[Senate Hearing 109-]
[From the U.S. Government Publishing Office]



 
  DEPARTMENTS OF TRANSPORTATION, TREASURY, THE JUDICIARY, HOUSING AND 
URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 
                                  2006

                              ----------                              


                        TUESDAY, APRIL 26, 2005

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:34 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Murray, Byrd, and Dorgan.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF JOHN W. SNOW, SECRETARY

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. Good morning. The Senate Appropriations 
Subcommittee on Transportation, Treasury, the Judiciary, HUD, 
and Related Agencies will come to order. Thus far, this new 
subcommittee has met to discuss the fiscal year 2006 budgets of 
the Departments of Transportation and Housing and Urban 
Development, as well as the IRS.
    This morning we meet to discuss budgetary and policy 
matters related to the third and final Department under the 
subcommittee's jurisdiction, the Department of the Treasury. 
I'm pleased to welcome Secretary John Snow before this 
subcommittee and look forward to hearing your perspective on 
the accomplishments and challenges facing one of the Nation's 
oldest Cabinet Departments.
    The President has set out an ambitious economic agenda for 
his second term, including reforming the Social Security 
system, overhauling the tax code, and halving the deficit. The 
Treasury needs to take charge of all these issues. In 
particular, Secretary Snow, you have a very important and high 
profile leadership role in promoting and explaining the 
administration's Social Security reform plan to the Nation.
    I think we all agree that reform of Social Security is 
critical to the future economic well-being of our Nation. 
Nevertheless, while I understand your involvement with the 60 
stops in 60 days tour, I'm concerned that taking a criss-
crossing tour of the country while most senior level positions 
in the Treasury are vacant has left a void of leadership at the 
Department.
    This may not only undermine effective management of the 
Department, it also diminishes the role of the Treasury in 
formulating policy and stewardship of economic and financial 
systems. Furthermore, Treasury is often left without a notable 
representative during interagency meetings, thereby risking 
losing its core responsibilities and authorities to other 
agencies.
    The list of vacant positions reads like a social register 
of Federal economic policy. It includes a Deputy Secretary, two 
Under Secretaries, six Assistant Secretaries, and a number of 
other key positions. More than one-third of Treasury's main 
jobs are either vacant or filled by acting appointees. I am 
especially discouraged that in most cases, to our knowledge, no 
potential nominee is even in the pipeline. Someday there could 
be a financial crisis that requires Treasury's immediate 
expertise, and right now I'm not sure who would answer the 
call.
    You've got a lot of fish to fry, Mr. Secretary, and I know 
you can fry those fish well. But when you're cooking that many 
fish, you've got to have some help. And I hope that we can do 
more than just cross our fingers that you won't be called on to 
be in three places at once without the Deputy and the Under 
Secretaries and Assistant Secretaries.
    At its peak, the Treasury was the second largest law 
enforcement Department of the Federal Government. But since the 
Homeland Security Act, most of Treasury's law enforcement 
bureaus and capabilities have been transferred. Now, as 
Treasury reestablishes its enforcement capabilities and 
reasserts its proper role as the leader of government's efforts 
to fight terrorist financing, I'm troubled by the 
implementation of the statute establishing the Office of 
Terrorism and Financial Intelligence, or TFI, and the 
realignment of resources from Office of Foreign Assets Control 
to TFI, and more specifically, to the Office of Intelligence 
and Analysis, OIA, within TFI.
    The principal reason Congress established TFI is to assure 
aggressive policy formulation, planning, and coordination over 
the Treasury's efforts to thwart terrorist financing, and 
enforcement of money laundering and other financial crimes. It 
appears that the office is becoming instead an operational unit 
at Treasury that replicates the capabilities of the Financial 
Crimes Enforcement Network Bureau, or FinCEN, and OFAC.
    The decision to transfer 23 analysts from OFAC's foreign 
terrorist division to OIA, which will assume responsibility for 
that function, is evidence of the desire to form TFI into an 
operational unit. I think that's a questionable move. It's 
wasteful to reproduce capabilities that already exist, and it 
perhaps weakens the enforcement of the Nation's economic 
sanctions program and the Bank Secrecy Act, the very foundation 
of Treasury's efforts to counter terrorism financing.
    More important, the Congress established the Office of 
Intelligence and Analysis at Treasury to empower the Department 
to be the leader of the Federal Government's effort in 
combating terrorist financing. At a time when Treasury needs to 
take bold actions, Treasury instead has not yet submitted a 
nominee to lead the office and has staffed the office with 
detailees, has failed to build a unique, organic intelligence 
capability, and has been mired in internal resource 
realignments. I don't believe that's acceptable.
    Another major area of concern for me is information 
security. It was really disturbing to read a recent report 
issued by the GAO that found that the lack of major security 
controls jeopardized the taxpayer and law enforcement data 
collected and processed by two Treasury bureaus: IRS and 
FinCEN. GAO's April 15 report, titled ``Information Security: 
Internal Revenue Service Needs to Remedy Serious Weaknesses 
Over Taxpayer and Bank Secrecy Act Data,'' found that sensitive 
taxpayer and law enforcement data is at risk of unauthorized 
use, possibly without detection.
    While IRS has made some progress in correcting 32 of 53 
previously reported information security weaknesses, GAO 
identified 30 new weaknesses. To me, it sounds like while locks 
were being installed on the front door, the windows and the 
back door were left open. And with some 7,400 possible users 
with access to the data, I believe the risk is extremely high 
and is potentially disastrous.
    With the recent media stories on identify theft and 
breaches of personal information by private data collection 
agencies, the Department must make information security a 
priority immediately. I urge you, Mr. Secretary, to personally 
oversee this area because of the extreme consequences of the 
problem. Our ability to collect taxes and fight terrorism and 
crime are jeopardized by the lack of security controls.
    What bothers me most is that IRS and FinCEN data may 
already have been compromised, and are being used or plan to be 
used for criminal use, and we may not even know the information 
has been misappropriated. I hope it's not too late and you can 
provide me and the committee your personal commitment that you 
will resolve this issue quickly.
    Last year, this committee added $5 million for FinCEN to 
develop the first phase of its BSA Direct project, an IT system 
that will enable FinCEN to become the repository for Bank 
Secrecy Act data. Considering the risk of unauthorized 
disclosure, modification, or destruction of the data stored at 
the Detroit Computing Center, as noted by GAO and years of 
audit work by TIGTA, I hope you'll give us your commitment to 
this project and we'll charge FinCEN rather than the IRS with 
collecting and storing Bank Secrecy Act data. This would 
streamline administration of the Bank Secrecy Act at FinCEN, 
thereby making one bureau at Treasury clearly responsible and 
accountable to you for enforcement of the Act.
    Mr. Secretary, let me also raise concerns with the 2006 
budget request. The administration is proposing to eliminate 
the Community Development Financial Institutions program, CDFI, 
and the Bank Enterprise Act, which were funded at $31.4 million 
and $11.4 million respectively in 2005. These programs, in my 
view, in my experience in other committees, have been very 
important in expanding the availability of financial services 
in rural and urban areas that are underserved by financial 
institutions.
    Instead, the administration is proposing that both programs 
be eligible for funding through the Strengthening America's 
Communities initiative, an administration-proposed block grant 
program that is designed to be administered by the Commerce 
Department. Both programs work very well, but more importantly, 
it's hard to envision any State or community awarding scarce 
block grant funds to financial institutions, no matter how well 
they serve financially underserved areas.
    As I've stated in other hearings, I just do not believe 
that that transfer of these important programs to the new block 
grant makes any sense.
    Another bad idea is the budget request to establish new 
user fees of $28 million at the Alcohol and Tobacco Tax and 
Trade Bureau. I appreciate that, unlike other areas of the 
budget request, these proposed user fees do not dig funding 
holes for the subcommittee, and that the budget includes 
funding to cover any shortfall in the revenue from these fees. 
I am imposed--I am opposed nevertheless to the proposed fees, 
because they disproportionately impact small businesses, 
especially those involved in the legal distribution of alcohol 
and tobacco products.
    Congress just suspended collection of the special 
occupational tax for alcohol and tobacco because of its burden 
on small businesses. And I believe it would be ill-advised and 
ill-timed to levy another tax through this user fee proposal on 
the same small businesses. I understand that these user fees 
have been proposed previously, but have been killed within the 
administration. I think that was a good idea, and I would not 
be at all surprised if these user fees meet the same fate in 
Congress this year.
    Finally, I have concerns about the IRS Business Systems 
Modernization (BSM) program, which I discussed previously with 
the IRS Commissioner. Replacement of antiquated computer 
systems to perform basic tax administration is critical for 
improving the level of service that taxpayers justifiably 
expect, and for closing the tax gap.
    Sadly, virtually every procurement activity in BSM is 
behind schedule, over budget, and when the contractor provides 
software and hardware to the IRS, it does not meet the 
performance requirements. After spending nearly $2 billion, the 
IRS will be able to process the most basic 1040-EZ returns 
during this tax filing season. There are few calculations on 
the 1040-EZ form, and the IRS and the contractor are a long way 
from being able to process complex returns and schedules filed 
by most Americans.
    I am curious to hear your views, Mr. Secretary, as someone 
who's had a career in the private sector, on whether the IRS 
and American taxpayers have received our money's worth on BSM.
    In closing, as I've highlighted, there are some serious 
issues that need your immediate and full attention. I have the 
greatest faith in you personally, Mr. Secretary, with your 
intelligence, capability, and aggressiveness. I look forward to 
working with you. However, neither you nor I nor the Congress 
can do all this by ourselves, because of the scope and 
complexity of the problems.
    I strongly urge you to get your senior positions filled in 
the Department. Otherwise, it's going to be very difficult for 
you to ensure accountability and oversight of the Department. 
Until you do so, it will be difficult at best to assure me, 
this committee, and the public that the Treasury is performing 
its responsibilities and protecting its citizens.

                           PREPARED STATEMENT

    I thank you for your appearance and look forward to working 
with you on these very challenging issues. And I now turn to my 
ranking member, Senator Murray, for her opening statement.
    [The statement follows:]
           Prepared Statement of Senator Christopher S. Bond
    Good morning, the Senate Appropriations Subcommittee on 
Transportation, Treasury, the Judiciary, HUD, and Related Agencies will 
come to order. Thus far this new subcommittee has met to discuss the 
fiscal year 2006 budgets of the Department of Transportation and the 
Department of Housing and Urban Development. This morning we meet to 
discuss budgetary and policy matters related to the third and final 
department under the subcommittee's jurisdiction, the Department of the 
Treasury. I am pleased to welcome Secretary John Snow before the 
subcommittee and look forward to hearing your perspective on the 
accomplishments and the challenges facing one of the Nation's oldest 
cabinet departments.
    The President has set out an ambitious economic agenda for his 
second term, including reforming the Social Security system, 
overhauling the tax code, and halving the deficit. The Treasury needs 
to take charge of all these issues. In particular, Secretary Snow, you 
have a very important and high-profile leadership role in promoting and 
explaining the administration's Social Security reform plan to the 
Nation. And I think we all agree that the reform of Social Security is 
critical to the future economic well-being of our Nation.
    Nevertheless, while I do not object to your involvement with the 
``60 Stops in 60 Days Tour,'' I am concerned that taking a 
crisscrossing tour of the country while most senior-level positions at 
the Treasury are vacant has left a void of leadership at the 
Department. This not only undermines effective management of the 
Department, it also diminishes the role of the Treasury in formulating 
policy and stewardship of economic and financial systems. Furthermore, 
Treasury is often left without a notable representative during 
interagency meetings, thereby risking losing its core responsibilities 
and authorities to other agencies. The list of vacant positions reads 
like a social register of Federal economic policy and includes the 
Deputy Secretary, two undersecretaries, six assistant secretaries, and 
a number of other key positions. More than one-third of Treasury's main 
jobs are either vacant or filled by acting appointees. I am especially 
discouraged that, in most cases, no potential nominee is even in the 
pipeline. Some day there could be a financial crisis that requires 
Treasury's immediate expertise, and right now, I'm not sure who would 
answer the call--we should do more than just cross our fingers.
    At its peak, the Treasury was the second-largest law enforcement 
department of the Federal Government. Since the Homeland Security Act 
of 2002, most of Treasury's law enforcement bureaus and capabilities 
were transferred. Now, as Treasury reestablishes its enforcement 
capabilities and reasserts its proper role as the leader of 
government's efforts to fight terrorist financing, I am troubled by the 
implementation of the statute establishing the Office of Terrorism and 
Financial Intelligence (TFI) and by the realignment of resources from 
Office of Foreign Assets Control to TFI and, more specifically, to the 
Office of Intelligence and Analysis (OIA) within TFI.
    The principle reason that Congress established TFI is to ensure 
aggressive policy formulation, planning, and coordination over the 
Treasury's efforts to thwart terrorist financing and enforcement of 
anti-money laundering and other financial crimes. It appears that the 
office is becoming instead an operational unit at Treasury that 
replicates the capabilities of the Financial Crimes Enforcement Network 
Bureau or ``FinCEN'' and OFAC. The decision to transfer 23 analysts 
from OFAC's foreign terrorist division to OIA, which will assume 
responsibility for that function, is evidence of the desire to form TFI 
into an operational unit. This is a highly questionable move. It is 
wasteful to reproduce capabilities that already exist, and it weakens 
the enforcement of the Nation's economic sanctions programs and the 
Bank Secrecy Act--the very foundation of Treasury's efforts to counter 
terrorists' financing. More importantly, the Congress established the 
Office of Intelligence and Analysis at Treasury to empower the 
Department to be the leader of the Federal Government's efforts in 
combating terrorist financing. At a time when Treasury needs to take 
bold actions, Treasury instead has not yet submitted a nominee to lead 
the office, has staffed the office with detailees, has failed to build 
a unique organic intelligence capability, and has been mired in 
internal resource realignments. Mr. Secretary, this is simply 
unacceptable.
    Another major area of concern for me is information security. I was 
extremely disturbed to read a recent report issued by the Government 
Accountability Office that found that the lack of major security 
controls jeopardized taxpayer and law enforcement data collected and 
processed by two Treasury bureaus--the IRS and FinCEN. GAO's April 15, 
2005 report titled ``Information Security: Internal Revenue Service 
Needs to Remedy Serious Weaknesses over Taxpayer and Bank Secrecy Act 
Data'' found that sensitive taxpayer and law enforcement data is at 
risk of unauthorized use--possibly without detection. While IRS has 
made some progress in correcting 32 of 53 previously reported 
information security weaknesses, GAO identified 39 new weaknesses. To 
me, it sounds like while locks were being installed on the front door, 
your windows and back door were open. And with some 7,400 possible 
users with access to these data, I believe the risk is extremely high 
and potentially disastrous.
    With the recent media stories on identity theft and breaches of 
personal information by private data collection agencies, the 
Department must make information security a priority immediately. I 
strongly urge you, Mr. Secretary, to oversee personally this area 
because of the extreme consequences of this problem. Our ability to 
collect taxes and fight terrorism and crime are jeopardized by the lack 
of security controls. What bothers me the most is that IRS and FinCEN 
data may already have been compromised and are being used or planned to 
be used for criminal use, and you may not even know the information has 
been misappropriated. I hope it is not too late and you can provide me 
and this committee your personal commitment that you will quickly 
resolve this serious issue.
    Last year, this committee added $5 million for FinCEN to develop 
the first phase of its ``BSA Direct'' project, an IT system that will 
enable FinCEN to become the repository for Bank Secrecy Act data. 
Considering the risk of unauthorized disclosure, modification, or 
destruction of the data stored at the Detroit Computing Center as noted 
by the GAO and years of audit work by TIGTA, I hope you will give us 
your commitment to this project and will charge FinCEN, rather than the 
IRS, with collecting and storing Bank Secrecy Act data. This would 
streamline administration of the Bank Secrecy Act at FinCEN, thereby 
making one bureau at Treasury clearly responsible and accountable to 
you for enforcement of that Act.
    Mr. Secretary, let me also raise several concerns with the fiscal 
year 2006 budget request. The administration is proposing to eliminate 
the Community Development Financial Institutions program and the Bank 
Enterprise Act program which were funded at $31.4 million and $11.4 
million in fiscal year 2005, respectively. These programs have been 
very important in expanding the availability of financial services in 
rural and urban areas that are underserved by financial institutions. 
Instead, the administration is proposing that both programs be eligible 
for funding through the Strengthening America's Communities initiative, 
an administration proposed block grant program that is designed to be 
administered by the Department of Commerce. Both programs work very 
well, but, more importantly, it is hard to envision any State or 
community awarding scarce block grant funds to financial institutions, 
no matter how well they serve financially underserved areas.
    Another bad idea in the budget request is the proposal to establish 
new user fees at the Alcohol and Tobacco Tax and Trade Bureau. I 
appreciate that, unlike other areas of the budget request, these 
proposed user fees do not dig funding holes for the subcommittee and 
that the budget includes funding to cover any shortfall in revenue from 
these fees. I am opposed, nevertheless, to the proposed user fees 
because they disproportionately impact small businesses, especially 
those involved in the legal distribution of alcohol and tobacco 
products. Congress just suspended collection of the Special 
Occupational Tax for alcohol and tobacco because of its burden on small 
businesses, and I believe it would be ill-advised and ill-timed to levy 
another tax through this user fee proposal on the same small 
businesses.
    I understand that these user fees been proposed previously, but 
have been killed within the administration. I would not be at all 
surprised if these user fees met the same fate in Congress this year.
    Finally, I raise concerns with the IRS's Business Systems 
Modernization program, which I discussed in great detail with the IRS 
Commissioner earlier this year. Replacement of the antiquated computer 
systems to perform basic tax administration is critical for improving 
the level of service that taxpayers justifiably expect and for closing 
the tax gap. Sadly, virtually every procurement activity in BSM is 
behind schedule, over budget, and when the contractor provides software 
and hardware to the IRS, it does not meet the performance requirements. 
After spending nearly $2 billion, the IRS will be able to process the 
most basic 1040 EZ returns during this tax filing season. There are few 
calculations on the 1040 EZ form and the IRS and the contractor are is 
long way from being able to process the complex returns and schedules 
filed my most Americans.
    Mr. Secretary, I am curious to hear your views, as Secretary and as 
someone who had a career in the private sector, on whether the IRS and 
American taxpayer has gotten its money's worth on BSM.
    In closing, as I have highlighted, there are some serious issues 
that need your immediate and full attention. I have faith in you 
personally, Mr. Secretary. You are smart, capable and aggressive. I 
also look forward to working with you. However, neither you nor I nor 
the Congress can do all this by ourselves. Because of the scope and 
complexity of these problems, I strongly urge you to get your 
Department's senior positions filled. Otherwise, it will be difficult, 
if not impossible, for you to ensure accountability and oversight of 
the Department. Until you do so, it will be difficult at best to assure 
me, this committee, and the public that the Treasury is performing its 
responsibilities in protecting its citizens.
    Thank you. I look forward to working with you on these very 
challenging issues and I now turn to my ranking member, Senator Murray, 
for her opening statement.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Thank you very much, Mr. Chairman. 
Secretary Snow, welcome back to the subcommittee.
    Secretary Snow. Thank you.
    Senator Murray. Since your last appearance, we've expanded 
our jurisdiction just a bit on this subcommittee. But I want 
you to know that your Department does remain a priority and an 
area of deep concern.
    I know you have been traveling around the country trying to 
drum up support for the President's effort to privatize Social 
Security, and, to me, breaking the promise of Social Security 
and putting millions of Americans at risk is wrong. I know that 
you and I are not going to reach agreement on that today. But I 
think we can both agree that this national conversation has 
shown many Americans just how important Social Security is.
    Today, more Americans understand how important Social 
Security's guaranteed benefit is. More Americans know that 
Social Security helps not just the retired, but provides 
critical income for the disabled, for widows, and surviving 
children. And I think more Americans appreciate the stability 
and certainty of their Social Security checks as we've seen the 
stock market rise and fall like a roller coaster lately.
    While I know we will have a chance to talk about Social 
Security and issues like the health of our economy and the 
strength of the dollar, I want to make sure that this 
subcommittee attends to its central responsibility, reviewing 
the President's budget for your Department and reviewing how 
your Department has spent the money Congress has appropriated.
    So today I want to discuss what's in this budget, including 
the new initiatives the Secretary wants to launch, and I also 
want to talk about what's not in this budget, the things the 
Secretary wants to terminate and the user fees the 
administration wants to impose on American families and small 
businesses. I especially want to discuss the Department's 
continuing problems in managing major procurements.
    While it comes to addressing the agency's physical and IT 
infrastructure, it's clear that Treasury needs to do a better 
job in how it spends the dollars it collects from taxpayers.
    Let me start with what is in this budget request. The 
administration is requesting a boost of more than $446 million 
for tax law enforcement activities. However, this boost will 
not signal a new historic high in IRS enforcement activities, 
far from it. As the IRS Commissioner told this subcommittee 
recently, the agency's enforcement efforts have been allowed to 
wane in the last few years. I'm encouraged that the agency now 
wants to reverse that trend, and since the IRS fails to collect 
between $250 billion and $330 billion each year from tax 
cheats, I would say that this reversal could not happen soon 
enough.
    While the agency is finally addressing something it's 
allowed to languish for years, the way it's addressing it does 
trouble me. The administration wants to pay for more 
enforcement by cutting direct service to taxpayers. The 
President's budget would cut services that are essential in 
helping citizens comply with our tax laws.
    For example, your budget proposal would: close as many as 
one out of every four taxpayer assistance centers across the 
country; eliminate phone tax filing, which is used by more than 
5 million individuals and businesses each year; shorten the 
number of phone hours that IRS personnel are available to 
answer taxpayers' questions; discontinue tax law assistance 
through the Internet; and cut outreach efforts to high-risk 
taxpayer groups.
    I don't believe these cuts are merited if they will only 
heighten confusion and hassle for taxpayers, and perhaps even 
make the compliance problem worse.
    Unfortunately, funding for these basic taxpayer service 
functions is not the only thing missing from this budget. I am 
very concerned about the Secretary's proposals to eliminate 
funding for many essential functions in the Alcohol and Tobacco 
Tax and Trade Bureau. Instead of continuing to provide 
appropriated funding, the Secretary would impose new taxes on 
industry to pay for these functions.
    Let me give you one example of great importance to families 
in my home State. Over the past few years, the people in 
Washington State have built a world-renowned wine industry 
through hard work, research, and creativity. These vineyards 
are providing jobs for communities that have struggled. They're 
bringing tourists to many parts of my state and they're helping 
our economy.
    Over the past decade, wine has become a $2.4 billion 
industry in my State. Production has doubled, and now wine 
grapes are the State's fourth-largest fruit crop. Today there 
are more than 300 wineries in my State, nearly double the 
number in 2000, and Washington's wine industry supports more 
than 11,000 related jobs. Mr. Chairman, I'd love to have you 
come and visit sometime.
    Senator Bond. If you want to visit the Missouri wineries, 
we'll make a----
    Senator Murray. Deal.
    Road trip. Many of our wine producers are small, family-run 
vineyards, and they should be encouraged and supported for the 
progress they've built with their own hands. Instead, this 
administration wants to hit them with more taxes in the form of 
new user fees.
    Mr. Secretary, I can tell you that your proposal to fund 
the Alcohol and Tobacco Tax and Trade Bureau with user fees is 
going to impose a tremendous hardship on our small family-owned 
vineyards. Forcing vineyards to pay a fee just to get their 
labels approved will hurt new entrants into this promising 
market. We should be encouraging their success instead of 
putting more barriers to their viability. This proposal is 
especially puzzling coming from an administration that claims 
to encourage entrepreneurship and reduced tax burdens.
    Finally, Mr. Secretary, I want to raise my concerns 
regarding the Treasury Department's deeply troubled record in 
handling major procurements, especially IT services. We receive 
a continuing stream of reports from the GAO and the Inspector 
General regarding projects that are way behind schedule, cost 
more than they should, or are not adequately secure.
    The Treasury Department has finally established its new 
human resource information system known as HR Connect. That 
system cost taxpayers $173 million. A similar system at the 
Coast Guard cost one-seventh of that amount. A similar system 
at the Agricultural Department cost less than one-tenth that 
amount.
    The Department's renovation activities are also a concern. 
The initiative to repair and restore the Treasury building and 
its Annex have been badly mismanaged. The cost so far will soon 
top a quarter of a billion dollars, but for all that money, 
work on the Treasury building is still not complete, and the 
Treasury Annex has not yet been touched.
    Other examples of Treasury's poor management of major 
projects abound. Just last week, we read in the paper about an 
employee tuition assistance program at the IRS. More than 60 
percent of the funding has gone to overhead, and less than 40 
percent went to actual tuition assistance. Treasury's efforts 
to procure a new secure communications system was recently 
slowed down because the agency failed to grant all the bidders 
access to relevant information. As a result, the GAO sustained 
a bid protest.
    And speaking of the GAO, that agency informed us that 
despite the progress the IRS has made in correcting information 
security weaknesses, more than half of the deficiencies 
identified 3 years ago are not fixed. Let me say that again. 
It's been 3 years and half the improvements still have not been 
made.
    And these are not minor issues. Some of the vulnerabilities 
that still exist include the opportunity for any employee at 
the IRS and elsewhere in the Treasury to have easy, 
unauthorized access to sensitive information, including filings 
under the Bank Secrecy Act. In terms of the largest amount of 
taxpayer dollars lost, we could hold several days of hearings 
on the Business Systems Modernization program at the IRS. It 
might take that long to compare what has been delivered under 
that program compared to what was originally promised.
    Mr. Secretary, I recognize that you personally cannot stay 
on top of each and every one of these programs. But when I look 
at these persistent management problems at your agency, when I 
look at the tax dollars being wasted, when I look at the rapid 
turnover and high number of vacancies at your agency, I have to 
worry whether there's anyone at home minding the store.

                           PREPARED STATEMENT

    I know we both agree taxpayers deserve better. I hope as we 
discuss some of these problems this morning you will be frank 
with us on how we can help you get some of these troubled 
programs under control.
    Thank you, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Senator Patty Murray

    Secretary Snow, I want to welcome you back to this subcommittee. 
Since your last appearance, we've expanded our jurisdiction a bit, but 
I want you to know that your Department remains a priority for us and 
an area of deep concern.

                THE PRESIDENT'S SOCIAL SECURITY PROPOSAL

    I know that you've been traveling around the country trying to drum 
up support for the President's proposal to privatize Social Security. 
To me, breaking the promise of Social Security and putting millions of 
Americans at risk is wrong. I know that you and I aren't going to reach 
an agreement on that today.
    But I think we can both agree that this national conversation has 
shown many Americans just how important Social Security is. Today, more 
Americans understand how important Social Security's guaranteed benefit 
is. More Americans know that Social Security helps--not just the 
retired--but also provides critical income for the disabled, for widows 
and for surviving children. And I think more Americans appreciate the 
stability and certainty of their Social Security checks as we've seen 
the stock market rise and fall like a roller coaster lately.
    While I know we'll have a chance to talk about Social Security and 
issues like the health of our economy and the strength of the dollar, I 
want to make sure this subcommittee attends to its central 
responsibility--reviewing the President's budget for your department 
and reviewing how your department has spent the money Congress has 
appropriated.
    So today I want to discuss what's in this budget, including the new 
initiatives the Secretary wants to launch. I also want to talk about 
what's not in this budget--the things the Secretary wants to terminate 
and the user fees the administration wants to impose on American 
families and small businesses.
    I especially want to discuss the Department's continuing problems 
in managing major procurements. When it comes to addressing the 
agency's physical and IT infrastructure, it's clear that Treasury needs 
to do a better job in how it spends the dollars it collects from 
taxpayers.

                      BOOSTING TAX LAW ENFORCEMENT

    Let me start with what is in this budget request. The 
administration is requesting a boost of more than $446 million for tax 
law enforcement activities. However, this boost will not signal a new 
historic high in IRS enforcement activities--far from it. As the IRS 
Commissioner told this committee recently, the agency's enforcement 
efforts have been allowed to wane in the last few years. I'm encouraged 
that the agency now wants to reverse that trend. And since the IRS 
fails to collect between $250 billion to $330 billion each year from 
tax cheats, I would say that this reversal couldn't happen soon enough.

                     CUTTING SERVICES TO TAXPAYERS

    While the agency is finally addressing something it's allowed to 
languish for years, the way it's addressing it troubles me. The 
administration wants to pay for more enforcement by cutting direct 
services to taxpayers. The President's budget would cut services that 
are essential in helping citizens comply with the tax laws. For 
example, your budget proposal would close as many as one out of every 
four Taxpayer Assistance Centers across the country; eliminate phone 
tax filing, which is used by more than 5 million individuals and 
businesses each year; shorten the number of phone hours that IRS 
personnel are available to answer taxpayers' questions; discontinue tax 
law assistance through the internet; and cut outreach efforts to high-
risk taxpayer groups. I don't believe that these cuts are merited if 
they will only heighten confusion and hassle for taxpayers and, 
perhaps, even make the compliance problem worse.

            IMPOSING NEW FEES ON WASHINGTON'S WINE INDUSTRY

    Unfortunately, funding for these basic taxpayer service functions 
is not the only thing missing from this budget. I am very concerned 
about the Secretary's proposals to eliminate funding for many essential 
functions in the Alcohol and Tobacco Tax and Trade Bureau. Instead of 
continuing to provide appropriated funding, the Secretary would impose 
new taxes on industry to pay for these functions.
    Let me give you one example of great importance to families in my 
State. Over the past few years, the people in Washington State have 
built a world-renowned wine industry through hard work, research, and 
creativity. These vineyards are providing jobs for communities that 
have struggled. They're bringing tourists to many parts of our State, 
and they are helping our economy.
    Over the past decade, wine has become a $2.4 billion industry to my 
State. Production has doubled, and now wine grapes are the State's 4th 
largest fruit crop. Today there are more than 300 wineries throughout 
the State--nearly double the number in 2000. And Washington's wine 
industry supports more than 11,000 related jobs.
    Many of our wine producers are small, family-run vineyards. They 
should be encouraged and supported for the progress they've built with 
their own hands. Instead, this administration wants to hit them with 
more taxes in the form of new user fees. Mr. Secretary, I can tell you 
that your proposal to fund the alcohol tax bureau with ``user fees'' is 
going to impose a hardship our small family-owned vineyards. Forcing 
vineyards to pay a fee just to get their labels approved will hurt new 
entrants into this promising market. We should be encouraging their 
success instead of putting up more barriers to their viability. This 
proposal is especially puzzling coming from an administration that 
claims to encourage entrepreneurship and reduced tax burdens.

                       MAJOR PROCUREMENT PROBLEMS

    Finally, Mr. Secretary, I want to raise my concerns regarding the 
Treasury Department's deeply troubled record in handling major 
procurements, especially IT services. We receive a continuing stream of 
reports from the GAO and the Inspector General regarding projects that 
are way behind schedule, that cost more than they should, or that are 
not adequately secure.
    The Treasury Department has finally established its new human 
resource information system--known as ``HR Connect.'' That system cost 
taxpayers $173 million. A similar system at the Coast Guard cost one-
seventh that amount. A similar system at the Agriculture Department 
cost less than one-tenth that amount.
    The Department's renovation activities are also a concern. The 
initiative to repair and restore the Treasury Building and its Annex 
has been badly mismanaged. The cost so far will soon top $250 million. 
But for all that money work on the Treasury Building is still not 
complete, and the Treasury Annex has not yet been touched.
    Other examples of Treasury's poor management of major projects 
abound. Just last week, we read in the paper about an employee tuition 
assistance program at the IRS. More than 60 percent of the funding has 
gone to overhead, and less than 40 percent went to actual tuition 
assistance.
    Treasury's efforts to procure a new secure communications system 
was recently slowed down because the agency failed to grant all the 
bidders access to the relevant information. As a result, the GAO 
sustained a bid protest.
    And, speaking of the GAO, that agency informed us that, despite the 
progress the IRS has made in correcting information security 
weaknesses, more than half of the deficiencies identified 3 years ago 
are still not fixed. It's been 3 years, and half the improvements still 
haven't been made. And these aren't minor issues. Some of the 
vulnerabilities that still exist include the opportunity for any 
employee at the IRS and elsewhere in Treasury to have easy, 
unauthorized access to sensitive information including filings under 
the Bank Secrecy Act.
    In terms of the largest amount of taxpayer dollars lost, we could 
hold several days of hearings on the Business Systems Modernization 
program at the IRS. It might take that long to compare what has been 
delivered under that program compared to what was originally promised.
    Mr. Secretary, I recognize that you personally cannot stay on top 
of each and every one of these programs. But when I look at these 
persistent management problems at your agency, when I look at taxpayer 
dollars being wasted, when I look at the rapid turnover and high number 
of vacancies at your agency, I have to worry whether there is anyone at 
home minding the store.
    I know that we both agree that taxpayers deserve better. I hope 
that as we discuss some of these problems this morning you will be 
frank with us on how we can help you get some of these troubled 
programs under control.
    Thank you, Mr. Chairman.

    Senator Bond. Thank you very much, Senator Murray. Senator 
Byrd.
    Senator Byrd. Mr. Chairman, I hope you're recuperating 
well.
    Senator Bond. Just mean.
    Senator Byrd. Mean? Why, you've been that way all the time.
    You just broke your shoulder, you just hurt your shoulder a 
few days ago.
    Senator Bond. That just gives me an excuse.
    Senator Byrd. Does your wife accept that?
    Senator Bond. I have--there is a mad orthopedic surgeon who 
did me in.
    Senator Byrd. Okay. Well, now, are you calling on me for an 
opening statement or for questions?
    Senator Bond. We would like to be enlightened by your 
opening statement. We have not heard the Secretary's initial 
statement.
    Senator Byrd. Yes. Well, I don't believe I'll make an 
opening statement. I hope I can get out before 10:30 or 10:45 
for another appointment. I do have some questions.
    Senator Bond. Well, we will have 5-minute questions, and as 
always, we ask the Secretary to submit his full statement for 
the record and to give us the highlights that he thinks are 
most important, and then we'll go on the rapid-fire question.
    Senator Byrd. May I then retract my statement that I don't 
want to make an opening statement? I'll be very brief.
    Senator Bond. All right, sir.

                  STATEMENT OF SENATOR ROBERT C. BYRD

    Senator Byrd. Mr. Secretary, good morning to you.
    Secretary Snow. Good morning, Senator.
    Senator Byrd. You're one of my favorite Cabinet members.
    Secretary Snow. Thank you.
    Senator Byrd. I submitted a number of questions for the 
record when you testified before the Senate Budget Committee 
last February. I received your responses yesterday. I was 
alarmed by the vague answers you provided to some very 
straightforward questions.
    You have been traveling around the country, as has the 
President, touting a plan to change Social Security. But here 
we are nearing the midpoint in the congressional calendar. The 
Finance Committee is holding hearings today and reportedly is 
preparing to draft legislation soon. The public still does not 
know how much the President's plan will cost or how it will 
affect their benefits.
    Now, as a child of that generation that's been talked about 
a good bit recently, I can remember when the old people down in 
Raleigh County, West Virginia, didn't have anything to help 
them when they became too old to work. The only place they had 
left to go was over the hill to the poorhouse. They could stand 
at the gates of their children's homes with their hats in their 
hands and beg to be taken in, but, oftentimes, the children 
were not able to help them.
    I can remember when the Social Security check was referred 
to as the old-age pension check. It came to my wonderful mom 
and dad, who are in heaven today. These old people raised me. 
They were not my biological father and mother, but they raised 
me. They were honest; they were religious. They didn't wear 
their religion on their sleeves; they didn't make a big hoopty-
doo about it. But they were truly, truly religious.
    I can remember the first Social Security checks they got. 
My, what a beacon of hope those Social Security checks were. 
And so, I have a deep-rooted respect and gratification for 
Social Security. I'm very concerned about Social Security.
    I won't ask any questions right now, but I thank you for 
your appearance. I always have had a tremendous respect for 
you, and I like you personally. I will have a few questions for 
you later. Thank you, Mr. Chairman. Thank you, Mrs. Murray.
    Senator Bond. Thank you very much, Senator Byrd. I believe 
you have had some dealings with West Virginia in your prior 
occupation, and obviously they were very satisfactory, and 
we've all appreciated those.
    Mr. Secretary.

                  STATEMENT OF SECRETARY JOHN W. SNOW

    Secretary Snow. Thank you very much, Mr. Chairman, Senator 
Murray, Senator Byrd. Yes, I've had many dealings with West 
Virginia and the esteemed senior Senator over a long, long 
time, and I admire him deeply.
    Thank you for the chance to come up today and talk about 
the Treasury 2006 budget request. We're still hoping to get the 
2005 reprogramming approval as well. And you asked me what 
might be helpful in the Department moving forward with some of 
these initiatives. That's one thing, Mr. Chairman, that would 
be helpful.
    Because of the homeland security issues that arose after 9/
11, the Treasury Department is a very different place today 
than the place it was at the beginning of this administration. 
A large number, as you know, of law enforcement functions, have 
been taken from the Department and located elsewhere, primarily 
in the Department of Homeland Security, but some in the Justice 
Department. And the restructuring of the Department probably 
represents the largest governmental restructuring of any agency 
in modern times, as we lost some 35,000 people who went off to 
other agencies.
    As a result, the Department is a very different place 
today. Its mission is in some ways more coherent. We're focused 
primarily on economic matters and finance matters, economic 
policy, advice to the President on economic issues is a primary 
function. Another function is collecting the revenues, as you 
know, and that's the single biggest part of the Department in 
terms of people, about 100,000 out of the 110,000 or 115,000 
people are in the tax collection, tax administration, tax 
enforcement set of activities.
    The Department is also responsible for collecting the bills 
and being the paymaster for the country, and managing the 
finances, issuing the debt, and managing the overall financial 
condition of the country.
    In terms of economic policy, the issue we're most directly 
involved in now, as has been said, is Social Security. I know 
we'll have a good discussion on that as we proceed. The 
President's objective there, I think, is simply to have this 
dialogue with the country, to lay out the issues, and engender 
a better understanding of what's at stake here.
    And what's at stake is awfully important. I agree with 
Senator Byrd. This is a system that millions of Americans 
depend on. I think some 45 million Americans receive Social 
Security checks today, of which--and this is the important 
point--a very high percent depend on that for their entire 
subsistence. This is a noble initiative of the American 
government. It's one of the most important programs that 
government ever undertook. It's served our Nation well for 
seven decades, and we need to take steps to make sure it serves 
us well going forward. So preserving and protecting Social 
Security has to be the major focus of that initiative, and 
putting it on a sustainable course.
    We're also engaged in efforts to rethink the code and make 
sure that the Internal Revenue system is administered well, is 
simpler, is less complex, less burdensome, and is fair and 
encourages good behavior on the part of businesses and 
taxpayers so the economy continues to grow. You know the 
President appointed a panel co-chaired by two of your former 
colleagues, former Senator Connie Mack of Florida and former 
Senator John Breaux, with a number of other very highly thought 
of and distinguished people.
    We've asked the panel to report back to us by the end of 
July. I'm in continuous contact with the co-chairs, and they're 
making a lot of good progress. And I look forward to getting 
their report at the end of July and then working with them and 
sending forward recommendations to the President, which I hope 
will lead to legislative proposals later this year coming up to 
the Congress.
    We're also focused on the deficits. The deficits are too 
large. The debt levels and the deficits are too large. We need 
to continue to find ways to rein them in and to pursue fiscally 
responsible policies. That's an issue I know is very much on 
the minds of the committee as you oversee our activities.

                           PREPARED STATEMENT

    You have mentioned the vacancies. We can talk about that. 
There are too many vacancies at the Department today, I 
acknowledge that. I also acknowledge the need to do better in 
this information technology arena, both at FinCEN and at the 
IRS. And I look forward to working with the committee as we 
continue to focus on how to make sure that the Department 
carries on its activities in ways that follow your directions 
and well serve the taxpayers of America.
    And with that, I thank you.
    [The statement follows:]

              Prepared Statement of Secretary John W. Snow

    Chairman Bond, Senator Murray, and members of the subcommittee, I 
appreciate the opportunity to appear before you today to discuss the 
President's fiscal year 2006 budget for the Department of the Treasury.
    The Department's budget reflects the President's top priorities for 
fiscal year 2006: fighting the financial war on terror while ensuring 
America's economic strength, and demonstrating the fiscal 
responsibility necessary to reduce the deficit. The fiscal year 2006 
request of $11.6 billion also supports Treasury's longer term core 
strategic missions: promoting national prosperity through economic 
growth and job creation; maintaining public trust and confidence in our 
economic and financial systems; and ensuring the Treasury organization 
has the workforce, technology, and business practices to meet the 
Nation's needs effectively and efficiently. This budget request focuses 
on the President's belief that the budget be fair while holding the 
government accountable. It adheres to the principle that ``taxpayer 
dollars must be spent wisely, or not at all.''
    Mr. Chairman, we provided the committee with a detailed breakdown 
and justification for President's fiscal year 2006 budget request for 
Treasury. I would like to take the opportunity today to point out some 
highlights of our request and then I'd be happy to take any questions 
you may have.

                      STRENGTHEN NATIONAL SECURITY

    Treasury's budget reinforces the President's commitment to 
combating terrorist financing and safeguarding the U.S. financial 
system. Since September 11, we have leveraged the relationships, 
resources, and expertise that we have acquired over the past several 
years in combating money laundering to address terrorist financing and 
protecting our financial systems. Our efforts in both attacking 
terrorist financing and protecting the financial system are 
complementary and are effecting the changes required to protect the 
integrity of our financial systems by identifying, disrupting and 
dismantling sources, flows, and uses of tainted capital within those 
systems. To support these efforts, the President requests $351.3 
million for fiscal year 2006.
    The Office of Terrorism and Financial Intelligence (TFI) leads 
Treasury's efforts to sever the lines of financial support to 
international terrorists and serves as a critical component of the 
administration's overall effort to keep America safe from terrorist 
plots. The establishment of TFI unifies leadership for the functions of 
the Office of Intelligence Analysis (OIA), the Office of Terrorist 
Financing and Financial Crimes (TFFC), the Financial Crimes Enforcement 
Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the 
Treasury Executive Office for Asset Forfeiture (TEOAF). The objectives 
of unifying this leadership are better coordination of Treasury's array 
of economic tools against terrorist and national security threats. To 
safeguard financial systems both at home and abroad, TFI draws upon a 
range of capabilities that cut across various categories, including 
financial sanctions, financial regulation and supervision, 
international initiatives, private sector outreach, and law enforcement 
support. TFI consolidates the policy, enforcement, regulatory, 
international, and analytical functions of the Treasury and adds to 
them critical intelligence components. OIA provides focused and 
operable intelligence in support of the Department's mission and 
policies. TFI's enforcement responsibilities are executed by the TFFC, 
OFAC, and FinCEN. Finally, TFI provides policy guidance for the IRS-
Criminal Investigation Division (IRS-CI) in their anti-money 
laundering, terrorist financing, and financial crimes cases.
    Since September 2001, the United States and its allies have 
designated 399 terrorist related entities and frozen over $147 million 
in terrorist assets. TFI has designated and frozen the assets of 
prominent terrorist financiers and organizations, including Adel 
Batterjee, a Saudi financier of al Qaida, and the Islamic African 
Relief Agency, a corrupt global charity that supported Usama bin Laden 
and HAMAS. Thanks to collaborative efforts by TFI and other agencies, 
the United States has facilitated the finding and freezing of nearly $6 
billion in Iraqi assets outside of Iraq, the return of over $2.7 
billion of those funds, and the recovery of more than $1 billion in 
cash inside Iraq.
    Treasury's fiscal year 2006 request includes increases for 
resources to enhance Treasury's analytical capability so that senior 
officials have access to actionable financial intelligence. The request 
also supports TFI creating a 21st century information technology 
infrastructure to assist in the global fight against terror.
    The Financial Crimes Enforcement Network has a major role in 
supporting TFI's enforcement responsibilities. The President's request 
includes $73.6 million for FinCEN to support its mission to safeguard 
the financial system from abuses of financial crime, including 
terrorist financing, money laundering and other illicit activity. This 
increase will provide FinCEN with the funding needed to enhance its 
outreach efforts to financial institutions newly covered by Bank 
Secrecy Act regulations and strengthen examination and enforcement 
activities; strengthen analytical support services; and expand FinCEN's 
support to other international financial intelligence units to 
facilitate information exchange.
    The IRS-CI also plays a key role in investigating financial crimes. 
The request supports the unique skills and expertise of IRS-CI agents 
in investigating tax fraud and financial crimes not only to support tax 
compliance, but also benefit the war on terror and our efforts to root 
out financial crimes. These agents apply their training, skills, and 
expertise to support the national effort to combat terrorism and 
participate in the Joint Terrorism Task Force and other similar 
interagency efforts focused on disrupting and dismantling terrorist 
financing.
    In addition, the Office of Critical Infrastructure Protection and 
Compliance Policy leads our efforts to safeguard the financial 
infrastructure. This Office works closely with other Federal agencies 
and the private sector to safeguard our infrastructure. That is 
essential, given that the majority of the critical financial 
infrastructure of the United States is owned and operated by the 
private sector.
    Finally, an essential aspect of ensuring our national security is 
to secure fragile states and foster sustainable development in the 
world's poorest nations. The Office of International Affairs uses 
bilateral diplomacy and its role as steward of the international 
financial institutions, including the World Bank and International 
Monetary Fund--to create the economic growth that will reduce conflict 
and the conditions that favor terrorism in the developing world.

                       ENSURE FINANCIAL SECURITY

    Treasury's strategic goal to manage the U.S. Government's finances 
effectively is the largest part of the President's fiscal year 2006 
request for the Department. The budget request of $11 billion--the 
majority of which is for the Internal Revenue Service--underscores our 
commitment to provide quality service to taxpayers and enforce 
America's tax laws in a balanced manner. The request includes a 7.8 
percent increase in enforcement funding over fiscal year 2005. The 
increase will provide additional resources to examine more tax returns, 
collect past due taxes and investigate cases of tax evasion.
    It is important that these enforcement investments be fully funded, 
therefore the administration proposes to employ a budget enforcement 
mechanism used commonly in the 1990's for spending items that 
contribute to increased revenues or reductions in improper payments. 
Under the proposal, an adjustment for IRS enforcement would be made by 
the Budget Committees to the section 302(a) allocation to the 
Appropriations Committees found in the concurrent resolution on the 
budget. In addition, the administration will also seek to establish 
statutory spending limits, as defined by section 251 of the Balanced 
Budget and Emergency Deficit Control Act of 1985, and to adjust them 
for this purpose. To ensure full funding of the program and 
inflationary cost increases, either of these adjustments would only be 
permissible if the Congress funded the base level for IRS enforcement 
at $6.4 billion and restricted the use of the funds. The maximum 
allowable adjustment to the 302(a) allocation and/or the statutory 
spending limit would be $446 million for fiscal year 2006, bringing the 
total enforcement level in the IRS to $6.9 billion. This entire amount 
is included in the overall discretionary spending total sought by the 
administration and is fully accounted for in the budget.
    The proposed fiscal year 2006 budget makes a strong commitment to a 
sound system of tax administration. The IRS collects $2 trillion 
annually; however, billions continue to go uncollected every year. The 
increase in enforcement funding will be used to bolster audit coverage 
of corporations and high-income individuals who try to evade taxes as 
well as to expand collection and criminal investigation efforts. These 
investments will pay for themselves several times over.
    The President's request also provides $199 million to continue 
efforts to modernize the tax system through investments in IRS's 
Business Systems Modernization (BSM). The modernization program is 
providing real business benefits to taxpayers and IRS employees by 
delivering several modernized systems. For example, the Service 
implemented the Integrated Financial System that replaces its 
administrative accounting system. BSM funding allowed IRS to fully 
deploy online e-Services functionality for tax practitioners and other 
third parties, such as banks and brokerage firms allowing improved and 
faster interactions for transactions such as the application for e-
filing, requests for Preparer Tax Information Number and Secure 
Electronic Return Originator applications, among many other products. 
The IRS also deployed Modernized e-File, which provides e-filing for 
the first time to large corporations and tax-exempt organizations. 
Replacing the outdated legacy system, the Customer Account Data Engine, 
which began processing the simplest 1040 EZ returns in July of last 
year, is a modern database that will eventually house tax information 
for more than 200 million tax returns per year.
    The IRS also administers a refundable tax credit for the cost of 
health insurance for both qualified individual and family members. The 
request provides $20.2 million to continue implementation and operation 
of the Health Insurance Tax Credit Program. The annual cost of this 
program is reduced by over $15 million due to IRS's active program 
oversight and cost-cutting initiatives.
    The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible 
for the regulation of the alcohol and tobacco industries, and the 
collection of $14.7 billion annually in alcohol, tobacco, firearms, and 
ammunition excise taxes at a cost of $1 for every $368 collected. Our 
fiscal year 2006 request includes $91.1 million for TTB. The budget 
proposes to establish user fees to cover a portion of the costs of 
TTB's regulatory functions under its Protect the Public line-of-
business.
    The budget also includes a $236.2 million request for the Financial 
Management Service (FMS), which administers the government's payments 
and collections systems. In fiscal year 2004, FMS issued more than 940 
million non-Defense payments, 705 million electronic payments and 235 
million paper checks, FMS annually issues more than 940 million non-
Defense payments valued at $1.5 trillion. The Budget provides funding 
for FMS's electronic initiatives, such as: Pay.gov, which is a 
Government-wide web portal to collect non-tax revenue electronically; 
Paper Check Conversion, which converts checks into electronic debits 
thereby moving funds more quickly; and Stored Value Cards, which 
directly support military operations overseas. The fiscal year 2006 
request also includes legislative proposals to improve and enhance 
opportunities to collect delinquent debt through FMS's debt collection 
program.
    The Bureau of the Public Debt (BPD) continues its management and 
improvement of Federal borrowing and debt accounting processes. The 
budget requests $179.9 million in direct appropriations for BPD which 
includes $3 million in user fees. The funding will allow BPD to 
continue improving the efficiency of the securities services to 
customers by expanding TreasuryDirect, an investment system that will 
enable Treasury customers to manage their investment accounts online.
    The functions of the United States Mint and the Bureau of Engraving 
and Printing (BEP) are vital to the health of our Nation's economy. 
These two agencies fulfill the Treasury Department's responsibility of 
meeting global demand for the world's most accepted coins and currency. 
The United States Mint also continues to manufacture and market popular 
numismatic products, while BEP also continues to develop new designs of 
next generation currency to guard against counterfeiting.

                      PROMOTE ECONOMIC OPPORTUNITY

    The Treasury Department works to ensure that U.S. and world 
economies perform at full economic potential. To reach this potential, 
the economy must increase its rate of growth and create new, high 
quality jobs for all Americans. The legal and regulatory framework must 
also support this growth by providing an environment where businesses 
and individuals can grow and prosper without the burdens and costs of 
unnecessary rules and regulations.
    Our budget requests $1.6 billion to support these strategic goals. 
The request includes funds for policy offices that guide domestic 
economic development, tax programs, financial institutions and other 
fiscal matters. These policies are essential as Treasury works to 
simplify the U.S. tax code and create a legal and regulatory framework 
that allows the Nation's businesses to thrive.
    Treasury's international programs and three Treasury bureaus, the 
Community Development Financial Institutions Fund, the Office of the 
Comptroller of Currency and the Office of Thrift Supervision play 
diverse roles in fostering economic growth and prosperity. From serving 
as the President's principal economic advisor to maintaining the health 
of the national banking and thrift system, the Treasury has a 
significant influence on creating the conditions for a robust economy. 
Through the Office of International Affairs, the Treasury also pursues 
diplomacy to create the conditions for global growth, which creates 
economic opportunity at home and overseas, by a range of actions, 
including the reduction of undue barriers to trade and investment and 
the establishment of stability in the international financial system.
    Treasury's international assistance programs request of $1.5 
billion for fiscal year 2006 is part of the Foreign Operations, Export 
Financing, and Related Program Appropriations Act. These programs 
include multilateral development banks (MDBs), debt reduction, and 
technical assistance--all critical instruments to promote the 
administration's international economic agenda. MDBs promote global 
economic growth and poverty reduction, and help create stronger markets 
for U.S. goods and services. Debt reduction helps poor countries move 
to a sustainable level of debt and remove debt overhang that inhibits 
growth. Our technical assistance programs help countries institute the 
sound budget and financial systems needed for economic growth.

                           MANAGE FOR RESULTS

    The President requests $211.8 million to protect the integrity and 
effectively manage the resources of the Department of Treasury, and 
ensure that it remains a world class organization. Included in this 
request is $16.7 million to fund the Department's Office of Inspector 
General (OIG) and augment audit and investigative capabilities.
    This portion of the budget also includes $133.3 million for the 
Inspector General for Tax Administration (TIGTA) and its efforts to 
oversee the Nation's tax administration. TIGTA continues to play a 
significant role in providing independent oversight, which promotes 
efficiency and integrity in the IRS's ability to collect $2 trillion 
annually. TIGTA aggressively combats any identified attempts to disrupt 
and/or interfere with tax administration. The Nation's voluntary tax 
compliance system is supported and protected by TIGTA agents who 
participate in the Joint Terrorism Task Force and proactively seek to 
identify individuals or groups who pose a threat to effective tax 
administration. Critical information is shared with the IRS and allows 
the leaders of the IRS to make effective business decisions, which 
promote efficient tax administration and support IRS employee safety.
    The proposed budget request includes $7.9 million in new funding to 
provide for an improved technology infrastructure, essential for 
keeping pace with the Department's needs to enhance productivity, 
improve communication, interact effectively with the world-wide 
financial community, and meet other management needs. Funding will be 
used to improve the Department's information technology infrastructure 
to ensure the effectiveness of the Department in managing Federal 
finances and combating financial crimes and terrorist financing. The 
request also ensures that the Department will continue its major 
facilities projects and services for the Main Treasury and Treasury 
Annex buildings to ensure the safety and health of occupants and 
perform structural repairs and improvements. Additional funds will 
allow Treasury to complete the project during fiscal year 2006 and 
reoccupy the restored office space.

                   THE PRESIDENT'S MANAGEMENT AGENDA

    Treasury has focused its management initiatives around the goals of 
the President's Management Agenda (PMA). Under guidance from the PMA, 
the Treasury has grasped tangible results in managing the Nation's 
finances, taking advantage of new opportunities and opposing threats. 
The Department is committed to defining desired results for each area 
and managing to achieve them, at acceptable cost levels.
    In fiscal year 2004, Treasury achieved significant milestones in 
implementing the President's Management Agenda, improving three of our 
five status scores for the PMA over the prior year.
    Treasury managed for results as we implemented a new performance 
appraisal system for our Senior Executive Service that links managers' 
performance assessments to accomplishing the Department's top 
priorities. We are also focusing on recruiting and retaining a world-
class workforce, and have started implementing a new Human Capital 
Strategic Plan. This plan is the Department's roadmap for molding a 
workforce of engaged, highly competent, and business-aligned employees.
    The Department is making good progress on using competition to 
improve efficiency. This past year, we completed five public-private 
competitions, and as a result, expect savings of $200 million over the 
next 5 years. Our efficiency initiatives have received national 
recognition, winning the President's Quality Award for Management 
Innovation at the IRS for our Area Distribution Center competition.
    Treasury continues to be a leader in making financial information 
available in a timely manner through a 3-day close of its books at the 
end of each month, and for the fifth consecutive year we received a 
clean audit opinion. The Department continues to work at securing our 
information systems. Our systems are more secure now than at any other 
time, with 86 percent certified and accredited as secure at the end of 
2004.

                               CONCLUSION

    Mr. Chairman, I look forward to working with you, members of the 
committee, and your staff to maximize Treasury's resources in the best 
interest of the American people and our country as we move into fiscal 
year 2006. We have hard work ahead of us and I am hopeful that together 
we can work to make the Treasury a model for management and service to 
the American people, and continue to generate economic growth, increase 
the number of jobs for our citizens, and keep our financial systems 
strong and secure.
    Thank you again for the opportunity to present the Treasury 
Department's budget today. I would be pleased to answer your questions.

                     TREASURY DEPARTMENT VACANCIES

    Senator Bond. Thank you very much, Mr. Secretary. We're 
talking about unfilled vacancies. The--I'm particularly 
troubled at key management positions, Deputy Secretary, 
Assistant Secretary for Management, Chief Financial Officer 
remain unfilled.
    How do you hold a staff accountable, how can you operate it 
when key people that should be in your organization are not 
there? What are the plans to get these positions filled?
    Secretary Snow. Well, Mr. Chairman, the work of the 
Department is getting done, but it sure would be desirable and 
helpful to have those vacancies filled. Several of those 
vacancies are standing in the nomination process awaiting 
hearings. More are awaiting clearance through the White House 
process. And I'm in continuous touch with the White House 
Personnel Office and Office of the Chief Counsel----
    Senator Bond. Please give them our best wishes, would you?
    Secretary Snow [continuing]. And urging them to move this 
process along. But in terms of the work of the Department, 
though, while it would greatly help us to have these people in 
place, the Department has a terrific group of hardworking civil 
servants and a good work of political people, small but able, 
and the work is getting done. It's a lot of overtime though for 
us these days.
    Senator Bond. But, Mr. Secretary, I mentioned the GAO 
reports that security weaknesses place sensitive taxpayer and 
Bank Secrecy Act information at risk, and TIGTA has also 
identified numerous problems with IRS information security. 
You, under the Federal Information and Security Management Act, 
are responsible for providing information security, and are you 
alarmed by the GAO's findings? And how and when are you going 
to resolve these problems?
    Secretary Snow. Senator, this is a serious issue and we 
take it seriously. We are committed to the information security 
of the systems we have at the Department, and pledge to you 
this will be a priority.
    I talked to the Acting Deputy Secretary this morning about 
it and the Chief of Staff, and we're all going to make every 
effort to close the gap. We know there's a gap here. We're also 
going to work closely with the Department's Inspector General, 
Harry Damelin, a position that was recently filled, I'm 
delighted to say, and with Russell George of TIGTA, the 
Inspector General for the IRS, both of whom are aware of these 
issues and will be very helpful in bringing them to closure. We 
recognize we have some distance to go here.

                          TERRORIST FINANCING

    Senator Bond. I--again, I'm concerned, as I mentioned 
earlier, about your work on terrorist financing. We created the 
Office of Intelligence and Analysis, but Treasury, it appears 
to us, has not stepped up to the plate. This seems to support 
the conclusions that OIA will merely become an operational 
unit, not adding any value or, even worse, assuming the role of 
the Treasury's current assets at OFAC and FinCEN.
    What will the roughly 25 analysts transferred from OFAC to 
OIA be doing that is different from what they were doing at 
OFAC? And how will this transfer impact the OFAC? And I'd just 
ask the general question, shouldn't the OIA serve the policy 
makers at Treasury and leave the operations to operational 
units? That's my concern.
    Secretary Snow. Right. Mr. Chairman, this is an issue that 
we spent a lot of time on thinking through and trying to get 
right. And the very able Under Secretary who is responsible for 
this whole collection of activities, anti-money laundering, 
terrorist finance, protecting the financial system against 
money laundering and terrorist finance, and leading the 
financial war on terror, came to the conclusion as he looked at 
his organization that the best way to fulfill the 
responsibilities, the critically important responsibility he 
has, is to take the intelligence function and concentrate it 
under the new Assistant Secretary for Intelligence and 
Analysis.
    As he's told me, these people, these--I think it's 23 
analysts who were in OFAC--even if there had been no resource 
constraints on the Department, are the very people you would 
want at the center of the intelligence-gathering activities to 
strengthen our ability to carry on these functions. And OFAC 
will be able to have full access to the intelligence that's 
gathered.
    His view, and I share it, is that our function will be 
strengthened by putting the intelligence under a very capable 
Assistant Secretary for Intelligence and Analysis, and then led 
by a person whose full-time job is intelligence.
    Senator Bond. Thank you, Mr. Secretary. I'll have further 
questions on that, but now I'll turn to Senator Murray.
    Senator Murray. Mr. Chairman, with your permission, I want 
to yield to Senator Byrd. He has a time commitment.

                            SOCIAL SECURITY

    Senator Byrd. I thank you, Mr. Chairman. I thank you, 
Senator Murray. Mr. Secretary, I only have 5 minutes. I have 
several questions. I'll try to ask only five. I hope we can 
limit them to 1 minute each.
    Mr. Secretary, Mr. Bush told workers in his State of the 
Union address that, with regard to personal accounts, your 
money will grow over time at a greater rate than anything the 
current system can deliver. Question No. 1: However, the stock 
market has ups and downs. If workers retire when the stock 
market is down, they're in deep trouble. They can't wait for 
the market to recover. What guarantee would the administration 
support to ensure a minimum benefit from an individual account?
    Secretary Snow. Senator, you're right. Markets go up and 
down, but over any long period of time, the evidence suggests 
that investments in the market over a working life will produce 
rates of return that are higher than what you could expect from 
Social Security. And while there's not a guarantee, there is 
this long history of the superior performance of markets.
    But taking your point, under the President's proposal, and 
we're continuing to think about how to put this forward in a 
way that's most effective, there is the suggestion that it--I 
think it's 47--when a person turns 47, their account would 
automatically shift heavily into fixed-income instruments, 
bonds, so the principal would be protected. But it's a good 
point and one we've been giving a lot of thought to.
    Senator Byrd. What happens if the checks that you mentioned 
prove insufficient? What happens when it comes time to retire 
and a worker discovers that he doesn't have enough saved away 
to ensure a decent, respectable living? What happens to that 
worker?
    Secretary Snow. Senator, the President recently indicated 
his support for a proposal associated with somebody named Bob 
Posen. And the Posen proposal is designed to make sure that 
nobody retires below the poverty level. That's a view I think 
that is widely held within the administration as well. And in 
the final legislation I'm confident that there would be 
language to assure that that outcome is achieved.
    Senator Byrd. Under the President's plan, what guarantee 
would workers have of receiving the level of benefits scheduled 
under current law?
    Secretary Snow. Senator, the Social Security Administration 
Actuary indicates that in--I think it's 2041--the benefits will 
fall to the level the trust fund can't afford to pay, which is 
their revenue stream, which is about 70 percent. The idea of 
the personal accounts is that you could do better with the 
personal accounts than you could do with Social Security alone. 
But the details of that have to await the discussion with you 
and the members of the Senate and the House.
    Senator Byrd. What happens to a worker whose account has 
not accrued enough to buy an annuity to guarantee a payment 
above the poverty line?
    Secretary Snow. Senator, as I said, the administration's 
view broadly stated, and the President indicated this in some 
comments he made recently, is that we need to assure people who 
have had a working life that they retire above the poverty 
line. And I think that idea will be incorporated in our final 
set of proposals.
    Senator Byrd. Mr. Secretary, we've heard a great deal about 
the President's ``plan''. When will the President submit his 
``plan'' in detail, and with respect to a draft bill that would 
contain those details so that the Congress will know what is 
being suggested and how to respond to that?
    Secretary Snow. Well, the President has indicated, Senator, 
that he wants this broad dialogue and he thinks that out of the 
broad dialogue in which he's put some ideas forward and invited 
others to come back with other ideas, that that broad dialogue, 
that environment of open ideas, is better calculated to create 
a good result than now laying out a firm set of proposals.
    In part, I think it's because of the need for this 
education we talked about earlier. And I appreciate what 
Senator Murray said, that now because of this effort to go to 
the country, there is a better understanding of the importance 
of Social Security, the role it plays in our lives, and I think 
also of the need to find ways to put it on a financially 
sustainable course.
    Senator Byrd. I have one final question, Mr. Secretary. You 
say that we seek information, that we seek a dialogue, that the 
President seeks a dialogue. How can we have a dialogue, when we 
don't know what's in the details of the President's plan? We 
need to know the details of that, so that we can then have a 
real dialogue. Can you respond?
    Secretary Snow. Well, I'll try, Senator. The President has 
set up his proposal that's fairly detailed on the personal 
accounts and how those would work, setting aside up to 4 
percent of income, up to $1,000 growing at $100 a year plus the 
wage index, with a lot of other details.
    On the solvency side, the President has said we need to 
have a permanent solution. It has to be done in a way that 
doesn't adversely affect retirees or near-retirees. And he's 
sent up a number of proposals. I think this came out of the 
State of the Union message on ways that you might fix the 
sustainability, how you might put it on a solvent course. That 
included going to a price index versus a wage index and 
changing the formula for calculating inflation on benefits and 
changing wage indexing and some means-testing and so on.
    His point in sending that up was, these are good ideas. He 
subsequently said he sees merit in this Posen proposal I 
mentioned. And he's saying, if you, the Members of the 
Congress, the Republican side, Democratic side, like these 
ideas, I want to work with you, if you've got better ideas I 
want to work with you.
    And the President's view is that out of this dialogue about 
these proposals, having to find the problem will get the best 
result. At some point maybe it will be necessary to come 
forward with a more detailed proposal. But the current 
hypothesis the President's working under is that laying it out 
the way he has is best calculated to get good results in the 
end. People can disagree on that, I agree.
    Senator Byrd. Mr. Secretary, I thank you. I'll submit 
further questions. I don't think much of the idea of waiting 
beyond mid-term to let the Congress and the people of the 
country know what the details are of the President's plan. 
Let's hear it from the President.
    Thank you, Mr. Secretary. Thank you, Mr. Chairman, and 
thank you, Senator Murray.
    Senator Bond. Thank you, Senator Byrd. Senator Murray.
    Senator Murray. Thank you, Mr. Chairman. Mr. Secretary, I 
understand that the Treasury Department has reportedly formed a 
Social Security war room that included hiring five full-time 
employees. The stated purpose of the Social Security 
Information Center, as it's named, is to monitor political 
reaction to the administration's Social Security proposal, as 
well as to coordinate public affairs activities for it.
    Our appropriations bill has included a provision for dozens 
of years that states the following, and I want to read it out 
to you: ``No part of any funds appropriated in this or any 
other Act shall be used by an agency of the executive branch 
other than for normal and recognized executive/legislative 
relationships for publicity or propaganda purposes and for the 
preparation, distribution, or use of any kit, pamphlet, 
booklet, publication, radio, television, or film presentation 
designed to support or defeat legislation pending before the 
Congress, except in presentation to the Congress itself.''
    Mr. Secretary, do you have any reason to believe that any 
of the activities of this Social Security Information Center or 
any other part of your agency could be in violation of that 
provision?
    Secretary Snow. No, most definitely not, Senator. The 
President has identified Social Security as a priority. I serve 
as the managing director of the Social Security Trustees. The 
actuary of the Social Security system has pointed out in the 
reports and told the trustees that the system isn't 
sustainable.
    I think we have a responsibility, given the financial 
condition of Social Security, to talk to the country about it, 
inform the country, have the dialogue with the country, and lay 
the foundation through that dialogue of public information, and 
that's what this is, public information, lay the foundation 
through that broad-based public information dialogue to----
    Senator Murray. Well, Mr. Secretary----
    Secretary Snow [continuing]. To get some answers.
    Senator Murray. Is the Treasury Department engaged in 
providing funds in the form of compensation for any opinion 
leader or any media personality for the purpose of advancing 
the President's Social Security----
    Secretary Snow. No.
    Senator Murray. No? Okay.
    Secretary Snow. This office is four or five people. It's a 
normal public affairs function that serves under the Assistant 
Secretary for Public Affairs, Rob Nichols, who oversees the 
entire office, and it's funded entirely out of his executive 
budget.
    Senator Murray. Okay. Has the Department used any of those 
funds to produce television or radio segments that address the 
issue of Social Security that have been disseminated to media 
outlets?
    Secretary Snow. Not that I'm aware of, Senator. I'll check 
and see. I don't think so.
    Senator Murray. Okay. Have you taken any safeguards to 
ensure that any elements of your Department, especially the 
Social Security information center, are not in violation of the 
law as it relates to the promotion of legislation that's 
pending?
    Secretary Snow. Senator, the activities of this office are 
reviewed by the Inspector General and they're reviewed by the 
general counsel. Both parts of Treasury are peopled by very 
able staff, and they know our commitment to living within the 
rules of the law. So, no, I have no reason to be concerned 
there.

                            TAXPAYER SERVICE

    Senator Murray. Thank you very much. I appreciate that. Mr. 
Secretary, last year your Department testified that the key to 
getting greater compliance with our tax laws was through a 
combination of enforcement and taxpayer service. This year, 
however, you are poised to make significant cuts to taxpayer 
services in order to pay for your requested increase in 
enforcement. These cuts, as I had talked about, are closing 
taxpayer assistance centers, reducing telephone service, 
eliminating phone-routing sites, discontinuing filing by 
telephone. All of these are used by millions of taxpayers and 
businesses.
    And I wanted to ask you today why your agency abandoned its 
position regarding the important balance between taxpayer 
services and enforcement?
    Secretary Snow. Well, Senator, I don't think we have. It's 
a balance we always strive to reach. It's never easy, but it's 
certainly our objective to be balanced in law enforcement and 
in customer service.
    Senator Murray. Are you concerned that any of these 
reductions will result in less compliance with the tax code?
    Secretary Snow. Senator, I don't think so, but that's 
something that we will monitor. This is a running dialogue when 
I meet regularly with the IRS Commissioner, and he knows my 
deep concern in seeing that the IRS find that middle way where 
they're collecting the revenues, enforcing the law, creating an 
environment of law enforcement, but doing so in a way that 
respects the rights of taxpayers and treats them with dignity.
    On that very subject I had a long discussion yesterday with 
Nina Olson, the head of the taxpayer advocacy part of the IRS, 
and we do our best. I'm sure we make mistakes, but we do our 
best to try and find the middle ground. And with respect to the 
Taxpayer Assistance Centers, we're going to monitor that. We 
think that it's the right thing to do, but we're going to 
continue to monitor that to make sure that's the case.
    Senator Murray. Well, I hope we do monitor it. I'm worried 
that it will monitoring something that's already closed, it'll 
be too late to start it. But I did--you mentioned in your 
remarks at the beginning your reprogramming request for fiscal 
year 2005?
    Secretary Snow. Yes.
    Senator Murray. Well, given the priority that your budget 
places on tax and law enforcement, I'm kind of mystified as to 
why this reprogramming request asks us to transfer $11.5 
million out of tax law enforcement to Business Systems 
Modernization. Can you address that?
    Secretary Snow. Yeah. Again, we're just trying to get the 
balance right, and getting that balance right is something that 
sometimes requires some movement of funds from one pocket to 
another or one box to another box.
    Senator Murray. My time is up, Mr. Chairman.

                  OFFICE OF INTELLIGENCE AND ANALYSIS

    Senator Bond. Thank you, Senator Murray. Mr. Secretary, 
I've asked you about intelligence operations and I want to 
follow up. Can you explain to us in simple terms what you're 
doing with OIA and the relationship with OFAC and FinCEN. I'd 
like to know what you think OIA's appropriate role is, 
especially when it appears to be duplicating some of the work 
of OFAC and FinCEN? In addition, has OIA produced any analytic 
product for Treasury or the intelligence community?
    Secretary Snow. Yes, Senator, but it's a new part of the 
Treasury. It's going to be a very important part of Treasury. 
It's going to underpin the whole Department actually, because 
everything rests ultimately on good intelligence. Having a 
strong intelligence component of the Department means we get a 
seat at the table with the other intelligence agencies of the 
United States Government, and that seat at the table with real 
capacity, with real status and resources means that we're going 
to be much more effective in drawing information, sharing 
information, and having the confidence of others in the 
intelligence community.
    And that's really the objective here, having the confidence 
of others in the intelligence community, having a strong seat 
at the table, and being able to play effectively in the 
intelligence-sharing arena with the other 15 or 16 agencies of 
the Federal Government who were involved in intelligence.

                               BSA DIRECT

    Senator Bond. You have delegated responsibility to 
administer the Bank Secrecy Act, or BSA, to FinCEN, and last 
year the committee provided $5 million over the President's 
request for FinCEN to complete the first phase of BSA Direct. 
Do you support the BSA Direct project, and what's its current 
status?
    Secretary Snow. Senator, I very much support it. I noted 
your comments in your opening statement on that. I share those 
views that it should be under TFI, it should be under FinCEN, 
and we hope to have that BSA Direct completed by, I think it's 
September or October of this year, where then FinCEN would have 
its own secure data system.
    Senator Bond. Do you think BSA Direct is going to improve 
the security gaps of BSA data as the GAO reported?
    Secretary Snow. Yes, absolutely. I think it will, and 
that's one of its key purposes.
    Senator Bond. What's the relationship between the IRS and 
FinCEN in the sharing of data, and what safeguards and 
firewalls are in place?
    Secretary Snow. Well, Senator, historically of course the 
Detroit Computing Center has been a source of substantial 
repository of data that was used. It was the principal data 
center. What we're doing is moving off of the dependence on the 
IRS data system to BSA Direct, which will then give FinCEN 
control over the data it needs to carry on its activities. I 
think it'll be a much better arrangement.

                             CUBA SANCTIONS

    Senator Bond. Let me turn to trade. I'm a supporter of 
trade sanctions reform, the Export Promotion Act of 2000, and 
the Agricultural Export Facilitation Act. They first cleared 
the way for agriculture exports to Cuba. The second reforms the 
requirements of OFAC regulations that are frustrating farmers' 
efforts to sell in the market.
    Congress has spoken clearly that there's a significant 
growing market for U.S. agricultural goods in Cuba, which has 
grown to over $400 million a year. However, the OFAC rules 
requiring advance cash payment or a letter of credit are 
essentially frustrating the efforts of U.S. farmers ability to 
sell to Cuba. This has all the earmarks and as well as smelling 
like a regulatory effort to stop agriculture trade with Cuba.
    I don't think we can kick away a $400 million export 
market. If that is not the intent, what was the compelling need 
to issue the regulations? How are the concerns of farmers, the 
reason for passing the legislation, taken into account? And I'd 
like to hear an explanation of what's happening.
    Secretary Snow. Well, I understand this ruling has sparked 
some interest in the Congress.
    Senator Bond. A master of understatement, Mr. Secretary. I 
give you credit for that.
    Secretary Snow. And it came about, Mr. Chairman, because of 
a request from financial institutions for a clarification of 
the so-called cash in advance policy. And cash in advance is 
the term of art used in the statute, and the OFAC lawyers, when 
they looked into that request for clarification, determined 
that the best statutory construction was cash in advance of 
shipment.
    There had been some people in the trade who were complying 
with it through cash in advance of title transfer or cash in 
advance of lading transfer. And in looking into it and thinking 
about it, the lawyers at the Department, the lawyers at OFAC 
and then at the General Counsel's office, reached the 
conclusion that the better reading of cash in advance was that 
it meant cash in advance of shipment.
    Senator Bond. We'll have to help the lawyers understand 
that better. Senator Murray.

                          TAX AND TRADE BUREAU

    Senator Murray. Thank you, Mr. Chairman. Mr. Secretary, I 
talked a little bit about the wine industry in my State in my 
opening statement, and I wanted to ask you today about the 
large number of user fees you have in your budget request. In 
one small agency, the Alcohol and Tobacco Tax and Trade Bureau, 
you're asking to impose five new or increased fees equaling 31 
percent of the agency's budget.
    I'm told there's no direct relationship between the actual 
services the wine-making industry receives from TTB and the 
fees you now want to impose on them. And I want to know why 
there's no correlation. And wouldn't you agree that if there's 
no correlation that these really are new taxes and not user 
fees?
    Secretary Snow. Senator, I think the users, the people who 
get services from TTB, get something of value, and these 
charges or fees are designed to reflect some of the value that 
is received by the users back on to the users. The goal is to 
have the industry pay for some portion of the benefits that it 
gets.
    Senator Murray. Well, are you aware that the wine industry 
already pays $550 million in Federal excise taxes every year? 
How did you ever come to the conclusion they needed to pay 
more?
    Secretary Snow. Well, Senator, the banks fund the Federal 
Reserve and the thrifts fund OTS, the national banks fund the 
OCC. There's a well-established tradition in this country that 
if you're regulated, some portion of the costs of the 
regulatory activities should be borne by the regulatees.
    Senator Murray. Well, let me also ask you, I know your 
agency is planning to penalize vineyards that don't file their 
certifications electronically by charging a higher fee to use 
paper filing. But I'm told by the industry that they have a lot 
of problems with the electronic filing system. They have 
difficulty registering just to use it, it often rejects their 
label graphics, and when those labels are rejected, the system 
only cites the portion of the regulation the labels violated, 
which doesn't actually tell the vineyard what the problem is 
and how they can fix it.
    You know, I also should tell you that the paper processing 
system isn't much better. TTB claims to be processing labels in 
9 days, but I'm told it takes anywhere from 2 to 4 weeks. And I 
wondered if you considered improving the online processing 
system to make it workable for the industry before we started 
imposing fees.
    Secretary Snow. Well, Senator, I appreciate your comments. 
I will commit to you that I will look into that and get myself 
better informed about the paperwork burden and the feasibility 
of moving to electronic filing.
    Senator Murray. Do you know if there's any--are there any 
new initiatives to make them more user-friendly, or is--the 
only new initiative is user fees? That's what I'm hearing from 
the industry.
    Secretary Snow. Well, I think TTB gets pretty high marks 
from the industry by and large. I think they're thought to be a 
responsive agency that tries to do things in ways that are 
reasonable. But we have Harry Damelin, the very able new head 
of the Inspector General's office here. He's listening to this. 
I'm sure he's taking this in and he'll help us take a look at 
that.
    Senator Murray. Okay, very good. Well, I look forward to 
hearing more from you on that, because it really is concerning 
many of us. And I understand the chairman has a wine industry 
in his State as well, so I'm sure we'll be able to work on 
that.
    Senator Bond. Long before yours.
    Senator Murray. Long before mine, I'm told. Well, maybe we 
should compare. We can have a taste test. And professionally, 
of course.
    Let me ask one more quick question. In the interest of 
better isolating terrorist financing, your Department is 
considering a proposal to track financial wire transfers into 
and out of the United States. Those wire transfers represent 
more than $6 trillion worth of activity per day, and while some 
officials and experts believe that wire transfers might contain 
useful information to track down terrorists, others are very 
concerned that the volume might overwhelm any tracking system 
you can put in place. And others are worried that your efforts 
might invade the privacy rights of individuals and businesses.
    In my short time left, can you tell me how the Department 
can realistically monitor this, and how we're going to monitor 
the privacy of individuals?
    Secretary Snow. Senator, those are the very issues that are 
under review in this analysis that's been undertaken. And we 
will keep you posted as we move forward with our thoughts on 
that subject. But it is an issue that needs to be addressed.
    Senator Murray. Are you requesting additional funds to do 
that monitoring, or how is that going to----
    Secretary Snow. I think there's a study underway right now 
that's adequately funded.
    Senator Murray. So do you need--do you anticipate any new 
funding needed to monitor this, both for privacy and----
    Secretary Snow. Well, if there is one, we're some distance 
away from having a proposal on this, and as that is thought 
about and developed, we'll certainly think about the budgetary 
side of it and appropriations side of it as well. But I don't 
have an answer to you yet.
    Senator Murray. Thank you very much, Mr. Chairman.
    Senator Bond. Thank you, Senator Murray. Senator Dorgan.

                             CUBA SANCTIONS

    Senator Dorgan. Mr. Chairman, thank you very much. 
Secretary Snow, I apologize for being late. I was over on the 
floor of the Senate. But I do have some questions, and I 
understand my colleagues have asked some of them. In fact, I 
was pleased to hear the question from the Senator from 
Missouri, the Chairman, about Cuba and family farmers.
    Let me just make a point on that. You know, the 
Congressional Research Service in writing says that it believes 
what the Treasury is doing here does not conform to the law. So 
I don't know what lawyers you have over in OFAC that are giving 
advice there, but at least the Congressional Research Service 
says they believe you've gone outside of the law to do this.
    Before I ask you about Cuba, I should tell you that 
Secretary O'Neill sat at that table before you, and I was 
chairing the subcommittee at that point, and I asked him 
repeatedly about Cuba and said, you know, just let me ask you a 
question, wouldn't you prefer to use the resources at OFAC, the 
Office of Foreign Assets Control, to track terrorist financing 
rather than track people who are under suspicion of vacationing 
in Cuba, or tracking Joan Scott, who delivered free Bibles in 
Cuba, tracking Joan Sloat, who took a bicycle trip with a 
Canadian bicycling group, or tracking the guy who took his 
dad's ashes to be distributed at the church his dad used to 
minister in.
    I asked Secretary O'Neill three times, wouldn't you really 
sooner use OFAC to track terrorist financing rather than go 
after these people who are suspected of taking a vacation in 
Cuba or whatever. And finally on the third or fourth time, he 
said, you know, of course, of course. And within hours, he was 
upbraided with a press release from the White House. So I'm not 
going to ask you a question that's going to get you in trouble. 
My intent isn't to ask you a question for that reason, but 
wouldn't you sooner use the assets of the----
    All right. Skip that question. You can put your answer in 
writing if you'd like and I promise I won't share it with 
anybody, Mr. Secretary.
    The Chairman asked the question about the issue of 
shipments to Cuba, the agriculture shipments, and we have 
something called the Trade Sanctions and Export Enhancement Act 
of 2000. I helped write it. And it was put in the bill--these 
are sanctions that--it says you cannot do anything to impede 
the movement of agricultural products unless there's a vote of 
both the House and the Senate to do so.
    And clearly this is a--what you have done is a prohibition 
or a condition or a restriction on the export of agricultural 
commodities. It is clearly done to impede the movement of 
agricultural commodities. Everyone understands that and 
believes that. And I would just ask, have you, Mr. Secretary, 
studied the Congressional Research Service report that says on 
its face they believe that what Treasury has done here is not 
legal?
    Secretary Snow. No, Senator. I haven't. But I'm sure the 
lawyers from Treasury have, but I have not.
    Senator Dorgan. All right. Do you know how many lawyers in 
OFAC are tracking vacationers to Cuba and tracking all these 
issues dealing with agricultural sales to Cuba? My 
understanding is it's something like 21, which is a multiple of 
4 of those who are tracking terrorist financing.
    Secretary Snow. Senator, I don't have that number in my 
head, but I will confirm----
    Senator Dorgan. Would you send that to me?
    Secretary Snow [continuing]. It for you. Yeah, I will send 
it to you.
    Senator Dorgan. I would hope that just behind the curtain 
you'll be a lonely voice in the administration saying, let's 
just stop the obsession here. We don't like Castro. The 
quickest way to get rid of Castro is through trade and tourism, 
just as we believe that engagement with communist China and 
communist Vietnam has enhanced--moving them in the right 
direction is enhanced by trade and tourism. We believe the same 
with respect to Cuba.

                           NEW HOMESTEAD ACT

    But let me ask you two other quick questions if I have the 
time, Mr. Chairman. One is I want to show you a chart. This 
chart shows the depopulation of the heartland. The red are the 
rural counties in America. As you can see, kind of an egg-
shaped in the heartland of America that's being depopulated in 
the last quarter century or last half century.
    And Senator Hagel from Nebraska, Senator Brownback, myself, 
and others have introduced legislation called the New Homestead 
Act. We don't have land to give away anymore, but we clearly 
are seeing a relentless depopulation a century after we 
populated this through the Homestead Act. I'd like very much to 
visit with you at some point about the strategy here. It's 
bipartisan. We've had a big, broad bipartisan group put this 
together, and I'd like to talk to you about that.

                               TAX HAVENS

    Finally, I want to ask you a question about tax havens. Let 
me express my concern. I think Senator Murray expressed concern 
about closing walk-in taxpayer assistance centers. I want to 
register on that. But I've introduced some legislation on tax 
havens. I read the other day that Exxon has the largest 
quarterly profit in the history of humankind, $8 billion for 
the quarter, and I know that Exxon has 11 tax haven 
subsidiaries in the Bahamas, not for the purpose of doing 
business there, but for the purpose of helping run the 
corporation out of a mailbox and reducing their tax burden in 
the United States.
    And I've introduced legislation that says, you know, if 
you're moving to tax havens not for the purpose of doing 
business there, but for the purpose of avoiding taxes, you're 
going to be taxed just as if you never left this country. And 
I'm wondering, give me your observation about that approach.
    Secretary Snow. Well, Senator if the activity is done 
primarily to avoid taxes and not for a profit undertaking, 
profit-making purpose, then it shouldn't enjoy the tax 
advantages. I mean, that's part of the policy that we're trying 
to see incorporated in the enforcement. It's the essence of 
this doctrine that lies behind so much of our enforcement. If 
it doesn't have a legitimate business purpose, then you're not 
going to get the tax advantage associated with it.
    Senator Dorgan. But I think you need a change in law to 
accomplish good enforcement here. And I think that when you 
take a look at all of these subsidiaries sort of being 
established, I mentioned Exxon, I mention Xerox, Halliburton, 
so many corporations have set up massive numbers of 
subsidiaries, not for the purposes of doing business, but for 
the purpose of avoiding taxation. I would fully support your 
increased enforcement efforts, but I think you need a change in 
legislation that would say, in those circumstances where they 
set it up exclusively to avoid paying U.S. taxes, they shall be 
taxed as if they had not left this country.
    Mr. Chairman, thank you. I apologize for being late to you 
and the ranking member.
    Senator Bond. Well, we missed you, Senator Dorgan. We're 
glad you could join us. Unfortunately, I'm going to have to 
turn the gavel over to my very capable ranking member because I 
have to go to the floor soon where I have a few things going on 
now.

                               CDFI FUND

    But I want to ask you about two things, Mr. Secretary. I 
mentioned I'm very disappointed in the decision to--essentially 
to eviscerate CDFI. CDFI funds go to financial institutions 
that are serving areas that are underserved by financial 
institutions. And I, as a former Governor, can tell you there's 
a minimum amount of high enthusiasm for using a block grant to 
ensure that underserved areas have financial institutions. It 
just makes no sense.
    What's the administration going to do to ensure that 
financial institutions which are serving underserved areas will 
continue to have the incentive and capacity to continue to 
serve these areas?
    Secretary Snow. Well, Senator, I'm not real close to all 
that's going on in that arena. That's really Secretary Jackson 
and Secretary Gutierrez. But I am pleased that the most 
important single part of the Treasury programs in this area, 
something called the New Markets Tax Credit, will remain fully 
funded as part of the Treasury Department.
    With respect to the other consolidation of these programs, 
primarily in Commerce as I understand it, the view is that 
these programs will be more effective if they're streamlined 
and consolidated.
    Senator Bond. I just disagree on that. But since you 
mentioned New Markets, CDFI would be funded at only $7.9 
million. GAO found in a January 2004 report that under the New 
Market's formula, 39 percent of all census tracks qualify for 
these tax credits. I'm wondering if there's any effective 
administration in the Treasury Department to know that it's 
benefiting, truly benefiting economically distressed programs. 
What quantitative methods are used to determine if this program 
works? And what's the Treasury doing to ensure these tax 
credits are meeting benchmarks, and can you quantify the 
success or failure of the program?
    Secretary Snow. Mr. Chairman, that's a heck of a good 
question. This program----
    Senator Bond. I thought it was too.
    Secretary Snow. It's a heck of a good question.
    Senator Bond. Because I really--I have great questions 
about New Markets. I'm afraid it's just throwing money out the 
door.
    Secretary Snow. Well, it's the very question that I have 
put to the folks who oversee the program. Having participated 
in a number of these meetings though with local participants, 
you get a sense when you're out there and see a community--they 
only go to poor communities--that bringing private capital with 
the tax credits, with community leaders, produces some good 
results. Now, whether in the aggregate the benefits 
significantly or marginally or don't exceed the costs of the 
tax credits is something that we have to do more analysis on. 
It's probably too early to say. It would be too early to say.
    Senator Bond. I tell you what, I've never gone to a 
community that has gotten some Federal money, either from 
direct strategic investment or a program like this that doesn't 
turn out a bunch of people who are very happy and enthusiastic 
about the success of the program that's funding them. That's 
not hard to do.
    But I would--I'd welcome if you would provide for the 
record the benchmarks, how we know they're working, what you're 
doing as to oversight, what standards you expect them to meet, 
and how are you judging the effectiveness.

                     BUSINESS SYSTEMS MODERNIZATION

    Let me go back to one question that I am very much 
concerned about, which as I said, I raised with the 
Commissioner of the IRS; namely, the Business Systems 
Modernization. Two billion dollars going down a rat hole may be 
a little harsh, but almost every procurement activity is behind 
schedule, over budget, and when the contractor delivers 
software, we have been told it does not meet performance 
requirements.
    Since you've come from the private sector, Mr. Secretary, 
would you have spent $2 billion on the program? Do you believe 
the improvements are worth the money? And if you were directly 
in charge, would you consider pulling the plug, or what 
criteria would you establish to make sure it works?
    Secretary Snow. Mr. Chairman, like so many other large 
information systems projects, this one was probably overly 
grandiose at the beginning, promised too much and tried to do 
too much. I think the requirements were not adequately defined. 
They were poorly defined. I think the IRS was trying to do too 
much too fast, and the results show.
    Commissioner Everson is taking, I think, a very 
enlightened, intelligent, thoughtful view, let's try and set 
forth to targets for the BSM that are achievable, let's not 
overreach. And he and the very able CIO there, Todd Grams, are 
getting good results. I think last year was probably the best 
year ever in the history of the BSM initiative. I know that 
Commissioner Everson takes a direct personal interest in it. He 
knows that the story there is not a good one and that there's a 
lot of recouping to be done.
    But the updates of the Customer Account Data Engine are 
really showing good results. They've taken me through that. I'm 
very pleased. A long way to go, we can't declare victory. But I 
think sizing it better, having a better sense of requirements 
and milestones with a smaller budget actually is producing 
better results than the very large budget that formerly was 
standard operating practice.
    Senator Bond. Mr. Secretary, I had suggested to OMB 
Director Bolten that with some $60 billion going out to IT 
programs that I think OMB should have, in the past and 
certainly now, a real talent pool with high-class capabilities 
to make sure that we don't continue to run into the IT problems 
which we see throughout the government; problems we see at 
every agency and in every IT solicitation. Consequently, I 
believe we need a professional and expert IT solicitation panel 
that can ensure Federal agencies can adequately address their 
IT needs.
    With that, again, I apologize, I have to go to the floor, 
and I will now turn the hearing over to Senator Murray. 
Senator. Thank you, Mr. Secretary.
    Secretary Snow. Thank you, Mr. Chairman.

                               HR CONNECT

    Senator Murray [presiding]. Thank you, Mr. Chairman. Mr. 
Secretary, in my opening statement I talked about the concern I 
had about the continuing reports we are getting regarding 
mismanaged and costly procurements at your Department, and I 
want to talk about one of them this morning in the hope that 
you'll tell us that the agency is implementing some lasting and 
effective improvements.
    Five years ago, the Treasury Department decided to expand 
IRS's effort to develop a new common human resource information 
system to all of Treasury's offices and bureaus. It's known as 
HR Connect, and it's gotten excessively expensive and it is not 
delivering on its original goals.
    Can you tell us why a similar human resources system at the 
Coast Guard and the Ag Department cost $24 million and $15 
million respectively, but HR Connect is costing you $173 
million?
    Secretary Snow. I'd want to talk to the people who were 
directly responsible for it to get a better feel for those 
numbers. HR Connect is, I understand, currently in operation. 
And--well, I would say it differently--it's in the operations 
and maintenance phase of its life cycle, and major systems 
development has been completed. The initiative though is far 
from complete in its totality, and the final steps of 
transition from development to operations and maintenance are 
expected to be completed for fiscal year 2006. And it's 
something that I'll have to look into to get you a more 
complete answer and I'll do that.
    [The information follows:]
    
    
    
    Senator Murray. I would like to know, the Inspector General 
reported recently that the IRS let the contractor for this 
system make decisions that the agency itself should have been 
making. The IG said that the IRS's oversight of this program 
has been weak to non-existent. In fact, when the Appropriations 
Committee noted the cost growth and asked for a report on the 
program, the IRS even let the contractor prepare that report 
for this committee. These problems are fairly similar to what 
we've seen with the IRS business system modernization.
    Can you share with this committee, is the Treasury 
Department and IRS incapable of conducting routine management 
and oversight of programs like these?
    Secretary Snow. Oh, I don't think so. I think that would 
overstate the case. From my experience in private life, 
difficulties with new information systems are not unknown to 
the best-run organizations. And I'll look forward to talking 
with the HR people and with the IG's office to get a better 
sense of this situation so I can talk to you more.
    Senator Murray. Are there any measures being implemented 
across the Department to improve management and contract 
execution that you can share with us?
    Secretary Snow. Well, yes, we talked about some of the 
major ones already, the BSM at the IRS is the biggest, most 
far-reaching. And I think because of the focus that's been 
brought to bear on it, we're seeing real results. We're seeing 
that setting up understandable requirements with reachable 
sorts of targets and goals with people directly accountable 
with milestones is producing results. That's the model that 
always produces results in the information systems arena, and 
it's the one we're going to be taking throughout the 
Department.

                             TBARR PROJECT

    Senator Murray. Okay. Well, let me ask you about one other 
area, and that's the Treasury Department's modernization of its 
building. Since 1996, we've been doing this through a program 
called TBARR. After $237 million in appropriated funds and 
significant senior leadership turnover, the main Treasury 
building project still has not been completed and the Treasury 
Annex hasn't even been touched.
    The Treasury Inspector General noted that the direct 
involvement of the Deputy Secretary at one point in the 
building modernization helped improve the project, but now the 
Deputy Secretary has left, the acting Assistant Secretary for 
Management, who's been involved in this project has left, and 
so have quite a few other senior Treasury officials.
    With the record of mismanagement with this program and all 
the vacancies, how can we be assured that the remaining funds 
we're asking for this year, which is $10 million, will be 
managed properly?
    Secretary Snow. Well, the Deputy Secretary, of course, is 
now the Secretary of the Energy Department, so he's still part 
of the administration, somebody I----
    Senator Murray. But he doesn't have direct oversight of 
this program.
    Secretary Snow [continuing]. See regularly. And we've 
appointed a very able, very competent Acting Deputy Secretary 
to continue to oversee this initiative. We have in the 
pipeline, I hope receiving approval very shortly, a new 
Assistant Secretary for Management, who knows this is a 
priority to be overseen. And all I can do is tell you that we 
are committed to getting this project done with the $10 million 
that we've requested.
    Senator Murray. Well, am I correct that fiscal year 2006 is 
the final year you're going to be requesting funds for TBARR, 
even though there's been no work done yet on the Treasury 
Annex?
    Secretary Snow. Yeah. The focus here is on the main 
building, the main Treasury building, which really is a 
treasure. But as with all buildings that go back a century 
plus, it's got to be modernized and updated, and that's costly. 
But it's an appropriate investment in the Treasury building 
which I think is the third oldest building in continuous 
operation. Abraham Lincoln once walked the halls. It's historic 
and we need to preserve its historic role in our country's 
history.
    Senator Murray. Do you anticipate requesting any funding 
for repair of the Treasury Annex through the TBARR program, or 
actually through any other program?
    Secretary Snow. Well, we're going to need to have some work 
done on the Annex. Some work has been done, some safety work, 
some work on the elevators, and some of the things that are 
directly related to the safety of the people in the building. I 
think we will now need to have a maintenance budget at the 
Department, a regular funded maintenance budget. And one of the 
things in the past we haven't had was a maintenance budget, and 
of course if you don't maintain these great old buildings, they 
deteriorate on you, and then the cost is even greater.
    Senator Murray. Senator Dorgan has another question. We'll 
have one final one when he is through.

                             TRADE DEFICIT

    Senator Dorgan. Mr. Secretary, again thank you for being 
with us today and answering questions. I know that you came to 
our State recently, and we're always honored when a Cabinet 
official visits North Dakota. You were there to talk about 
Social Security, and I suspect, although I was not able to be 
there because we had votes that day, I expect that you agree 
with President Bush that there is a ``crisis'' of sorts in 
Social Security. I've observed previously that Social Security, 
according to the Social Security actuaries and the CBO, 
somewhere between those two, Social Security will remain fully 
solvent until President Bush is 106 years old. That is not a 
crisis, although I admit that perhaps we'll need some 
adjustments along the way, not major surgery.
    But I think there is a crisis, and I think there's a crisis 
in international trade. Our trade deficit is a dramatic 
deficit. We're choking on trade debt. The China debt was up 30 
percent last year to $162 billion with that one country alone. 
Tell me, how do you assess our trade situation? Is this debt 
serious? Troublesome? Do you think our trade policies are 
working?
    Secretary Snow. Senator, thanks, I had a good visit to 
Bismarck, and Bismarck High is a great school. So is the 
University of Mary that we visited.
    The issue of Social Security and the crisis, that's 
semantics. It's a problem that needs to be addressed, and I'll 
leave others to put the adjective on it.
    The trade deficit is also serious, and it's something we 
are trying to address. A large part of the trade deficit grows 
out of the fact that the United States is growing faster, 
higher GDP growth, and creating more disposable income than our 
trading partners, our major trading partners, Japan, the Euro 
zone, and so on. Thus, we are buying more from them than they 
are buying from us. We also have a lower propensity to save, 
higher propensity to consume, and some of that shows us in our 
appetite for their goods.
    It's important for our trading partners to grow faster. 
It's one of the messages we try and take to them. You know, you 
may not be able to grow as fast as we would, because your 
population is growing more slowly--but your productivity can be 
as high, and if you have better growth policies, we'll narrow 
the trade gap.
    Senator Dorgan. Mr. Secretary, though, isn't that a 
position that on its face is wrong with respect to China? 
China's growing much more rapidly than we are. Their economy 
is--has a very rapid rate of growth, and yet our trade deficit 
with China is growing dramatically. So on its face, isn't that 
argument--isn't that an argument that doesn't hold water with 
respect to China?
    Secretary Snow. Well, it's an argument that holds water 
with Japan and Germany and France and Italy and Spain and all 
of our major trading partners. Now, clearly China is growing 
very fast, 8, 9 percent. But our exports to China are growing 
at a double-digit rate as well. So we need to keep pressing 
China to open up more and deal with issues like intellectual 
property rights and the thievery of our ideas.
    But I know China's going to continue to grow, I think, at a 
pretty good clip. But our exports are also there growing at a 
good clip. They should grow faster.
    Senator Dorgan. But our imports are growing more rapidly. 
That's why the trade deficit increases. I mean, if you just 
look at one side and portray that as positive when in fact the 
other side is growing much more rapidly. My point is that the 
basic argument, I've heard you make it before, and I think it's 
the administration's position, our trade policies are working, 
and the only problem is our trading partners aren't growing 
fast enough, just take a look at China. China's growing much 
more rapidly than we are, and so is our trade deficit with 
China. I just think that undercuts the debate here about that.
    My own sense about China is that you're right about 
counterfeiting and piracy, but the fact is that China wants us 
to be a sponge for all their trinkets and trousers and shirts 
and shoes and all the things they produce including high-tech, 
and yet they don't want to open their market to us and we sit 
around without the will, the nerve, or the backbone to say this 
is nonsense, we're not going to put up with this anymore.
    This is in many ways about enforcement, it's about good 
trade agreements. I want to just ask you about this, because 
it's--if you are reading about China, the country with whom we 
have the largest growing trade deficit, an alarming trade 
deficit, they are now ratcheting up an automobile export 
industry. They're very quickly putting together an automobile 
industry and they're anxious to have an automobile export 
industry. And in fact one of our major car companies is suing 
China for stealing the blueprints for a car that they're now 
producing.
    In our bilateral agreement with China, not done by this 
administration, done by the previous administration, but then 
all trade negotiators have the same mind set. They want to get 
into a room and reach an agreement as quickly as they can, 
notwithstanding what the agreement is. In our bilateral 
agreement, we agreed with China that on bilateral with respect 
to automobiles, they could impose a 25 percent tariff on U.S. 
cars that go to China and we would impose a 2.5 percent tariff 
on Chinese cars that come here.
    So with a country with whom we had a huge deficit we agreed 
that they could impose a tariff that is 10 times larger in 
bilateral automobile trade. That's not only incompetent, that's 
just nuts. And yet, we now watch the Chinese gear up for an 
automobile export trade after we have this fundamentally 
unsound trade agreement with them. I mean, what do you make of 
that?
    Secretary Snow. Well, Senator, I'm not at all happy with 
the situation. Trade's got to be a two-way street as you're 
suggesting, and the Chinese need to accelerate their 
commitments to WTO, they need to move to a flexible currency, 
they need to open up their markets, they need to enforce the 
piracy laws and the counterfeiting laws and stop stealing our 
intellectual property. There's a lot to be fixed there, a lot 
to be fixed, and probably including going back and looking at 
some prior agreements.
    Senator Dorgan. Madam Chair, one more point if I might, and 
then I'll conclude. You know that much of our trade issue with 
China's foreign policy, in fact, the interagency task force 
recommended that we take action against China based on wheat 
trade, and the answer was, no, that would be a too much of an 
in-your-face thing to do. So this is all soft-headed foreign 
policy.
    But I think that it's important for our country to 
recognize our trade deficit is a crisis, it is a genuine 
crisis, No. 1. No. 2, I think a little backbone would be good 
for us. I think, you know, if we told the Chinese, you know you 
have all these goods you want to sell, why don't you try 
selling them in Zambia for the next year and see what kind of 
market you have, because we are a cash cow for the China hard 
currency needs at the moment given our trade deficit. And the 
fact is China needs this trade relation. If--we just need to 
have some backbone to say to the Chinese, we're going to take 
action if you don't own up to your responsibilities.
    Well, Mr. Secretary, you and I will have further 
discussions about this. I would like to send you my--on the tax 
haven issue, with respect to treating them as if they never 
left, I would like to send you that bill and ask for the 
comments of the Treasury Department.
    Secretary Snow. I'd be delighted, Senator, and I look 
forward to talking to you about it.
    Senator Dorgan. Thank you.

                    BONNEVILLE POWER ADMINISTRATION

    Senator Murray. Thank you very much. Mr. Secretary, I just 
have one other issue, and that is, last week Director Bolten 
was here with us, and I asked him about borrowing authority for 
the Bonneville Power Administration, and I'm curious as to your 
views on this issue.
    In your administration's budget, you have proposed to hold 
certain financial transactions like third-party financing 
against BPA's borrowing authority. As I told Director Bolten 
last week, this proposal is rich in irony because it 
contradicts the President's own fiscal year 2003 budget. For 2 
years the administration opposed the Northwest delegation's 
effort to raise BPA's borrowing authority by $1.4 billion. In 
the 2003 budget, the President finally called for increasing 
this borrowing authority by $700 million, or actually half of 
what was needed.
    But the budget also said that BPA should use other 
financing means like third-party financing to meet the 
remainder of its investments' needs. Yet here we are again 2 
years later and your administration proposed to undercut the 
ability of BPA to use third-party financing by holding these 
and other types of transactions against their Treasury 
borrowing authority limit.
    Last week Director Bolten said he'd get back to me on this, 
and I expect you'll have to do the same. But I would recommend 
that before the administration proposes legislative language 
like this, we ought to have a common understanding on whose 
debt this is.
    And I just wanted to ask you, do you believe BPA's 
investments using third-party financing are liabilities of the 
U.S. Treasury or are they liabilities of the Northwest rate 
payers?
    Secretary Snow. Senator, I really would have to look into 
that, because I don't know enough about it to offer a 
thoughtful opinion, and I'd be reluctant without more knowledge 
to answer----
    Senator Murray. Well, this is a----
    Secretary Snow [continuing]. Such a complicated question. 
But I will look into it and I will----
    Senator Murray. This is a critical question for us. And 
believe me, rate payers in the State of Washington have really 
been hit from Enron on, and the answer to this question is 
absolutely critical. So I would like a response back as soon as 
possible from you.
    Secretary Snow. I will commit to do that.
    [The information follows:]
                 Bonneville Power Administration (BPA)
    The administration has encouraged BPA to seek private sector 
participation and joint financing of its transmission system upgrades 
and other capital investments that are structured to ensure that the 
financial risks of these investments are jointly shared by BPA and the 
private sector participants involved. When financial transactions are 
structured in this way, any resulting BPA obligation should not be 
counted against BPA's $4.45 billion statutory limit on the aggregate 
amount of debt that BPA has outstanding at any one time (BPA debt 
limit). For this reason, the administration's proposal excludes from 
the BPA debt limit third-party financings in which the private sector 
bears real financial risk, such as operating leases.
    In contrast, the 30-year capital lease transaction that BPA entered 
into in 2004 is an example of a transaction involving debt that should 
be counted against the BPA debt limit. Under this transaction, a third 
party issued bonds backed solely by lease revenues required to be paid 
by BPA and used the proceeds to finance the cost of BPA's acquiring, 
constructing or equipping certain new transmission assets. While the 
third party holds title to the assets, BPA has exclusive use and 
control of the assets during the 30-year lease period and, at the end 
of this period, BPA has the option to acquire the assets at minimal 
additional cost. The third party that issued the bonds has not borne 
any real financial risk. BPA's obligation to make lease payments under 
the capital lease is unconditional and not terminable unless BPA makes 
arrangements for the bonds to be repaid in full. Since repayment of the 
bonds depends wholly on BPA's making its guaranteed lease payments, the 
bonds are, in substance, a form of BPA debt which should be subject to 
the BPA debt limit. Under the administration's proposal, such debt 
would be subject to the limit.
    Despite the apparent perception of market participants that debt 
issued under the 2004 BPA third-party lease transaction is implicitly 
guaranteed by the United States, and the fact that BPA is a wholly-
Federal entity in the Department of Energy, this debt is not backed by 
the U.S. taxpayer. As a matter of sound budgetary and financial 
practice, the administration supports having statutory limits on 
Federal agencies' debt regardless of whether or not the debt is backed 
by the U.S. taxpayer. A central purpose of BPA's debt cap is not just 
to limit its liability to taxpayers, but also to regulate and limit its 
financial risk exposure for its ratepayers. An effective BPA debt 
limit, one that applies to all forms of BPA debt, will make BPA's 
financial condition more transparent to its ratepayers and other 
stakeholders and serve as an important financial control device.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Members of the subcommittee who have 
additional questions will submit them for your response, and 
they will also be included for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

              Questions Submitted by Senator Patty Murray

        MISMANAGEMENT OF IRS EMPLOYEE TUITION ASSISTANCE PROGRAM

    Question. Several years ago, the IRS established a tuition 
assistance program to help employees improve their accounting and 
information technology skills. This program was also supposed to 
improve training at taxpayer assistance centers since these centers 
have not had a good record at providing taxpayers with accurate 
guidance. To date, it appears that more than 60 percent of the funding 
for this program--some $7.2 million--has been used for overhead while 
only the remaining $2.8 million has gone toward true tuition 
assistance. This problem has persisted while nearly half of the 
employees eligible for the assistance have been denied by the agency.
    Given the fact that your Department has told us that they are 
trying to enhance the skills of the IRS workforce, how is it that no 
one at IRS knew that this program was failing so badly?
    What is being done to rectify the problem now?
    Your agency has periodically justified efforts to push Federal jobs 
over to the private sector on the grounds that private employees might 
be better trained.
    Given the way your Department has mismanaged these efforts to train 
your own employees, aren't the employees justified in complaining about 
your efforts to send their jobs to private contractors?
    Answer. Since 2000, when the Human Resources Investment Fund (HRIF) 
was funded and developed jointly with the National Treasury Employees 
Union (NTEU), the IRS has spent $499 million on employee training. This 
included tens of millions of dollars spent on technical training for 
employees in the taxpayer assistance centers and call centers. The HRIF 
was not directed at funding this technical training. Indeed, training 
for skills needed in current occupations is not funded from the HRIF 
but from the operating budget of the IRS business units.
    The amount available for HRIF tuition funding is set at no more 
than 2 percent of the overall training budget. Administrative costs are 
not paid from this allocation, but from general management programs. 
Even though the overhead associated with the HRIF did not reduce the 
amount available to employees for tuition assistance, we are currently 
analyzing the program to determine how to most effectively reduce the 
administrative costs.

      MISMANAGEMENT OF TREASURY COMMUNICATIONS ENTERPRISE CONTRACT

    Question. The Treasury Department let a contract for a new secure 
communications network to AT&T about 4 months ago and the contractor 
began work. I'm told, however, that the remaining project bidders 
protested the contract award, which GAO subsequently sustained. 
Apparently, the bidders protested successfully because your Department 
apparently did not give each of them all of the relevant bid data at 
the same time.
    Mr. Secretary, why was there never a line item in the budget for 
this initiative? Doesn't an initiative of this size and importance 
merit some discussion in your budget documents?
    Please explain to me what happened with this attempt to purchase a 
new communications system and who you are holding responsible for this 
botched procurement?
    Answer. There is no line item in the budget because this initiative 
represents a service that is funded out of the Treasury Working Capital 
Fund (WCF). The WCF, funded by contributions from Bureaus, provides 
common administrative services for the Department. The intent of the 
Treasury Communications Enterprise (TCE) contract was to replace the 
expiring Treasury Communications System (TCS) contract, which is 
currently funded through WCF. The scope of these services focus on 
providing enterprise wide area network data communications services to 
Treasury Bureaus and Offices.
    Treasury and GSA entered into a Memorandum of Understanding (MOU) 
on December 2, 2004 which stated that Treasury would evaluate the GSA's 
Networx services 3 years after the award of TCE. The losing bidders 
argued that this MOU materially altered the basis under which option 
years would be awarded. Treasury did not intend nor did it believe the 
MOU impacted the procurement as the Department fully intended to 
fulfill the option years of the TCE contract provided it represented 
the best value for the government. Consistent with effective IT 
management and procurement principles, the goal was to evaluate the TCE 
contract and determine the most cost-effective long term strategy which 
we did accomplish.
    Question. Secretary Snow, I was pleased to read in your testimony 
that you recognize the important role of the Community Development and 
Financial Institutions (CDFI) Fund.
    The President's Budget justification for the CDFI Fund states that, 
``Historically, for every dollar in investments provided by the CDFI 
Fund, awardees have been able to leverage these grants with over $20 in 
matching funds.'' That is an incredible amount of funds flowing into 
these economically distressed areas, especially considering the small 
Federal investment.
    I was disappointed to see that the President's Budget for fiscal 
year 2006 calls for almost all CDFI funding to be sent to Commerce and 
combined with other community development programs, which will then be 
reduced by approximately a third.
    Under the President's smaller substitute grant program, would all 
current CDFI programs still be eligible?
    Answer. Although the manner in which the CDFI Fund accomplishes its 
mission is unique--through building the capacity of these lenders to 
provide improved access to financial services--the underlying objective 
is not unlike any of the other consolidated programs from the various 
cabinet agencies proposed to be consolidated at the Department of 
Commerce, which holds a primary mission of economic opportunity. 
Commerce has shown great skill in managing its programs and in greatly 
leveraging private sector investment. As currently envisioned, nothing 
would preclude the CDFI industry from being eligible sub-recipients of 
``Strengthening America's Communities'' grant funds from communities 
and States that receive funding.
    Under the Strengthening America's Communities Initiative the 
Treasury Department would focus on its fiscal year 2005 New Markets Tax 
Credit Program which will award $780 million of tax credits using $2 
billion of its investment authority ($0.39 of each investment dollar), 
which is roughly 20 times larger than the CDFI Programs ($40 million in 
fiscal year 2005) proposed for consolidation to the Department of 
Commerce.
    Question. How will you be able to ensure that the new smaller 
substitute grant program would be able to continue to leverage over $20 
for every Federal dollar?
    Answer. These types of details will be determined in close 
collaboration with Congress and stakeholder groups as the 
administration creates legislation for the initiative, which will be 
submitted to Congress.
    The accountability measures and other requirements will reflect the 
administration's belief that local flexibility is more effective than 
Federal control. The administration will set accountability measures 
for the use of taxpayer dollars, requiring communities to show that 
they have made progress toward locally selected goals for development 
(such as job creation, homeownership, commercial development, improving 
blighted or abandoned properties, and increasing the number of 
businesses in their area) in return for being able to determine locally 
how best to spend Federal dollars to meet those outcomes.
    As noted in the previous question, under the Strengthening 
America's Communities Initiative the Treasury Department would focus on 
its fiscal year 2005 New Markets Tax Credit Program which will award 
$780 million of tax credits using $2 billion of its investment 
authority ($0.39 of each investment dollar), which is roughly 20 times 
larger than the CDFI Programs ($40 million in fiscal year 2005) 
proposed for consolidation to the Department of Commerce.
    Question. We understand that the staff that has the expertise in 
this area will not be transferred to the Department of Commerce.
    What expertise does the Department of Commerce have in creating and 
supporting financial institutions that can provide access to affordable 
credit to distressed low-income minority communities that are not 
served by traditional banks?
    Answer. The engine of economic and community development is 
economic opportunity, ownership and job growth. Because the focus of 
this initiative is on economic development, creating local job 
opportunities, and helping communities transition to self-sustaining 
economies, the Commerce Department's mission (job creation, economic 
development, and opportunity) is more consistent with those goals.
    The Fiscal Year 2006 Budget provides funding for salaries and other 
administrative costs to close out grants from previous years. The 
administration will continue to address these questions as it develops 
its legislative proposal, which will be submitted to Congress in the 
coming months. It will provide the necessary authorities to transition 
the programs and ensure the necessary administrative resources to 
support their activities. The President's fiscal year 2006 budget 
provides the Department of Commerce with adequate funding to start up 
the new program in 2006.
    Question. Currently, the CDFI Fund works directly with financial 
institutions, giving resources to institutions that would then provide 
the much needed financial services to these low-income communities. 
However, under the President's proposal, the money would go out to 
States and local entities, and then to financial institutions.
    Won't this make the process less streamlined and merely add one 
more layer of bureaucracy, contrary to the President's justification 
for this consolidation effort?
    Answer. Currently, seven Federal agencies administer 35 different 
grant, loan, and tax incentive programs for economic and community 
development efforts. The current system forces communities in need to 
navigate a maze of departments and programs in order access economic 
and community development assistance, each imposing a separate set of 
standards and reporting requirements.
    In addition, some programs duplicate and overlap one another, and 
some have inconsistent criteria for eligibility and little 
accountability for how funds are spent. In fact, the Office of 
Management and Budget, through the PART analysis, has determined that 
many of these programs cannot sufficiently demonstrate that they make 
or contribute to a measurable improvement in economic and community 
well-being.

         FINCEN HAS NO PENALTY FOR REGULATORS THAT DON'T COMPLY

    Question. The Financial Crimes Enforcement Network (FinCEN) created 
a new office of compliance in response to fundamental weaknesses in the 
Treasury Department's system for compliance examination with the Bank 
Secrecy Act. FinCEN has set forth procedures for the exchange of Bank 
Secrecy Act information with its five Federal banking agencies, but as 
part of the memorandum of understanding with those entities, FinCEN did 
not include any penalty for noncompliance. And in the future, FinCEN 
expects to enter into even more such arrangements with other Federal 
regulatory agencies and State entities.
    So, if FinCEN has no recourse with agencies that don't comply with 
the exchange of Bank Secrecy Act information, then how will the 
regulatory agencies seriously undertake this effort?
    Answer. Following a series of Congressional hearings in the wake of 
the enforcement action against Riggs National Bank, N.A., FinCEN took a 
number of steps to enhance its ability to oversee and support the Bank 
Secrecy Act examination function being carried out by Federal agencies 
to which the Secretary of the Treasury has delegated Bank Secrecy Act 
examination authority. FinCEN created a new Office of Compliance within 
its Regulatory Division devoted exclusively to overseeing and 
supporting the examination regime. In addition, FinCEN has allocated a 
significant portion of its analytical resources to supporting 
examination-related review and analysis. Central to FinCEN's plan of 
stepping up its efforts relating to examination oversight and support 
is to ensure that, for the first time, FinCEN has sufficient 
information to assess how well its delegated examiners are functioning 
and evaluate and act on their findings. The Memorandum of Understanding 
executed with the Federal banking agencies last fall creates the 
necessary framework to ensure the flow of information to FinCEN.
    The Memorandum of Understanding ensures the production of the 
following categories of information to FinCEN--(1) information on the 
methods and structure of the examination function with each agency; (2) 
aggregate information on a quarterly basis concerning examination 
findings; and (3) the identification and production of supporting 
factual material on specific financial institutions with significant 
compliance deficiencies. For its part, FinCEN agrees to provide 
analytical support--in the form of reports on compliance issues 
generally and information concerning issues specific to individual 
institutions--to the banking agencies; coordination on all matters 
related to compliance and enforcement; and periodic reports on 
information provided.
    Since last fall, FinCEN has executed a similar agreement with the 
Internal Revenue Service, and is currently negotiating similar 
agreements with the Securities and Exchange Commission and the 
Commodity Futures Trading Commission. Significantly, as of June 8, 
2005, FinCEN has executed information sharing agreements with over 30 
States and territories. These agreements, modeled after the agreement 
with the Federal banking agencies, will for the first time create a 
close relationship between FinCEN and those States examining banks or 
other financial institutions for compliance with the Bank Secrecy Act. 
This will substantially enhance FinCEN's ability to maintain 
consistency in the application of the Bank Secrecy Act, leverage 
examination resources, and ultimately ensure greater compliance.
    While none of the information sharing agreements that FinCEN has 
executed contain ``penalty clauses,'' FinCEN and the Department of the 
Treasury have ample ability to ensure that all signatories comply with 
the letter and spirit of the agreement. First, and most importantly, we 
have reached an unprecedented level of cooperation with the banking 
agencies. All involved realize the importance of working together to 
ensure better compliance across all regulated entities. To have sought 
a penalty provision within the agreement would quite simply have 
undermined our overarching purpose, namely, to cement a new and robust 
level of cooperation. Second, we do not believe that a penalty 
provision is necessary to ensure compliance with the agreement. Indeed, 
the concept of a monetary penalty for non-compliance is inconsistent 
with an intra-governmental information sharing arrangement. We believe 
that ``non-compliance,'' to the extent it occurs, will be in the form 
of reasonable disagreements over the scope of the agreement rather than 
a refusal to honor clear terms. In the event of non-performance, 
however, in the first instance, FinCEN has considerable power to 
encourage compliance through our comparison of one agency against the 
others. If that proves ineffective, we will elevate the issue to the 
Department of the Treasury. The Secretary of the Treasury is 
responsible for the administration of the Bank Secrecy Act. Failure of 
an agency to comply with the terms of the information sharing agreement 
could result in action at the highest level of Treasury to ensure that 
any deficiencies are cured.
    FinCEN is in the process of fundamentally redefining our 
relationship with the delegated examiners. Thanks in large part to the 
interest and support of the Congress; we have been able to make 
significant strides in this regard. Going forward, while we know that 
there will be issues, we expect to be in a position to resolve them, 
with Congress and others keeping a close eye on our progress. Our 
collective goal is to better ensure the protection of the U.S. 
financial system through the application of the Bank Secrecy Act. This 
will continue to demand that we work closely with all those involved, 
including the industry and law enforcement, to ensure that our 
regulations are reasonable and applied consistently.

              LACK OF SECURITY OF INFORMATION AT TREASURY

    Question. Among the many problems your agency has with its 
information systems, one of the most troubling is the opportunity for 
agency employees, contractors, and law enforcement personnel to have 
unauthorized access to secret information.
    In addition to maintaining its own sensitive financial and tax 
information, IRS also maintains a significant amount of sensitive 
information for the Treasury Department relative to the Bank Secrecy 
Act. The GAO, in a report dated this month, stated that despite the 
progress the IRS has made in correcting information security 
weaknesses, more than half still remain unfixed since 2002. Moreover, 
because no overall agency-wide information security project exists, 
there are no security controls in place to prevent, limit, or detect 
unauthorized access to Bank Secrecy Act data or taxpayer copy data. So, 
any IRS employee, FinCEN employee, contractor, or State and local law 
enforcement employee involved in this effort, could have unauthorized 
access to secret information.
    Mr. Secretary, since many of these security weaknesses have existed 
since 2002, why is it taking IRS so long to correct them?
    What is your plan to establish an overall agency-wide plan as GAO 
recommends and to fix the remaining weaknesses?
    Answer. Recognizing the criticality of the security weaknesses, the 
IRS began an initiative in mid-2004 to analyze and fix required 
security activities at each of its computing centers and campuses and 
to support security certification and accreditation. The IRS is 
accomplishing this initiative using the latest processes and guidance 
as specified by the National Institute of Standards and Technology 
(NIST), and in accordance with the requirements of the Federal 
Information Security Management Act (FISMA).
    In responding to GAO's report, the IRS developed a detailed 
coordinated response to the 60 GAO findings. The response matrix 
includes the GAO findings, the specific actions the IRS is taking to 
implement corrections to the weaknesses, and the dates the IRS will 
complete the actions. A number of weaknesses have already been 
corrected and the appropriate documentation to substantiate the 
correction is being provided.
    The IRS is aggressively pursuing corrective actions to address the 
vulnerabilities identified in the GAO report, including correcting 
numerous weaknesses and implementing internal controls. The IRS is also 
developing a new enterprise-wide approach to security issues and is 
working on a plan to bring all of its systems into compliance with 
Federal, Treasury, and IRS policy, in addition to correcting the issues 
at the Detroit Computing Center (DCC). To further enhance the security 
process, the IRS has strengthened the role of the Designated Approving 
Authority (DAA) at the DCC. A DAA is a senior level official 
responsible for ensuring information security and mitigation of 
identified weaknesses. The DAA has been specifically assigned to 
provide a single point of authority and accountability for secure 
operations while ensuring the required oversight over the Center's 
equipment and associated systems software.
    Treasury also continues to improve the Departmental Cyber Security 
program as a whole. Treasury Bureaus and Offices are working 
collaboratively to strengthen Departmental governance processes and 
information security policies and procedures. The Department believes 
that the actions taken by the IRS are very positive steps towards 
improving the security posture at the IRS and in addressing the 
concerns outlined by GAO's report.
    Question. Mr. Secretary, a significant number of high-level 
positions are vacant at the Treasury Department--quite a few Deputy 
Secretary, Under Secretary and Director positions. The Deputy Secretary 
has left. So have the Under Secretaries for International Affairs and 
Domestic Finance. Five Assistant Secretaries are vacant including the 
position of Assistant Secretary for Management. These are positions 
critical to the effective management of a $12.5 billion agency and to 
the appropriate oversight of some of the problems I have cited this 
morning.
    In addition to funding your Department, this subcommittee also 
funds the Executive Office of the White House including the Office of 
Personnel.
    Are you confident that you are getting all the help you need in 
getting these vacancies filled?
    Answer. Absolutely. I have an excellent, close working relationship 
with the White House Office of Presidential Personnel. In fact, in 
recent weeks we have announced a number of important nominations, 
including Robert Kimmitt for Deputy Secretary, Tim Adams for Under 
Secretary for International Affairs, Randy Quarles for Under Secretary 
for Domestic Finance, Phil Morrison for Assistant Secretary for Tax 
Policy, and Kevin Fromer for Assistant Secretary for Legislative 
Affairs among others. A full list of Treasury nominees awaiting 
confirmation appears on the following page.
    The White House has been instrumental in helping us find the right 
people to fill these very important positions. I think you will find 
that we have selected an excellent group of nominees to fill the senior 
posts here at Treasury.
    Question. Do you agree that the significant number of vacancies has 
an impact on the ability of your agency to fully execute its mission 
and appropriately manage its people and programs?
    Answer. The Treasury Department is fulfilling its various missions 
and meeting its goals effectively. Although we have some vacancies 
right now, there are strong, competent individuals continuing to do the 
work of the Department on an acting basis, and of course, there are 
thousands of Treasury employees nationwide who admirably perform their 
duties.
    Currently, there 10 Treasury nominees pending before the United 
States Senate. I share your view that having a strong and effective 
team in place is important to making the Treasury Department run as 
well as it possibly can. These nominees will be a great addition to our 
team and I look forward to working with you to help the Senate consider 
these nominees carefully and then to get them confirmed as quickly as 
possible. I would greatly appreciate any help that you could provide to 
make the confirmation process for these nominees a smooth one.
Nominations Awaiting Senate Confirmation and Dates of Nomination
    John Dugan.--Comptroller of the Currency (2/28/05).
    Tim Adams.--Under Secretary, International Affairs (4/06/05).
    Bob Holland.--U.S. Executive Director, World Bank (4/25/05).
    Sandy Pack.--Assistant Secretary for Management and CFO (5/16/05).
    Janice Gardner.--Assistant Secretary, Intelligence and Analysis (5/
16/05).
    Jan Boyer.--Alternate Director, Inter-American Development Bank (5/
25/05).
    Randy Quarles.--Under Secretary, Domestic Finance (5/26/05).
    Phil Morrison.--Assistant Secretary, Tax Policy (5/26/05).
    Kevin Fromer.--Assistant Secretary, Legislative Affairs (6/06/05).
    John Reich.--Director, OTS (6/06/05).
    Robert Kimmitt.--Deputy Secretary (announced, but not yet 
transmitted to the Senate).

 BUDGET PROPOSAL TO RAISE THE CAP ON ALLOWABLE SPENDING IF TREASURY'S 
            REQUEST FOR TAX LAW ENFORCEMENT IS FULLY FUNDED

    Question. Mr. Secretary, this subcommittee is going to have some 
very severe funding constraints because of the President's proposals to 
eliminate Amtrak, cut the CDBG program, and rescind billions of dollars 
from HUD. The budget for your agency claims to recognize the linkage 
between enhanced tax law enforcement and receipts to the Treasury by 
including a special provision that would raise the cap on allowable 
spending by $443 million next year if we fully fund your request to 
boost tax law enforcement by 7.8 percent.
    What disturbs me about this proposal is that it is ``all or 
nothing.'' If we raise tax law enforcement spending by an amount that 
is $1 less than your request, that we get no scorekeeping relief at 
all.
    How can this proposal possibly make budgetary sense?
    If you believe that funding your 7.8 percent increase will yield an 
extra $443 million to the Treasury, how can you argue that if we 
provide a 7.7 percent funding increase, the Treasury will see no 
additional revenue at all?
    Answer. Section 404 of H. Con. Res. 95, the Concurrent Resolution 
on the Budget for fiscal year 2006, reads:

    ``Internal Revenue Service Tax Enforcement.--If a bill or joint 
resolution is reported making appropriations for fiscal year 2006 that 
appropriates $6,447,000,000 for enhanced tax enforcement to address the 
`Federal tax gap' for the Internal Revenue Service, and provides an 
additional appropriation of $446,000,000 for enhanced tax enforcement 
to address the `Federal tax gap' for the Internal Revenue Service, then 
the allocation to the Senate Committee on Appropriations shall be 
increased by $446,000,000 in budget authority and outlays flowing from 
the budget authority for fiscal year 2006.''

    The requested $446 million increase for enforcement consists of two 
parts--the pay raise and inflationary costs needed to maintain existing 
levels for our enforcement programs ($181 million) and the amount that 
funds increased enforcement efforts ($265 million). The request 
represents a balanced approach to increasing taxpayer compliance and 
should be considered in its entirety. Funding the $181 million 
associated with the costs to maintain current levels is particularly 
important. Without this funding, the Service would be forced to absorb 
these costs through base program cuts.
    Investment in IRS enforcement yields more than $4 in direct revenue 
for every $1 invested in its total budget. In fiscal year 2004, the 
Service brought in a record $43.1 billion in enforcement revenue--an 
increase of $5.5 billion from the year before, or 15 percent. Beyond 
the direct revenues generated by increasing audits, collection, and 
criminal investigations, IRS enforcement efforts have a deterrent 
effect on those who might be tempted to skirt their tax obligations.

                                 ______
                                 
             Questions Submitted by Senator Robert C. Byrd

    Question. What steps are you taking to make certain that China acts 
immediately to end its decade long manipulation of its currency?
    Answer. The Bush Administration, led by the Treasury Department, 
has been working intensively over the past year and half to move China 
to a more flexible, market-based exchange rate as soon as possible. 
This has involved frequent, high-level consultations with senior 
Chinese officials. The administration has also mobilized our G-7 
partners, other East Asian nations, the IMF and the Asian Development 
Bank to make clear that this is an issue of multilateral importance. 
Finally, we have had an intensive program of technical assistance aimed 
at overcoming the obstacles China sees to adopting a more flexible, 
market-based exchange rate regime. Treasury's technical cooperation 
program has been highly successful in helping China address 
shortcomings in its banking system, such as poorly performing loans, 
and understand how to develop and regulate a foreign exchange 
derivatives market, and improve banks' foreign exchange risk management 
practices.
    The Chinese authorities in turn have undertaken a number of 
significant steps to prepare its financial infrastructure for a change 
to the currency regime and wider fluctuations in the value of its 
currency. China is now ready and should move on its exchange rate 
without delay in a manner and magnitude that is sufficiently reflective 
of underlying market conditions.
    Treasury has taken a number of steps recently to expedite the 
process of China moving to adopt a more flexible, market-based 
currency. In early May, Secretary Snow appointed a Special Emissary on 
China, Olin Wethington. The appointment of Mr. Wethington, who will be 
responsible for direct and frequent contact with Chinese leaders and 
key decision-makers on issues related to exchange rates, seeks to 
continue and intensify a constructive dialogue with China on this 
extremely important matter during this critical juncture in U.S.-China 
economic relations. In addition, in the recent Foreign Exchange Report 
submitted to Congress, Treasury emphasized that China's rigid currency 
regime has become highly distortionary and that it poses risks to the 
health of the Chinese economy, such as sowing the seeds for excess 
liquidity creation, asset price inflation, large speculative capital 
flows and overinvestment. Failure to move to a more flexible regime 
risks economic disruption and dislocation in China and in the larger 
global trading system. The Treasury report concluded that if current 
trends continue without substantial alteration, China's policies will 
likely meet the technical requirements of the statute for designation 
in a future report. Finally, Treasury continues to pursue high-level 
discussions with the world's major trading nations on how best to 
address imbalances in the global economy and, in particular, to urge 
support for exchange rate flexibility, especially in emerging Asian 
economies, notably China.
    Question. Under U.S. law, the Treasury Department is required law 
to issue a semi-annual report on other nations' currency manipulation 
by April 15 of each year. The Department has missed the deadline for 
this year. Why has the Department not issued the report? Will the 
report find, as many believe it should, that China is unfairly and 
manipulatively undervaluing its currency?
    Answer. The spring Report to Congress on International Economic and 
Exchange Rate Policies was submitted on May 17, 2005. Because of the 
complexity of these reports, they are time-consuming to prepare. While 
we always strive to deliver our reports to Congress on time, delays may 
be unavoidable from time to time. This administration has consistently 
delivered these reports much more promptly than most of its 
predecessors.
    The report found ``that no major trading partner of the United 
States met the technical requirements for designation under the Omnibus 
Trade and Competitiveness Act of 1988 during the second half of 2004 . 
. . Treasury has consulted with the IMF management and staff, as 
required by the statute, and they concur with these conclusions.''
    The report also stated that ``Treasury has engaged, and will 
continue to engage, with several economies, including some in Asia, to 
promote the adoption of market-based exchange policies and regimes. 
Most notable among these is China. Current Chinese policies are highly 
distortionary and pose a risk to China's economy, its trading partners, 
and global economic growth. Concerns of competitiveness with China also 
constrain neighboring economies in their adoption of more flexible 
exchange policies. If current trends continue without substantial 
alteration, China's policies will likely meet the statute's technical 
requirements for designation.''
    Question. Last week in testimony before the Senate Finance 
Committee, USTR nominee Bob Portman stated that the Treasury Department 
is responsible for addressing any problems arising from China's 
undervalued currency. Mr. Secretary, would you agree that China's 
manipulation of its currency raises concern about China's legal 
obligations before the WTO?
    Answer. As Treasury noted in its recent report pursuant to the 
Omnibus Trade and Competitiveness Act of 1988, current Chinese exchange 
rate policies are highly distortionary and pose a risk to China's 
economy, its trading partners, and global economic growth. As 
Ambassador Portman indicated, Treasury remains engaged with China to 
encourage its adoption of more flexible exchange rate policies. We 
believe that our intensive engagement with the Chinese authorities is 
the most effective way to bring about a change in China's exchange rate 
policy as rapidly as possible.
    Question. The Trade Act of 2002 makes both strong trade remedies 
and addressing the problem of WTO Panels and the WTO Appellate Body's 
having created obligations not agreed to by the United States in the 
Rules area principle negotiating objectives. A review of the documents 
that have been filed by the U.S. government in the current WTO Rules 
negotiations shows that the United States is not acting to address 
these critical negotiating objectives. While some preliminary papers 
have been presented in the Rules area, little has been done by the U.S. 
government to follow-up on these preliminary papers with further 
explanatory papers or specific proposals and/or actions necessary to 
redress the harm that has been suffered by the United States as a 
result of the WTO dispute settlement process. As part of the 
interagency review process, the U.S. Treasury Department reviews papers 
and/or proposals of the U.S. Commerce Department and other U.S. 
government agencies prior to their submission to the WTO in the ongoing 
Doha Round of international trade negotiations. Can you confirm that 
the U.S. Treasury Department is working, and will continue to work over 
the coming months, to facilitate expeditious interagency approval of 
U.S. proposals put forward by the U.S. Commerce Department and other 
U.S. trade agencies--proposals that necessarily must be submitted in 
the WTO Rules and other negotiations to address the core negotiating 
objectives that were included by Congress in the Trade Act of 2002?
    Answer. The Treasury Department participates in the USTR-chaired 
interagency Trade Policy Staff Committee and Trade Policy Review Group, 
the committees charged with helping formulate U.S. trade policy 
positions and papers. Treasury participates based on the deadlines 
established by USTR. Treasury supports effective and transparent WTO 
rules that provide protection from unfairly traded and injurious 
imports and assure fair treatment by other countries for U.S. exports.

                          SUBCOMMITTEE RECESS

    Senator Murray. Thank you very much. This subcommittee will 
stand in recess until Thursday, May 12, when we will take 
testimony on the President's budget request on Amtrak.
    [Whereupon, at 11:11 a.m., Tuesday, April 26, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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