrorism. The President's budget for fiscal year 2006 requests 
additional billions, representing an increase of about 2000 
percent over 2001 levels. Yet billions of these dollars remain 
in the pipeline unspent, despite the fact that the threat of 
terrorism remains very real. Any day could bring another 
damaging terrorist attack on U.S. soil.
    It is clear that despite the enormous increase in 
authorized and appropriated funding by Congress, the homeland 
security grantmaking process is broken. According to reports 
issued by the witnesses on our first panel today, the 
grantmaking process is plagued by inefficiencies and 
administrative problems. The lack of risk-based priorities and 
terrorism preparedness standards to guide federal, state and 
local government spending decisions means that national 
security funds are often used for less important purposes.
    The leading cause for this breakdown is that the law 
requires the Department of Homeland Security to allocate 
terrorism preparedness funding in a formulaic manner, unrelated 
to risk. That pattern is often repeated at the state level. In 
the immediate aftermath of 9/11, Congress passed the USA 
Patriot Act, which put into law these arbitrary political 
formulas for the distribution of antiterrorism grants to the 
States. The Patriot Act guarantees that every state, no matter 
its actual risk, must receive a fixed percentage of the total 
grant funding each year, and that percentage is the same from 
state to state, from Rhode Island to New York. It does not 
matter. Everybody gets the same amount.
    Neither does DHS allocate the remaining funds, the other 
half, on the basis of risk or need. Those funds go according to 
another formula, population. We just cannot afford to keep 
spending these huge amounts of money without regard to risks. 
We do a disservice to our citizens and to our first responders 
if we refuse to acknowledge that in a world of limited 
resources in which time is not on our side, we must prioritize 
our spending where it is needed most.
    This is not in any way to suggest that only large urban 
areas ought to receive federal homeland security dollars. To 
the contrary, while many major metropolitan areas are terror 
targets, they are by no means the only places that have a real 
risk of terrorism and are in need of funding. States with major 
agricultural industries such as Iowa, Missouri and North 
Carolina represented at our hearing today can also legitimately 
cite risks worth being protected against. They have assets that 
are crucial to our nation. They provide much of the food that 
we eat. They are thick with defense assets, energy, banking, 
finance and other critical infrastructure sectors. The current 
system simply ignores these risks because they are not located 
in major metropolitan areas.
    Since 9/11, many government agencies and outside experts 
have identified a host of problems with our homeland security 
grantmaking process. I look forward to working with Ranking 
Member Thompson, Subcommittee Chairman King and Ranking Member 
Pascrell and all members of the Committee on Homeland Security 
on solving these problems. We owe it to the men and women who 
put their lives at risk every day to keep us safe. We owe it to 
them to make sure that they all go home safely as well.
    Thank you, Mr. Chairman.
    Mr. King. Thank you, Chairman Cox.
    I now recognize the Ranking Member of the full committee, 
the gentleman from Mississippi, Mr. Thompson.
    Mr. Thompson. Thank you very much, Mr. Chairman.
    As has already been stated, I joined Chairman Cox earlier 
today in introducing this Act. It is basically the same bill 
that was passed by the select committee last year. I look 
forward to its speedy consideration, not just by the committee 
on Thursday, but ultimately by the full body of Congress, but 
also for our first responders whether they are firefighters, 
law enforcement, or EMS providers. Our first line of defense, 
we want to say thank you for a job well done. I hope with this 
bill we can do it in terms of getting resources to you a little 
better, but also we hope that once we get the resources to the 
states they in turn get the equipment and the other items to 
those departments, volunteer or paid, in a better time.
    From my standpoint, representing a rural district, I am 
concerned a little bit about how we dispense the resources. 
This bill adequately addresses identifying risk and some other 
things that we have not had in the past. So whether you have a 
nuclear facility, a port or other significant assets, we will 
be able to address some of those resource allocations because 
of that. But from the standpoint of my position, Mr. Chairman, 
I am excited about this legislation. There are some things in 
this legislation we will talk about a little later. I think we 
will get the money out faster to the communities where the need 
is greatest, based on a state comprehensive plan. It also 
provides monies to Native Americans and other people that in 
the past did not get included in other legislation.
    So we are correcting some errors of the past, 
notwithstanding most of us saw 60 Minutes on Sunday and we 
still have some work to be done associated with it. So I look 
forward to the testimony and welcome the witnesses to this 
hearing.
    Mr. King. I thank the Ranking Member for his remarks.
    Now, I would like to introduce the first panel we have with 
us today. We have, first, Mr. J. Richard Berman, the Assistant 
Inspector General for Audits, Office of the Inspector General, 
Department of Homeland Security; Dr. Veronique de Rugy, a 
Fellow at the American Enterprise Institute; and Dr. William 
Jenkins, Director of Homeland Security and Justice Issues in 
the GAO.
    As I said, I thank the witnesses for being here today and 
ask them if they could possibly keep their remarks to within 5 
minutes. Your full statement will be made part of the record.
    I recognize Mr. Berman.

STATEMENT OF J. RICHARD BERMAN ASSISTANT INSPECTOR GENERAL FOR 
    AUDITS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
                       HOMELAND SECURITY

    Mr. Berman. Mr. Chairman and members of the subcommittee, 
thank you for the opportunity to be here today to discuss our 
work at the Department of Homeland Security's first responder 
grant programs. My remarks will focus on the March, 2004 report 
entitled Distributing and Spending First Responder Grant Funds, 
and the actions taken by the department to address the 
recommendations made in that report.
    Additional IG audits of state and local spending of first 
responder funds are ongoing. Generally, we found that while the 
department had significantly reduced the time it took to 
process grant applications, states, local jurisdictions and 
first responder organizations have been slow to draw-down and 
spend first responder grant funds. For example, of the $882 
million awarded in fiscal year 2002 and the first part of 
fiscal year 2003, 79 percent remained in the U.S. Treasury in 
February, 2004. As of April 2005, 29 percent of the $882 
million still had not been drawn down.
    Draw-downs do not tell the whole story, however. We also 
found that while only a small percentage of the funds have been 
drawn down, much of the remainder had been committed or 
obligated by the states. The department's Office for Domestic 
Preparedness, or ODP, responded positively to our report and 
agreed with most of our recommendations. In addition, the 
department has made considerable progress in responding to 
state and local officials's calls for establishment of a one-
stop shop that would consolidate the various preparedness 
grants into a single comprehensive program.
    Further, the Secretary created the Task Force on State and 
Local Homeland Security Funding, whose report published in June 
of 2004 mirrored many of the findings of our audit. I would 
like to highlight four of the major findings and 
recommendations we made, along with the status of the 
department's actions to address them. First, we identified 
numerous reasons for the delayed spending. In some instances, 
states and local jurisdictions have delayed spending funds 
pending the completion of statewide risk assessments and 
homeland security strategies and the development of detailed 
spending plans.
    In addition, the need to adhere to state and local 
administrative practices, including legal and procurement 
requirements, often delayed the spending of grant funds. In 
some instances, equipment back-orders were encountered, caused 
by the same equipment being purchased by the military. We 
recommended that ODP identify and publish best practices that 
result in faster and more efficient grant processing and 
spending, and they are doing that.
    Second, states needed to provide more meaningful reporting 
of progress. While only a small percentage of the funds had 
been drawn down, the amount of draw-downs alone does not 
provide a clear picture of a state's actual progress because 
many states did not reflect funds obligated or committed. We 
recommended that ODP require more meaningful reporting by 
states so it can track progress more accurately and assist 
states when necessary. ODP has implemented several improvements 
in the reporting process, including requirements for an initial 
strategy implementation plan and a biannual strategy 
implementation report.
    Third, state and local officials told us that planning 
efforts were often delayed because first responders and 
emergency officials did not have clear federal guidance on 
equipment, training, exercises and preparedness levels, making 
it difficult for them to prioritize their needs. We recommended 
that ODP accelerate the development of federal guidelines for 
such activities.
    In addition to guidance already developed, the department 
earlier this month issued an interim national preparedness 
goal. The goal is a product of a capabilities-based planning 
process that led to the identification of core capabilities 
that the nation and its states, communities and citizens need 
to possess. By mid-April 2005, the department plans to issue 
detailed instruction on how communities use the goal and a 
description of how the goal will be used in the future to 
manage federal preparedness assistance.
    Fourth, at the time of our audit, ODP had not implemented a 
formal grant monitoring system and ODP staff had not conducted 
field visits or very frequent field visits to monitor grant 
recipients. We recommended that ODP publish program monitoring 
guidance and ensure that states report their progress in 
achieving program performance goals and objectives. We also 
recommended that ODP monitor state oversight of local 
jurisdictions's compliance with grant requirements and develop 
performance standards that can be used to measure the overall 
success of the grant programs, including baselines against 
which to measure progress.
    ODP updated its grant monitoring guidance in fiscal year 
2004 and established new monitoring goals. According to the 
guidance, at least one office file review and one on-site visit 
should be completed for each fiscal year.
    That completes my summary of remarks. I would be happy to 
answer any questions you may have.
    [The statement of Mr. Berman follows:]

                Prepared Statement of J. Richard Berman

    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to be here today to discuss our work 
on the Department of Homeland Security's (the Department's) first 
responder grant programs. My remarks will focus on our March 2004 
report entitled, ``Distributing and Spending ``First Responder'' Grant 
Funds,'' and the actions taken by the Department's Office for Domestic 
Preparedness (ODP), and its Office of State and Local Government 
Coordination and Preparedness (SLGCP), of which the ODP is now a part, 
to resolve recommendations made in that report. Our audit covered funds 
awarded under the fiscal year 2002 State Domestic Preparedness Program 
(SDPP), the fiscal year 2003 State Homeland Security Grant Program 
(SHSGP), and the fiscal year 2003 SHSGP Part II.
    Generally we found that states, local jurisdictions, and first 
responder organizations had been slow to receive and spend ODP first 
responder grant funds. For example, as of February 2004, of the $882 
million in fiscal year 2002 SDPP and fiscal year 2003 SHGP funds 
awarded by the ODP, 79 percent still remained in the U.S. Treasury. 
Because our report is a year old, we have updated a table showing more 
current draw down information and attached it to this statement as 
Attachment 1. As of April 2005, only 19 percent of the $882 million has 
not been drawn down.
    We identified numerous reasons for the delayed spending. In some 
instances, states and local jurisdictions had delayed spending funds 
pending the completion of state-wide risk assessments and homeland 
security strategies and the development of detailed spending plans. We 
also identified numerous other reasons for delayed spending--some 
unavoidable but others that could be mitigated. For example, many 
states and jurisdictions complained of unclear federal guidance, 
inadequate staffing resulting from the economic downturn and budget 
shortages, and, in some instances, equipment backorders caused by the 
same equipment being purchased by our military.
    Expenditures do not tell the whole story, however. We also found 
that while only a small percentage of the funds had been drawn down, 
much of the remainder had been committed or obligated. In addition, 
these are reimbursement programs, and some states and jurisdictions had 
already purchased equipment but had not yet requested reimbursement 
under the grants.
    SLGCP responded positively to our report and agreed with most of 
our recommendations. In addition, the Department has made considerable 
progress in responding to state and local government officials' calls 
for the establishment of a ``one-stop-shop'' that would consolidate the 
various preparedness grants into a single, comprehensive program. The 
Department also created the Task Force on State and Local Homeland 
Security Funding. The Task Force report, published in June 2004, 
mirrored many of the findings of our audit. Further, the GAO published 
a report in February 2005, HOMELAND SECURITY--Management of First 
Responder Grant Programs Has Improved, but Challenges Remain, that 
documents the Department's progress in many of the areas identified in 
our report.
    Following are the major findings and recommendations we made along 
with the status of the Department's actions to address them.

Delayed Spending of Grant Funds
    We found that state and local government administrative practices 
often delayed their spending of grant funds. Often, the ability of 
states and localities to spend grant funds expeditiously was 
complicated by the need to adhere to state and local legal and 
procurement requirements and approval processes.
    We recommended that the ODP identify and publish best practices 
that result in faster and more efficient grant processing and spending. 
For example, identify state procurement practices that result in first 
responder equipment being supplied in a timely and cost effective 
manner.
    Department efforts are under way to identify and disseminate best 
practices, including how states and localities manage legal and 
procurement issues that affect grant distribution. The Department's 
Homeland Security Advisory Council Task Force stated in its June 2004 
report that some jurisdictions have been ``very innovative'' in 
developing mechanisms to support the procurement and delivery of 
emergency-response-related equipment. The task force recommended that, 
among other things, the Department should, in coordination with state, 
county, and other governments, identify, compile, and disseminate best 
practices to help states address grant management issues. The ODP has 
established a new Homeland Security Preparedness Technical Assistance 
Program service to enhance the grant management capabilities of state 
administrative agencies. Also, the Department established a password 
protected web site, Lessons Learned Information Sharing, which allows 
states, local governments, and first responder organizations to share 
best practices.

Need for More Meaningful Reporting by States
    Although only a small percentage of the funds had been drawn down, 
the amount States' reported drawing down did not provide a clear 
picture of states' actual progress for three reasons. First, some 
states had obligated and spent substantial amounts but had not yet 
drawn down the funds. Second, states were inconsistent in how they 
reported funds as being obligated. Third, 30 of the 56 states and 
territories reported on a cash basis and did not report obligations at 
all.
    We recommended that the ODP require more meaningful reporting by 
states so it can track progress more accurately and assist states when 
necessary. Specifically, we recommended they ensure that the definition 
of obligation is consistent for both programmatic and financial 
reporting purposes and require states using a ``cash basis'' accounting 
system to report the value of binding agreements to be funded by first 
responder grant funds. The Task Force also recommended standardized 
terminology and real-time tracking capabilities.
    The ODP has not changed its reporting requirements for obligations. 
However, starting in fiscal year 2004 and continuing in fiscal year 
2005, states are required to submit Initial Strategy Implementation 
Plans that show how planned grant expenditures are linked to larger 
projects, which in turn support specific goals and objectives in the 
state homeland security strategy. In addition to these plans, the ODP 
requires states to submit biannual strategy implementation reports 
showing how the actual expenditure of grant funds is linked to strategy 
goals and objectives. While these changes should be helpful, we will 
continue to follow-up with the ODP on implementing our recommendation 
to report obligations.

Need for Clear Federal Guidance
    State and local officials told us that planning efforts were often 
delayed because first responders and emergency officials did not have 
clear federal guidance on equipment, training, exercises, and 
preparedness levels, making it difficult for them to prioritize their 
needs.
    We recommended that the ODP accelerate the development of federal 
guidelines for first responder capabilities, equipment, training, and 
exercises.
    In responding to our recommendation, ODP's Executive Director said 
that, in addition to developing a standardized Weapons of Mass 
Destruction awareness training program, ODP was developing national 
performance standards for assessing domestic preparedness capabilities 
and identifying gaps in those capabilities. Homeland Security 
Presidential Directive-8 called for a new national preparedness goal 
and performance measures, standards for preparedness assessments and 
strategies, and a system for assessing the nation's overall 
preparedness. The Department issued an Interim National Preparedness 
Goal on April 1, 2005. The goal is a product of a capabilities-based 
planning process that led to the identification of core capabilities 
that the Nation and its states, communities, and citizens need to 
possess. By mid-April 2005, the Department plans to issue detailed 
instructions on how communities can use the Goal and a description of 
how the Goal will be used in the future to manage Federal preparedness 
assistance. For fiscal year 2006, states and urban areas are to update 
their Homeland Security Preparedness Strategies to reflect how they 
will address seven National Priorities in order to receive further 
Federal preparedness assistance. These priorities include: (1) 
implement the National Incident Management System and National Response 
Plan; (2) expanded regional collaboration; (3) implement the Interim 
National Infrastructure Protection Plan; (4) strengthen information 
sharing and collaboration capabilities; (5) strengthen interoperable 
communications capabilities; (6) strengthen capabilities for detection, 
response, and decontamination of chemical, biological, radiological, 
nuclear, or explosive materials; and (7) strengthen medical surge and 
mass prophylaxis capabilities. For fiscal year 2007, states and urban 
areas will need to revise their Homeland Security Preparedness 
Strategies to align with the Final National Preparedness Goal in order 
to receive further Federal preparedness assistance. The Department 
plans to issue the Final National Preparedness Goal and a Target 
Capabilities List, updated to include the target levels of 
capabilities, on October 1, 2005.

Need to revise the 45 day Transfer Rule
    Fiscal year 2003 appropriation language required states to transfer 
grant funds within 45 days of the funds being awarded by the ODP. We 
found no evidence that the 45-day transfer rule sped up spending. 
States met the requirement by declaring funds obligated once they 
decided how they would distribute them to jurisdictions. The rule did 
not get the funds into the hands of the jurisdictions or streamline 
burdensome administrative processes.
    We recommended that the ODP seek a legislative change to revise or 
eliminate the 45-day transfer rule to allow more time for planning.
    The requirement was lengthened to 60 days by the fiscal year 2005 
appropriation (House Conference Report 108-774).

Formal Grant Monitoring System Lacking
    At the time of our audit, the ODP had not implemented a formal 
grant monitoring system, and ODP staff had not conducted frequent field 
visits to monitor grant recipients.
    We recommended that the ODP publish program monitoring guidance and 
ensure that states report their progress in achieving program and 
performance goals and objectives. We also recommended that the ODP 
monitor state oversight of local jurisdictions' compliance with grant 
requirements, and develop performance standards that can be used to 
measure the overall success of the grant programs, including baselines 
against which to measure progress.
    The ODP updated its grant-monitoring guidance in fiscal year 2004 
and established new monitoring goals. According to the guidance, at 
least one office file review and one on-site visit should be completed 
for each state each fiscal year. In addition, the requirements for 
Initial Strategy Implementation Plans and biannual strategy 
implementation reports, discussed earlier, should improve monitoring. 
As of September 2004, the ODP had filled 138 staff positions, as 
compared with 63 filled positions at the end of fiscal year 2003. That 
should help alleviate the staffing shortages that contributed to ODP's 
inability to conduct frequent grantee monitoring.

Approved Equipment Lists Change Each Year
    The approved equipment list changed each year, generally broadening 
the selection of equipment permitted. State and jurisdiction officials 
complained that keeping track of what could be purchased with each 
grant was confusing and time consuming. We agreed and saw no reason 
that a single list could not be applied to all years.
    We recommended that the ODP allow states to use the most recent 
ODP-approved equipment list when purchasing equipment with prior-year 
grant funds.
    However, the ODP did not agree with our recommendation, stating 
that ``allowing grantees to use current or future equipment lists that 
may differ from those provided by ODP in previous years will ultimately 
have a negative impact upon accounting practices, vendor selection, 
equipment maintenance, and training and calibration programs managed by 
ODP grantees.'' We will continue to look at this issue as we continue 
our audits of state and local spending of first responder grant funds.

Consolidation of Preparedness Grants Under SLGCP
    The Department has made considerable progress in consolidating 
grant programs into a one-stop-shop for states and local jurisdictions. 
In developing and implementing a national program to enhance the 
capacity of state and local agencies to respond to incidents of 
terrorism, the Department has integrated numerous distinct, yet 
related, preparedness grant initiatives and programs into a single 
program under the auspices of SLGCP. Under the $2.6 billion Fiscal Year 
2005 Homeland Security Grant Program, SLGCP consolidated the 
application process and administration of six programs: State Homeland 
Security Program, Urban Areas Security Initiative, Law Enforcement 
Terrorism Prevention Program, Citizen Corps, Emergency Management 
Performance Grants, and Metropolitan Medical Response System Program 
Grants. Attachment 2 lists the Department's major preparedness grant 
programs, including those still outside SLGCP.
    Although SLGCP has program management and monitoring responsibility 
for grants awarded under the Fiscal Year 2005 Homeland Security Grant 
Program, it relies upon the Justice Department's Office of the 
Comptroller for grant fund distribution and assistance with financial 
management support. In the Department's 2004 financial statement audit 
report, the independent auditors noted that SLGCP management was not 
actively involved in the financial reporting of its activities and had 
not obtained a thorough understanding of the control activities over 
its financial reporting process performed by the Justice Department. As 
a result, SLGCP lacks assurance that the processing of its financial 
activities coincides with its business operations, are reported 
accurately, and controlled properly.
    That concludes my prepared remarks, Mr. Chairman. I will be happy 
to answer any questions you or the members may have.

                                                  Attachment 1

----------------------------------------------------------------------------------------------------------------
   Department of Homeland Security Office of State and Local Government    Coordination and Preparedness First
                                          Responder Grants FYs 200-2004
-----------------------------------------------------------------------------------------------------------------
                                                                                                        Percent
                   Grants                     Awarded ($4.6B)    Drawn February     Drawn  April 2005    Drawn
                                                                  2004 ($342M)           ($1.7B)         (37%)
----------------------------------------------------------------------------------------------------------------
FY 2002 State Domestic Preparedness Program      $315,841,000        $114,637,167        $278,058,077         88

FY 2003 State Homeland Security Grant             566,295,000          70,721,430         350,759,198         62
 Program Part I............................

FY 2003 State Homeland Security Grant           1,500,000,000         156,409,171         759,595,402         51
 Program Part II...........................

FY 2004 Homeland Security Grant Program....     2,220,000,000            ----             317,763,857         14
----------------------------------------------------------------------------------------------------------------

Grand total                                     4,602,136,000         341,767,768       1,706,176,534         37
----------------------------------------------------------------------------------------------------------------

Note: The fiscal year 2004 grant includes funds for State Homeland 
Security, Law Enforcement Terrorrsm Prevention, and Citizen Corps 
Programs.

Source: U.S. Department of Justice, Office of Justice Programs

----------------------------------------------------------------------------------------------------------------
                                                           FY 2002 State Domestic Preparedness Program
                                                ----------------------------------------------------------------
                     State                                                                              Percent
                                                  Awarded ($316M)   Drawn February   Drawn April 2005    Drawn
                                                                     2004 ($115M)         ($278M)        (88%)
----------------------------------------------------------------------------------------------------------------
Alabama........................................         $5,317,OO        $2,866,889        $3,415,121         64
Alaska.........................................         2,783,000            71,600         2,661,315         96
American Samoa.................................           828,000           181,808           714,671         86
Arizona........................................         5,770,000         2,552,407         5,522,838         96
Arkansas.......................................         4,141,000         1 ,409,37         3,945,997         95
California.....................................        24,831,000         2,519,960        22,365,829         90
Colorado.......................................         5,220,000           528,749         4,893,363         94
Connecticut....................................          4,626,OO          1,245,65         4,227,554         91
Delaware.......................................         2,887,000                 0         2,887,000        100
District of                                             2,747,000         2,558,690         2,558,690         93
  Columbia.....................................
Florida........................................        12,967,000         8,702,835        12,967,000        100
Georgia........................................         7,797,000           942,500         2,393,000         31
Guam...........................................           892,000           753,037           782,786         88
Hawaii.........................................         3,172,000            74,071         1,748,006         55
Idaho..........................................          3,226,OO           640,401         2,395,696         74
Illinois.......................................        10,604,000         5,777,509        10,226,949         96
Indiana........................................          6,400,OO         1,151,268         4,833,571         76
Iowa...........................................         4,308,000         3,444,273         4,307,046        100
Kansas.........................................         4,151,000         3,94O,345         4,081,006         98
Kentucky.......................................         5,O48,OO0           759,630         4,723,981         94
Louisiana......................................         5,331,OO0           686,341         5,330,997        100
Maine..........................................         3,213,000         2,657,172         3,213,000        100
Maryland.......................................         5,881,OO0         4,244,702         5,881,000        100
Massachusetts..................................         6,579,000         5,929,733         6,559,646        100
Michigan.......................................         8,958,000         5,875,820         8,841,855         99
Minnesota......................................         5,631,000         3,014,307         5,473,066         97
Mississippi....................................         4,255,000           107,619         3,145,484         74
Missouri.......................................         6,079,000         4,225,100         6,051,500        100
Montana........................................         2,967,000         1,245,902         2,950,859         99
Nebraska.......................................         3,502,OO0         1,865,113         3,445,584         98
Nevada.........................................         3,693,OO0         2,874,192         3,498,038         95
New Hampshire..................................         3,328,000           424,849         2,238,692         67
New Jersey.....................................         7,948,000                 0         3,442,939         43
New Mexico.....................................         3,574,000           106,091         3,125,886         87
New York.......................................        14,953,000                 0        14,400,000         96
North Carolina.................................         7,706,000         3,517,086         7,569,851         98
North Dakota...................................         2,794,000         1,240,166         2,794,000        100
Northern Mariana Islands.......................           835,000           545,917           631,603         76
Ohio...........................................         9,897,OO0         5,435,537         9,894,773        100
Oklahoma.......................................         4,656,OO0                 0         1,729,388         37
Oregon.........................................         4,637,000          682,6882         3,404,254         73
Pennsylvania...................................        10,512,000        2,578,4511         8,625,437         82
Puerto Rico....................................         4,894,000           182,426           989,817         20
Rhode Island...................................         3,063,OO0         1,170,550         2,371,377         77
South Carolina.................................         5,028,OO0        2,539,155          5,025,963        100
South Dakota...................................          2,868,OO         1,362,448         2,868,000        100
Tennessee......................................         6,140,000         2,026,109         6,137,538        100
Texas..........................................        16,196,OO0         1,587,327        14,505,713         90
Utah...........................................         3,849,000         2,001,356         3,664,922         95
Vermont........................................         2,772,000         1,883,177         2,772,000        100
Virginia.......................................         7,062,000         5,560,966         7,062,000        100
Virgin Islands.................................           861,000           125,923           299,010         35
Washington.....................................         6,276,000         2,527,968         6,274,466        100
West Virginia..................................         3,567,000         3,567,000         3,567,000        100
Wisconsin......................................         5,925,000         2,724,977         5,925,000        100
Wyoming........................................         2,696,000                 0         2,696,000       100
----------------------------------------------------------------------------------------------------------------
Grand total                                           315,841,000       114,637,167       278,058,077         88
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                       FY 2003 State Homeland Security Grant Program Part I
                                                ----------------------------------------------------------------
                     State                                                                              Percent
                                                  Awarded ($566M)   Drawn February   Drawn April 2005    Drawn
                                                                      2004 ($71M)         ($350M)        (62%)
----------------------------------------------------------------------------------------------------------------
Alabama........................................        $9,457,000           $98,821        $1,392,304         15
Alaska.........................................         4,995,000            25,255         1,716,783         34
American Samoa.................................         1,482,000                 0           924,430         62
Arizona........................................        10,584,000         1,440,515         5,973,784         56
Arkansas.......................................         7,394,000         2,521,666         4,599,720         62
California.....................................        45,023,000         2,966,828        20,219,379         45
Colorado.......................................         9,480,000                 0         4,067,980         43
Connecticut....................................         8,265,000                 0         3,189,322         39
Delaware.......................................         5,185,000                 0         3,544,671         68
District of                                             4,910,000                 0         2,767,903         56
  Columbia.....................................
Florida........................................        23,654,000         2,273,323        14,717,142         62
Georgia........................................        14,188,000         1,858,500         8,355,600         59
Guam...........................................         1,596,000            75,566           477,945         30
Hawaii.........................................         5,693,000           127,534         1,504,445         26
Idaho..........................................         5,803,000           572,511         4,281,841         74
Illinois.......................................        18,879,000         4,955,513        14,513,986         77
Indiana........................................        11,399,000         4,859,562         6,844,335         60
Iowa...........................................         7,656,500            58,210         3,752,731         49
Kansas.........................................         7,401,000           252,327         5,022,728         68
Kentucky.......................................         9,001,000         1,655,413         5,679,514         63
Louisiana......................................         9,451,000            95,686         4,403,442         47
Maine..........................................         5,751,000         1,009,281         2,920,002         51
Maryland.......................................        10,585,000           275,912         7,358,991         70
Massachusetts..................................        11,711,000            40,803         6,662,261         57
Michigan.......................................        15,918,000           574,941        10,143,155         64
Minnesota......................................        10,076,000           351,914         6,396,071         63
Mississippi....................................         7,582,000           724,245         4,372,455         58
Missouri.......................................        10,834,000         1,815,200         8,187,100         76
Montana........................................         5,303,000           233,966         4,000,972         75
Nebraska.......................................         6,254,500           551,663         5,052,655         81
Nevada.........................................         6,771,000         1,259,919         5,028,183         74
New Hampshire..................................         5,727,000           334,006         2,851,128         50
New Jersey.....................................        14,222,000                 0         3,371,396         24
New Mexico.....................................         6,401,000            73,673         3,268,846         51
New York.......................................        26,492,000        13,000,000        23,400,000         88
North Carolina.................................        13,908,000           516,434         8,319,525         60
North Dakota...................................         4,983,000           565,640         3,496,377         70
Northern Mariana Islands.......................         1,496,000                 0         1,221,848         82
Ohio...........................................        17,510,000         2,652,971        14,598,963         83
Oklahoma.......................................         8,304,000                 0         3,209,367         39
Oregon.........................................         8,336,000           199,478         3,967,113         48
Pennsylvania...................................        18,570,000           209,395        11,930,437         64
Puerto Rico....................................         8,727,000                 0           372,770          4
Rhode Island...................................         5,489,000         1,899,312         2,926,272         53
South Carolina.................................         9,017,000           276,082         7,221,765         80
South Dakota...................................         5,131,000         1,011,363         3,476,128         68
Tennessee......................................        10,978,000            22,742         6,207,870         57
Texas..........................................        29,538,000         1,652,929        25,295,231         86
Utah...........................................         6,937,000         1,190,913         5,400,517         78
Vermont........................................         4,963,000         1,466,921         3,046,183         61
Virginia.......................................        12,716,000         4,175,589        10,826,160         85
Virgin Islands.................................         1,542,000            14,173         1,374,337         89
Washington.....................................        11,294,000         6,355,323         9,244,406         82
West Virginia..................................         6,340,000         1,319,768         6,318,501        100
Wisconsin......................................        10,565,000         3,109,642         8,967,750         85
Wyoming........................................         4,827,000                 0         2,374,477         49
----------------------------------------------------------------------------------------------------------------
 Grand total                                          566,295,000        70,721,430       350,759,198         62
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                      FY 2003 State Homeland Security Grant Program Part II
                                                ----------------------------------------------------------------
                     State                                                                              Percent
                                                      Awarded       Drawn February   Drawn April 2005    Drawn
                                                     ($1,500M)       2004 ($156M)         ($759M)        (51%)
----------------------------------------------------------------------------------------------------------------
Alabama........................................       $25,049,000        $1,622,255        $8,322,439         33
Alaska.........................................        13,230,000            42,651         5,992,365         45
American Samoa.................................         3,926,000           214,152         1,287,923         33
Arizona........................................        28,033,000         1,268,220        14,939,062         53
Arkansas.......................................        19,585,000         3,241,401        10,603,463         54
California.....................................       119,256,000        19,071,957        54,682,765         46
Colorado.......................................        25,111,000            36,388         5,024,511         20
Connecticut....................................        21,893,000                 0         4,004,009         18
Delaware.......................................        13,733,000                 0         5,402,463         39
District of                                            13,006,000         1,734,000         4,416,788         34
  Columbia.....................................
Florida........................................        62,655,000         5,871,373        20,782,841         33
Georgia........................................        37,579,000         2,171,100        18,652,100         50
Guam...........................................         4,226,000                 0           516,940         12
Hawaii.........................................        15,079,000         1,144,242         3,046,943         20
Idaho..........................................        15,375,000           890,469         7,984,990         52
Illinois.......................................        50,005,000                 0        13,695,463         27
Indiana........................................        30,194,000         9,763,354        23,326,932         77
Iowa...........................................        20,282,000           267,648         7,375,994         36
Kansas.........................................        19,603,000            18,143        11,165,231         57
Kentucky.......................................        23,838,000           728,915        10,744,098         45
Louisiana......................................        25,037,000           543,563        12,093,956         48
Maine..........................................        15,232,000           672,150        10,434,854         69
Maryland.......................................        28,037,000           379,785        16,665,648         59
Massachusetts..................................        31,020,000         3,020,181        17,888,354         58
Michigan.......................................        42,162,000           194,246        12,329,274         29
Minnesota......................................        26,690,000           494,163        16,031,381         60
Mississippi....................................        20,083,000           391,420         8,010,850         40
Missouri.......................................        28,697,000         3,092,700        13,957,000         49
Montana........................................        14,047,000            86,157        10,220,280         73
Nebraska.......................................        16,568,000         1,503,965        12,300,789         74
Nevada.........................................        17,935,000           845,534        14,437,350         80
New Hampshire..................................        15,172,000            61,911         8,488,729         56
New Jersey.....................................        37,671,000         2,318,265        10,142,511         27
New Mexico.....................................        16,956,000                 0         4,055,589         24
New York.......................................        70,172,000        60,000,000        63,000,000         90
North Carolina.................................        36,840,000           250,620        17,575,785         48
North Dakota...................................        13,200,000           148,962         7,688,381         58
Northern Mariana Islands.......................         3,963,000                 0         1,006,511         25
Ohio...........................................        46,378,000         1,500,277        28,437,748         61
Oklahoma.......................................        21,996,000           183,362         3,189,827         15
Oregon.........................................        22,081,000           675,958        11,729,706         53
Pennsylvania...................................        49,189,000           866,720        18,318,697         37
Puerto Rico....................................        23,118,000                 0                 0          0
Rhode Island...................................        14,540,000         9,285,838        10,647,548         73
South Carolina.................................        23,882,000           262,375        15,127,185         63
South Dakota...................................        13,591,000                 0        11,230,930         83
Tennessee......................................        29,080,000                 0         8,261,025         28
Texas..........................................        78,238,000           649,310        50,318,015         64
Utah...........................................        18,374,000         3,388,303        13,904,574         76
Vermont........................................        13,147,000           559,084         8,922,639         68
Virginia.......................................        33,683,000        11,140,543        31,434,282         93
Virgin Islands.................................         4,085,000                 0         3,523,107         86
Washington.....................................        29,917,000         1,211,789        12,773,364         43
West Virginia..................................        16,792,000                 0        12,565,609         75
Wisconsin......................................        27,985,000         4,595,725        24,491,538         88
Wyoming........................................        12,784,000                 0         6,425,046         50
----------------------------------------------------------------------------------------------------------------
Grand total                                         1,500,000,000       156,409,171       759,595,402         51
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                        FY 2004 Homeland Security Program
                                                                ------------------------------------------------
                             State                                                 Drawn April 2005    Percent
                                                                  Awarded ($2.2B)       ($317M)      Drawn (14%)
----------------------------------------------------------------------------------------------------------------
Alabama........................................................       $36,853,000        $2,714,470            7
Alaska.........................................................        19,465,000         1,558,172            8
American Samoa.................................................         5,776,000           345,872            6
Arizona........................................................        41,243,000         4,516,940           11
Arkansas.......................................................        28,815,000         4,907,162           17
California.....................................................       175,457,000         6,853,827            4
Colorado.......................................................        36,944,000         9,369,112           25
Connecticut....................................................        32,403,000                 0            0
Delaware.......................................................        20,206,000            36,042            0
District of Columbia...........................................        19,248,000                 0            0
Florida........................................................        92,182,000         4,201,648            5
Georgia........................................................        55,288,000         4,462,400            8
Guam...........................................................         6,217,000                 0            0
Hawaii.........................................................        22,186,000           363,684            2
Idaho..........................................................        22,621,000         1,648,342            7
Illinois.......................................................        73,571,000        20,142,691           27
Indiana........................................................        44,422,000         4,719,597           11
Iowa...........................................................        29,841,000         1,863,059            6
Kansas.........................................................        28,842,000           765,145            3
Kentucky.......................................................        35,073,000         1,086,071            3
Louisiana......................................................        36,836,000         1,334,610            4
Maine..........................................................        22,409,000         4,575,818           20
Maryland.......................................................        41,251,000         1,158,382            3
Massachusetts..................................................        45,638,500         2,199,964            5
Michigan.......................................................        62,032,000         3,944,784            6
Minnesota......................................................        39,267,000         5,347,176           14
Mississippi....................................................        29,547,000         1,829,395            6
Missouri.......................................................        42,221,000        10,413,200           25
Montana........................................................        20,668,000         1,075,630            5
Nebraska.......................................................        24,376,000         4,234,831           17
Nevada.........................................................        26,387,000         3,886,240           15
New Hampshire..................................................        22,321,000           189,655            1
New Jersey.....................................................        55,424,000         3,518,168            6
New Mexico.....................................................        24,946,000           307,972            1
New York.......................................................       103,243,000        88,671,000           86
North Carolina.................................................        54,203,000            88,960            0
North Dakota...................................................        19,421,000         5,753,980           30
Northern Mariana Islands.......................................         5,830,000                 0            0
Ohio...........................................................        68,235,000        21,261,300           31
Oklahoma.......................................................        32,362,000           319,486            1
Oregon.........................................................        32,487,000         7,552,711           23
Pennsylvania...................................................        72,370,500         1,055,308            1
Puerto Rico....................................................        34,014,000                 0            0
Rhode Island...................................................        21,392,000         1,631,709            8
South Carolina.................................................        35,138,000         1,796,420            5
South Dakota...................................................        19,996,000         4,946,423           25
Tennessee......................................................        42,786,000         1,316,749            3
Texas..........................................................       115,110,000        17,806,205           15
Utah...........................................................        27,033,000         9,691,504           36
Vermont........................................................        19,342,000         3,912,941           20
Virginia.......................................................        49,556,000        14,257,501          29
Virgin Islands.................................................         6,009,000           153,185            3
Washington.....................................................        44,015,000           884,477            2
West Virginia..................................................        24,705,000         9,279,040           38
Wisconsin......................................................        41,173,000        13,814,902          34
Wyoming........................................................        18,809,000                 0            0
----------------------------------------------------------------------------------------------------------------
Grand total                                                         2,207,206,000       317,763,857           14
----------------------------------------------------------------------------------------------------------------


                                                  Attachment 2
                                         MIGRATION OF DHS GRANT PROGRAMS
----------------------------------------------------------------------------------------------------------------
                                                                              Appropriation
   Administering                          Program                     -----------------------------   Migration
       Office                                                             FY 2004        FY 2005        Year
----------------------------------------------------------------------------------------------------------------
DHS/SLGCP                           Homeland Security Grant Program    $3,195,000,00  $2,610.000,0          2004
                                                                                  0             00
                    --------------------------------------------------------------------------------------------
                     - Formula-Based Grants/State Homeland Security    1,700,000,000  1,100,000,00          2004
                                                Grant Program (ODP)                              0
                    --------------------------------------------------------------------------------------------
                                                                 - Law E500,000,000Terr400,000,000ntion Gran2004
                                                              (ODP)
                    --------------------------------------------------------------------------------------------
                                             - Citizen Corps (EP&R)      40,000,000     15,000,000          2004
                    --------------------------------------------------------------------------------------------
                     - High-Threat, High-Density Urban Areas Grants/    725,000,000    885,000,000          2005
                              Urban Areas Security Initiative (ODP)
                    --------------------------------------------------------------------------------------------
                     - Emergency Management Performance Grants (EP&R)   180,000,000    180,000,000          2005
                    --------------------------------------------------------------------------------------------
                      - Metropolitan Medical Response System (EP&R)      50,000,000     30,000,000          2005
                    --------------------------------------------------------------------------------------------
                      Demonstration/Continuing/Competitive Training      60,000,000     55,000,000          2005
                                                       Grants (ODP)
                    --------------------------------------------------------------------------------------------
                               Firefighter Assistance Grants (EP&R)     750,000,000    715,000,000          2004
                    --------------------------------------------------------------------------------------------
                         Rail, Freight, and Transit Security Grants             N/A    150,000,000           N/A
                    --------------------------------------------------------------------------------------------
                                         Port Security Grants (TSA)     125,000,000    150,000,000          2005
                    --------------------------------------------------------------------------------------------
                                Intercity Bus Security Grants (TSA)      10,000,000     10,000,000          2005
                    --------------------------------------------------------------------------------------------
                            Trucking Industry Security Grants (TSA)      22,000,000      5,000,000          2005
                    --------------------------------------------------------------------------------------------
 DHS/EP&R                                   Urban Search and Rescue      60,000,000     30,000,000           N/A
                    --------------------------------------------------------------------------------------------
                                   National Disaster Medical System      34,000,000     34,000,000           N/A
----------------------------------------------------------------------------------------------------------------
 Sources:            House Report 108-774; House Report 108-280; DHS
                     Fiscal Year 2005 Homeland Security Grant Program--Program
                     Guidelines and Application Kit; and DHS/SLGCP A-133 Audit
----------------------------------------------------------------------------------------------------------------


    Mr. King. Thank you, Mr. Berman.
    I now recognize Dr. de Rugy.

STATEMENT OF DR. VERONIQUE de RUGY, FELLOW, AMERICAN ENTERPRISE 
                           INSTITUTE

    Ms. de Rugy. Chairman King, Congressmen, and members of the 
subcommittee, it is my pleasure to appear before you today to 
discuss the need for grant reform and the Faster and Smarter 
Funding for First Responders Act of 2005.
    The terrorist attack of September 11 revealed some gaps in 
the ability of local officials to respond to terrorist attacks 
on major urban centers. In response, Congress moved swiftly to 
appropriate homeland security funds to state and local 
governments. A significant portion of that effort was directed 
to first responder programs.
    However, on the issue of homeland security, the most 
important question is whether America is getting the maximum 
level of benefit in exchange for this increasing spending. 
Because we are talking of homeland security and of the safety 
of the American people, there is no room for wasteful spending 
for pork or for politics. Any dollar misspent or wasted is a 
dollar that is not spent to protect us.
    Our first priority should be to ensure that the funding is 
directed to where the intelligence and law enforcement 
assessment indicates that it is the most needed. A recurring 
recommendation from GAO over the years has been the need to use 
risk management and other important elements in developing a 
national strategy to fight terrorism. Risk management is about 
assessing risk and setting priorities. It is about sound cost 
and benefit analysis and it is about tradeoffs. It means 
spending our resources on the places where we are the most 
vulnerable, and not spending money where we are not.
    Here, ``vulnerable'' is defined as places where attacks are 
likely or if successful, would be devastating. As Secretary 
Chertoff noted, we have to put our resources where the highest 
risks are. Risk management means taking a finite security 
budget and making the best use of it.
    Unfortunately, terrorism grants to state and local 
governments are allocated based in part on a political formula 
that provides every state with an equal guaranteed minimum 
amount of state grants regardless of risk and need. Many 
glitches in homeland security grant distribution are the result 
of this formula. Currently, state and rural, less populated 
areas or populated area, but less likely to be targeted by 
terrorist acts, often receive a disproportionate amount of 
grant money. For instance, Wyoming and Alaska ranked number one 
and two in per capita spending, while New York and California 
finished around the bottom respectively.
    The underlying theory behind this all-state minimum formula 
is that terrorists could strike anywhere. That is true. What is 
not true, though, is that each state and locality faces an 
equal threat. We could talk about this. Accordingly, reforms to 
the grant system is a real priority. It is the priority. The 
highest priority for the federal government spending is not to 
service every one of state and local governments needs. The 
priority must be to create a true national preparedness system. 
To that effect, we should ask ourselves whether the grant 
system, which has been proven many, many times to be a very 
ineffective way to provide government service, is really the 
best way to provide homeland security. We should also figure 
out who is the best player suited to address a given risk: the 
federal, the state or local government, or the private sector.
    Finally, funds should be distributed strictly based on risk 
and vulnerability. The first step in that direction should be 
to get rid of the requirement that every state get part of the 
homeland security money. To the extent that state minimums are 
included, these minimums should be kept low in order to provide 
maximum funding to areas of our greatest need.
    The legislation you are considering today would change the 
criteria used to distribute funding based on risk of attack and 
the magnitude of potential damages. Under Chairman Cox's 
proposal, most states would get 0.25 percent of the available 
first responder dollars instead of 0.75 percent. However, those 
states with substantial lands or water borders with Canada and 
Mexico would be eligible for 0.45 percent. Compared to the 
status quo, the Faster and Smarter Funding for First Responders 
Act of 2005 would be an important step in the right direction 
and a serious improvement on how we are spending homeland 
security funds to protect our nation.
    Thank you for the opportunity to appear before this 
committee today. I would be happy to answer your questions.
    [The statement of Ms. de Rugy follows:]

              Prepared Statement of Dr. Veronique de Rugy

    Chairman King, Congressman and members of the subcommittee, my name 
is Veronique de Rugy, and I am a research scholar at the American 
Enterprise Institute, here in Washington DC. It is my pleasure to 
appear before you today to discuss ``The Need for Grant Reform and The 
Faster and Smarter Funding for First Responders Act of 2005.''
    International terrorism is probably the greatest security challenge 
America faces today. Policy makers have responded in two ways--going 
after terrorists abroad and improving security against terrorism at 
home by boosting homeland security funding. Regarding the latter, 
Congress and the administration moved swiftly to create a Department of 
Homeland Security and increased total funding for homeland security 
activities by 195 percent between FY2001 and FY2006.\1\ Total spending 
directed to homeland security activities will be at least $49.9 billion 
for FY 2006, roughly $450 per American household.\2\
---------------------------------------------------------------------------
    \1\ Author's calculation based on The Budget of the United States 
Government, Fiscal year 2006, Table S-5, (Washington: Government 
printing Office, February 2005) and Office of Management and Budget, 
``Securing the homeland, Strengthening the Nation'' http://
www.whitehouse.gov/homeland/homeland--security--book.pdf
    \2\ Author's calculation based on The Budget of the United States 
Government, Fiscal year 2006, Table S-5, (Washington: Government 
printing Office, February 2005) and Current Population Survey, March 
2003.
---------------------------------------------------------------------------
    On the issue of homeland security, the most important question is 
whether America is getting the maximum level of benefit in exchange for 
this increase in spending. A substantial portion of new homeland 
security spending is being used for grants to state and local 
governments. However, currently grants to the state and local 
government appear to be allocated without risk and cost benefit 
analysis, leading to a large amount of wasteful spending. 
Unfortunately, in the realm of homeland security, wasteful spending 
jeopardizes the American people security.
    The absolute amount of money spent on homeland security is not the 
issue in this testimony, but the political process leading to the way 
the money is spent is. Economics suggests that if homeland security 
spending decisions are made on a political basis rather than on a sound 
cost benefit analysis, it will lead to the traditional public choice 
failures that plague government spending more generally. As a result, 
homeland security funding is likely to be misallocated, resulting in a 
less than optimal level of security in America.
    In the first part of my testimony I will look at the way economists 
think about homeland security spending decisions in general. Then I 
will apply these conclusions to the particular problem of grants to 
first responders. I conclude that there is an urgent need to reform the 
grant system toward a risk-based system, which would include removing 
the provision for minimum state allocations.

II. The Economics of Homeland Security
    The terrorist attacks in 2001 stimulated a concerted effort to 
adopt security measures that would reduce the risks of similar events 
in the future. This was and is a logical response, as security, by 
definition, is about prevention of adverse consequences from the 
intentional actions of others. Economists think about security policies 
in terms of tradeoffs, formally comparing the costs and the benefits, 
both pecuniary and non pecuniary.\3\
---------------------------------------------------------------------------
    \3\ For a good discussion about the concept of tradeoffs see James 
Buchanan, Cost and Choice, An Inquiry in Economic Theory, Collected 
Works of James Buchanan Volume 6, (Indianapolis: Liberty Fund).
---------------------------------------------------------------------------
    We all make security tradeoffs. For example, when we lock the door 
to our house in the morning, we assess the small inconvenience of 
carrying a key in exchange for a modicum of security against a 
burglary. People make security decision trade-offs all the time, 
choosing more or less security as situations change. Optimal security 
decisions and policies require a good understanding of the risks and 
tradeoffs we face.
    Even presuming that politicians have chosen the level of spending 
on Homeland Security desired by voters, it is natural to ask whether 
that level is optimal. It is difficult both for scientists and for 
citizens to assess risks of events with low probability--such as acts 
of terrorism.\4\ Uncertainty is what could greatly magnify the 
terrorist threat, far beyond the actual damage that any single 
terrorist strike has historically caused. In fact, it seems that it is 
precisely because of the uncertainty that accompanies the terrorist 
threat, and the associated costs (e.g. the provision of security at a 
myriad potential targets, reduced investments because of generalized 
uncertainty, disruption of travel, tourism, and perhaps also trade), 
that few terrorists, armed with relatively primitive means, can 
effectively threaten even a powerful nation.\5\
---------------------------------------------------------------------------
    \4\ The difficulty of estimating low probability risks is stressed 
by Kunreuther et al. (1978).
    \5\ See Manuel Trajtenberg, ``Defense R&D in the Anti-Terrorist 
Era,'' NBER Working Paper No. 9725, May 2003.
---------------------------------------------------------------------------
    Thus, while the risks are difficult to quantify, there is reason to 
suspect that individuals may irrationally ratchet up their assessments 
of terrorist risk, and hence, may ratchet up their demand for homeland 
security spending. This may induce Congress to invest in projects that 
would not pass a cost benefit test. But again, the problem is doing 
falling to make efficient spending choice is that each misspent dollar 
is one that we do not direct to an effective protection of the American 
people and as such is one that reduces our security.

What to invest in?
    While terrorism is only recently the dominant security issue in the 
U.S., economists have long studied the optimal provision of security 
more generally. In Gary Becker's seminal paper on the economics of 
crime, he uses the tools of economics to think about the incentives of 
criminals and how to influence their behavior.\6\ He explains that we 
can decrease unwanted behaviors by increasing their expected costs or 
decreasing their expected benefits. This approach applies to terrorism 
as well.
---------------------------------------------------------------------------
    \6\ Becker, Gary. ``Crime and punishment: An economic approach,'' 
Journal of Political Economic, 1968.
---------------------------------------------------------------------------
    The primary method of discouraging terrorists is to make it more 
difficult to attack our assets. In effect, this reduces the ``benefit'' 
of a terrorist attack--since there presumably will be less damage--and 
forces terrorists to incur higher ``cost'' as they seek alternate 
targets. We install Jersey barriers to keep trucks away from important 
buildings, screen airline passengers, and employ internet firewalls. 
But it is important to make sure that the resources used to fight 
terrorism are being used effectively. This is not always the case. If a 
certain strategy reduces the threat of terrorism but has very high 
costs, it may not be the best use of resources if there is another 
approach that generates similar benefits but has lower costs to 
society.
    For traditional criminals, potential incarceration is an important 
``cost'' consideration and an efficient tool in deterring crime. And it 
is an effective use of resources since imposing stiff jail sentences is 
cheaper than guarding every house. Unfortunately, this approach is 
generally not effective against terrorists because they tend to be 
ideological extremists who give little weight to the personal costs of 
their actions. Suicide bombers, for example, will not be deterred by 
jail time. The most serious implication is that the possibility of 
deterrence is greatly reduced.\7\
---------------------------------------------------------------------------
    \7\ See John R. Lott Jr. (2001), The Bias Against Gun: Why Almost 
Everything You Have Heard About Gun Control is Wrong, (Washington DC: 
Regnery Publishing, Inc), Chapter 6. Lott tests the economic model 
(that if you make something more difficult or increase the cost of 
being caught for doing something people do less of it) on perpetrators 
of multiple victim public killers. He finds that in this case, although 
legal sanctions such as higher death penalty execution rates should 
imply both fewer attacks and fewer people harmed, it is less of a 
significant factor in deterring multiple victim killings than it is in 
deterring normal murders. Also See Frey et al (2003)
---------------------------------------------------------------------------
    Second, we can combat terrorism by decreasing the expected benefits 
to terrorists, either by increasing the probability of thwarting an 
attack or by decreasing the damage from a non-thwarted attack. To 
thwart attacks, we spend money on the CIA, FBI, and law enforcement to 
try to detect terrorist plots in advance. To decrease the damage from 
attack, we spend money on first responders, build fewer skyscrapers, 
and buy gas masks. One important implication of Becker (1968) is that 
there are tradeoffs between thwarting attacks and decreasing their 
damage: the more effective we are at thwarting attacks, the less we 
presumably should spend on decreasing their damage, and vice versa.
    Taking the analysis a step further, the most efficient options to 
combat terrorism tend to be efforts to detect terrorists themselves or 
to respond effectively to minimize the damage after an attack has 
occurred. Spending to defend particular targets is generally less 
efficient. Both results stem from the fact that there are an almost 
unlimited number of targets, and the terrorist gets to choose where to 
attack. For example, suppose there are 100 potential targets that we 
could perfectly defend for $20,000 a piece, that the damage from un-
defended attack would be $500,000, and that we could mitigate one-tenth 
the damage from attack by spending $50,000 on first responders.
    If we knew where the terrorists would attack, we could spend 
$20,000 to save $500,000, which would be a prudent investment. But if 
don't know the target, we would have to spend $2,000,000 to defend all 
100 targets, which outweighs the $500,000 in damage. On the other hand, 
even if we did not know the target, we could spend $50,000 on first 
responders to reduce the damage by $250,000, which is an efficient 
tradeoff.
    Of course, if we could track down terrorists in advance 
successfully, that would to prevent attacks on all possible targets, 
that approach would have similar efficiency properties as spending on 
first responders. In fact, it is possible that spending more money on 
intelligence and investigation might be far more cost effective than 
spending a little on every possible target or even waiting to be 
attacked and then cleaning up efficiently.
    This raises again the notion of tradeoffs. Since the number of 
possible attacks is effectively unlimited and the resources we can 
devote to the fight against terror are limited, it means that spending 
should not occur without a careful cost-benefit analysis. It is 
perfectly reasonable to decide not to implement an antiterrorism 
measure, not because it has no benefit, but because the tradeoffs are 
too high. For instance, locking up every Arab-looking person would 
reduce the potential for terrorism perpetrated by Islamic 
fundamentalists, but no reasonable person would suggest this approach 
because the costs (both pecuniary and moral) are too high. In the US, 
there are laws that prohibit police from profiling by characteristics 
like race, because we believe that such measures are unacceptable, but 
not because we believe them to be ineffective.
    In the same way, some antiterrorist countermeasures might yield 
very high returns and reduce exposure to attacks tremendously, but the 
costs of implementing them are extremely high. If we install Jersey 
barriers around all major buildings and critical assets in the country, 
our exposure to attacks will be substantially lower, but the costs 
involved would be astronomically high.

                       Table 1. Cost Effectiveness of Selected Antiterrorism Expenditures
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                                                Wasteful Outlays         Major Sacrifices

                                       High                     Screen Every airline     Surround all critical
                                       Cost                      passenger                infrastructure with
                                                                                          concrete Jersey
                                                                                          barriers
Cost to Prevent
                                                               -------------------------------------------------
Terrorist Attack                                                Simple Steps             Efficient Outlays

                                                                                         .......................

                                       Low                      Store fewer chemicals    Place barricades on
                                       Cost                      at water-treatment       airplane cockpit doors
                                                                 plants
                                                               -------------------------------------------------
                                                                High Benefit             Low Benefit

                                        Benefit From Reduced Exposure to Attack
----------------------------------------------------------------------------------------------------------------

    Efficient expenditures concentrate limited resources on the most 
cost-effective expenditure rather than simply on the effective ones. In 
other words, because security always involves a tradeoff, more security 
spending does not always mean more security and more security does not 
always make us better off.

Who should pay for Homeland Security?
    Before turning to an evaluation of grant programs, one should also 
evaluate the economic reasoning behind federal provision of homeland 
security. National defense is often cited as the archetypal public 
good, i.e., one person's consumption of the good does not prevent 
another person from consuming the same good.\8\ Another characteristic 
of public goods is that they are non-excludable, i.e., it is hard or 
impossible to prevent anybody that desires from getting access to and 
enjoying the public good once it is produced. Private goods have 
opposite characteristics: they are rival and excludable.
---------------------------------------------------------------------------
    \8\ See for example Gold (1999) for a good review of the literature 
and a discussion of defense as a public good.
---------------------------------------------------------------------------
    Economic theory suggests that it is efficient to have governments 
provide public goods, but to resort to private markets for the 
provision of non-public goods, e.g., governments should provide 
national defense, but markets should produce washing machines.
    As already mentioned, a key feature of terrorism is that the threat 
is generalized (it can happen anywhere, at any time) and yet any 
particular attack is ``local.'' By implication, homeland security is a 
mix of public and private goods. Accordingly, governments should 
provide some types of homeland security, while other types are best 
left to private markets. For example, governments should invest in 
intelligence gathering to track down terrorists, since this is a public 
good that benefits all citizens. But the protection of private 
property, such as personal residences, should be left to individuals 
because it is not a public good.\9\
---------------------------------------------------------------------------
    \9\ Of course, saying that some areas of homeland security have 
public features and should probably be provided by the government does 
not exclude the possibility of inefficient and wasteful provision of 
that good.
---------------------------------------------------------------------------
    A similar logic applies to which aspects of homeland security are 
public goods at the national versus state level. (See Table 2.) 
Espionage, intelligence, and immigration control benefit all the 
states, so the federal government should make these investments. But 
the benefits of protection of public infrastructure like bridges and 
water treatment plants are enjoyed by the residents of a particular 
state, rather than many states, so these investments should be made at 
the state level. In the same way, the benefits of building a strong 
first responder's capacity will be enjoyed by the residents of a 
particular state, so the investment should be made at the state level. 
This is not to say that the entire economy might not suffer were a 
specific bridge to be destroyed, but rather, that the principle 
economic impact of such an unfortunate event would be felt locally.\10\ 
Identically, even the entire country will suffer if one given state was 
suffer a successful terrorist attack, the benefits of a well 
functioning first responder's response are mainly local ones.
---------------------------------------------------------------------------
    \10\ An argument in favor of federalization of these investments is 
that because investing in protection is likely to displace a terror 
attack, the private sector or local and state governments might have an 
incentive to overspend on homeland security.

        Table 2: Who should be responsible for Homeland Security?
------------------------------------------------------------------------
                                    State and Local
       Federal Government             Government        Private Sector
------------------------------------------------------------------------
Espionage                         Protection of       Protections of
Intelligence                       Infrastructure      Infrastructures
Immigration                        such as: Bridges,   such as:
Electric                           Water               Privately owned
                                   Preservoirs, and    infrastructures
                                   Ports First         Stadiums,
                                   Responders.         Skyscrapers and
                                                       individual houses
------------------------------------------------------------------------

A Public Choice Approach to Homeland Security Spending
    Public choice theory also can be applied to homeland security 
spending. Many decisions on homeland security come through the 
political process. According to public choice economics, each 
participant has an incentive to maximize the political benefits of any 
particular action. This means that decisions are not always based on an 
assessment of the common good.
    Public Choice theory underlines the different incentives and 
processes that operate when goods are sought through political means 
rather than through economic means.\11\ For instance, if you have to 
use your own money to buy the lock on the door to protect your house, 
you will make sure that the increased security from the lock is worth 
the price of the lock. In the words of Buchanan (1969), an individual 
spending his own money makes sure that anticipated benefits exceed the 
costs.\12\ In the political process though, the people buying the lock 
are rarely the ones paying for the lock. As such, they have less reason 
to balance costs and benefits.
---------------------------------------------------------------------------
    \11\ See James Buchanan and Gordon Tullock (1962), The Calculus of 
Consent, University of Michigan Press, Ann Harbor.
    \12\ James Buchanan, Cost and Choice, An Inquiry in Economic 
Theory, Collected Works of James Buchanan Volume 6, (Indianapolis: 
Liberty Fund).
---------------------------------------------------------------------------
    The political appropriation and distribution of goods concentrates 
its benefits and disperses its costs. Many people can be taxed at a low 
rate so a small number of people can be given large sums. Special 
interests groups have an incentive to lobby the government to see that 
wealth is transferred to them. The term economists use to describe such 
lobbying is ``rent-seeking.'' \13\ These pressure groups have a clear 
advantage in a political process where politicians are frequently 
accused of hearing nothing from the many and a lot from the few.\14\
---------------------------------------------------------------------------
    \13\ For a discussion about the economics of interest groups see 
Mancur Olson (1982), `The logic', in The Rise and Decline of Nations: 
Economic Growth, Stagflation, and Social Rigidities, New Haven: Yale 
University Press, p. 17-35, Also see George J. Stigler (1974), `Free 
Riders and Collective Action: An Apendix to Theories of Economic 
Regulation', Bell Journal of Economics and Management Science, 5 (2), 
p. 359-65. Gary S. Becker (1983), `Theory of Competition Among Pressure 
Groups for Political Influence', Quarterly Journal of Economics, XCVIII 
(3), August, p. 371-400. For a good description of the theory of rent 
seeking see Gordon Tullock (1967), `The Welfare Costs of Tariffs, 
Monopolies, and Theft', Western Economics Journal, V, p. 224-32 and 
Robert Tollison (1982), `Rent Thinking: A Survey', Kylos, 35 (4), p. 
575-601.
    \14\ For discussion about the dynamic of pressure groups see 
Becker, G. (1983), ``A Theory of Competition among Interest Groups for 
Political Influence,'' Quarterly Journal of Economics98, 371-400 and 
Becker, G. and C. Mulligan (1998), ``Deadweight Costs and the Size of 
Government,'' NBER Working Paper 6789.
---------------------------------------------------------------------------
    But policymakers represent an interest group too. In seeking 
reelection, they have an incentive to please those who might have money 
or votes to contribute to them. For instance, being elected by state 
voters rather than federal ones, a Congressman has an incentive to try 
to bring back to his state as much federal money as possible rather 
than to fight to cut down federal spending.\15\ A good example of this 
phenomenon is the increasing number of low priority and wasteful 
spending items--also called pork barrel spending--introduced by 
Congress at the last moment into federal spending bills and directed at 
a specific state locality or at a specific facility. In the same way, 
politicians are likely to favor and transfer wealth to targeted 
industries--like the farm or the automobile industry.\16\
---------------------------------------------------------------------------
    \15\ For a discussion on pork Barrel Spending see for example 
Acemoglu, D. and J. Robinson (2001), ``Inefficient Redistribution,'' 
American Political Science ReView 95, 649-61 and Baron, D. (1991), 
``Majoritarian Incentives, Pork Barrel Programs, and Procedural 
Control,'' American Journal of Political Science35, 57-90. See also 
Coate, S. and S. Morris (1995), ``On the Form of transfers to Special 
Interests,'' Journal of Political Economy103, 1210-35 and Shepsle, K. 
and B. Weingast, (1981), ``Political Preferences for the Pork Barrel: A 
Generalization,'' American Journal of Political Science 25, 96-112.
    \16\ Grossman, G. M. and E. Helpman (1994),``Protection for Sale,'' 
American Economic Review 84, 833-50.
---------------------------------------------------------------------------
    Thus, constituencies and interest groups are created for each 
particular political benefit program, and it may become, if this theory 
is correct, nearly impossible to develop policy initiatives without 
their input. This of course has major implications for the way 
politicians will make decisions about homeland security spending. 
First, because policymakers who are ultimately making homeland security 
decisions are often not the ones making the tradeoffs, it is possible 
that they will throw money at the problem rather than finding the most 
cost-effective antiterrorist measure to adopt. Also, lawmakers are 
likely to use homeland security funds to achieve non-homeland security 
agendas through the use of pork barrel spending and corporate welfare.
    Finally, ``homeland security'' pressure groups--e.g. first 
responders, state officials and/or specific industries like the airline 
industry--may have an incentive to lobby lawmakers to try to grab a 
bigger share of the funding allocated to homeland security programs and 
/or to transfer their responsibilities to the federal government. In a 
recent paper, Besley et al. (1999) look at the tradeoffs between 
centralized and decentralized provision of local public and private 
goods.\17\ They emphasize the importance of the politics of decision 
making for the move toward more centralization of local 
responsibilities and the inefficient allocation of resources resulting 
from this process.\18\ Federalization of airline screeners and the 
trend toward the federalization of law enforcement and first responder 
programs are recent examples that may be consistent with this evidence.
---------------------------------------------------------------------------
    \17\ Timothy Besley and Stephen Coate (1999), ``Centralized Versus 
Decentralized Provision of Local Public Good: A Political Economy 
Analysis,'' NBER Working Paper No. 7084.
    \18\ See also, Stephen Coate (1997), ``Distributive Policy Making 
as a Source of Inefficiency in Representative Democracies, Institute of 
Economic Research, University of Pennsylvania, Working Paper No. 97-
041.

V. First Responder Grants
    The September 11th attacks revealed some gaps in the ability of 
local officials to respond to terrorist attacks on major urban cities. 
In response, Congress moved swiftly to appropriate homeland security 
funds to state and local governments. Total federal homeland security 
spending to state and local governments increased from $2.7 billion in 
FY2001 to $8 billion in FY2006 (a 1962 percent increase).\19\
---------------------------------------------------------------------------
    \19\ Author's calculation based on The Budget of the United States 
Government, Fiscal year 2006 Appendix, Department of Homeland Security, 
Department of Justice, and Department of Health and Humane Services and 
Chairman Cox (2004), House Select Committee On Homeland Security, ``An 
Analysis of First Responder Grant Funding,'' p. 25.
---------------------------------------------------------------------------
    A significant portion of that effort was directed to ``first 
responder'' programs--essentially federal funds for state and local 
police and fire departments. Homeland Security funding to state and 
local governments for first responder programs increased from $616 
million in FY2001 to $3.36 billion in FY2006 (a 500 percent 
increase).\20\ But the biggest share of this first responder program 
explosion took place in the form of grants to lower level governments.
---------------------------------------------------------------------------
    \20\ Shawn Reese, ``FY2006 Appropriations for State and Local 
Homeland Security,'' Congressional Research Service, RS22050, February 
14, 2005, p.1. http://www.ndu.edu/library/docs/crs/crs--rs22050--
14feb05.pdf
---------------------------------------------------------------------------
    While the quantity of funds is significant, the funds are not being 
allocated according to a plan that was devised by security experts or 
by economists. In keeping with the way Washington spreads federal 
taxpayer's money to the states--whether for highways, education or 
emergency preparedness--DHS follows in part a formula set by Congress 
that provides every state with a guaranteed minimum amount of state 
grants regardless of risk or need. Specifically, the formula written 
into law by Congress into the Patriot Act after September 11th 
guaranteed each state 0.75 percent of the total amount appropriated to 
DHS for state terrorism preparedness grants, with smaller shares going 
to territories like Puerto Rico. It amounts to 40 percent of the total 
pot of money being divided up equally among the states, regardless of 
size, risk, or need.
    Prior to September 11th, total funding covered by the formula--i.e 
the State Homeland Security Grant Programs (SHSGP), which is the sum of 
a series of separate grants, plus Critical Infrastructure Protection 
Grants--amounted to $97 million.\21\ It means that in 2001 the 
guaranteed minimum each state would receive was less than $1 million. 
However, due to the 20-fold increase in this program between FY2001 and 
FY2003 from $97 million to $2,066 million the minimum guaranteed amount 
each state was receiving went from $1 million to $15.5 million 
regardless of risk or need.\22\ In FY2004, this minimum guaranteed sum 
was roughly $13 million In FY2005, the amount allocated decreased along 
with the minimum guaranteed but still be significant.
---------------------------------------------------------------------------
    \21\ The data on funding can be found in House Select Committee On 
Homeland Security, ``An Analysis of First Responder Grant Funding,'' p. 
25.
    \22\ In FY2003 the amount covered by the formula was $2.066 
billion. The $15.5 million is calculated with the following formula: 
$2.066.000*0.0075 = $15.49 million.
---------------------------------------------------------------------------
    After this 40 percent of SHSGP is allocated to states, the 60 
percent left over is apportioned among states based on population, not 
risk. For the smallest states, this formula means an additional $2 
million on top of the guaranteed minimum. In FY2004, the two combined 
allocation formulas resulted in Wyoming, the least populous state, 
receiving $17.5 million and California, the most populous state, 
receiving $164 million regardless of risk or need.\23\ And according to 
the same calculation, in FY2004 Wyoming is guaranteed to receive a 
minimum of $15 million and California, the most populated state, at 
least $133 million.
---------------------------------------------------------------------------
    \23\ Author's calculation based on data collected from The Office 
of Domestic Preparedness, FY2003, State Homeland Security Grant Program 
(SHSGP), part I, http://www.ojp.usdoj.gov/odp/docs/ODPApplication.txt 
and Part II http://www.ojp.usdoj.gov/odp/docs/fy03shsgp2.pdf
---------------------------------------------------------------------------
    The underlying theory behind this all-state-minimum formula is that 
terrorists could strike anywhere and that heads of homeland security 
agencies in rural and small states throughout the country have now 
become convinced that their turf is just as threatened as Washington, 
New York or Chicago. The journalist Amanda Ripley adds in the New York 
Times Magazine ``when asked about relative risks, these officials talk 
about relative worth and the right of their citizens to get the same 
kind of protection that they are afforded in other places in the 
country.'' \24\
---------------------------------------------------------------------------
    \24\ Amanda Ripley, ``How We Got Homeland Security Wrong,'' Time 
Magazine, Monday March 22, 2004.
---------------------------------------------------------------------------
    The theory that money should be spent smoothly across states has 
not been supported by reasoned analysis during the public policy 
debate. And experts in the field have reached different conclusions. 
The Insurance Services Office (ISO)--a private company--serves the 
insurance industry by maintaining data on risks of all kinds and 
helping insurance companies underwrite policies at prices commensurate 
with those risks. In 2003 ISO did a research project to set objective 
prices for terrorism insurance. They surveyed five former FBI, CIA and 
Pentagon intelligence experts and applied their opinions to a database 
of 300,000 potential targets. They then used this information to set 
baseline rates for terrorism insurance. Their conclusion is the 
following: The highest risk cities in the U.S. are New York, 
Washington, DC, Chicago, San Francisco and those at high risk of attack 
are Los Angeles, Philadelphia, Houston, Seattle and Boston.\25\
---------------------------------------------------------------------------
    \25\ The Insurance Services Office, ``ISO continues to help you 
response to the Terrorism Insurrance Act of 2002,'' May 2003. For more 
detailed information see www.iso.com.
---------------------------------------------------------------------------
    Many other glitches in the homeland security grant distribution are 
the result of those two government formulas. For instance, among the 
top 10 states and districts receiving grants only the District of 
Columbia also appeared on a list of the top 10 most at risk places.\26\ 
Currently, states in rural, less populated areas, or populated areas--
but less likely to be targeted by terrorist acts--often receive a 
disproportionate amount of grant money.
---------------------------------------------------------------------------
    \26\ Author's calculation based The Office of Domestic 
Preparedness, FY2004, State Homeland Security Grant Program (SHSGP), 
part I, and Part II.
---------------------------------------------------------------------------
    Table 4 shows how much in dollars per capita each state received 
from State Homeland Security Grants Programs for FY2004. New York State 
received 4.68 percent of general grant money while its population 
accounts for 6.55 percent of the nation's population. California 
received 7.95 percent of general grant money while its population 
accounts for 12 percent of the nation's population. And Wyoming, which 
has a population that accounts for 0.17 percent of the nation's 
population, receives 0.85 percent of all the grant monies. This 
translates to $5.41 per capita in New York State, $4.97 per capita in 
California and $37.74 per capita in Wyoming. And spending on U.S. 
territories is equally variable. In FY2004, the US Virgin Islands 
received $104.35 per capita, Guam $90.36, and Northern Mariana Islands 
$54.
    One should not conclude that more money should be handed to states 
with a lower dollar grant per capita or with a large population like 
California or that money should be taken away from small states with 
high dollar per capita. Cox (2004) points out ``It is not the case that 
American Samoa should receive proportionately less or should, in the 
nature of things, receive more or less than anywhere else, except in my 
view, if security needs require it.'' \27\ In other words, grant money 
should only be distributed based on an evaluation of risk and security 
need and nothing else. The political formulas used now to allocate the 
money disconnect the funding from the risk of being attacked.
---------------------------------------------------------------------------
    \27\ Congressional Quarterly, ``Republican Cox Delivers Remarks at 
McGraw-Hill Homeland Security Summit,'' June 4, 2004.
---------------------------------------------------------------------------
    The same lack of assessment of risk and need exists in the way 
states allocate or pass through the funding from DHS to their 
localities (they are obligated to pass through 80 percent of the money 
received).\28\ For instance, Carafano (2004) reports ``California 
distributes its federal grants in base-amounts of $5,000 to each 
county, an amount so small and arbitrary it seems that it is difficult 
to imagine how it could be used productively.'' \29\
---------------------------------------------------------------------------
    \28\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' p. 6.
    \29\ James Jay Carafano, ``Homeland Security Dollars and Sense #1: 
Current Spending Formulas Waste Aid to States,'' 2004.
---------------------------------------------------------------------------
    Finally, almost three years after the State Homeland Security Grant 
Program was launched, first responders across the Nation have not 
received the vast majority of the $6.3 billion that congress and the 
Administration have allocated in terrorism preparedness grants since 
September 11 (FY2002 to FY2004).\30\ In fact $5.2 billion in the 
Department of Homeland Security grant money remains in the 
administration pipeline, waiting to be used. And soon the money 
allocated for FY2005 and requested by the President FY2006 will be 
added to the funding pipeline (another $5.2 billion).
---------------------------------------------------------------------------
    \30\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' p. 9.

  Table 4. Dollars Per Capita Received by States From Homeland Security
                First Responder Grant Programs for FY2004
------------------------------------------------------------------------
                                    Grant                         Grant
                                   Dollars                       Dollars
              State                  per           State           per
                                    Capita                        Capita
------------------------------------------------------------------------
Virgin Islands...................   104.35  Oregon.............     9.18
Guam.............................    90.36  Puerto Rico........     8.82
Northern Marina Islands..........    54.00  Kentucky...........     8.57
Wyoming..........................    37.74  South Carolina.....     8.52
American Samoa...................    37.54  Alabama............     8.24
District of Columbia.............    34.16  Louisiana..........     8.24
Vermont..........................    31.43  Colorado...........     8.17
North Dakota.....................    30.82  Minnesota..........     7.81
Alaska...........................    30.18  Wisconsin..........     7.57
South Dakota.....................    26.32  Maryland...........     7.53
Delaware.........................    24.86  Missouri...........     7.45
Montana..........................    22.66  Arizona............     7.43
Rhode Island.....................    20.00  Tennessee..........     7.37
Hawaii...........................    17.75  Washington.........     7.22
New Hampshire....................    17.44  Indiana............     7.21
Maine............................    17.26  Massachusetts......     7.14
Idaho............................    16.65  Virginia...........     6.75
Nebraska.........................    14.10  North Carolina.....     6.49
West Virginia....................    13.73  New Jersey.........     6.45
New Mexico.......................    13.39  Georgia............     6.40
Nevada...........................    11.84  Michigan...........     6.19
Utah.............................    11.56  Ohio...............     6.00
Kansas...........................    10.65  Pennsylvania.......     5.89
Arkansas.........................    10.63  Illinois...........     5.85
Mississippi......................    10.32  Florida............     5.45
Iowa.............................    10.20  New York...........     5.41
Connecticut......................     9.30  Texas..............     5.24
Oklahoma.........................     9.27  California.........     4.97
------------------------------------------------------------------------

Source: Author's calculation based on Office of Domestic Preparedness, 
``Fiscal Year 2004 Homeland Security Grant Program'' and US Census 
Bureau, ``Annual Population Estimates 2000-2003.''
VI. Use Of Homeland Security Grants
    The lack of risk-based funding coupled with the absence of federal 
terrorism preparedness standards or goals to guide expenditure of funds 
at the state and local levels has resulted already in some questionable 
uses of homeland security grants (whether they are DOJ, HHS or DHS 
grants).\31\ Expressing his concern, former Senate Budget Committee 
Chairman Nickles notes, ``Congress is creating programs under the 
banner of homeland security, which in some cases, some cities and some 
states are using as more or less revenue sharing.'' \32\ And Chairman 
Chris Cox notes that ``there have been numerous reports suggesting that 
the first responder monies that have been received and spent to date 
have not necessarily gone to the first responders who need it most, or 
for projects that materially enhance our homeland security.''\33\
---------------------------------------------------------------------------
    \31\ This is not surprising considering that, until recently, the 
planning to spend first responder grants often occurred after the 
grants were actually received.
    \32\ Congressional Quarterly, ``Transcript of Senate Budget 
Committee Hearing on FY2005 Homeland Security Department Budget,'' 
February 25, 2004.
    \33\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' p. 7.
---------------------------------------------------------------------------
    The data support their fears. The misuse of federal funds by states 
and local governments includes:
 63,000 spent on a decontamination unit that is now stored in a 
warehouse in rural Washington State because the state does not have a 
HAZMAT team to use it.\34\
---------------------------------------------------------------------------
    \34\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' p. 7, followed up with an interview of 
Mason County Sheriff on March 3rd.
---------------------------------------------------------------------------
 $22,800 spent by Mason County, WA to buy six radios that are 
incompatible with county radios.\35\
---------------------------------------------------------------------------
    \35\ Ibid, p. 7.
---------------------------------------------------------------------------
 $30,000 used by officials in Lake County, TN, to help a high 
school buy a defibrillator to have on hand for a basketball 
tournament.\36\
---------------------------------------------------------------------------
    \36\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' p. 8.
---------------------------------------------------------------------------
 $500,000 spent by Outagamie County, WI. (pop. 165,000) to buy 
chemical suits, generators, rescue saws, disaster-response trailers, 
emergency lighting, escape hood, and a bomb disposal vehicle.\37\
---------------------------------------------------------------------------
    \37\ Ibid.
---------------------------------------------------------------------------
 $98,000 spent on training courses in incident management by 
the Tecumseh fire department in Lenawee County, MI that no one 
attended.\38\
---------------------------------------------------------------------------
    \38\ Alice Lipowicz, ``For Michigan Volunteers, Free Training 
Course Proves Too Expensive,'' Congressional Quarterly, March 11, 2004.
---------------------------------------------------------------------------
$557,400 awarded to North Pole, a town in Alaska (1,570 people), for 
homeland security rescue and communications equipment.\39\
---------------------------------------------------------------------------
    \39\ Alice Lipowicz, ``North Pole Receives Homeland Security 
Funds,'' Congressional Quarterly, October 22, 2002.
---------------------------------------------------------------------------
 $183,000 spent by Tiptonville, TN (7,900 people) to by an all-
terrain vehicle, a couple of defrillators and protective suits for the 
volunteer fire department.\40\
---------------------------------------------------------------------------
    \40\ CBS News, ``Handouts for Homeland,'' 60 minutes transcript, 
April 10, 2005. http://www.cbsnews.com/stories/2005/03/31/60minutes/
printable684349.shtml
---------------------------------------------------------------------------
    These are not isolated cases of unfortunate uses of homeland 
security funds. Meanwhile, as Senator Nickles points out, ``[Large and 
high risk cities] are as likely to waste homeland funds as low risk 
areas.'' \41\ Senator Conrad notes, ``I have heard from individual 
departments that spending initiatives that were pending previously that 
were not approved, once they were given the label of homeland security, 
whether or not they fit the description, sailed through.''\42\ For 
instance, Washington DC--incontestably one of the high threat areas in 
the country--used the region's first wave of homeland security aid as 
``seed money'' for a computerized car towing system that the mayor had 
promised for three years to help combat fraud by private towing 
companies and to buy leather jackets.\43\ D.C. also used $100,000 to 
fund the mayor's popular summer jobs program.\44\
---------------------------------------------------------------------------
    \41\ Congressional Quarterly, ``Transcript of Senate Budget 
Committee Hearing on FY2005 Homeland Security Department Budget,'' 
February 25, 2004, p. 7.
    \42\ Congressional Quarterly, ``Transcript of Senate Budget 
Committee Hearing on FY2005 Homeland Security Department Budget,'' 
February 25, 2004.
    \43\ ``Anti-terrorism Funds Buy Wide Array of Pet Projects; Some of 
Region's Unused Million Could be Lost,'' JoBecker, Sarah Cohen, and 
Spencer S. Hsu, The Washington Post, November 23, 2003, followed up 
with aninterview of D.C. Deputy Mayor's office, March 2, 2005.
    \44\ ``Anti-terrorism Funds Buy Wide Array of Pet Projects; Some of 
Region's Unused Million Could be Lost,'' JoBecker, Sarah Cohen, and 
Spencer S. Hsu, The Washington Post, November 23, 2003.
---------------------------------------------------------------------------
    According to DHS officials, DHS spending has been the subject of 
many audits, none of which found any systemic cases of fraud or abuse 
of program funds. Indeed, many of the purchases made with DHS funds 
were allowable and justified under Department guidelines. To end the 
discussion there, however, ignores the larger point that the system for 
disbursing homeland security funds is flawed and does not ensure that 
the greatest priorities are funded. While the audits did not find 
systemic problems, some of their specific recommendations fit well with 
Chairmen Nickles and Cox' arguments on this point. For instance, the 
Inspector General's audit of first responder grants admonishes, 
``Efforts to monitor and measure the impact of first responder grants 
needs to be improved.'' \45\ The Inspector General's report on Port 
Security Grant Program notes that many grants were given to port 
security projects that ``appeared to be for a purpose other than 
security against an act of terrorism.'' \46\
---------------------------------------------------------------------------
    \45\ Office of Inspector General, Department of Homeland Security, 
``An Audit of Distributing and Spending `FirstResponder' Grant Funds,'' 
March 2004, http://www.dhs.gov/interweb/assetlibrary/OIG--ODP--03-
04.pdf
    \46\ Office of Inspector General, January 2005, p. 34.
---------------------------------------------------------------------------
    Spending $58,000 on a rescue vehicle capable of boring through 
concrete to search for victims in collapsed buildings in Colchester, 
Vermont (18,000 people), for example, may be allowable and justifiable 
under DHS guidelines, but are those guidelines appropriate? \47\ And 
while there may be some ways to justify spending homeland security 
funds in this location, we should question whether locations like 
Vermont, Michigan, or Tennessee are truly the front lines in the war on 
terror.
---------------------------------------------------------------------------
    \47\ Kate O'Beirne, ``Introducing Pork-Barrel Homeland Security,'' 
National Review, August 11, 2003.

VII. Are Federal Grants to States Efficient?
    The real question is whether these problems with homeland security 
grants to the states are not simply symptomatic of any federal grant 
system. If that is the case, it means there are more productive ways to 
protect America than federal grant programs to state and local 
governments.
    In theory, the United States is a federal system, meaning that the 
federal government was designed to have specific limited powers with 
most basic functions left to the States. But in the last fifty years, 
the federal government has undertaken a large number of activities that 
were traditionally and constitutionally reserved to the states. To 
extend its power into state affairs the federal government has 
developed a vast and complex system of grants to states and local 
government.\48\
---------------------------------------------------------------------------
    \48\ For a brief history of the federal grant system see 
Congressional Research Service, ``Federal Grants to State and Local 
Governments: A Brief History,'' Library of Congress, February 19, 2003. 
Also see General Accounting Office, ``Federal Assistance: Grant System 
continues To Be Highly Fragmented,'' United States Accounting Office, 
GAO-03-718T, April 29, 2003.
---------------------------------------------------------------------------
    In FY2005, the total amount of federal grants paid out to the 
states and local government is scheduled to reach well over $425.8 
billion. President Bush requested $435.7 billion for grants for 
FY2006.\49\ According to the GAO, over the past 20 years the number of 
federal grant programs to states and local government has proliferated 
from less than 450 in 1980 to roughly 700 in 2001.\50\ These grants are 
directed towards a huge range of activities such as education, 
healthcare, transportation, housing and more.
---------------------------------------------------------------------------
    \49\ The Budget of the United States Government, FY2006, Analytical 
Perspectives, p. 123.
    \50\ GAO-03-718T, p. 4.
---------------------------------------------------------------------------
    To be sure, these grants are an imposition of federal priorities on 
state and local government.\51\ But are they an economically efficient 
way to manage homeland security spending? \52\
---------------------------------------------------------------------------
    \51\ For a comprehensive criticism of the Federal Grant Programs 
see Chris Edwards, ``Downsizing the Federal Government,'' Cato 
Institute Policy Analysis no. 515, June 2, 2004.
    \52\ For an excellent discussion about federalism see Michael 
Greve, ``Big Government Federalism,'' Federalist Outlook No. 3, March 
1st, 2001. http://www.aei.org/publications/filter.,pubID.12576/pub--
detail.asp
---------------------------------------------------------------------------
    Numerous reports have pointed at the complexity and redundancy in 
the federal grant industry as well as at the mismanagement, fraud and 
abuse of federal funds. The GAO notes ``GAO's work has been pointing 
out the chronic problems of federal grants since at least 1975.\53\ And 
in spite of GAO recommendations and occasional reforms, the same 
problems remain. So although the initial goal of grant programs might 
be a high-minded purpose--such as help for poorer regions or homeland 
security--they frequently have turned out to be an extremely 
ineffective way to achieve a policy goal.
---------------------------------------------------------------------------
    \53\ GAO-03-718T, p. 6.
---------------------------------------------------------------------------
    The unsatisfactory performance of federal grant programs has been 
repeatedly reported. Indeed, the Office of Management and Budget 
regularly points out that grant programs have poorer performance, on 
average, than other federal programs.\54\ These grants often come 
within the frame of one-size-fits all federal regulation, which reduces 
States' incentive to be innovative.
---------------------------------------------------------------------------
    \54\ The Budget of the United States Government, FY2005, Analytical 
Perspectives, p. 114 and p. 119.
---------------------------------------------------------------------------
    This abundant literature serves as evidence that federal grants and 
funds to states are a wasteful way of providing government services to 
Americans. There is no reason to believe that it will suddenly become 
an effective way to enhance America's homeland security. In addition to 
the problems underlined in the previous section, GAO reports that 
homeland security grants are already following the same troubling 
pattern of other federal grants.\55\ First, the amount of homeland 
security funds transferred to lower level governments is growing at an 
impressive rate. Homeland security funds--which included grants from 
DHS, DOJ and HHS--handed down to the states for first responders alone 
increased from $2.7 billion in FY2001 to $5.5 billion in FY2005.\56\ In 
FY2005, a total of $8.4 billion will be paid by the Department of 
Homeland Security in the form of grants to state and local governments 
to finance homeland security activities. The president's FY2006 budget 
proposed to raise that amount to $9.1 billion.\57\
---------------------------------------------------------------------------
    \55\ Ibid, p. 9.
    \56\ House Select Committee On Homeland Security, ``An Analysis of 
First Responder Grant Funding,'' see Table p. 25.
    \57\ The Budget of the United States Government, FY2006, Analytical 
Perspectives, p. 123.
---------------------------------------------------------------------------
    Second, excessive complexity and duplication in the federal 
homeland security grant industry is already quite evident. For 
instance, GAO describes the extreme complexity and fragmentation of the 
major federal homeland security assistance programs targeted to first 
responders.\58\ Some grants go to state emergency management agencies, 
some go to state fire marshals, some go directly to local first 
responders and some go to the cities. Some grants are paid by DHS 
through the Office of Domestic Preparedness and/or through FEMA, some 
are paid by the Department of Justice through the Office of Justice 
Programs and/or through the Office of Community Policing Services and 
others are paid by the Department of Health and Human Services through 
the CDC and/or through the health Resources and Service Administration. 
Finally, there at least 16 overlapping grant programs for local first 
responders such as firefighters and local law enforcement--highlighting 
the problem of duplication in the federal grant program.\59\
---------------------------------------------------------------------------
    \58\ GAO-03-718T, p. 13.
    \59\ Ibid. p. 13.
---------------------------------------------------------------------------
    And like other grant programs, homeland security grants have 
spurred much wasteful lobbying activity.\60\ Edwards (2004) reports 
``On March 4th 2004, 3,000 officials flew into Washington to lobby 
Congress for larger first responder grants; they were followed on March 
16 by firefighters from across the country coming to lobby Congress.'' 
\61\ Other officials are coming to complain about the level of grants 
they are getting compared to others and asking for a level playing 
field.
---------------------------------------------------------------------------
    \60\ Chris Edwards, ``Downsizing the Federal Government,'' p. 32.
    \61\ Ibid, p.32.
---------------------------------------------------------------------------
    And yet, when Senator Nickles asked Homeland Secretary Ridge in 
February 2004 ``these [first responder] funds, correct me if I am 
wrong, these funds really aren't supposed to be a subsidy for local 
police and fire, is that correct?'' former Secretary Ridge replied 
without blinking ``That's correct.'' \62\
---------------------------------------------------------------------------
    \62\ Congressional Quarterly, ``Transcript of Senate Budget 
Committee Hearing on FY2005 Homeland Security Department Budget,'' 
February 25, 2004, p. 2 and p. 9.
---------------------------------------------------------------------------
    Our homeland security is only as strong as the weakest link. Most 
dollars spent on anything else than the weakest link--in term of 
probability of something happening, the likelihood of it succeeding and 
the consequences of it occurring--are likely to be a waste of money. It 
means that giving state and local government money to increase their 
capacity to response to a terrorist attacks is the wrong answer. The 
Council on Foreign Relations measured the cost of equipping every sate 
and U.S. territory with enough resources to conduct each critical 
homeland security task could be at least $103 billion per year.\63\ And 
this level of funding could not even guaranty the U.S against 
devastating attacks.
---------------------------------------------------------------------------
    \63\ The Council On Foreign Relations, Independent Task Force, 
Emergency responders: Drastically Underfunded, Dangerously Unprepared, 
2003, p. 13. http://www.cfr.org/pdf/Responders--TF.pdf
---------------------------------------------------------------------------
    According to security expert Bruce Schneier ``critical to any 
security decision is this notion of trade-offs, meaning the cost--in 
terms of money, convenience, comfort, freedoms and so on--that 
inevitably attached themselves to any security system.'' He adds 
``better understanding of trade-offs leads to a better understanding of 
security decisions.''\64\ A recurring recommendation from the GAO over 
the years has been the need to use risk management as an important 
element in developing a national strategy to fight terrorism.\65\
---------------------------------------------------------------------------
    \64\ Bruce Schneier, Beyond Fear: Thinking Sensibly About Security 
in an Uncertain World, (New York: Copernicus Books, 2003), p. 3
    \65\ General Accounting Office, ``Homeland Security A risk 
Management Approach Can Guide Preparedness Efforts,'' GAO-02-208T, 
October 31, 2001, p. 2. Also see ``Combating Terrorism: Selected 
Challenges and related Recommendations,'' GAO-01-822 September 20, 
2001.
---------------------------------------------------------------------------
    Risk management is about playing the odds. It is figuring out which 
attacks are worth worrying about and spending money on and which are 
better left ignored. It is spending more resources on the serious 
attacks--defined as being very likely or if successful having 
devastating effects--and spending less on the trivial ones. It is 
taking a finite security budget and making the best use of it. In other 
words, homeland security should be about wise choices, not just 
increased spending.
    Risk management is also about figuring out who is the best player 
suited to address a given risk. At the federal level, homeland security 
should be about preventing adverse consequences from the intentional 
and unwarranted actions of others. In that sense, federal homeland 
security grants are not making us more secure. The grant programs--
especially the first responder grants--are predicated on the notion of 
cleaning up after terrorists successfully attack. This is a huge waste 
of our scarce federal resources. Cox (2003) notes, ``The mission of the 
Department of Homeland Security must be first and foremost to prevent 
another deadly attack on the United States.'' \66\ And he adds ``A 
dollar spent on preventing the next terror attack is vastly superior to 
spending dollars on cleaning up the mess when we fail to do job one, 
which is preventing terrorism.'' \67\
---------------------------------------------------------------------------
    \66\ Jeremy Torobin, ``Preventing Terrorism Tops Cox's Agenda for 
New House Homeland Security Committee,'' Congressional Quarterly, 
Tuesday, February 11, 2003. 
    \67\ Ibid.
---------------------------------------------------------------------------
    Homeland security should be based on the investigation, 
interdiction and elimination of terrorist threats. As Governor Mitt 
Romney (R-MA), co-chairman of the National Governors Association's 
homeland security efforts, points out ``Many states are focusing too 
much efforts on preparing to respond when the most important investment 
would be preventing terrorist attacks.'' \68\ It means that the 
billions going to states and local governments would be best spent on 
bolstering the ability of federal law enforcement and intelligence 
services to achieve these goals instead of subsidizing local fire 
stations throughout the country.
---------------------------------------------------------------------------
    \68\ Mitt Romney, Testimony before the Committee on Governmental 
Affairs, U.S. Senate, May 5, 2003. http://www.senate.gov/gov--affairs/
051503romney.pdf
---------------------------------------------------------------------------
    Alternatively, instead of wasting money on building response 
capacity, federal funding could be spent to create a truly national 
prevention system with a robust capacity for state and local 
intelligence, early warning, exchange and exploitation of information 
and domestic counterterrorism. According to James Carafano (2004), 
grant programs have proven far more effective when federal money has 
been used to fund vulnerability assessments and to encourage public-
private partnerships that adopt sustainable and effective security 
programs.\69\
---------------------------------------------------------------------------
    \69\ James Carafano, ``Homeland Security Dollars and Sense #2: 
Misplaced Maritime Priorities,'' Webmemo #648, February 2005.
---------------------------------------------------------------------------
    It does not mean that investing money on first responders in not 
important. However, states and local communities should be in charge of 
most of their preparedness efforts. If police officers feel they need 
more equipment to do their job, or firefighters need training or gym 
memberships they are not getting right now, they should turn to their 
state and local officials for funding.
    More importantly, leaving the responsibility for developing proper 
first responder policies to the states makes much sense. Federalizing 
first responder programs accentuates the public choice problem that 
already plagues the political process. When first responder programs 
are funded at the federal level, a Congressman from Wyoming has no 
incentive admitting that his state is not a likely target or that if it 
ever were a target, the level of damages would be limited. This same 
Congressman has no incentive to turn down federal money, and even less 
incentive to volunteer sending his state taxpayer's dollars to benefit 
other states. By contrast, when first responder programs are states' 
responsibility, then this same Wyoming Congressman in theory should 
have a stronger incentive to assess risk and potential damages to his 
state accurately. He should have an incentive to decide whether to 
spend more on homeland security or on other accounts.
    It does not mean that local communities would never have any claim 
to federal funds in case of a terrorist attack. But these funds should 
be accessed only when needed in case of an emergency, in the same way 
that FEMA funds can be accessed following a natural disaster.\70\ But 
implementing this system should not be an excuse to federalize the cost 
of state and local responsibilities.
---------------------------------------------------------------------------
    \70\ This of course does not mean that we think FEMA is doing an 
effective job. The media constantly reports about the mismagement of 
FEMA and its failure to deliver disaster relief. See for instance 
Washington Post, ``Housing Problems Beset FEMA in Florida,'' Monday 
August 23 2004, p A 2.71
---------------------------------------------------------------------------
    Economics and public choice theory suggest a natural organization 
that appears to have eluded lawmakers so far. Not every jurisdiction 
needs a bomb squad. What every jurisdiction needs is to know where they 
can get a bomb squad if they need one, and/or where to ask if they need 
to find a bomb squad. Today, it is incredibly easy and fast for a team 
of specialized responders to fly from one state to another and to help 
the state in distress. After September 11th, individuals, firefighters, 
police officers and many others all over the country mobilized to help 
New York and Washington. And that would happen again.

VIII. The Need for Grant Reform
    The evidence suggests that homeland security grants to state and 
local governments are at times wasted. Accordingly, reform of this 
system is a worthy priority. The highest priority for federal spending 
is not to service every one of state and local governments' needs. The 
priority must be to create a true national preparedness system. To that 
effect, funds should be distributing strictly based on risk and 
vulnerability. A first step in that direction would be to eschew the 
requirement that every state get part of the homeland security money. 
Also, because the grant system has proven to be very ineffective in the 
past, money should not be allocated through grants.
    On July 22, 2004, the National Commission on Terrorist Attacks Upon 
the United States (9/11 Commission) issued The 9/11 Commission report 
recommending among other things that federal homeland security 
assistance be distributed to state and local government based on risk 
and vulnerability. It added that, ``Federal homeland security 
assistance should not remain a program for general revenue sharing. It 
should supplement state and local resources based on the risks or 
vulnerabilities that merit additional support.'' \71\
---------------------------------------------------------------------------
    \71\ The National Commission on Terrorist Attacks Upon the United 
States, The 9/11 Commission Report, (Washington: GPO, July 22 2004), p. 
396.72
---------------------------------------------------------------------------
    Other critics of the present funding distribution method include 
House Homeland Security Committee Chairman Chris Cox. To that effect, 
his legislation, the ``Faster and Smarter Funding for First Responders 
Act of 2005'' would authorize the Secretary of the Department of 
Homeland Security (DHS) to change the criteria used to distribute 
funding to DHS' major programs in order to base grants to state and 
local governments primarily based on the risk of terrorist attacks and 
the magnitude of potential damages--not population.\72\ Under the Cox 
proposal, most states would get a 0.25 percent of the available first 
responder dollars--instead of 0.75 percent. However, those States with 
substantial land or water borders with Canada and Mexico would be 
eligible for 0.45 percent.
---------------------------------------------------------------------------
    \72\ Information on ``The Faster and Smarter Funding for First 
Responders,'' HR. 3266, can be found at http://
homelandsecurity.house.gov/release.cfm?id=216
---------------------------------------------------------------------------
    Last year, the House version of intelligence reform legislation 
(HR10) included language, which originated in the House Selected 
Committee on Homeland Security, changing the funding formula to base 
homeland security grants on risk assessment and changing the formula so 
each state would receive at least 0.25 percent of the total grant pool 
(versus 0.75 percent with the current formula). It immediately 
triggered very strong oppositions in the Senate. Senator Leahy (D-VT), 
member of the powerful Homeland Security Appropriations Subcommittee, 
for instance, has argued that dropping the all-state minimum formula 
would ``shortchange rural states.'' \73\ In the end, the language did 
not survive the House-Senate conference.
---------------------------------------------------------------------------
    \73\ Amanda Ripley, ``How We Got Homeland Security Wrong,'' March, 
2004, p. 5.
---------------------------------------------------------------------------
    A surprising endorsement of the intelligence bill's risk or threat-
based model came from seventeen fire and police organizations. In a 
letter to Rep. Peter Hoekstra (R-Mich), chairman of the congressional 
conference committee, they wrote ``We believe that the funds should be 
distributed based on a risk or threat-based model.'' \74\ They even 
went further than the House version of the intelligence bill (HR10). 
They wrote, ``To the extent that state minimums are included, we urge 
that the minimums be kept low, in order to provide maximum funding to 
areas of greatest need.'' \75\ Yet, again the victory of logic over 
state dependency did not see the light of day due to the extreme 
resistance to the idea.
---------------------------------------------------------------------------
    \74\ Alice Lipowicz, ``First Responder Groups Endorse Risk-Based 
Grants Formula,'' Congressional Quarterly, October 22nd, 2004.
    \75\ Alice Lipowicz, ``First Responder Groups Endorse Risk-Based 
Grants Formula,'' Congressional Quarterly, October 22nd, 2004.
---------------------------------------------------------------------------
    This year, the President's FY2006 budget also tries to move toward 
a risk based allocation of homeland security funds. To that effect, the 
administration's budget rightfully restraints the amount of grants 
going to state and local governments. It also makes an effort to 
restructure DHS grants to focus on strategic needs rather than giving 
fixed allocations to individual states. Moreover, the President decided 
to adopt the basic principles of the ``Faster and Smarter Funding for 
First responders Act,'' as passed by the House in H.R. 10 during the 
108th Congress and change the formula so that states would get a 0.25 
percent of the available funds.\76\
---------------------------------------------------------------------------
    \76\ Budget of the United States FY2006, Appendix, p. 478.
---------------------------------------------------------------------------
    Secretary Chertoff explains ``We have to put the resources where 
the highest threats are.'' He has ordered an internal review of his 
agency's organization, operations and policies. In a statement before 
the House Appropriations Committee's Homeland Security Subcommittee, 
Chertoff said,'' I want to emphasize that our analysis of threats and 
risks posed to the United States by terrorists will drive the 
structure, operations, policies and missions of the department, and not 
the other way around.'' \77\
---------------------------------------------------------------------------
    \77\ Jim Morris, ``Chertoff Orders Thorough Review of the DHS 
structure and Operations,'' Congressional Quarterly,March 2nd, 2005.
---------------------------------------------------------------------------
    Delivering a speech at the George Washington University Homeland 
Security Policy Institute, the Secretary explained, ``We need to adopt 
a risk-based approach in both our operations and our philosophy. Risk 
management is fundamental to managing the threat, while retaining our 
quality of life and living in freedom.'' More importantly, he added, 
``Here I inject a note of caution because the media and the public 
often focus principally on threats. Threats are important, but they 
should not be automatic instigators of action. A terrorist attack on 
the two-lane bridge down the street from my house is bad but has a 
relatively low consequence compared to an attack on the Golden Gate 
Bridge. At the other end of the spectrum, even a remote threat to 
detonate a nuclear bomb is a high-level priority because of the 
catastrophic effect.''
    If the President's proposal or the ``Faster and Smarter Funding for 
First responders Act 2005'' were adopted, it would be an important step 
in the right direction and a serious improvement of how we are spending 
homeland security funds to protect our nation. However, it probably 
won't go through without other serious resistances in the Senate.
    The Senate already offered signs that lawmakers may buck the Bush 
administration on spending priorities. An amendment to the 2006 budget 
resolution (S Con Res 18) offered by Senator Susan Collins (R-Maine) 
and Joe Lieberman (D-Conn.) restoring $855 million in first responder 
funding that was eliminated by the administration was approved earlier 
in March. In a prepared statement, Joe Lieberman explained ``Homeland 
security cannot be had on the cheap and our first responders must have 
the training and equipment they need to keep our community as safe as 
possible.'' \78\
---------------------------------------------------------------------------
    \78\ Sean Madigan, ``Senate Restores $855 Million in First 
Responder Funding,'' Congressional Quarterly, March 17, 2005.
---------------------------------------------------------------------------
    In a few days, Senator Collins will reintroduce her S. 2845 bill, 
the Senate version of the intelligence reform legislation. 
Unfortunately, S. 2845 retains some of the flawed structure for 
allocating homeland security assistance grants. Under S. 2845, DHS 
would first allocate the higher base amount to each State, and then an 
additional amount on the basis of risk. The failure of S. 2845 to 
reform this structure means that DHS will be instructed to allocate far 
too much funding without regard to any risk. Also, S. 2845 does not 
require DHS to evaluate and prioritize applications based upon risk or 
need.
    At the end of the day, the differences between the House and the 
Senate can be explained by the fact that Senators from rural States 
have grown accustomed to grabbing disproportionate slices of the 
federal money pie. More generally, block grants are to the states and 
localities what entitlements are to citizens: money that flows to them 
automatically from the federal government. The lure of easy money for 
their recipients has made them popular with Congress.

X. Conclusion
    In the largest open society in the world, improving homeland 
security is a challenging task. Among other vulnerable targets, the 
United States has thousands of miles of borders, thousands of bridges, 
sports stadiums and shopping malls, hundreds of skyscrapers and power 
plants. Certainly, the attacks on Washington DC and New York have put 
immense pressure on the Administration and Congress to show that 
security against future attacks is being enhanced.
    A common path to bad security is knee jerk reaction to the news of 
the day. Sadly, too much of the U.S. government's response post 9/11 
seems to be exactly that. Some are telling is that we are in graver 
danger than ever everywhere in the country and that in order to be 
secure, homeland security spending needed to increase drastically. Yet, 
because most of the money is allocated on a political basis rather than 
a sound cost benefit analysis, much of the new spending will not result 
in sound security. In other words, the security we are getting against 
terrorism is likely to be ineffective, yet comes at an enormous 
expense.
    By definition, the purpose of homeland security is to make America 
safer. As such, wasteful spending and grants to state and local 
governments do not achieve that goal. In the same way, the 
federalization of law enforcement and fire departments appear to be 
ineffective ways to address our homeland security problem. In some 
cases, they might increase our feeling of security but in reality they 
might even make us less safe.
    Economics suggests the following: spending decisions should be 
based on a true cost benefit analyses. It means that homeland security 
money should be spent strictly based on risk and potential damage. To 
that extend, minimum guaranteed of funding for state and local 
government is inappropriate. Identically, tools that have be proven to 
be ineffective in the past should not be used for homeland security. It 
means that we should move away from the grant system altogether. To the 
extend that this pure reform could not be achieve, it is clear that 
moving to system that mainly allocates money based on risk is an option 
far superior to the status quo.
    Economics also underlines the need to more formally deliberate what 
level of government is the best suited to make homeland security 
investments taking under considerations the public choice ramifications 
of the alternatives. And finally, it requires paying particular 
attentions to pork barrel spending and sanctioning it.
    The challenge of determining what the best security investments are 
will remain and should be left to security experts rather than 
politicians. Governments, by nature, are very inefficient institutions. 
We must accept this as fact. So instead of thinking that the solution 
to 9/11 is more and more of the same approaches that failed us, 
policymakers should start doing the analysis needed and making the 
tradeoffs as to where we should focus our limited security resources. 

    Mr. King. Thank you, Dr. de Rugy.
    Dr. Jenkins?

 STATEMENT OF DR. WILLIAM O. JENKINS, JR., DIRECTOR, HOMELAND 
 SECURITY AND JUSTICE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Jenkins. Mr. Chairman and members of the subcommittee, 
I appreciate the opportunity to be here today to discuss our 
work on federal first responder grants. These grants are one 
means of achieving a very important goal: enhancing the ability 
of first responders to prevent where possible, prepare for, 
respond to, and recover from terrorist and other incidents with 
well-planned, well-coordinated and effective efforts that 
involve a variety of first responders from multiple 
jurisdictions.
    In the 3 1/2 years since the tragic events of September 11, 
the federal government has significantly increased the 
resources and attention it has devoted to national preparedness 
and the capabilities of first responders. ODP has led federal 
efforts to enhance first responder capabilities in part through 
its management of federal first responder grants. In fiscal 
years 2002 through 2005, ODP grant funding, primarily for first 
responders, rose from about $435 million to almost $3.3 
billion. About 70 percent of these funds were for two programs: 
the state homeland security grants and the urban areas security 
initiative grants.
    These increases have been accompanied by debate on the most 
appropriate means of allocating the funds, developing 
priorities for their use, and assessing their use. As ODP grant 
guidance and reporting requirements have evolved, it has been 
faced with the need to balance flexibility and speed with the 
need for consistency and appropriate planning. ODP has provided 
states with flexibility in determining how to manage and 
allocate their grant funds, and states have varied in the 
methods used to allocate and manage their first responder 
grants. ODP expects to issue a compendium of grant management 
best practices across states and localities in May of this 
year.
    To encourage greater consistency in the way in which states 
and localities approach assessing new needs in developing their 
plans, ODP has also developed an initial set of 15 scenarios, 
12 of which are terrorist events. These scenarios form the 
basis for identifying needed key first responder capabilities 
that can be used to assess existing gaps in capabilities, 
developing plans for closing those gaps, and assess progress in 
achieving and maintaining those designated capabilities.
    As we noted in our May 2004 report on the management of 
funds in the national capital region, effectively managing 
first responder grant funds requires the ability to measure 
progress and provide accountability for the use of the funds. 
To do this, it is necessary to, one, develop and implement 
strategies for the use of the funds that identify key goals and 
priorities; two, establish performance baselines; three, 
develop and implement performance goals and data quality 
standards; four, collect reliable data; five, annualize that 
date; six, assess the results of that analysis; and seven, take 
action based on those results.
    This strategic approach to homeland security includes 
identifying threats and managing risks, aligning resources to 
address them, and assessing progress in preparing for those 
threats and risks. At the same time, it is important to 
recognize that the equipment, skills and training required to 
prepare for identified terrorists threats and risks might be 
applicable to non-terrorist risk as well. For example, the 
equipment, skills and training required to respond effectively 
to a discharge of lethal chlorine gas from a rail car is much 
the same where the cause of the discharge is a derailment or a 
terrorist act.
    DHS's task of defining a national preparedness goal and 
translating that definition into capabilities that are 
meaningful and readily transferable to a wide variety of local 
jurisdictions around the nation is not yet complete. DHS must 
continue to listen and respond constructively to the concerns 
of states, local jurisdictions, tribal governments and other 
interested parties as it strives to complete this task, one 
that is necessarily iterative.
    At the same time, state and local and tribal governments 
and the private sector must recognize that the process is 
iterative. It will include periodic adjustments and refinements 
and that risks are not equally distributed across the nation.
    In closing, no one level of government can successfully 
address the challenges of developing needed first responder 
capabilities alone. A fundamental challenge has been and 
remains the need for regional and statewide planning. The 
federal government can play a leadership role in developing 
requirements and providing support for state, regional and 
local governments to assess, develop and maintain needed first 
responder capabilities.
    That concludes my statement, Mr. Chairman. I would be 
pleased to answer any questions you or other members of the 
committee may have.
    [The statement of Mr. Jenkins follows:]

             Prepared Statement of William O. Jenkins, Jr.

                           HOMELAND SECURITY

  Management of First Responder Grant Programs and Efforts to Improve 
                   Accountability Continue to Evolve

    Mr. Chairman and Members of the Subcommittee: I am pleased to be 
here today to discuss federal funding for first responders. The events 
of September 11, 2001, highlighted the critical role of the nation's 
first responders in preventing, preparing for, responding to, and 
recovering from the effects of a terrorist attack. In fiscal years 2002 
through 2005, the Office for Domestic Preparedness (ODP) within the 
Department of Homeland Security (DHS)\1\ managed first responder grants 
totaling approximately $10.5 billion. The bulk of this funding has been 
for the State Homeland Security Grant Program\2\ (statewide) and the 
Urban Areas Security Initiative (urban area) grants. Although the grant 
programs have evolved over time, this money has generally been 
available for planning, equipment, exercises, training, and 
administrative costs. The grants have also generally been targeted at 
preventing, preparing for, responding to, and recovering from terrorist 
events.
---------------------------------------------------------------------------
    \1\ Grants funds for domestic preparedness programs for state and 
local governments are also provided by other DHS components and other 
agencies, including the Departments of Justice and Health and Human 
Services.
    \2\ 2In fiscal year 2002, the grant program was called the State 
Domestic Preparedness Program.
---------------------------------------------------------------------------
    The amount of federal funding for ODP grant programs has increased 
significantly since September 11. Accompanying this increase has been a 
discussion at the federal, state, and local levels of the most 
appropriate means of allocating these funds, developing plans that set 
priorities for their use, and assessing the effective use of the funds. 
Several factors could affect how these things are done in the future. 
For example, recent congressional proposals have addressed the most 
appropriate means to allocate grant funds to states. In addition, the 
issuance of Homeland Security Presidential Directive 8 (HSPD-8) in 
December 2003--calling for, among other things, a new national 
preparedness goal and performance measure that pertained to ``all 
hazards''--placed first responder grant programs, including those 
managed by ODP, into a broader context that is to consider the nation's 
readiness to respond to all major events, including natural disasters 
as well as acts of terrorism.
    We are currently conducting a review of DHS's implementation of 
HSPD-8 and expect to issue our report in the summer of 2005, looking at 
how DHS is working with state and local governments and first 
responders to implement it.
    My statement today provides information on the history and 
evolution of the two largest grant programs, particularly with respect 
to ODP grant award procedures; timelines for awarding and transferring 
grant funds; and accountability for effective use of grant funds. My 
comments are based on our report \3\ on the management of first 
responder grant programs as well as updated information on DHS's 
progress since the report's issuance in addressing its challenges.
---------------------------------------------------------------------------
    \3\ See GAO, Homeland Security: Management of First Responder Grant 
Programs Has Improved, but Challenges Remain, GAO-05-121, (Washington, 
D.C.: Feb. 2, 2005). As part of the review, we visited five selected 
states: Arizona, California, Florida, Missouri, and Pennsylvania. We 
conducted our work from November 2003 through November 2004 in 
accordance with generally accepted government auditing standards. See 
also GAO, Homeland Security: Management of First Responder Grants in 
the National Capital Region Reflects the Need for Coordinated Planning 
and Performance Goals, GAO-04-443, (Washington, D.C.: May 28, 2004).
---------------------------------------------------------------------------
Summary
    Federal first responder grants are a means of achieving an 
important goal--enhancing the ability--through equipment, skills, and 
training--of first responders to prevent, prepare for, respond to, and 
recover from terrorist and other incidents with well-planned, well-
coordinated efforts that involve police, fire, emergency medical, 
public health, and other personnel from multiple jurisdictions. As we 
noted in our May 2004 report on the management of first responder funds 
in the National Capital Region, effectively managing first responder 
grant funds requires the ability to measure progress and provide 
accountability for the use of public funds. This includes developing 
and implementing strategies, establishing baselines, developing and 
implementing performance goals and data quality standards, collecting 
reliable data, analyzing the data, assessing the results, and taking 
action based on the results. This strategic approach to homeland 
security includes identifying threats and managing risks, aligning 
resources to address them, and assessing progress in preparing for 
those threats and risks.
    ODP has modified grant award procedures for states and localities. 
ODP developed procedures and guidelines for awarding statewide and 
urban area grants to states, and for determining how states and 
localities could expend funds and seek reimbursement for first 
responder equipment or services they purchased. As part of this 
process, ODP gave states some flexibility by allowing them to determine 
how grant funds were to be managed and distributed within their states 
and whether purchases would be made locally or at the state level.
    Congress, ODP, states, and localities have acted to expedite grant 
awards by setting time limits for the grant application, award, and 
distribution processes and by instituting other procedures. ODP also 
took steps to expedite the transfer of funds from states to local 
jurisdictions, allowing states, for example, to transfer grant funds to 
localities before all required documentation had been submitted to ODP. 
Nevertheless, the ability of states and localities to spend grant funds 
expeditiously was complicated by the need to fulfill state and local 
legal and procurement requirements, which in some cases added months to 
the purchasing process. Some states have modified their procurement 
practices, and ODP is identifying best practices to aid in the effort, 
but challenges remain.
    ODP has taken steps to improve accountability in the state 
preparedness planning process. For example, in fiscal year 2003, ODP 
required states to update homeland security strategies. These 
strategies are intended to guide state and local jurisdictions in 
targeting grant funds. In tandem with this effort, ODP revised its 
grant-reporting method, moving away from requiring states, localities, 
and urban areas to submit itemized lists of first responder equipment 
they plan to purchase toward a more results-based approach, whereby 
grant managers at all levels must demonstrate how grant expenditures 
are linked to larger projects that support goals in the states' 
homeland security strategies. In addition, as part of a broader effort 
to meet mandates contained in HSPD-8, ODP has begun drafting national 
preparedness standards that are intended to ensure more assessments of 
first responder needs on a national basis. DHS recently issued a 
document entitled ``Interim National Preparedness Goal'', which 
reflects the department's progress in developing readiness targets, 
priorities, standards for preparedness assessments and strategies, and 
a system for assessing the nation's overall level of preparedness.
    In our prior work, we have recommended that expenditures in the 
National Capital Region and state and local expenditures for 
interoperable communications be guided by a strategic plan that 
identifies priorities, and that fund expenditures be monitored to 
ensure that they are targeted in compliance with the goals and 
priorities identified in the plan. The National Capital Region's Senior 
Policy Group and DHS generally agreed with these respective 
recommendations. The Senior Policy Group, in conjunction with 
representatives from the jurisdictions in the National Capital Region, 
has been working to develop a regionwide plan for the use of first 
responder funds. On November 1, 2004, DHS's SAFECOM program issued its 
methodology to assist states in developing statewide interoperable 
communications plans that could be used to guide future expenditures.
    The task of enhancing first responder capabilities across the 
nation is a complex and daunting one. ODP must continue to work with 
state, local, and tribal governments, and the private sector to finish 
the tasks it has begun. At the same time, state, local, and tribal 
governments, and the private sector must recognize that the process is 
iterative, will include periodic adjustments and refinements, and that 
risks are not equally distributed across the nation.

Background
    The Department of Justice established the ODP in 1998 within the 
Office of Justice Programs to assist state and local first responders 
in acquiring specialized training and equipment needed to respond to 
and manage terrorist incidents involving weapons of mass destruction. 
ODP, which was transferred to DHS upon its creation in March 2003, has 
been a principal source of domestic preparedness grant funds. These 
grants are a means of achieving an important goal--enhancing the 
ability of first responders to prevent, prepare for, respond to, and 
recover from terrorist incidents with well-planned and well-coordinated 
efforts that involve police, fire, emergency medical, public health, 
and other personnel from multiple jurisdictions. In March 2004, the 
Secretary of Homeland Security consolidated ODP with the Office of 
State and Local Government Coordination to form the Office of State and 
Local Government Coordination and Preparedness (SLGCP). In addition, 
other preparedness grant programs from agencies within DHS were also 
transferred to SLGCP. SLGCP, which reports directly to the Secretary, 
was created to provide a one-stop shop for the numerous federal 
preparedness initiatives applicable to state and local first 
responders. Within SLGCP, ODP continues to have program management and 
monitoring responsibilities for the domestic preparedness grants.

Status of Grant Funding and Allocation
    From fiscal year 2002 through fiscal year 2005, the amount of 
domestic preparedness grants awarded by ODP increased from about $436 
million to about $10.5 billion. The scope of ODP's grant programs 
expanded as well, from funding only first responder advanced equipment, 
exercises, and administrative activities in fiscal year 2002 to funding 
a range of preparedness planning activities, exercises, training, 
equipment purchases, and related program management and administrative 
costs in fiscal year 2005. During fiscal years 2002 through 2005, the 
State Homeland Security Grant Program and Urban Areas Security 
Initiative program accounted for about 69 percent of total ODP grant 
funds. Table 1 shows the amounts provided for the domestic preparedness 
grant programs.

                                          Table 1: ODP Grant Program Funding for Fiscal Years 2002 through 2005
                                                                  Dollars in thousands
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                        Grant program                               2002            2003            2004            2005            Total       of total
                                                                                                                                                funding
--------------------------------------------------------------------------------------------------------------------------------------------------------
State Homeland Security Grant Program........................        $315,700      $2,066,295      $1,675,058      $1,062,285      $5,119,338       48.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Urban Areas Security Initiative..............................             (a)         596,351         671,017         854,657       2,122,025       20.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subtotal.....................................................         315,700       2,662,646       2,346,075       1,916,942       7,241,363       69.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other Grants.................................................       b 119,979       c 388,081     d 1,349,491     e 1,361,637       3,219,188       30.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total........................................................         435,679       3,050,727       3,695,566       3,278,579      10,460,551      100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

                        Source: ODP.
                        a  Not funded in this 
                        year.
                        b  Includes the following 
                        five grant programs: Law 
                        Enforcement Enhancement Program, 
                        New York Equipment 
                        Replacement Program, National 
                        Domestic Preparedness Consortium, 
                        Homeland Defense Equipment 
                        Reuse Program Pilot Project 
                        Support Grant, and Domestic 
                        Preparedness Training and 
                        Technical Assistance Program--St. 
                        Petersburg College.
                        c  Includes the following 
                        15 grant programs: Urban 
                        Areas Security Initiative 
                        Port Security Grant Program, 
                        Urban Areas Security 
                        Initiative Transit Security 
                        Grant Program, Urban Areas 
                        Security Initiative Pilot 
                        Projects, Urban Areas 
                        Security Initiative Radiological 
                        Defense System, Counterterrorism 
                        Institute Grant Program, 
                        TOPOFF II, Washington 
                        Metropolitan Area Transit 
                        Authority, Airborne Imaging 
                        in Support of Emergency 
                        Operations, Testing and 
                        Evaluation of Emergency 
                        Response Equipment, Terrorism 
                        Early Alert and Strategic 
                        Planning System, Homeland 
                        Defense Equipment Reuse 
                        Program, Northern Virginia 
                        Emergency Response Coalition 
                        Grant Program, Domestic 
                        Preparedness Equipment Training 
                        and Technical Assistance 
                        Program, National Domestic 
                        Preparedness Consortium and 
                        Multistate Anti-Terrorism 
                        Information Exchange Project.
                        d  Includes the following 
                        seven grant programs: 
                        Assistance to Firefighters 
                        Grant, Citizen Corps Program, 
                        Competitive Training Grants 
                        Program, Information Technology 
                        and Evaluation Program, Law 
                        Enforcement Terrorism Prevention 
                        Program, Operation Safe 
                        Commerce--Phase III, and 
                        Urban Areas Security 
                        Initiative Transit Security 
                        Program.
                        e  Includes the following 
                        eight grant programs: 
                        Assistance to Firefighters 
                        Grant, Buffer Zone Protection 
                        Program, Citizen Corps 
                        Program, Competitive Training 
                        Grants Program, Emergency 
                        Management Performance Grants, 
                        Law Enforcement Terrorism 
                        Prevention Program, Metropolitan 
                        Medical Response System, and 
                        Operation Safe Commerce--Phase 
                        III.

    For fiscal years 2002 through 2005, ODP awarded approximately 
$2.1 billion in urban area grant funds to selected urban areas 
identified by DHS. The amount of individual urban area grants is 
determined through a combination of factors, including current threat 
estimates, an assessment of each area's critical assets, and population 
density. For the same period, ODP awarded approximately $5.1 billion in 
statewide grant funds to states to enhance domestic preparedness. Under 
its current funding formula,\4\ approximately 40 percent of statewide 
grant funds are shared equally among states, while the remaining amount 
is distributed according to state population.\5\
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    \4\ The current formula provides each state, the District of 
Columbia, and the Commonwealth of Puerto Rico 0.75 percent and each 
territory 0.25 percent of the total grant funds. The remaining grant 
funds are allocated to states and territories on a population-share 
basis.
    \5\ The funding formula was also used in fiscal years 2004 and 2005 
for two other grant programs managed by ODP: the Law Enforcement 
Terrorism Prevention Program and Citizen Corps Program.
---------------------------------------------------------------------------
    Several congressional proposals have been advanced to alter the 
statewide funding formula to base it more directly on risk 
considerations. One proposal would largely maintain the portion of 
funds shared equally by the states but would base the distribution of 
the remaining funds on a risk-based formula similar to the one 
currently used for urban area grants. Another proposal from the House 
Homeland Security Committee would reduce the minimum amount of funding 
shared equally by states to approximately 14 percent of total funding 
and establish a board to allocate the remaining funds through an 
evaluation of threat, vulnerability, and the potential consequences of 
a terrorist attack.
    GAO supports a risk-based approach to homeland security. Adoption 
of a risk management framework can aid in assessing risk by determining 
which vulnerabilities should be addressed in what ways within available 
resources. Assessing risk for specific assets or locations is defined 
by two conditions: (1) probability or likelihood, quantitative or 
qualitative, that an adverse event would occur, and (2) consequences, 
the damage resulting from the event, should it occur. Because it is 
unlikely that sufficient resources will be available to address all 
risks, it becomes necessary to prioritize both risks and the actions 
taken to reduce those risks, taking cost into consideration. For 
example, which actions will have the greatest net potential benefit in 
reducing one or more risks?

ODP Grant Award Procedures
    Over time, ODP has modified its grant application processes and 
procedures for awarding grants to states, governing how states 
distribute funds to local jurisdictions, and facilitating 
reimbursements for states and localities. To obtain funding, state and 
urban area grantees must submit applications to ODP and have them 
approved. In fiscal year 2004, ODP began to streamline the application 
process. According to ODP, based on feedback from the grantees, and to 
continue to improve the grant programs, it combined three grant 
programs into a single grant application solicitation. In fiscal year 
2005, the number of combined programs increased to six. ODP stated that 
the consolidation was done to streamline the grant application process 
and better coordinate federal, state, and local grant funding 
distribution and operations.
    For the statewide grant programs, ODP has allowed the states 
flexibility in deciding how the grant programs are structured and 
implemented in their states. In general, states are allowed to 
determine such things as the following:
         the formula for distributing grant funds to local 
        jurisdictional units; .
         the definition of what constitutes a local 
        jurisdiction eligible to receive funds, such as a multicounty 
        area; .
         the organization or agency that would be designated to 
        manage the grant program; and .
         whether the state or local jurisdictions would 
        purchase grant-funded items for the local jurisdictions.
    Urban area grantees, for the most part, have had flexibilities 
similar to those of the states and could, in coordination with members 
of the Urban Area Working Group, designate contiguous jurisdictions to 
receive grant funds. For the first round of the urban area grants in 
fiscal year 2003, the grants were made directly to the seven urban 
areas identified as recipients.\6\ Starting with the second round of 
urban area grants in 2003, grants were made to states, which then 
subgranted the funds to the designated urban areas, but retained 
responsibility for administering the grant program. The core city and 
county/counties work with the state administrative agency to define the 
geographic borders of the urban area and coordinate with the Urban Area 
Working Group.
---------------------------------------------------------------------------
    \6\ The seven urban area recipients were Los Angeles and San 
Francisco, California; Chicago, Illinois; New York City, New York; 
Houston, Texas; Seattle, Washington; and the National Capital Region. 
Since then, urban area recipients have grown to include 50 recipients 
in 27 states and the National Capital Region in fiscal year 2005.
---------------------------------------------------------------------------
    Once the grant funds are awarded to the states and then subgranted 
to the local jurisdictions or urban areas, certain legal and 
procurement requirements have to be met, such as a city council's 
approval to accept grant awards. Once these requirements are satisfied, 
states, local jurisdictions, and urban areas can then obligate their 
funds for first responder equipment, exercises, training, and services. 
Generally, when a local jurisdiction or urban area directly incurs an 
expenditure, it submits related procurement documents, such as 
invoices, to the state. The state then draws down the funds from the 
Justice Department's Office of Justice Programs.\7\ According to this 
office, funds from the U.S. Treasury are usually deposited with the 
states' financial institution within 48 hours. The states, in turn, 
provide the funds to the local jurisdiction or urban area.
---------------------------------------------------------------------------
    \7\ The Comptroller's Office within the Office of Justice Programs 
continues to act as financial manager for DHS first responder grant 
programs. DHS plans to establish its own Office of Grant Operations 
within ODP during fiscal year 2005.

Timelines Established for Awarding and Transferring Grant Funds
    Since the first announcement of the dramatic increase in first 
responder grants after the terrorist attacks of September 11, 2001, the 
speed with which the funding reached localities has been a matter of 
concern and some criticism. Congress, state and local officials, and 
others expressed concerns about the time ODP was taking to award grant 
funds to states and for states to transfer grant funds to local 
jurisdictions. Beginning in fiscal year 2003, ODP, at congressional 
direction, demonstrated significant progress in expediting grant awards 
to states. For the fiscal year 2002 statewide grants, ODP was not 
required to award funds to states within a specific time frame. During 
fiscal year 2002, ODP took 123 days to make the statewide grant 
application available to states and, on average, about 21 days to 
approve states' applications after receipt. For the second round of 
fiscal year 2003 statewide grants, however, the appropriations act 
required that ODP make the grant application available to states within 
15 days of enactment of the appropriation and approve or disapprove 
states' applications within 15 days of receipt. According to ODP data, 
ODP made the grant application for this round of grants available to 
states within the required deadline and awarded over 90 percent of the 
grants within 14 days of receiving the applications. The appropriations 
act also mandated that states submit grant applications within 30 days 
of the grant announcement. According to ODP data, all states met the 
statutory 30-day mandate; in fact, the average number of days from 
grant announcement to application submission declined from about 81 
days in fiscal year 2002 to about 23 days for the second round of 
fiscal year 2003 statewide grants.
    The transfer of funds from states to local jurisdictions has also 
received attention from Congress and ODP. To expedite the transfer of 
grant funds from the states to local jurisdictions, ODP program 
guidelines and subsequent appropriations acts imposed additional 
deadlines on states. For the fiscal year 2002 statewide grants, there 
were no mandatory deadlines or dates by which states should transfer 
grant funds to localities. One of the states we visited, for example, 
took 91 days to transfer these grant funds to a local jurisdiction 
while another state we visited took 305 days. Beginning with the first 
round of fiscal year 2003 statewide grants, ODP required in its program 
guidelines that states transfer grant funds to local jurisdictions 
within 45 days of the grant award date. Congress subsequently included 
this requirement in the appropriations act for the second round of 
fiscal year 2003 statewide grant funds. To ensure compliance, ODP 
required states to submit a certification form indicating that all 
awarded grant funds had been transferred within the required 45-day 
period. States that were unable to meet the 45-day period had to 
explain the reasons for not transferring the funds and indicate when 
the funds would be transferred. According to ODP, for the first and 
second rounds of the fiscal year 2003 grants, respectively, 33 and 31 
states certified that the required 45-day period had been met.\8\
---------------------------------------------------------------------------
    \8\ For the second round of fiscal year 2003 statewide grants, 
states had to certify that they had met the statutory requirement to 
transfer 80 percent of the awarded funds for first responder 
preparedness and 50 percent of the awarded funds for critical 
infrastructure protection to local jurisdictions within the required 
45-day period. According to ODP, letters were distributed to states 
that had not submitted the certification form or were not certified, 
followed by a series of phone calls to collect the pertinent 
information.
---------------------------------------------------------------------------
    To further assist states in expediting the transfer of grant funds 
to local jurisdictions, ODP also modified its requirements for 
documentation to be submitted as part of the grant application process 
for fiscal years 2002 and 2003. In fiscal year 2002, ODP required 
states to submit and have approved by ODP budget detail worksheets and 
program narratives indicating how the grant funds would be used for 
equipment, exercises, and administration. If a state failed to submit 
the required documentation, ODP would award the grant funds, with the 
special condition that the state could not transfer, expend, or draw 
down any grant funds until the required documentation was submitted and 
approved. In fiscal year 2002, ODP imposed special conditions on 37 
states for failure to submit the required documentation and removed the 
condition only after the states submitted the documentation. The time 
required to remove the special conditions ranged from about 1 month to 
21 months. For example, in one state we reviewed, ODP awarded the 
fiscal year 2002 statewide grant funds and notified the state of the 
special conditions on September 13, 2002; the special conditions were 
removed about 6 months later on March 18, 2003, after the state had met 
those conditions.
    In fiscal year 2003, however, ODP allowed states to move forward 
more quickly, by permitting them to transfer grant funds to local 
jurisdictions before all required grant documents had been submitted. 
If a state failed to submit the required documentation for the first 
round of fiscal year 2003 statewide grants, ODP awarded the grant funds 
and allowed the state to transfer the funds to local jurisdictions. 
While the state and local jurisdictions could not expend--and the state 
could not draw down--the grant funds until the required documentation 
was submitted and approved, they could plan their expenditures and 
begin state and locally required procedures, such as obtaining approval 
of the state legislature or city council to use the funds. Later that 
fiscal year, ODP further relaxed this requirement and allowed the 
states to transfer, expend, and draw down grant funds immediately after 
ODP awarded the grant funds. The states only had to submit all 
documentation along with their biannual progress reports.
    Despite congressional and ODP efforts to expedite the award of 
grant funds to states and the transfer of those funds to localities, 
some states and local jurisdictions could not expend the grant funds to 
purchase equipment or services until other, nonfederal requirements 
were met. Some state and local officials' ability to spend grant funds 
was complicated by the need to meet various state and local legal and 
procurement requirements and approval processes, which could add months 
to the process of purchasing equipment after grant funds had been 
awarded. For example, in one state we visited, the legislature must 
approve how the grant funds will be expended. If the state legislature 
is not in session when the grant funds are awarded, it could take as 
long as 4 months to obtain state approval to spend the funds.
    Some states, in conjunction with DHS, have modified their 
procurement practices to expedite the procurement of equipment and 
services. Officials in two of the five states we visited told us they 
established centralized purchasing systems that allow equipment and 
services to be purchased by the state on behalf of local jurisdictions, 
freeing them from some local legal and procurement requirements. In 
addition, the DHS's Homeland Security Advisory Council Task Force 
reported that several states developed statewide procurement contracts 
that allow local jurisdictions to buy equipment and services using a 
prenegotiated state contract. DHS has also offered options for 
equipment procurement, through agreements with the U.S. Department of 
Defense's Defense Logistics Agency and the Marine Corps Systems 
Command, to allow state and local jurisdictions to purchase equipment 
directly from their prime vendors. These agreements provide an 
alternative to state and local procurement processes and, according to 
DHS, often result in a more rapid product delivery at a lower cost.
    Congress has also taken steps to address a problem that some states 
and localities cited concerning a federal law, the Cash Management 
Improvement Act (CMIA), that provides for reimbursement to states and 
localities only after they have incurred an obligation, such as a 
purchase order, to pay for goods and services. Until fiscal year 2005, 
after submitting the appropriate documentation, states and localities 
could receive federal funds to pay for these goods and services several 
days before the payment was due so that they did not have to use their 
own funds for payment. However, according to DHS's Homeland Security 
Advisory Council Task Force report, many municipalities and counties 
had difficulty participating in this process either because they did 
not receive their federal funds before payment had to be made or their 
local governments required funds to be on hand before commencing the 
procurement process.\9\ Officials in one city we visited said that, to 
solve the latter problem, the city had to set up a new emergency 
operations account with its own funds. The task force recommended that 
for fiscal year 2005, ODP homeland security grants be exempt from a 
provision of CMIA to allow funds to be provided to states and 
municipalities up to 120 days in advance of expenditures. In response, 
the fiscal year 2005 DHS appropriations legislation \10\ included a 
provision that exempts formula-based grants (e.g., the State Homeland 
Security Grant Program grants) and discretionary grants, including the 
Urban Areas Security Initiative and other ODP grants, from the CMIA's 
requirement that an agency schedule the transfer of funds to a state so 
as to minimize the time elapsing between the transfer of funds from the 
U.S. Treasury and the state's disbursement of the funds for program 
purposes. ODP's fiscal year 2005 program guidelines informed grantees 
and subgrantees that they are allowed to draw down funds up to 120 days 
prior to expenditure.
---------------------------------------------------------------------------
    \9\ U.S. Department of Homeland Security, The Homeland Security 
Advisory Council, A Report from the Task Force on State and Local 
Homeland Security Funding (June 2004).
    \10\ Pub. L. No. 108-334, Sec. 521, 118 Stat. 1298, 1319 (2004).
---------------------------------------------------------------------------
    In addition, DHS efforts are under way to identify and disseminate 
best practices, including how states and localities manage legal and 
procurement issues that affect grant distribution. DHS's Homeland 
Security Advisory Council Task Force reported that some jurisdictions 
have been ``very innovative'' in developing mechanisms to support the 
procurement and delivery of emergency-responserelated equipment. The 
task force recommended that, among other things, DHS should, in 
coordination with state, county, and other governments, identify, 
compile, and disseminate best practices to help states address grant 
management issues. ODP has responded by establishing a new Homeland 
Security Preparedness Technical Assistance Program service to enhance 
the grant management capabilities of state administrative agencies and 
by surveying states to identify their technical needs and best 
practices they have developed related to managing and accounting for 
ODP grants, including the procurement of equipment and services at the 
state and local levels. This information is to serve as a foundation 
for the development of a tailored, on-site assistance program for 
states to ensure that identified best practices are implemented and 
critical grant management needs and problems are addressed. According 
to ODP, the technical assistance service was made operational in 
December 2004, however, the final compendium of best grants management 
practices will not be formally released until May 2005.
    Despite efforts to streamline local procurement practices, some 
challenges remain at the state and local levels. An ODP requirement 
that is based on language in the appropriations act could delay 
procurements, particularly in states that have a centralized purchasing 
system. Specifically, beginning with the fiscal year 2004 grant cycle, 
states were required by law to pass through no less than 80 percent of 
total grant funding to local jurisdictions within 60 days of the award. 
In order for states to retain grant funds beyond the 60-day limit, ODP 
requires states and local jurisdictions to sign a memorandum of 
understanding (MOU) indicating that states may retain--at the local 
jurisdiction's request--some or all funds in order to make purchases on 
a local jurisdiction's behalf. The MOU must specify the amount of funds 
to be retained by the state. This requirement may pose problems for 
some states. A state official in one state we visited said that, while 
the state's centralized purchasing system had worked well in prior 
years, the state has discontinued using it because of the MOU 
requirement, since establishing MOUs with every locality might take 
years. The state transferred the fiscal year 2004 grant funds to local 
jurisdictions so they can make their own purchases. In another state, 
officials expressed concern that this requirement would negatively 
affect their ability to maintain homeland security training provided to 
local jurisdictions at state colleges that had been previously funded 
from local jurisdictions' grant funds. In the fiscal year 2005 grant 
program guidelines, states were encouraged, but not required, to submit 
their MOUs to ODP for review by DHS's Office of General Counsel to 
ensure compliance.

Accountability for Effective Use of Grant Funds
    In distributing federal funds to states to assist first responders 
in preventing, preparing for, and responding to terrorist threats, the 
federal government has required states to develop strategies to address 
their homeland security needs as a condition for receiving funding. The 
details of this federal requirement have also evolved over time.
    Before the events of September 11, 2001, ODP required states to 
develop homeland security strategies that would provide a roadmap of 
where each state should target grant funds. To assist the states in 
developing these strategies, state agencies and local jurisdictions 
were directed to conduct needs assessments on the basis of their own 
threat and vulnerability assessments. The needs assessments were to 
include related equipment, training, exercise, technical assistance, 
and research and development needs. In addition, state and local 
officials were to identify current and required capabilities of first 
responders to help determine gaps in capabilities.
    In fiscal year 2003, ODP directed the states to update their 
homeland security strategies to better reflect post-September 11 
realities and to identify progress on the priorities originally 
outlined in the initial strategies.\11\ As required by statute, 
completion and approval of these updated strategies were a condition 
for awarding fiscal year 2004 grant funds.
---------------------------------------------------------------------------
    \11\ In fiscal year 2003, the urban area grantees were required to 
prepare and obtain approval of their urban area strategies.
---------------------------------------------------------------------------
    ODP has also revised its approach on how states and localities 
report on grant spending and use. ODP took steps to shift the emphasis 
away from reporting on specific items purchased and toward results-
based reporting on the impact of states' expenditures on preparedness. 
ODP maintains an authorized equipment list that includes such diverse 
items as personal protection suits for dealing with hazardous materials 
and contamination, bomb response vehicles, and medical supplies. This 
information is in turn listed on the budget worksheets that localities 
submitted to states for their review. Until the fiscal year 2004 grant 
cycle, states were required to submit itemized budget detail worksheets 
that itemized each item to be purchased under first responder grants. 
ODP found, however, that, while the worksheets reflected the number and 
cost of specific items that states and localities planned to purchase, 
neither states nor ODP had a reporting mechanism to specifically assess 
how well these purchases would, in the aggregate, meet preparedness 
planning needs or priorities, or the goals and objectives contained in 
state or urban area homeland security strategies. Accordingly, ODP 
revised its approach for fiscal year 2004 and required that states, 
instead of submitting budget detail worksheets to ODP, submit new 
``Initial Strategy Implementation Plans'' (ISIP). These ISIPs are 
intended to show how planned grant expenditures for all funds received 
are linked to one or more larger projects, which in turn support 
specific goals and objectives in either a state or urban area homeland 
security strategy. In addition to the ISIPs, ODP now requires the 
states to submit biannual strategy implementation reports showing how 
the actual expenditure of grant funds at both the state and local 
levels was linked by projects to the goals and objectives in the state 
and urban area strategy.
    Reports by GAO and DHS's Office of Inspector General, as well as by 
the House Homeland Security Committee, have identified the need for 
clear national guidance in defining the appropriate level of 
preparedness and setting priorities to achieve it. The lack of such 
guidance has in the past been identified as hindering state and local 
efforts to prioritize their needs and plan how best to allocate their 
homeland security funding. We have reported that national preparedness 
standards that can be used to assess existing first responder 
capacities, identify gaps in those capacities, and measure progress in 
achieving specific performance goals are essential to effectively 
managing federal first responder grant funds as well as to the ability 
to measure progress and provide accountability for the use of public 
funds.
    ODP has responded to the calls for national preparedness standards 
and specifically to HSPD-8 that required DHS to develop a new national 
preparedness goal and performance measures, standards for preparedness 
assessments and strategies, and a system for assessing the nation's 
overall preparedness. In order to develop performance standards that 
will allow ODP to measure the nation's success in achieving this goal, 
ODP is using a capabilities-based planning approach--one that defines 
the capabilities required by states and local jurisdictions to respond 
effectively to likely threats. These capability requirements are to 
establish the minimum levels of capability required to provide a 
reasonable assurance of success against a standardized set of 15 
scenarios for threats and hazards of national significance. The 
scenarios include such potential emergencies as a biological, nuclear 
or cyber attack, two natural disasters, and a flu pandemic. The 
objective is to develop the minimum number of credible, high-
consequence scenarios needed to identify a broad range of prevention 
and response requirements.
    As part of the HSPD-8 implementation process, in January 2005, ODP 
issued a list of capability requirements \12\ in keeping with a 
requirement of the fiscal year 2005 DHS appropriations act.\13\ To help 
define the capabilities that jurisdictions should set as targets, ODP 
first defined the essential tasks that need to be performed from the 
incident scene to the national level for major events illustrated by 
the 15 scenarios. It then developed a Target Capabilities List that 
identifies 36 areas in which responding agencies are expected to be 
proficient in order to perform these critical tasks. ODP further plans 
to develop performance measures, on the basis of the target capability 
standards that define the minimal acceptable proficiency required in 
performing the tasks outlined in the task list. According to ODP's 
plan, the measures will allow the development of a rating methodology 
that incorporates preparedness resources and information about overall 
performance into a summary report that represents a jurisdiction's or 
agency's ability to perform essential prevention, response, or recovery 
tasks. The office acknowledges that this schedule may result in a 
product that requires future incremental refinements but has concluded 
that this is preferable to spending years attempting to develop a 
``perfect'' process.
---------------------------------------------------------------------------
    \12\ U.S. Department of Homeland Security, Office of State and 
Local Government Coordination and Preparedness, Target Capabilities 
List: Version 1.0 (January 2005).
    \13\ The act required ODP to provide state and local jurisdictions 
with nationally accepted first responder preparedness levels no later 
than January 31, 2005.
---------------------------------------------------------------------------
    On March 31, 2005, DHS issued a document entitled ``Interim 
National Preparedness Goal'' that reflects the department's progress in 
developing readiness targets, priorities, standards for preparedness 
assessments and strategies, and a system for assessing the nation's 
overall level of preparedness. The document also states that National 
Preparedness Guidance will follow within 2 weeks. This guidance is to 
include, in DHS' words, ``detailed instructions on how communities can 
use the Goal and a description of how the Goal will generally be used 
in the future to allocate Federal preparedness assistance.'' DHS 
expects to issue a Final Goal and an updated target capabilities list 
on October 1, 2005. Over the next several months, ODP plans to work 
with its stakeholders to identify the levels of capabilities that 
various types of jurisdictions should possess in order for the Nation 
to reach the desired state of national preparedness.

Prior GAO Recommendations with Regard to First Responder Grants
    In May 2004, we reported on the use of first responder grant monies 
in the National Capital Region, which includes the District of Columbia 
and specified surrounding jurisdictions in the states of Maryland and 
Virginia.\14\ We found that the grant monies were not being spent in 
accordance with a regional plan for their use. To ensure that emergency 
preparedness grants and associated funds were managed in a way that 
maximizes their effectiveness, we recommended that the Secretary of 
Homeland Security work with NCR jurisdictions to develop a coordinated 
strategic plan to establish goals and priorities for the use of funds, 
monitor the plan's implementation to ensure that funds are used in a 
way that are not unnecessarily duplicative, and evaluate the 
effectiveness of expenditures in addressing gaps in preparedness. DHS 
and the Senior Policy Group of the National Capital Region generally 
agreed with our recommendations and have been working to implement 
them.
---------------------------------------------------------------------------
    \14\ Included are the District of Columbia, Montgomery and Prince 
George's Counties in Maryland; Arlington, Fairfax, Loudoun, and Prince 
William Counties and the City of Alexandria in Virginia; and all cities 
and other unites of government within the geographic areas of such 
district, counties, and city. Our work focused on the eight largest 
jurisdictions.
---------------------------------------------------------------------------
    In our report on interoperable communications for first responders, 
we found that federal assistance programs to state and local government 
did not fully support regional planning for communications 
interoperability. We also found that federal grants that support 
interoperability had inconsistent requirements to tie funding to 
interoperable communications plans. In addition, uncoordinated federal 
and state level grant reviews limited the government's ability to 
ensure that federal funds were used to effectively support improved 
regional and statewide communications systems. We recommended that DHS 
grant guidance encourage states to establish a single statewide body 
responsible for interoperable communications that would prepare a 
single comprehensive statewide interoperability plan for federal, 
state, and local communications systems in all frequency bands. We also 
recommended that at the appropriate time, that DHS grant guidance 
should require that federal grant funding for interoperable 
communications equipment should be approved only upon certification by 
the statewide body that such grant applications were in conformance 
with the statewide interoperability plan. In its comments on our draft 
report, DHS did not address the second recommendation. However, on 
November 1, 2004, the SAFECOM office with DHS Office of 
Interoperability and Compatibility issued its methodology for 
developing a statewide interoperability communications plan.

Concluding Observations
    In summary, Mr. Chairman, since the tragic events of September 11, 
2001, the federal government has dramatically increased the resources 
and attention it has devoted to national preparedness and the 
capabilities of first responders. The grant programs managed by ODP 
have expanded rapidly in their scope and funding levels. Over the 3-1/2 
years since the terrorist attacks, Congress, ODP, states, and local 
governments encountered obstacles, some of them frustrating and 
unexpected, in delivering grant funds to their ultimate recipients in a 
timely manner and ensuring they are used most effectively. All levels 
of government have attempted to address these obstacles and succeeded 
in resolving or ameliorating many of them. Some of the changes made are 
relatively new; thus, it is still too early to determine if they will 
have the desired outcome.
    ODP's focus has changed over time from examining and approving, for 
example, specific items of equipment proposed for purchase under first 
responder grants to defining the capabilities that states and local 
jurisdictions need to attain--that is, establishing performance 
standards. Such a results-based orientation could prove to be the most 
practical and effective grants management approach at the federal level 
to help ensure accountability and effectiveness of results. DHS must 
also continue to ensure that an effective system for monitoring and 
accounting for limited federal funds intended for enhancing the 
nation's ability to respond to terrorist attacks or natural disasters 
exists at the state and local level.
    DHS's task of defining a national preparedness goal and translating 
that definition into capabilities that are meaningful and readily 
transferable to the wide variety of local jurisdictions around the 
nation is still not complete. As the department has acknowledged, the 
process will necessarily be iterative. As we have stressed before, 
during this process DHS must continue to listen and respond 
constructively to the concerns of states, local jurisdictions, and 
other interested parties. Such collaboration will be essential to 
ensuring that the nation's emergency response capabilities are 
appropriately identified, assessed, and strengthened. At the same time, 
state, local, and tribal governments, and the private sector must 
recognize that the process is iterative, will include periodic 
adjustments and refinements, and that risks are not equally distributed 
across the nation.
    The challenges we noted in developing effective interoperable 
communications for first responders are applicable to developing 
effective first responder capabilities for major emergencies, 
regardless of cause.\15\ A fundamental challenge has been limited 
regional and statewide planning, coordination, and cooperation. No one 
level of government can successfully address the challenges of 
developing needed first responder capabilities alone. The federal 
government can play a leadership role in developing requirements and 
providing support for state, regional, and local governments to: assess 
first responder capabilities; identify gaps in meeting those 
capabilities; develop coordinated plans and priorities for closing 
those gaps; and assess success in developing and maintaining the needed 
capabilities.
---------------------------------------------------------------------------
    \15\ See GAO, Homeland Security: Federal Leadership and 
Intergovernmental Cooperation Required to Achieve First Responder 
Interoperable Communications, GAO-04-740 (Washington, D.C.: July 20, 
2004).
---------------------------------------------------------------------------

    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or other members of the subcommittee may 
have.

        Contact Information: For further information on this testimony, 
        please contact William O. Jenkins, Jr., at (202) 512-8777. 
        Individuals making key contributions to this testimony included 
        Amy Bernstein, David Brown, Frances Cook, James Cook, 
        Christopher Keisling, Katrina Moss, Sandra Tasic, John Vocino, 
        and Robert White.
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    Mr. King. Thank you, Dr. Jenkins.
    I want to thank all the members of the panel.
    I have some questions for Dr. de Rugy.
    I fully agree with your premise that every dollar that is 
not spent properly for homeland security is one less dollar 
that we have to protect ourselves. That is wrong. I am really 
asking you to expand on this, if you will, and take as much 
time as you want up to the 5 minutes.
    How would you define risk? How would you determine it? 
Theoretically, every municipality is at risk in the country. 
There is a level of risk anywhere. How would you define risk 
and where would you draw the line as far as above that line 
should get the predominance of the money and those below it 
would not?
    Again, what factors and who would make that determination?
    Ms. de Rugy. Thank you, Mr. Chairman. It is a very good 
question.
    I am not sure I am entirely capable of answering it because 
I am not a risk assessment expert. I am an economist. However, 
there is an industry that does that very well, and that is the 
insurance industry. I suspect that we could draw a lot of 
information based on their research.
    However, I have an idea. The definition of ``risk'' when we 
talk about homeland security should really be based on how much 
damage, how likely a target is to be, and how much damage if 
the attack is successful, are we going to sustain. Basically, 
we have to remember that our homeland security is only as 
strong as our weakest link, again defined as the likelihood of 
being attacked and the damage incurred if we were attacked.
    So it means that we absolutely must look so we can rank 
every possible target, every possible risk, across the board, 
across the industries, agriculture, chemicals, all those 
things, and then assess where the most damage would be. And we 
could do it at the national level or state by state. Actually, 
we should do it in a phase. I actually think it is, again, the 
insurance industry has done that. It is their job and they have 
done that very successfully for years and we should draw from 
their research.
    And then the other question really is, once we have this 
panel of risk defined, and if we order them by priority, maybe 
one of the ways to define where the line should be is by trying 
to think of who should be actually in charge of the risk. So 
the idea is not necessarily to ignore completely some risks and 
only take care of others. It could be that the federal 
government should be taking care of the highest and the most 
damaging threats if the attack is successful, and leave it up 
to the states to take care of the other risks. So there is a 
range of options that we should be studying.
    Mr. King. You mentioned in your testimony, I believe, you 
would also have the private sector become involved.
    Ms. de Rugy. Yes. For instance, again, I think it is a 
very, very, very important question that I do not see addressed 
enough is who should be in charge of what. So we have four 
essential players, the federal government, the state 
government, the local government and the private sector. The 
federal government should be in charge of risks that would 
affect the entire nation. That should be our priority. In fact, 
that should be the best use of our dollars.
    The state and local governments should be in charge of 
things that are more local, like for instance if a bridge is 
destroyed in a given state it does not mean that the entire 
nation could not be affected one way or another. But the main 
damage would be sustained by the state. It means then that the 
state should be in charge.
    The private sector, for instance, critical infrastructures 
are privately owned. It makes a lot of sense to give a lot of 
the responsibility to the owners of the assets, which does not 
mean that there could not be a partnership, that the private 
sector should have a role to play.
    If we think that the only player who should be in charge of 
our security is the federal government, we are never going to 
be able to achieve anything. That is one of my concerns with 
the first responders grants, is it seems that a lot of what we 
are saying is the result of every player turning to the federal 
government as if the federal government should be in charge of 
absolutely everything.
    Mr. King. Thank you, Doctor.
    Mr. Pascrell?
    Mr. Pascrell. Thank you. I want to respond to that last 
answer.
    We have decided that the best idea is to make sure that the 
Fire Act grants which I think you just referred to, are 
entirely separate from homeland security in that the fire 
grants were a response to basic needs that companies needed 
before 9/11. Let's get it straight as to when each of them 
occurred. I am really flabbergasted at your last answer, that 
the grants, I think you are talking about those grants, use 
fire grants, and I expect that is what you are looking at.
    Ms. de Rugy. I said first responder grants.
    Mr. Pascrell. You are not talking about the fire grants, 
then?
    Ms. de Rugy. No.
    Mr. Pascrell. You are not talking about those separate 
grants.
    Ms. de Rugy. No.
    Mr. Pascrell. Okay. We need to make that clear, if you 
will, because we are not discussing the fire grants today. We 
are talking about the first responder grants.
    Ms. de Rugy. No, we are not. I said first responder grants.
    Mr. Pascrell. Okay, because we do have a system of 
monitoring with fire grants. Are you saying you do not think we 
have a system to monitor how money is spent for first 
responders for homeland security? Is that your point?
    Ms. de Rugy. It is part of my point, yes, but the larger 
part is really to try to think whether it is the best use of 
our federal dollars to spend on first responders. Isn't that 
the role of the state and local governments? That is a question 
that is not trivial and I think should be addressed.
    Again, it does not mean, if we reach the conclusion that 
first responders is the responsibility of the state and local 
governments, it does not mean that the federal government does 
not have a role to play in case of an attack, that help could 
not be provided, funding could not be provided to the states to 
help them.
    Mr. Pascrell. I would like to ask, and come back to this 
point, to Mr. Berman. How does the Department of Homeland 
Security visit state and local governments to see how the 
homeland security money is being spent?
    Mr. Berman. That has been a problem, certainly up through 
fiscal year 2004. Starting in 2004, they did increase their 
staff and develop some additional guidelines for doing that, 
but up until that point, their monitoring at the state and 
local level was very poor. This is also true within some of the 
states; the state organizations do not always have the staff to 
monitor at the local level, but that has been a problem.
    Mr. Pascrell. And Mr. Berman, when a municipality, a 
locality or state applies for federal money for homeland 
security, doesn't that entity have to prove need?
    Mr. Berman. Part of the problem with the way this program 
has evolved is the guidelines, the federal guidelines were 
relatively broad. The initial state vulnerability assessments 
that were prepared were largely wish lists in some cases, 
rather than vulnerability studies. So because of the lack of 
clear federal guidelines, some of these programs really did not 
amount to a matter of need. It was a matter of want. When the 
localities finally were awarded the grants, in some cases they 
simply abandoned the earlier plans they had made and re-looked 
at how they wanted to spend that money.
    So up until now, the question of what was--.
    Mr. Pascrell. Excuse me. Are you saying that when they 
finally did get reimbursed, it was not for a particular item 
that they applied for?
    Mr. Berman. In some cases, when they finally were allocated 
the funds and before they went to spend them, they actually 
abandoned their earlier plans and simply substituted new ones.
    Mr. Pascrell. Well, Mr. Chairman, that is not the case, of 
course, it is something we are not discussing for the Fire Act. 
The Fire Act, it is a competitive situation. You are only going 
to get money when you are competing against other departments 
throughout the country. As you well know, that money has to be 
spent on the item. Do you understand what I am saying, Mr. 
Berman?
    Mr. Berman. Absolutely.
    Mr. Pascrell. Let me ask you a question, Dr. Jenkins, then 
I will conclude. What steps should we take to speed up the 
process from when the states receive homeland security funding 
to when local governments receive it from the states? What 
would you suggest, from your vantage point, that we do?
    Mr. Jenkins. From our vantage point, speed is less 
important than spending the money well, having a plan to spend 
the money well. That has been part of the problem, as Mr. 
Berman has said. Part of the problem is having a clear plan of 
how you are going to spend the money, what you are going to try 
to do, what you are going to accomplish with it. As he pointed 
out also, it is possible, given the way the program has been 
structured, to spend the money according to grant guidance, 
because the grant guidance has been very broad, but not 
necessarily spend it especially well or intelligently.
    So I think our view would be very much what this committee 
is talking about, it is very important to have a plan in place. 
It is very easy, then, to get that money down and get it down 
quickly if you have a clear plan in place. Part of what has 
held up getting the money down is that they have not had a plan 
in place. In many states, they were not going to let you use 
this money, and ODP has said we are not going to let you use 
this money, until we have seen a plan for how you are going to 
spend it.
    The issue has been less getting the money down. The money 
has been allocated very quickly down in the last couple of 
years, both from ODP to the states and the states to the 
localities. The problem has been the localities very often have 
run into problems in being able to use the money because they 
have to have a city council that votes or in some cases a state 
legislature has to vote to accept the money. They have to then 
go through procurement processes that are fairly extensive and 
so forth. So that takes a long time for the pipeline to be able 
to use the money because of these various requirements and 
hoops that the localities themselves have to go through. That 
varies across the states. Some states are much quicker about 
using that than others.
    Mr. Pascrell. In conclusion, you are suggesting look at the 
whole process, because, Mr. Chairman, in most of these grants 
that we are talking about in homeland security, you need to 
spend the money and then you are reimbursed. Correct, Dr. 
Jenkins?
    Mr. Jenkins. Right. Except for 2005, there is an exception 
to the Cash Management Act in 2005 in which they can get the 
money 120 days in advance of their needs.
    Mr. Pascrell. Which do you think is the best?
    Mr. Jenkins. I think that the basic thing is how the money 
is spent, as opposed to this. I think if you get it way far in 
advance, you give it all far in advance, you can have problems 
like there have been with other grants where they get it in 
advance and they bank it and they do not spend it for a long 
time.
    Mr. Pascrell. Thank you.
    Thank you, Mr. Chairman.
    Mr. King. Chairman Cox?
    Mr. Cox. Thank you.
    I would just observe that it may be that we would have a 
problem with localities not spending the money and banking it 
if we gave it to them up front. It is hard to imagine that it 
would be any more serious than the problem that we have right 
now where two-thirds of the money that Congress has 
appropriated since fiscal year 2002 is not yet spent. The first 
responders are not seeing it.
    One of the four reasons that we have discovered for why 
this is happening is that the states are operating on a 100 
percent reimbursement system. So if you are a locality, you 
must find your own money, go out and buy the stuff, and then 
get reimbursed and go through an application process and so on. 
That is a lot of menacing bureaucracy and red tape when the 
point is to try and get things to the front lines when they are 
needed.
    So I think we could surely deal with the problem of people 
banking the money. But the main thing we want to make sure of 
is that recipients plan for this money before they get it so 
that it does not arrive in somebody's lap as if they have won 
the Publisher's Clearinghouse sweepstakes and think, now how do 
I spend this money. We have too much of that.
    I want to focus on something, while we have this expertise 
at the table, that has not been mentioned much thus far. That 
is, although it has been alluded to in several of your 
comments, the importance of cooperation among jurisdictions. 
With UASI, the Urban Area Security Initiative, we are plunking 
money down in individual cities. We are not necessarily 
promoting regionalism. We are sitting right here in the middle 
of the national capital region. The Pentagon is not part of the 
District of Columbia. The Pentagon was attacked in the 9/11 
events, yet we all recognize the Capitol or the White House 
might just as well have been hit by those airplanes. Thinking 
of the national capital region from a mutual aid standpoint 
clearly makes more sense than thinking of D.C. and it's, 
strictly speaking, 500,000 people all by themselves.
    We do not really have a system right now in law that 
permits us to do that. I wonder if you could comment on the 
importance of regionalism and mutual aid, and ways that we can 
encourage that behavior so that we are not buying new fire 
trucks for every municipality, but rather to the extent we are 
buying equipment or training, we are sharing all of that. I 
would address that to each of the members of the panel.
    Mr. Berman. Sure. Mr. Chairman, I think one of the key 
tenets of DHS' new preparedness plan is regional collaboration. 
It certainly makes a lot of sense to incorporate that in the 
way that planning is going to be structured. By starting with 
15 threat scenarios, and then developing uniform task lists for 
not only what needs to be accomplished to respond to those 
kinds of scenarios, but what needs to happen at the federal, 
state and local levels, the process should produce a much 
clearer picture for those that need to plan to spend this money 
as to what their priorities are and what their roles are.
    A lot of the states that we visited in our report did have 
regionalized planning and centralized procurement, and those 
are among the best practices. But certainly there is a long way 
to go to actually work out the details following the 
preparedness plan. There is additional guidance coming out this 
month, and as we develop year by year, the states are going to 
have to, under this plan, redevelop their plans by October 2005 
as a basis for the 2006 funding. So we should see a lot more 
regionalization built into those plans.
    Mr. Cox. Mr. Jenkins?
    Mr. Jenkins. I think a couple of things here. One of the 
things is this, when we did our work on interoperability, 
stovepiping has been a traditional problem in that. One of the 
things that we found is that the grants, for example, for 
interoperability were inconsistent in encouraging regionalism. 
Some, they defined ``regions'' differently so that if you were 
complying with one grant, the region that you were, you could 
not comply with the other grant because the regions in the two 
grants were defined separately.
    So one of the things is making sure that the federal 
government in terms of its grant guidance is encouraging that 
and giving some flexibility in that, and not saying region A 
for this grant is this, and region A is a totally different 
jurisdiction for this grant over here. It creates lots of 
problems for them being able to match up grant monies and be 
able to take a look at the totality of what they are doing.
    As Mr. Berman said, the scenarios are designed to try to 
focus looking at regional capacity. It is very important as 
well that the grants focus on the capabilities that you need 
and you need to have versus capabilities that you need to have 
access to. Those are not necessarily the same thing. For 
example, it is very important not only to consider regional, 
but for example to look at where are the other kinds of assets 
that I can draw on, like the National Guard civil assistance 
teams. What can I draw on them and what can I get from them?
    So it is not only just regional. In many instances, as here 
in the District as you know, the regions cross state lines and 
so there needs to be encouragement to work across state lines, 
to find regions across state lines in areas like Kansas City, 
Philadelphia, New Jersey, Cincinnati, et cetera. They do not 
fit neatly into state lines and there needs to be encouragement 
to do that.
    The plans need to show and the accountability needs to show 
when you are reporting on it how it is that what you are doing 
is going to enhance regional capacity, as opposed to the 
capacity of my individual jurisdiction. So it has to be built 
into the accountability structure and reporting structure as 
well.
    Mr. Cox. Dr. de Rugy?
    Ms. de Rugy. I think it is a very important question and it 
goes to the core of the way we are spending the money right 
now. It seems that the role of the federal government in 
helping state and local governments should be to help them 
create this true national preparedness system. When you look at 
the way things are done, it really seems that by designing a 
system where each state has an incentive to buy decontamination 
units or everything to protect itself against absolutely 
everything, without regard to whether a neighbor state already 
has all those things, or a neighboring town or what have you, 
goes to the core of the ineffectiveness of the system.
    What we need the federal government to do instead, and what 
DHS should have bee doing, is for instance it seems that to 
have this true national system, we need DHS to set standards, 
for instance, for communications systems. Right now, the way 
things are done is just exactly the opposite. States have an 
incentive to buy whatever radios they want, and they end up 
with radios that are not compatible within a given state or 
even with other states.
    So I think really the best way to use federal dollars to 
enhance states's preparedness is to put our money in creating 
this national system. It would be to enhance communication and 
to have standards that are the same for all, and that then we 
could use. Because what matters is not so much of everyone 
having a decontamination unit or is full-blown prepared for 
everything, but we know where to get the information. I think 
right now this is not done.
    Mr. King. The gentlelady from California, Ms. Sanchez.
    Ms. Sanchez. Thank you, Chairman King.
    Thank you all for being before us today.
    I really in the last few years have been visiting a lot of 
my law enforcement people and my fire emergency units, and also 
our hospitals. I think our hospitals are an area where people 
have not really concentrated on them as being first responders. 
But for example, I have a nuclear power plant 20 miles away 
from me, and the port of Long Beach-Los Angeles 20 minutes away 
from me; Disneyland in my backyard, or maybe I am in their 
backyard. I am not sure.
    I always worry about if there is a major incident to what 
will happen to our hospitals. So I think there is a whole array 
of first responders that we really need to deal with. But in 
speaking to many of them, and I happen to have large law 
enforcement agencies, for example, you know, 600 sworn 
officers, 800 sworn officers, pretty large groups. They still 
say that they are not receiving their monies in a timely way, 
part of it because they have to spent it up front, and part of 
it because it is just not coming down from the state.
    So I guess, Dr. Jenkins, do you really believe that the 
money is flowing better right now? What do you think the lag 
time is? Because, especially for example, two of my major 
cities got Urban Area Security Initiative monies announced. 
They actually flew out and had a big press conference, 
announced $14 million and $12 million respectively. We have not 
see a lot of that money yet and that was done over a year ago.
    So what do you see? What do you think the lag time is?
    Mr. Jenkins. Well, it depends. The thing to understand is, 
there are two things. One is simply announcing the money and 
allocating the money. That is the first step, so that you know 
how much you are going to have. They have changed to where you 
do not have to, it used to be that before you could use the 
money, you could have the money, that you had to have a 
detailed spending plan, what equipment you were going to buy 
with it and so forth and so on.
    Now, ODP allows you to begin planning on how you are going 
to spend that money without having all that documentation up 
front. But I know in many instances in California, I do not 
know about your particular district, but when we did look in 
California that a lot of the hold up is not from the state. It 
is from the localities. That is, the city council has to agree 
that they are going to take the money.
    Ms. Sanchez. That I will tell you is not the problem in 
Anaheim or Santa Ana. We are very sophisticated. We have 
councils that meet at least once a week, very staffed-up 
cities. I mean, this is not about we do not know what we are 
doing or it has taken a month before we meet the next time. 
These are very sophisticated cities.
    Mr. Jenkins. Then the other thing has to do with what your 
plan is for spending the money and how you are going to spend 
it, whether or not there is a requirement locally that in order 
to be able to purchase something that you have to have the 
money in-hand first. That was one of the reasons for the change 
in 2005. Some people were saying, well, we have to borrow from 
Peter to pay Paul in order to do this because of our local 
requirements; we cannot wait for the reimbursement; we have to 
have the cash in hand under local regulations before we can 
actually purchase this. So that is one of the other things that 
has created a problem.
    It depends very much, I think, when you understand specific 
things, as to how the government structure works within a state 
and how they are structured to do it. In Massachusetts, for 
example, it is a much more centralized process than it is in 
California. It comes down through the counties in California. 
So you really, in order to know what is going on and why there 
is a holdup, you have to really understand the particular 
governance structure in that particular locality, what the 
requirements are, what it is that they have to do in order to 
use the money; what strings, if any, states have placed on it, 
and that is an evolving thing. It is not the same from year to 
year. States have been changing how they have managed the 
money, what kind of requirements that they are putting on it as 
it goes down.
    So it is very difficult for me to say specifically what is 
going on in your area, but I do know that there are three 
things that we have found that you have to look at. One is what 
the grant guidance says. One is what is required before you can 
start using the money, actually starting making purchasing 
decisions, whatever. And the other is the whole procurement 
process in terms of whether or not you need competitive bids 
and so forth and so on, and how that procurement process works.
    Ms. Sanchez. What do you think about disbursing some of the 
funds directly to the agencies and not going through the state 
structures, particularly in a place like California where we 
are under mutual aid agreements; we do have standards for our 
operating equipment that goes across. We work with each other 
if there is a major disaster. Orange County falls under Sheriff 
Baca, for example, of Los Angeles. We have a very known, and we 
practice who reports to what and how we do it. What about when 
you have sophisticated agencies like that, why are we passing 
the money through the state when we have a plan? We have a plan 
that is on an annual basis reviewed by the state. We have these 
mutual aid agreements. Why the holdup in sending it to the 
state?
    Mr. Jenkins. Well, the basic theory behind giving it to the 
states, rightly or wrongly, the basic theory behind giving it 
to the states is that the states are the grantees and the 
localities are not the grantees. It is the states that have to 
report to ODP. The states are the legal grantees, not the 
localities. The localities are sub-grantees under this program. 
The states, then, are the ones that are accountable ultimately 
for the use of the funds in terms of whether or not they are 
being spent in accordance with state plans and so forth and so 
on. So that is the reason that they are sending through the 
states.
    It is certainly a lot easier for ODP to deal with 50 
grantees plus the localities, plus the territories and the 
districts, than it is to deal with thousands, just from an 
administrative standpoint, from their perspective.
    Ms. Sanchez. Okay, thank you.
    Mr. Berman, do you have anything to say?
    Mr. Berman. I think one thing to keep in mind, too, in 
addition to what Dr. Jenkins said, this program started at a 
point, and I am not speaking specifically about California, but 
when many states and the homeland security organizations in 
those states, were simply not prepared to handle this amount of 
money in this period of time. I guess the good news is some 
states actually slowed down enough to try to spend it the right 
way, but over time the individual states, through the best 
practices of other states, I believe will be improving 
significantly, even under the current rules, in how fast they 
are able to use this money.
    The second point, and again I cannot speak specifically to 
California, although we did just recently visit there to look 
at how the funds are actually being spent at the state and 
local level, not all of these state plans are what we consider 
adequate. Based on the early rules under which these plans were 
developed, it was kind of a bottoms-up approach. The individual 
plans from the localities that rolled up into the state plans 
were, as I said before, in many cases wish lists, rather than 
vulnerability studies. They came in with lists of projects and 
equipment for hundreds of millions of dollars for small 
communities, which simply was not realistic.
    So again, those plans are all going to have to be re-worked 
now that the new guidelines will be coming out, and again all 
of the states are going to have to revamp their plans at the 
end of fiscal year 2005 for use in 2006. So hopefully a lot of 
this will change. The states and localities will have a better 
idea of how they fit in. Obviously not every county and not 
every locality needs the same equipment. To the extent that 
better regionalized plans come in, hopefully by that time 
additional efforts can be made to speed up the flow because you 
have a better idea of how the money is being spent. You will 
have a better assurance that it will be spent in accordance 
with the national guidelines.
    But I think until that happens, until you have those clear 
goals throughout the nation, that it would be risky to simply 
send the money directly to the localities or directly to the 
first responders without some better idea of how it is all 
being spent.
    Ms. Sanchez. Thank you, Mr. Chairman.
    I just wanted to add for the record that at least the major 
law enforcement agencies in my area, and up in Los Angeles 
County also, are still saying that even though they have been 
promised the money, they have not seen the money. So the 
pipeline problem still exists from our standpoint.
    Mr. King. I thank the gentlelady for questioning and for 
the comments.
    The gentleman from Alabama, Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman.
    I represent a rural district in Alabama, a state where 
agriculture is far and away the number one industry. Each of 
you advocated pretty enthusiastically moving away from this 
grant structure to a risk-based distribution formula. When you 
think about my constituency in my state, what words of 
reassurance would each of you offer the state and local leaders 
in Alabama that they will be treated not so much equitably, but 
in a reasonable and fair way under this new funding formula? I 
would start with Mr. Berman.
    Mr. Berman. It is hard to predict exactly how all of the 
details will work out, but one of the things that the new 
preparedness goal envisions is that when you get down to 
specific scenarios or specific vulnerabilities, one of those is 
agriculture. It may well be that the localities, the local 
units, will get a higher distribution of funds to protect 
against various agriculture scenarios, whether it is 
contamination of crops or livestock or what have you, as 
opposed to some of the kinds of specific equipment needs that 
the urban areas have.
    Again, until the guidelines have gone all the way through 
and the new plans are sent in and approved, it is hard to say 
specifically, but at least that is the concept.
    Mr. Rogers. Dr. Jenkins?
    Mr. Jenkins. As Mr. Berman said, I think of the 15 
scenarios, 2 are agricultural events, that affect agriculture 
in one way or another. And so they are, as he said, part of 
that will then meet much of the capabilities that are required 
in order to be able to deal with the consequences of such an 
event.
    The other things is in terms of just the risk management, 
what you are trying to do, I mean it is not a sense of 
encouragement, I guess, to your constituents, but what you try 
to do is think what is the probability that there will be this 
adverse event and then what are the consequences of that 
adverse event. You know, how extensive, how bad are they? What 
is the depth of the consequences, the geographic range, et 
cetera. One of these scenarios is looking at basically 
poisoning our food supply while it is still in the fields. Then 
what do localities need in order to be able to deal with that? 
In that sense, clearly localities in rural areas are going to 
need certain capacities because they are going to be the first 
ones on the scene. You are not going to have somebody coming in 
from Chicago to try to deal with the wheat down-state.
    The other thing they are trying to do is look at, and this 
would affect different areas based on population and other 
things, they are trying to tier these capabilities. That is, 
that not everybody needs the same, depending on what you are 
dealing with, so that the intensity of, say, for example the 
capabilities to deal with something in agriculture would be 
very different than it would be if you are trying to deal with 
something that is an urban event. So they are trying to look at 
what is it that those people in that neighborhood and that area 
actually need? What are the baseline capabilities that they 
need in order to be able to do that? And then what do they also 
need to be able to draw on?
    So I think one of the things is to really, as they play 
this out, the guidance that is going to come out on how to do 
this, supposedly at the end of the month, is to really look at 
these agricultural scenarios and what are the capabilities that 
they are saying are needed for that, and how is it that they 
say that state and local first responders need to be able to 
start getting ready for that; what are the capabilities that 
they need.
    Ms. de Rugy. Again, it is not clear that, first, your state 
would be getting some money because there are still minimum 
guarantees for each state. And it is not clear at all that your 
state would not be getting as much money as it is getting right 
now, depending on how the details work out.
    One of the things I would advise everyone to think about is 
really to start thinking seriously about what actually is the 
probability of horrible events to happen. It is very hard, and 
again I could not be the person putting this number on each 
event for each state for each locality, but I actually have the 
feeling that there is a terrorist threat, that we are letting 
terrorist win in a sense if we think that everything is likely 
to happen with the same probability and is going to create the 
same amount of damage.
    I think we need to think calmly about it, and that is what 
this management is about, about the likelihood of a given event 
to happen in a given place. I think once we do that, I think we 
will all feel much better if we do not have the sense that it 
is extremely likely that the worst possible thing is going to 
happen to us at any moment. So I think this is the way to look 
at things. Again, it is not clear to me that your state would 
be a big loser, depending on how the details evolve.
    Mr. Rogers. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. King. The gentleman from New Mexico.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Berman, as we talk about accountability, if the 
department were to have all the funds expended to date, does 
the department have a clear understanding of what objectives 
they would really like to see in place across the nation?
    Mr. Berman. Unfortunately, that has been the biggest 
weakness in the program so far. The goals so far are very 
broad. By the time they get down to the local level, as you see 
some of these reports in the paper, everybody has their own 
idea of how different expenditures relate to homeland security.
    Mr. Pearce. Do you find the department doing something to 
rectify that?
    Mr. Berman. About the only thing the department can do at 
this point is look to the future. Each year, the guidelines 
change. They get a little tighter each year, but a lot of these 
expenditures that are being reported in the paper now I would 
guess came out in the2002 program.
    Mr. Pearce. So you would say that even though the funds are 
not expended, that it is too late to do anything, that it would 
be impossible to go back and say, with all due respect, we 
should have probably quantified this a little bit better. Those 
funds that have not been taken now need to fall under this 
criteria. Is the department not proactive at all on that?
    Mr. Berman. I do not think that. If anything, right now 
they seem to be sticking to even more than we would like to 
see, that the rules for each year--.
    Mr. Pearce. We are going to spend money. Let's go ahead and 
spend it faster. Is that--.
    Mr. Berman. It is not so much expenditure. Again, the money 
at this point has been granted to the states.
    Mr. Pearce. I am sorry, but what I am hearing today is not 
very reassuring that we are spending it wisely. So there is no 
attempt to interdict and say, you know, we have wasted a 
certain number of billions so far, we should probably avoid 
that. The department does not have that kind of a mindset?
    Mr. Berman. The department is certainly working with the 
states as best they can. But to the extent that money has 
already been committed, though, to the local governments, I 
have not seen any effort to overturn those.
    Mr. Pearce. Thank you, if I could move on.
    Dr. Jenkins, as you went through your study, do you find 
any mechanism to identify poor performers, the individuals who 
poorly oversee the spending of taxpayer dollars? In other 
words, we get report cards in junior high and high school. 
Those report cards followed some to college. It seems like many 
times the same people who misallocate or do not oversee 
properly $200 million get to not oversee that properly again. 
Is there a reporting mechanism that you find anywhere in this 
whole grants procedure?
    Mr. Jenkins. Part of the issue, as Mr. Berman said, is that 
you do not even know what the states have committed. In other 
words, the only data that ODP has is outlay data, cash out the 
door, on with the draw-down. They really do not have and do not 
collect consistent data on what states have actually committed 
to spend. That is the first thing. In other things, when you 
are trying to look at how the money is being spent, you really 
do not have a good idea of how they plan to spend the money 
because you do not have a good idea of those obligations that 
they have entered into, the commitments that they have really 
made.
    The principal mechanism for assuring accountability is two 
things. One is looking at the state homeland security plans and 
plans to spend the money in relation to that. The other are 
these monitoring visits that, as Mr. Berman pointed out, that 
they did not complete. They need people to complete that were 
not doing it. Well, and so those monitoring visits are very 
important, though, in terms of on-site monitoring visits. If 
you are really going to look at how the money is being spent 
and how it has been used, it is very important to do that. They 
have had a difficult time doing that due to personnel turnover, 
a lack of people and so forth. So I would say, to date, that it 
has been a very, very mixed bag in terms of their 
accountability.
    Mr. Pearce. I appreciate that.
    If we find that states do not have an emergency 
preparedness plan or any reaction plan, does that somehow 
penalize them in the process? Or do they simply still get the 
same treatment as other states? Because I do not think many 
states, frankly, have a clear idea of what they are trying to 
accomplish.
    Mr. Jenkins. There is a difference in this grant process 
between, say, the statewide emergency management plan and a 
homeland security strategy. They are not really held 
accountable for having a emergency management plan statewide, 
just what their state homeland security plan is. As Mr. Berman 
pointed out, some of these are very broad, very vague, and you 
can do an awful lot and still say I am in compliance with it.
    Mr. Pearce. Mr. Chairman, I would just close with the 
request that we consider some sort of accountability on the 
part of the states to develop these plans. I would also like to 
see us try to identify poor performing individuals in the 
oversight of spending dollars and poor-performing regions so 
that there is a penalty if they misused public funds. The 
stories yesterday in The Washington Post, this was more border 
issues, but it comes back to the same thing. Those are 
distressing when we see hundreds of millions of dollars 
squandered, and probably without substantive effect.
    Thank you, Mr. Chairman.
    Mr. King. Thank you, Mr. Pearce. Obviously, the point you 
raise is very well taken. I think the legislation attempts to 
address some of that, but possibly a subsequent hearing could 
be used for that purpose.
    The gentleman from North Carolina?
    Mr. Etheridge. Thank you, Mr. Chairman.
    Let me thank our panelists for being here. The question I 
have is somewhat general, and then I will get a little bit more 
specific if my time does not run out.
    When we talk about this, we are talking about security 
protection of our country. Having come from a state, and we 
will hear from our Secretary of our Department of Crime in our 
state who will be here, and who I does I think an excellent job 
in North Carolina, in a few minutes, but it does not matter if 
you are a citizen whether you are hit by a natural disaster or 
a man-made disaster. The results are the same.
    Do we agree on that? It makes no difference?
    Mr. Jenkins. Right.
    Mr. Etheridge. So I think sometimes we get caught up in the 
accountability of funds going out for a man-made disaster, when 
it is easy to find fault unless you are the one in that 
hurricane that comes in at 100 miles an hour or a tornado or 
flood. And we zero in on a man-made, and as a matter of fact, 
one of these affects hundreds of thousands, and it is 
multistate in some cases. Certainly for North Carolina, we get 
hit about every time one comes out of the Caribbean.
    My question is this, though, what role should the federal 
government play in assisting states in, number one, preparing 
for natural disasters, which we can guarantee will affect this 
country for sure and have for many years, in preparation and 
response to a hurricane or tornadoes that have now been hitting 
parts of the country, which affect many times not just one 
state, but multiple states. Is this solely a state 
responsibility?
    Mr. Berman. No, sir, not at all.
    Mr. Etheridge. Thank you.
    Dr. Jenkins?
    Mr. Jenkins. No. As a matter of fact in these 15 scenarios, 
one of those scenarios is a hurricane.
    Ms. de Rugy. It is mainly a state responsibility, but it 
does not mean that the federal government cannot come through a 
mechanism like FEMA, like we have done with FEMA, and come and 
help when such a disaster occurs.
    Mr. Etheridge. Then you are saying that the federal 
government's response to the past to hurricanes like hit in 
Florida and in North Carolina and in Texas and the Midwest, 
that it is a state responsibility when it is so overwhelming 
that it would destroy the economy of those states?
    Ms. de Rugy. You are talking about preparedness.
    Mr. Etheridge. That is part of the preparedness.
    Ms. de Rugy. I think each state should prepare for, if 
North Carolina is hit systematically with hurricanes, which is 
the case, and it is really sad, the state should prepare for 
the occurrence of these events as best as possible to protect 
their constituents. However, it does not mean that there is no 
role for the federal government to come and help.
    Mr. Etheridge. You and I are going to disagree on that, 
simply because if you have a state in the Midwest that is not 
hit, I think that is a joint issue between the federal, state 
and local, in all these states and along the borders. The same 
thing with tornadoes.
    Thank you.
    Next question, can you suggest a division or percentage of 
resources that the federal government might supply for 
preparation and then for response, which is an entirely 
different issue. Preparation is getting ready; the other 
becomes a response issue, whether it be minor or catastrophic 
like we had in Florida.
    Mr. Berman. I could not suggest a particular percentage at 
this point.
    Mr. Jenkins. I could not either.
    Ms. de Rugy. I could not either, but I think the majority 
should be trying to prevent bad things from happening.
    Mr. Etheridge. Okay. In your testimony, Ms. de Rugy, you 
advocate federal investments in what you call intelligence 
gathering. Since this is a public bill that benefits all 
citizens, I think we can agree on that, however, you go on to 
state that the protection of private property such as personal 
residences, should be left to individuals because it is not a 
public good.
    Ms. de Rugy. Yes.
    Mr. Etheridge. Let me follow that a bit when I ask this 
question, because I think I want to get this on the record. 
When the terrorists hit New York and Washington, not all those 
facilities were public facilities. Are you saying that the 
federal government should not have invested dollars in helping 
to get the economy going again, because those were private 
businesses, in some cases private homes and residences?
    Ms. de Rugy. My point is that while deciding where to spend 
our federal dollars, we have to look at where it is the most 
efficient. The best use of our federal dollars is intelligence 
and not in protecting private homes. It does not mean, besides 
I mean, I could get back to you on that with literature about 
the fact that the insurance industry is actually very well 
equipped to answer these type of events at the private level.
    So my point is really when prior to an event, we have to be 
thinking about where our money will be the best used. When you 
think about the range of horrible things that could happen, we 
could always find that it would be nice for the federal 
government to intervene absolutely everywhere. It would be 
nice, but it is not the most effective way to do things. That 
was my point.
    Mr. Etheridge. I would appreciate seeing your material.
    Ms. de Rugy. I will definitely.
    Mr. Etheridge. I have another question, but I assume my 
time is out. There are certain situations, I think, that your 
hypothesis does not work. I do not think when it comes to 
public schools, as an example, which I have some issues on, but 
Mr. Chairman, I think the time has expired and I will yield 
back.
    Mr. King. The gentleman from Texas?
    Mr. McCaul. Thank you, Mr. Chairman.
    I, too, am an original cosponsor of the Cox-Thompson bill. 
I think it is long overdue, when you get states like Texas, 
that I am from, and California and New York, ranking almost 
dead last per capita in terms of dollars spent. In my work in 
the Justice Department, I actually saw, in my view, a lot of 
wasteful spending. It supplanted local budgets, and I do not 
think the money was really making us more prepared from a 
terrorist attack.
    There are a lot of resources for risk assessments out 
there. I know the FBI in each of their divisions has a risk 
assessment. The National Infrastructure Protection Center has 
basically broken down the private industry into sectors for 
critical infrastructure protection purposes. You mentioned the 
insurance companies. I think that is a great idea, from the 
private sectors. The border, in my view, is a tremendous risk, 
in my state and all of the southwest border states, when you 
have about three million people estimated crossing per year, 
and the threat that that poses in terms of a terrorist sneaking 
into our country.
    My question is really very fundamental. That is, how are we 
going to draw on all these risk assessments out there? How are 
we going to help the states use these resources out there? What 
is DHS going to do? How is DHS going to score or rank, if you 
will, these risk assessments for each state?
    Mr. Berman. Again, the process is evolving. There are a lot 
of ways to assess risk. I think the way that the department is 
going at it with this preparedness goal seems like a very solid 
beginning and would allow some reasonable decisions to be made. 
It allows for various scenarios. It allows each area, whether 
it is the border or elsewhere, to be addressed individually in 
a partnership between the federal government, state, local and 
private, in terms of how that region or how that state would 
actually respond or should respond, what capabilities are 
needed to respond to various scenarios.
    In the port area of Houston, for example, an attack there 
or a major disruption of that size port would have consequences 
throughout the United States. The ripple effects for a major 
port being pulled out of service would back up ships throughout 
the world in some cases. So those are the kinds of scenarios 
that have to be looked at, and then plans made.
    Again, the devil is in the details in this one. We have a 
long way to go.
    Mr. McCaul. So you are still formulating that process?
    Mr. Berman. Yes.
    Mr. McCaul. At DHS, will there be like a board to review? 
How is that going to work in DHS?
    Mr. Berman. Again, the individual plans by the states have 
to be resubmitted in October. Those will be going into the 
Office of State and Local Coordination and Funding submitted 
with the President's budget in 2006. So that group would be 
evaluating those plans and then making distribution for 2006 
based on those plans.
    Mr. McCaul. Okay. Well, I think we are moving in the right 
direction. I wonder if I could ask Dr. de Rugy on the 
intelligence issue. I believe that is the best prevention we 
have. If we can act on correct and accurate intelligence, we 
can stop an attack from happening. What type of investments did 
you propose or advocate for intelligence?
    Ms. de Rugy. To go back very quickly to your previous 
question, I think running the risk of being redundant, I think 
one of the ways to facilitate knowing what we should do is 
again to try to think which player should be in charge of what, 
and then let them be in charge of the things that they are the 
best equipped for. And also then, they could see where they 
should get the information, where is the best information for 
them.
    I also would like to direct your attention to the Insurance 
Service Office, which is a private company that serves the 
insurance industry by maintaining data on risks of all kinds, 
ran a study in 2003 and they used CIA data and FBI and they 
made a list of which cities were most at risk, were most likely 
to be targeted; which terrorist risks were the most likely. I 
could get back to you and send it to you, because I think the 
private sector and the insurance companies were really well 
equipped to do that. That is their job and it could actually 
really help in this process.
    As for where we should invest in intelligence, again I am 
not a security expert. My assessment about the importance of 
intelligence is really based on the notion of tradeoff and 
cost-benefit analysis. It really seems that basically we will 
get the biggest bang for our buck by preventing bad things from 
happening to us, instead of spending a lot of money on cleaning 
up the mess once the attack has been successful.
    As such, I drew the conclusion that intelligence was so 
important. And as such, I drew the conclusion that to the 
extent that the federal government is helping state and local 
governments to be prepared for attack, we need to create a 
system that is not directed at building a maximum capacity in 
each single state, but more one where there would be 
collaboration and communication and something that would 
enhance intelligence and cooperation before things happen, 
rather than after things happen.
    This is the extent of my expertise on the topic, and you 
could find a lot of your true experts who could I am sure talk 
more about it. But I think we really, really must think about 
where our money will get us the best return. This is the most 
important thing to do, because if we stretch ourselves too 
thin, we are not going to be able to accomplish anything. It 
seems like if we do not want to suffer, we have to adopt all 
the mechanisms that prevent bad things from happening to us.
    Mr. McCaul. I know that joint terrorism task forces are a 
good, somewhat effective at intelligence sharing. Perhaps we 
should invest more in those as well, but I see my time has 
expired.
    Mr. King. I thank the gentleman.
    Speaking of true experts on intelligence, the Chairman of 
the Subcommittee on Intelligence, the gentleman from 
Connecticut, Mr. Simmons?
    Mr. Simmons. I thank the gentleman.
    I appreciate very much the conversation that we have had 
this afternoon. I support the Chairman and the Ranking Member's 
bill. I think it is a step in the right direction. I think it 
is important to prioritize our spending based on risk. It seems 
like the smart thing to do. I am reminded that the goal of this 
funding is to prevent, to prepare for and respond to and/or 
mitigate threatened or actual attacks. So two of the four 
precede the event. One is prevention; one is preparation for 
it. The other two are responding to and mitigating. They sort 
of come after the fact.
    I am reminded that when we do risk assessment and we try to 
apply dollars to the risk, that the French after World War I 
were correct in assessing Germany as a risk and they built the 
Maginot Line, which is the most complete and expensive and 
formidable defense system I think every created, with the 
possible exception of the Great Wall of China. But the Germans 
were able to defeat it with soldiers on bicycles. They went 
around. One could ask, well maybe instead of investing all of 
those dollars in fortifications in depth, maybe they should 
have spent half as much on the fortifications and then the 
other half on flexible forces that could move to fill the gaps.
    So just because we identify the risk does not mean that we 
have the key to the funding solution. I guess that is what we 
are really trying to figure out here today. Do we put the money 
into guards and gates? Do we put it into things that can be 
used both for intelligence and early warning purposes and after 
the fact, such as communications? Communications have multiple 
uses. Do we hold some of the money in reserve as an emergency 
fund? Should that be done at the state level or the federal 
level? The fact that some of the money has not been spent does 
not bother me as much as if it was spent, but for the wrong 
things.
    You know, I suspect that some of it is not being spent 
because there is uncertainty about the best way to deal with 
it. So I think this legislation is terrific. It is a step in 
the right direction, but I think that we as members of Congress 
have to continue to work with the Department of Homeland 
Security to refine and define how these expenditures are made 
so that we are properly investing the people's dollars.
    I would ask if any of the panelists wish to respond to 
those comments. I would also recognize Mr. Berman as a graduate 
of the University of Connecticut.
    Mr. Berman. Yes, sir.
    Mr. Simmons. Go Huskies.
    [Laughter.]
    That is a resource we have to preserve and protect.
    [Laughter.]
    Mr. King. The gentleman needs to control his enthusiasm and 
focus on the agenda.
    [Laughter.]
    Mr. Berman. I certainly agree with all of your remarks. 
Again, one of the things that the new preparedness plan also 
does is identify some specific priorities for the short term, 
one of which is the interoperable communications. That is, as 
we learned in New York, a key element of immediate 
communications and immediate intelligence about what is going 
on. It is also an extremely complex problem. It involves more 
than simply buying all the same radios for people. At some 
point, in the longer term, the Federal Communications 
Commission really needs to reallocate some of the band widths 
so that the interoperable communications can operate on a 
broader scale, but that is a long-term goal and certainly one 
that needs to be worked on.
    Mr. Simmons. I agree.
    Mr. Jenkins. I certainly agree about interoperable 
communications, and there are certainly it concerns us a little 
bit that there is a rush, or has been in some instances, a rush 
to buy equipment without a plan for how to actually use it, 
because the equipment that you buy and the kind of equipment 
that you need is not the first step, it is the last step. The 
first step is what am I going to do with it. What is the 
incident command structure going to be used. What kind of 
information do I need to share. When do I need to share it, 
under what circumstances, with whom, et cetera. And is it data-
voice pictures? What is it? And that has a lot to do with what 
kind of equipment that you want and how you want to spend it, 
but there has sort of been this rush to go out and buy the 
equipment without necessarily a good clear plan of how you are 
going to use it.
    I think the dilemma that you point out is a very important 
one. That is, obviously to the extent that one could, it is 
always better to prevent something than have to deal with it 
after it occurs. The difficulty that you have, of course, is 
imperfect information, and sometimes very odd information. For 
example, if you are trying to figure out what is at risk, where 
should the risks be just in terms of what the infrastructure 
is, we do not have a good inventory of infrastructure in this 
country. We just did a report on chemical and water sectors. 
There is not a real good figure on how many chemical facilities 
there are in this country. DHS thinks about 4,000; 1,100 of 
those belong to two organizations, ACC and SOCMA and they have 
their own code, but we do not know how many others do or do not 
do things that they do.
    The other thing I think that is difficult in terms of even 
spending the money on prevention is simply something else that 
we found in this same work, and that is that the longer you go 
without something happening, the lesser vigilance is. One of 
the problems that water companies have, for example, is getting 
people to take seriously the fact that they ought to lock the 
doors to the pump houses when they leave them, or use the cards 
that they have, because nothing has happened, nothing is going 
to happen, and it is a pain in the neck to do it.
    So you have so many different variables that go into what 
you can do to prevent, and it is very difficult to figure out 
what proportion of resources you should use for that versus the 
other. There is a saying that you have heard many times, is 
that terrorists only have to succeed once. We have to be right 
every time.
    Ms. de Rugy. I really appreciate your comment, maybe 
because of my sad heritage. I totally agree with you. I think 
one of the real difficulties about homeland security is the 
fact that even if we were to invest our entire budget in 
security spending, we would never be guaranteed never to be 
attacked again because we cannot envision every possible attack 
scenario or every possible move terrorists are going to make.
    Your point about the Maginot Line is a good one. One of my 
concerns about the way we are doing things right now is that it 
seems like we are trying to turn every single state, every port 
into a little Maginot Line. This has a horrendous cost, and on 
top of that, it does not guarantee us full security. So again, 
it seems that this is not how we are going to get the highest 
return on our money and we should do something else.
    Not doing anything is, of course, not the answer, and how 
much to do is, again, to be left to experts. But certainly, 
doing the Maginot Line is not the way to go. Port security, 
unfortunately, is kind of taking this way. We are trying to use 
limited resources to try to turn every port into a Maginot Line 
because there would be real consequences to terrorist attacks 
on one of our ports. Again, that is why I think a better use of 
the money would be to try to invest in intelligence, trying to 
prevent bad things from happening in our ports.
    To that effect, I have been kind of thinking about the 
Coast Guard and try to investigate what their functions are. It 
seems that a lot of their missions would be consistent with 
trying to prevent bad things from happening in our ports. And 
so I think we should make sure that some of their programs are 
well funded.
    Mr. Simmons. Thank you.
    Thank you, Mr. Chairman, a very good hearing.
    Mr. King. Mr. Simmons, I do hope that you retract your 
statement about your parochial interests in Connecticut--.
    [Laughter.]
    I want to thank the panel very much for the testimony. It 
was a privilege having you here today. You provided tremendous 
input and the panelists are excused. Thank you very much.
    I call up the second panel. I would like to welcome our 
second panel, and thank them for their patience.
    First we have the Honorable Brian Beatty, Secretary for the 
Department of Crime Control and Public Safety from Mr. 
Etheridge's State of North Carolina; Mr. Michael Chapman, 
Director of the Missouri Office of Homeland Security; and Mr. 
David Miller, the Administrator of the Iowa Homeland Security 
and Emergency Management Division.
    We will begin with Mr. Beatty.

 STATEMENT OF THE HONORABLE BRYAN E. BEATTY, SECRETARY, NORTH 
     CAROLINA DEPARTMENT OF CRIME CONTROL AND PUBLIC SAFETY

    Mr. Beatty. Thank you, Chairman King, Ranking Member 
Pascrell, distinguished members of the subcommittee. I 
appreciate the opportunity to testify today.
    North Carolina is the nation's 11th largest state, with a 
population of approximately 8.5 million. But North Carolina is 
next-to-last in combined per capita homeland security funding 
for 2005. That does not mean that North Carolina does not have 
terrorists who have lived there, and it does not mean that 
North Carolina lacks potential terrorist targets.
    According to the 9/11 Commission report, the principal 
architect of the Al Qaida attacks was Khalid Sheikh Mohammed. 
He attended Chowan College near the Outer Banks of North 
Carolina and also North Carolina A&T State University in 
Greensboro. He learned about American life while living in 
North Carolina.
    Also, 3 years ago a group of Middle Eastern immigrants who 
entered the country fraudulently, were convicted in federal 
court in Charlotte, North Carolina in connection with a 
cigarette smuggling operation that was used to provide money to 
Hezbollah in Lebanon. And just last summer, an illegal Middle 
Eastern immigrant taking video footage of the Bank of America 
headquarters was apprehended by Charlotte police officers.
    Globally, terrorists have attacked military barracks in 
Beirut, embassies in Kenya and Tanzania, a Navy ship in Yemen, 
hotels and banks in North Africa and the Middle East and a 
train station in Madrid. I cite these examples because North 
Carolina is home to Fort Bragg, Camp Lejeune, Pope and Seymour 
Johnson Air Force Bases and Cherry Point Marine Air Station. 
The city of Charlotte is the nation's second-largest banking 
center. We have three nuclear power plants within 20 miles of 
our largest cities, each of which have over 500,000 people.
    Our state has professional sports teams and major college 
athletics programs, with stadiums and coliseums seating tens of 
thousands. We have internationally renowned research centers, 
east coast highways and railways critical to the country's 
transportation infrastructure, plus two deepwater ports. Our 
swine and poultry industries are among the nation's largest, 
and the injection of foot-and-mouth disease or avian influenza 
would have disastrous economic consequences for the national 
economy.
    I would like to see funds distributed with more regard to 
the nature of the threat and the nature of the targets. 
Although our state is next to last in funding, I cannot believe 
that we are next to last in risk.
    After the attacks of 9/11, North Carolina's legislature was 
quick to act. In November 2001, the General Assembly 
appropriated approximately $2 million and authorized our 
Governor Mike Easley to access the state's rainy-day fund to 
spend over $10 million to enhance our state's hazardous 
materials response, medical assistance, urban search and 
rescue, and health laboratory capabilities to meet the 
immediate threats as we understood them.
    We also saw immediately that food security is a major 
issue. Our state has combined the resources of state agencies, 
academia and private industry to develop a national model for 
vulnerability assessment, mitigation, response and recovery for 
all facets of food production, processing and transportation. 
We have done this thus far without any direct federal 
assistance.
    Our principal natural threats are from hurricanes and 
floods, which come with fair warning and unfold over hours and 
days. Terrorism strikes in seconds and minutes. We knew we 
needed to improve our coordination. We allocated our 2002 and 
2003 federal homeland security funds among our 100 counties, 
using a per capita formula so that a dozen or more agencies 
within each county had to come together and share information 
and cooperate to receive funds.
    With 2004 money, we allocated only half by the per capita 
formula and used a statewide competitive grant process for the 
other half. Our top priority for the competitive grants as 
determined by our State Emergency Response Commission, was 
interoperable radio communications. We had already developed a 
statewide voice interoperability plan for emergency responders, 
or VIPER for short. This system will allow all first responders 
to migrate onto a state-maintained digital 800 MHz system. The 
total cost to build the infrastructure for VIPER is estimated 
to be $188 million. That is without buying a single user device 
or radio.
    In 2005, we have become still more focused. This year, we 
are awarding all of the funds by competitive grant with an 
emphasis on multi-county regional plans. We believe that this 
is the next logical step in improving our multi-jurisdictional 
response. At least half of the 2005 money will go to 
interoperable communications projects on the VIPER system. In 
addition, Governor Mike Easley recommended biennium budget 
includes $33 million in state money to fund construction of 
network infrastructure. Even so, this is only a fraction of 
what will be needed to complete the system.
    Mr. Chairman, PLO terrorist George Habash said that 
terrorists see the world as filled with lions and sheep. Why go 
after the lions when there are so many sheep?
    I look forward to working with the members of this 
committee and Congress in the years and months to come to make 
sure that every state is the lion.
    Thank you, sir.
    [The statement of Mr. Beatty follows:]

                 Prepared Statement of Bryan E. Beatty

    Chairman King, Ranking Member Pascrell, Distinguished Members of 
the Subcommittee: thank you for the opportunity to testify today.
    Mr. Chairman: I have come to Washington to report to you on North 
Carolina's experience in administering Homeland Security Funds, and on 
how we are using those funds to improve our ability to respond to 
terrorist threats.

Terrorist risks to North Carolina
    North Carolina is the nation's eleventh largest state with a 
population of approximately eight and a half million people. To give 
you context, Georgia is 9th and New Jersey is 10th. But North Carolina 
is next to last in combined per capita homeland security funding for 
2005 according to the Congressional Research Service. The reason for 
that primarily is that we don't have a major metropolitan area. We have 
several smaller cities like Raleigh, Durham, Charlotte, Greensboro and 
Winston-Salem.
    That does not mean that North Carolina does not have terrorists who 
have lived here, and it does not mean that North Carolina lacks 
potential terrorist targets.
    As former Director of my State Bureau of Investigation I am 
familiar with many domestic terrorist threats in North Carolina dating 
back to the Oklahoma City bombing. Just last summer, an illegal Middle 
Eastern immigrant was apprehended by a Charlotte Police Officer taking 
video footage of the Bank of America headquarters. That suspect was 
recently convicted of lying to Federal Agents during their questioning.
    According to the 9/11 report, the ``principal architect'' of the al 
Qaeda attacks was Khalid Sheikh Mohammed. He came to the United States 
in 1983 and attended Chowan College near the Outer Banks of North 
Carolina. Later he transferred to North Carolina A & T University in 
Greensboro and earned a degree in Mechanical Engineering. He attended 
there with his nephew, brother to Ramzi Yousef. Al Qaeda operatives 
learned about American life while living in North Carolina.
    Three years ago a group of Middle Eastern immigrants who entered 
the country fraudulently were convicted in federal court in Charlotte 
in connection with a cigarette smuggling operation that was used to 
provide money to Hezbullah in Lebenon.
    We know that terrorists choose a variety of targets. Globally, 
terrorists have attacked military barracks in Beirut, embassies in 
Kenya and Tanzania, a ship in harbor in Yemen, hotels and banks in 
North Africa and the Middle East, and a train station in Madrid.
    I cite these examples because North Carolina is home to Fort Bragg, 
Camp Lejeune, Pope and Seymour Johnson Air Force Bases, and Cherry 
Point Marine Air Station. The City of Charlotte is the nation's second 
largest banking center. We have three nuclear power plants within 20 
miles of our largest cities, each within a population of over a half 
million people. Our state has three professional sports teams and many 
major college athletics programs. We have stadiums seating tens of 
thousands of spectators. We have chemical plants, fuel farms, and 
internationally renown research centers. East Coast highways and 
railways that are critical to the country's transportation 
infrastructure run through the state. We have two deepwater ports. Our 
swine and poultry industries are among the nation's largest, and the 
injection of foot-and-mouth disease or avian flu would have disastrous 
economic consequences for the national economy.
    I would like to see future funds distributed with more regard to 
the nature of the threat and the nature of the targets. Although we are 
next to last in funding, I cannot believe we are next to last in risk. 
So we've done the best we can with what we've got.

Uses of Federal First Responder Funds in North Carolina
    Preparing to respond to terror threats has been an ongoing 
education for all of us. North Carolina received Nunn-Lugar-Domenici 
funds for terrorism planning for Raleigh, Greensboro and Charlotte 
after 1998 and we have been considering the threats longer than that. 
But like everyone else, the urgency became far more real after 9/11 and 
the anthrax attacks which followed. As a state, Governor Easley and our 
legislature were quick to act and immediately in 2001 provided over $10 
million to enhance our state hazardous materials response, medical 
assistance, urban search and rescue and health laboratory capabilities 
to meet the immediate threats as we understood them.
    I want you also to know that in North Carolina we are acutely aware 
of food and agriculture as part of the nation's critical 
infrastructure. Our state has combined the resources of state agencies, 
academia, and industry to develop a national model for vulnerability 
assessment, mitigation, response and recovery for all facets of food 
production, processing and transportation. We have been coordinating 
closely with USDA, FDA and DHS both in developing plans and serving as 
a national pilot training site as we work to harden the food chain from 
attack.
    When federal money came in for 2002 and 2003, we faced a 
significant dilemma. North Carolina's population is fairly evenly 
dispersed into a few medium-sized cities and hundreds of small towns 
and communities. Like many states, we have a couple of thousand first 
responder agencies, including local police, sheriffs, firefighters and 
emergency medical personnel. Each has its own governance structure and 
funding mechanism. This highly fragmented system works well for daily 
response needs but is difficult to coordinate in a mass-victim, multi-
jurisdictional event. Our principal natural hazards are hurricanes and 
floods, so we normally can work through these problems because the 
event comes with fair warning and unfolds over hours and days.
    Terrorism strikes in seconds and minutes. We knew we needed to 
improve our coordination, and federal funds gave us an opportunity to 
begin. We allocated our 2002 and 2003 funding among our 100 counties as 
the smallest unit to receive grants. This meant that a dozen or more 
agencies within each county had to come together and share information 
and cooperate to receive funds. Some counties had done this for years, 
some did it for the first time. We allowed them to establish their own 
priorities for using the funds, so long as all the jurisdictions were 
included and the spending plans met the federal guidelines.
    With 2004 money we changed, and allocated only half by per capita 
formula, and used a competitive grant process to award the other half. 
Our scorers included representatives from local emergency response 
agencies across the various disciplines.
    Our top priority for the competitive grants was for interoperable 
communications. We had already developed a statewide Voice 
Interoperability Plan for Emergency Responders, or VIPER for short. 
When the grants were scored, most of the grants went to VIPER projects. 
This system will allow all local first responders to migrate onto a 
state-maintained digital 800 MHz system. We made this choice after 
lengthy consultation with local government and first responders' 
associations, and the associations agreed this should be the top 
priority for the first responder community. The total cost to build the 
infrastructure for VIPER is estimated to be $188 million.
    As you know the GAO, the 9/11 Commission and many other assessments 
note that lack of interoperable communications is one of our greatest 
weaknesses. The lack of it constrained the responses in New York, in 
Washington, and at the crash site in Pennsylvania. In North Carolina, 
building this system will allow us to coordinate and leverage our 
dispersed capabilities in a way that will be both effective, and cost-
effective.
    In 2005 we have become still more focused. This year we are 
awarding all of the funds by competitive grant with an emphasis on 
multi-county, regional plans. We believe that this is the next logical 
step in improving our multi-jurisdictional response.
    At least half of the 2005 money will all go to interoperable 
communications projects on the VIPER system. In addition, Governor Mike 
Easley's recommended budget includes $33 million in state money to fund 
construction of infrastructure for the radio network in the upcoming 
biennium. Even so, this is still only a fraction of what is needed to 
complete the system.
    PLO Terrorist George Habash said that ``terrorists see the world as 
full of lions and sheep. Why go after the lions when there are so many 
sheep.'' I look forward to working with you in the months and years to 
come to make sure that every state is a lion.

    Mr. King. Thank you, Secretary Beatty.
    Mr. Chapman?

  STATEMENT OF MICHAEL CHAPMAN, DIRECTOR, MISSOURI OFFICE OF 
                       HOMELAND SECURITY

    Mr. Chapman. Chairman Cox, Chairman King, Ranking Member 
Pascrell and distinguished members of the subcommittee, thank 
you for inviting me here today to talk about the critical issue 
of homeland security grant spending.
    I am honored to be here to relate to you the efforts of my 
Governor Matt Blunt, those that he has undertaken in Missouri 
to ensure that every single homeland security dollar the 
federal government awards Missouri is utilized to protect, 
prepare for and respond to terrorism-related emergencies in our 
state, or if need be, in neighboring states.
    On February 8, 2005, less than a month after his 
inauguration, Governor Blunt issued a memorandum to his 
department directors asking for information regarding homeland 
security grant spending. Specifically, Governor Blunt asked his 
department directors for a detailed analysis of what federal 
homeland security money the department has received and how it 
was spent. He asked for a list of grant requests that each 
department has made for federal homelands security money. He 
asked for a list of private company or any locality the 
department had partnered with to petition for federal homeland 
security grant funding. And he asked for a plan that lays out 
how the particular department might be able to utilize federal 
homeland security money better to prepare for and protect the 
public in case of future incidents.
    Governor Blunt asked for this information because of two 
specific incidents in Missouri that caused him to question the 
wisdom with which homeland security dollars had been spent by 
the previous administration. The first incident involved my 
predecessor in negotiating a contract with a company for a Web 
portal that would have in essence have provided duplicative 
communications capabilities to emergency responders. After this 
contract had been shepherded through to near completion, my 
predecessor departed state employment to work for the company. 
Governor Blunt has made very clear that even the appearance of 
impropriety in government contracting will not be tolerated in 
his administration, and this raised red flags that other 
homeland security spending ought to be examined to ensure that 
it was appropriate and that it was contributing in a meaningful 
way to the preparedness and protection of Missourians.
    The second incident was cited in the House Select Committee 
on Homeland Security's report entitled An Analysis of First 
Responder Grant Funding. It involved the purchase of 
approximately 13,000 chemical-biological protective suits, one 
for nearly every full-time law enforcement in the state. Some 
of the communities that received these suits needed them and 
are better prepared to respond to terrorist attacks because 
they have them. However, one would be hard-pressed to justify 
this spending for every full-time law enforcement officer in 
our state. Missouri has many rural areas where it was 
inappropriate for these suits to have been purchased, and it is 
clear that other equipment may have been a greater contributor 
to the safety of residents in those communities. Governor Blunt 
believes that regional solutions to responding to chemical-
biological attacks should be explored.
    My office and the state Emergency Management Agency which 
administers homeland security grant funding for Missouri are in 
the process of evaluating the reports from these various 
department directors. These reports were due on March 31 to me, 
and they are currently under review. We plan to provide an 
executive summary of our findings to the Governor this week so 
that he can make informed decisions about how to better protect 
Missourians. Initial indications are that a comprehensive 
homeland security plan to protect Missouri needs to be further 
developed, refined and enhanced so that we can adequately 
respond in the unfortunate circumstance that a response would 
indeed be necessary.
    In no way should my testimony be construed to suggest that 
Missouri is vulnerable or that the previous administration 
jeopardized our citizens's safety. The simple reality, though, 
is that Governor Blunt is certain that we can do better in 
terms of efficiency and effectively spending homeland security 
funds. Governor Blunt is committed to learning from other's 
past mistakes and taking proactive steps to ensure that my 
office and other executive departments that are part of his 
administration are appropriately utilizing these valuable 
federal resources to protect Missourians. After all, that is 
why you, the federal government, have provided us with this 
money.
    Governor Blunt has also made structural changes to the 
Office of Homeland Security in Missouri to ensure that an 
integrated and coordinated system is in place to meet 
Missouri's homeland security needs. He merged the Office of 
Homeland Security into the Department of Public Safety to 
foster collaboration and synergy between my officer and the 
various divisions within our Department of Public Safety. That 
department houses Missouri's Capitol Police, the Division of 
Alcohol and Tobacco Control, fire safety, water patrol, the 
Adjutant General of the Missouri National Guard, and the 
Emergency Management Agency.
    By having Homeland Security reside in the same department 
as these agencies, we are better able to coordinate and plan 
for the safety and security of Missourians and will be better 
able to coordinate the administration of homeland security 
grant funding that the federal government provides.
    Homeland security grant funding is a nonpartisan issue and 
something that we should be constantly reexamining to ensure 
that we are doing it correctly both at the state and federal 
levels. Missouri is in the process of doing just that, but it 
makes a great deal of sense to have hearings such as this to 
discuss what we are doing right, what we can do better, and 
where we might make changes, modifications and corrections in 
the way we partner together to provide safety and security for 
the nation as a whole and states individually.
    As I understand it, Chairman Cox's first responder bill 
directs the Secretary of Homeland Security to determine 
essential capabilities for different types of communities based 
on an analysis of critical infrastructure sectors, types of 
threat, geography, population, vulnerability, consequences and 
intelligence information regarding emerging threats, among 
other things. It is clear that standards defining threats and 
preparedness goals would assist states in preventing terrorist 
attacks. As these standards and goals are developed, though, it 
would be important to take non-traditional terrorism such as 
agro-terrorism into account.
    We have learned a great deal through the examination of 
previous homeland security grant spending by states and the 
federal government has responded based on findings from those 
studies. Its reexamination and retooling should be an ongoing 
process no matter what modifications are made to the grant 
formula, whether it be the adoption of a risk-based approach or 
some variant thereof.
    Constantly evaluating and reevaluating how best to prepare 
for, prevent, and protect against attacks is the business that 
we are in. It is not one where an approach that is adopted 
today necessarily will be the right one beyond the foreseeable 
future.
    Thank you again for inviting me to testify about this 
important issue and the steps that Governor Blunt has taken to 
ensure that we are the best stewards of the resources you give 
us. I would be happy to answer any questions you might have.
    [The statement of Mr. Chapman follows:]

                 Prepared Statement of Michael Chapman

    Chairman Cox, Chairman King, Ranking Member Pascrell and other 
members of the subcommittee. Thank you for inviting me here today to 
talk about the critical issue of Homeland Security Grant spending. I am 
honored to be here to relate to you the efforts that my governor, Matt 
Blunt, has undertaken in Missouri to ensure that every single Homeland 
Security dollar the federal government awards Missouri is utilized to 
protect, prepare for and respond to terrorism-related emergencies in 
our state, or if need be, in neighboring states.
    On February 8, 2005, less than one month after his inauguration, 
Governor Blunt issued a memorandum to his department directors asking 
for information regarding Homeland Security Grant spending. 
Specifically, Governor Blunt asked his department directors for:
         A detailed analysis of what federal homeland security 
        money that your department has received and how it was spent
         A list of grant requests that your department has made 
        for federal homeland security money
         A list of any private company or any locality your 
        department has partnered with to petition for federal homeland 
        security grant funding; and
         A plan that lays out how your particular department 
        might be able to utilize federal homeland security money to 
        better prepare for and protect the public in case of a future 
        incident
    Governor Blunt asked for this information because of two specific 
incidents in Missouri that caused him to question the wisdom with which 
Homeland Security dollars had been spent by the previous 
administration. The first incident involved my predecessor negotiating 
a contract with a company for a web portal that would have in essence 
provided duplicative communications capabilities to emergency 
responders. After this contract had been shepherded through to near 
completion, my predecessor went to work for the company. Governor Blunt 
has made very clear that even the appearance of impropriety in 
government contracting will not be tolerated in his administration and 
this ``raised flags'' that other Homeland Security spending ought to be 
examined to ensure that it was appropriate and that it contributed in a 
meaningful way to the preparedness and protection of Missourians.
    The second incident was cited in the House Select Committee on 
Homeland Security's report ``An Analysis of First Responder Grant 
Funding'' and involved the purchase of approximately 13,000 chem-bio 
warfare suits, one for nearly every full-time law enforcement officer 
in the state. Some of the communities that received these suits needed 
them and are better prepared to respond to terrorist attacks because 
they have them. However, one would be hard pressed to justify this 
spending for EVERY full-time law enforcement officer in our state. 
Missouri has many rural areas where it was inappropriate for these 
suits to have been purchased and it is clear that other equipment may 
have been a greater contributor to the safety of residents in those 
communities. Governor Blunt believes that regional solutions to 
responding to chemical-biological warfare should be explored.
    My office and the State Emergency Management Agency which 
administers Homeland Security Grant funding for Missouri are in the 
process of evaluating the reports from department directors which were 
due on March 31, 2005. We plan to provide an executive summary of our 
findings to the governor this week so that he can make informed 
decisions about how to better protect Missourians. Initial indications 
are that a comprehensive Homeland Security plan to protect Missouri 
needs to be further developed, refined and enhanced so that we can 
adequately respond in the unfortunate circumstance that a response 
would be necessary.
    In no way should my testimony be construed to suggest that Missouri 
is vulnerable or that the previous administration jeopardized our 
citizens' safety. The simple reality though is that Governor Blunt is 
certain we can do better in terms of efficiently and effectively 
spending Homeland Security funds. Governor Blunt is committed to 
learning from others' past mistakes and taking proactive steps to 
ensure that my office and the other executive departments that are part 
of his administration are appropriately utilizing these valuable 
federal resources to protect Missourians. After all that is why you, 
the federal government, provide us with this money.
    Governor Blunt has also made structural changes to the Office of 
Homeland Security in Missouri to ensure that an integrated and 
coordinated system is in place to meet Missouri's Homeland Security 
needs. He merged the Office of Homeland Security into the Department of 
Public Safety to foster collaboration and synergy between my office and 
the various divisions within the Department. Public Safety houses 
Missouri's Capitol Police, Division of Alcohol and Tobacco Control, 
Fire Safety, Highway Patrol, Water Patrol, Adjutant General and 
Emergency Management Agency. By having Homeland Security reside in the 
same department as these other agencies, I am better able to coordinate 
and plan for the safety and security of Missourians and will be better 
able to coordinate the administration of Homeland Security grant money 
that the federal government provides.
    Homeland Security grant funding is a non-partisan issue and 
something that we should be constantly reexamining to ensure that we 
are doing it correctly both at the state and federal level. Missouri is 
in the process of doing just that but it makes a great deal of sense to 
have hearings such as this one to discuss what we're doing right, what 
we can do better and where we might make changes, modifications and 
corrections in the way that we partner together to provide safety and 
security for the nation as a whole and states individually.
    As I understand it, Chairman Cox's First Responder bill directs the 
Secretary of Homeland Security to determine essential capabilities for 
different types of communities based upon an analysis of critical 
infrastructure sectors, types of threat, geography, population 
(including commuting and tourist), vulnerability, consequences, and 
intelligence information regarding emerging threats among other things. 
It is clear that standards defining threats and preparedness goals 
would assist states in preventing terrorist attacks. As these standards 
and goals are developed though, it will be important to take non-
traditional terrorism, such as agro-terrorism, into account.
    We have learned a great deal through the examination of previous 
Homeland Security grant spending by states and the federal government 
has responded based on findings from those studies. This reexamination 
and retooling should be an ongoing process no matter what modifications 
are made to the grant formula, whether it be the adoption of the risk-
based approach or some variant thereof. Constantly evaluating and 
reevaluating how best to prepare for, prevent and protect against 
attacks is the business that we are in, and it is not one where an 
approach that is adopted today necessarily will be the right one beyond 
the foreseeable future.
    Thank you again for inviting me to testify about this important 
issue and the steps Governor Blunt has taken to ensure we are the best 
stewards of the resources you give us that we can possibly be. I would 
be happy to answer any questions you might have.

    Mr. King. Thank you, Mr. Chapman.
    Mr. Miller?

  STATEMENT OF DAVID L. MILLER, ADMINISTRATOR, IOWA HOMELAND 
           SECURITY AND EMERGENCY MANAGEMENT DIVISION

    Mr. Miller. Chairman King, Chairman Cox, members of the 
committee, my name is David Miller, and I am the Administrator 
of the Iowa Division of Homeland Security and Emergency 
Management.
    In Iowa, we have been involved in antiterrorism activity 
since the first bombing of the World Trade Center and the 
bombing of the Murrah Building in Oklahoma City. Ellen Gordon, 
my predecessor, served on the Gillmore Commission. It is my 
privilege to appear before you and provide my perspective on 
the Department of Homeland Security first responder program.
    Since September 11, we have learned a great deal about our 
capabilities, our deficiencies, our needs and our goals as 
states, as regions, and as a country. This is an excellent time 
to pause and take stock of the first responder program, to 
reassess our goals and to make adjustments to the program where 
needed. Let me offer a few principles and observations.
    First, Congress must establish and fund clear national 
goals for the security of our homeland based on a comprehensive 
analysis of all safety and economic risks. The first responder 
program has served as an important jump-start for communities 
all across this country to take stock of their readiness and in 
a relatively short amount of time, make needed and measurable 
investments in their emergency preparedness.
    The original formula for funding was logical given what we 
knew at the time. Over time, however, the first responder 
program has changed measurably and our knowledge has improved 
considerably. Funding is now funneled through numerous silos 
without an effective analysis of whether that investment is 
needed or will make the country safer. Funding has become so 
diffuse that coordinated rational statewide and regional 
planning is severely hampered.
    The growth of the UASI program is a primary example. 
Without a more robust analysis of the real risk and threat 
underlying this funding, we are presumably saying that an 
attack on Indianapolis or Columbus is more likely, would cause 
more devastation, and is in greater need of additional 
resources than an intentional introduction of foot-and-mouth 
disease in our cattle herds or an attack on our cyber 
infrastructure.
    Many want to shift the entire first responder program to 
one based solely on threat-risk before that analysis has been 
completed. A threat-risk formula done today, absent a much more 
comprehensive threat assessment, is just another name for 
funneling more money to big cities because population density 
has become our shorthand for threat.
    Second, homeland security must be undertaken as a systems 
approach, with agriculture fully accounted for. In my opinion, 
the entire first responder program is geared towards preparing 
us for what happened in the past, and not for what could occur 
in the future. The program focuses on critical infrastructure, 
defined largely as things and a list of places to guard. So 
when we speak of agro-terrorism, most federal policymakers 
think we want to spend money to guard places like food 
processing plants or animal feed lots. Instead, we need an 
analysis of the weaknesses in the farm-to-fork continuum and 
the prevention of and preparation for a rapidly moving 
infectious disease in our animal population.
    With this focus on places so entrenched, there is little 
ability and little funding to prioritize coordination at the 
state level of the systems that are the foundation of our 
economy. For instance, if we were ever to have a presumptive 
positive test for foot-and-mouth disease on a hog leaving Iowa 
for slaughter in North Carolina, states and the USDA would 
quarantine those animals. Access to infected areas would be 
restricted. Entire communities would be affected. States would 
need to work in a seamless and coordinated fashion to close 
roads, inform the public and take other actions. So while one 
feedlot or soybean field surely does not and should not fit the 
definition of ``critical infrastructure,'' the hog or soybean 
industry surely would.
    The consequences of a deliberate and widespread catastrophe 
within the agriculture sector would be immense for Iowa and the 
resulting impact would be global in nature. Yet we have 
virtually ignored the risk for an agro-terrorism event in our 
first responder program. The Patriot Act makes no mention of 
agriculture and only passing reference to the need to protect 
the food supply. Few people are aware that Homeland Security 
officials were actually prohibited from spending first 
responder funding on agriculture until fiscal year 2004.
    As a result of this haphazard approach to agriculture, we 
simply do not have a clear analytical assessment of the 
vulnerabilities in our agriculture sector, nor can it be said 
that we have a national comprehensive plan in place for 
preventing or responding to widespread animal or plant 
emergencies.
    Not everything, of course, comes down to money, but 
watching how the money flows is a good indication of 
priorities. So it is instructive to note that since 9/11, 
Congress has appropriated approximately $10.8 billion to states 
and local governments for urban-focused critical infrastructure 
programs, but only $50 million, or less than 1/2 of 1 percent 
to help states detect, diagnose and respond to foreign animal 
disease outbreaks. I am positive that a thorough risk-threat 
analysis is likely to conclude that the relative risk is higher 
than 1/2 of 1 percent.
    Two years ago in Iowa, we began the Multistate Partnership 
for Security in Agriculture. The partnership is an 11-state 
consortium dedicated to addressing these critical issues in a 
systems approach to agriculture emergency response. The entire 
effort was funded from our own funds in Iowa. Then-Secretary 
Ridge understood the importance of this effort and granted the 
partnership $2 million in seed money to continue our work. With 
this funding, the partnership is in the process of coordinating 
response planning, training and exercises, as well as creating 
risk communication materials, developing interstate 
communication protocols, and addressing disease surveillance. 
We think this is the kind of collaborative interstate systems 
approach that is extremely useful and provides a model not only 
for agriculture states, but other economic sectors as well.
    Third, homeland security should not be an unfunded mandate. 
In Iowa, we have a particularly important responsibility to 
help protect the nation's food supply and farm economy. At the 
same time, we face increasing mandates from the Department of 
Homeland Security such as compliance with the national incident 
management system, the national response plan, addressing 
issues of communications interoperability that require a base 
commitment in all states if our goal is truly a national plan.
    Some have suggested Congress should cut funding to smaller 
states altogether so that we can concentrate our finite 
resources on our landmark cities, which leads us back to the 
issue of risk and threat, and the urgency we feel to 
restructure the first responder program so that it rests 
squarely on comprehensive analysis of our country's 
vulnerabilities and response capacities.
    Thank you.
    [The statement of Mr. Miller follows:]

                   Prepared Statement of David Miller

    My name is David Miller and I am the Administrator of the Iowa 
Division of Homeland Security and Emergency Management. In Iowa, we 
have been involved in anti-terrorism activities since the first bombing 
of the World Trade Center and the bombing of the Murrah building in 
Oklahoma City. Ellen Gordon, my predecessor, served on the Gilmore 
Commission. After September 11th, our homeland security and emergency 
management responsibilities were joined together and--like my 
colleagues here today--I am now responsible for coordinating the 
statewide preparedness and response plans for any type of emergency 
within Iowa's borders, whether it be a flood, infectious animal 
disease, hazardous materials spill, or terrorist attack on the Iowa 
State Fair or our cyber infrastructure.
    It is my great privilege to appear before you today to provide my 
perspective on the Department of Homeland Security's First Responder 
program and to share with you a few observations about how the program 
might be improved.
    I would like to say from the outset that I think the Congress and 
the Department of Homeland Security (DHS) have done an exceptionally 
good job of responding to the events of September 11th by recognizing 
the deficiencies in our emergency preparedness capabilities and by 
organizing a nationwide effort to make sure that we are as prepared as 
we can possibly be to prevent an attack in the future and, were an 
emergency to occur, to move quickly to protect lives and our economic 
stability. Since September 11th, we have learned a great deal about our 
capabilities, our deficiencies, our needs, and our goals--as states, as 
regions, and as a country. This is an excellent time to pause and take 
stock of the First Responder program, to reassess our goals, and to 
make adjustments to the program where needed.
    Let me offer a few principles and observations:


 Congress must establish and fund clear, national goals for the 
security of our homeland based on a comprehensive analysis of all 
safety and economic risks.

    The First Responder program has served as an important jumpstart 
for communities all across this country to take stock of their 
readiness and, in a relatively short amount of time, make needed and 
measurable investments in their emergency preparedness. Communities are 
better prepared for any emergency because of the investments that have 
been made, making this country safer for our citizens.
    The original formula was logical given what we knew at the time: 
the primary grant program, the State Homeland Security Grant Program 
(SHSGP) was distributed in two segments, one to all states equally and 
the rest based on population. Over time, however, the First Responder 
program has changed measurably and our knowledge has improved 
considerably. Funding has become so diffuse that coordinated, rational, 
statewide and regional planning is severely hampered. As is natural in 
any political process, funding is often distributed to those that cry 
the loudest, rather than those in greatest need. As a result, funding 
has been funneled through numerous silos directed at specific 
stakeholders--firefighters, police, ports, cities--without an effective 
analysis of whether that investment is needed or will make the country 
safer.
    As an example, the American Enterprise Institute in their report, 
``What Does Homeland Security Spending Buy'' documented the growth of 
the Urban Areas Security Initiative (UASI) program. What began as a 
$100 million grant to the seven highest profile, landmark cities grew 
in a matter of months to 30--and later, 80--cities at a cost of, now, 
$1.2 billion.\1\ By this funding, we are presumably saying that an 
attack on Indianapolis or Columbus is more likely, would cause more 
devastation--and is in greater need of additional resources to prepare 
for--than an intentional introduction of foot-and-mouth disease in our 
cattle herd or an attack on our cyber infrastructure. But is it true?
---------------------------------------------------------------------------
    \1\ What Does Homeland Security Spending Buy?, by Veronique de 
Rugy, American Enterprise Institute for Public Policy Research, Updated 
April 1, 2005, p. 26.
---------------------------------------------------------------------------
    Similarly, in FY05, Congress devoted $715 million to upgrading 
firefighter equipment and training, $30 million to Urban Search and 
Rescue, and $10 million for Intercity Bus Security Grants.\2\ Is this 
funding mix based on a complete assessment of our threats and risks? 
No.
---------------------------------------------------------------------------
    \2\ Department of Homeland Security Appropriations Act, 2005 
(Public Law 108-334)
---------------------------------------------------------------------------
    A careful and comprehensive analysis of threat and risks to all 
sectors, with meaningful input from industry and state and local 
responders, must be the guide for the resources we commit as a nation 
to homeland security.
    Let me just say that the level of input now allowed state and local 
responders is not adequate. Let me give you just one example. Last 
year's Intelligence Reform bill required DHS to develop a national 
strategy for transportation, including setting risk-based priorities, 
cost-effective means for addressing them and realistic deadlines for 
action. State and local transportation officials have had no input 
into--or even knowledge of--this process even though all states are 
responsible for the highways within their borders and many own and 
operate transit systems and airports.
    Many want to shift the entire First Responder program to one based 
solely on threat/risk--before that analysis has been completed. A 
threat/risk formula done today, absent a much more comprehensive threat 
assessment, is just another name for funneling more money to the big 
cities because population density has become our short-hand for threat.


 Homeland Security must be undertaken as a systems approach.

    Because the attack on September 11th was on two of our largest and 
most symbolic urban areas, it is natural for us to feel we must plan 
for a similar attack to occur again. However, in my opinion, the entire 
First Responder grant program is geared toward preparing us for what 
happened in the past, and not for what could occur in the future--and 
could be far more devastating to our nation.
    Currently program emphasis is structured around the protection of 
``critical infrastructure''. But critical infrastructure is 
consistently and persistently defined as things, a list of places to 
guard. (And, frankly, many of them don't seem that critical. In Iowa, 
the early list included a shopping mall that was yet to open and a 
water park that had closed.) So when we speak of agroterrorism, most 
federal policymakers think in terms of guarding places like food 
processing plants or animal feedlots. Instead we mean an analysis of 
the weaknesses in the ?farm to fork continuum? and the prevention of, 
and preparation for, a rapidly moving infectious disease in our animal 
population, for example, or an intentionally-introduced pathogen that 
devastates our crops.
    With this focus on places so entrenched, there is little ability--
and little funding--to prioritize the systems that are the foundation 
of our economy--cyber, energy, agriculture, transportation and others. 
And while there is growing, but relatively recent emphasis, on the 
regional or interstate cooperation needed to prevent or respond to an 
interruption or attack on these sectors, nearly no funding or guidance 
exists for those cooperative efforts.
    A large scale agricultural disease outbreak, for instance, would 
have far reaching emotional and economic effects on all aspects of our 
society, both emotional and economic. If we were ever to have a 
presumptive positive test for foot-and-mouth disease on a hog leaving 
Iowa for slaughter in North Carolina, for instance, state agriculture 
secretaries, together with the USDA and Governors of the transit and 
neighboring states, would quarantine those animals and any with which 
they may have come in contact. Access to infected areas would be 
restricted to control the spread of disease. Entire communities would 
be affected. So while one feedlot or soybean field surely does not--and 
should not--fit the definition of ``critical infrastructure'', the hog 
or soybean industry surely should.
    After all, it can be argued that if economic disruption and panic 
is what the foreign terrorists are after, an attack on our food supply, 
our power grid, or our computer or banking networks would be a far 
greater calamity. The attacks on the buildings in New York and 
Washington, D.C. affected us all. Think how much more we would be 
affected if one of the key systems under-girding our society were to 
fail.


 Agriculture must be fully integrated into our homeland security plans.

    The agriculture sector is an important focus of our homeland 
security efforts in Iowa. This industry is crucial to the economy of 
our state and the welfare of its citizenry. Additionally, Iowa provides 
food to nations throughout the world. The consequences of a deliberate 
and widespread catastrophe within the agriculture sector would be 
immense for Iowa and the resulting impact would be global in nature. 
The GAO has reported that the direct costs of an outbreak of foot-and-
mouth disease similar to what occurred in the United Kingdom could be 
as high as $24 billion with the destruction of 13 million animals. They 
also reported a USDA calculation that a foot-and-mouth disease outbreak 
could spread to 25 states in as little as five days.\3\
---------------------------------------------------------------------------
    \3\ GAO-04-259T Bioterrorism: A Threat to Agriculture and the Food 
Supply
---------------------------------------------------------------------------
    Yet we have virtually ignored the risk of an agroterrorism event in 
our First Responder program. The Patriot Act makes no mention of 
agriculture and only passing reference to the need to protect the food 
supply.\4\ Few people are aware that homeland security officials were 
actually prohibited from spending First Responder funding on 
agriculture's First Responders (state and private veterinarians and 
state agriculture departments) until Secretary Ridge stepped in to 
change that for the FY04 grant guidance.
---------------------------------------------------------------------------
    \4\ The USA Patriot Act of 2001. (Public Law 107-56)
---------------------------------------------------------------------------
    Even with the availability of new funds, inclusion of agriculture 
initiatives in state emergency response plans is voluntary and the 
small sum of funding state agriculture departments were given after 9/
11 is now gone. In addition, DHS' national plans include only an 
appendix on agriculture--and, as an aside, only occurred because Iowa 
officials were present at a meeting in Washington, D.C where the state 
assessments were being discussed. Absent these state officials' input, 
no assessment would have been undertaken of agriculture preparedness at 
the state level at all.
    As a result of this haphazard approach to agriculture, we simply do 
not have a clear, analytical assessment of the vulnerabilities in our 
agriculture sector nor can it be said that we have a national 
comprehensive plan in place for preventing or responding to a 
widespread animal or plant emergency. It is completely understandable 
to me that Secretary Thompson's parting words were, ``I, for the life 
of me, cannot understand why the terrorists have not. . .attacked our 
food supply because it is so easy to do.'' \5\
---------------------------------------------------------------------------
    \5\ The Washington Post. Friday, December 3, 2004. (http://
www.washingtonpost.com/wp-dyn/articles/A31377-2004Dec3.html)
---------------------------------------------------------------------------
    Not everything, of course, comes down to money. But watching how 
the money flows is a good indication of priorities. So it is 
instructive to note that since 9/11, Congress has appropriated 
approximately $10.8 billion to states and local governments for the 
urban-focused critical infrastructure programs,\6\ but only $50 
million--or less than one-half of one percent--to help states detect, 
diagnose and respond to a foreign animal disease outbreak.\7\ I am 
positive that a thorough risk/threat analysis is likely to conclude the 
relative risk is higher than one-half of one percent.
---------------------------------------------------------------------------
    \6\ Federal Funds Information for States.
    \7\ USDA awarded $43 million in grants to States from the FY2002 
supplemental emergency bill, included in the Department of Defense 
Appropriations Act, 2002 (Public Law 107-117). An additional $7 million 
in USDA discretionary grants were awarded in FY2003.
---------------------------------------------------------------------------
    Two years ago, the Secretary of Agriculture in Iowa, Patty Judge, 
and my predecessor, Ellen Gordon, began the Multi-State Partnership for 
Security in Agriculture. The Partnership is an eleven-state consortium 
dedicated to addressing these critical issues in a systems approach to 
agriculture emergency response. The entire effort was funded from our 
own funds in Iowa. Then-Secretary Ridge understood the importance of 
this effort and granted the Partnership $2 million in seed money to 
continue our work. With this funding the Partnership is in the process 
of coordinating response planning, training and exercises, as well as, 
creating risk communications materials, developing interstate 
communication protocols, and addressing disease surveillance. We think 
this kind of collaborative interstate, systems approach is extremely 
useful and provides a model not only for other agricultural states but 
other economic sectors as well.


 Homeland security should not be an unfunded mandate.

    In Iowa, we have a particularly important responsibility to help 
protect the nation's food supply and farm economy. But we also have a 
responsibility to the other critical systems of the national economy 
that are under our control or within our borders. One could argue, for 
instance, that it would be just as easy to mount an attack on our 
financial services sector from Iowa as it would be from Atlanta; just 
as easy to disrupt the power grid by attacking in the Midwest; and 
certainly just as easy to disrupt the food distribution system by 
introducing a foreign animal disease into a feedlot in Iowa rather than 
somewhere else. Yet our only source of federal funding to address these 
threats and risks, the State Homeland Security Grant Program, has been 
cut to fund the increasing UASI program.\8\
---------------------------------------------------------------------------
    \8\ In FY04, the State Homeland Security Grant Program (SHSGP) was 
funded at $1.7 billion. In FY05, that dropped to $1.1 billion. The 
President's FY06 budget requested $1.02 billion, with 20 percent set-
aside for the activities of the Law Enforcement Terrorism Prevention 
Grants which is proposed for elimination. In contrast, the Urban Areas 
Security Initiative did not exist as a separate stream of funding in 
FY04. In FY05, it was funded at $1.2 billion, although only $885 
million of that went directly to cities; the rest was for other related 
programs, such as Port Security. The FY06 budget request includes $1.02 
billion for UASI. It also drops the base state grant from .75 percent 
to .25 percent, further disadvantaging lower population states.
---------------------------------------------------------------------------
    Yet, at the same time, we face increasing mandates from DHS--such 
as compliance with National Incident Management System (NIMS), the 
National Response Plan (NRP) and communications interoperability 
protocols--that require a base commitment in all states if our goal is 
a truly national plan.
    Some have suggested Congress should cut funding to the smaller 
states altogether so we can concentrate our finite resources on our 
landmark cities.
    Which leads us back to the issue of risk and threat--and the 
urgency we feel to restructure the First Responder program so that it 
rests squarely on a comprehensive analysis of our country's 
vulnerabilities and response capacities.

    Mr. King. Thank you, Mr. Miller.
    Mr. Chapman, you indicated in your testimony that you have 
at least some questions or concerns about some actions that 
were taken by your predecessor. Without even getting into the 
merits of that or whatever, do you feel there was any oversight 
from the Department of Homeland Security then or now as to how 
the money is being spent? For instance, if you feel that the 
money was spent improperly, I am not even suggesting 
illegality, I am just saying if it was spent improperly or not 
for a valid purpose, do you see any oversight at all coming 
from Washington?
    Mr. Chapman. Let me qualify this by saying I have been in 
this position for 4 weeks. In my research prior to arriving and 
in the 4 weeks, it is not clear to me that there is a lot of 
oversight. That is not to say there is not any. I am just not 
aware of a whole lot of oversight.
    Mr. King. Mr. Beatty, you made a strong argument for making 
us all lions rather than sheep. Have you had a chance to look 
at Chairman Cox's bill, the Cox-Thompson bill? Do you feel it 
does move us in that direction?
    Mr. Beatty. I believe it can. When you reduce the 
guaranteed amount that goes to each state and then look at 
increasing the amount based on the threat formula, it can 
certainly be used to address the threats as they are seen. The 
question is, who is doing the analysis; what information are 
they using; and are they working together between federal, 
state and local governments to make sure we are accurately 
assessing what those threats and capabilities are.
    Mr. King. You also discussed in your testimony about how 
North Carolina, the different localities within the state were 
cooperating with each other, in fact, regional cooperation 
within the state. Do you have any thoughts on regional 
cooperation outside the state, for instance with North Carolina 
and states surrounding it, and the appropriateness of 
submitting requests from that region, rather than just from the 
individual states, or in addition to the individual states?
    Mr. Beatty. Our experience in North Carolina has been 
primarily with natural disasters, and we certainly have mutual 
aid agreements or the EMAC, Emergency Management Assistance 
Compact, where states cooperate and help each other through 
that compact. In the instance of homeland security in the 
Charlotte area, Charlotte-Mecklenberg, it is now a UASI city, 
and it has included two of the contiguous counties in South 
Carolina. Charlotte is on the border in North Carolina with 
South Carolina. It has included some counties within South 
Carolina. So where there are mutual interests, certainly 
regional cooperation without regard to state lines would be 
beneficial for all.
    Mr. King. Mr. Miller, as a member of Congress who has 
absolutely no agriculture in my district at all, I must say 
that you made a very strong and convincing case today. Have you 
had an opportunity to look at the bill as proposed by Chairman 
Cox and the extent to which you feel it addresses the issue of 
agro-terrorism and the questions that it raises regarding the 
threat from agro-terrorism?
    Mr. Miller. Mr. Chairman, I have had the opportunity to 
review the bill and I think it does have the full capability of 
addressing the threat and takes care of the threat 
vulnerability analysis. I think the question, as Mr. Beatty 
said, is a question of who conducts the threat, what tool is 
used to examine and do the assessment on agriculture. It 
clearly needs to involve a partnership between a variety of 
agriculture interests and the experts in agriculture. I think 
too often when we look at those assessments, they come down 
from folks who have little or no experience in the areas that 
they are trying to assess. It needs that full partnership. I 
believe the bill as I read it affords us that opportunity.
    Mr. King. Who do you recommend make the assessment?
    Mr. Miller. When I look at it, we look at of course the 
USDA. We look at the Secretaries of Agriculture. We look at 
producers. We look at food processors and the entire 
agricultural spectrum. When we look at the criteria that came 
out initially for critical infrastructure assessment, that came 
out from the Office of Domestic Preparedness, my question to my 
agriculture counterparts in the state was, is this the right 
criteria. You have to tell me, as agriculture experts, is this 
the right thing to look at. One of the things that we are 
concerned with is they tend to look at fixed assets, rather 
than looking at the system of agriculture and what the 
vulnerabilities were within that system.
    Mr. King. In looking at the bill, the Cox-Thompson bill in 
section 1803 where it talks about critical infrastructure 
sectors, it says the Secretary specifically shall consider 
threats of terrorism against the following critical 
infrastructure sectors in all areas of the nation, urban and 
rural. Number one is agriculture. Then further on down, number 
seven is food. So you have both agriculture and food now listed 
in the criteria, with agriculture being number one. So I would 
just say that that seems at least to begin to address some of 
the significant issues that you have raised today.
    Mr. Miller. Yes, sir. I would agree. Agriculture would be 
nice if it were number one. I thought maybe it was in 
alphabetical order, but we appreciate its placement in the 
list.
    Mr. King. You are right. There is no order of priority, but 
it is there. The Secretary cannot miss it when he looks at it. 
Maybe later on you can suggest to the Secretary that it was put 
there intentionally for you.
    [Laughter.]
    But in any event, I want to thank you for your testimony.
    The Ranking Member, who also I believe has very little 
agriculture in his district.
    Mr. Pascrell. Very little.
    You were all here for the first panel, correct?
    Mr. Miller. Yes, sir.
    Mr. Pascrell. Briefly, anything you would like to respond 
to with what was said by any of the three panelists, Mr. 
Berman, Dr. Jenkins or Dr. de Rugy? Anything struck you as not 
in your interests or you could agree with?
    Mr. Miller. I guess I have a comment, sir, if I could.
    Mr. Pascrell. Sure.
    Mr. Miller. As I listened to the discussion, a couple of 
things struck me. I have been with our agency for the last 16 
years so I have followed this through its infancy. Our 
relationship with the Office of Domestic Preparedness in the 
Department of Homeland Security has certainly improved over the 
last few years. They are doing a better job in their analysis. 
They are doing a better job in oversight. We are getting more 
guidance. The problem sometimes is how quickly that gets turned 
around and the speed of the process does not give time for 
careful analysis, often, of how we move through the program.
    The other thing that caught my interest was the testimony 
talking about the partnership between the federal, states and 
locals, and who should pay what proportionate share. It truly 
does need to be a partnership, and there needs to be investment 
there. I think locals and the states have investment, always 
maybe not so apparently, but there is investment there and it 
is how we use and leverage federal dollars that is of concern 
to me.
    I was chatting with the gentleman next to me, with Mr. 
Chapman before when there was discussion on communications 
interoperability. We know that that is a high priority in our 
state. Mr. Beatty has stated that it is high priority in his 
state. I also know that I chaired a communications task force 
in our state this last summer and we looked at communications 
interoperability as a huge issue, with Mr. Beatty's price tag 
of $180-some million.
    Then we looked at a Nebraska study, a price of $220 million 
to do communications interoperability, just communications 
interoperability across the state. That is a huge investment by 
the federal government and requires an investment by states and 
locals. That is only one issue in the war on terrorism. It is 
only one small piece, and yet that is such a significant 
investment. It leaves me wondering, do we have the fortitude to 
invest that kind of money in that kind of infrastructure to 
make us all safer and better prepared.
    Mr. Pascrell. Thank you.
    Would either of you gentlemen like to respond as well?
    Mr. Beatty. I would like to respond to one concern I had 
with a statement that was made by Ms. de Rugy, I believe her 
name is. When she talked about the biggest bang for the buck, 
and saying that prevention obviously gives you the biggest bang 
for the buck. I certainly agree that prevention is the best way 
to address terrorism, but it is sort of like saying that if we 
had enough policemen we could stop all crime and on Friday and 
Saturday nights we could close the emergency rooms and send the 
doctors home. We know that no matter how many police officers 
you have out there, there still will be those who get 
themselves into trouble.
    We know that no matter what we do from the prevention 
standpoint, we will still have the potential for an attack and 
will still need the capability to respond. So certainly while 
we want to make sure we have funding there for prevention, and 
that is one of our priorities, we do not want to retrench from 
providing that funding for the first responders in case we were 
not successful in preventing. That was one of the things that 
stood out to me.
    Mr. Pascrell. Thank you.
    I know that you have only been there a few weeks, but have 
had probably some impressions.
    Mr. Chapman. I do. I would like to echo Mr. Miller's 
comments about the balance of speed with the importance of 
having the time to do a review over how the money will actually 
be spent. I would much rather have more time to get spending 
plans in or strategies in and ensure that we were actually 
putting the money where it really belongs to get the greatest 
value for the federal investment.
    Mr. Pascrell. Mr. Beatty, what level of involvement in your 
state, what is the level of involvement with our first 
responders in order to build the mechanism, build the defense, 
a response team? In your state of North Carolina, is this a 
top-down situation, in your estimation, or is there really a 
serious attempt to build a bottom-up defense in terms of 
homeland security?
    Mr. Beatty. We would like to think it is a collaboration 
between state and local officials. We have a State Emergency 
Response Commission which is comprised of members of state 
agencies that are responsible for public health and safety, as 
well as representatives from local agencies, the sheriff's 
association, police chiefs, fire chiefs, emergency medical, 
emergency management. We look at all the issues related to our 
preparedness and we worked together and we put together a state 
strategy and a state plan on homeland security. We try to work 
together.
    Again, our experience is primarily in the area of preparing 
for natural disasters. We have had plenty of experience with 
that, and we realize that the first response to any event is a 
local response. So we try to make sure that there is the 
capability at the local level so that they can respond 
initially, and then we come in from a regional standpoint as 
well as from the state, and then of course federal, 
particularly when we have major hurricanes. So it is building 
upon the local capacity is our philosophy.
    Mr. Pascrell. Thank you, Mr. Chairman.
    Mr. King. The gentleman from North Carolina.
    Mr. Etheridge. Thank you, Mr. Chairman.
    Secretary Beatty and Mr. Miller, both your states have 
substantial livestock investments. My question is, can you 
quantify the current risk to that industry? If so, how do you 
do it and what plans do you have that are currently in place to 
respond to that risk? And if not a plan, then what do we need 
to be doing to make sure? I know North Carolina did a trial run 
that, Mr. Secretary, you were involved in, as I was, a couple 
of years ago. Would you two care to comment on that?
    Mr. Beatty. Representative Etheridge, you are very familiar 
with what we are doing in our state, but for those from other 
states, we did have a foot-and-mouth disease scare just before 
9/11. We realized at that time that we did not have the 
capabilities and response capabilities, lab capabilities that 
we need to be able to monitor, detect, certainly prevent if we 
could, but respond to contain an outbreak in North Carolina. 
That is the reason our Department of Agriculture has worked 
together with other state agencies, the private industry as 
well as federal agencies, to try to put together a model plan 
for being able to assess the vulnerabilities, mitigate against 
those, and respond and recover from all facets of our food 
production, right on from, as we say, from farm to fork. We 
have a plan to do that. We simply need a little funding to help 
carry that out, and we can serve as a national model.
    Mr. Etheridge. Mr. Miller?
    Mr. Miller. In Iowa, we have addressed things the same way. 
On the assessment side, I think one of the most difficult sides 
is to assess the clear threat. We have worked to assess the 
threat to agriculture overall, not just looking at the threat 
of terrorism, but understanding that a threat to agriculture, 
whether foot-and-mouth disease or a foreign animal disease was 
naturally introduced or was introduced by a terrorist. In many 
cases in how we respond, as you said earlier, Congressman 
Etheridge, is irrelevant, that it is the same response.
    We have been working with our Secretary of Agriculture and 
with the partner states around us to develop a plan about how 
we do agriculture and how we would address those issues. We, 
too, had a foreign animal disease exercise a couple of years 
ago. We found we were sorely equipped to address the issues and 
were quickly overwhelmed if we would have had a positive case 
of foot-and-mouth disease in the state. Since that time, we 
have been looking at those issues, how we would build our team. 
We are looking at establishing veterinary and rapid response 
teams in a partnership between state vets and private 
veterinarians. We are looking to improve the communication 
coordination with the county extension services. We have an 
active involvement between the agriculture folks and frankly 
the law enforcement and other emergency responders so each 
knows the role that they would play in an agriculture disaster.
    I am also very cognizant of the fact that while we were 
doing those things about an outbreak in the state and were 
looking at that agriculture plan and enhancing that, I am as 
concerned with an outbreak that should occur in another state 
and the impact it could have on our state and how we would 
appropriately respond to those issues. As far as I am 
concerned, we have not adequately addressed those yet, but it 
is the area that we are working on.
    Mr. Etheridge. Mr. Chairman, while Secretary Beatty is 
still here, in the exercise we did in North Carolina, it was 
really put on by the federal government. It was a joint 
exercise of all the first responders in North Carolina. All of 
them were available. I think the frightening thing of that from 
agro-terrorism, whether it was an accident or it was 
intentional, it would have shut down the food chain in this 
country in less than 30 days, all across America, because of 
the movement of animals from one state, whether it be Missouri, 
Iowa or otherwise. That is a frightening thing.
    I think the fact that we have in this piece of legislation, 
that I happen to be an original cosponsor as well, it allows us 
the tools to respond to that. Hopefully, it will never happen, 
but the days of animal confinements on one small farm plot, 
even like we have in Europe, are gone. Animals move several 
times before they move to market. I think a lot of our friends 
in the city do not realize that. You think of piglets and 
operations for hogs or cows or whatever--.
    Mr. King. Is there a particular reason why you are looking 
at me and Mr. Pascrell?
    [Laughter.]
    Mr. Etheridge. I was really looking at Mr. Pascrell.
    [Laughter.]
    Seriously, Mr. Chairman, the truth is I think folks do not 
realize that our food and animals move so many times before 
they get to market, and the potential for contamination is much 
higher today than it was 10 or 15 years ago. I think it 
requires from us a joint effort, federal, state and local, of 
being able to address these issues in a way we have never had 
to address them before.
    I thank our panelists for being here and for their 
comments.
    Thank you, Mr. Chairman. I yield back.
    Mr. King. Thank you, Mr. Etheridge.
    I just really have one final question, I guess about as 
philosophical as I can get, but an overview question. We are 
now 3 1/2 years since September 11, with states considerably 
distant from New York and the Pentagon. Do you feel that the 
people living in your states still feel the threat or the 
importance of the war against terrorism? Do you feel that you 
will continue to get support within your states for this 
effort? Homeland Security can only do so much. Do you feel that 
you continue to get the cooperative effort from your local 
municipalities, for instance? Do they continue to appreciate 
it?
    Because even in New York, where I am from, people are 
starting to lose sight of how bad it was. I am just wondering 
in your states if that feeling was still there, and the 
willingness to cooperate with the federal government and also 
to work within your own states.
    Mr. Beatty. Mr. Chairman, it is a delicate balance, 
obviously, we have to strike between making sure that people 
are properly prepared and aware and causing them to be overly 
anxious or panic. We try to strike that balance. I know 
certainly those who are responsible for public safety take this 
very seriously, and I know you are aware of that, and keeping 
citizens informed of the kinds of things they need to know to 
be prepared is the greatest challenge. We continue to try to 
work toward that. But as was said earlier, even though we are 
far away from New York City, we are only as strong as a nation 
as our weakest link, and right now we know from past experience 
that there are Al- Qa`ida operatives looking for our weakest 
link.
    Mr. King. Mr. Chapman?
    Mr. Chapman. I would say in Missouri that the state 
agencies, local governments, take seriously the threat. I am 
confident that many of our citizens look at the issue as, well, 
we are not on one of the coasts, so what is the threat for us. 
In fact, I had a journalist use those words the other day with 
me. My point is very much along the lines of Mr. Beatty's, 
which is that if you provide a soft target, that is where you 
will be attacked. I would like to create a hostile environment 
toward potential terrorist attacks in Missouri. If I was a 
terrorist and I was looking for a place to do some major 
destruction, I would look for a very soft target.
    Mr. King. Mr. Miller?
    Mr. Miller. I agree. It is a delicate balance. I go out 
often and speak to a lot of small groups in our state, local 
service clubs, citizens groups, and try to put terrorism in a 
perspective that they can understand. Clearly, the threat of an 
Al-Qa`ida-type event in our state, I do not know if that threat 
is there. Everything I have seen and the data that has been 
shared with us is that we should not suspect a high incidence 
of occurrence of an Al-Qa`ida attack. But at the same time, 
when I look at the attack on the Murrah Building and other 
things that have happened in the Midwest, it tends to put it in 
perspective for local folks and they understand that there is a 
threat there.
    When we also explain the kind of infrastructure that we 
have in the state that could be the subject of a foreign 
terrorism threat, the nuclear power plants that sit on each of 
our borders and one near Cedar Rapids, the interstate 
transportation of goods and services throughout the state, the 
transportation of goods and services on the Mississippi and the 
Missouri River, it begins to take another focus for them. Part 
of it is an education of what is within the state, what can 
happen within the state, what transpires and goes through the 
state, and also an examination of the local threat that we can 
get domestically.
    Mr. King. Thank you.
    Bill, do you have anything further?
    Mr. Pascrell. Mr. Chairman, thank you, a great job. I think 
that the last question that the Chairman asked is a very 
critical question. If you asked me the question, I would say 
what I have concluded in the past year is that we do not 
believe we are at war, and this has a lot to do with 
preparedness. This has a lot to do with how much ingenuity we 
are willing to spend and use in getting the job done to protect 
our citizenry.
    Yesterday, I was on a panel with former FBI Agent Paul 
Williams. I was kind of struck by what he said, and he knows 
what he is talking about, on the number of nuclear weapons that 
he thinks are already in this country in the hands of our 
enemy, in this country.
    So we are not talking about something farfetched. We are 
not talking about a sci-fi movie. We are not talking about 
reality TV. We are talking some serious business. And those 
folks on the frontlines, our first responders, need to know 
that we are supportive not only in terms of the money we can 
get down to the local level, but they must know that we sense 
the danger. We will not panic. We will be level-headed and we 
will make the right decisions to protect our kids and our 
grandchildren.
    This is serious business, and I thank you for being here 
today.
    Mr. King. Let me join with Bill and thank all of you for 
your testimony. It was really very enlightening. I do believe 
it goes right to the heart of the bill, that the money should 
be spent on a risk basis. Obviously, you have shown me the 
definite risk that certainly exists in your states. So I thank 
you. And not just in your states, but in the nation. You made 
that point very well.
    So I want to thank you for your testimony today. Thank you 
for your time, and also thank you for your patience. Thank you 
very much.
    [Whereupon, at 4:28 p.m., the subcommittee was adjourned.]

                                 
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