    Opportunities for Oversight and Improved Use of Taxpayer Funds:
    Examples from Selected GAO Work (01-AUG-03, GAO-03-1006).

    This report is submitted pursuant to section 301(e) of the
    Concurrent Resolution on the Budget for Fiscal Year 2004,  which
    directs the Comptroller General to submit to the Committees on
    the Budget a comprehensive report identifying instances in which
    the committees of jurisdiction may make legislative changes to
    improve the economy, efficiency, and effectiveness of federal
    programs within their jurisdiction.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-1006
        ACCNO:   A07803
      TITLE:     Opportunities for Oversight and Improved Use of Taxpayer
    Funds: Examples from Selected GAO Work
         DATE:   08/01/2003
      SUBJECT:   Congressional oversight
    	     Balanced budgets
    	     Budget administration
    	     Fiscal policies
    	     Productivity in government
    	     GAO High Risk Series
    	     Performance and Accountability Series
    	     2003

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    GAO-03-1006

                                           A

    Report to Committees on the Budget

    August 2003 OPPORTUNITIES FOR OVERSIGHT AND IMPROVED USE OF TAXPAYER FUNDS

    Examples from Selected GAO Work

    GAO- 03- 1006

    Contents Letter 1 Appendixes

    Appendix I: Opportunities to Improve the Economy, Efficiency, and
    Effectiveness of Federal Programs 4

    050 National Defense 5 Examples from Selected GAO Work 7

    Reduce the Number of Carrier Battle Group Expansions and Upgrades 7 Limit
    Commitment to Production of the F/ A- 22 Fighter until Operational Testing
    Is Complete 9 Reassess the Need for the Selective Service System 13
    Consolidate Military Exchange Stores 15 Reorganize C- 130 Reserve
    Squadrons 17 Acquire Conventionally Rather Than Nuclear- Powered Aircraft
    Carriers 19

    Improve the Administration of Defense Health Care 22 Seek Additional
    Opportunities for VA and DOD to Increase Joint

    Activities to Enhance Services to Beneficiaries and Reduce Costs 24
    Continue Defense Infrastructure Reform 27 Reduce Funding for Renovation
    and Replacement of Military Housing until DOD Completes Housing Assessment
    33

    Improve DOD Procurement Practices Regarding Canceling Orders 35 Reduce
    Planned Military Construction Costs for Barracks 37 Take a Strategic
    Approach to Department of Defense Acquisition of Services 39

    Address Overpayments to Defense Contractors 42 CBO Options Where Related
    GAO Work Is Identified 45

    050- 05 Cancel the Army*s Comanche Helicopter Program 45 050- 10 Reduce
    Purchases of the Air Force*s F/ A- 22 Fighter 45 050- 11 Slow the Schedule
    of the F- 35 Joint Strike Fighter Program 46 050- 19 Replace Military
    Personnel in Some Support Positions with

    Civilian Employees of the Department of Defense 46 050- 22 Have the
    Departments of Defense and Veterans Affairs Purchase Drugs Jointly 46

    150 International Affairs 47 Examples from Selected GAO Work 48

    Eliminate U. S. Contributions to Administrative Costs in Rogue States 48

    Streamline U. S. Overseas Presence 50 CBO Options Where Related GAO Work
    Is Identified 52

    150- 01 Eliminate the Export- Import Bank, the Overseas Private Investment
    Corporation, and the Trade and Development Agency 52 150- 02 End the
    United States* Capital Subscriptions to the European Bank for
    Reconstruction and Development 52

    250 General Science, Space, and Technology 53 Example from Selected GAO
    Work 54

    Continue Oversight of the International Space Station and Related Support
    Systems 54

    270 Energy 56 Examples from Selected GAO Work 57

    Corporatize or Divest Selected Power Marketing Administrations 57 Recover
    Power Marketing Administrations* Costs 60 Increase Nuclear Waste Disposal
    Fees 64 Recover Federal Investment in Successfully Commercialized

    Technologies 65 Reduce the Costs of the Rural Utilities Service*s
    Electricity and

    Telecommunications Loan Programs 67

    300 Natural Resources and Environment 69 Examples from Selected GAO Work
    70

    Terminate Land- Exchange Programs 70 Deny Additional Funding for
    Commercial Fisheries Buyback Programs 72

    Revise the Mining Law of 1872 74 Reexamine Federal Policies for
    Subsidizing Water for Agriculture and Rural Uses 76

    Reassess Federal Land Management Agencies* Functions and Programs 78

    350 Agriculture 81 Examples from Selected GAO Work 82

    Terminate or Significantly Reduce the U. S. Department of Agriculture*s
    Market Access Program 82 Consolidate Common Administrative Functions at
    the U. S. Department of Agriculture 85 Further Consolidate the U. S.
    Department of Agriculture*s County Offices 87

    370 Commerce and Housing Credit 89 Examples from Selected GAO Work 90

    Recapture Interest on Rural Housing Loans 90

    Require Self- Financing of Mission Oversight by Fannie Mae and Freddie Mac
    92 Reduce Federal Housing Administration*s Insurance Coverage 94 Merging
    U. S. Department of Agriculture and Department of Housing and Urban
    Development Single- Family Insured Lending

    Programs and Multifamily Portfolio Management Programs 96 Consolidate
    Homeless Assistance Programs 98 Reorganize and Consolidate Small Business
    Administration*s Administrative Structure 100

    Improve Reviews of Small Business Administration*s Preferred Lenders 102
    CBO Options Where Related GAO Work Is Identified 104

    370- 01 End the Credit Subsidy for the Small Business Administration*s
    Major Business Loan Guarantee Programs 104 370- 05 Charge All Banks and
    Thrifts Deposit Insurance Premiums 104

    400 Transportation 106 Examples from Selected GAO Work 107

    Eliminate the Pulsed Fast Neutron Analysis Inspection System 107 Develop a
    Passenger Intercity Rail Policy to Meet National Goals 109 Eliminate Cargo
    Preference Laws to Reduce Federal Transportation Costs 111

    Increase Aircraft Registration Fees to Enable the Federal Aviation
    Administration to Recover Actual Costs 113 Apply Cost- Benefit Analysis to
    Replacement Plans for Airport

    Surveillance Radars 114 Close, Consolidate, or Privatize Some Coast Guard
    Operating and

    Training Facilities 116 Convert Some Support Officer Positions to Civilian
    Status 118 CBO Options Where Related GAO Work Is Identified 120

    400- 01 Reduce Federal Subsidies for Amtrak 120 400- 02 Eliminate the
    Essential Air Service Program 121 400- 03 Eliminate Grants to Large and
    Medium- Sized Hub Airports 121 400- 04 Increase Fees for Certificates and
    Registrations Issued by the Federal Aviation Administration 122

    400- 08 Eliminate Funding for the *New Starts* Transit Program 122

    450 Community and Regional Development 123 Examples from Selected GAO Work
    124

    Limit Eligibility for Federal Emergency Management Agency Public
    Assistance 124 Eliminate the Flood Insurance Subsidy on Properties That
    Suffer the Greatest Flood Loss 126

    Eliminate Flood Insurance for Certain Repeatedly Flooded Properties 128
    Consolidate or Terminate the Department of Commerce*s Trade

    Adjustment Assistance for Firms Program 130 Improve Federal Foreclosure
    and Property Sales Processes 132 CBO Options Where Related GAO Work Is
    Identified 135

    450- 02 Eliminate Region- Specific Development Agencies 135 450- 05 Drop
    Flood Insurance for Certain Repeatedly Flooded Properties 135

    500 Education, Training, Employment, and Social Services 137 CBO Options
    Where Related GAO Work Is Identified 138

    500- 02 Repeal the Safe and Drug- Free Schools and Communities Act 138
    500- 11 Eliminate the Senior Community Service Employment Program 138

    550 Health 139 Examples from Selected GAO Work 140

    Improve Fairness of Medicaid Matching Formula 140 Charge Beneficiaries for
    Food Inspection Costs 142 Implement Risk- Based Meat and Poultry
    Inspections at USDA 144 Prevent States from Using Illusory Approaches to
    Shift Medicaid Program Costs to the Federal Government 146

    Create a Uniform Federal Mechanism for Food Safety 149 Control Provider
    Enrollment Fraud in Medicaid 152 Eliminate Federal Funding for SCHIP
    Covering Adults without Children 154

    CBO Option Where Related GAO Work Is Identified 155 550- 06 Require All
    States to Comply with New Rules About Medicaid*s Upper Payment Limit by
    2004 155

    570 Medicare 156 Examples from Selected GAO Work 157

    Reassess Medicare Incentive Payments in Health Care Shortage Areas 157
    Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, and
    Market Prices 159 Increase Medicare Program Safeguard Funding 163 Modify
    the New Skilled Nursing Facility Payment Method to Ensure Appropriate
    Payments 166

    Implement Risk- Sharing in Conjunction with Medicare Home Health Agency
    Prospective Payment System 169 Eliminate Medicare Competitive Sourcing
    Restrictions 171

    Change Pricing Formula for Medicare- Covered Drugs and Biologicals 173 CBO
    Options Where Related GAO Work Is Identified 175

    570- 10 Reduce Medicare Payments for Currently Covered Prescription Drugs
    175 570- 11 Require Competitive Bidding for High- Volume Items of Durable
    Medical Equipment 176 570- 15 Simplify and Limit Medicare*s Cost- Sharing
    Requirements 176 570- 19 Reduce Medicare Payments for Home Health Care 176

    600 Income Security 178 Examples from Selected GAO Work 179

    Develop Comprehensive Return- to- Work Strategies for People with
    Disabilities 179 Revise Benefit Payments under the Federal Employees*
    Compensation Act 182 Increase Congressional Oversight of PBGC*s Budget 187
    Share the Savings from Bond Refundings 189 Implement a Service Fee for
    Successful Non- Temporary Assistance for Needy Families Child Support
    Enforcement Collections 191

    Improve Reporting of DOD Reserve Employee Payroll Data to State
    Unemployment Insurance Programs 193 Improve Social Security Benefit
    Payment Controls 196 Simplify Supplemental Security Income Recipient
    Living Arrangements 198

    Reduce Federal Funding Participation Rate for Automated Child Support
    Enforcement Systems 200 Obtain and Share Information on Medical Providers
    and Middlemen to Reduce Improper Payments to Supplemental Security Income
    Recipients 202

    Sustain/ Expand Range of SSI Program Integrity Activities 204 Revise
    Government Pension Offset (GPO) Exemption 206 Better Congressional
    Oversight of PRWORA*s Fugitive Felon Provisions 208

    Improve the Administrative Oversight of Food Assistance Programs 211 CBO
    Option Where Related GAO Work Is Identified 215

    600- 07 Reduce the Federal Matching Rate for Administrative and Training
    Costs in the Foster Care and Adoption Assistance Programs 215

    700 Veterans Benefits and Services 216 Examples from Selected GAO Work 217

    Revise VA*s Disability Ratings Schedule to Better Reflect Veterans*
    Economic Losses 217 Discontinue Veterans* Disability Compensation for
    Nonservice

    Connected Diseases 219 Reassess Unneeded Health Care Assets within the
    Department of

    Veterans Affairs 221 Reducing VA Inpatient Food and Laundry Service Costs
    224 CBO Options Where Related GAO Work Is Identified 226

    700- 01 Narrow the Eligibility for Veterans* Disability Compensation to
    Include Only Veterans with High- Rated Disabilities 226 700- 02 Narrow the
    Eligibility for Veterans* Disability Compensation to Veterans Whose
    Disabilities Are Related to Their Military Duties 226 700- 03 Increase
    Beneficiaries* Cost Sharing for Care at Nursing Facilities Operated by the
    Department of Veterans Affairs 227

    800 General Government; 900 Net Interest; and 999 Multiple 228 Examples
    from Selected GAO Work 229

    Prevent Delinquent Taxpayers from Benefiting from Federal Programs 229
    Target Funding Reductions in Formula Grant Programs 231 Adjust Federal
    Grant Matching Requirements 235 Replace the 1- Dollar Note with a 1-
    Dollar Coin 237 Increase Fee Revenue from Federal Reserve Operations 239
    Recognize the Costs Up- front of Long- term Space Acquisitions 241 Seek
    Alternative Ways to Address Federal Building Repair Needs 244 Improper
    Benefit Payments Could Be Avoided or More Quickly Detected if Data from
    Various Programs Were Shared 246

    Better Target Infrastructure Investments to Meet Mission and Results-
    Oriented Goals 249 Information Sharing Could Improve Accuracy of Workers*
    Compensation Offset Payments 251

    Determine Feasibility of Locating Federal Facilities in Rural Areas 254
    Leverage Buying Power to Reduce Costs of Supplies and Services 256
    Consolidate Grants for First Responders to Improve Efficiency 259 CBO
    Options Where Related GAO Work Is Identified 261

    800- 03 Eliminate Federal Antidrug Advertising 261 920- 03 Impose a Fee on
    the Investment Portfolios of

    Government- Sponsored Enterprises 261

    Receipts 262 Examples from Selected GAO Work 263

    Tax Interest Earned on Life Insurance Policies and Deferred Annuities 263
    Further Limit the Deductibility of Home Equity Loan Interest 264 Limit the
    Tax Exemption for Employer- Paid Health Insurance 265 Repeal the Partial
    Exemption for Alcohol Fuels from Excise Taxes on Motor Fuels 267

    Index Excise Tax Rates for Inflation 269 Increase Highway User Fees on
    Heavy Trucks 270 Require Corporate Tax Document Matching 272 Improve
    Administration of the Tax Deduction for Real Estate Taxes 273

    Increase Collection of Returns Filed by U. S. Citizens Living Abroad 274
    Increase the Use of Seizure Authority to Collect Delinquent Taxes 276
    Increase Collection of Self- employment Taxes 278 Increase the Use of
    Electronic Funds Transfer for Installment Tax Payments 280

    Reduce Gasoline Excise Tax Evasion 282 Improve Independent Contractor Tax
    Compliance 283 Expand the Use of IRS*s TIN- Matching Program 285 Improve
    Administration of the Federal Payment Levy Program 287 Enhance Nontax Debt
    Collection Using Available Tools 288

    Slowing the Long- Term Growth of Social Security and Medicare 291 CBO
    Options Where Related GAO Work Is Identified 292

    Constrain the Increase in Initial Benefits 292 Raise the Retirement Age
    292

    This is a work of the U. S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    Letter

    August 1, 2003 The Honorable Jim Nussle Chairman The Honorable John Spratt
    Ranking Minority Member Committee on the Budget House of Representatives
    The Honorable Don Nickles Chairman The Honorable Kent Conrad Ranking
    Minority Member Committee on the Budget United States Senate This report
    is submitted pursuant to section 301( e) of the Concurrent Resolution on
    the Budget for Fiscal Year 2004, 1 which directs the Comptroller General
    to submit to the Committees on the Budget a comprehensive report
    identifying instances in which the committees of jurisdiction may make
    legislative changes to improve the economy, efficiency, and effectiveness
    of federal programs within their jurisdiction.

    In this report, we highlight opportunities for and specific examples of
    legislative and administrative change that might yield budgetary savings.
    We identify illustrative examples from GAO work of changes or steps that
    would improve the economy, efficiency, and effectiveness of given
    programs, sorted by budget function. We indicate whether an example
    appeared in our 2002 report, Supporting Congressional Oversight: Budgetary
    Implications of Selected GAO Work for Fiscal Year 2003, 2 and whether a
    Congressional Budget Office (CBO) estimate was included in that report.
    Each specific example included in this report is not presented as the only
    way to address the significant economy, efficiency, and effectiveness
    issues identified in our reviews of federal programs and operations but
    rather as one of many possible approaches available to the

    1 H. R. Rep. No. 108- 71, Sec. 301( e) (2003). 2 U. S. General Accounting
    Office, Supporting Congressional Oversight: Budgetary Implications of
    Selected GAO Work for Fiscal Year 2003, GAO- 02- 576 (Washington, D. C.:
    Apr. 26, 2002).

    Congress. The inclusion of a specific example does not mean we endorse it
    as the only feasible or appropriate approach.

    We drew on GAO*s work that highlights opportunities to improve the
    economy, efficiency, and effectiveness of government programs. The report
    is based on program design and operational issues that we have identified
    in reports for the Congress. Major risks and challenges faced by federal

    agencies are summarized in the Performance and Accountability Series. 3
    The High- Risk Series 4 is designed to help the Congress focus its
    attention on the most important issues and challenges facing the federal
    government. Although we derived the examples presented in this report from
    our existing body of work, there are similarities between the specific
    examples presented here and those presented by CBO*s annual spending and
    revenue options report. To assist the Congress, we also have listed GAO
    reports identified as relating to options included in the CBO March 2003
    Budget Options report. 5 We included GAO reports if they related to the
    topic of the CBO option, regardless of whether our work supported the
    option or not.

    Addressing the myriad of issues reflected in this volume will help improve
    economy, efficiency, and effectiveness and reduce costs. The budget
    process should prompt us to periodically focus not only on new proposals
    but on existing programs. Hard questions need to be asked not only about
    the economy and efficiency of our existing programs, but about their need,
    fit, relevance, priority and sustainability in the 21 st century. Given
    the fiscal

    challenges the United States faces in both the near and the longer term,
    tough choices will be required in connection with what government does,
    how it does business, and sometimes even who does the federal government*s
    business. We are also sending copies of this report to other interested
    committees of the Congress. Copies will be made available to others upon
    request.

    3 U. S. General Accounting Office, Major Management Challenges and Risks:
    A Governmentwide Perspective, GAO- 03- 95 (Washington, D. C.: January
    2003). 4 U. S. General Accounting Office, High- Risk Series: An Update,
    GAO- 03- 119 (Washington, D. C.: January 2003). 5 Congressional Budget
    Office, Budget Options (Washington, D. C.: March 2003).

    This report was prepared under the coordination of Paul L. Posner,
    Managing Director and Susan J. Irving, Director, Federal Budget Analysis,
    Strategic Issues, who may be reached at (202) 512- 9573 or (202) 512-
    9142, respectively. The examples provided in the appendix draw on work
    from across GAO. Specific questions about individual examples may be
    directed to the GAO contact listed with each example.

    David M. Walker Comptroller General of the United States

    Appendi xes Opportunities to Improve the Economy, Efficiency, and
    Effectiveness of Federal

    Appendi x I

    Programs This appendix is organized by budget function. The following two
    sections are included, where available, for each budget function.

    Examples from Selected GAO Work

    We identify illustrative examples based on GAO*s work that highlight
    opportunities to improve the economy, efficiency, and effectiveness of
    federal programs. We indicate whether an example appeared in our 2002
    report Supporting Congressional Oversight: Budgetary Implications of

    Selected GAO Work for Fiscal Year 2003 1 and whether a CBO estimate was
    included in that report.

    CBO Options Where Related GAO Work Is Identified

    We list GAO reports identified as relating to options included in the CBO
    March 2003 Budget Options report. 2 Only those CBO options for which we
    identified related GAO products are included. We included GAO reports if
    they related to the topic of the CBO option, regardless of whether our
    work supported the option or not.

    1 U. S. General Accounting Office, Supporting Congressional Oversight:
    Budgetary Implications of Selected GAO Work for Fiscal Year 2003, GAO- 02-
    576 (Washington, D. C.: Apr. 26, 2002).

    2 Congressional Budget Office, Budget Options (Washington, D. C.: March
    2003).

    050 National Defense Examples from Selected GAO Work

    Reduce the Number of Carrier Battle Group Expansions and Upgrades Limit
    Commitment to Production of the F/ A- 22 Fighter until Operational Testing
    Is Complete

    Reassess the Need for the Selective Service System Consolidate Military
    Exchange Stores Reorganize C- 130 Reserve Squadrons Acquire Conventionally
    Rather Than Nuclear- Powered Aircraft Carriers Improve the Administration
    of Defense Health Care Seek Additional Opportunities for VA and DOD to
    Increase Joint Activities to Enhance Services to Beneficiaries and Reduce
    Costs

    Continue Defense Infrastructure Reform Reduce Funding for Renovation and
    Replacement of Military Housing until DOD Completes Housing Needs
    Assessment

    Improve DOD Procurement Practices Regarding Canceling Orders Reduce
    Planned Military Construction Costs for Barracks Take a Strategic Approach
    to Department of Defense Acquisition of Services

    Address Overpayments to Defense Contractors

    CBO Options Where Related GAO Work Is Identified

    050- 05 Cancel the Army*s Comanche Helicopter Program 050- 10 Reduce
    Purchases of the Air Force*s F/ A- 22 Fighter 050- 11 Slow the Schedule of
    the F- 35 Joint Strike Fighter Program

    050- 19 Replace Military Personnel in Some Support Positions with Civilian
    Employees of the Department of Defense 050- 22 Have the Departments of
    Defense and Veterans Affairs Purchase Drugs Jointly

    Examples from Selected GAO Work

    Reduce the Number of Carrier Battle Group Expansions and Upgrades

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Aircraft carrier battle groups are the centerpiece of the Navy*s surface
    force and significantly influence the size, composition, and cost of the
    fleet. The annualized cost to acquire, operate, and support a single navy
    carrier battle group is about $2 billion (in fiscal year 2000 dollars) and
    is likely to increase as older units are replaced and modernized. The Navy
    has several costly ongoing carrier- related programs: two nuclear- powered
    Nimitz- class carriers are under construction ($ 9.6 billion); a research
    and development program ($ 3.6 billion) for a new nuclear- powered carrier
    design is underway; the second ship of the 10- ship Nimitz- class began
    its 3- year refueling complex overhaul in 2001 ($ 2.5 billion) and the
    third ship is

    scheduled to begin in 2005; AEGIS destroyers are being procured and the
    next generation of surface combatants is being designed; and carrier-
    based aircraft are expected to be replaced/ upgraded by a new generation
    of strike fighters and mission support aircraft throughout the next
    decade.

    Our analysis indicates that there are opportunities to use less costly
    options to satisfy many of the carrier battle groups* traditional roles
    without unreasonably increasing the risk that U. S. national security
    would be threatened. For example, one less costly option would be to rely
    more on battle groups centered around increasingly capable amphibious
    assault ships, surface combatants and Trident SSGNs for overseas presence
    and crisis response. In the past, CBO concluded that savings could be
    achieved if the Congress chose to retire one aircraft carrier, the CVN-
    70, and one

    active air wing in 2005.

    CBO 5- Year Cost Estimate Yes. 3

    Included in GAO*s 2002 Budgetary Implications Report 3

    Related GAO Products Force Structure: Options for Enhancing the Navy*s
    Attack Submarine Force. GAO- 02- 97. Washington, D. C.: November 14, 2001.

    Navy Aircraft Carriers: Cost- Effectiveness of Conventionally and Nuclear-
    Powered Carriers. GAO/ NSIAD- 98- 1. Washington, D. C.: August 27, 1998.

    Aircraft Acquisition: Affordability of DOD*s Investment Strategy.

    GAO/ NSIAD- 97- 88. Washington, D. C.: September 8, 1997.

    Surface Combatants: Navy Faces Challenges Sustaining Its Current Program.
    GAO/ NSIAD- 97- 57. Washington, D. C.: May 21, 1997.

    Cruise Missiles: Proven Capability Should Affect Aircraft and Force
    Structure Requirements. GAO/ NSIAD- 95- 116. Washington, D. C.: April 20,
    1995.

    Navy*s Aircraft Carrier Program: Investment Strategy Options.

    GAO/ NSIAD- 95- 17. Washington, D. C.: January 1, 1995.

    Navy Carrier Battle Groups: The Structure and Affordability of the Future
    Force. GAO/ NSIAD- 93- 74. Washington, D. C.: February 25, 1993.

    GAO Contact Henry L. Hinton, Jr., (202) 512- 4300 3 Throughout this
    document, *GAO*s 2002 Budget Implications Report* refers to U. S. General
    Accounting Office, Supporting Congressional Oversight: Budgetary
    Implications of Selected GAO Work for Fiscal Year 2003, GAO- 02- 576
    (Washington, D. C.: Apr. 26, 2002).

    Limit Commitment to Production of the F/ A- 22 Fighter until Operational
    Testing Is Complete

    Primary agency Department of Defense Account Aircraft Procurement, Air
    Force (57- 3010) Spending type Discretionary Budget subfunction 051/
    Department of Defense* Military

    The fiscal year 2003 Defense Appropriations Act provided funds for lowrate
    initial production of 20 F/ A- 22 aircraft, and DOD plans to procure 22
    aircraft in fiscal year 2004, 24 aircraft in fiscal year 2005, 26 aircraft
    in fiscal year 2006, and begin full- rate production of 32 aircraft in
    fiscal year 2007.

    In several reports over the last 8 years, and as recently as March 2003,
    GAO concluded that the Department of Defense (DOD) should minimize
    commitments to F/ A- 22 production until completion of operational
    testing, now planned for fiscal year 2004. Limiting initial production
    rates until completion of operational testing affords the opportunity to
    confirm the stability and soundness of a new system before committing
    large amounts of production funding to purchase aircraft. In the past,
    buying production articles before they could be adequately tested has
    resulted in buying

    systems that require modifications to achieve satisfactory performance.
    The F/ A- 22 development program did not meet key performance, schedule,
    and cost goals in fiscal year 2002. We reported in March 2003 that the
    program continues to address technical problems that have limited the
    performance of test aircraft, including excessive movement or *buffeting*
    of the vertical tail fins, weakening of materials in the horizontal tail,
    and instability of avionics software. Air Force officials cannot predict
    when they will resolve the avionics problem.

    Further, commercial and DOD best practices have shown that completing a
    system*s testing prior to producing significant quantities will
    substantially lower the risk of costly fixes and retrofits. Conversely,
    lower production rates could increase average procurement cost over the
    life of the program and, if the Air Force maintains its plan to procure
    276 production aircraft,

    lead to difficulties in completing the production program within the
    production cost estimate.

    Low- rate initial production of 20 aircraft has been approved by the
    Congress for fiscal year 2003. The Air Force subsequently determined that
    21 aircraft could be purchased for the amount of funding provided in the

    fiscal year 2003 defense appropriations act. To avoid the acceleration of
    production until completion of operational testing, low- rate initial
    production could be maintained at 21 aircraft through fiscal year 2004. If
    the Congress were to limit funding to no more than 21 aircraft in fiscal
    year 2004, and then proceed with the planned acceleration of production to
    24 aircraft in fiscal year 2005, 26 aircraft in 2006, and 32 aircraft in
    2007, budget savings could be achieved.

    CBO 5- Year Cost Estimate No* the number of aircraft associated with this
    option has increased since

    Included in GAO*s 2002 the CBO estimates were published.

    Budgetary Implications Report Related GAO Products Best Practices: Better
    Acquisition Outcomes Are Possible If DOD Can

    Apply Lessons from F/ A- 22 Program. GAO- 03- 645T, Washington, D. C.:
    April 11, 2003.

    Tactical Aircraft: Status of the F/ A- 22 Program. GAO- 03- 603T.
    Washington, D. C.: April 2, 2003.

    Tactical Aircraft: DOD Should Reconsider Decision to Increase F/ A- 22
    Production Rates While Development Risks Continue. GAO- 03- 431.
    Washington, D. C.: March 14, 2003.

    Tactical Aircraft: DOD Needs to Better Inform Congress about Implications
    of Continuing F/ A- 22 Cost Growth. GAO- 03- 280. Washington, D. C.:
    February 28, 2003.

    Tactical Aircraft: F/ A- 22 Delays Indicate Initial Production Rates
    Should Be Lower to Reduce Risks. GAO- 02- 298. Washington, D. C.: March 5,
    2002.

    Tactical Aircraft: Continuing Difficulty Keeping F- 22 Production Costs
    Within the Congressional Limitation. GAO- 01- 782. Washington, D. C.: July
    16, 2001.

    Tactical Aircraft: F- 22 Development and Testing Delays Indicate Need for
    Limit on Low- Rate Production. GAO- 01- 310. Washington, D. C.: March 15,
    2001.

    Defense Acquisitions: Recent F- 22 Production Cost Estimates Exceeded
    Congressional Limitation. GAO/ NSIAD- 00- 178. Washington, D. C.: August
    15, 2000.

    F- 22 Aircraft: Development Cost Goal Achievable If Major Problems Are
    Avoided. GAO/ NSIAD- 00- 68. Washington, D. C.: March 14, 2000.

    Defense Acquisitions: Progress in Meeting F- 22 Cost and Schedule Goals.

    GAO/ T- NSIAD- 00- 58. Washington, D. C.: December 7, 1999.

    Fiscal Year 2000 Budget: DOD*s Procurement and RDT& E Programs.

    GAO/ NSIAD- 99- 233R. Washington, D. C.: September 23, 1999.

    Defense Acquisitions: Progress of the F- 22 and F/ A- 18E/ F Engineering
    and Manufacturing Development Programs. GAO/ T- NSIAD- 99- 113.
    Washington, D. C.: March 17, 1999.

    F- 22 Aircraft: Issues in Achieving Engineering and Manufacturing
    Development Goals. GAO/ NSIAD- 99- 55. Washington, D. C.: March 15, 1999.

    1999 DOD Budget: DOD*s Procurement and RDT& E Programs.

    GAO/ NSIAD- 98- 216R. Washington, D. C.: August 14, 1998.

    F- 22 Aircraft: Progress of the Engineering and Manufacturing Development
    Program. GAO/ T- NSIAD- 98- 137. Washington, D. C.: March 25, 1998.

    F- 22 Aircraft: Progress in Achieving Engineering and Manufacturing
    Development Goals. GAO/ NSIAD- 98- 67. Washington, D. C.: March 10, 1998.

    Aircraft Acquisition: Affordability of DOD*s Investment Strategy.

    GAO/ NSIAD- 97- 88. Washington, D. C.: September 8, 1997.

    F- 22 Restructuring. GAO/ NSIAD- 97- 100BR. Washington, D. C.: February
    28, 1997.

    Tactical Aircraft: Concurrency in Development and Production of F- 22
    Aircraft Should Be Reduced. GAO/ NSIAD- 95- 59. Washington, D. C.: April
    19, 1995.

    Weapons Acquisition: Low- Rate Initial Production Used to Buy Weapon
    Systems Prematurely. GAO/ NSIAD- 95- 18. Washington, D. C.: November 21,
    1994.

    Tactical Aircraft: F- 15 Replacement Is Premature As Currently Planned.

    GAO/ NSIAD- 94- 118. Washington, D. C.: March 25, 1994.

    GAO Contact Allen Li, (202) 512- 4841

    Reassess the Need for the Selective Service System

    Primary agency Department of Defense Spending type Discretionary Budget
    subfunction 054/ Defense- related activities

    No one has been drafted since 1973 and the advent of the all- volunteer
    force. Since 1980, after the Soviet invasion of Afghanistan, males from
    ages of 18 through 26 have continued registering with the Selective
    Service System for a potential draft in the event of a national emergency.
    However, it would still require congressional action to actually draft
    anyone into the

    military. A return to a military draft seems unlikely. One reason for this
    is that any recruiting shortfalls represent only a minute percentage of
    the over 13 million males of draft age and it would be very difficult to
    ensure a fair and equitable draft to cover such shortfalls. The likelihood
    of the United States engaging in a manpower- intensive conflict in the
    future is very remote, so alternative approaches to a draft could be
    devised to fill personnel needs.

    Supporters of continuing registration maintain that it is a relatively
    inexpensive insurance policy in case the government underestimates the
    threat level the U. S. military may face in a future contingency.
    Supporters also contend that registration maintains the link between the
    military and society- at- large and reinforces the notion that citizenship
    involves an obligation to the nation. They also maintain that it would
    ensure a fair and

    equitable draft should one need to be reinstated in the future.
    Nevertheless, it was estimated in 1997 that it would take a little more
    than a year and cost about $23 million (or about 1 year*s appropriation)
    to bring the Selective Service System back from a *deep standby* status.
    In the past, CBO concluded that savings could be achieved if the Congress
    chose to terminate the Selective Service System.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Selective Service: Cost and Implications of Two
    Alternatives to the Present System. GAO/ NSIAD- 97- 225. Washington, D.
    C.: September 10, 1997.

    GAO Contact Henry L. Hinton, Jr., (202) 512- 4300

    Consolidate Military Exchange Stores

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Since 1968, studies by GAO, the Department of Defense (DOD), and others
    have concluded that financial benefits could be achieved through
    consolidation of military exchange stores into a single entity. The Office
    of the Secretary of Defense in a decision memorandum dated May 9, 2003,
    decided that a single optimized Armed Service exchange system would best

    serve the department and exchange patrons. DOD has established a task
    force to produce, within 24 months, a plan to consolidate the three
    exchange systems (Army and Air Forces Exchange Service, Navy Exchange, and
    the Marine Corps Exchange) into one. The consolidation will affect
    management and *back room* operations of the exchanges.

    However, it will be transparent to the exchange workers and shoppers as
    sailors, for example, will still go to a Navy Exchange. The director of
    this effort believes it is too early in the process to estimate savings
    from the consolidation. While savings are expected to accrue to the
    exchange system and benefit Morale, Welfare and Recreation funding, it
    appears that any savings to appropriation accounts would be limited
    because the exchanges only indirectly receive benefits from appropriated
    funds. For example, they do not pay (1) rent for use of properties owned
    by the U. S. government, (2) the salaries of military personnel working
    for the

    exchanges, and (3) utilities associated with overseas exchanges.
    Significant savings to appropriated funds are likely to result only to the
    extent that reductions occur in military personnel and facilities. It is
    not clear at this point to what extent, if any, that will occur as part of
    this effort.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Defense Management: Industry Practices Can Help
    Military Exchanges Better Assure That Their Goods Are Not Made by Child or
    Forced Labor. GAO- 02- 256. Washington, D. C.: January 31, 2002.

    Excess Equipment for Former Castle AFB (BXMART). GAO/ NSIAD- 98- 94R.
    Washington, D. C.: February 27, 1998.

    Morale, Welfare, and Recreation: Declining Funds Require DOD to Take
    Action. GAO/ NSIAD- 94- 120. Washington, D. C.: February 28, 1994.

    GAO Contact Barry W. Holman, (202) 512- 8412

    Reorganize C- 130 Reserve Squadrons

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Currently, the majority of the Air Force*s C- 130 aircraft are in the
    reserve component* that is, assigned to the Air Force Reserve and the Air
    National Guard. Typically, reserve component wings are organized in one
    squadron of 8 C- 130 aircraft. However, active Air Force wings flying the
    same aircraft are generally organized in two to three squadrons of 14 C-
    130 aircraft. Given this organizational approach, reserve component C- 130
    aircraft are

    widely dispersed throughout the continental United States, Hawaii, and
    Alaska.

    The Air Force could reduce costs and meet peacetime and wartime
    commitments if it reorganized its reserve component C- 130 aircraft into
    larger squadrons and wings at fewer locations. These savings would
    primarily result from fewer people being needed to operate these aircraft.
    For example, we reported in 1998 that redistributing 16 C- 130 aircraft
    from two 8- aircraft reserve wings to one 16- aircraft reserve wing could
    save

    about $11 million dollars annually. This reorganization could eliminate
    about 155 full- time positions and 245 part- time positions; the decrease
    in full- time positions is especially significant, since the savings
    associated

    with these positions represents about $8 million, or 75 percent of the
    total savings. Fewer people would be needed in areas such as wing
    headquarters, logistics, operations, and support group staffs as well as
    maintenance, support, and military police squadrons. 4 Several
    alternatives could be developed to redistribute existing reserve

    component C- 130 aircraft into larger squadrons. Sufficient personnel
    could be recruited for the larger squadrons, and most locations*
    facilities could be inexpensively expanded to accommodate the unit sizes.
    Overall savings will depend on the organizational model selected, but each
    should produce

    4 To the extent that alternatives are selected that would cause civilian
    personnel reductions that exceed the thresholds established in 10 U. S. C.
    2687, the department would have to follow the procedures provided in that
    section.

    savings to help make additional funding available for force modernization.
    The alternative that requires the most reorganizing would increase the
    squadron size to 16 aircraft for the C- 130 by redistributing aircraft
    from 13 C- 130 squadrons to other squadrons.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Air Force Aircraft: Reorganizing Mobility Aircraft
    Units Could Reduce Costs. GAO/ NSIAD- 98- 55. Washington, D. C.: January
    21, 1998. GAO Contact Henry L. Hinton, Jr., (202) 512- 4300

    Acquire Conventionally Rather Than NuclearPowered Aircraft Carriers

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Throughout the 1960s and most of the 1970s, the Navy pursued a goal of
    creating a fleet of nuclear carrier task forces. The centerpiece of these
    task forces, the nuclear- powered aircraft carrier, would be escorted by
    nuclearpowered surface combatants and nuclear- powered submarines. In
    deciding to build nuclear- powered surface combatants, the Navy believed
    that the greatest benefit would be achieved when all the combatant ships
    in the task force were nuclear- powered. However, the Navy stopped
    building nuclearpowered surface combatants after 1975 because of the high
    cost. The last nuclear- powered surface combatants were decommissioned in
    the late 1990s because they were not cost- effective to operate and
    maintain.

    Our analysis shows that both conventional and nuclear aircraft carriers
    have been effective in fulfilling U. S. forward presence, crisis response,
    and war- fighting requirements and share many characteristics and
    capabilities. Conventionally and nuclear- powered carriers both have the
    same standard air wing and train to the same mission requirements. Each
    type of carrier offers certain advantages. For example, conventionally
    powered carriers spend less time in extended maintenance and, as a result,
    can provide more forward presence coverage. By the same token, nuclear
    carriers can store larger quantities of aviation fuel and munitions and,
    as a result, are less dependent upon at- sea replenishment. There was
    little difference in the operational effectiveness of nuclear and
    conventional carriers in the 1991 Persian Gulf War.

    The United States maintains a continuous presence in the Pacific region by
    homeporting a conventionally powered carrier in Japan. If the Navy
    switches to an all- nuclear carrier force, it would need to homeport a
    nuclear- powered carrier there to maintain the current level of worldwide
    overseas presence with a 12- carrier force. Homeporting a nuclear- powered
    carrier in Japan could prove difficult and costly because of the need for

    support facilities, infrastructure improvements, and additional personnel.
    5 The United States would need a larger carrier force if it wanted to
    maintain a similar level of presence in the Pacific region with nuclear-
    powered carriers homeported in the United States. During fiscal year 2003,
    a new nuclear- powered carrier replaced a retiring conventionally powered
    carrier, leaving a mix of 10 nuclear and 2 conventionally powered
    carriers.

    The life- cycle costs* investment, operating and support, and inactivation
    and disposal costs* are greater for nuclear- powered carriers than
    conventionally powered carriers. Our analysis, based on historical and
    projected costs, shows that life- cycle costs for conventionally powered
    and nuclear- powered carriers (for a notional 50- year service life) are
    estimated at $14.1 billion and $22.2 billion (in fiscal year 1997
    dollars), respectively.

    In assessing design concepts for the next class of aircraft carriers* and
    consistent with the Navy*s objectives to reduce life- cycle costs by 20
    percent* our analysis indicates that national security requirements can be
    met at less cost with conventionally powered carriers rather than
    nuclearpowered carriers. In the past, CBO concluded that savings could be
    achieved if the Congress chose to acquire a conventionally powered carrier
    in 2007 instead of a nuclear- powered carrier.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Navy Aircraft Carriers: Cost- Effectiveness of
    Conventionally and Nuclear- Powered Carriers. GAO/ NSIAD- 98- 1.
    Washington, D. C.: August 27, 1998.

    Nuclear Waste: Impediments to Completing the Yucca Mountain Repository
    Project. GAO/ RCED- 97- 30. Washington, D. C.: January 17, 1997.

    Navy Carrier Battle Groups: The Structure and Affordability of the Future
    Force. GAO/ NSIAD- 93- 74. Washington, D. C.: February 25, 1993.

    5 The State Department has noted that the entry of nuclear- powered
    vessels into Japanese ports remains sensitive in Japan and there would
    have to be careful consultations with the government of Japan should the
    U. S. Government wish to homeport a nuclear- powered carrier in Japan.

    Nuclear- Powered Ships: Accounting for Shipyard Costs and Nuclear Waste
    Disposal Plans. GAO/ NSIAD- 92- 256. Washington, D. C.: July 1, 1992.

    GAO Contact Henry L. Hinton, Jr., (202) 512- 4300

    Improve the Administration of Defense Health Care

    Primary agency Department of Defense Account Defense Health Program (97-
    0130) Spending type Discretionary Budget subfunction 051/ Department of
    Defense* Military

    Each of the three military departments (Army, Navy, and Air Force)
    operates its own health care system, providing medical care to active duty
    personnel, their dependents, retirees, and survivors of military
    personnel. To a large extent, these separate, costly systems perform many
    of the same administrative, management, and operational functions.

    Numerous studies since 1949, with the most recent completed in 2001, have
    reviewed whether a central entity should be created within the Department
    of Defense (DOD) for the centralized management and administration of the
    three systems. Most of these studies encouraged some form of
    organizational consolidation. A Defense health agency would consolidate
    the three military medical systems into one centrally managed system,
    eliminating duplicate administrative, management, and operational
    functions. No specific budget estimate can be developed until numerous
    variables, such as the extent of consolidation and the impact on command
    and support structures, are determined.

    Although in the past CBO agreed that improving the administration of
    Defense health care had the potential to create savings, it could not
    develop a savings estimate without a specific legislative proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Defense Health Care: TRICARE Resource Sharing Program
    Failing to Achieve Expected Savings. GAO/ HEHS- 97- 130. Washington, D.
    C.: August 22, 1997.

    Defense Health Care: Actions Under Way to Address Many TRICARE Contract
    Change Order Problems. GAO/ HEHS- 97- 141. Washington, D. C.: July 14,
    1997.

    TRICARE Administrative Prices in the Northwest Region May Be Too High.
    GAO/ HEHS- 97- 149R. Washington, D. C.: June 24, 1997.

    Defense Health Care: New Managed Care Plan Progressing, but Cost and
    Performance Issues Remain. GAO/ HEHS- 96- 128. Washington, D. C.: June 14,
    1996.

    Defense Health Care: Despite TRICARE Procurement Improvements, Problems
    Remain. GAO/ HEHS- 95- 142. Washington, D. C.: August 3, 1995.

    Defense Health Care: DOD*s Managed Care Program Continues to Face
    Challenges. GAO/ T- HEHS- 95- 117. Washington, D. C.: March 28, 1995.

    Defense Health Care: Issues and Challenges Confronting Military Medicine.
    GAO/ HEHS- 95- 104. Washington, D. C.: March 22, 1995.

    GAO Contact Marjorie E. Kanof, (202) 512- 7101

    Seek Additional Opportunities for VA and DOD to Increase Joint Activities
    to Enhance

    Primary agencies Department of Defense

    Services to Beneficiaries

    Department of Veterans Affairs

    and Reduce Costs

    Accounts Multiple Spending type Discretionary Budget subfunctions Multiple

    Together, the Department of Veterans Affairs (VA) and the Department of
    Defense (DOD) provide health care services to more than 12 million
    beneficiaries at a cost of about $34 billion annually. To promote more
    cost- effective use of these health care resources and more efficient
    delivery of care, in 1982 the Congress passed the VA and DOD Health
    Resources Sharing and Emergency Operations Act (Sharing Act).
    Specifically, the act authorizes VA medical centers (VAMC) and military
    treatment facilities (MTF) to become partners and enter into sharing
    agreements to buy, sell, and barter medical and support services.

    VA and DOD continue to be hampered by long- standing barriers, including
    inconsistent reimbursement and budgeting policies and burdensome agreement
    approval processes. These long- standing barriers, along with changes in
    how VA and DOD provide medical care, present challenges for

    future collaboration and cost efficiencies. Although VA and DOD have taken
    some actions to address these barriers and seek more opportunities to
    maximize resources, challenges still remain. In a February 2002 staff
    report to the House Committee on Veterans* Affairs, new opportunities for
    enhancing sharing authority between the VA and DOD were discussed and
    legislation recommended to achieve more VA and DOD resource sharing.
    Further, in May 2003, the President*s Task Force to Improve Health Care
    Delivery For Our Nation*s Veterans submitted its final report, which
    includes a series of recommendations to remove barriers and improve
    collaboration between VA and DOD. It is too early to determine what impact
    the findings and recommendations of the Presidential Task Force will have
    on joint activities between VA and DOD.

    VA and DOD sharing partners generally believe the sharing program yielded
    benefits in both dollar savings and qualitative gains. Recognizing joint
    purchasing as an area where efficiencies could be achieved, in June 1999,
    VA and DOD signed a memorandum of agreement to combine their buying power
    and eliminate contracting redundancies for certain items, including

    pharmaceuticals and medical and surgical supplies. In 2001, we reported
    that VA and DOD saved over $170 million annually by jointly procuring
    pharmaceuticals. However, as we testified in June 2002, VA and DOD had not
    awarded joint contracts for medical and surgical supplies, as envisioned
    by their memorandum of agreement. In fiscal year 2001, VA spent about $500
    million and DOD spent about $240 million for medical and

    surgical supplies. Our analysis of about 100 identical medical and
    surgical items that VA and DOD now contract for separately indicates that
    jointly purchasing these items will yield additional savings, although we
    were unable to quantify the full potential. For example, in fiscal year
    2001, if VA had collaborated with DOD and obtained a discounted price from
    one of

    DOD*s regions for needle and syringe disposal containers, VA could have
    saved tens of thousands of dollars on this one item alone. Similarly, DOD
    could have realized additional savings if it had obtained VA*s lower
    national contract price on one type of intravenous tubing. While it is
    difficult to quantify the potential savings that joint contracting

    and other shared approaches could yield, as we reported in 2002, these
    savings could be meaningful given that VA*s and DOD*s separate approaches
    to procuring surgical and medical supplies have yielded an estimated $19
    million annually in savings. However, much needs to be done to take
    advantage of additional savings opportunities. At this point, neither
    department has accurate, reliable, and comprehensive procurement
    information* a basic requirement for identifying potential medical and
    surgical items to standardize. Furthermore, because DOD has opted to
    follow a regional rather than a national approach to standardization,
    opportunities for national joint procurement will be more difficult to

    achieve. Other types of potential sharing exist to maximize each system*s
    capacities and result in the most effective delivery of health care. For
    example, having DOD use VA*s consolidated mail outpatient pharmacies could
    yield

    additional significant savings. VA and DOD need to continue to work
    together to determine an appropriate course of action to ensure that
    resource- sharing opportunities are realized to the maximum extent
    possible.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products VA and Defense Health Care: Potential Exists for
    Savings through Joint Purchasing of Medical and Surgical Supplies. GAO-
    02- 872T. Washington, D. C.: June 26, 2002.

    DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly Buying
    and Mailing Out Drugs. GAO- 01- 588. Washington, D. C.: May 25, 2001.

    DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals
    Could Save Millions of Dollars. GAO/ T- HEHS- 00- 121. Washington, D. C.:
    May 25, 2000.

    VA and Defense Health Care: Rethinking of Resource Sharing Strategies Is
    Needed. GAO/ T- HEHS- 00- 117. Washington, D. C.: May 17, 2000.

    VA and Defense Health Care: Evolving Systems Require Rethinking of
    Resource Sharing Strategies. GAO/ HEHS- 00- 52. Washington, D. C.: May 17,
    2000.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    Continue Defense Infrastructure Reform

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Although the Department of Defense (DOD) has made significant reductions
    in defense force structure and military spending since the end of the Cold
    War, it has not achieved commensurate reductions in infrastructure 6
    costs. We previously reported that the proportion of planned

    infrastructure funding in DOD*s budgets would remain relatively constant
    at about 60 percent through 2005. DOD recognized that it must make better
    use of its scarce resources and announced a major reform effort* the
    Defense Reform Initiative (DRI). This effort began in November 1997. A
    major thrust of the DRI was to reduce unneeded infrastructure, primarily
    through a number of initiatives aimed at substantially streamlining and
    improving the economy and efficiency of DOD*s business operations and
    support activities. The resulting savings were expected to help DOD
    modernize its war fighting forces.

    While the administration has not continued the formal DRI program, it has
    recognized the need to continue reform efforts. Secretary of Defense
    Rumsfeld announced on June 18, 2001, the creation of two new management
    committees to recommend ways to improve DOD*s business activities and
    transform the U. S. military into a 21st century fighting force. The
    Senior Executive Committee, which includes the Secretary and deputy
    secretaries of Defense and the service secretaries, is expected to meet
    monthly and use its members* unique qualifications as business leaders to
    recommend changes to DOD*s business practices. The second committee, the
    Business Initiative Council, also includes the service secretaries but is
    chaired by the Under Secretary of Defense for Acquisition, Technology, and

    Logistics. Its mission is to recommend good business practices and achieve
    cost savings that will help pay for other DOD priorities. Although the

    6 DOD defines infrastructure as those activities that provide support
    services to mission programs, such as combat forces, and primarily operate
    from fixed locations. They include such program elements as installation
    support, acquisition infrastructure, central logistics, central training,
    central medical, and central personnel.

    agendas of these committees are not clear at this time, their members have
    endorsed several initiatives that were part of the DRI program (e. g.,
    family housing and utilities privatization) and indicated that they would
    consider 25 other areas that impact readiness and quality of life. They
    also emphasized that the committees do not intend to conduct another
    study. Rather, they will execute those initiatives or ideas that have
    already been researched and offer opportunities to fundamentally change
    DOD*s business practices and reduce infrastructure costs.

    Despite the change in the management structure, a number of old
    initiatives continue. However, progress in achieving the goals is mixed,
    as the following illustrate.

     A major efficiency initiative is to subject 226,000 government positions
    to public- private competition using OMB Circular A- 76 or to subject
    those positions to alternative sourcing such as partnering or divestiture.
    Competitive sourcing is one of the five governmentwide initiatives in the
    President*s Management Agenda. Under this initiative, OMB has

    directed agencies to compete 15 percent of positions deemed commercial in
    their fiscal year 2000 Federal Activities Inventory Reform Act inventories
    by the end of fiscal year 2003, with the ultimate goal of

    at least 50 percent through fiscal year 2008. DOD expects that they will
    meet these goals predominately through A- 76 competitions. DOD has not
    attached savings targets to these goals, although it has in the past.
    Nevertheless, we have noted that these efforts can produce significant
    savings regardless of whether governmental organizations or private
    contractors win the competitions. However, we have raised questions about
    the precision of DOD*s past savings estimates and the likelihood that the
    savings will not be realized as quickly as DOD projected.

     DOD has initiated a program to demolish and dispose of over 80 million
    square feet of excess buildings on military facilities. The military
    services were each given a demolition goal and expect to meet their goals
    and complete the program by 2003.

     Closing unneeded research development test and evaluation (RDT& E)
    facilities has proved to be more difficult. DOD*s RDT& E infrastructure
    consists of 131 facilities that develop and test military technologies.
    Over the years, DOD has tried to reduce the size of its RDT& E
    infrastructure. In addition, DOD reduced its RTD& E personnel by about 40,
    000 between fiscal years 1990 and 1997, saving an estimated $2.4 billion
    annually in personnel costs. Despite these reductions, the

    RDT& E infrastructure continues to have excess capacity. DOD estimates
    that excess capacity, in terms of square footage, is between 20 percent
    and 60 percent, depending on the military service and the method of
    estimation used. Moreover, DOD has stated that estimated personnel
    reductions are somewhat inflated because many government employees were
    replaced by on- site contractor employees who are conducting essentially
    the same tasks as government employees.

     Privatizing utilities has also proved to be more complicated and costly
    than anticipated and, consequently, progress has been very limited. The
    department established the goal of privatizing utility systems on military
    bases by September 30, 2003. However, as of March 2003, almost 6 years
    after the goal was established, DOD had privatized only 38 of the
    approximately 1,700 systems being considered for privatization under
    existing legislation. The effort has proven to be more complex, time-
    consuming, and expensive than originally anticipated. Although exact costs
    are not known, DOD estimates that it could cost hundreds of millions of
    dollars to complete required feasibility and environmental studies and
    upgrade the facilities to make them attractive to private investors.
    Additionally, instead of realizing significant savings, as once

    envisioned, the program might instead increase costs to the department*s
    operations and maintenance budgets to pay for privatized utility services.
    By not privatizing, however, DOD faces large capital costs (possibly in
    the billions) to repair the utility systems and ensure they continue to
    operate at an acceptable level. DOD sees privatization as a way to use
    private resources to finance these needed capital repairs and to get out
    of a business that is clearly not central to its mission.

     Privatizing family housing through private sector financing, ownership,
    operation, and maintenance has also experienced delays. Since the program
    began, the department has awarded a small number of contracts. DOD has not
    implemented a departmentwide standard process for determining housing
    requirements. DOD and the services have worked to develop the framework
    for this process, but technical concerns* such as standards for affordable
    housing and commuting distance* have stalled its adoption. Also, DOD*s
    life- cycle cost analyses for housing privatization have been incomplete
    and inaccurate, and have overstated savings. Moreover, increasing military
    members* housing allowance to secure private sector housing may be a
    better alternative to more quickly increase the availability of quality
    housing to military members.

    The administration also continues to emphasize the need for at least one
    additional base realignment and closure round in 2005 to reduce unneeded
    infrastructure and free up funds for readiness, weapon modernization, and
    other needs. 7 DOD projects that additional base closure rounds could save
    several billion dollars annually once realignment and closure actions are

    completed and the costs of implementing the actions are offset by savings.
    While we have previously raised questions about the precision of DOD*s
    savings estimate, our work has nevertheless shown that the department will
    realize net annual recurring savings once initial investment costs from
    implementing realignment and closure decisions have been offset.

    Undoubtedly, opportunities remain for DOD to reduce its infrastructure
    costs through additional strategic sourcing, streamlining, consolidating,
    and possibly privatizing. However, DOD needs a plan and investment
    strategy to maximize the results of these efforts. In particular, a

    comprehensive integrated consolidation and downsizing plan that sets
    goals, identifies specific initiatives, and sets priorities across DOD is
    needed to guide and sustain reform efforts. Ongoing DRI initiatives from

    the previous administration as well as initiatives involving the 25
    business areas being evaluated by the Business Initiatives Council need to
    be addressed by the plan. Savings for this option cannot be fully
    estimated until such a plan is developed.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Defense Management: New Management Reform Program
    Still Evolving.

    GAO- 03- 58. Washington, D. C.: December 12, 2002.

    Major Management Challenges and Program Risks, Department of Defense. GAO-
    01- 244. Washington, D. C.: January 2001.

    Future Years Defense Program: Risks in Operation and Maintenance and
    Procurement Programs. GAO- 01- 33. Washington, D. C.: October 5, 2000.

    7 The National Defense Authorization Act for Fiscal Year 2002 authorized
    another Base Realignment and Closure (BRAC) round to be conducted in 2005.

    Defense Infrastructure: Improved Performance Measures Would Enhance
    Defense Reform Initiative. GAO/ NSIAD- 99- 169. Washington, D. C.: August
    4, 1999.

    Defense Reform Initiative: Organization, Status and Challenges.

    GAO/ NSIAD- 99- 87. Washington, D. C.: April 21, 1999.

    Defense Reform Initiative: Progress, Opportunities, and Challenges.

    GAO/ T- NSIAD- 99- 95. Washington, D. C.: March 2, 1999.

    Force Structure: A- 76 Not Applicable to Air Force 38th Engineering
    Installation Wing Plan. GAO/ NSIAD- 99- 73. Washington, D. C.: February
    26, 1999.

    Major Management Challenges and Program Risks: Department of Defense. GAO/
    OCG- 99- 4. Washington, D. C.: January 1999.

    Army Industrial Facilities: Workforce Requirements and Related Issues
    Affecting Depots and Arsenals. GAO/ NSIAD- 99- 31. Washington, D. C.:
    November 30, 1998.

    Military Bases: Review of DOD*s 1998 Report on Base Realignment and
    Closure. GAO/ NSIAD- 99- 17. Washington, D. C.: November 13, 1998.

    Defense Infrastructure: Challenges Facing DOD in Implementing Reform
    Initiatives. GAO/ T- NSIAD- 98- 115. Washington, D. C.: March 18, 1998.

    Best Practices: Elements Critical to Successfully Reducing Unneeded RDT& E
    Infrastructure. GAO/ NSIAD/ RCED- 98- 23. Washington, D. C.: January 8,
    1998.

    Future Years Defense Program: DOD*s 1998 Plan Has Substantial Risk in
    Execution. GAO/ NSIAD- 98- 26. Washington, D. C.: October 23, 1997.

    1997 Defense Reform Bill: Observations on H. R. 1778. GAO/ T- NSIAD- 97-
    187. Washington, D. C.: June 17, 1997.

    Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid
    Operating Costs. GAO/ NSIAD- 97- 125. Washington, D. C.: May 13, 1997.

    DOD High- Risk Areas: Eliminating Underlying Causes Will Avoid Billions of
    Dollars in Waste. GAO/ T- NSIAD/ AIMD- 97- 143. Washington, D. C.: May 1,
    1997.

    Defense Acquisition Organizations: Linking Workforce Reductions With
    Better Program Outcomes. GAO/ T- NSIAD- 97- 140. Washington, D. C.: April
    8, 1997.

    Defense Budget: Observations on Infrastructure Activities. GAO/ NSIAD97-
    127BR. Washington, D. C.: April 4, 1997.

    GAO Contact Henry L. Hinton, Jr., (202) 512- 4300

    Reduce Funding for Renovation and Replacement of Military Housing until
    DOD

    Primary agency Department of Defense

    Completes Housing

    Accounts Multiple

    Assessment

    Spending type Discretionary Budget subfunction 051/ Department of Defense*
    Military One of the Department of Defense*s (DOD*s) most pressing problems
    is its

    outsized and decaying infrastructure, and this problem is prominent in the
    family housing program. By DOD*s March 2002 estimates, about 60 percent of
    military housing is inadequate and would require as much as $16 billion to
    renovate or replace using traditional military construction. Efforts to
    use private contractors to build and operate housing are off to a slow
    start and may require a long- term (50 years or more) commitment from the
    government. DOD*s policy is to rely on the private sector first for
    housing, but military members that receive a cash allowance to live in
    private sector housing must often pay out- of- pocket costs also. These
    additional costs have been a significant disincentive for living in
    civilian housing. However, in 2001, an initiative started to eliminate the
    service members* out- ofpocket

    costs for living in civilian housing by fiscal year 2005. While the full
    impact of this initiative on military housing requirements is not known,
    it will provide added incentive for service members to move into civilian
    housing, thereby reducing the potential need for DOD constructed housing.

    Despite efforts to improve the quality and availability of housing for
    military families, DOD has not implemented a departmentwide standard
    process for determining military housing requirements. A
    requirementssetting process that first considers the housing available
    around installations would likely decrease the amount of needed military
    housing. Without an accurate requirements- setting process based on the
    availability

    of private sector housing, DOD will continue to have inadequate
    information with which to make decisions about where it should renovate,
    build, or seek to privatize military housing. Increasing the housing
    allowance heightens the urgency for a consistent process to determine
    military housing requirements because it is expected to increase demand
    for civilian housing, and lessen the demand for military housing.
    Considerable evidence suggests that it is less expensive to provide
    allowances for military personnel to live within the civilian market than
    to provide military housing. While overall program costs are increasing
    significantly over the short term to cover increased allowances, DOD could

    save money in the longer term by encouraging more personnel to move into
    civilian housing. In the meantime, without an accurate determination of
    military housing needs, the department may spend millions of dollars to
    construct, renovate, or privatize housing that in some locations is

    unnecessary. In order to better ensure that DOD*s renovation and
    replacement of military housing is needed, the Congress may wish to reduce
    spending on noncritical housing construction and renovation until DOD
    completes a full

    needs assessment to determine if less expensive alternatives exist in the
    private market. Such a needs assessment would better enable DOD to target
    its limited financial resources to where military housing needs are most
    immediate. In the past, CBO could not estimate the savings for this option
    unless the funds needed for noncritical construction and renovation
    projects were identified. Although CBO agreed some savings would result
    from this option, it estimated that some of those savings would be offset
    in future years by additional spending for projects that are delayed but
    ultimately funded.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Military Housing: DOD Needs to Address Long- Standing
    Requirements Determination Problems. GAO- 01- 889. Washington, D. C.:
    August 3, 2001. GAO Contact Barry W. Holman, (202) 512- 8412

    Improve DOD Procurement Practices Regarding Canceling Orders

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    As of September 30, 2001, Department of Defense (DOD) records showed that
    the department had inventory on order valued at about $1.6 billion that
    would not have been ordered based on current requirements. We have issued
    several reports in the past few years highlighting weaknesses in the
    department*s requirements determination processes for materials and its

    procedures for canceling orders for items that are no longer needed. For
    example, we reported in May 2001 that the Army was unable to accurately
    identify its requirements for war reserve spare parts because (1) it was
    not

    using the best available data concerning the rate at which spares would be
    consumed during wartime and (2) a potential mismatch existed between how
    the Army determined spare parts requirements for war reserves and

    how the Army plans to repair equipment on the battlefield. Additional
    budgetary savings in this area can be anticipated because the department
    has a number of initiatives underway to better define spare parts
    requirements and to more efficiently cancel orders for items it determines
    are no longer needed.

    The Congress may wish to continue to monitor the DOD*s annual reports on
    the value of its unneeded inventory in order to ensure that the value
    continues to decrease. In addition, the Congress could consider requiring
    that the department*s logistics transformation initiatives include (1)
    enhancements to its models for computing inventory requirements to

    ensure greater accuracy and (2) more efficient procedures for canceling
    orders it determines are no longer needed. CBO 5- Year Cost Estimate

    No, this is a new example. CBO could not develop an estimate for this
    Included in GAO*s 2002

    example. Budgetary Implications Report

    Related GAO Product Major Management Challenges and Program Risks:
    Department of Defense. GAO- 03- 98. Washington, D. C.: January 2003.

    GAO Contact William Solis, (202) 512- 8365

    Reduce Planned Military Construction Costs for Barracks

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    In January 2003, GAO reported that over the next few years the military
    services plan to eliminate barracks with gang latrines and provide private
    sleeping rooms (to meet the Department of Defense*s (DOD) 1+ 1 barracks
    design standard) for all permanent party service members. The Navy has

    an additional goal to provide barracks for sailors who currently live
    aboard ships when in homeport. To implement these goals, the services plan
    to spend about $6 billion over the next 7 years to construct new barracks.

    GAO reported that the DOD Housing Management manual, which provides policy
    guidance about who should live in barracks, appears to be out of date and
    is under revision, and the military services have adopted different
    barracks occupancy requirements. The rationale for the services*
    requirements, and in particular for the requirement that more experienced
    junior service members live in barracks, appears to be a matter of
    military judgment and preference with less emphasis on systematic,
    objective analyses. Requiring more personnel (more pay grades) to live in
    barracks than is justified results in increased barracks program and
    construction costs and may be inconsistent with DOD*s policy to maximize
    reliance on civilian housing to the extent this policy is applied to
    barracks. There are also quality- of- life implications because most
    junior service members prefer to live off base. GAO reported that the
    timely resolution of these matters could potentially affect future budget
    decisions by reducing the number of new barracks to construct.

    GAO recommended that DOD revise its barracks occupancy guidance based, at
    least in part, on the results of objective, systematic analyses to
    determine who should be required to live in barracks on base or permitted
    to reside off base and seek to ensure greater consistency in requirements

    among the military services to the extent practical. DOD agreed, in
    principle, to base the department*s barracks policy revision and the
    services* barracks occupancy requirements* at least in part* on the
    results of systematic analyses, but left unclear the extent to which it is
    likely to do so. GAO continues to believe that, given the variations noted
    in

    the report, the services requirements determinations should be supported
    with more objective analyses to the extent practical. If the Congress
    required DOD to revise its barracks occupancy guidance according to GAO

    recommendations, then future construction and operation costs for barracks
    could be significantly lowered.

    CBO 5- Year Cost Estimate No, this is a new example.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Military Housing: Opportunity for Reducing Planned
    Military Construction Costs for Barracks. GAO- 03- 257R. Washington, D.
    C.: January 7, 2003.

    GAO Contact Barry W. Holman, (202) 512- 8412

    Take a Strategic Approach to Department of Defense Acquisition of Services

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunction 051/ Department of Defense* Military

    Over the last decade, much of the Department of Defense*s (DOD) management
    control of the billions it has spent in procuring services has been
    inefficient and ineffective. Today, DOD spending on a wide range of
    services* such as information technology, administrative support, and
    research and development* is approaching $100 billion annually. All too
    often, our work* and the work of the DOD Inspector General* has found that
    DOD organizations have not clearly defined service contract requirements
    nor adequately pursued competition. Award of these contracts has been
    widely dispersed, and DOD or the military services have had limited
    control on a servicewide or DOD- wide basis. Recent legislation requires
    DOD to improve procurement practices to achieve savings and

    other benefits. Like the federal government, private companies
    increasingly rely on services and also struggle with methods to better
    manage their purchasing. To reduce costs and more effectively procure
    services, many companies have adopted a strategic approach* centralizing
    and reorganizing their operations to get the best value for the company as
    a whole* that is based on the implementation of a variety of best
    practices. These range from learning much more about their service
    spending to buying services on an enterprisewide rather than business unit
    basis.

    A strategic approach pulls together participants from a variety of places
    within an organization who recommend changes that can constrain rising
    acquisition costs. These changes can include analyzing spending to
    identify opportunities to leverage their buying power; instituting
    companywide

    purchasing of specific services; reshaping a decentralized process to
    follow a more center- led, strategic approach; and increasing the
    involvement of the enterprise procurement organization, including working
    across units to help identify service needs, select providers, and manage
    contractor performance.

    Studies have reported significant cost savings in the private sector, with
    some companies achieving reported savings of 10 to 20 percent of their
    total procurement costs through the use of a strategic approach to buying
    goods and services. A recent Purchasing Magazine poll finds that companies
    employing procurement best practices* including employing effective spend
    analysis processes* are routinely delivering a 3 percent to 7 percent
    savings on their procurement costs.

    One option for achieving significant savings is for DOD to adopt the very
    same strategic approach and practices employed by the private sector. In
    response to recent legislation requiring management improvements in
    service contracts, DOD is beginning a pilot to analyze spending data from
    a DOD- wide perspective. The pilot is expected to identify 5 to 10
    categories of smaller service requirements that can be consolidated for
    large- scale savings opportunities and other efficiencies over the current
    decentralized

    contracting environment. Although moving in the right direction, DOD has
    not yet adopted best practices to the same extent as the companies we
    studied. Whether DOD can adopt these practices depends on its ability to

    make long- term management changes necessary to implement a more strategic
    approach to service contracts. DOD cites a number of challenges that may
    hamper adoption of these practices. These include the size and complexity
    of DOD*s service needs, the fragmentation of spending data

    across multiple financial and procurement systems, and socioeconomic goals
    for contracting with small businesses that may constrain its ability to
    consolidate smaller requirements into larger contracts. While seemingly
    daunting, each of the challenges to be faced by DOD has been faced and
    overcome by private sector companies. Given that DOD*s spending on service
    contracts is approaching $100 billion annually, the potential benefits of
    overcoming the challenges and using best practices to establish an
    effective spending analysis program are significant* achieving total
    spending perspective across DOD; making the business case for
    collaboration in joint purchasing rather than fragmented purchasing;
    organizing an effective management structure to assign accountability and
    exercise oversight; and identifying potentially billions of dollars in
    procurement savings opportunities by leveraging buying power.

    CBO 5- Year Cost Estimate No, this is a new example. CBO could not develop
    an estimate for this

    Included in GAO*s 2002 example.

    Budgetary Implications Report

    Related GAO Products Best Practices: Improved Knowledge of DOD Service
    Contracts Could Reveal Significant Savings. GAO- 03- 661. Washington, D.
    C.: June 10, 2003.

    Sourcing and Acquisition: Challenges Facing the Department of Defense.
    GAO- 03- 574T. Washington, D. C.: March 19, 2003.

    Major Management Challenges and Program Risks: Department of Defense. GAO-
    03- 98. Washington, D. C.: January 2003.

    Best Practices: Taking a Strategic Approach Could Improve DOD*s
    Acquisition of Services. GAO- 02- 230. Washington, D. C.: January 18,
    2002.

    Contract Management: Trends and Challenges in Acquiring Services.

    GAO- 01- 753T. Washington, D. C.: May 22, 2001. GAO Contact David E.
    Cooper, (617) 788- 0555

    Address Overpayments to Defense Contractors

    Primary agency Department of Defense Accounts Multiple Spending type
    Discretionary Budget subfunctions Multiple

    Ensuring prompt, proper, and accurate payments is a key element of a sound
    contract management process. Yet, for the Department of Defense (DOD),
    completing such basic tasks has long been a challenge. GAO first reported
    problems with contractor overpayments in 1994. That report, and those
    issued subsequently, noted that contractors were refunding hundreds of
    millions of dollars to DOD each year, for a total of about $6.7 billion
    between fiscal year 1994 and 2001. GAO also found that a substantial
    portion of overpayments was not repaid promptly* in some cases for years.
    As an example, in a 1999 review of 13 contractors, GAO found that it took
    about a year, on average, before overpayments of $56.2 million were
    refunded to DOD. The time taken for repayment ranged from 2 weeks to
    nearly 6 years.

    While DOD has a number of initiatives underway to address its payment
    problems, it will be some time before the problems are resolved. Until
    then, DOD contractors will continue receiving a sizable amount of cash
    beyond what is intended to finance and pay for the goods and services DOD
    is purchasing. In effect, such overpayments provide an interes- free loan
    to contractors. In December 2001, in response to GAO*s work, the Federal
    Acquisition

    Regulation (FAR) was revised to require contractors receiving overpayments
    on invoice payments to notify the government and seek instructions for
    disposing of the overpayment. However, the revision does not address
    overpayments stemming from financing payments 8 *although GAO found that
    most overpayments involve contracts with financing

    8 Contract payments involve payments for the delivery of goods and
    services and financing payments. Financing payments include (1) progress
    payments to cover a contractor*s costs as they are incurred during the
    construction of facilities or the production of major weapons systems and
    (2) performance- based payments that are based on the accomplishment of
    particular events or milestones* typically used on production contracts.

    payments. In June 2003, the Civilian Agency Acquisition Council and the
    Defense Acquisition Regulations Council were proposing to require
    contractors to notify the government when they received overpayments
    stemming from either invoice or financing payments on commercial item and
    non- commercial item contracts.

    While we have recommended that the Secretary of Defense require
    contractors to promptly notify the government of overpayments made to
    them, given the extent of the overpayment problem, one option is for the
    Congress to require contractors to notify the government of overpayments
    when they become aware of them, for all types of contracts, and to return
    the money promptly upon becoming aware of the overpayments. Additional
    steps could be taken to create incentives for contractors to

    refund money they have not earned. For example, a requirement could be
    established for contractors to pay interest on overpayments at the
    discretion of DOD on a facts and circumstances basis if they do not return
    the money promptly.

    CBO 5- Year Cost Estimate No, this is a new example. However, CBO
    indicated it could probably make

    Included in GAO*s 2002 an estimate for this example.

    Budgetary Implications Report Related GAO Products Major Management
    Challenges and Program Risks: Department of Defense. GAO- 03- 98.
    Washington, D. C.: January 2003.

    Financial Management: Coordinated Approach Needed to Address the
    Government*s Improper Payments Problems. GAO- 02- 749. Washington, D. C.:
    August 9, 2002.

    DOD Contract Management: Overpayments Continue and Management and
    Accounting Issues Remain. GAO- 02- 635. Washington, D. C.: May 30, 2002.

    Department of Defense: Status of Achieving Outcomes and Addressing Major
    Management Challenges. GAO- 01- 783. Washington, D. C.: June 25, 2001.

    Contract Management: Excess Payments and Underpayments Continue to Be a
    Problem at DOD. GAO- 01- 309. Washington, D. C.: February 22, 2001.

    DOD Contract Management: Greater Attention Needed to Identify and Recover
    Overpayments. GAO/ NSIAD- 99- 131. Washington, D. C.: July 19, 1999.

    Recovery Auditing: Reducing Overpayments, Achieving Accountability, and
    the Government Waste Corrections Act of 1999. GAO/ T- NSIAD- 99- 213.
    Washington, D. C.: June 29, 1999.

    DOD Procurement: Millions in Contract Payment Errors Not Detected and
    Resolved Promptly. GAO/ NSIAD- 96- 8. Washington, D. C.: October 6, 1995.

    GAO Contact David E. Cooper, (617) 788- 0555

    CBO Options Where 9

    Related GAO Work Is Identified 9

    050- 05 Cancel the Army*s Comanche Helicopter Program Related GAO Product
    Defense Acquisition: Comanche Program Objectives Need to Be Revised

    to More Achievable Levels. GAO- 01- 450. Washington, D. C.: June 7, 2001.
    GAO Contact William Graveline, (256) 922- 7514

    050- 10 Reduce Purchases of the Air Force*s F/ A- 22 Fighter

    Related GAO Products Tactical Aircraft: DOD Should Reconsider Decision to
    Increase F/ A- 22 Production Rates While Development Risks Continue. GAO-
    03- 431. Washington, D. C.: March 14, 2003.

    Tactical Aircraft: DOD Needs to Better Inform Congress about Implications
    of Continuing F/ A- 22 Cost Growth. GAO- 03- 280. Washington, D. C.:
    February 28, 2003.

    GAO Contact Michael Hazard, (937) 258- 7917 9 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    050- 11 Slow the Schedule of the F- 35 Joint Strike Fighter Program

    Related GAO Product Joint Strike Fighter Acquisition: Mature Critical
    Technologies Needed to Reduce Risk. GAO- 02- 39. Washington, D. C.:
    October 19, 2001.

    GAO Contact Brian Mullins, (202) 512- 4384 050- 19 Replace Military
    Personnel in Some Support Positions with Civilian Employees of the
    Department of Defense

    Related GAO Product DOD Competitive Sourcing: Some Progress, but
    Continuing Challenges Remain in Meeting Program Goals. GAO/ NSIAD- 00-
    106. Washington, D. C.: August 8, 2000.

    GAO Contact Barry W. Holman, (202) 512- 5581 050- 22 Have the Departments
    of Defense and Veterans Affairs Purchase Drugs Jointly

    Related GAO Products VA and DOD Health Care: Factors Contributing to
    Reduced Pharmacy Costs and Continuing Challenges. GAO- 02- 969T.
    Washington, D. C.: July 22, 2002.

    DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly Buying
    and Mailing Out Drugs. GAO- 01- 588. Washington, D. C.: May 25, 2001.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    150 International

    Examples from Selected GAO Work

    Affairs Eliminate U. S. Contributions to Administrative Costs in Rogue
    States

    Streamline U. S. Overseas Presence CBO Options Where Related GAO Work Is
    Identified

    150- 01 Eliminate the Export- Import Bank, the Overseas Private Investment
    Corporation, and the Trade and Development Agency

    150- 02 End the United States* Capital Subscriptions to the European Bank
    for Reconstruction and Development

    Examples from Selected GAO Work

    Eliminate U. S. Contributions to Administrative Costs in Rogue States

    Primary agency Department of State Account International Organizations and
    Programs

    (19- 1005) Spending type Discretionary Budget subfunction 151/
    International development and

    humanitarian assistance

    International organizations, such as the United Nations Development
    Program, fund projects in countries that are legislatively prohibited from
    receiving U. S. funding under section 307 of the Foreign Assistance Act of
    1961, as amended. The list of countries varies over time but has included
    Afghanistan, Burma, Cuba, Iran, Iraq, Libya, Serbia, and Syria. To comply
    with the legislation, the Department of State withholds from its voluntary
    contributions to international organizations the U. S. share of funding
    for projects in these countries.

    However, the department does not withhold administrative expenditures
    associated with the operation of field offices in these countries.
    Consequently, a portion of the U. S. contribution still goes to projects
    in states prohibited from receiving U. S. funds. We did not attempt to
    calculate

    the total amount that the United States contributes to all international
    organizations for administrative expenses in rogue states. However, in
    1998 GAO estimated that the amount for one United Nations organization,
    the United Nations Development Program, was about $600,000.

    The Department of State has indicated that it would not, as a matter of
    policy, withhold U. S. contributions to United Nations organizations for
    administrative expenses in these countries. The department believes the
    legislative restriction invites politicization and contradicts the
    principle of universality for participating in United Nations
    organizations.

    Savings may be achieved if the Department of State were to include field
    office administrative costs when calculating the amount of U. S.

    withholdings for all international organizations that are subject to
    section 307 of the Foreign Assistance Act of 1961.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Multilateral Organizations: U. S. Contributions to
    International Organizations for Fiscal Years 1993- 95. GAO/ NSIAD- 97- 42.
    Washington, D. C.: May 1, 1997.

    International Organizations: U. S. Participation in the United Nations
    Development Program. GAO/ NSIAD- 97- 8. Washington, D. C.: April 17, 1997.
    GAO Contact Susan S. Westin, (202) 512- 4128

    Streamline U. S. Overseas Presence

    Primary agency Department of State Accounts Multiple Spending type
    Discretionary Budget subfunction 153/ Conduct of foreign affairs

    The U. S. overseas presence at more than 260 overseas posts consists of
    more than 90,000 people (including dependents). The workforce has been
    estimated at as many as 60,000 personnel representing over 30 U. S.

    agencies. The Department of State employs about a third of the U. S.
    workforce overseas and its embassies and consulates have become bases for
    the operations of agencies involved in hundreds of activities. U. S.
    direct hire staffing levels have increased over the years, most notably in
    the nonforeign affairs agencies. The costs of overseas operations and
    related security requirements are directly linked to the size of the
    overseas workforce. By reducing the number of employees at posts where U.
    S. interests are lower priority, consolidating functions, establishing
    regional centers, or relocating

    personnel to the United States, the costs of overseas operations could be
    significantly reduced. The average annual cost of an American at a post
    overseas varies by location, but can cost several hundred thousand
    dollars, not including salary. The costs to station an American overseas
    have been estimated to be about two times as much as for Washington- based
    staff. In addition, reductions in the number of personnel overseas could
    substantially enhance the safety of Americans and other U. S. employees,

    reduce the costly security demands placed on the State Department, and
    help control the costs of new embassy construction estimated to cost as
    much as $16 billion.

    Since the mid- 1990s, we have encouraged actions to reevaluate overseas
    staffing requirements and levels. In late 1999, the Overseas Presence
    Advisory Panel concluded that substantial monetary savings and reductions
    in security vulnerabilities could be achieved through

    streamlining posts. In August 2001, The President*s Management Agenda
    noted that the U. S. overseas presence is costly, increasingly complex,
    and of growing security concern. The President*s Management Agenda
    concluded that cost and security considerations demand that the overseas
    staffing process be improved. We have developed a rightsizing framework

    that encourages overseas staffing decisions to be based on a full
    consideration of cost, security, and mission factors. In the past, CBO
    estimated that savings could be achieved if the Congress chose to reduce
    overseas staffing by 1 percent, either through domestic reallocation or
    elimination.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Embassy Construction: Process for Determining
    Staffing Requirements Needs Improvement. GAO- 03- 411. Washington, D. C.:
    April 7, 2003.

    Overseas Presence: Rightsizing Framework Can Be Applied at U. S.
    Diplomatic Posts in Developing Countries. GAO- 03- 396. Washington, D. C.:
    April 7, 2003.

    Overseas Presence: Systematic Processes Needed to Rightsize Posts and
    Guide Embassy Construction. GAO- 03- 582T. Washington, D. C.: April 7,
    2003.

    Overseas Presence: Conditions of Overseas Diplomatic Facilities. GAO03-
    557T. Washington, D. C.: March 20, 2003.

    GAO Contact Jess T. Ford, (202) 512- 4128

    CBO Options Where Related GAO Work Is Identified 10

    150- 01 Eliminate the ExportImport 10

    Bank, the Overseas Private Investment Corporation, and the Trade and
    Development Agency

    Related GAO Product Export Promotion: Mixed Progress in Achieving a
    Governmentwide Strategy. GAO- 02- 850. Washington, D. C.: September 4,
    2002.

    GAO Contact Ginny Hughes, (202) 512- 5481 150- 02 End the United States*
    Capital Subscriptions to the

    European Bank for Reconstruction and Development

    Related GAO Product Foreign Assistance: International Efforts to Aid
    Russia*s Transition Have Had Mixed Results. GAO- 01- 8. Washington, D. C.:
    November 1, 2000.

    GAO Contact Celia Thomas, (202) 512- 8987 10 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    250 General Science,

    Example from Selected GAO Work

    Space, and Technology Continue Oversight of the International Space
    Station and Related Support

    Systems

    Example from Selected GAO Work

    Continue Oversight of the International Space Station and Related Support
    Systems

    Primary agency National Aeronautics and Space Administration

    Accounts Multiple Spending type Discretionary Budget subfunction 252/
    Space flight, research, and supporting

    activities

    Recent events associated with the National Aeronautics and Space
    Administration*s (NASA) human space flight programs have generated major
    congressional concern. First, the Space Launch Initiative* a planned $4.8
    billion research and development effort* was significantly downsized in
    November 2002. This decision made the prospect of a Shuttle replacement
    unlikely for the foreseeable future and necessitated investment in
    extending the life of the Shuttle fleet. Second, the tragic loss of
    Shuttle Columbia has engendered intense scrutiny by the Columbia Accident
    Investigation Board and NASA*s congressional oversight committees into
    various aspects of the agency*s activities* from budgetary decisions to
    emphasis on flight safety. Third, the uncertain status of the unfinished
    International Space Station (ISS) is worrisome. Construction has halted
    due to postponement of shuttle flights and a crew size larger than three
    is still being negotiated among the international partners. As a result,
    the projected scientific benefits from this orbital laboratory have been
    further delayed.

    The Congress is well aware of the challenges NASA faces in developing,
    building, and transporting crew to the ISS* challenges that have in the
    past resulted in schedule delays and higher program cost estimates to
    complete development. Although assembly of the ISS is well underway, it
    warrants continued congressional oversight because the ISS will impose
    continued demands on future budgets and will require critical decisions on
    Shuttle modernization and replacement efforts. As NASA returns the Space
    Shuttle fleet to safe flight by incorporating the accident board*s
    recommendations and more clearly defines the future of human space

    flight and commensurate financial commitments, continued congressional
    oversight will help to ensure that NASA*s priorities and supporting
    funding are appropriately matched. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products NASA: Major Management Challenges and Program Risks.
    GAO- 03- 849T. Washington, D. C.: June 12, 2003.

    Major Management Challenges and Program Risks: National Aeronautics and
    Space Administration. GAO- 03- 114. Washington, D. C.: January 1, 2003.

    Relocation of Space Shuttle Major Modification Work. GAO- 03- 294R.
    Washington, D. C.: December 2, 2002.

    Space Transportation: Challenges Facing NASA*s Space Launch Initiative.
    GAO- 02- 1020. Washington, D. C.: September 17, 2002.

    NASA Management Challenges: Human Capital and Other Critical Areas Need to
    be Addressed. GAO- 02- 945T. Washington, D. C.: July 18, 2002.

    Space Station: Actions Under Way to Manage Cost, but Significant
    Challenges Remain. GAO- 02- 735. Washington, D. C.: July 17, 2002.

    NASA: Compliance With Cost Limits Cannot Be Verified. GAO- 02- 504R.
    Washington, D. C.: April 10, 2002.

    GAO Contact Allen Li, (202) 512- 4841

    270 Energy Examples from Selected GAO Work

    Corporatize or Divest Selected Power Marketing Administrations Recover
    Power Marketing Administrations* Costs Increase Nuclear Waste Disposal
    Fees Recover Federal Investment in Successfully Commercialized
    Technologies Reduce the Costs of the Rural Utilities Service*s Electricity
    and Telecommunications Loan Programs

    Examples from Selected GAO Work

    Corporatize or Divest Selected Power Marketing Administrations

    Primary agency Department of Energy Spending type Direct

    The federal government began to market electricity after the Congress
    authorized the construction of dams and established major water projects,
    primarily in the 1930s to the 1960s. The Department of Energy*s (DOE)
    power marketing administrations (PMA)* Bonneville Power Administration,
    Southeastern Power Administration, Southwestern Power Administration, and
    Western Area Power Administration* market primarily wholesale power in 33
    states produced at large, multiple- purpose water projects. Our March 1998
    report identified options that the Congress and other policymakers can
    pursue to address concerns about the role of three PMAs* Southeastern,
    Southwestern, and Western* in emerging restructured markets or to manage
    them in a more business- like fashion. Our work has demonstrated that,
    although federal laws and regulations generally require that the PMAs
    recover the full costs of building, operating, and maintaining the federal
    power plants and transmission assets, in some cases federal statutes and
    DOE*s rules are ambiguous about

    or prohibit the recovery of certain costs. For fiscal years 1992 through
    1996, the federal government incurred a net cost of $1.5 billion from its
    involvement in the electricity- related activities of Southeastern,
    Southwestern, and Western. We also reported that the appropriated and
    other debt that is recoverable through the PMAs* power sales totaled about
    $22 billion at the end of fiscal year 1997 and included nearly $2.5
    billion in irrigation costs. In addition, our work has demonstrated that
    the availability of federal power plants to generate electricity has been
    below that of nonfederal plants because the federal planning and budgeting
    processes do not always ensure that funds are available to make repairs
    when needed.

    Our March 1998 report outlined three general options to address the
    federal role in restructuring markets: (1) maintaining the status quo of
    federal ownership and operation of the power generating projects, (2)
    maintaining

    the federal ownership of these assets but improving how they are operated
    (an example of which is reorganizing the PMAs to operate as federally
    owned corporations), and (3) divesting these assets. The third option
    would eliminate the government*s presence in a commercial activity and,
    depending on a divestiture*s terms and conditions and the price obtained,
    could produce both a net gain and a future stream of tax payments to the
    Treasury. Corporatization or divestitures of government assets have been
    accomplished in the United States and also overseas, and corporatization
    could serve as an interim step toward ultimate divestiture. Our March 1997

    report concluded that divesting the federal hydropower assets would be
    complicated but not impossible. Such a transaction would need to balance
    the multiple purposes of the water project as well as other claims on the
    water.

    CBO estimated previously that divesting the federal hydropower assets for
    Southeastern, Southwestern, and Western would result in budgetary savings.
    The savings assumed that the divestiture would not occur for 2 years and
    was based on the net present value of outstanding debt for the
    Southeastern, Southwestern, and Western PMAs.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Budget Issues: Effective Oversight and Budget
    Discipline Are Essential* Even in a Time of Surplus. GAO/ T- AIMD- 00- 73.
    Washington, D. C.: February 1, 2000.

    Potential Candidates for Congressional Oversight. GAO/ OGC- 00- 3R.
    Washington, D. C.: November 1, 1999.

    Federal Power: The Role of the Power Marketing Administrations in a
    Restructured Electricity Industry. GAO/ T- RCED/ AIMD- 99- 229.
    Washington, D. C.: June 24, 1999.

    Federal Power: PMA Rate Impacts by Service Area. GAO/ RCED- 99- 55.
    Washington, D. C.: January 28, 1999.

    Federal Power: Regional Effects of Changes in PMAs* Rates. GAO/ RCED99-
    15. Washington, D. C.: November 16, 1998.

    Power Marketing Administrations: Repayment of Power Costs Needs Closer
    Monitoring. GAO/ AIMD- 98- 164. Washington, D. C.: June 30, 1998.

    Federal Power: Options for Selected Power Marketing Administrations* Role
    in a Changing Electricity Industry. GAO/ RCED- 98- 43. Washington, D. C.:
    March 6, 1998.

    Federal Electricity Activities: The Federal Government*s Net Cost and
    Potential for Future Losses. GAO/ AIMD- 97- 110 and 110A. Washington, D.
    C.: September 19, 1997.

    Federal Power: Issues Related to the Divestiture of Federal Hydropower
    Resources. GAO/ RCED- 97- 48. Washington, D. C.: March 31, 1997.

    Power Marketing Administrations: Cost Recovery, Financing, and Comparison
    to Nonfederal Utilities. GAO/ AIMD- 96- 145. Washington, D. C.: September
    19, 1996.

    Federal Power: Recovery of Federal Investment in Hydropower Facilities in
    the Pick- Sloan Program. GAO/ T- RCED- 96- 142. Washington, D. C.: May 2,
    1996.

    GAO Contacts Bob Robinson, (202) 512- 3841 Jim Wells, (202) 512- 3841

    Recover Power Marketing Administrations* Costs

    Primary agency Department of Energy Spending type Direct

    Four of the Department of Energy*s (DOE) power marketing administrations
    (PMA)* Bonneville Power Administration, Southeastern Power Administration,
    Southwestern Power Administration, and Western Area Power Administration*
    market primarily wholesale power in 33 states produced at large, multiple-
    purpose water projects. Except for Bonneville, these PMAs receive annual
    appropriations to cover operating and maintenance (O& M) expenses and, if
    applicable, the capital investment in transmission assets. 11 Federal law
    requires the PMAs to repay these appropriations as well as the power-
    related O& M and the capital appropriations expended by the operating
    agencies generating the power.

    Current monitoring activities do not ensure that the federal government
    recovers the full cost of its power- related activities from the
    beneficiaries of federal power. The full cost of the power- related
    activities* which are to be recovered under DOE policy* include all direct
    and indirect costs incurred by the federal government in producing,
    transmitting, and marketing federal power. Neither DOE nor the Federal
    Energy Regulatory Commission, which reviews the PMAs* rate proposals, is
    effectively

    monitoring the rate- making process and the amounts due and repayments
    made to ensure their accuracy, completeness, and timeliness. Unrecovered
    power- related costs relate to (1) Civil Service Retirement System (CSRS)
    pensions and postretirement health benefits, (2) life insurance benefits,
    (3) certain workers* compensation benefits, and (4) interest on some of
    the

    federal appropriations used to construct certain projects. The full
    magnitude of the underrecovery of power- related costs is unknown. Until
    an effective monitoring system is implemented, the federal government will
    continue to be exposed to financial loss due to the underrecovery of
    powerrelated costs.

    11 In 1974, the Congress stopped providing Bonneville with annual
    appropriations and instead provided it with a revolving fund maintained by
    the Treasury; however, Bonneville remains responsible for repaying its
    debt prior to 1974 and debt stemming from appropriations expended by the
    operating agencies on power- related expenses.

    The federal government is also incurring other substantial net costs
    annually* the amount by which the full costs of providing electric power
    exceed the revenues from the sale of power* from the electricity- related
    activities of the PMAs. Although the PMAs are generally required to
    recover all costs, favorable financing terms and the lack of specific
    requirements to recover certain costs have resulted in net costs to the
    federal government

    because these PMAs* electricity rates do not recover all costs that are to
    be repaid through the sale of power. It is important to note that the PMAs
    were generally following applicable laws and regulations applying to the
    recovery of costs; however, in some cases, federal statutes and an
    applicable DOE order are ambiguous about or prohibit the recovery of
    certain costs.

    In part because the PMAs sell power generated almost exclusively from
    hydropower, are not required to earn a profit, and do not fully recover
    the government*s costs in their rates, they are generally able to sell
    power more cheaply than other providers. Southeastern, Southwestern, and
    Western sold wholesale power to their preference customers, such as public
    entities and rural cooperatives, from 1990 through 1995, at average rates
    from 40 to 50 percent below the rates nonfederal utilities charged. If the
    PMAs were authorized to charge market rates for power in conjunction with
    federal

    restructuring legislation, some preference customers who now purchase
    power from the PMAs at rates that are less than those available from other
    sources would see their rates increase. However, we have reported that
    slightly more than two- thirds of the preference customers, which are
    located in varying portions of 29 states, that purchased power directly
    from

    Southeastern, Southwestern, and Western would experience small or no rate
    increases* increases of one- half cent per kilowatt hour or less* if those
    PMAs charged market rates. The Congress and/ or the Secretary of Energy
    may wish to consider directing the PMAs to more fully recover power-
    related costs or revising DOE*s policy on high- interest debt repayment.
    We have recommended a number of specific actions aimed at enhancing DOE*s
    oversight. For

    example, changes could be implemented to recover the full costs to the
    federal government of providing postretirement health benefits and
    pensions for current employees and operating agency employees engaged in
    producing and marketing the power sold by the PMAs. We and CBO agree that
    several PMAs have begun to address some of these actions. The Congress has
    the option of requiring the PMAs to sell their power at market rates to
    better ensure the full recovery of the appropriated and other debt that is
    recoverable through the PMAs* power sales. This debt totaled about

    $22 billion at the end of fiscal year 1997 and included nearly $2.5
    billion in irrigation costs that are to be recovered through the PMAs*
    power sales. This option would likely also lead to more efficient
    management of the taxpayers* assets.

    Although in the past, CBO agreed that savings would occur if the PMAs were
    directed to fully recover power- related costs or set their power at
    market rates, it could not develop an estimate for this option without a

    specific proposal. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Congressional Oversight: Opportunities to Address
    Risks, Reduce Costs, and Improve Performance. GAO/ T- AIMD- 00- 96.
    Washington, D. C.: February 17, 2000.

    Federal Power: The Role of the Power Marketing Administrations in a
    Restructured Electricity Industry. GAO/ T- RCED/ AIMD- 99- 229.
    Washington, D. C.: June 24, 1999.

    Federal Power: PMA Rate Impacts, by Service Area. GAO/ RCED- 99- 55.
    Washington, D. C.: January 28, 1999.

    Federal Power: Regional Effects of Changes in PMAs* Rates. GAO/ RCED99-
    15. Washington, D. C.: November 16, 1998.

    Power Marketing Administrations: Repayment of Power Costs Needs Closer
    Monitoring. GAO/ AIMD- 98- 164. Washington, D. C.: June 30, 1998.

    Federal Power: Options for Selected Power Marketing Administrations* Role
    in a Changing Electricity Industry. GAO/ RCED- 98- 43. Washington, D. C.:
    March 6, 1998.

    Federal Electricity Activities: The Federal Government*s Net Cost and
    Potential for Future Losses. GAO/ AIMD- 97- 110 and 110A. Washington, D.
    C.: September 19, 1997.

    Federal Power: Issues Related to the Divestiture of Federal Hydropower
    Resources. GAO/ RCED- 97- 48. Washington, D. C.: March 31, 1997.

    Power Marketing Administrations: Cost Recovery, Financing, and Comparison
    to Nonfederal Utilities. GAO/ AIMD- 96- 145. Washington, D. C.: September
    19, 1996.

    Federal Power: Outages Reduce the Reliability of Hydroelectric Power
    Plants in the Southeast. GAO/ T- RCED- 96- 180. Washington, D. C.: July
    25, 1996.

    Federal Power: Recovery of Federal Investment in Hydropower Facilities in
    the Pick- Sloan Program. GAO/ T- RCED- 96- 142. Washington, D. C.: May 2,
    1996.

    Federal Electric Power: Operating and Financial Status of DOE*s Power
    Marketing Administrations. GAO/ RCED/ AIMD- 96- 9FS. Washington, D. C.:
    October 13, 1995.

    GAO Contacts Bob Robinson, (202) 512- 3841 Jim Wells, (202) 512- 3841

    Increase Nuclear Waste Disposal Fees

    Primary agency Department of Energy Spending type Direct

    Utilities pay a fee to the Nuclear Waste Fund to finance the development
    of storage and permanent disposal facilities for high- level radioactive
    wastes. The amount of this fee has not changed since 1983, making the fund
    susceptible to future budget shortfalls. To help ensure that sufficient
    revenues are collected to cover increases in cost estimates caused by
    price inflation, the Congress should amend the Nuclear Waste Policy Act of
    1982

    to direct the Secretary of Energy to automatically adjust for inflation
    the nuclear waste disposal fee that utilities pay into the Nuclear Waste
    Fund.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Status of Actions to Improve DOE User- Fee
    Assessments. GAO/ RCED- 92- 165. Washington, D. C.: June 10, 1992.

    Changes Needed in DOE User- Fee Assessments. GAO/ T- RCED- 91- 52.
    Washington, D. C.: May 8, 1991.

    Changes Needed in DOE User- Fee Assessments to Avoid Funding Shortfall.
    GAO/ RCED- 90- 65. Washington, D. C.: June 7, 1990.

    GAO Contacts Bob Robinson, (202) 512- 3841 Ms. Gary Jones, (202) 512- 3841

    Recover Federal Investment in Successfully Commercialized Technologies

    Primary agency Department of Energy Accounts Multiple Spending type
    Discretionary Budget subfunctions Multiple

    The Department of Energy (DOE) and the private sector are involved in
    hundreds of cost- shared projects aimed at developing a broad spectrum of
    cost- effective, energy- efficiency technologies that protect the
    environment, support the nation*s economic competitiveness, and promote
    the increased use of oil, gas, coal, nuclear, and renewable energy
    resources. In June 1996, we reported that DOE generally does not require
    repayment of its investment in technologies that are successfully
    commercialized. Our

    review identified four DOE programs that require industry repayment if the
    technologies are ultimately commercialized. The offices in which we
    focused most of our work planned to devote about $8 billion in federal
    funds to cost- shared projects over their lifetime, of which about $2.5
    billion would be subject to repayment.

    Our June 1996 report discussed the advantages and disadvantages of having
    a repayment policy and pointed out that many of the disadvantages can be
    mitigated by structuring a flexible repayment requirement with the
    disadvantages in mind. It also discussed the types of programs and
    projects that would be the most appropriate or suitable for repayment of
    the federal investment.

    Because opportunities exist for substantial repayment in some of DOE*s
    programs, requiring repayment under a flexible policy would allow the
    government to share in the benefits of successfully commercialized
    technologies that could amount to significant cost savings. However,
    repayment provisions would only apply to future technology development

    projects not yet negotiated with industry. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Energy Research: Opportunities Exist to Recover
    Federal Investment in Technology Development Projects. GAO/ RCED- 96- 141.
    Washington, D. C.: June 26, 1996.

    GAO Contacts Bob Robinson, (202) 512- 3841 Jim Wells, (202) 512- 3841

    Reduce the Costs of the Rural Utilities Service*s Electricity and
    Telecommunications Loan

    Primary agency Department of Agriculture

    Programs

    Accounts Multiple Spending type Discretionary Budget subfunction 271/
    Energy supply

    The Rural Utilities Service (RUS), created by the Federal Crop Insurance
    Reform and Department of Agriculture Reorganization Act of 1994 (P. L.
    103- 354, Oct. 13, 1994), was established to provide loan funds intended
    to

    assist in the development of the utility infrastructure in the nation*s
    rural areas. RUS finances the construction, improvement, and repair of
    electrical, telecommunications, and water and waste facility systems
    through direct loans and through repayment guarantees on loans made by
    other lenders. According to the Financial Statements For Fiscal Year 2002
    of Rural Development (the U. S. Department of Agriculture agency

    responsible for administering RUS), RUS loans receivable totaled about
    $39.5 billion as of September 30, 2002. From a financial standpoint, RUS
    has successfully operated the telecommunications loan program, but the
    agency has had, and continues to have significant financial problems with
    the electricity loan program. For example, since fiscal year 1992, RUS
    wrote off the debt of 9 electricity loan borrowers totaling more than $4.9
    billion.

    RUS needs to take steps to increase the effectiveness and reduce the costs
    of its loan programs. RUS could, for example, (1) target loans to
    borrowers that provide services to areas with low populations, (2) target
    subsidized

    direct loans to borrowers that have a financial need for the agency*s
    assistance, and (3) graduate the agency*s financially viable borrowers
    from direct loans to commercial credit. Also, to reduce its vulnerability
    to losses, RUS could (1) establish loan and indebtedness limits, (2) set
    the repayment guarantee at a level below 100 percent, and (3) prohibit
    loans to delinquent borrowers or to borrowers who have caused the agency
    to incur loan losses. In the past, CBO could not develop an estimate for
    this option

    unless specific proposals to improve efficiency were identified. CBO 5-
    Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Rural Utilities Service: Status of Electric Loan
    Portfolio. GAO/ AIMD- 99- 264R. Washington, D. C.: August 17, 1999.

    Rural Water Projects: Federal Assistance Criteria and Potential Benefits
    of the Proposed Lewis and Clark Project. GAO/ T- RCED- 99- 252.
    Washington, D. C.: July 29, 1999.

    Rural Water Projects: Identifying Benefits of the Proposed Lewis and Clark
    Project. GAO/ RCED- 99- 115. Washington, D. C.: May 28, 1999.

    Rural Water Projects: Federal Assistance Criteria Related to the Fort Peck
    Reservation Rural Water Project. GAO/ T- RCED- 98- 230. Washington, D. C.:
    June 18, 1998.

    Rural Utilities Service: Risk Assessment for the Electric Loan Portfolio.

    GAO/ T- AIMD- 98- 123. Washington, D. C.: March 30, 1998.

    Rural Utilities Service: Opportunities to Operate Electricity and
    Telecommunications Loan Programs More Effectively. GAO/ AIMD- 98- 42.
    Washington, D. C.: January 21, 1998.

    Federal Electricity Activities: The Federal Government*s Net Cost and
    Potential for Future Losses. GAO/ AIMD- 97- 110. Washington, D. C.:
    September 19, 1997.

    Rural Development: Financial Condition of the Rural Utilities Service*s
    Electricity Loan Portfolio. GAO/ T- RCED- 97- 198. Washington, D. C.: July
    8, 1997.

    Rural Development: Financial Condition of the Rural Utilities Service*s
    Loan Portfolio. GAO/ RCED- 97- 82. Washington, D. C.: April 11, 1997. GAO
    Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841 McCoy Williams, (202) 512- 6906

    300 Natural Resources

    Examples from Selected GAO Work

    and Environment Terminate Land- Exchange Programs

    Deny Additional Funding for Commercial Fisheries Buyback Programs Revise
    the Mining Law of 1872 Reexamine Federal Policies for Subsidizing Water
    for Agriculture and Rural Uses

    Reassess Federal Land Management Agencies Functions and Programs

    Examples from Selected GAO Work

    Terminate Land- Exchange Programs

    Primary agencies Department of the Interior Department of Agriculture

    Accounts Multiple Spending type Discretionary Budget subfunction 302/
    Conservation and land management

    The Bureau of Land Management (BLM) and the Forest Service have long used
    land exchanges* trading federal lands for lands that are owned by
    corporations, individuals, or state or local governments* as a tool for
    acquiring nonfederal land and conveying federal land. By law, for an
    exchange to occur, the estimated value of the nonfederal land must be
    within 25 percent of the estimated value of the federal land, the public
    interest must be well served, and certain other exchange requirements must
    be met. Recognizing the importance of land exchanges in supplementing the
    federal funds that were available for purchasing land, the Congress, in
    1988, passed legislation to facilitate and expedite land exchanges.
    Between fiscal years 1989 and 1999, BLM and the Forest Service acquired
    about 1,500 total square miles of land through land exchanges.

    Several fundamental issues create significant problems in the use of land
    exchanges. For instance, in 1998, the cognizant inspectors general
    identified exchanges in which lands were inappropriately valued and the
    public interest was not well served. Also, although current law does not
    authorize BLM to retain or use proceeds from selling federal land, BLM
    sold federal land and retained the sales proceeds in escrow accounts.
    Further, BLM did not track these sales proceeds in its financial
    management system. At least some of BLM*s and the Forest Service*s
    continuing problems may reflect inherent underlying difficulties
    associated with exchanging land* rather than buying and selling land for
    cash. In fiscal year 2002, BLM contracted with the Appraisal Foundation to
    conduct a review of the agency*s appraisal organization, policies, and
    procedures. The Appraisal Foundation*s report listed numerous problems
    with BLM*s

    appraisal process and concluded *violations of law may have occurred.* The
    report contained seven principal recommendations including the
    recommendation that the *previously recommended moratorium on BLM land
    exchanges be implemented immediately.* The Foundation performed a similar
    evaluation for the U. S. Department of Agriculture (USDA) Forest

    Service in 2000. That study resulted in a number of recommendations, which
    the Foundation noted, *have been successfully implemented.* In most
    circumstances, cash- based transactions would be simpler and less

    costly. While both agencies have taken steps to improve their land-
    exchange programs, the many controversies and problems associated with
    their programs reflect, in part, the difficulties and inefficiencies
    inherent in these exchange programs. On the basis of these difficulties
    and inefficiencies, the Congress may wish to consider directing both
    agencies to terminate their land- exchange programs. In the past, CBO was
    unable to develop a savings estimate for this option.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products National Park Service: Federal Taxpayers Could Have
    Benefited More From Potomac Yard Land Exchange. GAO- 01- 292. Washington,
    D. C.: March 15, 2001.

    BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate
    Value and Serve the Public Interest. GAO/ RCED- 00- 73. Washington, D. C.:
    June 22, 2000. GAO Contacts Bob Robinson, (202) 512- 3841 Barry Hill,
    (202) 512- 3841

    Deny Additional Funding for Commercial Fisheries Buyback Programs

    Primary agency Department of Commerce Account Operations, Research, and
    Facilities (13- 1450)

    Spending type Discretionary Budget subfunction 306/ Other natural
    resources

    Fish populations in many commercial fisheries are declining, resulting in
    a growing imbalance between the number of vessels in fishing fleets and
    the number of fish available for harvest. In response to this growing
    imbalance, the federal government has provided $140 million from 1994 to
    2002 to purchase fishing permits, fishing vessels, and related gear from
    fishermen, thereby reducing the capacity of fishermen to harvest fish.
    Generally, the

    government designed these purchases, called buybacks, to achieve multiple
    goals, such as reducing the capacity to harvest fish, providing economic
    assistance to fishermen, and improving the conservation of fish. Coastal
    states issue permits and develop and enforce regulations for fishing in
    waters that are near their shores. In areas outside state jurisdiction,
    the

    National Marine Fisheries Service (NMFS) within the Department of Commerce
    is responsible for issuing permits and developing and enforcing
    regulations for harvesting fish. Because excessive fishing capacity has
    been a continuing problem in many fisheries, several additional buybacks
    have been proposed that, if implemented, would be in excess of $250
    million.

    GAO found that buyback programs in three fisheries we evaluated removed
    from 10 to 24 percent of their respective fishing capacities. However, the
    experiences of these three cases demonstrate that the long- term
    effectiveness of buyback programs depends upon whether previously inactive
    fishermen or buyback beneficiaries return to the fishery. For example,
    while 79 boats were sold in the New England buyback, 62 previously
    inactive boats have begun catching groundfish since the buyback. In
    addition, several buyback participants purchased boats with buyback funds
    and returned to the fishery. Long- term effectiveness of buyback programs
    may also depend on whether fishermen have incentives to increase remaining
    fishing capacity in a fishery. Importantly, buyback programs by themselves
    do not address the root cause of excess fishing capacity, that being the
    ongoing incentives fishermen have to invest in

    larger or better equipped fishing vessels in order to catch fish before
    someone else does.

    The problems of past buyback programs should be addressed as part of the
    design of any future programs. Given the experiences of buyback programs
    to date* both in terms of their limited effects on reducing fishing
    capacity and in terms of their inability to effectively address the root
    causes of overfishing* one option the Congress may wish to consider is
    denying additional funding for proposed programs until these fundamental
    weaknesses are resolved. In the past, CBO could not develop a savings
    estimate without a more specific proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Commercial Fisheries: Effectiveness of Fishing
    Buyback Programs Can Be Improved. GAO- 01- 699T. Washington, D. C.: May
    10, 2001.

    Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback
    Programs. GAO/ RCED- 00- 120. Washington, D. C.: June 14, 2000.

    GAO Contact Anu Mittal, (202) 512- 9846

    Revise the Mining Law of 1872

    Primary agencies Department of the Interior Department of Agriculture

    Spending type Direct

    The Mining Law of 1872 allows holders of economically minable claims on
    federal lands to obtain all rights and interests to both the land and the
    hardrock minerals by patenting the claims for $2.50 or $5. 00 an acre*
    amounts that do not necessarily reflect the market value of such lands
    today. Since 1872, the federal government has patented more than 3 million
    acres of mining claims (an area about the size of Connecticut), and some
    patent holders have reaped huge profits by reselling their lands.
    Furthermore, miners do not pay royalties to the government on hardrock
    minerals they extract from federal lands.

    Among the options that are available are to prohibit the issuance of new
    patents, require the payment of fair market value for a patent, or
    otherwise modify the requirements for patenting. Legislation could also be
    enacted to impose royalties on hardrock minerals extracted from federal
    lands, such as a 5 percent royalty on net smelter returns.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Bureau of Land Management: Improper Charges Made to
    Mining Law Administration Program. GAO- 01- 491T. Washington, D. C.: March
    29, 2001.

    Bureau of Land Management: Improper Charges Made to Mining Law
    Administration Program. GAO- 01- 356. Washington, D. C.: March 8, 2001.

    National Park Service: Agency Should Recover Costs of Validity
    Examinations for Mining Claims. GAO/ RCED- 00- 265. Washington, D. C.:
    September 19, 2000.

    Review of the Bureau of Land Management*s Administration and Use of Mining
    Maintenance Fees. GAO/ AIMD- 00- 184R. Washington, D. C.: June 2, 2000.

    Mineral Royalties: Royalties in the Western States and in Major
    MineralProducing Countries. GAO/ RCED- 93- 109. Washington, D. C.: March
    29, 1993.

    Natural Resources Management Issues. GAO/ OCG- 93- 17TR. Washington, D.
    C.: December 1992.

    Mineral Resources: Value of Hardrock Minerals Extracted From and Remaining
    on Federal Lands. GAO/ RCED- 92- 192. Washington, D. C.: August 24, 1992.

    Federal Land Management: The Mining Law of 1872 Needs Revision.

    GAO/ RCED- 89- 72. Washington, D. C.: March 10, 1989. GAO Contacts Bob
    Robinson, (202) 512- 3841 Barry Hill, (202) 512- 3841

    Reexamine Federal Policies for Subsidizing Water for Agriculture and Rural
    Uses

    Primary agency Department of the Interior Spending type Direct

    Federal water programs to promote efficient use of finite water resources
    for the nation*s agricultural and rural water systems have been used to
    provide higher subsidies than Congress may have intended. To improve the
    effectiveness and efficiency of federal water programs, the Congress could
    consider several options to reduce duplication or inconsistencies.

    The Congress could, for example, consider collecting the full costs of
    federal water for large farms. Under the Reclamation Reform Act of 1982,
    as amended, some farmers have reorganized large farming operations into
    multiple, smaller landholdings to be eligible to receive additional
    federally subsidized irrigation water. The act limits to 960 the maximum
    number of owned or leased acres that individuals or legal entities (such
    as partnerships or corporations) can irrigate with federal water at rates
    that exclude interest on the government*s investment in the irrigation
    component of its water resource projects. However, due to the vague
    definition of the term *farm,* the flow of federally subsidized water to
    land holdings above the 960 acre- limit has not been stopped, and the
    federal

    government is not collecting revenues to which it is entitled under the
    act. According to the Department of Interior, a portion of the acreage
    served by the Bureau of Reclamation was used to produce crops that were
    also eligible for USDA commodity subsidies. Farmers received the water

    subsidy for using irrigated water from Interior as well as USDA subsidies
    per crop production. Another option would be for the Congress to consider
    restructuring the subsidies for crops produced with federally subsidized
    water. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Rural Water Projects: Federal Assistance Criteria and
    Potential Benefits of the Proposed Lewis and Clark Project. GAO/ RCED- 99-
    252T. Washington, D. C.: July 29, 1999.

    Rural Water Projects: Identifying the Benefits of the Proposed Lewis and
    Clark Project. GAO/ RCED- 99- 115. Washington, D. C.: May 28, 1999.

    Rural Water Projects: Federal Assistance Criteria Related to the Lewis and
    Clark Rural Water Project. GAO/ RCED- 98- 231T. Washington, D. C.: June
    18, 1998.

    Rural Water Projects: Federal Assistance Criteria Related to the Fort Peck
    Reservation Rural Water Project. GAO/ RCED- 98- 230. Washington, D. C.:
    June 18, 1998.

    Rural Water Projects: Federal Assistance Criteria. GAO/ RCED- 98- 204R.
    Washington, D. C.: May 29, 1998.

    Federal Power: Recovery of Federal Investment in Hydropower Facilities in
    the Pick- Sloan Program. GAO/ T- RCED- 96- 142. Washington, D. C.: May 2,
    1996.

    Rural Development: Patchwork of Federal Water and Sewer Programs Is
    Difficult to Use. GAO/ RCED- 95- 160BR. Washington, D. C.: April 13, 1995.

    Water Subsidies: Impact of Higher Irrigation Rates on Central Valley
    Project Farmers. GAO/ RCED- 94- 8. Washington, D. C.: April 19, 1994.

    Natural Resources Management Issues. GAO/ OCG- 93- 17TR. Washington, D.
    C.: December 1992.

    Reclamation Law: Changes Needed Before Water Service Contracts Are
    Renewed. GAO/ RCED- 91- 175. Washington, D. C.: August 22, 1991.

    Water Subsidies: The Westhaven Trust Reinforces the Need to Change
    Reclamation Law. GAO/ RCED- 90- 198. Washington, D. C.: June 5, 1990.

    Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960- Acre
    Limit. GAO/ RCED- 90- 6. Washington, D. C.: October 12, 1989. GAO Contacts
    Bob Robinson, (202) 512- 3841 Barry Hill, (202) 512- 3841

    Reassess Federal Land Management Agencies* Functions and Programs

    Primary agencies Department of the Interior Department of Agriculture

    Accounts Multiple Spending type Discretionary Budget subfunction 302/
    Conservation and land management

    The responsibilities of the four major federal land management agencies-
    the National Park Service, the Bureau of Land Management (BLM), the Fish
    and Wildlife Service within the Department of the Interior, and the Forest

    Service within the Department of Agriculture* have grown more similar over
    time. Most notably, the Forest Service and BLM now provide more
    noncommodity uses, including recreation and protection for fish and
    wildlife, on their lands. In addition, managing federal lands has become
    more complex. Managers have to reconcile differences among a growing
    number of laws and regulations, and the authority for these laws is
    dispersed among several federal agencies and state and local agencies.
    These changes have coincided with two other developments* the federal
    government*s increased emphasis on downsizing and budgetary constraint and
    scientists* increased understanding of the importance and functioning of
    natural systems whose boundaries may not be consistent with existing
    jurisdictional and administrative boundaries. Together, these changes and

    developments suggest a basis for reexamining the processes and structures
    under which the federal land management agencies operate. Two basic
    strategies have been proposed to improve federal land management: (1)
    streamlining the existing structure by coordinating and integrating
    functions, systems, activities, programs, and field locations and (2)
    reorganizing the structure by combining agencies. The two strategies are
    not mutually exclusive and some prior proposals have encompassed

    both. Over the last several years, the Forest Service and BLM have
    colocated some offices or shared space with other federal agencies. They
    have also pursued other means of streamlining, sharing resources, and
    saving rental

    costs. However, no significant legislation has been enacted to streamline
    or reorganize federal land management agencies and the four major federal
    land management agencies have not, to date, developed a strategy to
    coordinate and integrate their functions, systems, activities, and
    programs.

    In the past, CBO was unable to estimate savings without a specific
    restructuring proposal that would eliminate certain programs or revise how
    the land is managed, due to shared resources among the four major land
    management agencies. Savings would depend on the extent of a workforce

    restructuring and implementation proposal. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Wildland Fires: Better Information Needed on
    Effectiveness of Emergency Stabilization and Rehabilitation Treatments.
    GAO- 03- 430. Washington, D. C.: April 4, 2003.

    Severe Wildland Fires: Leadership and Accountability Needed to Reduce
    Risks to Communities and Resources. GAO- 02- 259. Washington, D. C.:
    January 31, 2002.

    The National Fire Plan: Federal Agencies Are Not Organized to Effectively
    and Efficiently Implement the Plan. GAO- 01- 1022T. Washington, D. C.:
    July 31, 2001.

    Land Management Agencies: Ongoing Initiative to Share Activities and
    Facilities Needs Management Attention. GAO- 01- 50. Washington, D. C.:
    November 21, 2000.

    Federal Wildfire Activities: Current Strategy and Issues Needing
    Attention. GAO/ RCED- 99- 223. Washington, D. C.: August 13, 1999.

    Land Management: The Forest Service*s and BLM*s Organizational Structures
    and Responsibilities. GAO/ RCED- 99- 227. Washington, D. C.: July 29,
    1999.

    Ecosystem Planning: Northwest Forest and Interior Columbia River Basin
    Plans Demonstrate Improvements in Land- Use Planning.

    GAO/ RCED- 99- 64. Washington, D. C.: May 26, 1999.

    Land Management Agencies: Revenue Sharing Payments to States and Counties.
    GAO/ RCED- 98- 261. Washington, D. C.: September 17, 1998.

    Federal Land Management: Streamlining and Reorganization Issues.

    GAO/ T- RCED- 96- 209. Washington, D. C.: June 27, 1996.

    National Park Service: Better Management and Broader Restructuring Efforts
    Are Needed. GAO/ T- RCED- 95- 101. Washington, D. C.: February 9, 1995.

    Forestry Functions: Unresolved Issues Affect Forest Service and BLM
    Organizations in Western Oregon. GAO/ RCED- 94- 124. Washington, D. C.:
    May 17, 1994.

    Forest Service Management: Issues to Be Considered in Developing a New
    Stewardship Strategy. GAO/ T- RCED- 94- 116. Washington, D. C.: February
    1, 1994.

    GAO Contacts Bob Robinson, (202) 512- 3841 Barry Hill, (202) 512- 3841

    350 Agriculture Examples from Selected GAO Work

    Terminate or Significantly Reduce the U. S. Department of Agriculture*s
    Market Access Program

    Consolidate Common Administrative Functions at the U. S. Department of
    Agriculture

    Further Consolidate the U. S. Department of Agriculture*s County Offices

    Examples from Selected GAO Work

    Terminate or Significantly Reduce the U. S. Department of Agriculture*s
    Market Access Program

    Primary agency Department of Agriculture Account Commodity Credit
    Corporation (12- 4336) Spending type Mandatory Budget subfunction 351/
    Farm income stabilization

    The Market Access Program is an export promotion program operated by the
    Foreign Agricultural Service of the Department of Agriculture. The program
    subsidizes the promotion of U. S. agricultural products in overseas
    markets. Through a cost- sharing arrangement, the program helps fund
    overseas promotions conducted by U. S. agricultural producers,
    cooperatives, exporters, and trade associations. Under the Farm Security
    and Rural Development Act of 2002, authorized funding for the program

    has increased from $100 million in fiscal year 2002 to $110 million in
    fiscal year 2003, $125 million in fiscal year 2004, $140 million in fiscal
    year 2005, and rising to $200 million in fiscal years 2006 and 2007. About
    threequarters of the program budget supports generic promotions, with the
    remaining funds supporting brand- name promotions.

    Beginning in fiscal year 1993, the Congress directed that changes be made
    to the program in order to increase the emphasis on small businesses,
    establish a graduation limit, and certify that program funds supplement,
    not

    supplant, private sector expenditures. From fiscal year 1994 through
    fiscal year 1997, program reforms resulted in increases to the number of
    small businesses participating in the program as well as small businesses*
    share of program funds. In addition, in 1998, the Foreign Agricultural
    Service prohibited direct and indirect assistance to large companies for
    brandname promotions unless the assistance was provided through
    cooperatives and certain associations. The Service also implemented a 5-
    year graduation requirement for brand- name promotional activities but
    waived this

    requirement for cooperatives. As a result, promotional activities by
    cooperatives for brand- name products remained eligible for program
    funding.

    Questions remain about the overall economic benefits derived from the
    Market Access Program. Estimates of the program*s macroeconomic impact
    developed by the Foreign Agricultural Service are overstated and

    rely on a methodology that is inconsistent with Office of Management and
    Budget cost/ benefit guidelines. In addition, the evidence from market-
    level studies is inconclusive regarding program impact on specific
    commodities in specific markets. Furthermore, it is difficult to ensure
    that funds for promotional activities are in addition to private sector
    expenditures because it is hard to determine what would have been spent in
    the absence of program funds.

    The Conference Report on the Omnibus Consolidated and Emergency
    Supplemental Appropriations Act of 1999 directed the Secretary of
    Agriculture to submit a report that, among other things, estimates the

    economic impact of the Market Access Program, analyzes the costs and
    benefits of the program in a manner consistent with government cost/
    benefit guidelines, and evaluates the additional spending of participants
    and additional exports resulting from the program. The Foreign
    Agricultural Service has not completed this report. Absent convincing
    evidence that the program has a positive economic impact, results in
    increased exports that would not have occurred without the program, and
    supplements and does not supplant private sector expenditures, the
    Congress might choose to terminate the program or significantly reduce its
    funding. In the past, CBO estimated that savings could be achieved if the
    Market Access Program was eliminated.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Agricultural Trade: Changes Made to Market Access
    Program, but Questions Remain on Economic Impact. GAO/ NSIAD- 99- 38.
    Washington, D. C.: April 5, 1999.

    U. S. Agricultural Exports: Strong Growth Likely, but U. S. Export
    Assistance Programs* Contribution Uncertain. GAO/ NSIAD- 97- 260.
    Washington, D. C.: September 30, 1997.

    Farm Bill Export Options. GAO/ GGD- 96- 39R. Washington, D. C.: December
    15, 1995.

    Agricultural Trade: Competitor Countries* Foreign Market Development
    Program. GAO/ T- GGD- 95- 184. Washington, D. C.: June 14, 1995.

    International Trade: Changes Needed to Improve Effectiveness of the Market
    Promotion Program. GAO/ GGD- 93- 125. Washington, D. C.: July 7, 1993.

    U. S. Department of Agriculture: Improvements Needed in Market Promotion
    Program. GAO/ T- GGD- 93- 17. Washington, D. C.: March 25, 1993. GAO
    Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    Consolidate Common Administrative Functions at the U. S. Department of
    Agriculture

    Primary agency Department of Agriculture Accounts Multiple Spending types
    Discretionary/ Direct Budget subfunction 352/ Agricultural research and
    services

    In accordance with the Federal Crop Insurance Reform and Department of
    Agriculture Reorganization Act of 1994, the U. S. Department of
    Agriculture (USDA) has engaged in a reorganization and modernization
    effort targeted at achieving greater economy and efficiency and better
    customer service by the Farm Service Agency, the Natural Resources and
    Conservation Service, and the agencies in the Rural Development mission.
    USDA*s efforts consist

    of five interrelated initiatives: (1) colocating the agencies* county and
    state offices, (2) merging the agencies* administrative functions at the
    state and headquarters level under a single support organization, (3)
    redesigning

    agencies* business processes, (4) modernizing information technology, and
    (5) changing the agencies* cultures to improve customer services.

    USDA*s progress in these initiatives has been mixed. For example, despite
    the agencies* colocation of county offices, little has changed in how the
    three agencies serve their customers. Each of its agencies emphasizes a
    different client base and the delivery of different programs.
    Consequently, little has changed in how the three agencies work together
    to serve their customers, particularly in terms of cross- servicing and
    sharing of information. On the other hand, USDA has made substantial
    progress in deploying personal computers and a telecommunications network
    to link

    its service centers, and deployed a shared network server. However, the
    full range of service delivery efficiencies has not yet been realized
    because the agencies* program applications are not fully integrated and
    all service center employees have not been trained to use the system.

    In terms of merging and streamlining administrative functions, some
    progress has been made in sharing space and equipment and agreeing upon
    some common human capital practices. However, to further streamline its
    organization, increase efficiency, and reduce overhead costs associated
    with running separate offices, USDA could do more to combine agencies*

    support functions, such as legislative and legal affairs and public
    information, into a single office serving the needs of all mission
    component agencies. In addition, even though USDA has developed a plan to
    converge

    administrative functions for county- based agencies, a number of obstacles
    need to be overcome if the plan is to be successfully implemented,
    including the selection of a strong leadership team to implement the
    convergence plan. In the past, CBO agreed that this option could
    potentially yield savings, but did not develop a savings estimate due to
    uncertainty of the extent to which improved efficiencies actually could
    lead

    to budgetary savings. CBO 5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Agriculture. GAO/ 00- 96. Washington, D. C.: January 2003.

    U. S. Department of Agriculture: State Office Collocation. GAO/ RCED- 00-
    208R. Washington, D. C.: June 30, 2000.

    USDA Reorganization: Progress Mixed in Modernizing the Delivery of
    Services. GAO/ RCED- 00- 43. Washington, D. C.: February 3, 2000.

    U. S. Department of Agriculture: Administrative Streamlining is Expected
    to Continue Through 2002. GAO/ RCED- 99- 34. Washington, D. C.: December
    11, 1998.

    U. S. Department of Agriculture: Update on Reorganization and Streamlining
    Efforts. GAO/ RCED- 97- 186R. Washington, D. C.: June 24, 1997.

    GAO Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    Further Consolidate the U. S. Department of Agriculture*s County Offices

    Primary agency Department of Agriculture Accounts Multiple Spending type
    Discretionary Budget subfunction 351/ Farm income stabilization

    The U. S. Department of Agriculture (USDA) maintains a field office
    structure that dates back to the 1930s when transportation and
    communication systems limited the geographic boundaries covered by a
    single field office and when there were a greater number of small, widely
    disbursed, family- owned farms. In 1933, the United States had more than 6
    million farmers; today the number of farms in the United States is less
    than 2 million and a small fraction of these produce more than 70 percent
    of the nation*s agricultural output. About one- third of USDA*s over
    100,000 employees are involved in delivering the $55 billion a year farm
    program. As the client base for the USDA programs changes and as
    technology offers

    opportunities for program delivery efficiencies, USDA needs to consider
    alternative program delivery approaches. In this regard, the service
    center agencies need to reassess the types of services they now provide
    and how they can work more efficiently to deliver these services in the
    future with fewer office locations.

    At various times, the Congress has attempted to reduce the number of
    county offices serving farmers and/ or reduce county office staffing. The
    Federal Crop Insurance Reform and Department of Agriculture Reorganization
    Act of 1994 (P. L. 103- 354, Oct. 13, 1994) directed the Secretary of
    Agriculture to streamline departmental operations by consolidating county
    offices. In response to the Agriculture Reorganization Act, USDA has
    closed over 1,000 county office locations and reduced staffing at its
    county offices. However, as the agency states in its September 2001 Food
    and Agricultural Policy: Taking Stock for the New Century, *Further
    actions are necessary to ensure that the USDA farm service structure is
    appropriately sized, configured, and located for efficient provision of
    the new services demanded by a rapidly evolving food and agriculture
    system.*

    USDA could further consolidate its county office field structure, for
    example, by closing more of its small county offices. Criteria for
    determining which small county offices to close could include the

    (1) distance from another county office, (2) time spent on administrative
    duties, and (3) number of farmers who receive USDA financial benefits.
    Although in the past CBO agreed that closing offices that serve few
    farmers would produce savings, it could not develop a savings estimate
    without a specific proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Agriculture. GAO- 03- 96. Washington, D. C.: January 2003.

    USDA Reorganization: Progress Mixed in Modernizing the Delivery of
    Services. GAO/ RCED- 00- 43. Washington, D. C.: February 3, 2000.

    Farm Service Agency: Characteristics of Small County Offices.

    GAO/ RCED- 99- 102. Washington, D. C.: May 28, 1999.

    U. S. Department of Agriculture: Status of Closing and Consolidating
    County Offices. GAO/ T- RCED- 98- 250. Washington, D. C.: July 29, 1998.

    Farm Programs: Service to Farmers Will Likely Change as Farm Service
    Agency Continues to Reduce Staff and Close Offices. GAO/ RCED- 98- 136.
    Washington, D. C.: May 1, 1998.

    Farm Programs: Administrative Requirements Reduced and Further Program
    Delivery Changes Possible. GAO/ RCED- 98- 98. Washington, D. C.: April 20,
    1998.

    Farm Programs: Impact of the 1996 Farm Act on County Office Workload. GAO/
    RCED- 97- 214. Washington, D. C.: August 19, 1997.

    GAO Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    370 Commerce and

    Examples from Selected GAO Work

    Housing Credit Recapture Interest on Rural Housing Loans

    Require Self- Financing of Mission Oversight by Fannie Mae and Freddie Mac

    Reduce Federal Housing Administration*s Insurance Coverage Merging U. S.
    Department of Agriculture and Department of Housing and Urban Development
    Single- Family Insured Lending Programs and Multifamily Portfolio
    Management Programs

    Consolidate Homeless Assistance Programs Reorganize and Consolidate Small
    Business Administration*s Administrative Structure

    Improve Reviews of Small Business Administration*s Preferred Lenders

    CBO Options Where Related GAO Work Is Identified

    370- 01 End the Credit Subsidy for the Small Business Administration*s
    Major Business Loan Guarantee Programs 370- 05 Charge All Banks and
    Thrifts Deposit Insurance Premiums

    Examples from Selected GAO Work

    Recapture Interest on Rural Housing Loans

    Primary agency Department of Agriculture Account Rural Housing Insurance
    Fund (12- 2081) Spending type Direct Budget subfunction 371/ Mortgage
    credit

    The Housing Act of 1949, as amended, requires U. S. Department of
    Agriculture*s (USDA) Rural Housing Service (RHS) to recapture a portion of
    the subsidy provided over the life of direct housing loans it makes when
    the borrower sells or vacates a property. The rationale is that because
    taxpayers paid a portion of the mortgage, they are entitled to a portion
    of the property*s appreciation. Because recapture is not mandated when
    homes are refinanced, RHS*s policy allows borrowers who pay off direct

    RHS loans but continue to occupy the properties to defer the payments for
    recapturing the subsidies. As of July 31, 1999, RHS*s records showed that
    about $140 million was owed by borrowers who had refinanced their
    mortgages but continued to occupy the properties. RHS does not charge
    interest on the amounts owed by these borrowers.

    Legislative changes could be made to allow RHS to charge market rate
    interest on recapture amounts owed by borrowers to help recoup the
    government*s administrative and borrowing costs. Actual savings could
    differ depending on how this proposal would affect the rate at which homes
    are sold. CBO 5- Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Rural Housing Programs: Opportunities Exist for Cost
    Savings and Management Improvement. GAO/ RCED- 96- 11. Washington, D. C.:
    November 16, 1995.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Require Self- Financing of Mission Oversight by Fannie Mae and Freddie Mac

    Primary agency Department of Housing and Urban Development

    Account Office of Federal Housing Enterprise Oversight, Salaries and
    Expenses (86- 5272)

    Spending type Direct Budget subfunction 371/ Mortgage credit

    The Congress established and chartered the Federal National Mortgage
    Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
    (Freddie Mac) as government- sponsored enterprises. These enterprises are
    privately- owned corporations chartered to enhance the availability of
    mortgage credit across the nation. The Congress also charged the
    Department of Housing and Urban Development (HUD) with mission oversight
    responsibility for the enterprises, which includes ensuring that housing
    goals established by HUD result in enhanced housing opportunities for
    certain groups of borrowers.

    Other federal organizations responsible for regulating governmentsponsored
    enterprises are financed by assessments on the regulated entities.
    However, HUD*s mission oversight expenditures are funded with taxpayer
    dollars from HUD*s appropriations. Accordingly, HUD*s capability to
    strengthen its enterprise housing mission oversight may be limited because
    resources that could be used for that purpose must compete with

    other priorities. For example, HUD*s capacity to implement a program to
    verify housing goal data, which would necessarily involve a commitment of
    additional resources, may be limited. Requiring Fannie Mae and Freddie Mac
    to reimburse HUD for mission oversight expenditures would not only result
    in budgetary savings but would also enable HUD to strengthen its oversight
    activities.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Housing Enterprises: The Roles of Fannie Mae and
    Freddie Mac in the U. S. Housing Finance System. T- GGD- 00- 182.
    Washington, D. C.: July 25, 2000.

    Federal Housing Enterprises: HUD*s Mission Oversight Needs to Be
    Strengthened. GAO/ GGD- 98- 173. Washington, D. C.: July 28, 1998.

    Government- Sponsored Enterprises: Advantages and Disadvantages of
    Creating a Single Housing GSE Regulator. GAO/ GGD- 97- 139. Washington, D.
    C.: July 9, 1997.

    Government- Sponsored Enterprises: A Framework for Limiting the
    Government*s Exposure to Risks. GAO/ GGD- 91- 90. Washington, D. C.: May
    22, 1991.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Reduce Federal Housing Administration*s Insurance Coverage

    Primary agency Department of Housing and Urban Development

    Account FHA- Mutual Mortgage Insurance Program Account (86- 0183)

    Spending types Discretionary/ Direct Budget subfunction 371/ Mortgage
    credit

    Through its Federal Housing Administration (FHA), the Department of
    Housing and Urban Development (HUD) insures private lenders against nearly
    all losses resulting from foreclosures on single- family homes insured
    under its Mutual Mortgage Insurance Fund. The Department of Veterans
    Affairs (VA) also operates a single- family mortgage guaranty program.
    However, unlike FHA, VA covers only 25 to 50 percent of the original loan
    amount against losses incurred when borrowers default on loans, leaving

    lenders responsible for any remaining losses. In May 1997, GAO reported
    that reducing FHA*s insurance coverage to the level permitted for VA home
    loans would likely reduce the Fund*s exposure to financial losses, thereby
    improving its financial health. As a result, the Fund*s ability to
    maintain financial self- sufficiency in an uncertain future would be
    enhanced. For example, if insurance coverage on FHA*s 1995 loans was
    reduced to VA*s levels and a 14 percent volume reduction in

    lending was assumed, GAO estimated that the economic value of the loans
    would increase by $52 million to $79 million. Economic value provides an
    estimate of the profitability of FHA loans, which is important because
    estimated increases in economic value due to legislative changes allow
    additional mandatory spending authorizations to be made, other revenues to
    be reduced, or projected savings in the federal budget to be realized.
    Reducing FHA*s insurance coverage would likely improve the financial
    health of the Fund because the reduction in claim payments resulting from
    lowered insurance coverage would more than offset the decrease in premium
    income resulting from reduced lending volume.

    Legislative changes could be made to reduce FHA*s insurance coverage.
    Savings under this option would depend on future economic conditions, the
    volume of loans made, how higher risk and lower risk borrowers would be
    identified for exclusion from the program, and whether some losses may be
    shifted from FHA to the Government National Mortgage Association. In

    addition, reducing FHA*s insurance coverage does pose trade- offs
    affecting lenders, borrowers, and FHA*s role, such as diminishing the
    federal role in stabilizing markets. Low- income, first- time, and
    minority home buyers and those individuals purchasing older homes are most
    likely to experience greater difficulty in obtaining a home mortgage.

    In the past, CBO could not provide a savings estimate for this option
    because the amount of potential savings would depend on the reaction of
    lenders and the resulting demand for FHA*s products. CBO 5- Year Cost
    Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Mortgage Financing: Changes in the Performance of
    FHA- Insured Loans. GAO- 02- 773. Washington, D. C.: July 10, 2002.

    Mortgage Financing: FHA*s Fund Has Grown, but Options for Drawing on the
    Fund Have Uncertain Outcomes. GAO- 01- 460. Washington, D. C.: February
    28, 2001.

    Homeownership: Potential Effects of Reducing FHA*s Insurance Coverage for
    Home Mortgages. GAO/ RCED- 97- 93. Washington, D. C.: May 1, 1997.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Merging U. S. Department of Agriculture and Department of Housing and
    Urban Development Single- Family

    Primary agencies Department of Agriculture

    Insured Lending Programs Department of Housing and Urban

    and Multifamily Portfolio

    Development

    Management Programs

    Accounts Multiple Spending types Direct/ Discretionary Budget subfunction
    371/ Mortgage credit

    The U. S. Department of Agriculture (USDA), primarily through its Rural
    Housing Service (RHS), has jurisdiction over most federal rural housing
    programs. HUD, primarily through its Federal Housing Administration (FHA),
    has jurisdiction over the major nationwide federal housing programs. As
    the distinctions between rural and urban life have blurred and federal
    budgets have tightened, the need for the separate rural housing

    programs, first created in the mid- 1930s to stimulate the rural economy
    and assist needy rural families, is questionable.

    Similarities exist between the RHS and FHA programs for delivering rural
    housing, and efficiencies could be achieved by merging the two programs.
    For instance, RHS*s single- family guaranteed loan program and FHA*s
    single- family insured loan program both primarily target low- and
    moderate- income households, use the same qualifying ratios, and operate
    in the same markets. Even though RHS*s program offers more attractive
    terms for the borrower and is available only in rural areas, whereas FHA*s
    program is available nationwide, both programs could be offered through
    the same network of lenders. Adapting each one*s best practices for use by
    the other and eliminating inconsistencies in the rules applicable to
    private owners under the current programs would improve the efficiency
    with which the federal government delivers rural housing programs.

    As we reported, to optimize the federal role in rural housing, the
    Congress may wish to consider requiring USDA and HUD to examine the
    benefits and costs of merging those programs that serve similar markets
    and provide similar products. As a first step, the Congress could consider
    requiring RHS and HUD to explore merging their single- family insured
    lending programs and multifamily portfolio management programs, taking
    advantage of the best practices of each and ensuring that targeted
    populations are not adversely affected. In the past, CBO could not
    estimate savings for this option without a more specific proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Rural Housing: Options for Optimizing the Federal Role
    in Rural Housing Development. GAO/ RCED- 00- 241. Washington, D. C.:
    September 15, 2000.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Consolidate Homeless Assistance Programs

    Primary agency Department of Housing and Urban Development

    Accounts Multiple Spending types Direct/ Discretionary Budget subfunctions
    Multiple

    In 1987, the Congress passed the Stewart B. McKinney Act (P. L. 100- 77)
    to provide a comprehensive federal response to address the multiple needs
    of homeless people. The act encompassed both existing and new programs,
    including those providing emergency food and shelter, those offering
    longterm housing and supportive services, and those designed to
    demonstrate effective approaches for providing homeless people with
    services. Over the years, some of the original McKinney programs have been
    consolidated or eliminated, and some new programs have been added. Today
    homeless

    people receive assistance through these programs as well as other federal
    programs that are not authorized under the McKinney Act but are
    nevertheless specifically targeted to serve the homeless population. In
    February 1999, we reported that seven federal agencies administer 16
    programs that are targeted to serve the homeless population. In fiscal
    year

    1997, these agencies obligated over $1.2 billion for homeless assistance
    programs, and the programs administered by the Department of Housing and
    Urban Development (HUD) accounted for about 70 percent of this total.

    While these federal programs offer a wide range of services to the
    homeless population, some of these services appear similar. For example,
    food and nutrition services can be provided to homeless people through
    eight

    different programs administered by five different agencies. Moreover, our
    work at the state and local level has found that state and local
    government officials generally believe that the federal government has not
    done a good job of coordinating its various homeless assistance programs.
    This perceived lack of coordination could adversely affect the ability of
    states and localities to integrate their own programs. Also, we reported
    that, because different homeless assistance programs have varying sets of
    eligibility and funding requirements, they can cause coordination

    difficulties for the federal agencies administering them as well as
    administrative and coordination burdens for the states and communities
    that have to apply for and use these funds.

    The Congress may wish to consider consolidating all homeless assistance
    programs under HUD because HUD (1) has taken a leadership role in the area
    of homelessness, (2) has developed a well- respected approach for
    delivering homeless assistance programs called the Continuum of Care, and
    (3) is responsible for administering most of the funds for programs
    targeted to the homeless. Consolidating all of the homeless assistance
    programs under HUD should result in administrative and operational

    efficiencies at the federal level as well as reduce the administrative and
    coordination burdens of state and local governments. In the past, CBO was
    unable to estimate the potential savings for this option without a
    specific legislative proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Homelessness: Improving Program Coordination and
    Client Access to Program. GAO- 02- 485T. Washington, D. C.: March 6, 2002.

    Homelessness: Consolidating HUD*s McKinney Programs. GAO/ T- RCED00- 187.
    Washington, D. C.: May 23, 2000.

    Homelessness: State and Local Efforts to Integrate and Evaluate Homeless
    Assistance Programs. GAO/ RCED- 99- 178. Washington, D. C.: June 29, 1999.

    Homelessness: Coordination and Evaluation of Programs Are Essential.

    GAO/ RCED- 99- 49. Washington, D. C.: February 26, 1999.

    Homelessness: McKinney Act Programs Provide Assistance but Are Not
    Designed to Be the Solution. GAO/ RCED- 94- 37. Washington, D. C.: May 31,
    1994.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Reorganize and Consolidate Small Business Administration*s Administrative
    Structure

    Primary agency Small Business Administration Accounts Multiple Spending
    type Discretionary Budget subfunction 376/ Other advancement of commerce

    The Small Business Administration*s (SBA) complicated and overlapping
    organizational relationships and a field structure that does not
    consistently match mission requirements have combined to impede staff
    efforts to deliver services effectively. Some of the complex
    organizational relationships stem from legislative requirement. Others
    result from past

    SBA realignment efforts that changed how the agency performs its functions
    but left aspects of the previous structure intact.

    For example, district staff working on SBA loan programs report to their
    district management, while loan processing and servicing center staff
    report directly to the Office of Capital Access in headquarters. Yet,
    district office loan program staffs sometimes need to work with the loan
    processing and servicing centers to get information or to expedite loans
    for lenders in their district. Because loan processing and servicing
    centers report directly to the Office of Capital Access, requests that are
    directed to the centers sometimes must go from the district through the
    Office of Capital Access then back to the centers. District managers and
    staff said that sometimes they cannot get answers to questions when
    lenders call and that they have trouble expediting loans because they lack
    authority to direct the centers to take any action. Lender association
    representatives said that the lines of authority between headquarters and
    the field can be confusing and that practices vary from district to
    district.

    In 2002, GAO reported that SBA drafted a 5- year workforce transformation
    plan. The draft plan recognizes SBA*s need to restructure its workforce,
    privatize noncore functions, adjust incentives and goals, and streamline
    its headquarters* operation. Improvements in SBA*s organizational
    structure could lead to savings in human capital and office space costs.

    Some options that the Congress could consider to assist SBA in its
    transformation effort include

     rescinding or combining some of the legislatively mandated offices,
    programs, or aspects of existing programs,

     rescinding some of the reporting relationships, grades, or types of
    appointments for senior SBA officials, and

     giving the agency the ability to close or consolidate some of its
    inefficiently located field offices.

    CBO 5- Year Cost Estimate No, this is a new example. CBO could not develop
    an estimate for this

    Included in GAO*s 2002 example.

    Budgetary Implications Report Related GAO Products Small Business
    Administration: Workforce Transformation Plan Is Evolving. GAO- 02- 931T.
    Washington, D. C.: July 16, 2002.

    Small Business Administration: Current Structure Presents Challenges for
    Service Delivery. GAO- 02- 17. Washington, D. C.: October 26, 2001. GAO
    Contact Davi D*Agostino, (202) 512- 8678

    Improve Reviews of Small Business Administration*s Preferred Lenders

    Primary agency Small Business Administration Account Business Loans
    Program Account (73-

    1154) Spending types Direct/ Discretionary Budget subfunction 376/ Other
    advancement of commerce

    The Small Business Administration*s (SBA) largest business loan program,
    the *7( a) program,* is intended to serve small business borrowers who
    cannot otherwise obtain financing under reasonable terms and conditions
    from the private sector. As of September 30, 2002, SBA had a total
    portfolio of about $46 billion, including $42 billion in direct and
    guaranteed small business loans and other guarantees. SBA delegates full
    authority to preferred lenders to make loans without prior SBA approval.
    In fiscal year 2002, preferred lenders approved 55 percent of the dollar
    value of all 7( a) loans* about $7 billion. Because SBA guarantees up to
    85 percent of the 7( a) loans made by its lending partners, there is risk
    to SBA if the loans are not repaid. The default rate for each of the last
    3 fiscal years has been around 14 percent.

    SBA is required by law to review preferred lenders at least annually. SBA
    has made progress in developing its lender oversight program, but it has
    not fully developed effective oversight programs that assess lenders*
    decisions on borrowers* creditworthiness and eligibility and the impact of
    lenders* decisions regarding risk posed to SBA*s portfolio.

    SBA should incorporate strategies into its reviews of preferred lenders to
    adequately measure the financial risk lenders pose to SBA, develop
    specific criteria to apply to the *credit elsewhere* standard, 12 and
    perform qualitative assessments of lenders* performance and lending
    decisions. Implementation of these recommendations could lead to lower
    defaults on 7( a) loans and/ or a smaller 7( a) loan program.

    12 The *credit elsewhere* standard is a test to determine whether the
    borrower can obtain credit without the SBA guarantee.

    CBO 5- Year Cost Estimate No, this is a new example. CBO could not develop
    an estimate for this

    Included in GAO*s 2002 example.

    Budgetary Implications Report Related GAO Product Small Business
    Administration: Progress Made but Improvements

    Needed in Lender Oversight. GAO- 03- 90. Washington, D. C.: December 9,
    2002. GAO Contact Davi D*Agostino, (202) 512- 8678

    CBO Options Where Related GAO Work Is Identified 13

    370- 01 End the Credit Subsidy for the Small Business Administration*s
    Major Business Loan

    Guarantee Programs Related GAO Products Small Business Administration:
    Progress Made but Improvements

    Needed in Lender Oversight. GAO- 03- 90. Washington, D. C.: December 9,
    2002.

    Small Business Administration: Section 7( a) General Business Loans Credit
    Subsidy Estimates. GAO- 01- 1095R. Washington, D. C.: August 21, 2001. 13
    GAO Contacts Davi D*Agostino, (202) 512- 8678 Linda Calbom, (202) 512-
    8341

    370- 05 Charge All Banks and Thrifts Deposit Insurance Premiums

    Related GAO Product Deposit Insurance Funds: Analysis of Insurance Premium
    Disparity Between Banks and Thrifts. GAO/ AIMD- 95- 84. Washington, D. C.:
    March 3, 1995.

    13 We list GAO reports identified as relating to options included in the
    CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    400 Transportation Examples from Selected GAO Work

    Eliminate the Pulsed Fast Neutron Analysis Inspection System Develop a
    Passenger Intercity Rail Policy to Meet National Goals Eliminate Cargo
    Preference Laws to Reduce Federal Transportation Costs Increase Aircraft
    Registration Fees to Enable the Federal Aviation Administration to Recover
    Actual Costs

    Apply Cost- Benefit Analysis to Replacement Plans for Airport Surveillance
    Radars

    Close, Consolidate, or Privatize Some Coast Guard Operating and Training
    Facilities Convert Some Support Officer Positions to Civilian Status

    CBO Options Where Related GAO Work Is Identified

    400- 01 Reduce Federal Subsidies for Amtrak 400- 02 Eliminate the
    Essential Air Service Program 400- 03 Eliminate Grants to Large and
    Medium- Sized Hub Airports 400- 04 Increase Fees for Certificates and
    Registrations Issued by the Federal Aviation Administration

    400- 08 Eliminate Funding for the *New Starts* Transit Program

    Examples from Selected GAO Work

    Eliminate the Pulsed Fast Neutron Analysis Inspection System

    Primary agency Multiple Account FAA* Research, Engineering and Development
    (69- 8108)

    Spending type Discretionary Budget subfunction 402/ Air transportation

    One type of technology under development for detecting explosives and
    narcotics is a pulsed fast neutron analysis (PFNA) inspection system. PFNA
    is designed to directly and automatically detect and measure the

    presence of specific materials (e. g., cocaine) by exposing their
    constituent chemical elements to short bursts of subatomic particles
    called neutrons. As we reported in our April 1999 report, officials from
    the government agencies responsible for developing PFNA still do not
    believe that the current PFNA system would meet their operational
    requirements because it is too expensive (estimated at between $10 million
    to $15 million per unit to acquire) and too large for operational use in
    most ports of entry or other sites. Those responsible agencies are the
    Bureau of Customs and Border Protection (CBP), Transportation Security
    Administration (TSA), and Department of Defense (DOD). 14 However, at the
    direction of the

    Congress, 15 DOD is currently leading a joint effort with CBP and TSA to
    conduct an operational evaluation of PFNA at the Ysleta border crossing in
    El Paso, Texas. This evaluation will test PFNA*s ability to detect drugs,

    14 Previously we included the views of U. S. Customs Service and Federal
    Aviation Administration (FAA) officials. However, since our last budgetary
    implications report in April 2002, Customs and its responsibilities were
    transferred to CBP and TSA assumed the PFNA program from FAA. CBP and TSA
    are part of the Department of Homeland Security, which was established in
    November 2002. In addition, the DOD Counterdrug Technology Development
    Program Office assumed responsibility for the PFNA program from the Office
    of the Assistant Secretary of Defense for Special Operations and Low
    Intensity Conflict.

    15 Senate Report 107- 109, Department of Defense Appropriation Bill, 2002,
    and Supplemental Appropriations, 2002, December 5, 2001, page 155.

    explosives, chemical warfare agents, currency, and nuclear materials. It
    is currently scheduled for completion by June 2004 and estimated to cost
    $13.9 million to the government, which includes $8.5 million for a firm,
    fixed- price contract with PFNA*s manufacturer, The Ancore Corporation, to
    deliver a system to Ysleta and provide support and maintenance for the
    test. The $13.9 million total consists of $5.4 million from DOD, $3.5
    million from TSA, and $5 million from CBP.

    DOD officials stated that its lead role in the joint Ysleta operational
    test is as an independent evaluator and does not indicate an endorsement
    of the system for use by DOD. CBP officials question whether PFNA will be
    a viable and affordable technology for widespread use but stated that PFNA
    shows enough promise that CBP agreed to help fund the joint operational
    test. Similarly, while TSA officials do not believe the current PFNA
    system will meet operational requirements for maritime and land
    applications, they stated that a definitive assessment would be made at
    the completion of the joint test. For aviation applications, TSA has
    decided to pursue a cooperative agreement with The Ancore Corporation to
    test a PFNA system design in the laboratory, which could lead to an
    operational test at an airport if the system meets specific detection
    criteria. TSA officials stated that dates and costs for this separate
    effort would not be available until after The Ancore Corporation completes
    its systems development.

    One option is for the Congress to eliminate the PFNA. In the past, CBO
    estimated that savings could be achieved if the PFNA was eliminated.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Terrorism and Drug Trafficking: Testing Status and
    Views on Operational Viability of Pulsed Fast Neutron Analysis Technology.

    GAO/ GGD- 99- 54. Washington, D. C.: April 13, 1999. GAO Contact Laurie E.
    Ekstrand, (202) 512- 8777

    Develop a Passenger Intercity Rail Policy to Meet National Goals

    Primary agency National Railroad Passenger Corporation Accounts Multiple
    Spending type Discretionary Budget subfunction 401/ Ground transportation

    The National Railroad Passenger Corporation (Amtrak) operates the nation*s
    intercity passenger rail service. As a private corporation, it operates
    trains in 46 states, serving about 23.4 million riders (about 64,000

    per day). Amtrak plays only a small part in the nation*s overall
    transportation system with the exception of some short- distance routes.
    It has sizeable market shares (compared to travel by air) between certain
    relatively close cities. However, by far, the automobile dominates most
    intercity travel. Like major national intercity passenger rail systems
    outside the United States, Amtrak receives government support. Since

    Amtrak*s creation in 1970, the federal government has provided Amtrak with
    operating and capital assistance and in the past 5 years, it has provided
    Amtrak an average of about $1 billion each year.

    Throughout its existence, Amtrak*s financial condition has never been
    strong and the corporation has been on the edge of bankruptcy several
    times, most recently in 2002. Current levels of federal funding are not

    sufficient to support the existing level of intercity passenger rail
    service being provided by Amtrak. Amtrak has indicated that it will need
    about $2 billion annually* about twice the amount provided in recent
    years* in federal operating and capital assistance over the next few years
    to stabilize

    its system and to cover operating losses. Additional assistance would be
    needed to expand or enhance service or develop high- speed rail corridors.
    Amtrak and the administration have offered differing views on Amtrak and

    the future of intercity passenger rail service in America. Amtrak focuses
    primarily on the importance of Amtrak*s receiving the funding it needs to
    improve the condition of its equipment, its reliability and utilization,
    and its infrastructure. In contrast, the administration is looking toward
    a fundamental restructuring of the manner in which federal assistance is
    provided for intercity passenger rail service that it argues will create a
    rail service driven by sound economics, competition, and a long- term
    partnership between states and the federal government to sustain an
    economically viable system.

    An evaluation framework could be useful to help the Congress consider
    intercity passenger rail policy. Based on extensive analyses of federal
    investment approaches across a broad stratum of national activities, we
    have found that the key components of a framework for evaluating federal
    investments include (1) establishing clear, nonconflicting goals, (2)
    establishing the roles of governmental and private entities, (3)

    establishing funding approaches that focus on and provide incentives for
    results and accountability, and (4) ensuring that the strategies developed
    address diverse stakeholder interests and limit unintended consequences.
    CBO 5- Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Intercity Passenger Rail: Issues for Consideration in
    Developing an Intercity Passenger Rail Policy. GAO- 03- 712T. Washington,
    D. C.: April 30, 2003.

    Intercity Passenger Rail: Potential Financial Issues in the Event That
    Amtrak Undergoes Liquidation. GAO- 02- 871. Washington, D. C.: September
    20, 2002.

    Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking
    Process for Its Route and Service Proposals. GAO- 02- 398. Washington, D.
    C.: April 12, 2002.

    Intercity Passenger Rail: Congress Faces Critical Decisions in Developing
    a National Policy. GAO- 02- 522T. Washington, D. C.: April 11, 2002.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs

    Primary agencies Multiple Accounts Multiple Spending type Discretionary
    Budget subfunction 403/ Water transportation

    Cargo preference laws require that certain government- owned or financed
    cargo shipped internationally be carried on U. S.- flagged vessels. Cargo
    preference laws are intended to guarantee a minimum amount of business for
    the U. S.- flagged vessels. These vessels are required by law to be crewed
    by U. S. mariners, are generally required to be built in U. S. shipyards,
    and

    are encouraged to be maintained and repaired in U. S. shipyards. In
    addition, U. S.- flag carriers commit to providing capacity in times of
    national emergencies.

    The effect of cargo preference laws has been mixed. These laws appear to
    have had a substantial impact on the U. S. merchant marine industry by
    providing an incentive for vessels to remain in the U. S. fleet. However,
    because U. S.- flagged vessels often charge higher rates to transport
    cargo

    than foreign- flagged vessels, cargo preference laws increase the
    government*s transportation costs. For fiscal years 1989 through 1993,
    four federal agencies* the Departments of Defense, Agriculture, Energy,
    and

    the Agency for International Development* were responsible for more than
    99 percent of the government cargo subject to cargo preference laws. Cargo
    preference laws increased these federal agencies* transportation costs by
    an estimated $578 million per year in fiscal years 1989 through 1993 over
    the cost of using foreign- flagged vessels. If the laws were eliminated,
    savings could be achieved.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Management Reform: Implementation of the National
    Performance Review*s Recommendations. GAO/ OCG- 95- 1. Washington, D. C.:
    December 5, 1994.

    Maritime Industry: Cargo Preference Laws* Their Estimated Costs and
    Effects. GAO/ RCED- 95- 34. Washington, D. C.: November 30, 1994.

    Cargo Preference: Effects of U. S. Export- Import Cargo Preference Laws on
    Exporters. GAO/ GGD- 95- 2BR. Washington, D. C.: October 31, 1994.

    Cargo Preference Requirements: Objectives Not Significantly Advanced When
    Used in U. S. Food Aid Programs. GAO/ GGD- 94- 215. Washington, D. C.:
    September 29, 1994.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Increase Aircraft Registration Fees to Enable the Federal Aviation
    Administration to Recover

    Primary agency Department of Transportation

    Actual Costs

    Spending type Direct

    In 1977, the Congress amended the Federal Aviation Act and identified
    three categories of aircraft owners* U. S. citizens, resident aliens, and
    U. S. based foreign companies* that may register aircraft in the United
    States. To register an aircraft, an eligible owner submits a $5 fee. As of
    the end of

    fiscal year 1999, 355,518 aircraft were registered in the United States.
    In fiscal year 1999, 54, 329 certificate registrations were issued.

    In 1993, we reported that the Federal Aviation Administration (FAA) was
    not fully recovering the cost of processing aircraft registration
    applications and estimated that, by not increasing fees since 1968 to
    recover costs, FAA

    had foregone about $6.5 million in additional revenue. To recover the
    costs of services provided to aircraft registrants, we have recommended
    that FAA increase its aircraft registration fees to more accurately
    reflect actual costs. FAA plans to coordinate aircraft registration
    changes with the Drug Enforcement Agency and the U. S. Customs Service by
    the end of 2004. If

    those two agencies approve the proposed changes, FAA will prepare
    legislation for congressional approval for a rate increase for
    registration fees. FAA plans to complete changes to its aircraft
    registration system by mid- 2005.

    If the FAA recovers the full cost of processing aircraft registration
    applications, additional revenue could be achieved.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Aviation Safety: Unresolved Issues Involving U. S.-
    Registered Aircraft.

    GAO/ RCED- 93- 135. Washington, D. C.: June 18, 1993. GAO Contact Gerald
    Dillingham, (202) 512- 4803

    Apply Cost- Benefit Analysis to Replacement Plans for Airport Surveillance
    Radars

    Primary agency Department of Transportation Account Facilities and
    Equipment (69- 8107) Spending type Discretionary Budget subfunction 402/
    Air transportation

    Before installing an airport surveillance radar (ASR), the Federal
    Aviation Administration (FAA) typically conducts cost- benefit studies to
    determine whether it will be cost effective. In addition to the $5 million
    cost of the new radars, other costs may be incurred for auxiliary
    equipment and infrastructure modifications. Benefits of these improvements
    include travelers* time saved through potential reductions in aircraft
    delays and lives saved and injuries avoided through reduced risk of midair
    and terrain collisions. Because there is a direct correlation between
    projected air traffic operations and the potential benefits associated
    with radar installation, airports with higher air traffic projections
    would receive more benefit from a radar than those with lower projections.

    In 1999, FAA had planned to install technologically advanced ASR- 11
    radars to replace its model ASR- 7 and ASR- 8 radars at 101 airports,
    without applying its cost- benefit criteria. FAA*s rationale for not
    applying its costbenefit criteria to these 101 airports was its belief
    that discontinuing radar operations at airports that no longer qualify
    could lead to public perceptions that safety was being reduced, even if
    safety was not compromised. However, some of these airports may no longer
    qualify for a radar based on FAA*s cost- benefit criteria and 75 of them
    have less air traffic than an airport whose radar request FAA has denied
    using its costbenefit criteria. Furthermore, at some of these airports,
    the circumstances that originally justified a radar no longer exist.

    GAO recommended that FAA apply its cost- benefit criteria to all 101
    airports where it plans to replace the ASR- 7 and ASR- 8 radars and
    determine whether those airports had a continuing operational need for
    radar. In response to GAO*s recommendation, FAA asked its regional offices
    to verify the operational need for radars at the 75 airports that had less
    traffic than the airport whose radar was denied. As of May 2003, FAA was
    still planning to replace aging ASR- 7/ 8 systems with ASR- 11 radar
    without the cost- benefit analysis. FAA said the analysis was used to
    determine the siting of eight other new ASR- 11 radar systems. We continue

    to believe that savings may result if FAA were to perform the cost-
    benefit studies at the 101 airports.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Air Traffic Control: Surveillance Radar Request for
    the Cherry Capital Airport. GAO/ RCED- 98- 118. Washington, D. C.: May 28,
    1998.

    GAO Contact Gerald Dillingham, (202) 512- 4803

    Close, Consolidate, or Privatize Some Coast Guard Operating and Training
    Facilities

    Primary agency Department of Homeland Security Account United States Coast
    Guard (70- 0600) Spending type Discretionary Budget subfunctions Multiple

    The Coast Guard could achieve budget savings by downsizing its facilities.
    The Coast Guard abandoned plans to close its Curtis Bay facility in 1988,
    when GAO reported that it lacked supporting data. While the cost
    effectiveness of this facility had been questioned, the Coast Guard had
    not conducted a detailed study to compare the facility*s cost
    effectiveness with that of commercial shipyards. In fiscal year 1996, GAO
    testified that the Coast Guard could save $6 million by closing or
    consolidating over 20 small boat stations. Also in 1996, GAO recommended
    that the Coast Guard

    consider other alternatives* such as privatization* to operate its vessel
    traffic service centers, which cost $20.2 million to operate in fiscal
    year 1999. Furthermore, in fiscal 1995, GAO recommended that the Coast
    Guard close one of its large training centers in Petaluma, Cal.* at a
    savings of $9 million annually. The Coast Guard agreed that this may be
    possible but

    did not close it largely because of public opposition. Given the serious
    budget constraints the Coast Guard now faces and the fundamental
    challenges in being able to accomplish new homeland security
    responsibilities it has been given while maintaining levels of effort in
    its

    traditional missions, it will need to achieve significant budgetary
    savings to offset the increased budgetary needs of the future. Closing,
    consolidating, or privatizing training and operating facilities, including
    the Curtis Bay facility, 20 small boat stations, the vessel traffic
    service centers, and one of its training centers in Petaluma, Cal., would
    help the Coast Guard to achieve these required savings. While in the past,
    CBO agreed that closing, consolidating, or privatizing Coast Guard
    facilities could yield savings, it

    could not develop an estimate without specific proposals. CBO 5- Year Cost
    Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Coast Guard: Challenges During the Transition to the
    Department of Homeland Security. GAO- 03- 594T. Washington, D. C.: April
    1, 2003.

    Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor
    Resource Use and Measure Performance for All Missions. GAO- 03- 544T.
    Washington, D. C.: March 12, 2003. Coast Guard: Strategy Needed for
    Setting and Monitoring Levels of Effort

    for All Missions. GAO- 03- 155. Washington, D. C.: November 12, 2002.

    Coast Guard: Budget Challenges for 2001 and Beyond. GAO/ T- RCED- 00- 103.
    Washington, D. C.: March 15, 2000.

    Coast Guard: Review of Administrative and Support Functions. GAO/ RCED-
    99- 62R. Washington, D. C.: March 10, 1999.

    Coast Guard: Challenges for Addressing Budget Constraints. GAO/ RCED97-
    110. Washington, D. C.: May 14, 1997.

    Marine Safety: Coast Guard Should Address Alternatives as It Proceeds With
    VTS 2000. GAO/ RCED- 96- 83. Washington, D. C.: April 22, 1996.

    Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request.

    GAO/ T- RCED- 95- 130. Washington, D. C.: March 13, 1995.

    Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat
    Stations. GAO/ RCED- 94- 147. Washington, D. C.: April 1, 1994.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Convert Some Support Officer Positions to Civilian Status

    Primary agency Department of Homeland Security Account United States Coast
    Guard (70- 0600) Spending type Discretionary Budget subfunctions Multiple

    The Coast Guard uses officers in operational positions* to command boats,
    ships, and aircraft that can be deployed during times of war* and in
    support positions, such as personnel, public affairs, data processing, and
    financial management. Military standard personnel costs are paid out of
    the Coast Guard*s discretionary budget and include all pay and allowances,
    permanent change of station costs, training costs, and active- duty
    medical costs associated with each pay grade. Certain allowances* housing
    and subsistence* are provided to military personnel tax free.
    Additionally, military retirement costs are funded by an annual permanent
    appropriation

    separate from the Coast Guard*s discretionary budget. Civilian standard
    personnel costs are also paid out of the Coast Guard*s discretionary
    budget and include basic, locality, overtime, and special pay as well as
    the costs associated with permanent change of station, training, health
    insurance,

    life insurance, and the accrued cost of civilian retirement. Of 5,760
    commissioned officer positions in the Coast Guard*s workforce (as of the
    end of fiscal year 1999), GAO selectively evaluated nearly 1, 000 in 75
    units likely to have support positions. Of these positions, GAO found
    about

    800 in which officers were performing duties that offered opportunities
    for conversion to civilian positions. Such positions include those in,
    among other things, personnel, public affairs, civil rights, and data
    processing. In comparing all of the relevant costs associated with
    military and civilian positions, GAO found that employing active- duty
    commissioned officers in the positions we reviewed is, on average, 21
    percent more costly than filling the same positions with comparable
    civilian employees. The cost differential is based on a comparison of
    average annual pay, benefits, and expenses associated with the Coast
    Guard*s commissioned officers at different military ranks and federal
    civilian employees at comparable civilian grades for fiscal year 1999.

    From July 31, 2001 through February 28, 2003, the Coast Guard had
    converted 68 commissioned officer positions to civilian positions.
    Converting support positions currently filled by military officers to
    civilian

    status would reduce costs associated with delivering these services with
    no apparent impact on performance. By converting commissioned officer
    positions to civilian positions, savings would accrue to the federal
    government in the form of retirement savings, tax advantage savings, and
    savings to the Coast Guard*s discretionary budget. In the past, CBO agreed
    that this option would lead to savings, but that those savings would
    primarily result from differences between military and civilian retirement
    plans. Consequently, the budgetary savings resulting from this shift would
    not begin until *new* civilian employees began to retire, which will occur
    after the 5- year projection period.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Coast Guard Workforce Mix: Phased- In Conversion of
    Some Support Officer Positions Would Produce Savings. GAO/ RCED- 00- 60.
    Washington, D. C.: March 1, 2000.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    CBO Options Where Related GAO Work Is Identified 16

    400- 01 Reduce Federal Subsidies for Amtrak Related GAO Products Intercity
    Passenger Rail: Potential Financial Issues in the Event That

    Amtrak Undergoes Liquidation. GAO- 02- 871. Washington, D. C.: September
    20, 2002. 16

    Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking
    Process for Its Route and Service Proposals. GAO- 02- 398. Washington, D.
    C.: April 12, 2002.

    Intercity Passenger Rail: The Congress Faces Critical Decisions About the
    Role of and Funding for Intercity Passenger Rail Systems. GAO- 01- 820T.
    Washington, D. C.: July 25, 2001.

    High- Speed Rail Investment Act of 2001. GAO- 01- 756R. Washington, D. C.:
    June 25, 2001.

    Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty
    Controlling Its Costs and Meeting Capital Needs. GAO/ RCED- 00- 138.
    Washington, D. C.: May 31, 2000.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984 16 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    400- 02 Eliminate the Essential Air Service Program

    Related GAO Products Commercial Aviation: Issues Regarding Federal
    Assistance for Enhancing Air Service to Small Communities. GAO- 03- 540T.
    Washington, D. C.: March 11, 2003.

    Commercial Aviation: Factors Affecting Efforts to Improve Air Service at
    Small Community Airports. GAO- 03- 330. Washington, D. C.: January 17,
    2003.

    Options to Enhance the Long- Term Viability of the Essential Air Service
    Program. GAO- 02- 997R. Washington, D. C.: August 30, 2002. GAO Contact
    JayEtta Z. Hecker, (202) 512- 8984 400- 03 Eliminate Grants to Large and
    Medium- Sized Hub Airports

    Related GAO Products Airport Finance: Past Funding Levels May Not Be
    Sufficient to Cover Airports* Planned Capital Development. GAO- 03- 497T.
    Washington, D. C.: February 25, 2003.

    Aviation Finance: Implementation of General Aviation Entitlement Grants.
    GAO- 03- 347. Washington, D. C.: February 11, 2003.

    Aviation Infrastructure: Challenges Related to Building Runways and
    Actions to Address Them. GAO- 03- 164. Washington, D. C.: January 30,
    2003.

    Airport Finance: Using Airport Grant Funds for Security Projects Has
    Affected Some Development Projects. GAO- 03- 27. Washington, D. C.:
    October 15, 2002.

    Aviation Finance: Distribution of Airport Grant Funds Complied with
    Statutory Requirements. GAO- 02- 283. Washington, D. C.: April 30, 2002.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984 400- 04 Increase Fees for
    Certificates and Registrations Issued by the Federal Aviation
    Administration

    Related GAO Product Aviation Safety: Unresolved Issues Involving U. S.-
    Registered Aircraft.

    GAO/ RCED- 93- 135. Washington, D. C.: June 18, 1993. GAO Contact Gerald
    Dillingham, (202) 512- 4803

    400- 08 Eliminate Funding for the *New Starts* Transit Program

    Related GAO Products Mass Transit: Status of New Starts Program and
    Potential for Bus Rapid Transit Projects. GAO- 02- 840T. Washington, D.
    C.: June 20, 2002.

    Mass Transit: FTA*s New Starts Commitments for Fiscal Year 2003. GAO02-
    603. Washington, D. C.: April 30, 2002.

    GAO Contact Katherine Siggerud, (202) 512- 6570

    450 Community and

    Examples from Selected GAO Work

    Regional Development Limit Eligibility for Federal Emergency Management
    Agency Public

    Assistance Eliminate the Flood Insurance Subsidy on Properties That Suffer
    the Greatest Flood Loss

    Eliminate Flood Insurance for Certain Repeatedly Flooded Properties
    Consolidate or Terminate the Department of Commerce*s Trade Adjustment
    Assistance for Firms Program

    Improve Federal Foreclosure and Property Sales Processes

    CBO Options Where Related GAO Work Is Identified

    450- 02 Eliminate Region- Specific Development Agencies 450- 05 Drop Flood
    Insurance for Certain Repeatedly Flooded Properties

    Examples from Selected GAO Work

    Limit Eligibility for Federal Emergency Management Agency Public
    Assistance

    Primary agency Department of Homeland Security Account Emergency
    Preparedness and Response

    (70- 0700) Spending type Discretionary Budget subfunctions Multiple

    The Federal Emergency Management Agency*s (FEMA) Public Assistance Program
    helps pay state and local governments* costs of repairing and replacing
    eligible public facilities and equipment damaged by natural disasters.
    Many private nonprofit organizations, such as schools, hospitals, and
    utilities, are also eligible for assistance. From 1990 through 2001,

    FEMA has expended over $39 billion (in fiscal year 2001 dollars) in
    disaster assistance, over half of which was spent for public assistance
    projects such as repairs of roads, government buildings, utilities, and
    hospitals damaged in declared disasters.

    A number of options identified by program officials in FEMA*s 10 regional
    offices, if implemented, could reduce program costs. The agency has acted
    to address some of these options. However, FEMA has not addressed some
    other identified options, stating that congressional direction would be
    needed for the agency to change policies. These include eliminating the
    eligibility for facilities not actively used to deliver government
    services,

    postdisaster beach renourishment, as well as increasing the damage
    threshold for replacing a facility. 17 In addition, program costs could be
    reduced by policy changes such as eliminating eligibility for all private
    nonprofit organizations* many of which are revenue- generating facilities
    such as utilities, hospitals, and universities* or eliminating funding for
    publicly owned recreational facilities (e. g., boat docks, piers, and golf

    17 FEMA will now pay to replace rather than repair buildings if the repair
    costs would be more than 50 percent of the estimated replacement cost.

    courses) which generate portions of their operational revenue through user
    fees, rents, admission charges, or similar fees. In the past, CBO
    estimated that eliminating eligibility for all private nonprofit
    organizations would

    yield budgetary savings. CBO 5- Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Disaster Assistance: Improvement Needed in Disaster
    Declaration Criteria and Eligibility Assurance Procedures. GAO- 01- 837.
    Washington, D. C.: August 31, 2001.

    Disaster Assistance: Information on Federal Costs and Approaches for
    Reducing Them. GAO/ T- RCED- 98- 139. Washington, D. C.: March 26, 1998.

    Disaster Assistance: Improvements Needed in Determining Eligibility for
    Public Assistance. GAO/ RCED- 96- 113. Washington, D. C.: May 23, 1996.

    Disaster Assistance: Improvements Needed in Determining Eligibility for
    Public Assistance. GAO/ T- RCED- 96- 166. Washington, D. C.: April 30,
    1996.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Eliminate the Flood Insurance Subsidy on Properties That Suffer the
    Greatest Flood Loss

    Primary agency Department of Homeland Security Account National Flood
    Insurance (70- 4236) Spending type Mandatory Budget subfunction 453/
    Disaster relief and insurance

    The National Flood Insurance Program is not actuarially sound because
    approximately 30 percent of the 4.3 million policies in force are
    subsidized. Federal Insurance Administration officials estimate that total
    premium income from subsidized policyholders is about $500 million less
    than it would be if these rates had been actuarially based and
    participation had remained the same. According to a Federal Insurance
    Administration official, if true actuarial rates were charged, insurance
    rates on currently subsidized policies would need to rise, on average,
    slightly more than twofold (to an annual average premium of about $1,500
    to $1,600). Significant rate increases for subsidized policies, including
    charging actuarial rates, would likely cause some owners of properties
    built before the publication of the Flood Insurance Rate Map to cancel
    their flood insurance. However, the ultimate cost or savings to the
    federal government would depend on the actions of property owners. If
    these property owners, who suffer the greatest flood loss, canceled their
    insurance and subsequently suffered losses due to future floods, they
    could apply for lowinterest loans from the Small Business Administration
    or grants from FEMA, which would increase the overall cost to the federal
    government.

    FEMA received a May 1999 contractor*s study concerning the economic
    effects of eliminating subsidized rates, and in June 2000 the agency
    transmitted the study to the Congress with recommendations for reducing
    the subsidy. According to FEMA, it is analyzing the impacts of specific
    alternatives for carrying out the recommendations, as well as working with

    stakeholders to refine and develop a comprehensive strategy to help it
    decide how to implement the study*s recommendations. Some of the
    recommendations for reducing the subsidy depend on legislative change. In
    light of the potential savings associated with addressing this issue, FEMA

    should develop and advance legislative options for eliminating the
    National Flood Insurance Program*s subsidy for properties that are more
    likely to suffer losses.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Flood Insurance: Information on Financial Aspects of
    the National Flood Insurance Program. GAO/ T- RCED- 00- 23. Washington, D.
    C.: October 27, 1999.

    Flood Insurance: Information on Financial Aspects of the National Flood
    Insurance Program. GAO/ T- RCED- 99- 280. Washington, D. C.: August 25,
    1999.

    Flood Insurance: Financial Resources May Not Be Sufficient to Meet Future
    Expected Losses. GAO/ RCED- 94- 80. Washington, D. C.: March 21, 1994.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Eliminate Flood Insurance for Certain Repeatedly Flooded Properties

    Primary agency Department of Homeland Security Account National Flood
    Insurance (70- 4236) Spending type Mandatory Budget subfunction 453/
    Disaster relief and insurance

    Repetitive flood losses are one of the major factors contributing to the
    financial difficulties facing the National Flood Insurance Program (NFIP).
    A repetitive- loss property is one that has two or more losses greater
    than $1, 000 each within any 10- year period. In 2002, approximately
    45,000

    buildings insured under the NFIP have been flooded on more than one
    occasion and have received flood insurance claims payments of $1, 000 or
    more for each loss. As we reported in July 2001, these repetitive losses
    account for about 38 percent of all program claims historically (about
    $200 million annually) even though repetitive- loss structures make up a
    very small portion of the total number of insured properties* at any one
    time, from 1 to 2 percent. The cost of these multiple- loss properties
    over the years to the program has been $3.8 billion. Under its repetitive-
    loss strategy, the Federal Insurance Administration intends to target for
    mitigation the most flood- prone repetitive- loss properties, such as
    those that are currently insured and have had four or more losses, by
    acquiring, relocating, or elevating them. The Federal Emergency Management
    Agency (FEMA) reports NFIP paid out over $800 million in claims for the
    most

    vulnerable repetitive loss properties (about 10, 000) over the last 21
    years. One option that would increase savings would be for FEMA to
    consider eliminating flood insurance for certain repeatedly flooded
    properties. In its fiscal year 2002 budget proposal, FEMA requested to
    transfer $20 million in fees from the NFIP to increase the number of
    buyouts of properties that

    suffer repetitive losses. CBO 5- Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Flood Insurance: Information on the Financial
    Condition of the National Flood Insurance Program. GAO- 01- 992T.
    Washington, D. C.: July 19, 2001.

    Flood Insurance: Information on Financial Aspects of the National Flood
    Insurance Program. GAO/ T- RCED- 00- 23. Washington, D. C.: October 27,
    1999.

    Flood Insurance: Information on Financial Aspects of the National Flood
    Insurance Program. GAO/ T- RCED- 99- 280. Washington, D. C.: August 25,
    1999.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    Consolidate or Terminate the Department of Commerce*s Trade Adjustment
    Assistance for

    Primary agency Department of Commerce

    Firms Program

    Account Economic Development Assistance Programs (13- 2050)

    Spending type Discretionary Budget subfunction 452/ Area and regional
    development

    The Trade Adjustment Assistance (TAA) for firms program is administered by
    the Department of Commerce*s Economic Development Administration. This $11
    million program (obligations in fiscal year 2002) is designed to

    assist domestic firms that have been adversely affected by imports. Twelve
    regional centers help firms become certified for benefits, assess their
    economic viability, and develop business recovery plans. For fiscal years
    1995 through 1999, an average of 157 firms were annually certified as
    eligible for assistance and 127 (an average of 11 for each regional
    center) had certified recovery plans. During this period, however, most of
    the program funding* 61 percent* was used to fund operational and
    administrative costs at the 12 regional centers, including helping firms
    become certified for assistance and developing firm- specific recovery
    plans. The remainder* an annual average of $3.8 million, or approximately
    39 percent of the total* was used to fund direct technical assistance. The
    Economic Development Administration added performance measures in fiscal
    year 2002 to better track outcomes of the assistance provided by the

    regional centers. However, we have not evaluated whether these new data
    are sufficient to assess how the program is helping firms adjust to import
    competition.

    Given the lack of information on the impact of the program, the Congress
    may wish to consider several options for this program. First, the Congress
    may wish to have the Department of Commerce consolidate the regional
    centers and therefore reduce administrative and overhead costs. Another
    alternative would be to colocate the TAA centers with an existing program
    such as the Department of Commerce*s Manufacturing Extension Partnership,
    reducing overhead and perhaps providing some synergy with other government
    efforts to assist firms. In the past, CBO estimtated that budgetary
    savings would occur if the Congress chooses to terminate the

    TAA for Firms Program.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Trade Adjustment Assistance: Impact of Federal
    Assistance to Firms Is Unclear. GAO- 01- 12. Washington, D. C.: December
    15, 2000.

    GAO Contact Loren Yager, (202) 512- 4128

    Improve Federal Foreclosure and Property Sales Processes

    Primary agencies Department of Housing and Urban Development Department of
    Veterans Affairs

    Accounts Multiple Spending types Direct/ Discretionary Budget subfunctions
    Multiple

    Opportunities exist to reduce the time necessary to sell foreclosed
    properties and minimize costs to the federal government. Federal programs
    in the Department of Housing and Urban Development*s Federal Housing
    Administration (FHA), the Department of Veterans Affairs (VA), and the
    Department of Agriculture*s Rural Housing Service (RHS) promote mortgage
    financing for, among other groups, low- income, first- time, minority,
    veteran, and rural home buyers. Fannie Mae and Freddie Mac are private
    corporations chartered by the Congress that also promote mortgage
    financing and home ownership opportunities. Although these programs have
    expanded home ownership opportunities, many home owners fall behind in
    their mortgage payments each year due to unemployment, health problems, or
    the death of a provider. When mortgage lenders cannot assist

    home owners in meeting their payments, FHA, VA, RHS, Fannie Mae, and
    Freddie Mac (the organizations) may instruct the lenders to begin
    foreclosure proceedings. Once foreclosure proceedings have been initiated,
    it is generally in the best interests of the organizations and communities
    that foreclosed properties are adequately maintained and resold as quickly
    as feasible. Otherwise, property conditions can deteriorate, thereby
    resulting in lower sales prices, which could limit the government*s
    ability to recover the costs that it incurs. 18 In addition, vacant and
    poorly maintained properties that are on the market for extended periods
    contribute to neighborhood decay.

    FHA procedures can delay the initiation of critical steps necessary to
    preserve the value of foreclosed properties and to sell them quickly.
    While 18 Generally, FHA, VA, and RHS pay claims to mortgage servicers to
    cover the outstanding loan balances on foreclosed mortgages and interest
    and other expenses. If foreclosed properties are resold at relatively low
    prices, then the organizations* ability to recover their claim payments
    may be limited.

    Fannie Mae, Freddie Mac, VA, and RHS designate one entity as responsible
    for the custody, maintenance, and sale of foreclosed properties, FHA
    divides these responsibilities between its mortgage servicers and
    management and marketing contractors. We found that FHA*s divided approach
    to foreclosed property custody can prevent the initiation of critical
    maintenance necessary to make properties attractive to potential buyers,
    such as the timely removal of all exterior and interior debris, and
    results in disputes between servicers and contractors. Because FHA*s
    divided approach delays maintenance and other steps necessary to preserve
    the value and marketability of foreclosed properties, the properties may
    be sold at lower prices than would otherwise be the case. In fact, we
    estimated that FHA takes about 55 to 110 days longer to sell foreclosed
    properties than the other organizations. In a June 2003

    conversation, an FHA official said that the agency continues to consider
    unified custody as the best means of managing its inventory of foreclosed
    properties. Given legal and other complexities associated with changing
    its

    approach to selling foreclosed properties, FHA does not expect to complete
    its ongoing review of the best means of implementing unified custody until
    October 2004.

    FHA and VA together spent about $31.5 million in 2000 on new title
    insurance policies to help establish that they had clear title to
    foreclosed properties, while Fannie Mae, Freddie Mac, and RHS generally
    did not purchase new title insurance policies. Neither FHA nor VA collects
    data to determine the need for these expenditures, and available
    information suggests they are not cost effective. In 1995, VA*s Office of
    Inspector General (OIG) issued a report that questioned whether VA*s title
    insurance expenditures offered value to the government, and VA has not
    implemented recommendations contained in the report to assess the
    expenditures* cost effectiveness. In addition, Fannie Mae, Freddie Mac,
    and RHS report few title- related problems when they sell foreclosed
    properties. We make recommendations that FHA and VA collect additional
    data and reevaluate the cost effectiveness of their title insurance
    expenditures. In a June 2003 conversation, an FHA official said that FHA
    expects to complete its review of purchasing title insurance during the
    foreclosure process by October 2004. In a June 2003 conversation, a VA
    official said that the department expects to complete its review during
    the fall of 2003.

    As an option, Congress may wish to consider enacting legislation to
    establish unified custody as a priority for the sale of foreclosed
    properties that FHA takes into its inventory and directing the agency to
    complete its

    review of the best means of implementing unified custody by the close of
    fiscal year 2004.

    As an option, Congress may wish to consider enacting legislation directing
    FHA and VA to complete their ongoing reviews of the cost effectiveness of
    purchasing new title insurance policies during the foreclosure process by
    the close of fiscal year 2004.

    CBO 5- Year Cost Estimate No, this is a new example. CBO could not develop
    an estimate for this

    Included in GAO*s 2002 example.

    Budgetary Implications Report Related GAO Product Single- Family Housing:
    Opportunities to Improve Federal Foreclosure and Property Sales Processes.
    GAO- 02- 305. Washington, D. C.: April 17,

    2002. GAO Contact Thomas J. McCool, (202) 512- 8678

    CBO Options Where Related GAO Work Is Identified 19

    450- 02 Eliminate RegionSpecific Development Agencies

    Related GAO Products Economic Development: Multiple Federal Programs Fund
    Similar Economic Development Activities. GAO/ RCED/ GGD- 00- 220.
    Washington, D. C.: September 29, 2000. 19

    Budget Issues: Effective Oversight and Budget Discipline Are Essential*
    Even in a Time of Surplus. GAO/ T- AIMD- 00- 73. Washington, D. C.:
    February 1, 2000.

    GAO Contact Thomas J. McCool, (202) 512- 8678 450- 05 Drop Flood Insurance
    for Certain Repeatedly Flooded Properties

    Related GAO Products Flood Insurance: Challenges Facing the National Flood
    Insurance Program, Statement for the Record. GAO- 03- 606T. Washington, D.
    C.: April 1, 2003.

    Flood Insurance: Extent of Noncompliance with Purchase Requirements Is
    Unknown. GAO- 02- 396. Washington, D. C.: June 21, 2002.

    19 We list GAO reports identified as relating to options included in the
    CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    Flood Insurance: Information on Financial Aspects of the National Flood
    Insurance Program. GAO/ T- RCED- 00- 23. Washington, D. C.: October 27,
    1999.

    Flood Insurance: Information on Financial Aspects of the National Flood
    Insurance Program. GAO/ T- RCED- 99- 280. Washington, D. C.: August 25,
    1999.

    Flood Insurance: Financial Resources May Not Be Sufficient to Meet Future
    Expected Losses. GAO/ RCED- 94- 80. Washington, D. C.: March 21, 1994.

    GAO Contact JayEtta Z. Hecker, (202) 512- 8984

    500 Education,

    CBO Options Where Related GAO Work Is Identified

    Training, Employment, 500- 02 Repeal the Safe and Drug- Free Schools and
    Communities Act

    and Social Services 500- 11 Eliminate the Senior Community Service
    Employment Program

    CBO Options Where Related GAO Work Is Identified 20

    500- 02 Repeal the Safe and Drug- Free Schools and Communities Act

    Related GAO Product Safe and Drug- Free Schools: Balancing Accountability
    With State and Local Flexibility. GAO/ HEHS- 98- 3. Washington, D. C.:
    October 10, 1997. 20

    GAO Contact Marnie S. Shaul, (202) 512- 6778 500- 11 Eliminate the Senior
    Community Service Employment Program

    Related GAO Product Older Workers: Employment Assistance Focuses on
    Subsidized Jobs and Job Search, but Revised Performance Measures Could
    Improve Access to Other Services. GAO- 03- 350. Washington, D. C.: January
    24, 2003.

    GAO Contact Sigurd R. Nilsen, (202) 512- 7033 20 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    550 Health Examples from Selected GAO Work

    Improve Fairness of Medicaid Matching Formula Charge Beneficiaries for
    Food Inspection Costs Implement Risk- Based Meat and Poultry Inspections
    at USDA Prevent States from Using Illusory Approaches to Shift Medicaid
    Program Costs to the Federal Government

    Create a Uniform Federal Mechanism for Food Safety Control Provider
    Enrollment Fraud in Medicaid Eliminate Federal Funding for SCHIP Covering
    Adults without Children

    CBO Option Where Related GAO Work Is Identified

    550- 06 Require All States to Comply with New Rules About Medicaid*s Upper
    Payment Limit by 2004

    Examples from Selected GAO Work

    Improve Fairness of Medicaid Matching Formula

    Primary agency Department of Health and Human Services Account Grant to
    States for Medicaid (75- 0512) Spending type Direct Budget subfunction
    551/ Health care services

    The Medicaid program provides medical assistance to low- income, aged,
    blind, or disabled individuals. The federal government and the states
    share the financing of the program through an open- ended matching grant
    whereby federal outlays rise with the cost and use of Medicaid services.
    The federal share of the program costs varies inversely with state per
    capita income. Consequently, high- income states pay a larger share of the
    benefits than low- income states. By law, the federal share can be no less
    than 50 percent and no more than 83 percent.

    Since 1986, we have issued numerous reports and testimonies that identify
    ways in which the fairness of federal grant formulas could be improved.
    With respect to Medicaid, we believe that the fairness of the matching

    formula in the open- ended program could be improved by replacing the per
    capita income factor with four factors* the number of people living below
    the official poverty line, the total taxable resources of the state, cost
    differences associated with the demographic composition of state
    caseloads, and differences in health care costs across states. These
    changes could redirect federal funding to states with the highest
    concentration of people in poverty and the least capability of funding
    these needs from state resources.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Medicaid Formula: Effects of Proposed Formula on
    Federal Shares of State Spending. GAO/ HEHS- 99- 29R. Washington, D. C.:
    February 19, 1999.

    Medicaid Matching Formula: Effects of Need Indicators on New York*s
    Funding. GAO/ HEHS- 97- 152R. Washington, D. C.: June 9, 1997.

    Medicaid: Matching Formula*s Performance and Potential Modifications.

    GAO/ T- HEHS- 95- 226. Washington, D. C.: July 27, 1995.

    Medicaid Formula: Fairness Could Be Improved. GAO/ T- HRD- 91- 5.
    Washington, D. C.: December 7, 1990.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Charge Beneficiaries for Food Inspection Costs

    Primary agency Department of Agriculture Accounts Multiple Spending type
    Discretionary Budget subfunction 554/ Consumer and occupational health and

    safety

    User fees* charges individuals or firms pay for services they receive from
    the federal government* are not new but play an increasingly important
    role in financing federal programs, particularly since the Balanced Budget
    Act of 1985. In general, federal food inspection agencies have charged
    user fees only to beneficiaries of premarket reviews, such as the grading
    of grain

    and other commodities for quality. Federal food inspection agencies
    generally do not charge user fees or fully cover the cost of services
    provided for (1) compliance inspections of meat, poultry, domestic foods,
    and processing facilities to ensure adherence to safety regulations, (2)
    import inspections and export certifications to ensure that food

    products in international trade meet specified standards, and (3)
    standards setting and other support services essential to these functions.
    Office of Management and Budget (OMB) Circular A- 25, User Charges, states
    that user fees should be charged to cover the full cost of federal
    services when the service recipient receives special benefits beyond those
    received by the general public. The U. S. Department of Agriculture (USDA)
    Food Safety and Inspection Service (FSIS) provides a special benefit to
    meat and poultry slaughter and processing plants that incidentally
    benefits the general public.

    USDA inspection agencies recovered through user fees only about $403
    million of the $1.3 billion they spent in 2002 to inspect, test, grade,
    and approve agricultural commodities and products. Federal appropriations
    have traditionally funded the agencies* remaining inspection expenses.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Food Safety: Opportunities to Redirect Federal
    Resources and Funds Can Enhance Effectiveness. GAO/ RCED- 98- 224.
    Washington, D. C.: August 6, 1998.

    Food- Related Services: Opportunities Exist to Recover Costs by Charging
    Beneficiaries. GAO/ RCED- 97- 57. Washington, D. C.: March 20, 1997.

    Food Safety and Quality: Uniform Risk- based Inspection System Needed to
    Ensure Safe Food Supply. GAO/ RCED- 92- 152. Washington, D. C.: June 26,
    1992.

    GAO Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    Implement Risk- Based Meat and Poultry Inspections at USDA

    Primary agency Department of Agriculture Account Food Safety and
    Inspection Service (12- 3700)

    Spending type Discretionary Budget subfunction 554/ Consumer and
    occupational health and

    safety

    Foodborne illness in the United States is extensive and expensive.
    Foodborne diseases cause about 76 million illnesses, 325,000
    hospitalizations, and 5,200 deaths annually. In terms of medical costs and
    productivity losses, illness from just the five principal foodborne
    pathogens alone costs the nation about $7 billion annually, according to
    U. S. Department of Agriculture (USDA) estimates.

    USDA*s meat and poultry inspection system does not efficiently and
    effectively use its resources to protect the public from foodborne
    illness. USDA*s system is hampered by inflexible legal requirements and
    relies on outdated, labor- intensive inspection methods. Under current
    law, each of the over 8 billion livestock and bird carcasses slaughtered
    annually must be inspected. Further, USDA*s Food Safety and Inspection
    Service (FSIS) states that current law requires it to inspect each of the
    approximately 6, 000 processing plants at least once during each operating
    shift. While these inspections consume most of FSIS*s budget ($ 730
    million in 2002), they are unable to detect microbial contamination, such
    as listeria, E. coli,

    and salmonella. While USDA has increased its microbial testing, it has not
    been successful in implementing regulatory changes in inspection
    practices* inspectors still rely on their sense of sight, smell, and touch
    to

    make judgments about disease conditions, contamination, and sanitation.
    Legislative revisions could allow FSIS to emphasize risk- based
    inspections. Much of the funding used to fulfill current meat and poultry
    inspection activities could be redirected to support more effective food
    safety initiatives, such as increasing the frequency of inspections at
    high- risk food plants. In the past, CBO agreed that this option could
    potentially yield

    savings, but could not develop an estimate without specific proposals.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Food Safety: Overview of Federal and State
    Expenditures. GAO- 01- 177. Washington, D. C.: February 20, 2001.

    Food Safety: Opportunities to Redirect Federal Resources and Funds Can
    Enhance Effectiveness. GAO/ RCED- 98- 224. Washington, D. C.: August 6,
    1998.

    Food Safety: Risk- Based Inspections and Microbial Monitoring Needed for
    Meat and Poultry. GAO/ RCED- 94- 192. Washington, D. C.: September 26,
    1994.

    Food Safety and Quality: Uniform Risk- Based Inspection System Needed to
    Ensure Safe Food Supply. GAO/ RCED- 92- 152. Washington, D. C.: June 26,
    1992.

    GAO Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    Prevent States from Using Illusory Approaches to Shift Medicaid Program
    Costs to the Federal Government

    Primary agency Department of Health and Human Services Account Grants to
    States for Medicaid

    (75- 0512) Spending type Direct Budget subfunction 551/ Health care
    services

    Since 1993, we have reported on a number of state financing schemes that
    inappropriately shift Medicaid costs to the federal government. In an
    early report, we documented that Michigan, Texas, and Tennessee used
    illusory financing approaches to obtain about $800 million in federal
    Medicaid funds without effectively committing their share of matching
    funds. Under

    these approaches, facilities that received increased Medicaid payments
    from the states, in turn, paid the states almost as much as they received.
    Consequently, the states realized increased revenue that was used to
    reduce their state Medicaid contributions, fund other health care needs,
    and supplement general revenue funding. For the period from fiscal year
    1991 to fiscal year 1995, Michigan alone reduced its share of Medicaid
    costs by almost $1.8 billion through financing partnerships with medical
    providers and local units of government. Our analysis of Michigan*s
    transactions showed that even though legislation curtailed certain
    creative financing practices, the state was able to reduce its share of
    Medicaid costs

    at the expense of the federal government by $428 million through other
    mechanisms. We subsequently reported on similar schemes involving state
    psychiatric hospitals and local government facilities, such as county
    nursing homes.

    The state schemes that involve excessive federal payments have been
    restricted by (1) the Omnibus Budget Reconciliation Act of 1993 that
    limits such payments to unreimbursed Medicaid and uninsured costs for
    stateowned facilities, (2) the Balanced Budget Act of 1997 that further
    limits Medicaid payments to state psychiatric hospitals, and (3) the
    Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of
    2000, 21 which mandated that the Health Care Financing Administration
    (HCFA)

    21 SCHIP is the State Children*s Health Insurance Program.

    issue regulations to curtail financing schemes involving excessive
    payments to local government providers.

    Despite these legislative and regulatory restrictions, states continue to
    develop schemes to draw down federal Medicaid payments that grossly exceed
    costs. Moreover, the Centers for Medicare & Medicaid Services (formerly
    HCFA) do not verify that such moneys are used for the purposes for which
    they were obtained.

    We believe that the Medicaid program should not allow states to benefit
    from illusory arrangements and that Medicaid funds should only be used to
    help cover the costs of medical care incurred by those medical facilities
    that provide care to Medicaid beneficiaries. We believe the Congress
    should continue its legislative efforts to minimize the likelihood that
    states can develop arrangements that claim excessive federal Medicaid
    payments and that inappropriately shift Medicaid costs to the federal
    government. Specifically, the Congress should consider legislation that
    would prohibit

    Medicaid payments that exceed costs to any government- owned facility.
    Savings are difficult to estimate for this option because national data on
    these practices are not readily available. In addition, Medicaid spending
    is influenced by the use of waivers from federal requirements, which
    allows states to alter Medicaid financing formulas. Future requests and
    use of waivers by states are uncertain.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Health and Human Services. GAO- 03- 101. Washington, D. C.:
    January 2003.

    Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects
    Raise Concerns. GAO- 02- 817. Washington, D. C.: July 12, 2002.

    Medicaid: HCFA Reversed Its Position and Approved Additional State
    Financing Schemes. GAO- 02- 147. Washington, D. C.: October 30, 2001.

    Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/ T-
    HEHS- 00- 193. Washington, D. C.: September 6, 2000.

    Medicaid: Managed Care and Individual Hospital Limits for Disproportionate
    Share Hospital Payments. GAO/ HEHS- 98- 73R. Washington, D. C.: January
    28, 1998.

    Medicaid: Disproportionate Share Payments to State Psychiatric Hospitals.
    GAO/ HEHS- 98- 52. Washington, D. C.: January 23, 1998.

    Medicaid: Disproportionate Share Hospital Payments to Institutions for
    Mental Disease. GAO/ HEHS- 97- 181R. Washington, D. C.: July 15, 1997.

    State Medicaid Financing Practices. GAO/ HEHS- 96- 76R. Washington, D. C.:
    January 23, 1996.

    Michigan Financing Arrangements. GAO/ HEHS- 95- 146R. Washington, D. C.:
    May 5, 1995.

    Medicaid: States Use Illusory Approaches to Shift Program Costs to the
    Federal Government. GAO/ HEHS- 94- 133. Washington, D. C.: August 1, 1994.

    Medicaid: The Texas Disproportionate Share Program Favors Public
    Hospitals. GAO/ HRD- 93- 86. Washington, D. C.: March 30, 1993.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Create a Uniform Federal Mechanism for Food Safety

    Primary agency Department of Agriculture Accounts Multiple Spending type
    Discretionary Budget subfunction 554/ Consumer and occupational health and

    safety

    A multitude of agencies oversee food safety, with two agencies accounting
    for most federal spending on, and regulatory responsibilities for, food
    safety. The Food Safety and Inspection Service (FSIS), under the U. S.
    Department of Agriculture (USDA), is responsible for the safety of meat,
    poultry, eggs, and some egg products, while the Food and Drug
    Administration (FDA), under the Department of Health and Human Services
    (HHS), is responsible for the safety of most other foods.

    The current food safety system emerged from a patchwork of often archaic
    laws and grew into a structure that actually hampers efforts to address
    existing and emerging food safety risks. Moreover, the current regulatory
    framework addresses only a segment* primarily food processing* of the

    continuum of activities that bring food from the farm to the table.
    Finally, scientific and technical advances in the production of food, such
    as the development of genetically modified foods, have further complicated
    the responsibilities of the existing federal food safety structure.
    Indeed, the food safety system suffers from gaps, overlapping and
    duplicative

    inspections, poor coordination, and inefficient allocation of resources.
    The Congress could consider the following options to improve the
    effectiveness and efficiency of the federal food safety system and ensure
    a comprehensive farm- to- table approach* one that starts with growers and
    extends to retailers. One option would be to consolidate federal food
    safety agencies and activities under a single, independent, risk- based
    food safety agency responsible for administering a uniform set of laws. A
    second option would be to consolidate food safety activities in an
    existing

    department, such as USDA or HHS. In the past, CBO agreed that these
    options could potentially yield savings, but could not develop savings
    estimates due to the uncertainty of the extent to which improved
    efficiencies could actually lead to budgetary savings.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Food Safety: CDC Is Working to Address Limitations in
    Several of Its Foodborne Surveillance Systems. GAO- 01- 973. Washington,
    D. C.: September 7, 2001.

    Food Safety: Federal Oversight of Shellfish Safety Needs Improvement.

    GAO- 01- 702. Washington, D. C.: July 9, 2001.

    Food Safety: Overview of Federal and State Expenditures. GAO- 01- 177.
    Washington, D. C.: February 20, 2001.

    Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect
    Consumers. GAO- 01- 204. Washington, D. C.: January 31, 2001.

    Food Safety: Actions Needed by USDA and FDA to Ensure That Companies
    Promptly Carry Out Recalls. GAO/ RCED- 00- 195. Washington, D. C.: August
    17, 2000.

    Food Safety: Improvements Needed in Overseeing the Safety of Dietary
    Supplements and *Functional Foods.* GAO/ RCED- 00- 156. Washington, D. C.:
    July 11, 2000.

    Meat and Poultry: Improved Oversight and Training Will Strengthen New Food
    Safety System. GAO/ RCED- 00- 16. Washington, D. C.: December 8, 1999.

    Food Safety: Agencies Should Further Test Plans for Responding to
    Deliberate Contamination. GAO/ RCED- 00- 3. Washington, D. C.: October 27,
    1999.

    Food Safety: U. S. Needs a Single Agency to Administer a Unified,
    RiskBased Inspection System. GAO/ T- RCED- 99- 256. Washington, D. C.:
    August 4, 1999.

    Food Safety: Opportunities to Redirect Federal Resources and Funds Can
    Enhance Effectiveness. GAO/ RCED- 98- 224. Washington, D. C.: August 6,
    1998.

    Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are
    Inconsistent and Unreliable. GAO/ RCED- 98- 103. Washington, D. C.: April
    30, 1998.

    Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food.

    GAO/ RCED- 94- 192. Washington, D. C.: September 26, 1994.

    Food Safety and Quality: Uniform Risk- Based Inspection System Needed to
    Ensure Safe Food Supply. GAO/ RCED- 92- 152. Washington, D. C.: June 26,
    1992.

    GAO Contacts Bob Robinson, (202) 512- 3841 Lawrence J. Dyckman, (202) 512-
    3841

    Control Provider Enrollment Fraud in Medicaid

    Primary agency Department of Health and Human Services Account Grants to
    States for Medicaid (75- 0512) Spending type Direct Budget subfunction
    551/ Health care services

    Recent investigations of fraud in the California Medicaid program, which
    could exceed $1 billion in program losses, involve cases in which closer
    scrutiny would have raised questions about the legitimacy of the providers
    involved. State Medicaid programs are responsible for processing millions
    of providers* claims each year, making it impossible to perform detailed

    checks on a significant portion of them. While most providers bill
    appropriately, states need enrollment procedures to help prevent entry
    into Medicaid by providers intent on committing fraud. Preventing such
    providers from billing the program is more efficient than attempted
    recovery once payments have already been made.

    Our July 2000 testimony highlighted several Medicaid programs that have
    comprehensive procedures to check the legitimacy of providers before they
    can bill the program. These states check that a provider has a valid
    license (if required) and no criminal record, has not been excluded from
    other federal health programs, and practices from a legitimate business
    location. However, only nine states report that they conduct all of these
    checks. In addition, we found that many states poorly control provider
    billing numbers. They either allow providers to bill indefinitely or fail
    to cancel inactive numbers. Since billing numbers are necessary to submit
    claims, poor control of them may allow fraudulent providers to obtain
    other providers* numbers and bill the program inappropriately.

    At present, the federal government has no uniform or minimum requirements
    in approving providers* applications. As a result, we believe that it
    would be beneficial for the Centers for Medicare and Medicaid Services
    (CMS)* the agency formerly called the Health Care Financing Administration
    (HCFA)* to assist states in developing effective provider

    enrollment procedures. If states could limit entrance of even a small
    percentage of dishonest providers by adopting such procedures, future
    Medicaid costs would be reduced substantially. CMS has a work group that
    is considering options for a limited pilot project to study coordinating
    aspects of Medicaid and Medicare provider enrollment activities. However,

    in the past CBO could not develop an estimate of the savings for this
    option without specific strategies. Moreover, savings would be net of the
    additional resources required to implement such procedures.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Medicaid: State Efforts to Control Improper Payment
    Vary. GAO- 01- 662. Washington, D. C.: June 7, 2001.

    Medicaid: HCFA and States Could Work Together to Better Ensure the
    Integrity of Providers. GAO/ T- HEHS- 00- 159. Washington, D. C.: July 18,
    2000.

    Medicaid: Federal and State Leadership Needed to Control Fraud and Abuse.
    GAO/ T- HEHS- 00- 30. Washington, D. C.: November 9, 1999.

    Health Care: Fraud Schemes Committed by Career Criminals and Organized
    Criminal Groups and Impact on Consumers and Legitimate Health Care
    Providers. GAO/ OSI- 00- 1R. Washington, D. C.: October 5, 1999.

    Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded
    Providers From Federal Health Programs. GAO/ HEHS- 97- 63. Washington, D.
    C.: March 31, 1997.

    Fraud and Abuse: Providers Excluded From Medicaid Continue to Participate
    in Federal Health Programs. GAO/ T- HEHS- 96- 205. Washington, D. C.:
    September 5, 1996.

    Prescription Drugs and Medicaid: Automated Review Systems Can Help Promote
    Safety, Save Money. GAO/ AIMD- 96- 72. Washington, D. C.: June 11, 1996.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Eliminate Federal Funding for SCHIP Covering Adults without Children

    Primary agency Department of Health and Human Services Account State
    Children*s Health Insurance Fund (75-

    0515) Spending type Mandatory Budget subfunction 551/ Health care service

    In July 2002, we reported both legal and policy concerns about the extent
    to which the Department of Health and Human Services (HHS) has ensured
    that approved demonstration waivers, authorized under Section 1115 of the
    Social Security Act, were consistent with the goals and fiscal integrity
    of the Medicaid and State Children*s Health Insurance Program (SCHIP). The
    legal concern was that HHS approved a waiver to allow a state to use
    unspent SCHIP funding to cover adults without children, despite the

    program*s statutory objective of expanding health coverage to low- income
    children. We also reported policy concerns that approved waivers may
    increase the federal liability for program expenditures. Specifically,
    despite HHS*s oversight responsibilities for ensuring that states*
    demonstration programs do not put the federal government at risk for
    spending more on Medicaid than it would have without such programs, two of
    the four approved waivers we reviewed could potentially cost the federal
    government at least $330 million more than if they had not been approved.
    We recommended that the Congress consider amending title XXI of the Social
    Security Act to specify that SCHIP funds are not available to provide

    health insurance coverage for childless adults. We also recommended that
    the Secretary of HHS better ensure that valid methods are used to
    demonstrate budget neutrality and appropriately adjust the federal
    obligation for the reviewed waivers.

    CBO 5- Year Cost Estimate No, this is a new example. However, CBO
    indicated it could probably make

    Included in GAO*s 2002 an estimate for this example.

    Budgetary Implications Report Related GAO Product Medicaid and SCHIP:
    Recent HHS Approvals of Demonstration Waiver

    Projects Raise Concerns. GAO- 02- 817. Washington, D. C.: July 12, 2002.
    GAO Contact Kathryn G. Allen, (202) 512- 7114

    CBO Option Where Related GAO Work Is Identified 22

    550- 06 Require All States to Comply with New Rules About Medicaid*s Upper
    Payment Limit by 2004

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Health and Human Services. GAO- 03- 101. Washington, D. C.:
    January 2003. 22

    Medicaid: HCFA Reversed Its Position and Approved Additional State
    Financing Schemes. GAO- 02- 147. Washington, D. C.: October 30, 2001.

    Medicaid: State Financing Schemes Again Drive Up Federal Payments.

    GAO/ T- HEHS- 00- 193. Washington, D. C.: September 6, 2000. GAO Contacts
    Kathryn G. Allen, (202) 512- 7114 Katherine Iritani, (206) 287- 4820

    22 We list GAO reports identified as relating to options included in the
    CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    570 Medicare Examples from Selected GAO Work

    Reassess Medicare Incentive Payments in Health Care Shortage Areas Adjust
    Medicare Payment Rates to Reflect Changing Technology, Costs, and Market
    Prices

    Increase Medicare Program Safeguard Funding Modify the Skilled Nursing
    Facility Payment Method to Ensure Appropriate Payments

    Implement Risk- Sharing in Conjunction with Medicare Home Health Agency
    Prospective Payment System Eliminate Medicare Competitive Sourcing
    Restrictions

    Change Pricing Formula for Medicare- Covered Drugs and Biologicals

    CBO Options Where Related GAO Work Is Identified

    570- 10 Reduce Medicare Payments for Currently Covered Prescription Drugs
    570- 11 Require Competitive Bidding for High- Volume Items of Durable
    Medical Equipment 570- 15 Simplify and Limit Medicare*s Cost- Sharing
    Requirements 570- 19 Reduce Medicare Payments for Home Health Care

    Examples from Selected GAO Work

    Reassess Medicare Incentive Payments in Health Care Shortage Areas

    Primary agency Department of Health and Human Services Account Federal
    Supplemental Insurance Trust Fund

    Account (20- 8004) Spending type Direct Budget subfunction 571/ Medicare

    The Medicare Incentive Payment program was established in 1987 amid
    concerns that low Medicare reimbursement rates for primary care services
    cause access problems for Medicare beneficiaries in underserved areas.

    The program pays physicians a 10- percent bonus payment for Medicare
    services they provide in areas identified by the Department of Health and
    Human Services (HHS) as having a shortage of primary care physicians. In
    1997, bonus payments paid from the Medicare Supplemental Medical Insurance
    trust fund amounted to over $90 million.

    This program, however, may not be the most appropriate means of addressing
    medical underservice.

     The need for this program may have changed; since 1987 the Congress
    generally increased reimbursement rates for primary care services and
    reduced the geographic variation in physician reimbursement rates. In
    addition, surveys of Medicare beneficiaries who have access problems,

    including those who may live in underserved areas, generally cite reasons
    other than the unavailability of a physician* such as the cost of services
    not paid by Medicare* for their access problems.

     The relatively small bonus payments most physicians receive* a median
    payment of $341 for the year in 1996* are unlikely to have a significant
    impact on physician recruitment and retention.

     Specialists receive most of the program dollars, even though primary
    care physicians have been identified as being in short supply, while
    shortages of specialists, if any, have not been determined.

     The program provides no incentives or assurances that physicians
    receiving bonuses will actually treat people who have problems obtaining
    health care.

     Centers for Medicare & Medicaid Services** formerly the Health Care
    Financing Administration** oversight of the program also has limitations
    that allow physicians and other providers to receive and retain bonus
    payments claimed in error.

    HHS has acknowledged problems in the program and agrees that making
    incentive payments to specialists in urban areas appears to be
    unnecessary. The department has stated that it is clear that certain
    structural changes to this program are necessary to better target
    incentive payments to rural areas with the highest degree of shortage.

    If the Congress determines that this program is not an appropriate vehicle
    for addressing medical underservice, then termination is a reasonable
    option. However, if it is decided to continue the program, then the
    Congress could consider reforms that clarify the program*s goals and
    better structure the program to link limited federal funds to intended
    outcomes. For example, if the program*s goal is to improve access to
    primary care services in underserved rural areas, the bonus payments
    should be limited

    to physicians providing primary care services to underserved populations
    in rural areas with the greatest need. Better targeting of the payments
    and evaluations would also be needed to provide assurances that the
    payments are achieving their intended outcomes.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Physician Shortage Areas: Medicare Incentive Payments
    Not an Effective Approach to Improve Access. GAO/ HEHS- 99- 36.
    Washington, D. C.: February 26, 1999.

    Health Care Shortage Areas: Designations Not a Useful Tool for Directing
    Resources to the Underserved. GAO/ HEHS- 95- 200. Washington, D. C.:
    September 8, 1995.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, and
    Market Prices

    Primary agency Department of Health and Human Services Account Federal
    Supplementary Medical Insurance

    Trust Fund (20- 8004) Spending type Direct Budget subfunction 571/
    Medicare

    Medicare*s supplementary medical insurance program (Medicare Part B) spent
    almost $7 billion for durable medical equipment, prosthetics, orthotics,
    and supplies in 2002 on behalf of its beneficiaries. For most medical
    equipment and supplies, Medicare payments are primarily based on
    historical charges, indexed forward, rather than current costs or market
    prices.

    We have reported that Medicare payments for some medical equipment and
    supplies are out of line with actual market prices. This can occur when
    providers* costs for some procedures, equipment, and supplies have
    declined over time as competition and efficiencies increased. For example,
    when Medicare sets its payment rates for new items, the rates typically
    are based on the high initial unit costs. Over time, providers* unit costs
    decline as the equipment improves, utilization increases, and experience
    in using the equipment results in efficiencies. In other cases, medical
    innovations and advances have increased the cost of some procedures and
    products. However, Medicare did not have a process to routinely and
    systematically review these factors and make timely adjustments to the
    Medicare payment rates. In fact, through the years, the Congress has
    legislatively adjusted Medicare rates for some products and services, such
    as home oxygen, clinical laboratory tests, intraocular lenses, computed
    tomography scans,

    and magnetic resonance imaging scans. To address problems with excessive
    payments, the Balanced Budget Act of 1997 provided the Health Care
    Financing Administration (HCFA)* the agency now called the Centers for
    Medicare & Medicaid Services (CMS)* the authority to use a streamlined
    process for adjusting Medicare Part B payments by up to 15 percent per
    year. (This revised authority does not extend to adjusting Medicare
    payments for physician services.) The agency issued an interim final rule
    to implement its authority in December 2002.

    However, in the rule, the agency severely limited its ability to use its
    new authority to bring its payment rates into line with market prices by

    indicating that it would adjust Medicare payment rates only when they were
    at least 15 percent above or below a realistic and equitable amount.

    An additional limitation to effectively using this new authority is that
    CMS frequently does not know specifically what Medicare is paying for. CMS
    does not require suppliers to identify on Medicare claims the specific
    items billed. Instead, suppliers are required to use CMS billing codes,
    most of which cover a broad range of products of various types, qualities,
    and

    market prices. For example, one Medicare billing code is used for more
    than 200 different urological catheters, even though some of these
    catheters sell at a fraction of the price of others billed under the same
    code. Unless Medicare claims contain more product- specific information,
    CMS cannot track what items are billed to ensure that each billing code is
    used for products of comparable quality and price. Although the health
    care industry is increasingly using more specific universal product
    numbers and bar codes for inventory control, CMS does not currently
    require suppliers to use these identifiers on Medicare claims.

    Several options could help to better align Medicare fees with actual costs
    and market prices. One option would be for the Congress to give CMS the
    authority to implement competitive bidding for durable medical equipment,
    prosthetics, orthotics, and supplies. Competitive bidding uses the
    dynamics of the marketplace to create incentives for providers to provide
    items and services efficiently. In the Balanced Budget Act of 1997, the
    Congress required the agency to test competitive bidding for Part B

    services and supplies (except for physician services) through a
    demonstration. In the spring of 1999, HCFA selected competing suppliers to
    provide oxygen supplies and other supplies and equipment to beneficiaries

    in Polk County, Fla. In 2000, HCFA began competitive bidding in a second
    site* three counties near San Antonio, Tex.* for oxygen supplies,
    nebulizer inhalation drugs, and other equipment. The new payment rates

    for the items bid averaged 17 to 22 percent below existing Medicare rates
    for those states. Despite this reduction in the amount paid, the
    demonstration*s evaluators found little evidence of problems with
    beneficiary access to products. In addition, the demonstration required
    bidders to meet more stringent quality standards than are customary in the
    Medicare program. CMS*s authority to conduct these competitive bidding

    demonstrations ended December 31, 2002. Without new legislative authority,
    the agency cannot use a competitive bidding approach.

    A second option for paying more appropriately for medical equipment and
    supplies would be to base Medicare payments on the lower of the fee

    schedule allowance or the lowest amount a provider has agreed to accept
    from other payers. CMS would also need legislative authority to pursue
    this option. Yet another approach would be to develop separate fee
    schedules that distinguish between wholesale and retail acquisition to
    ensure that large suppliers do not receive inappropriately large Medicare
    reimbursements. Although none of these options specifically targets
    expensive, evolving technologies, we believe significant program savings
    would result from an ongoing, systematic process for evaluating the
    reasonableness of Medicare payment rates for new medical technologies as
    those technologies mature.

    In 2002, CBO agreed that aligning Medicare payment rates with costs and
    market prices could yield savings and estimated that giving CMS authority
    to conduct competitive bidding for durable medical equipment, prosthetics,
    orthotics and supplies could result in a net reduction of Medicare
    spending of $5.8 billion from fiscal years 2003 through 2012.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Medicare: Challenges Remain in Setting Payments for
    Medical Equipment and Supplies and Covered Drugs. GAO- 02- 833T.
    Washington, D. C.: June 12, 2002.

    Medicare Payments: Use of Revised *Inherent Reasonableness* Process
    Generally Appropriate. GAO/ HEHS- 00- 79. Washington, D. C.: July 5, 2000.

    Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA Monitoring
    Needed. GAO/ HEHS- 99- 56. Washington, D. C.: April 5, 1999.

    Medicare: Progress to Date in Implementing Certain Major Balanced Budget
    Act Reforms. GAO/ T- HEHS- 99- 87. Washington, D. C.: March 17, 1999.

    Medicare: Need to Overhaul Costly Payment System for Medical Equipment and
    Supplies. GAO/ HEHS- 98- 102. Washington, D. C.: May 12, 1998.

    Medicare: Home Oxygen Program Warrants Continued HCFA Attention.

    GAO/ HEHS- 98- 17. Washington, D. C.: November 7, 1997.

    Medicare: Problems Affecting HCFA*s Ability to Set Appropriate
    Reimbursement Rates for Medical Equipment and Supplies. GAO/ HEHS97- 157R.
    Washington, D. C.: June 17, 1997.

    Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen.
    GAO/ HEHS- 97- 120R. Washington, D. C.: May 15, 1997.

    Medicare Spending: Modern Management Strategies Needed to Curb Billions in
    Unnecessary Payments. GAO/ HEHS- 95- 210. Washington, D. C.: September 19,
    1995.

    Medicare High Spending Growth Calls for Aggressive Action. GAO/ THEHS- 95-
    75. Washington, D. C.: February 6, 1995.

    Medicare: Excessive Payments Support the Proliferation of Costly
    Technology. GAO/ HRD- 92- 59. Washington, D. C.: May 27, 1992.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Increase Medicare Program Safeguard Funding

    Primary agency Department of Health and Human Services Accounts Multiple
    Spending type Discretionary/ Direct Budget subfunction 571/ Medicare

    Medicare program safeguard activities designed to combat fraud, waste, and
    abuse have historically returned about $10 in savings for each dollar
    spent, and Centers for Medicare & Medicaid Services (CMS) reported a
    return of $16 for each dollar spent in fiscal year 2002. These types of
    activities include pre- and post- payment medical review of claims to
    determine if services are medically necessary and appropriate, audits, and
    fraud unit investigations. The Health Insurance Portability and
    Accountability Act of 1996 established the Medicare Integrity Program
    (MIP) and provided the agency now called CMS with increased funding for
    program safeguard activities. CMS has taken a number of actions under MIP
    to promote more efficient and effective contractor safeguard operations.

    While funding has increased, in 2002 it remained below program safeguard
    funding levels in the previous decade, adjusted for inflation. Comparing
    program safeguard expenditures from fiscal years 1995 through 1998* 2
    years before and after MIP implementation* shows that expenditures
    increased by more than one- quarter to $544.6 million. However, in
    constant 1998 dollars, the amount spent on program safeguards per claim
    processed is still almost one- third less than was spent in fiscal year
    1989. Further, the

    combined effects of increased claims volume of 3 to 5 percent annually in
    recent years and inflation will erode part of the benefits of increased
    funding authorized for future years. In response to reduced resources,
    contractors apply fewer or less stringent payment controls resulting in
    payment of claims that otherwise would not be paid.

    We believe that additional program safeguard funding might better protect
    Medicare from erroneous payments and yield net savings. As a result, we
    have suggested that the Congress consider increasing the agency*s MIP
    funds to allow an expansion of postpayment medical review and other
    effective program safeguard activities. However, CMS needs a better
    understanding of costs and savings from particular activities* such as
    desk reviews and cost audits. It also needs to consistently code savings
    from

    different activities to understand their relative value, as well as
    determine which contractors are realizing the highest return on investment
    from their program safeguard activities. Therefore, we also recommended
    that CMS evaluate the effectiveness of prepayment and postpayment
    activities to determine the relative benefits of various safeguards.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Health and Human Services. GAO- 03- 101. Washington, D. C.:
    January 2003.

    Medicare: Opportunities and Challenges in Contracting for Program
    Safeguards. GAO- 01- 616. Washington, D. C.: May 18, 2001.

    Major Management Challenges and Program Risks: Department of Health and
    Human Services. GAO- 01- 247. Washington, D. C.: January 2001.

    Medicare: HCFA Could Do More to Identify and Collect Overpayments.

    GAO/ HEHS/ AIMD- 00- 304. Washington, D. C.: September 7, 2000.

    Medicare: Health Care Fraud and Abuse Control Program Financial Reports
    for Fiscal Years 1998 and 1999. GAO/ AIMD- 00- 257R. Washington, D. C.:
    July 31, 2000.

    Medicare Contractors: Further Improvement Needed in Headquarters and
    Regional Office Oversight. GAO/ HEHS- 00- 46. Washington, D. C.: March 23,
    2000.

    Medicare: Program Safeguard Activities Expand, but Results Difficult to
    Measure. GAO/ HEHS- 99- 165. Washington, D. C.: August 4, 1999.

    Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their
    Effectiveness or Integrity. GAO/ HEHS- 99- 115. Washington, D. C.: July
    14, 1999.

    Medicare: Improprieties by Contractors Compromised Medicare Program
    Integrity. GAO/ OSI- 99- 7. Washington, D. C.: July 14, 1999.

    Medicare: Fraud and Abuse Control Pose a Continuing Challenge.

    GAO/ HEHS- 98- 215R. Washington, D. C.: July 15, 1998.

    Medicare: Health Care Fraud and Abuse Control Program Financial Report for
    Fiscal Year 1997. GAO/ AIMD- 98- 157. Washington, D. C.: June 1, 1998.

    Medicare: HCFA*s Use of Anti- Fraud- and- Abuse Funding and Authorities.
    GAO/ HEHS- 98- 160. Washington, D. C.: June 1, 1998.

    Medicare: Improper Activities by Mid- Delta Home Health. GAO/ OSI- 98- 5.
    Washington, D. C.: March 12, 1998.

    Medicare Home Health: Success of Balanced Budget Act Cost Controls Depends
    on Effective and Timely Implementation. GAO/ T- HEHS- 98- 41. Washington,
    D. C.: October 29, 1997.

    Medicare: Recent Legislation to Minimize Fraud and Abuse Requires
    Effective Implementation. GAO/ T- HEHS- 98- 9. Washington, D. C.: October
    9, 1997.

    Medicare Fraud and Abuse: Summary and Analysis of Reform in the Health
    Insurance Portability and Accountability Act of 1996 and the Balanced
    Budget Act of 1997. GAO/ HEHS- 98- 18R. Washington, D. C.: October 9,
    1997.

    Medicare: Control Over Fraud and Abuse Remains Elusive. GAO/ T- HEHS97-
    165. Washington, D. C.: June 26, 1997.

    Nursing Homes: Too Early to Assess New Efforts to Control Fraud and Abuse.
    GAO/ T- HEHS- 97- 114. Washington, D. C.: April 16, 1997.

    Medicare: Inherent Program Risks and Management Challenges Require
    Continued Federal Attention. GAO/ T- HEHS- 97- 89. Washington, D. C.:
    March 4, 1997.

    Medicare. GAO/ HR- 97- 10. Washington, D. C.: February 1, 1997. GAO
    Contact William J. Scanlon, (202) 512- 7114

    Modify the New Skilled Nursing Facility Payment Method to Ensure
    Appropriate Payments

    Primary agency Department of Health and Human Services Account Federal
    Hospital Insurance Trust Fund (208005)

    Spending type Direct Budget subfunction 571/ Medicare

    The Balanced Budget Act of 1997 mandated the implementation of a
    prospective payment system (PPS) for skilled nursing facilities (SNF) to
    help address concerns about dramatic growth in Medicare spending for these
    services. A PPS provides incentives to deliver services efficiently by
    paying providers* regardless of their costs* fixed, predetermined rates
    that vary according to expected patient service needs. The Health Care
    Financing Administration (HCFA), now called the Centers for Medicare &

    Medicaid Services (CMS), began phasing in such a system for SNFs in July
    1998.

    However, problems with the design of the PPS, the services excluded from
    the daily rate, and inadequate data used to establish rates could
    compromise Medicare*s ability to stem spending growth while maintaining
    beneficiary access. We are concerned that the PPS preserves the
    opportunity for providers to increase their compensation by supplying
    unnecessary services, such as additional therapy services, and by changing
    their patient assessment practices to qualify patients into higher paying
    payment categories. Consistent with the PPS incentives to minimize costs,

    SNFs have provided fewer therapy services to patients categorized into
    rehabilitation payment groups. Without adequate adjustments, this could
    result in payments for some categories of patients that are higher
    relative to service costs than payments for other groups of patients. We
    are also

    concerned that increases in payments intended to encourage SNFs to
    increase their nursing staff appear to have been ineffective in increasing
    staffing ratios. In addition, excluding certain services from the daily
    rate,

    and paying for them separately, may encourage service provision and
    unnecessarily increase Medicare spending. For example, some services are
    excluded only when provided in hospital outpatient departments, which may
    encourage providers to use this setting when other, less costly ambulatory
    settings could be appropriate. Furthermore, the payment rates

    were computed using data that may overstate the reasonable cost of

    providing care and may not appropriately reflect the differences in costs
    for patients with different care needs.

    Changes in beneficiary eligibility and inadequate planned oversight of
    claims for payment may undermine efforts to control Medicare spending on
    SNF services. As part of the PPS, Medicare appears to have changed the

    process for determining eligibility for the Medicare SNF benefit.
    Beneficiaries with certain care needs are automatically eligible for the
    SNF benefit, while other beneficiaries with different care needs are
    required to be reviewed to ensure that they meet the eligibility criteria.
    This could

    expand the number of beneficiaries who will be covered. The planned
    oversight of claims to determine if a beneficiary is entitled to Medicare
    coverage and how much payment a SNF should receive is insufficient,

    increasing the potential to compromise expected savings. We believe that
    CMS should modify the SNF PPS regulations to address these concerns.
    Medicare needs to ensure that the payment rates reflect only necessary
    services that the facilities actually provide. It also needs to establish
    a process to review the services that are included and excluded from the
    PPS. CMS should also increase its vigilance over claims review and
    provider oversight so that payments are appropriate and made only for
    eligible beneficiaries.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Skilled Nursing Facilities: Available Data Show
    Average Nursing Staff Time Changed Little after Medicare Payment Increase.
    GAO- 03- 176. Washington, D. C.: November 13, 2002.

    Skilled Nursing Facilities: Providers Have Responded to Medicare Payment
    System By Changing Practices. GAO- 02- 841. Washington, D. C.: August 23,
    2002.

    Skilled Nursing Facilities: Services Excluded From Medicare*s Daily Rate
    Need to be Reevaluated. GAO- 01- 816. Washington, D. C.: August 22, 2001.

    Nursing Homes: Aggregate Medicare Payments Are Adequate Despite
    Bankruptcies. GAO/ T- HEHS- 00- 192. Washington, D. C.: September 5, 2000.

    Skilled Nursing Facilities: Medicare Payments Changes Require Provider
    Adjustments But Maintain Access. GAO/ HEHS- 00- 23. Washington, D. C.:
    December 14, 1999.

    Medicare: Better Information Can Help Ensure That Refinements to BBA
    Reforms Lead to Appropriate Payments. GAO/ T- HEHS- 00- 14. Washington, D.
    C.: October 1, 1999.

    Skilled Nursing Facilities: Medicare Payments Need to Better Account for
    Nontherapy Ancillary Cost Variation. GAO/ HEHS- 99- 185. Washington, D.
    C.: September 30, 1999.

    Medicare Post- Acute Care: Better Information Needed Before Modifying BBA
    Reforms. GAO/ T- HEHS- 99- 192. Washington, D. C.: September 15, 1999.

    Balanced Budget Act: Any Proposed Fee- for- Service Payment Modifications
    Need Thorough Evaluation. GAO/ T- HEHS- 99- 139. Washington, D. C.: June
    10, 1999.

    Medicare: Progress to Date in Implementing Certain Major Balanced Budget
    Act Reforms. GAO/ T- HEHS- 99- 87. Washington, D. C.: March 17, 1999.

    Balanced Budget Act: Implementation of Key Medicare Mandates Must Evolve
    to Fulfill Congressional Objectives. GAO/ T- HEHS- 98- 214. Washington, D.
    C.: July 16, 1998.

    Long- Term Care: Baby Boom Generation Presents Financing Challenges.

    GAO/ T- HEHS- 98- 107. Washington, D. C.: March 9, 1998.

    Medicare Post- Acute Care: Home Health and Skilled Nursing Facility Cost
    Growth and Proposals for Prospective Payment. GAO/ T- HEHS- 97- 90.
    Washington, D. C.: March 4, 1997.

    GAO Contact William J. Scanlon, (202) 512- 7114

    Implement Risk- Sharing in Conjunction with Medicare Home Health Agency
    Prospective Payment

    Primary agency Department of Health and Human Services

    System

    Account Federal Supplementary Medical Insurance Trust Fund (20- 8004)

    Spending type Direct Budget subfunction 571/ Medicare

    Medicare spending for home health care rose from $3.7 billion in 1990 to
    $17.8 billion in 1997* an annual growth rate of over 25 percent* making it
    one of the fastest growing components of the Medicare program. This
    spending growth was primarily due to more beneficiaries receiving services
    and more visits provided per user, because Medicare*s cost- based payment
    method reimbursed home health agencies (HHA) for each visit provided. To
    control spending, the Balanced Budget Act of 1997 (BBA) required the
    implementation of a prospective payment system (PPS) for home health
    agencies. Beginning October 1, 2000, Medicare paid a fixed, predetermined

    amount for each 60- day episode of care, adjusted for patient
    characteristics that affect the costs of providing care. Under this
    system, agencies will be rewarded financially for keeping their per-
    episode costs below the payment rate and thus will have a strong incentive
    to reduce the number of visits provided during an episode and to shift to
    a less costly mix of visits.

    However, under an episode- based payment system, HHAs will have an
    incentive to provide the minimum number of visits necessary to receive a
    full episode payment, or to lower the number of visits provided below that
    used to develop the episode payment, thereby increasing their profits.
    While the episode payment was set based on the assumption that about 32
    visits would be provided, agencies can provide as few as 5 visits. In
    fact, since the PPS, agencies have reduced the number of visits provided
    to beneficiaries and furnished on average about 22 visits per episode by
    the first half of 2001. As a result, the Medicare program is paying HHAs
    for services that beneficiaries did not receive and on average
    considerably more than the estimated costs of care beneficiaries are
    receiving. Some

    HHAs that face extraordinary costs not accounted for by the payment
    groups, however, may be financially disadvantaged.

    In order to reduce these incentives, the Congress could require CMS to
    implement a risk- sharing arrangement, in which total Medicare PPS
    payments to an HHA are adjusted at year- end in light of the provider*s

    actual costs, to mitigate any unintended consequences of the payment
    change. Such an arrangement could moderate the incentive to manipulate
    services to maximize profits and the uncertainties associated with payment
    rates that are based on averages when so little is known about appropriate
    patterns of home health care. Limiting an HHA*s losses or gains would help
    protect the industry, the Medicare program, and beneficiaries from
    possible negative effects of the PPS until more is known about how best to
    design the PPS and the most appropriate home health treatment patterns.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Medicare Home Health Care: Payments to Home Health
    Agencies Are Considerably Higher than Costs. GAO- 02- 663. Washington, D.
    C.: May 6, 2002.

    Medicare Home Health Care: Prospective Payment System Could Reverse Recent
    Declines in Spending. GAO/ HEHS- 00- 176. Washington, D. C.: September 8,
    2000.

    Medicare Home Health Care: Prospective Payment System Will Need Refinement
    as Data Become Available. GAO/ HEHS- 00- 9. Washington, D. C.: April 7,
    2000. GAO Contact William J. Scanlon, (202) 512- 7114

    Eliminate Medicare Competitive Sourcing Restrictions

    Primary agency Department of Health and Human Services Account Program
    Management (75- 0511) Spending type Discretionary Budget subfunction 571/
    Medicare

    Medicare is a federal health insurance program designed to assist elderly
    and disabled beneficiaries. Hospital insurance, or Part A, covers
    inpatient hospital, skilled nursing facility, hospice care, and certain
    home health services. Supplemental medical insurance, or Part B, covers
    physician and outpatient hospital services, laboratory and other services.
    Claims are paid by a network of 49 claims administration contractors
    called fiscal

    intermediaries and carriers. Fiscal intermediaries process claims from
    hospitals and other institutional providers, generally for Part A
    services, while carriers process Part B claims. The fiscal intermediaries*
    and carriers* responsibilities include reviewing and paying claims,
    maintaining program safeguards to prevent inappropriate payment, and
    educating and responding to provider and beneficiary concerns.

    Medicare contracting for fiscal intermediaries and carriers differs from
    that of most federal programs. Most federal agencies, under the
    Competition in Contracting Act and its implementing regulations known as
    the Federal Acquisition Regulation (FAR), generally may contract with any
    qualified entity for any authorized purpose so long as that entity is not
    debarred from government contracting and the contract is not for what is
    essentially a government function. The FAR generally requires agencies to
    conduct full and open competition for contracts, allows contractors to
    earn profits, and

    requires contractors to perform until the end of the contract term. The
    Secretary of the Department of Health and Human Services (HHS), however,
    is authorized to enter into contracts with fiscal intermediaries and
    carriers without regard to federal procurement statutes under Social
    Security Act provisions that originated when Medicare was established.
    There is no full and open competition for fiscal intermediary or carrier
    contracts. Rather, fiscal intermediaries are selected in a process called
    nomination by provider associations, such as the American Hospital
    Association. Because the statutory language authorizing Medicare claims
    administration contracting described a set of functions to be performed,
    claims administration contractors have generally been expected to perform

    the full set of functions, except when the Congress gave specific
    authority to contract separately for a function. The Social Security Act
    also generally calls for the use of cost- based reimbursement contracts
    under which contractors are reimbursed for necessary and proper costs of
    carrying out Medicare activities, but the act does not expressly provide
    for profit. Furthermore, the Medicare statute limits the government*s
    ability to terminate these contracts at its convenience, while allowing
    the claims administration contractors to terminate their contracts without
    penalty by

    providing the government with 180 days notice. Freeing the Medicare
    program to directly choose contractors on a competitive basis from a
    broader array of entities able to perform needed tasks would enable
    Medicare to benefit from efficiency and performance

    improvements related to competition. Allowing Medicare to have contractors
    specialize in specific functions rather than assume all claimsrelated
    activities, as is the case now, also could lead to greater efficiency and
    better performance.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Major Management Challenges and Program Risks:
    Department of Health and Human Services. GAO- 03- 101. Washington, D. C.:
    January 2003.

    Medicare: Improvements Needed in Provider Communications and Contracting
    Procedures. GAO- 01- 1141T. Washington, D. C.: September 25, 2001.

    Medicare: Comments on HHS* Claims Administration Contracting Reform
    Proposal. GAO- 01- 1046R. Washington, D. C.: August 17, 2001.

    Medicare Contracting Reform: Opportunities and Challenges in Contracting
    for Claims Administration Services. GAO- 01- 918T. Washington, D. C.: June
    28, 2001.

    Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their
    Effectiveness or Integrity. GAO/ HEHS- 99- 115. Washington, D. C.: July
    14, 1999. GAO Contact Leslie G. Aronovitz, (312) 220- 7600

    Change Pricing Formula for Medicare- Covered Drugs and Biologicals

    Primary agency Department of Health and Human Services Account Federal
    Supplementary Medical Insurance

    Trust Fund (20- 8004) Spending type Direct Budget subfunction 571/
    Medicare

    While Medicare does not have a comprehensive outpatient drug benefit,
    certain drugs and biologicals are covered under Part B of the program. In
    general, drugs are covered if they cannot be self- administered and are
    related to a physician*s services, such as cancer chemotherapy, or are
    provided in conjunction with covered durable medical equipment. In
    addition, Medicare covers selected immunizations and certain drugs that
    can be self- administered, such as blood clotting factors.

    Medicare spending for drugs and biologicals* by the program and its
    beneficiaries through their copayments* has been increasing rapidly.
    Between 1997 and 2001, spending more than doubled* from $2.76 billion to

    $6.41 billion. Medicare bases its reimbursement to physicians and other
    providers of drugs on average wholesale price (AWP). Manufacturers
    periodically report AWPs to publishers of drug pricing data. Medicare
    carriers, the contractors responsible for paying Part B claims, use
    published AWPs to determine the Medicare- allowed payment level, which is
    95 percent of the AWP.

    Physicians and other providers of Medicare- covered drugs are able to
    obtain thesed drugs at prices significantly below current Medicare
    payments. We reported in 2001 that the difference between widely available
    prices and AWP for physician- administered drugs in a GAO sample study
    varied from 13 percent to 34 percent. For a sample of pharmacy-
    supplierprovided drugs, prices ranged from 14 percent to 85 percent. In
    2003, we reported that the two main types of suppliers of blood clotting
    factor to beneficiaries also were able to obtain the product at prices
    considerably below the Medicare payment.

    Medicare could achieve significant savings on Part B drug benefits if it
    reimbursed providers at levels that reflected actual acquisition costs.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Medicare: Payment for Blood Clotting Factor Exceeds
    Providers* Acquisition Cost. GAO- 03- 184. Washington, D. C.: January 10,
    2003.

    Major Management Challenges and Program Risks: Department of Health and
    Human Services. GAO- 03- 101. Washington, D. C.: January 2003.

    Medicare: Challenges Remain in Setting Payments for Medical Equipment and
    Supplies and Covered Drugs. GAO- 02- 833T. Washington, D. C.: June 12,
    2002.

    Medicare Outpatient Drugs: Program Payments Should Better Reflect Market
    Prices. GAO- 02- 531T. Washington, D. C.: March 14, 2002.

    Medicare: Payments for Covered Outpatient Drugs Exceed Providers* Cost.
    GAO- 01- 1118. Washington, D. C.: September 21, 2001.

    Medicare Part B Drugs: Program Payments Should Reflect Market Prices.

    GAO- 01- 1142T. Washington, D. C.: September 21, 2001. GAO Contact William
    J. Scanlon, (202) 512- 7114

    CBO Options Where Related GAO Work Is Identified 23

    570- 10 Reduce Medicare Payments for Currently Covered Prescription Drugs

    Related GAO Products Medicare: Payment for Blood Clotting Factor Exceeds
    Providers* Acquisition Cost. GAO- 03- 184. Washington, D. C.: January 10,
    2003.. 23

    Medicare: Challenges Remain in Setting Payments for Medical Equipment and
    Supplies and Covered Drugs. GAO- 02- 833T. Washington, D. C.: June 12,
    2002.

    Medicare Outpatient Drugs: Program Payments Should Better Reflect Market
    Prices. GAO- 02- 531T. Washington, D. C.: March 14, 2002.

    Medicare: Payments for Covered Outpatient Drugs Exceed Providers* Cost.
    GAO- 01- 1118. September 21, 2001.

    GAO Contact Laura A. Dummit, (202) 512- 7119 23 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    570- 11 Require Competitive Bidding for High- Volume Items of Durable
    Medical Equipment

    Related GAO Product Medicare: Challenges Remain in Setting Payments for
    Medical Equipment and Supplies and Covered Drugs. GAO- 02- 833T.
    Washington, D. C.: June 12, 2002.

    GAO Contacts Leslie G. Aronovitz, (312) 220- 7600 Sheila Avruch, (202)
    512- 7277 570- 15 Simplify and Limit Medicare*s Cost- Sharing Requirements

    Related GAO Products Medicare Reform: Modernization Requires Comprehensive
    Program View. GAO- 01- 862T. Washington, D. C.: June 14, 2001.

    Medicare: Cost- Sharing Policies Problematic for Beneficiaries and
    Program. GAO- 01- 713T. Washington, D. C.: May 9, 2001.

    GAO Contact Laura A. Dummit, (202) 512- 7119 570- 19 Reduce Medicare
    Payments for Home Health Care

    Related GAO Products Medicare: Utilization of Home Health Care by State.
    GAO- 02- 782R. Washington, D. C.: May 23, 2002.

    Medicare Home Health Care: Payments to Home Health Agencies Are
    Considerably Higher than Costs. GAO- 02- 663. Washington, D. C.: May 6,
    2002.

    Medicare Home Health Care: Prospective Payment System Could Reverse Recent
    Declines in Spending. GAO/ HEHS- 00- 176. Washington, D. C.: September 8,
    2000.

    GAO Contact Laura A. Dummit, (202) 512- 7119

    600 Income Security Examples from Selected GAO Work

    Develop Comprehensive Return- to- Work Strategies for People with
    Disabilities Revise Benefit Payments under the Federal Employees*
    Compensation Act Increase Congressional Oversight of PBGC*s Budget Share
    the Savings from Bond Refundings Implement a Service Fee for Successful
    Non- Temporary Assistance for Needy Families Child Support Enforcement
    Collections

    Improve Reporting of DOD Reserve Employee Payroll Data to State
    Unemployment Insurance Programs

    Improve Social Security Benefit Payment Controls Simplify Supplemental
    Security Income Recipient Living Arrangements Reduce Federal Funding
    Participation Rate for Automated Child Support Enforcement Systems

    Obtain and Share Information on Medical Providers and Middlemen to Reduce
    Improper Payments to Supplemental Security Income Recipients

    Sustain/ Expand Range of SSI Program Integrity Activities Revise
    Government Pension Offset (GPO) Exemption Better Congressional Oversight
    of PRWORA*s Fugitive Felon Provisions Improve the Administrative Oversight
    of Food Assistance Programs

    CBO Option Where Related GAO Work Is Identified

    600- 07 Reduce the Federal Matching Rate for Administrative and Training
    Costs in the Foster Care and Adoption Assistance Programs

    Examples from Selected GAO Work

    Develop Comprehensive Return- to- Work Strategies for People with
    Disabilities

    Primary agency Social Security Administration Accounts Multiple Spending
    type Direct Budget subfunctions Multiple

    The Social Security Administration (SSA) operates the Disability Insurance
    (DI) and Supplemental Security Income (SSI) programs* the nation*s two
    largest federal programs providing cash benefits to people with
    disabilities. For fiscal year 2002, DI benefits paid to disabled workers
    totaled about $59.9 billion and SSI benefits paid to beneficiaries with
    disabilities amounted to about $26.2 billion. SSA data show that over the
    past 10 years, the size of the working- age disabled beneficiary
    population increased 38 percent, from about 6.0 million to 8.2 million.
    Such growth has raised concerns that are compounded by the fact that few
    DI beneficiaries ever leave the disability rolls by returning to work.

    We found that return- to- work strategies and practices may hold potential
    for improving federal disability programs by helping people with
    disabilities return to productive activity in the workplace and, at the
    same time, reducing benefit payments. Our analysis of practices advocated
    and implemented by the private sector in the United States and by social
    insurance programs in Germany and Sweden revealed three common strategies
    in the design of their return- to- work programs: intervene as soon as
    possible after an actual or potentially disabling event to promote and
    facilitate return- to- work, identify and provide necessary return- to-
    work assistance and manage cases to achieve return- to- work goals, and
    structure cash and medical benefits to encourage people with disabilities
    to return to

    work. In line with placing greater emphasis on return- to- work, we
    recommended that the Commissioner of SSA develop a comprehensive return-
    to- work strategy that integrates, as appropriate, earlier intervention,
    earlier

    identification and provision of necessary return- to- work assistance for
    applicants and beneficiaries, and cash and medical benefits that make work
    more financially advantageous. SSA has stepped up its return- to- work
    efforts, in part, in response to mandates from the Ticket to Work and Work

    Incentives Improvement Act of 1999, which contains provisions to safeguard
    medical coverage for workers with disabilities, enhance vocational
    rehabilitation services for beneficiaries, and demonstrate the
    effectiveness of allowing working beneficiaries to keep more of their
    earnings. For example, SSA has (1) recruited more than 400 public or
    private entities to provide vocational rehabilitation, employment, and
    other support services to beneficiaries under the Ticket to Work Program;
    (2) raised and indexed to a measure of wage growth the limit on the

    amount a DI beneficiary can earn from work and still receive benefits to
    encourage people with disabilities to work; (3) funded 12 state
    partnership agreements that are intended to help the states develop
    services to increase beneficiary employment; (4) provided funding to more
    than 100

    community- based organizations to help provide work incentives planning
    and assistance to beneficiaries; and (5) completed a pilot study on the
    deployment of work incentive specialists to SSA field offices and is
    determining how to best implement the position nationally. Further, SSA
    has progressed in researching issues related to return- to- work through
    its Disability Research Institute. Research that is underway includes (1)
    designing a demonstration to provide earlier return- to- work services to

    DI applicants who are likely to be found eligible; (2) exploring the paths
    DI applicants and beneficiaries took to the benefit program to determine
    whether SSA might be able to redirect some applicants to work rather than
    a prolonged stay on the benefit rolls; (3) examining how the onset of

    disability early in life affects later employment outcomes; and (4)
    analyzing and facilitating the transition to employment of youths with
    disabilities.

    While these efforts represent positive steps in trying to return people
    with disabilities to work, SSA still needs to move forward in developing a
    comprehensive return- to- work strategy. Such a strategy is likely to
    require improvements to staff skill levels and areas of expertise, as well
    as changes

    to the disability determination process. It will also require fundamental
    changes to the underlying philosophy and direction of the DI and SSI
    programs, as well as legislative changes in some cases. Policymakers will
    need to carefully weigh the implications of such changes. Nevertheless, we
    remain concerned that the absence of such a strategy may hinder SSA*s

    efforts to make significant strides in the return- to- work area. An
    improved return- to- work strategy could benefit both the beneficiaries
    who want to work and the American taxpayer.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products SSA Disability: SGA Levels Appear to Affect the Work
    Behavior of Relatively Few Beneficiaries, but More Data Needed. GAO- 02-
    224. Washington, D. C.: January 16, 2002.

    SSA Disability: Other Programs May Provide Lessons for Improving Return-
    to- Work Efforts. GAO- 01- 153. Washington, D. C.: January 12, 2001.

    Social Security Disability: Other Programs May Provide Lessons for
    Improving Return- to- Work Efforts. GAO/ T- HEHS- 00- 151. Washington, D.
    C.: July 13, 2000.

    Social Security Disability: Multiple Factors Affect Return to Work.

    GAO/ T- HEHS- 99- 82. Washington, D. C.: March 11, 1999.

    Social Security Disability Insurance: Multiple Factors Affect
    Beneficiaries* Ability to Return to Work. GAO/ HEHS- 98- 39. Washington,
    D. C.: January 12, 1998.

    Social Security: Disability Programs Lag in Promoting Return to Work.

    GAO/ HEHS- 97- 46. Washington, D. C.: March 17, 1997.

    People With Disabilities: Federal Programs Could Work Together More
    Efficiently to Promote Employment. GAO/ HEHS- 96- 126. Washington, D. C.:
    September 3, 1996.

    SSA Disability: Return- to- Work Strategies From Other Systems May Improve
    Federal Programs. GAO/ HEHS- 96- 133. Washington, D. C.: July 11, 1996.

    SSA Disability: Program Redesign Necessary to Encourage Return to Work.
    GAO/ HEHS- 96- 62. Washington, D. C.: April 24, 1996.

    GAO Contact Robert E. Robertson, (202) 512- 7215

    Revise Benefit Payments under the Federal Employees* Compensation Act

    Primary agency Department of Labor Accounts Multiple Spending types
    Direct/ Discretionary Budget subfunction 609/ Other income security

    Federal workers who are disabled as a result of a work- related injury are
    entitled to tax- free workers* compensation benefits under the Federal
    Employees* Compensation Act (FECA). Several GAO reviews have

    identified ways in which benefit payment policies can be revised to better
    address eligibility and/ or need or to bring FECA benefits more in line
    with other federal and state workers* compensation laws.

    Basing FECA Compensation on For almost all totally disabled individuals,
    FECA benefits are 66 and two

    Spendable Earnings thirds percent of gross pay for beneficiaries without
    dependents and 75

    percent of gross pay for beneficiaries with at least one dependent. We
    reported that nearly 30 percent of the more than 23, 000 beneficiaries
    included in our analyses received FECA compensation benefits that replaced
    more than 100 percent of their estimated take- home pay. Another 40
    percent of these beneficiaries received FECA benefits that were from 90 to
    99 percent of their take- home pay. Benefit replacement rates tended to be
    higher for beneficiaries who (1) received higher amounts of pay before
    they were injured, (2) were injured before 1980, (3) received the FECA
    dependent benefit, and (4) lived in states that had an income tax.

    Workers* compensation program analysts are reluctant to take a position on
    what the *correct* level of workers* compensation benefits should be,
    leaving that matter to the judgment of legislators. According to a 1985
    Workers Compensation Research Institute report, legislators in many

    states must walk a fine line between benefits that are high enough to
    provide adequate income, but not so high as to discourage an employee*s
    return- to- work when he or she is no longer disabled. The 1972 Report of
    the

    National Commission on State Workmen*s Compensation Laws recommended that
    workers* weekly benefits should replace at least 80 percent of their
    spendable weekly earnings, subject to a state*s maximum weekly benefit.
    Six states use a percentage of spendable weekly earnings (ranging from 75
    to 80 percent) rather than a percentage of gross wages as the basis for
    computing compensation benefits. Spendable earnings (takehome pay) are
    computed by taking an employee*s gross pay at the time of

    injury and subtracting Social Security taxes and federal and state income
    taxes. Taxes are based on published tax withholding tables, given an
    employee*s actual exemptions and a standard deduction.

    If the Congress judges that current FECA benefits are so high as to
    discourage employees from returning to work, it could consider changing
    the current FECA benefit structure from one that bases compensation on
    gross pay to one that bases compensation on spendable earnings. In the
    past, CBO estimated the savings that would occur, assuming that the new
    FECA benefit formula would equal 80 percent of spendable earnings and that
    changes in benefits would be made prospectively. Additional savings could
    be achieved if changes were made to affect individuals who were already
    receiving FECA benefits. Fewer savings would be achieved if a higher
    percentage of spendable earnings were used as the basis for computing FECA
    benefits.

    Revising Benefits for Retirement- Retirement- eligible federal workers who
    continue to be disabled as a result

    Eligible Beneficiaries of work- related injuries could receive tax- free
    workers* compensation benefits under FECA for the remainder of their lives
    that would generally

    be greater than amounts these workers would receive as retirement
    benefits. FECA benefits are 75 percent of salary for a disabled employee
    with a dependent; Civil Service Retirement System benefits for a 55- year
    old employee with 30 years of service are 56 percent of salary. We
    reported that 60 percent of the approximately 44,000 long- term FECA
    beneficiaries were at least age 55, the age at which some federal
    employees are eligible for optional retirement with unreduced retirement
    benefits. Proponents for

    changing FECA benefits for older beneficiaries argue that an inequity is
    created between federal workers who retire normally and those who, in
    effect, *retire* on FECA benefits. Opponents of such a change argue that
    reducing benefits would break the implicit promise that injured workers
    have exchanged their right to tort claims for a given level of future
    benefits.

    We identified two prior proposals for reducing FECA benefits to those who
    become eligible for retirement. One would convert compensation benefits
    received by retirement- eligible disabled workers to retirement benefits.
    However, this approach raises complex issues related to the tax- free
    nature of workers* compensation benefits and to the individual*s
    entitlement to retirement benefits. The second proposal would convert FECA
    benefits to a newly established FECA annuity, thus avoiding the complexity
    of shifting from one benefit program to another.

    To reduce benefits for retirement- eligible FECA beneficiaries, the
    Congress could consider converting from the current FECA benefit structure
    to a FECA annuity. In the past, CBO estimated that savings would occur,
    assuming that such an annuity would equal two- thirds of the previously
    provided FECA compensation benefit, and that the annuity would begin

    following the disabled individual*s eligibility for retirement benefits.
    Assuming that changes in benefits would be made prospectively, additional
    savings could be achieved if changes were made to affect individuals who
    were already receiving FECA benefits.

    FECA Cases Involving Third FECA authorizes federal agencies to continue
    paying employees their

    Parties regular salaries for up to 45 days when they are absent from work
    due to work- related traumatic injuries. In cases in which third parties
    are

    responsible for employees* on- the- job injuries (e. g., dog bites or
    automobile- related injuries), the Department of Labor may require that
    employees pursue collection actions against these parties. However, based
    on current interpretations of FECA by the Employees* Compensation Appeals
    Board and a federal appeals court, the federal government has no legal
    basis to obtain refunds from third parties for the first 45 days of
    absence from work (called the continuation- of- pay (COP) period).
    Recoveries from third parties continue to be allowed for payments of

    compensation benefits following the COP period and for medical benefits.
    Based on the current interpretation of FECA, employees can receive regular
    salary payments from their employing agencies and reimbursements from
    third parties* in effect, a double recovery of income for their first 45
    days of absence from work due to injuries for which third parties were
    responsible. We recommended that the Congress amend FECA to expressly
    provide for refunds of amounts paid as COP when employees receive third-
    party recoveries. In the past, CBO estimated that savings would occur if
    the Congress redefined COP so that it could be included in amounts
    employees are required to reimburse the government

    when they recover damages from third parties. Comparability of FECA and

    We identified three major ways in which FECA differs from other federal
    Other Compensation Laws

    and state workers* compensation laws, each of which results in relatively
    greater benefits under FECA. First, FECA authorizes maximum weekly benefit
    amounts that are greater than those authorized by other federal and state
    workers* compensation laws. As of January 1, 2003, maximum authorized
    weekly FECA benefits were equal to $1,596, 75 percent of the base salary
    of a GS- 15, step 10. FECA also authorizes additional benefits for one or
    more dependents equal to 8.33 percent of salary. Only six states

    authorize additional benefits for dependents (about $5-$ 10) benefit
    amounts per week per dependent. However, one state authorizes an
    additional flat rate of $25 per week for dependents, regardless of the
    number of dependents. In all cases, the total benefits are not to exceed
    maximum authorized benefit amounts. Finally, FECA provides eligible
    workers who suffer traumatic injuries with their regular salary for a
    period not to exceed 45 days. Compensation benefits for wage loss begin on
    the 48th day, after a 3- day waiting period. All other federal and state
    workers* compensation laws provide for a 3- to 7- day waiting period
    following the injury before paying compensation benefits. In either case,
    if employees continue to be out of work for extended periods ranging from
    5 to 42 days, depending on the jurisdiction, retroactive benefits to cover
    the waiting period would be paid.

    Reducing FECA*s authorized maximum weekly benefit to make it comparable to
    other compensation laws would have little effect on compensation costs
    because very few federal workers receive maximum benefits. However, in the
    past, CBO estimated that savings would occur by eliminating augmented
    compensation benefits for dependents and

    establishing a 5- day waiting period immediately following the injury, and
    before the continuation of pay period. CBO 5- Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Federal Employees* Compensation Act: Percentages of
    Take- Home Pay Replaced by Compensation Benefits. GAO/ GGD- 98- 174.
    Washington, D. C.: August 17, 1998.

    Federal Employees* Compensation Act: Issues Associated with Changing
    Benefits for Older Beneficiaries. GAO/ GGD- 96- 138BR. Washington, D. C.:
    August 14, 1996.

    Workers* Compensation: Selected Comparisons of Federal and State Laws.
    GAO/ GGD- 96- 76. Washington, D. C.: April 3, 1996.

    Federal Employees* Compensation Act: Redefining Continuation of Pay Could
    Result in Additional Refunds to the Government. GAO/ GGD- 95- 135.
    Washington, D. C.: June 8, 1995.

    GAO Contact Robert E. Robertson, (202) 512- 7215

    Increase Congressional Oversight of PBGC*s Budget

    Primary agency Department of Labor Account Pension Benefit Guaranty
    Corporation fund

    (16- 4204) Spending types Direct/ Discretionary Budget subfunction 601/
    General retirement and disability

    insurance

    The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of
    about 44 million participants against default of their employer- sponsored
    defined benefit pension plans. Established in 1974 as a self- financing
    government corporation, PBGC*s primary responsibility is to assume
    administration of underfunded plans that either terminate or become
    insolvent. In 2002, about 345,000 retirees received more than $1.5 billion
    in benefit payments from PBGC. To carry out its operations, PBGC relies
    heavily on the services of contractors whose headquarters and field
    employees account for almost half of its workforce.

    PBGC is self- financing in that it receives no general revenues. Its
    operating budget of $227 million is financed with funds from two sources:
    (1) insurance premiums paid by plan sponsors and (2) trust assets.

    However, the portion of its budget allocated to administrative expenses
    has been subject to a statutory limitation since 1985. The Congress
    revised this limitation on two occasions to provide PBGC more flexibility
    to address workload increases that followed several large pension plan
    failures. These revisions exempted from any limitation all expenses
    incurred in connection with the termination and management of pension
    plans and provided PBGC with discretion to determine which functions and
    activities qualified as such. Over time, PBGC has expanded the range of
    activities and functions classified as nonlimitation expenses and uses
    these resources to fund nearly all of its operations. This has resulted in
    a steep increase in PBGC*s nonlimitation budget from $29 million in fiscal
    year 1989 to $215.5 million

    in fiscal year 2002. During this period, PBGC*s limitation budget
    decreased from $40 million to $11.7 million.

    In 2000, we reported that PBGC*s failure to strategically manage its
    longer term contracting needs, as well as weaknesses in its contractor
    selection and oversight processes, could result in the corporation paying
    too much for procured services. We also noted that PBGC*s budget structure
    provides

    it with substantial flexibility to use nonlimitation funds that are not
    directly subject to congressional review and approval. This budgetary
    treatment shields most corporation spending for administration and
    operations from congressional scrutiny, creating a potentially favorable
    environment for

    management weaknesses. Also, we have reported that PBGC does not have a
    reliable basis for estimating its administrative expenses subject to the
    legislative limitation. As a result, PBGC*s estimates for its activities

    covered by the limitation are not meaningful and thus are ineffective in
    controlling administrative costs. In addition, PBGC does not have a
    meaningful basis for reporting adherence to the limitation, since it does
    not accumulate and allocate actual expenses for activities subject to the
    limitation.

    As a means of strengthening its oversight over PBGC*s budget and
    operations, the Congress could act to restrict the range of activities to
    be supported by nonlimitation funds. This, however, would likely require a
    similar increase in PBGC*s limitation budget in which the Congress has
    direct appropriation oversight. Thus, more of PBGC*s spending for
    operational activities and functions would fall within the normal
    congressional appropriations process. Although this approach would not
    necessarily reduce PBGC*s administrative spending initially, strengthened
    oversight could result in management improvements, more efficient use of

    funds, and slower spending growth in the future. In the past, CBO was
    unable able to estimate savings from this option without a more specific
    proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Pension Benefit Guaranty Corporation: Statutory
    Limitation on Administrative Expenses Does Not Provide Meaningful Control.
    GAO- 03- 301. Washington, D. C.: February 28, 2003.

    Pension Benefit Guaranty Corporation: Contracting Management Needs
    Improvement. GAO/ HEHS- 00- 130. Washington, D. C.: September 18, 2000.

    GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Share the Savings from Bond Refundings

    Primary agency Department of Housing and Urban Development Account Housing
    Certificate Fund (86- 0319) Spending types Discretionary/ Direct Budget
    subfunction 604/ Housing assistance

    During the 1970s and early 1980s, the Department of Housing and Urban
    Development (HUD) administered programs to develop housing for lowincome
    households using various types of financing arrangements and long- term
    Section 8 rental housing assistance contracts. While some properties were
    financed by loans and grants from HUD, others were financed by bonds
    issued by state and local housing finance agencies. During the late 1970s
    and early 1980s, the cost to finance housing development rose to
    unprecedented levels. In response, HUD authorized higher Section 8 rental
    assistance payments to cover the higher bond financing costs, first in
    1980 and then in 1981. Since then, as interest rates

    declined, many state and local housing finance agencies have refunded the
    bonds they issued and issued new bonds at lower interest rates. This
    action has generated substantial savings for the state agencies. These
    savings represent the difference between the amounts needed to repay the
    original bonds and the lower amounts needed to repay the new bonds.
    Agencies typically use these savings to provide affordable housing in
    their states.

    In 1999, we reported that HUD had not issued clear guidance on when state
    agencies are required to share the savings associated with bond refundings
    with the federal government. The need for clearer guidance specifically

    relates to state agency compliance with the bond refunding provisions in
    an October 1992 amendment to Section 1012 of the McKinney Act. The
    amendment was unclear as to whether the states were required to share the
    savings from bond refundings with the federal government for all
    properties covered by Section 8 rental assistance contracts that were
    entered into from 1979 through 1984. In the absence of clear guidance from
    HUD, we found that some state agencies have shared the savings from bond
    refunding for such properties with the federal government while

    other agencies have retained the savings. Legislative changes could be
    made to clarify the Congress*s intent that state agencies should be
    required to share bond refunding savings with the

    federal government for all properties covered by Section 8 rental
    assistance contracts entered into from 1979 through 1984. CBO 5- Year Cost
    Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Multifamily Housing: HUD Missed Opportunities to
    Reduce Costs on Its Uninsured Section 8 Portfolio. GAO/ RCED- 99- 217.
    Washington, D. C.: July 30, 1999.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Implement a Service Fee for Successful Non- Temporary Assistance for Needy
    Families Child Support

    Primary agency Department of Health and Human Services

    Enforcement Collections

    Account Payments to States for Child Support Enforcement and Family
    Support Programs (75- 1501)

    Spending type Direct Budget subfunction 609/ Other income security

    The Child Support Enforcement program is a Federal/ state/ local
    partnership designed to obtain child support for both families eligible
    for Temporary Assistance for Needy Families (TANF) and non- TANF families.
    The services provided to clients include locating noncustodial parents,
    establishing paternity and support orders, and collecting and distributing
    child support payments. From fiscal years 1984 through 1998, non- TANF
    caseloads and costs rose about 500 percent and 1200 percent, respectively.
    For fiscal years 1999 through 2002, non- TANF cases represented about 80
    percent of the total caseload. The federal government pays 66 percent of
    the Child Support Enforcement

    program costs. While states have the authority to fully recover the costs
    of their services, states have exercised their discretion and most have
    charged only minimal application and service fees. Since 1992, we have
    reported on opportunities to defray some of the costs of child support
    programs. Based

    on this work, we believe that mandatory application fees should be dropped
    and that states should be mandated to charge a minimum percentage service
    fee on successful collections for non- TANF families. Congressional action
    is necessary to put such a requirement in place. Application fees are
    administratively burdensome, and a service fee would ensure that families
    are charged only when the service has been successfully performed. The
    costs recovered from such a service fee would be determined by the
    percentage rate set by the Congress. For example, in the past, CBO
    estimated that if the Congress set the service fee at 5 percent for each
    successful non- TANF child support collection, the federal government
    could recover $2 billion in 5 years.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Child Support Enforcement: Clear Guidance Would Help
    Ensure Proper Access to Information and Use of Wage Withholding by Private
    Firms. GAO- 02- 349, March 26, 2002.

    Child Support Enforcement: Effects of Declining Welfare Caseloads Are
    Beginning to Emerge. GAO/ HEHS- 99- 105. Washington, D. C.: June 30, 1999.

    Welfare Reform: Child Support an Uncertain Income Supplement for Families
    Leaving Welfare. GAO/ HEHS- 98- 168. Washington, D. C.: August 3, 1998.

    Child Support Enforcement: Early Results on Comparability of Privatized
    and Public Offices. GAO/ HEHS- 97- 4. Washington, D. C.: December 16,
    1996.

    Child Support Enforcement: Reorienting Management Toward Achieving Better
    Program Results. GAO/ HEHS/ GGD- 97- 14. Washington, D. C.: October 25,
    1996.

    Child Support Enforcement: States* Experience with Private Agencies*
    Collection of Support Payments. GAO/ HEHS- 97- 11. Washington, D. C.:
    October 23, 1996.

    Child Support Enforcement: States and Localities Move to Privatized
    Services. GAO/ HEHS- 96- 43FS. Washington, D. C.: November 20, 1995.

    Child Support Enforcement: Opportunity to Reduce Federal and State Costs.
    GAO/ T- HEHS- 95- 181. Washington, D. C.: June 13, 1995.

    GAO Contact Cornelia M. Ashby, (202) 512- 8403

    Improve Reporting of DOD Reserve Employee Payroll Data to State
    Unemployment Insurance

    Primary agency Department of Labor

    Programs

    Account Unemployment Trust Fund 20- 8042 Spending type Direct Budget
    subfunctions Multiple

    The Congress established the national unemployment insurance (UI) system
    in the 1930s to provide partial income assistance to many temporarily
    unemployed workers with substantial work histories. Today, UI is the major
    federal program providing assistance to the unemployed.

    Many workers covered by the UI system were also among the 800, 000
    personnel who participated in National Reserve forces (Army National
    Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National
    Guard, and the Air Force Reserve) in fiscal year 2002.

    Most UI claimants are required to report the income they receive while in
    the Reserves so that state UI programs can reduce their benefits
    accordingly. Our 1996 analysis of benefit and Reserve data from seven
    states shows that some Reserve personnel are receiving improper benefit
    payments from state UI programs. In the seven states in our analysis, we
    estimate that UI claimants who were active participants in the Reserve

    failed to report over $7 million in Reserve income in fiscal year 1994.
    This led to UI benefit overpayments of approximately $3.6 million, of
    which federal trust fund losses were about $1.2 million. We expect that
    the federal and state trust fund losses from all UI programs are much
    greater because

    the seven states we reviewed accounted for only 27 percent of all
    reservists.

    State officials cited various reasons why claimants may not be reporting
    their Reserve income while receiving UI benefits. According to state
    officials, the claimants may not understand their reporting
    responsibilities, are often not specifically informed of these
    responsibilities, and may have

    incentives not to report all Reserve income* incentives that are amplified
    by the states* limited ability to detect nonreporting.

    The Department of Defense and the Department of Transportation*s Coast
    Guard have acted to ensure that reservists are reminded of their
    responsibility to report income from reserve activity to state UI
    agencies. All reservists now receive an annual notice with their leave and
    earnings

    statements reminding them of their duty to disclose their affiliation and
    any Reserve related earnings when filing an UI claim. In addition, the
    Department of Labor has issued a directive to all state employment
    security agencies to ensure that they inform prospective and continuing UI
    benefit

    claimants of their responsibility to report Reserve- related income. These
    actions should improve general reservist compliance with state UI program
    income reporting requirements. However, to detect unreported Reserve
    income, the most frequently suggested alternative by federal and state
    officials would be to require the Department of Defense (DOD) to report
    Reserve payroll and personnel data to states on a quarterly basis, as
    private- sector employers are required to do, to permit verification of

    claimant income regularly. DOD has stated that it will develop an action
    plan to provide such data to the state UI programs. However, completion of
    this plan was delayed because of other competing agency priorities and a
    recognition that the task was more complex than originally envisioned.

    It is important to note that the nonreporting of claimant income appears
    to be a broader problem involving all UI claimants who were former federal
    civilian and military employees, rather than just those participating in
    the Reserves. Officials from many of the state programs we analyzed
    reported general difficulties in monitoring reported income from claimants
    who were former federal employees.

    DOD reports that, given its effort to ensure any action taken be
    costeffective and commensurate with potential savings, it does not intend
    to take further action to respond to this recommendation. According to
    DOD, 13 states effectively exempt Reserve wages from any unemployment
    insurance payment offset, and there could be significant costs associated
    with providing automated data on the earnings of part- time reservists. We
    do not agree that implementation costs would necessarily outweigh

    savings. We found millions of dollars in unemployment insurance
    overpayments for just 7 states and 27 percent of the reservists, which
    would likely lead to even greater levels of overpayments for the remaining
    states that offset reservist wages. The potential for overpayments may be
    even greater given current national security conditions that involve a
    greater role for reservists.

    In the past, CBO estimated that budgetary savings would result from the
    reduction in overpayments if DOD was required to report Reserve payroll
    and personnel data to states on a quarterly basis.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Unemployment Insurance: Millions in Benefits Overpaid
    to Military Reservists. GAO/ HEHS- 96- 101. Washington, D. C.: August 5,
    1996.

    GAO Contact Sigurd R. Nilsen, (202) 512- 7215

    Improve Social Security Benefit Payment Controls

    Primary agency Social Security Administration Account Federal Old Age and
    Survivor*s Insurance

    Trust Fund (20- 8006) Spending type Direct Budget subfunction 651/ Social
    security

    The Social Security Administration (SSA) is required by law to reduce
    social security benefits to persons who also receive a pension from
    noncovered employment (typically persons who work for the federal
    government or state and local governmental agencies). The Government
    Pension Offset provision requires SSA to reduce benefits to persons whose
    social security entitlement is based on another person*s social security
    coverage (usually their spouse*s). The Windfall Elimination Provision
    requires SSA to use a modified formula to calculate a person*s earned
    social security benefit whenever a person also earned a pension through a

    substantial career in noncovered employment. The modified formula reduces
    the social security benefit significantly.

    We found that SSA payment controls for these offsets were incomplete. For
    state and local retirees, SSA had no third- party pension data to verify
    whether persons were receiving a noncovered pension. At the time of our
    report (1998), an analysis of available data indicated that this lapse in
    payment controls for state and local government retirees cost the trust
    funds from $129 million to $323 million from 1978 to about 1995.

    In 1998 we recommended that SSA work with the Internal Revenue Service
    (IRS) to revise the reporting of pension income on IRS tax form 1099R. IRS
    has subsequently advised SSA that it needs a technical amendment to the
    Tax Code to obtain the information SSA needs. This year, we testified that
    complete and accurate reporting of government pension income is still
    needed. Given the IRS response to our previous recommendation, we have
    provided the following matter for congressional consideration. *To
    facilitate complete and accurate reporting of government pension income,
    the Congress should consider giving IRS the authority to collect this
    information, which could perhaps be accomplished through a simple
    modification to a single form.* We believe that millions of dollars in
    reduced overpayments could be achieved each year with better payment
    controls. However, it should be noted that these savings would be offset

    somewhat by administrative costs associated with conducting additional
    computer matching at SSA. In the past, CBO estimated that improved payment
    controls could result in budgetary savings.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Social Security: Issues Relating to Noncoverage of
    Public Employees. GAO- 03- 710T. Washington, D. C.: May 1, 2003.

    Social Security: Better Payment Controls for Benefit Reduction Provisions
    Could Save Millions. GAO/ HEHS- 98- 76. Washington, D. C.: April 30, 1998.

    GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Simplify Supplemental Security Income Recipient Living Arrangements

    Primary agency Social Security Administration Account Supplemental
    Security Income Program

    (28- 0406) Spending types Direct/ Discretionary Budget subfunction 609/
    Other income security

    The Social Security Administration (SSA) administers the Supplemental
    Security Income (SSI) program, which is the nation*s largest cash
    assistance program for the poor. Since its inception, the SSI program has
    been difficult to administer because, similar to other means tested
    programs, it relies on complicated criteria and policies to determine
    initial and continuing eligibility and benefit levels. One of the factors
    considered is the living arrangements of the beneficiary. When determining
    SSI eligibility and benefit amounts, SSA staff apply a complex set of
    policies to document an individual*s living arrangements and any
    additional support

    they may be receiving from others. This process depends heavily on
    selfreporting by recipients of whether they live alone or with others; the
    relationships involved; the extent to which rent, food, utilities, and
    other household expenditures are shared; and exactly what portion of those
    expenses the individual pays. These numerous rules and policies have made
    living arrangement determinations one of the most complex and error prone
    aspects of the SSI program, and a major source of overpayments.

    We have reported that SSA has not addressed long- standing SSI living
    arrangement verification problems, despite numerous internal and external
    studies and many years of quality reviews denoting this as an area prone
    to error and abuse. Some of the studies we reviewed recommended ways to
    simplify the process by eliminating many complex calculations and thereby
    making it less susceptible to manipulation by recipients. Other studies we
    reviewed suggested ways to make this aspect of the program less costly to
    taxpayers. In light of the potential cost savings associated with
    addressing this issue, we recommended in September 2002 that SSA identify
    and move forward in implementing cost- effective options for simplifying
    complex

    living arrangement policies, with particular attention to those policies
    most vulnerable to fraud, waste, and abuse. We also suggested that an
    effective approach may include pilot testing various simplification
    options to better

    assess their effects. SSA told us that it will use sophisticated computer

    simulations to assess the potential impacts of various proposals on
    recipients, but has not completed these efforts yet. Although in the past
    CBO agreed that some changes that would simplify living arrangement
    policies have the potential to create savings, it could not develop a
    savings estimate without a specific legislative proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Supplemental Security Income: Progress Made in
    Detecting and Recovering Overpayments, but Management Attention Should
    Continue.

    GAO- 02- 849. Washington, D. C.: September 16, 2002.

    Supplemental Security Income: Status of Efforts to Improve Overpayment
    Detection and Recovery. GAO- 02- 962T. Washington, D. C.: July 25, 2002.

    Supplemental Security Income: Action Needed on Long- Standing Problems
    Affecting Program Integrity. GAO/ HEHS- 98- 158. Washington, D. C.:
    September 14, 1998.

    GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Reduce Federal Funding Participation Rate for Automated Child Support
    Enforcement Systems

    Primary agency Department of Health and Human Services Account Payments to
    States for Child Support

    Enforcement and Family Support Programs (75- 1501)

    Spending type Direct Budget subfunction 609/ Other income security

    The Department of Health and Human Services* (HHS) Office of Child Support
    Enforcement (OCSE) oversees states* efforts to develop automated systems
    for the Child Support Enforcement Program. Established for both welfare
    and nonwelfare clients with children, this program is directed at locating
    parents not supporting their children, establishing paternity, obtaining
    court orders for the amounts of money to be provided, and collecting these
    amounts from noncustodial parents. Achievement of Child Support
    Enforcement Program goals depends in part on the effective planning,
    design, and operation of automated systems. The federal government is
    providing enhanced funding to develop these automated child support
    enforcement systems by paying up to 90 percent of states* development
    costs. From fiscal year 1981 through fiscal year

    2000, the states spent about $5.3 billion to develop these systems,
    including about $3.8 billion from the federal government. The 90 percent
    funding participation rate was initially discontinued at the

    end of fiscal year 1995, the congressionally mandated date for the systems
    to be certified and operational. However, the Congress subsequently
    extended the deadline for these systems to the end of fiscal year 1997.
    The federal government will continue to reimburse states* costs to operate

    these systems at the 66 percent rate established for administrative
    expenses. The Personal Responsibility and Work Opportunity Reconciliation
    Act of 1996 (P. L. 104- 193) provided additional funding for the states to
    meet new systems requirements under this law. An 80 percent federal
    funding participation rate, with a total national funding cap of $400
    million, was authorized through fiscal year 2001. The 66 percent federal
    funding participation rate was continued for systems operation and
    administrative expenses.

    The Congress could choose to reduce the federal funding participation rate
    for modification and operation of these systems from 66 percent to the 50

    percent rate now common for such costs in other programs, such as Food
    Stamps and other welfare programs. In the past, CBO estimated that a
    reduced participation rate would produce budgetary savings. CBO 5- Year
    Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Human Services: Federal Approval and Funding
    Processes for States* Information Systems. GAO- 02- 347T. Washington, D.
    C.: July 9, 2002.

    Child Support Enforcement: Leadership Essential to Implementing Effective
    Automated Systems. GAO/ T- AIMD- 97- 162. Washington, D. C.: September 10,
    1997.

    Child Support Enforcement: Strong Leadership Required to Maximize Benefits
    of Automated Systems. GAO/ AIMD- 97- 72. Washington, D. C.: June 30, 1997.
    GAO Contact Joel C. Willemssen, (202) 512- 6408

    Obtain and Share Information on Medical Providers and Middlemen to Reduce
    Improper Payments

    Primary agency Social Security Administration

    to Supplemental Security

    Account Supplemental Security Income Program

    Income Recipients

    (28- 0406) Spending types Direct/ Discretionary Budget subfunction 609/
    Other income security

    The Supplemental Security Income (SSI) program guarantees a minimum level
    of income for needy, aged, blind, or disabled individuals. In fiscal year
    2000, the SSI program paid 6.6 million recipients about $31 billion in
    benefits.

    Over the years, some SSI recipients may have improperly gained access to
    program benefits by feigning or exaggerating disabilities with the help of
    middlemen (particularly interpreters) and medical providers. Although it
    is not possible to know the exact number of beneficiaries who became
    eligible for benefits through these practices, analysis suggests that the
    SSI program is vulnerable to this type of fraud and abuse. First, in an
    April 1998 sample, GAO found that more than 60 percent of the SSI
    beneficiaries suffer from mental and physical impairments that are
    difficult to objectively verify. Second, medical providers who were
    investigated for defrauding Medicaid, Medicare, or private insurance
    companies provided at least some of the medical evidence for 6 percent of
    the 208,000 disabled SSI recipient cases we reviewed in six states. Third,
    over 96 percent of the 158 SSA officials and staff that we interviewed
    said that they believed that the practice of middlemen helping people
    improperly qualify for SSI benefits has continued. SSA has tried to
    address this problem by developing ways to better identify and assess the
    initial or continuing eligibility of applicants and recipients who may be
    feigning disabilities. The

    agency has not, however, taken steps to systematically obtain and
    distribute information on various medical providers and middlemen that
    would better help identify such applicants and recipients. These steps are

    important because past experiences have shown that a single middleman or
    medical provider can help hundreds of ineligible beneficiaries get on the
    rolls. Every individual who obtains benefits by feigning or exaggerating
    disabilities will cost the federal government an estimated $122,000 in SSI
    and Medicaid benefits over the 10- year period 1999 through 2009.

    In order to reduce the number of improper claims under the SSI program,
    the Congress could consider requiring SSA to systematically obtain
    information on various middlemen and service providers and routinely share
    it throughout SSA. Such information could be collected from other
    government agencies and private entities that also face similar fraud and
    abuse issues as well as from SSA staff. SSA could use this information,
    for example, to determine which claims should receive increased scrutiny
    to prevent applicants from receiving improper benefits and to target
    investigations of current beneficiaries to determine if they should be
    removed from the program. Although in the past, CBO agreed that efforts to
    reduce fraud in the SSI program through greater information sharing about
    medical providers and middlemen have the potential to create savings, it
    could not develop a savings estimate without a specific legislative
    proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products High- Risk Series: An Update. GAO- 03- 119.
    Washington, D. C.: January 2003.

    High- Risk Series: An Update. GAO- 01- 263. Washington, D. C.: January
    2001.

    Supplemental Security Income: Additional Action Needed to Reduce Program
    Vulnerability to Fraud and Abuse. GAO/ HEHS- 99- 151. Washington, D. C.:
    September 15, 1999.

    Supplemental Security Income: Disability Program Vulnerable to Applicant
    Fraud When Middlemen Are Used. GAO/ HEHS- 95- 116. Washington, D. C.:
    August 31, 1995. GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Sustain/ Expand Range of SSI Program Integrity Activities

    Primary agency Social Security Administration Account Supplemental
    Security Income Program

    (28- 0406) Spending types Direct/ Discretionary Budget subfunction 609/
    Other income security

    The Social Security Administration (SSA) administers the Supplemental
    Security Income (SSI) program, which is the nation*s largest cash
    assistance program for the poor. Since its inception, the SSI program has
    been difficult and costly to administer because even small changes in
    income, available resources, or living arrangements can affect recipients*
    monthly benefit amounts or continued eligibility. To a significant extent,
    SSA relies heavily on recipients to accurately report important
    eligibility information. The agency also verifies certain income and
    resource information through computer matching with the records of other
    federal and state agencies. To determine whether a recipient remains
    eligible for SSI benefits, SSA also periodically conducts financial
    redetermination reviews, which involve personal contact with recipients to
    document their income, resources, living arrangements, and other
    eligibility factors. Recipients are reviewed at least every 6 years, but
    reviews may be more frequent if SSA determines that changes in eligibility
    are likely.

    We recently reported that SSA has made a variety of changes to improve its
    ability to detect SSI payment errors and recover overpayments. We also
    noted that SSA officials had estimated that conducting substantially more
    redeterminations would yield hundreds of millions of dollars in additional
    overpayment detections and preventions annually. In 2001, SSA estimated
    that it would be cost beneficial to do another 2.5 million
    redeterminations.

    The additional reviews would produce $1.1 billion in overpayment benefits
    (additional overpayment recoveries and future overpayments prevented).
    Subsequently, we recommended that SSA sustain and expand its program
    integrity activities. SSA plans to process 200,000 more financial
    redeterminations in 2003 than it did in 2002.

    CBO 5- Year Cost Estimate No, this is a new example. However, CBO
    indicated it could probably make

    Included in GAO*s 2002 an estimate for this example.

    Budgetary Implications Report

    Related GAO Products Supplemental Security Income: Progress Made in
    Detecting and Recovering Overpayments, but Management Attention Should
    Continue.

    GAO- 02- 849. Washington, D. C.: September 16, 2002.

    Supplemental Security Income: Action Needed on Long- Standing Problems
    Affecting Program Integrity. GAO/ HEHS- 98- 158. Washington, D. C.:
    September 14, 1998.

    GAO Contact Robert E. Robertson, (202) 512- 7215

    Revise Government Pension Offset (GPO) Exemption

    Primary agency Social Security Administration Account Federal Old- Age and
    Survivors Insurance

    Trust Fund (20- 8006) Spending types Direct/ Discretionary Budget
    subfunction 651/ Social security

    The Social Security Administration (SSA) administers the Government
    Pension Offset (GPO) provision. The GPO requires SSA to reduce benefits to
    persons whose social security entitlement is based on another person*s
    social security coverage (usually a spouse*s). The GPO prevents workers
    from receiving a full Social Security spousal benefit in addition to a
    pension from government employment not covered by Social Security.
    However, the law provides an exemption from the GPO if an individual*s
    last day of

    state/ local employment is in a position that is covered by both Social
    Security and the state/ local government*s pension system. In these cases,
    the GPO will not apply and Social Security spousal benefits will not be
    reduced.

    While we could not definitively confirm the extent nationwide that
    individuals are transferring positions to avoid the GPO, we found that in
    Texas and Georgia 4, 819 individuals had performed work in positions
    coverd by Social Security for short periods to qualify for the GPO last-
    day exemption. SSA officials also acknowledged that use of the exemption
    might be possible in some of the approximately 2,300 state and local
    government retirement plans in other states where such plans contain
    Social Security covered and noncovered positions. The transfers we
    identified in Texas and Georgia could increase long- term benefit payments
    from the Social Security Trust funds by $450 million. 24 While this
    currently represents a relatively small percentage of the Social Security
    Trust funds, costs could increase significantly if the practice grows and
    begins to be

    adopted by other states and localities. 24 We calculated this figure by
    multiplying the number of last- day cases reported in Texas and Georgia
    (4,819) by SSA data on the average annual offset amount ($ 4,800) and the
    average retiree*s life expectancy upon receipt of spousal benefits (19.4
    years). This estimate may over- underestimate costs due to the use of
    averages, the exclusion of inflation/ cost- ofliving/ net present value
    adjustments, lost investment earnings by the Trust Funds, and other
    factors that may affect the receipt of spousal benefits.

    Considering the potential for abuse of the last- day exemption and the
    likelihood for its increased use we believe that timely action is needed.
    In our report and testimony on this topic we presented a matter for
    congressional consideration that the last- day GPO exemption be revised to
    provide for a longer minimum time period, and the House has passed
    necessary legislation that is pending in the Senate. This action would
    provide an immediate *fix* to address possible abuses of the GPO
    exemption. CBO 5- Year Cost Estimate

    No, this is a new example. However, CBO indicated it could probably make
    Included in GAO*s 2002

    an estimate for this example. Budgetary Implications Report

    Related GAO Products Social Security: Congress Should Consider Revising
    the Government Pension Offset *Loophole.* GAO- 03- 498T. Washington, D.
    C.: February 27, 2003.

    Social Security Administration: Revision to the Government Pension Offset
    Exemption Should Be Considered. GAO- 02- 950. Washington, D. C.: August
    15, 2002.

    GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Better Congressional Oversight of PRWORA*s Fugitive Felon Provisions

    Primary agencies Multiple Accounts Multiple Spending types Direct/
    Discretionary Budget subfunctions Multiple

    In response to concerns that individuals wanted in connection with a
    felony, or violating terms of their parole or probation, could receive
    benefits from programs for the needy, the Congress added provisions to the
    Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)
    of 1996 that prohibit these individuals from receiving Supplemental
    Security Income (SSI) administered by the Social Security Administration
    (SSA), Food Stamp benefits administered by the Department of Agriculture
    (USDA), and Temporary Assistance to Needy Families (TANF) administered by
    the Department of Health and Human Services (HHS). These provisions also
    make fugitive felon 25 status grounds for termination of tenancy in many
    federal housing assistance programs, administered by the Department of
    Housing and Urban Development (HUD).

    Since PRWORA was enacted, the SSI, Food Stamp, and TANF programs have
    identified over 110,000 beneficiaries who are fugitive felons* largely
    through computer matches of automated arrest warrant and recipient files.

    When these programs took the initiative or were in a position to match
    automated recipient and warrant data, many fugitive felons were
    identified, which led to substantial cost savings. SSA, for example,
    conducted the most comprehensive matches, comparing data from its entire
    SSI applicant and recipient files each month to warrant data it obtained
    from various federal, state, and local law enforcement agencies. As a
    result, SSA reported that, in 2000 and 2001, it identified more than 36,
    000 fugitive felons on the SSI rolls, incurring projected savings of over
    $96 million.

    Use of computer matches of benefit recipient and arrest warrant files to
    prevent fugitive felons from collecting benefits varies widely across
    programs, however. While SSA had by far the most comprehensive

    25 Here, the term *fugitive felons* also refers to probation and parole
    violators.

    computer matching initiative, fewer than one- third of the state agencies
    administering the TANF and Food Stamp programs used periodic computer
    matching, to any extent. HUD had not conducted any matches of this kind,
    but our own match of HUD*s recipient file and arrest warrant files in a
    single year turned up nearly 1,000 housing assistance recipients for whom
    there were arrest warrants in Ohio and Tennessee, alone. We estimated that
    HUD could have saved $4.2 million annually in program costs if the

    housing assistance these individuals received had been terminated. Given
    the savings SSA and some state Food Stamp and TANF programs have incurred
    using computer matching to identify and drop fugitive felons from their
    benefit rolls, and the potential savings we demonstrated HUD could achieve
    in the same way, use of computer matching for this purpose by additional
    state Food Stamp and TANF programs, as well as the HUD housing assistance
    program, represent opportunities for greater cost savings in this area.

    Moreover, the law, as it applies to housing assistance programs, states
    that fugitive felon status is only grounds for termination of tenancy and
    not that fugitive felons are ineligible for housing assistance. Therefore,
    according to HUD officials, while public housing agencies and landlords
    have the

    authority to evict fugitive felons, they are not required to do so. This
    may explain why HUD has done little to ensure that fugitive felons do not
    receive housing assistance. The Congress should consider amending the
    Housing Act of 1937 to explicitly make fugitive felons ineligible for
    housing benefits.

    CBO 5- Year Cost Estimate No, this is a new example. However, CBO
    indicated it could probably make

    Included in GAO*s 2002 an estimate for this example.

    Budgetary Implications Report Related GAO Products Welfare Reform:
    Implementation of Fugitive Felon Provisions Should be

    Strengthened. GAO- 02- 716. Washington, D. C.: September 25, 2002.

    Social Security Administration: Fugitive Felon Program Could Benefit from
    Better Use of Technology. GAO- 02- 346. Washington, D. C.: September 6,
    2002.

    Social Security Programs: The Scope of SSA*s Authority to Deny Benefits to
    Fugitive Felons and to Release Information About OASI and DI Beneficiaries
    Who are Fugitive Felons. GAO- 02- 459R. Washington, D. C.: February 27,
    2002.

    GAO Contact Robert E. Robertson, (202) 512- 7215

    Improve the Administrative Oversight of Food Assistance Programs

    Primary agency Department of Agriculture Accounts Multiple Spending types
    Direct/ Discretionary Budget subfunction 605 /Food and nutrition
    assistance

    The U. S. Department of Agriculture (USDA) continues to face serious
    challenges in ensuring that eligible individuals receive the proper
    benefits from the food assistance programs administered by its Food and
    Nutrition Service. Each day, 1 in every 6 Americans receives nutrition
    assistance through 1 or more of the 15 programs administered by this
    agency. These

    programs, which accounted for slightly more than half of USDA*s budget
    authority for fiscal year 2002, provide children and low- income adults
    with access to food, a healthful diet, and nutrition education.
    Specifically, for fiscal year 2002, the Congress appropriated about $38.8
    billion to operate these programs, including the Food Stamp Program and
    child nutrition programs, such as the school- breakfast and school- lunch
    programs. This high level of support dictates that USDA must continually
    address and minimize the amount of fraud and abuse occurring in these
    programs in order to ensure their integrity.

    USDA*s Food Stamp Program, the cornerstone of its nutrition assistance
    programs, provided 17.3 million individuals with more than $15.5 billion
    in benefits in fiscal year 2001. As noted in the President*s Management
    Agenda, USDA must continue to address the challenge of accurately issuing
    food stamp benefits to those who are eligible. Specifically, USDA

    estimated that about $1.4 billion in erroneous payments were made to food
    stamp recipients in fiscal year 2001* about $1 billion of the benefits
    issued were estimated to be overpayments and more than $370 million of the
    benefits issued were estimated to be underpayments* an error rate of
    approximately 9 percent. To deal with the complexity of the Food Stamp
    Program and the high error rate, the 2002 Farm Bill contained a number of

    administrative and simplification reforms, such as allowing states to use
    greater flexibility in considering the income of recipients for
    eligibility purposes and to extend simplified reporting procedures for all
    program recipients.

    In addition to ensuring that eligible individuals receive proper benefits,
    USDA faces the challenge of minimizing the illegal sale of benefits for

    cash* a practice known as trafficking. Food Stamps are accepted by about
    149,000 authorized retail food stores, and in a March 2000 report,
    estimated that stores trafficked about $660 million, or about 3.5 cents of
    every dollar of food stamp benefits issued per year from 1996 through
    1998. In addition, store owners generally do not pay the financial
    penalties assessed for

    trafficking. In May 1999, we reported that USDA and the courts collected
    only $11.5 million, or about 13 percent, of the $78 million in total
    penalties assessed against storeowners for violating food stamp
    regulations from 1993 through 1998. 26 USDA reduced the remaining amount
    owed by storeowners by about $49 million, or about 55 percent, through
    waivers, adjustments, and write- offs. While weaknesses in debt collection
    practices contribute to low collection rates, USDA officials noted that
    these rates also reflect the difficulties involved in collecting this type
    of debt, including

    problems in locating storeowners who have been removed from the Food Stamp
    Program and the refusal of some storeowners to pay their debts.

    Better use of information technology has the potential to help USDA
    minimize fraud, waste, and abuse in the Food Stamp Program. For example,
    in our May 1999 report we recommended that the Food and Nutrition Service
    make better use of data from electronic benefit transfers (EBT) to
    identify and assess penalties against storeowners who violate the Food
    Stamp Program*s regulations. Also, we recommended in March 2000 that the
    Food and Nutrition Service work with the states to implement best
    practices for using EBT data to identify and take action against
    recipients engaged in trafficking of food stamp benefits. 27 The Food and
    Nutrition Service has taken some actions to implement our recommendations,
    such

    as assisting states in the use of EBT data to identify traffickers, and
    has other actions under way.

    USDA also faces fraud and abuse challenges in other nutrition programs,
    including the Child and Adult Care Food Program (CACFP), which for fiscal
    year 2002 was funded at $1. 8 billion, and the National School Lunch and
    School Breakfast programs, which for that year were funded at $7.4
    billion. In fiscal year 2001, CACFP provided subsidized meals for a

    26 U. S. General Accounting Office, Food Stamp Program: Storeowners Seldom
    Pay Financial Penalties Owed for Program Violations, GAO/ RCED- 99- 91
    (Washington, D. C.: May 11, 1999). 27 U. S. General Accounting Office,
    Food Stamp Program: Better Use of Electronic Data Could Result in
    Disqualifying More Recipients Who Traffic Benefits, GAO/ RCED- 00- 61
    (Washington, D. C.: Mar. 7, 2000).

    daily average of 2.6 million participants in the care of about 215,000 day
    care providers. Over the years, USDA*s Office of Inspector General (OIG)
    has identified examples of the intentional misuse of CACFP funds,
    including cases in which program sponsors created fictitious day care
    providers and inflated the number of meals served. In response to our
    November 1999 recommendation 28 and reports by the OIG, legislation was
    enacted in June 2000 to strengthen CACFP management controls and to reduce
    its vulnerability to fraud and abuse. As a result, the Food and

    Nutrition Service has intensified its management evaluations at the state
    and local levels and has trained its regional and state agency staff on
    revised management procedures.

    Furthermore, in its strategic plan for fiscal years 2000 through 2005,
    USDA specifically identified the challenge it faces in ensuring that only
    eligible participants are provided benefits in the National School Lunch
    Program.

    In fiscal year 2001, this program provided nutritionally balanced, low-
    cost or free lunches for over 27 million children each school day in more
    than 98,000 public and nonprofit private schools and residential child
    care

    institutions. Data show that the number of children certified as eligible
    to receive free lunches in this program may be as much as 27 percent
    greater than the number of children estimated eligible for this benefit.
    However, these estimates are based on a broad review of certain Census
    data and are

    best seen as indicators of a problem rather than precise measures of
    program misuse. USDA has taken some initial steps to develop a
    costeffective strategy to address this integrity issue, such as pilot-
    testing potential policy changes to improve the certification process, and
    other

    measures may be considered as the Congress moves to reauthorize this
    program.

    CBO 5- Year Cost Estimate No, this is a new option.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Food Stamp Program: Better Use of Electronic Data
    Could Result in Disqualifying More Recipients Who Traffic Benefits. GAO/
    RCED- 00- 61. Washington, D. C.: March 7, 2000.

    28 U. S. General Accounting Office, Food Assistance: Efforts to Control
    Fraud and Abuse in the Child and Adult Care Food Program Should Be
    Strengthened, GAO/ RCED- 00- 12 (Washington, D. C.: Nov. 29, 1999).

    Food Assistance: Efforts to Control Fraud and Abuse in the Child and Adult
    Care Food Program Should Be Strengthened. GAO/ RCED- 00- 12. Washington,
    D. C.: November 29, 1999.

    Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed for
    Program Violations. GAO/ RCED- 99- 91. Washington, D. C.: May 11, 1999.

    GAO Contacts Sigurd R. Nilsen, (202) 512- 7003 David Bellis, (415) 904-
    2272

    CBO Option Where Related GAO Work Is Identified 29

    600- 07 Reduce the Federal Matching Rate for Administrative and Training
    Costs in the Foster Care and Adoption Assistance Programs

    Related GAO Product Child Welfare: HHS Could Play a Greater Role in
    Helping Child Welfare Agencies Recruit and Retain Staff. GAO- 03- 357.
    Washington, D. C.: March 31, 2003. 29

    GAO Contact Cornelia Ashby, (202) 512- 8403 29 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    700 Veterans Benefits

    Examples from Selected GAO Work

    and Services Revise VA*s Disability Ratings Schedule to Better Reflect
    Veterans*

    Economic Losses Discontinue Veterans* Disability Compensation for
    Nonservice Connected Diseases Reassess Unneeded Health Care Assets within
    the Department of Veterans

    Affairs Reducing VA Inpatient Food and Laundry Service Costs

    CBO Options Where Related GAO Work Is Identified

    700- 01 Narrow the Eligibility for Veterans* Disability Compensation to
    Include Only Veterans with High- Rated Disabilities

    700- 02 Narrow the Eligibility for Veterans* Disability Compensation to
    Veterans Whose Disabilities Are Related to Their Military Duties

    700- 03 Increase Beneficiaries* Cost Sharing for Care at Nursing
    Facilities Operated by the Department of Veterans Affairs

    Examples from Selected GAO Work

    Revise VA*s Disability Ratings Schedule to Better Reflect Veterans*
    Economic Losses

    Primary agency Department of Veterans Affairs Account Compensation and
    Pensions (36- 0102) Spending type Direct Budget subfunction 701/ Income
    security for veterans

    The Department of Veterans Affairs* (VA) disability program is required by
    law to compensate veterans for the average loss in earning capacity in
    civilian occupations that results from injuries or conditions incurred or
    aggravated during military service. Veterans with such service- connected
    disabilities are entitled to monthly cash benefits under this program even
    if they are working and regardless of the amount they earn. The amount of
    compensation received is based on disability ratings that VA assigns to
    the service- connected conditions. In fiscal year 2002, VA paid more than
    $22 billion in compensation to more than 2.3 million veterans, and more

    than 300,000 veterans* survivors and children, for these service-
    connected disabilities.

    The disability ratings schedule that VA uses is still primarily based on
    physicians* and lawyers* judgments made in 1945 about the effect
    serviceconnected conditions had on the average individual*s ability to
    perform jobs requiring manual or physical labor. Although the ratings in
    the schedule have not changed substantially since 1945, dramatic changes
    have occurred in the labor market and in society. The results of an
    economic

    validation of the schedule conducted in the late 1960s indicated that
    ratings for many conditions did not reflect the actual average loss in
    earnings associated with them. Therefore, it is likely that some of the
    ratings in the schedule do not reflect the economic loss experienced by
    veterans today. Hence, the schedule may not equitably distribute
    compensation funds

    among disabled veterans. The Congress may wish to consider directing VA to
    determine whether the ratings for conditions in the schedule correspond to
    veterans* average loss

    in earnings due to these conditions and adjust disability ratings
    accordingly. Generally accepted and widely used approaches exist to
    statistically estimate the effect of specific service- connected
    conditions on veterans* average earnings. These estimates could be used to
    set disability

    ratings in the schedule that are appropriate in today*s socioeconomic
    environment. In 1997, we reported the cost to collect the data to produce
    these estimates was projected to be between $5 million and $10 million,
    which would be a small fraction of the more than $22 billion VA paid in
    disability compensation to veterans and their families in fiscal year
    2002. Any savings associated with this option would depend on how the new
    disability schedule alters payments to beneficiaries. A reexamination of
    the disability schedule could find that some conditions are overpaid while
    others may require increased payments. In the past, CBO was unable to
    estimate any costs or savings that could result because a specific
    proposal

    for revising the disability ratings schedule had not been presented. CBO
    5- Year Cost Estimate

    No. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Department of Veterans Affairs: Key Management
    Challenges in Health and Disability Programs. GAO- 03- 756T. Washington,
    D. C.: May 8, 2003.

    SSA and VA Disability Programs: Re- Examination of Disability Criteria
    Needed to Help Ensure Program Integrity. GAO- 02- 597. Washington, D. C.:
    August 9, 2002.

    VA Disability Compensation: Disability Ratings May Not Reflect Veterans*
    Economic Losses. GAO/ HEHS- 97- 9. Washington, D. C.: January 7, 1997.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    Discontinue Veterans* Disability Compensation for Nonservice Connected
    Diseases

    Primary agency Department of Veterans Affairs Account Compensation and
    Pensions (36- 0102) Spending type Direct Budget subfunction 701/ Income
    security for veterans

    In fiscal year 2002, the Department of Veterans Affairs (VA) paid more
    than $18.5 billion in compensation to more than 2.3 million veterans for
    serviceconnected disabilities. A disease or injury resulting in disability
    is considered service- connected if it was incurred or aggravated during
    military service. No causal connection is required. In 1989, GAO reported
    on the U. S. practice of compensating veterans for conditions that were
    probably neither caused nor aggravated by military service. These
    conditions included diabetes, chronic obstructive pulmonary disease,
    arteriosclerotic heart disease, and multiple sclerosis. In 1993, GAO
    reported that other countries were less likely to compensate veterans when
    diseases were unrelated to military service, when the relationship of the

    disease to military service could not be established, or for off- duty
    injuries such as those that happen while on vacation.

    The Congress may wish to reconsider whether diseases neither caused nor
    aggravated by military service should be compensated as serviceconnected
    disabilities. In 1996, the CBO reported that about 230,000 veterans were
    receiving about $1.1 billion in disability compensation payments annually
    for diseases neither caused nor aggravated by military service. In the
    past, CBO estimated that budgetary savings would occur if disability
    compensation payments to veterans with nonservice connected, disease-
    related disabilities were eliminated in future cases.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products SSA and VA Disability Programs: Re- Examination of
    Disability Criteria Needed to Help Ensure Program Integrity. GAO- 02- 597.
    Washington, D. C.: August 9, 2002.

    VA Disability Compensation: Disability Ratings May Not Reflect Veterans*
    Economic Losses. GAO/ HEHS- 97- 9. Washington, D. C.: January 7, 1997.

    Disabled Veterans Programs: U. S. Eligibility and Benefit Types Compared
    With Five Other Countries. GAO/ HRD- 94- 6. Washington, D. C.: November
    24, 1993.

    VA Benefits: Law Allows Compensation for Disabilities Unrelated to
    Military Service. GAO/ HRD- 89- 60. Washington, D. C.: July 31, 1989.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    Reassess Unneeded Health Care Assets within the Department of Veterans
    Affairs

    Primary agency Department of Veterans Affairs Account Medical Care (36-
    0160) Spending type Discretionary Budget subfunction 703/ Hospital and
    medical care for veterans

    The Department of Veterans Affairs (VA) health care system owns 4,900
    buildings and 15,500 acres of land. Its health care delivery system
    includes over 160 major medical facilities and over 500 community based
    outpatient

    clinics. VA spends about a fourth of its $23 billion budget to operate,
    maintain, and improve these assets. To improve the delivery of health care
    services, VA has shifted emphasis from inpatient to outpatient care in
    many

    instances and shortened lengths of stay when hospitalization was required.
    This change in health care delivery has resulted in excess inpatient
    capacity at many locations. As a result, VA*s infrastructure is not
    efficiently aligned to meet veterans* needs. Without a realignment of its
    infrastructure, VA will continue to spend millions of dollars to operate
    unneeded VA facilities and miss the opportunity to reinvest the savings it
    could realize from asset realignment into better health care for all
    veterans.

    In response to GAO concerns, VA initiated its Capital Asset Realignment
    for Enhanced Services (CARES) program to realign its assets and resources
    to better serve veterans. Any realignment* which could include facility
    closings* will take into consideration future directions in health care
    delivery, demographic projections, physical plant capacity, community
    health care capacity, and workforce requirements. VA plans to reinvest
    savings generated through the implementation of CARES to meet veterans*
    health care needs. VA plans to announce its proposed realignment plan by
    the end of calendar year 2003. Continued congressional oversight is
    warranted to review VA*s plans and assess their impact on costs and
    services.

    Although in the past CBO agreed that reducing unneeded health care assets
    at the VA had the potential to create savings, it could not develop a
    savings estimate without a specific legislative proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Department of Veterans Affairs: Key Management
    Challenges in Health and Disability Programs. GAO- 03- 756T. Washington,
    D. C.: May 8, 2003.

    VA Health Care: Improved Planning Needed for Management of Excess Real
    Property. GAO- 03- 326. Washington, D. C.: January 29, 2003.

    VA Health Care: VA Is Struggling to Address Asset Realignment Challenges.
    GAO/ T- HEHS- 00- 88. Washington, D. C.: April 5, 2000.

    VA Health Care: Improvements Needed in Capital Asset Planning and
    Budgeting. GAO/ HEHS- 99- 145. Washington, D. C.: August 13, 1999.

    VA Health Care: Challenges Facing VA in Developing an Asset Realignment
    Process. GAO/ T- HEHS- 99- 173. Washington, D. C.: July 22, 1999.

    Veterans* Affairs: Progress and Challenges in Transforming Health Care.

    GAO/ T- HEHS- 99- 109. Washington, D. C.: April 15, 1999.

    VA Health Care: Capital Asset Planning and Budgeting Need Improvement.
    GAO/ T- HEHS- 99- 83. Washington, D. C.: March 10, 1999.

    VA Health Care: Closing a Chicago Hospital Would Save Millions and Enhance
    Access to Services. GAO/ HEHS- 98- 64. Washington, D. C.: April 16, 1998.

    VA Health Care: Opportunities to Enhance Montgomery and Tuskegee Service
    Integration. GAO/ T- HEHS- 97- 191. Washington, D. C.: July 28, 1997.

    VA Health Care: Lessons Learned From Medical Facility Integrations.

    GAO/ T- HEHS- 97- 184. Washington, D. C.: July 24, 1997.

    Department of Veterans Affairs: Programmatic and Management Challenges
    Facing the Department. GAO/ T- HEHS- 97- 97. Washington, D. C.: March 18,
    1997.

    VA Health Care: Opportunities for Service Delivery Efficiencies Within
    Existing Resources. GAO/ HEHS- 96- 121. Washington, D. C.: July 25, 1996.

    VA Health Care: Opportunities to Increase Efficiency and Reduce Resource
    Needs. GAO/ T- HEHS- 96- 99. Washington, D. C.: March 8, 1996.

    VA Health Care: Challenges and Options for the Future. GAO/ T- HEHS- 95-
    147. Washington, D. C.: May 9, 1995.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    Reducing VA Inpatient Food and Laundry Service Costs

    Primary agency Department of Veterans Affairs Account Medical Care (VA)
    (35- 0160) Spending type Discretionary Budget subfunction 703/ Hospital
    and medical care for veterans

    The Department of Veterans Affairs (VA) provides inpatient food services
    and laundry processing for thousands of inpatients a day in hospitals,
    nursing homes, and domiciliaries. In fiscal year 1999, VA spent about $324

    million (food service) and $52 million (laundry) for these activities and
    employed 7,000 Nutrition and Food Service (NFS) wage- grade workers, not
    including dietitians and 1,100 laundry processing workers. The NFS workers
    cook and prepare food, distribute food to patients, and retrieve and wash
    plates, trays, and utensils. The laundry processing workers sort, wash,
    dry, fold, and transport laundry.

    As of November 2000, VA had consolidated 28 of its food production
    locations into 10, begun using less expensive Veterans Canteen Service
    (VCS) workers in 9 locations, and contracted out in 2 locations. For
    laundry services, VA had consolidated 116 of its laundries into 67
    locations and used competitive sourcing to contract with the private
    sector in other locations.

    VA has the potential to further reduce its inpatient food service and
    laundry costs by systematically assessing, at all its health care delivery
    locations, options it is already using at some of its health care
    locations. For example, VA could consolidate food production locations
    within a 90- minute driving distance of each other and laundry locations
    within a 4- hour driving distance of each other. VA could also use less
    expensive VCS employees at all inpatient food locations. In addition,
    competitive sourcing could be a cost effective alternative for providing
    both food and laundry services. VA has established a plan to complete
    studies of competitive sourcing of

    55,000 positions, including about 13,000 laundry and food service
    positions, by 2008. However, VA has suspended this effort, except for its
    Veterans

    Canteen Service, 30 because its general counsel determined that VA could
    not continue these studies using appropriations from the Veterans Health
    Administration without specific authorization from the Congress. VA plans
    to ask the Congress for authorization to carry out these studies.

    In the past, CBO estimated that budgetary savings could occur if the
    Congress required VA to consolidate and competitively bid its food service
    and laundry operations and use VCS employees at all inpatient food
    locations.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products VA Health Care: Consolidations and Competitive
    Sourcing of Laundry Service Could Save Millions. GAO- 01- 61. Washington,
    D. C.: November 30, 2000.

    VA Health Care: Expanding Food Service Initiatives Could Save Millions.

    GAO- 01- 64. Washington, D. C.: November 30, 2000.

    VA Health Care: Laundry Service Operations and Costs. GAO/ HEHS- 00- 16.
    Washington, D. C.: December 21, 1999.

    VA Health Care: Food Service Operations and Costs at Inpatient Facilities.
    GAO/ HEHS- 00- 17. Washington, D. C.: November 19, 1999.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101 30 VA is continuing its
    competitive sourcing study of the Veterans Canteen Service because
    operations are funded from nonappropriated funds. The Canteen Service
    generates revenues from its sales of food and other retail items in its
    food court, and from retail

    operations in VA hospitals to fund operations. VA expects to complete the
    competitive sourcing study on the food service part of the Canteen Service
    during the fourth quarter of fiscal year 2003.

    CBO Options Where Related GAO Work Is Identified 31

    700- 01 Narrow the Eligibility for Veterans* Disability Compensation to
    Include Only Veterans with HighRated Disabilities

    Related GAO Product VA Disability Compensation: Disability Ratings May Not
    Reflect Veterans* Economic Losses. GAO/ HEHS- 97- 9. Washington, D. C.:
    January 7, 1997. 31

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101 700- 02 Narrow the
    Eligibility for Veterans* Disability Compensation to Veterans Whose
    Disabilities Are Related to Their Military Duties

    Related GAO Products VA Disability Compensation: Disability Ratings May
    Not Reflect Veterans* Economic Losses. GAO/ HEHS- 97- 9. Washington, D.
    C.: January 7, 1997.

    31 We list GAO reports identified as relating to options included in the
    CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    Disabled Veterans Programs: U. S. Eligibility and Benefit Types Compared
    With Five Other Countries. GAO/ HRD- 94- 6. Washington, D. C.: November
    24, 1993.

    VA Benefits: Law Allows Compensation for Disabilities Unrelated to
    Military Service. GAO/ HRD- 89- 60. Washington, D. C.: July 31, 1989.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101 700- 03 Increase
    Beneficiaries* Cost Sharing for Care at Nursing Facilities Operated by the
    Department of Veterans Affairs

    Related GAO Products VA Aid and Attendance Benefits: Effects of Revised
    HCFA Policy on Veterans* Use of Benefits. GAO/ HEHS- 97- 72R. Washington,
    D. C.: March 3, 1997.

    VA Health Care: Better Data Needed to Effectively Use Limited Nursing Home
    Resources. GAO/ HEHS- 97- 27. Washington, D. C.: December 20, 1996.

    VA Health Care: Potential for Offsetting Long- Term Care Costs Through
    Estate Recovery. GAO/ HRD- 93- 68. Washington, D. C.: July 27, 1993.

    VA Health Care: Offsetting Long- Term Care Costs by Adopting State
    Copayment Practices. GAO/ HRD- 92- 96. Washington, D. C.: August 12, 1992.

    GAO Contact Cynthia A. Bascetta, (202) 512- 7101

    800 General

    Examples from Selected GAO Work

    Government; 900 Net Prevent Delinquent Taxpayers from Benefiting from
    Federal Programs

    Interest; and 999 Multiple

    Target Funding Reductions in Formula Grant Programs Adjust Federal Grant
    Matching Requirements Replace the 1- Dollar Note with a 1- Dollar Coin
    Increase Fee Revenue from Federal Reserve Operations Recognize the Costs
    Up- front of Long- term Space Acquisitions Seek Alternative Ways to
    Address Federal Building Repair Needs Improper Benefit Payments Could Be
    Avoided or More Quickly Detected if Data from Various Programs Were Shared

    Better Target Infrastructure Investments to Meet Mission and
    ResultsOriented Goals

    Information Sharing Could Improve Accuracy of Workers Compensation Offset
    Payments

    Determine Feasibility of Locating Federal Facilities in Rural Areas
    Leverage Buying Power to Reduce Costs of Supplies and Services Consolidate
    Grants for First Responders to Improve Efficiency

    CBO Options Where Related GAO Work Is Identified

    800- 03 Eliminate Federal Antidrug Advertising 920- 03 Impose a Fee on the
    Investment Portfolios of GovernmentSponsored Enterprises

    Examples from Selected GAO Work

    Prevent Delinquent Taxpayers from Benefiting from Federal Programs

    Primary agency Internal Revenue Service Spending type Direct

    The federal government*s operations are funded primarily through tax
    revenue collected from the nation*s taxpayers. In fiscal year 2002, the
    federal government, through the Internal Revenue Service (IRS), collected
    over $2 trillion in federal tax revenue to finance government operations.

    However, while most taxpayers comply with their tax obligation, a
    significant portion of taxpayers do not. Over time, this has led to unpaid
    taxes, penalties, and interest, which totaled about $249 billion at the
    end of fiscal year 2002. Of this amount, the IRS estimates that only $20
    billion, or about 8 percent, will be collected.

    A significant number of taxpayers, both individuals and businesses, who
    owe the federal government billions of dollars in delinquent taxes receive
    significant federal benefits and other federal payments. In addition to
    Social Security Administration benefit payments, federal civilian
    retirement payments, and federal civilian salaries, payments on federal
    contracts and Small Business Administration loans are also provided to
    these delinquent taxpayers. Federal law, generally, does not prevent
    businesses or individuals from receiving federal payments or loans when
    they are delinquent in paying federal taxes.

    The Office of Management and Budget*s (OMB) Circular A- 129, revised,
    provides policies for the administration of federal credit programs. These
    policies specifically direct agencies to determine whether applicants are
    delinquent on any federal debt, including tax debt, and to suspend the
    processing of credit applications if applicants have outstanding tax debt
    until such time as the applicant pays the debt or enters into a payment
    plan. Unfortunately, these policies have not been effective in preventing
    the disbursement of federal dollars to individuals and businesses with

    delinquent taxes.

    In order to fully realize this benefit, the Congress could enact
    legislation codifying the provisions of OMB Circular A- 129, as revised,
    that relate to this matter. A key aspect of this legislation would be to
    ensure that IRS*s efforts to modernize its business systems are successful
    in enabling it to generate timely and accurate information on the
    taxpayer*s status to assist other agencies in making determinations about
    eligibility for federal benefits and payments.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Debt Collection: Barring Delinquent Taxpayers From
    Receiving Federal Contracts and Loan Assistance. GAO/ T- GGD/ AIMD- 00-
    167. Washington, D. C.: May 9, 2000.

    Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty Assessments
    Are Owed. GAO/ AIMD/ GGD- 99- 211. Washington, D. C.: August 2, 1999.

    Tax Administration: Billions in Self- Employment Taxes Are Owed.

    GAO/ GGD- 99- 18. Washington, D. C.: February 19, 1999. GAO Contacts
    Steven J. Sebastian, (202) 512- 3406 James R. White, (202) 512- 9110

    Target Funding Reductions in Formula Grant Programs

    Primary agencies Multiple Accounts Multiple Spending types Discretionary/
    Direct Budget subfunctions Multiple

    Many federal grant programs with formula- based distribution of funds to
    state and local governments are not well targeted to jurisdictions with
    high programmatic needs but comparatively low funding capacity. As a
    result, as we pointed out in 1996 and in 1998, 32 it is not uncommon that
    program recipients in areas with greater wealth and relatively lower needs
    may enjoy a higher level of services than available in harder pressed
    areas.

    Alternatively, these wealthier areas can provide the same level of
    services but at lower tax rates than harder pressed areas.

    At a time when federal discretionary resources are increasingly
    constrained, better targeting of formula- based grant awards offers a
    strategy to bring down federal outlays by concentrating reductions in
    wealthier localities with comparatively fewer needs and greater capacity
    to absorb the cuts. At the same time, redesigned formulas could hold
    harmless the hardest pressed areas that are most vulnerable. For example,
    Medicaid reimburses approximately 57 percent of eligible state spending,

    with the federal share ranging from a minimum of 50 to a maximum of 77
    percent depending on the per capita income of the state. There are a
    variety of ways in which budgetary savings could be achieved to improve
    the targeting of these programs, including the following:

     Reduce the minimum federal reimbursement rate to below 50 percent. This
    example would focus the burden of the reduced federal share on those
    states with the highest per capita income. To the extent that per capita
    income provides a reasonable basis for comparing state tax bases, this
    example would require states with the strongest tax bases to

    shoulder the burden of a reduced federal share. 32 U. S. General
    Accounting Office, Deficit Reduction: Better Targeting Can Reduce Spending
    and Improve Programs and Services, GAO/ AIMD- 96- 14 (Washington, D. C.:
    Jan. 16, 1996), and School Finance: State Efforts to Equalize Funding
    Between Weathly and Poor School Districts, GAO/ HEHS- 98- 92 (Washington,
    D. C.: June 16, 1998).

     Reduce federal reimbursement rates only for those states with
    comparatively low program needs and comparatively strong tax bases. Under
    this example, the matching formula could be revised to better reflect the
    relative number of people in need, geographic differences in the cost of
    services, and state tax bases. Under the revised formula, states with
    comparatively low need and strong tax bases would receive lower federal
    reimbursement rates while states with high needs and weak tax bases would
    continue to receive their current reimbursement percentage. This example
    would focus the burden of a reduced federal share in those states with the
    lowest need and the strongest ability to fund program services from state
    resources.

    Many other formulas used to distribute federal grant funding do not
    recognize the different fiscal capacities of states to provide benefits
    from their own resources. Moreover, many of these formulas have not been
    reassessed for years or even decades. One option that would realize
    budgetary savings in nonentitlement programs such as these would be to
    revise the funding formula to reflect the strength of state tax bases. A
    new formula could be calibrated so that funding is maintained in states or
    local governments with weak tax bases in order to maintain needed program
    services but reduced in high tax base states to realize budgetary savings.
    Examples of these types of formula grant programs include the following.

     Federal Aid Highways: This program, the largest nonentitlement formula
    grant program, allocates funds among the states based on their historic
    share of funding. This approach reflects antiquated indicators of highway
    needs, such as postal road miles and the land area of the state.

     Community Development Block Grant: This program allocates funds among
    local governments based on housing age and condition, population, and
    poverty, and does not include a factor recognizing local wealth or fiscal
    capacity. For example, Greenwich, Conn., received five

    times more funding per person in poverty in 1995 than that provided to
    Camden, N. J., even though Greenwich, with per capita income six times
    greater than Camden, could more easily afford to fund its own community
    development needs. This disparity is due to the formula*s recognition of
    older housing stock and population and its exclusion of fiscal capacity
    indicators.

    An option that illustrates the potential savings from targeting formula
    grant programs is a 10 percent reduction in the aggregate total of all
    close- ended or capped formula grant programs exceeding $1 billion. 33 In
    the past, CBO estimated that the savings achieved through this option
    could serve as a benchmark for overall savings from this approach but
    should not be interpreted as a suggestion for across- the- board cuts.
    Rather, as the above examples indicate, the Congress may wish to determine
    specific reductions on a program- by- program basis, after examining the
    relative priority and performance of each grant program.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Formula Grants: Effects of Adjusted Population Counts
    on Federal Funding to States. GAO/ HEHS- 99- 69. Washington, D. C.:
    February 26, 1999.

    Medicaid Formula: Effects of Proposed Formula on Federal Shares of State
    Spending. GAO/ HEHS- 99- 29R. Washington, D. C.: February 19, 1999.

    Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/ AIMD98-
    137. Washington, D. C.: August 22, 1998.

    Public Housing Subsidies: Revisions to HUD*s Performance Funding System
    Could Improve Adequacy of Funding. GAO/ RCED- 98- 174. Washington, D. C.:
    June 19, 1998.

    School Finance: State Efforts to Equalize Funding Between Wealthy and Poor
    School Districts. GAO/ HEHS- 98- 92. Washington, D. C.: June 16, 1998.

    School Finance: State and Federal Efforts to Target Poor Students.

    GAO/ HEHS- 98- 36. Washington, D. C.: January 28, 1998.

    School Finance: State Efforts to Reduce Funding Gaps Between Poor and
    Wealthy Districts. GAO/ HEHS- 97- 31. Washington, D. C.: February 5, 1997.
    33 In the transportation function, several very small, close- ended grants
    could not be easily isolated in the baseline and these are included in the
    estimate.

    Federal Grants: Design Improvements Could Help Federal Resources Go
    Further. GAO/ AIMD- 97- 7. Washington, D. C.: December 18, 1996.

    Public Health: A Health Status Indicator for Targeting Federal Aid to
    States. GAO/ HEHS- 97- 13. Washington, D. C.: November 13, 1996.

    School Finance: Options for Improving Measures of Effort and Equity in
    Title I. GAO/ HEHS- 96- 142. Washington, D. C.: August 30, 1996.

    Highway Funding: Alternatives for Distributing Federal Funds.

    GAO/ RCED- 96- 6. Washington, D. C.: November 28, 1995.

    Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity.

    GAO/ HEHS- 96- 26. Washington, D. C.: November 13, 1995.

    Department of Labor: Senior Community Service Employment Program Delivery
    Could Be Improved Through Legislative and Administrative Action. GAO/
    HEHS- 96- 4. Washington, D. C.: November 2, 1995.

    GAO Contact Paul L. Posner, (202) 512- 9573

    Adjust Federal Grant Matching Requirements

    Primary agencies Multiple Accounts Multiple Spending types Discretionary/
    Direct Budget subfunctions Multiple

    Intergovernmental grants are a significant part of both federal and state
    budgets. From the first annual cash grant under the Hatch Act of 1887, the
    number of grant programs rose to approximately 660 in 2001 with outlays of
    $317 billion, about 17 percent of total federal spending. Grants serve

    many purposes beyond returning resources to taxpayers in the form of state
    services. For example, grants can serve as a tool to supplement state
    spending for nationally important activities. However, if states use
    federal

    grant dollars to reduce (i. e., substitute for) their own spending for the
    aided program either initially or over time, the fiscal impact of federal
    grant dollars is reduced.

    Public finance experts suggest that grants are unlikely to supplement
    completely a state*s own spending, and thus some substitution is to be
    expected in any grant. Our review of economists* estimates of substitution
    suggests that every additional federal grant dollar results in less than a
    dollar of total additional spending on the aided activity. The estimates
    of substitution showed that about 60 cents of every federal grant dollar
    substitutes for state funds that states otherwise would have spent.

    Our 1996 analysis linked substitution to the way in which most grants are
    designed. For example, many of the 87 largest grant programs did not
    include features, such as state matching and maintenance- of- effort
    requirements, that can encourage states to use federal funds as a
    supplement rather than a replacement for their own spending. While not
    every grant is intended to supplement state spending, proponents of grant
    redesign argue that if some grants incorporated more rigorous maintenance-
    of- effort requirements and lower federal matching rates, then fewer
    federal funds could still encourage states to contribute to approximately
    the same level of overall spending on nationally important programs.
    Critics of this approach argue that such redesign would put a higher
    burden on states because they would have to finance a greater share of
    federally aided programs.

    The savings that could be achieved from redesigning grants to increase
    their fiscal impact would depend on the nature of the design changes and
    state responses to those changes. For example, faced with more rigorous
    financing requirements, states might reduce or eliminate their own
    financial support for the aided activity. The outcome will be influenced
    by the trade- off decisions that the Congress makes to balance the
    importance of achieving each program*s goals and objectives against the
    goal of encouraging greater state spending and lowering the federal
    deficit.

    We were unable to precisely measure the budgetary impact of
    inflationadjusted maintenance- of- effort requirements because current
    state spending levels are not reported consistently. However, it was
    possible to estimate the impact of changes in the matching rates on many
    close- ended federal grants. For example, many such grants do not require
    any state or

    local matching funds. The federal share of these programs could be reduced
    modestly, for example from 100 percent to 90 percent, a reduction unlikely
    to discourage states from participating in the program. In the past, CBO
    estimated that the introduction of a 10 percent matching requirement on
    some of the largest federal discretionary grant programs that at the time
    were 100 percent federally funded, and a corresponding 10 percent

    reduction from the appropriated grant levels, would result in budgetary
    savings. If such a change in match rates were combined with
    inflationadjusted maintenance- of- effort requirements, states that choose
    to participate in the program would have to maintain the same or increased

    levels of program spending in order to receive federal funding. CBO 5-
    Year Cost Estimate

    Yes. Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Welfare Reform: Early Fiscal Effects of the TANF
    Block Grant.

    GAO/ AIMD- 98- 137. Washington, D. C.: August 22, 1998.

    Federal Grants: Design Improvements Could Help Federal Resources Go
    Further. GAO/ AIMD- 97- 7. Washington, D. C.: December 18, 1996.

    Block Grants: Issues in Designing Accountability Provisions.

    GAO/ AIMD- 95- 226. Washington, D. C.: September 1, 1995. GAO Contact Paul
    L. Posner, (202) 512- 9573

    Replace the 1- Dollar Note with a 1- Dollar Coin

    Primary agency Department of the Treasury Account United States Mint
    Public Enterprise Fund

    (20- 4159) Spending type Direct/ Governmental Receipts Budget subfunction
    803/ Central fiscal operations

    Replacing the 1- dollar note with a new 1- dollar coin would save the
    government hundreds of millions of dollars annually. Substituting a dollar
    coin for a dollar note could yield over $522 million of savings to the
    government per year, on average, over a 30- year period. The savings come
    about because a coin lasts longer than paper money, the Federal Reserve

    has lower processing costs with coins than paper money, and a coin would
    result in interest savings from the additional seigniorage earned on a
    coin (i. e., the difference between the face value of a coin and its
    production cost).

    In the past, neither the Congress nor the executive branch has supported
    the replacement of the $1 note with a coin. All western economies now use
    a coin for monetary transactions at the same value that Americans use the
    more costly paper note. These countries have demonstrated that public
    resistance to such a change can be managed and overcome. The United States
    released a new gold- colored dollar coin in 2000. While initial demand for
    the coin had been strong, for it to realize its savings potential, the
    note has to be eliminated. Most of the coins that were issued are being
    held by collectors and do not circulate. With proper congressional
    oversight, public resistance to elimination of the $1 note could be
    overcome and public support for the coin improved. For example, the
    Congress could require the Treasury or the Federal Reserve to conduct a
    public awareness campaign, explaining the savings that could be achieved
    by eliminating the $1 note. In

    addition, the Congress could require the Federal Reserve or the Department
    of the Treasury to designate a central spokesperson who would handle all
    public and press inquiries about the elimination of the $1 note.

    Even though this option would result in significant long- term savings, it
    would not yield savings over the first 5 years. First, seigniorage, which
    would lower interest costs to the government by either replacing the need

    to borrow from the public or allowing the government to pay down its
    accumulated debt more quickly, is not included in the savings estimate
    because it is not considered part of the budget. Second, while the initial
    5-

    year window captures much of the additional cost for the U. S. Mint to
    produce and stockpile a sufficient number of 1- dollar coins for
    circulation, it includes only a fraction of the savings to the Federal
    Reserve System from lower production and processing costs.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products New Dollar Coin: Marketing Campaign Raised Public
    Awareness but Not Widespread Use. GAO- 02- 896. Washington, D. C.:
    September 13, 2002.

    A Dollar Coin Could Save Millions. GAO/ T- GGD- 95- 203. Washington, D.
    C.: July 13, 1995.

    1- Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-
    Dollar Note. GAO/ T- GGD- 95- 146. Washington, D. C.: May 3, 1995.

    1- Dollar Coin: Reintroduction Could Save Millions if Properly Managed.

    GAO/ GGD- 93- 56. Washington, D. C.: March 11, 1993.

    National Coinage Proposals: Limited Public Demand for New Dollar Coin or
    Elimination of Pennies. GAO/ GGD- 90- 88. Washington, D. C.: May 23, 1990.

    GAO Contact Bernard L. Ungar, (202) 512- 4232

    Increase Fee Revenue from Federal Reserve Operations

    Primary agency Federal Reserve Board Spending type Direct

    The Federal Reserve is responsible for conducting monetary policy,
    maintaining the stability of financial markets, providing services to
    financial institutions and government agencies, and supervising and
    regulating banks and bank- holding companies. The Federal Reserve is
    unique among governmental entities in its mission, structure, and
    finances. Unlike federal agencies funded through congressional
    appropriations, the Federal Reserve is a self- financing entity that
    deducts its expenses from its revenue and transfers the remaining amount
    to the U. S. Department of the Treasury. Although the Federal Reserve*s
    primary mission is to support a stable economy, rather than to maximize
    the amount transferred to Treasury, its revenues contribute to total U. S.
    revenues and, thus, can help reduce the federal deficit.

    One way to enhance the Federal Reserve*s revenue would be to charge fees
    for bank examinations, thus increasing the Federal Reserve*s return to
    taxpayers. The Federal Reserve Act authorizes the Federal Reserve to
    charge fees for bank examinations, but the Federal Reserve has not done
    so, either for the state- member banks it examines or the bank- holding
    company examinations it conducts. Taxpayers in effect bear the cost of
    these examinations, which total hundreds of millions of dollars annually.
    In the past, CBO estimated that budgetary savings could be achieved if
    fees

    were assessed similar to those charged national banks, with a credit
    allowed for fees paid to state regulators.

    CBO 5- Year Cost Estimate Yes.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Federal Reserve System: Update on GAO*s 1996
    Recommendations. GAO- 02- 774. Washington, D. C.: September 25, 2002.

    Federal Reserve System: Current and Future Challenges Require Systemwide
    Attention. GAO/ T- GGD- 96- 159. Washington, D. C.: July 26, 1996.

    Federal Reserve System: Current and Future Challenges Require Systemwide
    Attention. GAO/ GGD- 96- 128. Washington, D. C.: June 17, 1996.

    Federal Reserve Banks: Internal Control, Accounting, and Auditing Issues.
    GAO/ AIMD- 96- 5. Washington, D. C.: February 9, 1996.

    GAO Contact Thomas J. McCool, (202) 512- 8678

    Recognize the Costs Upfront of Long- term Space Acquisitions

    Primary agency General Services Administration Account Federal Buildings
    Fund (47- 4542) Spending type Discretionary Budget subfunction 804/
    General property and records

    management

    Building ownership through construction or lease- purchase* where
    ownership of the asset is transferred to the government at the end of the
    lease period* is generally less costly than meeting agencies* long- term
    requirements through ordinary operating leases. However, we have reported
    over the last decade that the General Services Administration (GSA) relies
    heavily on operating leases to meet the long- term space needs of the
    federal government. In March 1999, we reported that for nine major
    operating lease acquisitions GSA proposed between fiscal years 1994 and
    1996, construction would have been the least cost option in eight cases.
    In these eight cases, lease- purchase was estimated to be more costly than
    construction, but less than the operating lease option GSA proposed. For
    example, the present value cost for the operating lease to meet the Patent
    and Trademark Office*s long- term requirements in northern Virginia was

    estimated to be about $973 million. Construction was estimated to be $925
    million* or $48 million less* and lease- purchase was estimated at $935
    million* or $38 million less than the operating lease option. In total for
    these eight cases, construction and lease- purchase had cost advantages
    over operating leases estimated at about $126 million and $107 million,
    respectively.

    Historically, the Federal Buildings Fund (FBF) has not generated
    sufficient revenue for constructing new office buildings. Operating leases
    have become an attractive option for GSA because the total costs do not
    have to

    be scored up- front for budget purposes and payments are spread out over
    time. However, as shown above, they are a costly alternative to ownership
    over the long- run. A lease- purchase would seem to be a desirable
    alternative from GSA*s point of view. However, the budget scorekeeping
    rules established by the Budget Enforcement Act of 1990 (BEA) effectively

    prevent GSA from using this option. These scorekeeping rules require the
    total budget authority for lease- purchases and capital leases to be
    recognized and recorded up- front in the year that the acquisition is
    approved. Furthermore, we reported in August 2001 that the scorekeeping

    rules might result in shorter terms for some leases, which could result in
    higher costs than for longer term leases. The scorekeeping rules require
    the total budget authority for lease- purchases and capital leases to be

    recognized and recorded up- front in the year they are approved. Although
    GSA has viewed the up- front funding requirement as an impediment to
    meeting agency space needs in a cost- effective manner, it is generally
    recognized as an important tool for maintaining governmentwide fiscal
    control. That is, the rules prevent agencies and the Congress from
    committing the government to future payments that may exceed future
    resources and spending priorities.

    Since lease- purchases are not an option for improving the cost
    effectiveness of space acquisition, an option that could result in long-
    term savings for the government would be to recognize that many operating

    leases are used for long- term needs and should be treated on the same
    basis as the ownership options. This would make such instruments
    comparable in the budget to direct federal ownership and would foster more
    cost- effective decision- making by the Office of Management and Budget
    and the Congress. Applying the principle of up- front full recognition

    of the long- term costs to all options for satisfying long- term space
    needs* construction, purchases, lease- purchases, or operating leases* is
    more likely to result in selecting the most cost- effective alternative
    than the current scoring rules.

    It is important to note that there would be implementation challenges if
    this option is pursued. If discretionary spending caps similar to those
    contained in the expired BEA are enacted, their levels should take into
    account the additional budget authority that would be needed to fully fund
    capital up front. Also, for existing leases, the additional budget
    authority would need

    to be provided at once. 34 It also would be difficult to reach agreement
    on what constitutes long- term space needs that would warrant this up-
    front budgetary treatment. And finally, even though in the past CBO
    estimated that this option should result in long- term savings, it
    concluded that it would not yield savings over the first 5 years.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    34 Existing contracts could also be *grandfathered* in as occurred under
    the lease- purchase rule.

    Related GAO Products High- Risk Series: Federal Real Property. GAO- 03-
    122. Washington, D. C.: January 2003.

    Budget Scoring: Budget Scoring Affects Some Lease Terms, but Full Extent
    Is Uncertain. GAO- 01- 929. Washington, D. C.: August 31, 2001.

    Federal Buildings: Funding Repairs and Alterations Has Been a Challenge*
    Expanded Financing Tools Needed. GAO- 01- 452. Washington, D. C.: April
    12, 2001.

    General Services Administration: Comparison of Space Acquisition
    Alternatives* Leasing to Lease- Purchase and Leasing to Construction.

    GAO/ GGD- 99- 49R. Washington, D. C.: March 12, 1999.

    Space Acquisition Cost: Comparison of GSA Estimates for Three
    Alternatives. GAO/ GGD- 97- 148R. Washington, D. C.: August 6, 1997.

    Budget Issues: Budgeting for Federal Capital. GAO/ AIMD- 97- 5.
    Washington, D. C.: November 12, 1996.

    Budget Issues: Budget Scorekeeping for Acquisition of Federal Buildings.
    GAO/ T- AIMD- 94- 189. Washington, D. C.: September 20, 1994.

    Federal Office Space: Increased Ownership Would Result in Significant
    Savings. GAO/ GGD- 90- 11. Washington, D. C.: December 22, 1989.

    GAO Contact Bernard L. Ungar, (202) 512- 4232

    Seek Alternative Ways to Address Federal Building Repair Needs

    Primary agency General Services Administration Account Federal Building
    Fund (47- 4542) Spending type Discretionary Budget subfunction 804/
    General property and records

    management

    The General Services Administration (GSA) is the federal government*s real
    property manager, providing office space for most federal agencies. In
    this capacity, GSA is responsible for keeping the approximately 1,700
    federal

    buildings it manages in good repair to ensure that the value of these
    assets is preserved and that tenants occupy safe and modern space. Many
    buildings in GSA*s portfolio are more than 50 years old, monumental in
    design, and historically significant. Consequently, unlike a private
    sector company, GSA cannot always dispose of a building simply because it
    would be economically advantageous to do so. GSA identifies needed repairs
    through detailed building inspections and sorts them into three tiers
    based on costs. Repairs in the highest cost tier must be approved by the
    Office of Management and Budget (OMB) and then authorized for funding by
    the Congress. GSA receives annual authority for funding for repairs in the
    other two tiers.

    In August 2002, we reported that the estimated backlog of GSA- identified
    repair and alteration needs in GSA- owned buildings was $5.7 billion. A
    major reason for this large and growing backlog is the lack of available
    funding. For example, from 1995 through 2001, the Congress approved only

    63 percent of the approximately $6.8 billion GSA requested for repair and
    alteration projects.

    Unless the Congress increases the funding available to GSA to address its
    backlog of repair and alteration needs, it is likely that this backlog
    will continue to grow given the age of the current federal inventory of
    buildings. Delaying or not performing needed repairs and alterations can
    have serious consequences, including health and safety concerns, and lead
    to higher operating costs associated with inefficient heating and cooling
    systems. Given the current and likely increasing demands on discretionary
    appropriations, the Congress may wish to grant GSA the authority to
    experiment with funding alternatives such as public- private partnerships,
    where such approaches would achieve the best economic value for the

    government. Furthermore, it seems reasonable to allow GSA to retain some
    of the proceeds from disposal of unneeded properties to cover the costs
    associated with disposal and for reinvestment in its portfolio, where a
    need exists. However, in considering whether to allow agencies to retain
    proceeds from real property transactions, it is important for the Congress

    to ensure that it maintains appropriate control and oversight over these
    funds, including the ability to redistribute these funds to accommodate
    changing needs.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products High- Risk Series: Federal Real Property. GAO- 03-
    122. Washington, D. C.: January 2003.

    General Services Administration: Status of Achieving Key Outcomes and
    Addressing Major Management Challenges. GAO- 01- 931. Washington, D. C.:
    August 3, 2001.

    Public- Private Partnerships: Pilot Program Needed to Demonstrate the
    Actual Benefits of Using Partnerships. GAO- 01- 906. Washington, D. C.:
    July 25, 2001.

    Federal Buildings: Funding Repairs and Alterations Has Been a Challenge*
    Expanded Financing Tools Needed. GAO- 01- 452. Washington, D. C.: April
    12, 2001.

    Federal Buildings: Billions are Needed for Repairs and Alterations.

    GAO/ GGD- 00- 98. Washington, D. C.: March 30, 2000. GAO Contact Bernard
    L. Ungar, (202) 512- 4232

    Improper Benefit Payments Could Be Avoided or More Quickly Detected if
    Data from Various Programs

    Primary agencies Multiple

    Were Shared

    Accounts Multiple Spending types Direct/ Discretionary Budget subfunctions
    Multiple

    Many federally funded benefit and loan programs rely on applicants and
    current recipients to accurately report information, such as the amount of
    income they earn, that affects their eligibility for assistance. To the
    extent that such information is underreported or not reported at all, the
    federal government overpays benefits or provides loans to individuals who
    are ineligible. Others and we have demonstrated that federally funded
    benefit and loan programs, such as housing and higher education
    assistance, have

    made hundreds of millions of dollars in improper payments. Some of these
    payments were made improperly because the federal, state, and local
    entities that administer the programs sometimes lacked adequate, timely
    data needed to determine applicants* and current recipients* eligibility
    for assistance. Our previous work has demonstrated that improper payments
    can be avoided or detected more quickly by using data from other programs,
    or data maintained for other purposes, to verify self- reported
    information.

    Federally funded benefit and loan programs provide cash or in- kind
    assistance to individuals who meet specified eligibility criteria. Because
    these programs require similar information to make eligibility
    determinations, it is more efficient to share the necessary data with one
    another rather than requiring each program to independently verify similar
    data. These programs may verify self- reported information by comparing
    their records with independent, third- party data sources from other
    federal or state agencies as well as private organizations. For example,
    benefit and loan programs can compare large amounts of information on
    applicants and recipients by using computers to match automated records.
    Electronic transmission of data and on- line access to agencies* databases
    are additional tools program administrators can use to share important
    information on applicants and recipients in a timely, efficient manner. If
    used consistently, they can help program administrators check the accuracy
    of individuals* self- reported statements as well as identify information
    relevant to eligibility that the applicants and recipients

    themselves have not provided.

    Various opportunities exist for federal, state, and local agencies to save
    taxpayer dollars by sharing information that affects individuals*
    eligibility for benefits. For example, the Department of Education*s
    Office of Inspector General estimates that underreported income
    contributed to over $100 million in excess Pell Grant awards in 2000.
    Access to Internal Revenue Service taxpayer information could have helped
    Education prevent some of these overpayments. Improper payments could also
    be avoided or detected more quickly in other programs. For example, four
    states and the District of Columbia estimate that they prevented about $16
    million in improper Temporary Assistance to Needy Children (TANF),

    Medicaid, and Food Stamp benefit payments by participating in the Public
    Assistance Reporting Information System (PARIS). PARIS could also help
    other states save program funds by identifying and preventing future
    improper payments.

    The three federally funded benefit and loan programs we examined* TANF,
    Tenant- Based Section 8 and Public Housing, and student grants and loans*
    all use data sharing to varying degrees to verify information that
    applicants and current benefit recipients provide. However, the weaknesses
    in these programs* eligibility determination processes could be

    mitigated if additional data sources were available for sharing. For
    example, the Congress could grant the Department of Education access to
    IRS taxpayer data, which could reduce overpayments in student loan
    programs. In the past, CBO could not estimate savings without a more
    specific option.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products Public Assistance: PARIS Project Can Help States
    Reduce Improper Benefit Payments. GAO- 01- 935. Washington, D. C.:
    September 6, 2001.

    The Challenge of Data Sharing: Results of a GAO- Sponsored Symposium on
    Benefit and Loan Programs. GAO- 01- 67. Washington, D. C.: October 20,
    2000.

    Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
    Integrity. GAO/ HEHS- 00- 119. Washington, D. C.: September 13, 2000.

    GAO Contact Robert E. Robertson, (202) 512- 7215

    Better Target Infrastructure Investments to Meet Mission and
    ResultsOriented Goals

    Primary agencies Multiple Accounts Multiple Spending type Discretionary
    Budget subfunctions Multiple

    The federal government plays a prominent role in identifying the nation*s
    infrastructure investment needs and has spent an average of $149 billion
    (in constant 1998 dollars) annually since the late 1980s on the nation*s
    infrastructure through 1998. A sound public infrastructure plays a vital
    role in encouraging a more productive and competitive national economy and
    meeting public demands for safety, health, and improved quality of life.
    Little, however, is known about the comparability and reasonableness of

    federal agencies* estimates for infrastructure needs. In fact,
    infrastructure *need* is difficult to define and to distinguish from *wish
    lists* of capital projects.

    In a review of seven federal agencies* investment practices, GAO found
    that none of them followed leading practices for capital decision- making.
    In particular, five of the agencies did not develop assessments of the
    investments needed to meet outcomes. Rather, these agencies developed
    estimates that were summations of the costs of projects eligible to
    receive

    federal funding or projects identified by the Congress and others. Also,
    agencies were not likely to (1) develop a long- term capital plan, (2) use
    cost- benefit analysis as the primary method to compare alternative
    investments, (3) rank and select projects for funding based on established
    criteria, and (4) budget for projects in useful segments.

    Given the importance of federal infrastructure investment to the nation,
    the Congress may wish to have the Office of Management and Budget develop
    standards for agencies to follow when submitting funding requests. At a

    minimum, requiring agencies to link the benefits of investment projects to
    the achievement of mission goals would give decisionmakers better
    information to base funding decisions on. Infrastructure investment
    requests based on other leading practices, especially those enumerated
    above, could also increase the Congress*s capacity to make better
    investment decisions. In the past, CBO could not develop a savings
    estimate without a specific proposal.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Products U. S. Infrastructure: Agencies* Approaches to
    Developing Investment Estimates Vary. GAO- 01- 835. Washington, D. C.:
    July 20, 2001.

    U. S. Infrastructure: Funding Trends and Opportunities to Improve
    Investment Decisions. GAO/ RCED/ AIMD- 00- 35. Washington, D. C.: February
    7, 2000.

    Executive Guide: Leading Practices in Capital Decision- Making.

    GAO/ AIMD- 99- 32. Washington, D. C.: December 1998. GAO Contact Katherine
    Siggerud, (202) 512- 6570

    Information Sharing Could Improve Accuracy of Workers* Compensation Offset
    Payments

    Primary Agency Social Security Administration Accounts Multiple Spending
    type Direct Budget subfunctions Multiple

    In 2000, workers received almost $46 billion in cash and medical benefits
    through the nation*s workers* compensation (WC) programs to cover
    workrelated injuries. Workers* compensation consists of a complex array of
    programs that provide benefits to persons injured while working or who
    suffer occupational diseases. Each state and the District of Columbia
    requires employers operating in its jurisdictions to provide WC insurance

    for their employees and to report work- related injuries to the state WC
    agency. WC beneficiaries may also be eligible for federal program
    benefits, such as Social Security Disability Insurance (DI) and
    Supplemental Security Income (SSI). In such programs, the law often limits
    access or reduces benefits for those receiving workers* compensation.
    Generally, if a person receives both DI and WC benefits, and together
    these benefits

    exceed 80 percent of the injured worker*s average current earnings, the
    Social Security Administration (SSA) generally reduces the DI benefit.
    This reduction in benefits is referred to as the WC offset. A number of
    other federal programs also rely on information on WC benefit payments as
    a determinant of federal benefit payments. For example, Medicare covers
    medical expenses for persons who have received DI benefits for 2 years,
    but WC insurers are supposed to be the primary payer and Medicare the
    secondary payer of medical expenses that arise from work- related injuries
    and are covered under the WC program. Similarly, other federal programs,
    including food stamps and Section 8 rental housing assistance, consider WC
    benefits as income or assets when determining program eligibility and
    benefit payment amounts.

    Because there is no national reporting system that identifies WC
    beneficiaries, federal agencies largely rely on applicants and
    beneficiaries to report their WC benefits. This fragmented reporting
    system has resulted in federal agencies making erroneous payments. For
    example, evaluations by GAO, SSA, and SSA*s Office of Inspector General
    (OIG) have found

    significant overpayment and underpayment errors related to the WC offset
    provision. In December 1999, the SSA Inspector General reported that more
    than 50 percent of DI beneficiaries whose benefits are being offset

    have been paid inaccurately. Another study projected $1.5 billion in
    payment errors related to the WC offset. About 85 percent of these errors
    are underpayments of entitled benefits that result when DI beneficiaries
    do not report reductions in their WC benefits. SSA*s administration of the
    WC offset provision continues to be undermined by the lack of reliable
    information identifying the receipt of WC benefits by DI beneficiaries.
    Other federal programs, such as Medicare, food stamps, and Section 8
    rental housing, also rely on self- reported WC information as a basis for
    determining benefit payments, and similarly are vulnerable to payment
    errors as a result. For example, Medicare relies on its applicants and
    beneficiaries to self- report WC benefits and is vulnerable to payment
    errors when they do not. Health Care Financing Administration (HCFA), now
    the Centers for Medicare & Medicaid Services (CMS), officials have
    estimated that about 8 percent of its beneficiaries have medical claims
    that may be the responsibility of another health insurer, liability
    insurer, or WC program. A GAO review of one state (not nationally
    representative) found that (1) Medicare*s interests relative to the
    payment of future medical benefits were not considered in any of the WC
    cases resolved through settlements (83 percent of our sample), (2) HCFA
    was aware of WC benefits being received in only one- third of the cases
    where it paid benefits under Part A (a nonrandom sample), and (3) about 39
    percent of joint WC and Medicare beneficiaries had received Medicare
    benefits for treatments

    that were potentially related to the WC injury. Finally, an inability to
    obtain WC benefit information could affect the accuracy of benefit
    payments for other federal programs such as food stamps and Section 8
    housing and could result in the overpayment of benefits.

    Given the fragmented nature of WC programs, the Congress could establish a
    reporting requirement that WC insurers provide SSA with information on
    changes to WC benefit payments. SSA could use this information to make

    adjustments to DI and SSI payments accordingly, and this information could
    be shared with other federal agencies. Doing so would reduce the potential
    for errors in the disbursing of benefits. In the past, CBO could not
    develop a savings estimate without more information on the key details of
    the requirements* such as which insurers would be covered and how
    frequently they would be required to report.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Workers* Compensation: Action Needed to Reduce Payment
    Errors in SSA Disability and Other Programs. GAO- 01- 367. Washington, D.
    C.: May 4, 2001.

    GAO Contact Barbara D. Bovbjerg, (202) 512- 7215

    Determine Feasibility of Locating Federal Facilities in Rural Areas

    Primary agency General Services Administration Accounts Multiple Spending
    type Discretionary Budget subfunctions Multiple

    The Rural Development Act of 1972 (RDA) and the Competition in Contracting
    Act of 1984 (CICA), as well as executive orders, provide guidance on site
    location decisions for federal facilities. While considering areas in
    which to locate, RDA requires all executive departments and agencies to
    establish policies and procedures giving first priority to the location of
    new offices and other facilities in rural areas. 35 The General Services
    Administration (GSA) is the central management agency for acquiring real
    estate for many federal agencies, while some other agencies, such as the
    Department of Defense, have their own authority to acquire space.

    A 2001 survey of 115 new federal site locations acquired between 1998 and
    2000 for buildings over 25, 000 square feet found that about 72 percent
    were located in urban areas. Agencies said they selected urban areas
    primarily because of the need to be near agency clients and related
    government and private sector facilities to accomplish their missions.
    Eight of the 13 cabinet agencies surveyed had no formal RDA siting policy,
    and there was little evidence that agencies considered RDA*s requirements
    when siting new federal facilities. Furthermore, GSA has not developed a
    costconscious, governmentwide location policy. Federal site acquisition
    practices differ from private sector practices in that private sector
    companies are more likely to take advantage of local incentives and of
    lower real estate and labor costs.

    Obviously, many factors are considered in site location decisions, and
    chief among them should be the agency*s ability to accomplish its mission
    in the best way possible and to retain an adequate number of skilled
    employees. But, where there are opportunities to reduce costs and/ or
    improve service by locating to rural areas, federal agencies may benefit
    from more closely

    35 Government agencies have different definitions of what constitutes a
    rural area. See GAO- 01- 805, p. 25 for more detail.

    following private sector practices. Consequently, the Congress may wish to
    follow through on the intent of RDA by requiring federal agencies to
    establish siting policies consistent with RDA*s goals and also requiring
    GSA to establish a formal governmentwide siting policy that takes into
    account potential cost savings from locating in rural areas. In the past,
    CBO could not estimate cost savings because specific options had not been
    proposed.

    CBO 5- Year Cost Estimate No.

    Included in GAO*s 2002 Budgetary Implications Report

    Related GAO Product Facilities Location: Agencies Should Pay More
    Attention to Costs and Rural Development Act Has Had Limited Impact. GAO-
    01- 805. Washington, D. C.: July 31, 2001.

    GAO Contact Bernard L. Ungar, (202) 512- 4232

    Leverage Buying Power to Reduce Costs of Supplies and Services

    Primary agencies Multiple Accounts Multiple Spending type Discretionary

    Federal agencies procured more than $235 billion in goods and services
    during fiscal year 2001. Additionally, federal civilian agencies spent
    almost $14 billion using purchase cards in fiscal year 2001. Overall,
    contracting for goods and services accounted for about 24 percent of the
    government*s discretionary resources in fiscal year 2001. Further growth
    in contract

    spending, at least in the short term, is likely given the President*s
    request for additional funds for defense and homeland security, agencies*
    plans to update their information technology systems, and other factors.

    The growth in contract spending, combined with decreases in the
    acquisition workforce, creates a challenging acquisition environment. The
    degree to which individual agencies contract for goods and services also

    underscores the importance of ensuring that acquisitions are managed
    properly. This money, however, is not always well spent. Our work, as well
    as the work of other oversight agencies, continues to find that millions
    of dollars of service contract dollars are at risk at defense and civilian
    agencies because acquisitions are poorly planned, not adequately competed,
    or poorly managed. Moreover, because agency procurement processes are
    decentralized and uncoordinated, it is not apparent that the federal
    government is fully leveraging its enormous buying power to obtain the
    most advantageous terms and conditions for its purchases. With the events
    of September 11, and the federal government*s short- and long- term budget
    challenges, it is more important than ever that agencies effectively
    transform business processes to ensure that the federal government gets
    the most from every dollar spent.

    In view of these challenges, we have examined alternative ways developed
    by leading companies to manage their spending on goods and services in
    order to reduce costs, stay competitive, and improve service levels.
    Leading companies are taking a strategic approach* centralizing and

    reorganizing their operations to get the best value for the company as a
    whole. Taking a strategic approach involves a range of activities from
    developing a better picture of what the company was spending to buying
    goods and services on a corporate rather than business unit basis.

    A strategic approach pulls together participants from a variety of places
    within an organization who recommend changes in personnel, processes,
    structure, and culture that can constrain rising acquisition costs. These
    changes can include adjustments to procurement and other processes such as
    instituting companywide purchasing of specific services; reshaping a
    decentralized process to follow a more center- led, strategic approach;
    and increasing the involvement of the enterprise procurement organization,
    including working across units to help identify service needs, select
    providers, and manage contractor performance.

    The procurement best practices of leading companies should be considered
    in reforming the acquisition of goods and services in the federal
    government. Taking a strategic approach clearly pays off. One recent
    survey of 147 companies in 22 industries indicated a strategic approach to
    procurement had resulted in savings of more than $13 billion in one year.
    Studies have reported some companies achieving reported savings of 10 to
    20 percent of their total procurement costs through the use of a strategic
    approach to buying goods and services. A recent Purchasing Magazine poll
    finds that companies employing procurement best practices are

    routinely delivering a 3 percent to 7 percent savings from their
    procurement costs. The leading companies we studied reported achieving and
    expecting to achieve billions of dollars in savings by developing
    companywide spend analysis programs and strategic sourcing strategies. The
    very same strategic approach could serve as a foundation for

    leveraging the federal government*s buying power to reduce costs of
    supplies and services.

    CBO 5- Year Cost Estimate No, this is a new example. CBO could not develop
    an estimate for this

    Included in GAO*s 2002 example.

    Budgetary Implications Report Related GAO Products Best Practices:
    Improved Knowledge of DOD Service Contracts Could

    Reveal Significant Savings. GAO- 03- 661. Washington, D. C.: June 10,
    2003.

    Federal Procurement: Spending and Workforce Trends. GAO- 03- 443.
    Washington, D. C.: April 30, 2003.

    Contract Management: Taking a Strategic Approach to Improving Services
    Acquisition. GAO- 02- 499T. Washington, D. C.: March 7, 2002.

    Best Practices: Taking a Strategic Approach Could Improve DOD*s
    Acquisition of Services. GAO- 02- 230. Washington, D. C.: January 18,
    2002.

    Contract Management: Trends and Challenges in Acquiring Services.

    GAO- 01- 753T. Washington, D. C.: May 22, 2001. GAO Contact David E.
    Cooper, (617) 788- 0555

    Consolidate Grants for First Responders to Improve Efficiency

    Primary agency Department of Homeland Security Accounts Multiple Spending
    type Discretionary Budget subfunctions Multiple

    GAO*s work over the years has repeatedly shown that mission fragmentation
    and program overlap are widespread in the federal government and that
    crosscutting program efforts are not well coordinated. As far back as
    1975, GAO reported that many of the fundamental problems in managing
    federal grants were the direct result of the proliferation of federal
    assistance programs and the fragmentation of responsibility among
    different federal departments and agencies. While we noted that the large
    number and variety of programs tended to ensure that a program is
    available to meet a defined need, we found that substantial problems occur
    when state and local governments attempt to identify, obtain, and use the
    fragmented grants- in- aid system to meet their needs.

    In a specific and timely example of this fragmentation, in April 2003 GAO
    identified at least 16 different grant programs that can be used by the
    nation*s first responders to address homeland security needs. These grants
    are currently provided through two different directorates within the
    Department of Homeland Security, the Department of Justice, and the
    Department of Health and Human Services and serve state governments,
    cities and localities, counties, and others. Multiple fragmented grant
    programs can create a confusing and administratively burdensome process
    for state and local officials seeking to use federal resources for
    pressing homeland security needs.

    It now falls to the Congress to redesign the nation*s homeland security
    grant programs in light of the events of September 11, 2001. In so doing,
    the Congress must balance the needs of our state and local partners in
    their call for both additional resources and more flexibility for meeting
    the nation*s goals of attaining the highest levels of preparedness. In
    addressing the fragmentation prompted by the current homeland security
    grant system, the Congress has several alternatives, including block
    grants, performance partnerships, and grant waivers. These approaches
    could provide state and local governments with increased flexibility while

    potentially improving intergovernmental efficiency and homeland security

    program outcomes. An example of how consolidation of first responder
    grants might be achieved would be to merge the existing Emergency
    Management Performance Grant, the State Homeland Security Grant Program,
    and the Urban Area Security Initiative into one new grant program. If such
    a consolidation can be assumed to yield administrative efficiencies, then
    the Congress might reduce the amount of the combined grant by, for
    example, 10 percent. Alternatively if the Congress did not want to reduce
    the overall amount of the consolidated grant, efficiencies achieved
    through consolidation could possibly result in an improved level of
    program performance given the current level of funding. CBO 5- Year Cost
    Estimate

    No, this is a new example. CBO could not develop an estimate for this
    Included in GAO*s 2002

    example. Budgetary Implications Report

    Related GAO Products Federal Assistance: Grant System Continues to Be
    Highly Fragmented.

    GAO- 03- 718T. Washington, D. C.: April 29, 2003.

    Multiple Employment and Training Programs: Funding and Performance
    Measures for Major Programs. GAO- 03- 589. Washington, D. C.: April 18,
    2003.

    Workforce Investment Act: States and Localities Increasingly Coordinate
    Services for TANF Clients, but Better Information Needed on Effective
    Approaches. GAO- 02- 696. Washington, D. C.: July 3, 2002.

    Managing for Results: Continuing Challenges to Effective GPRA
    Implementation. GAO/ T- GGD- 00- 178. Washington, D. C.: July 20, 2000.

    Fundamental Changes are Needed in Federal Assistance to State and Local
    Governments. GAO/ GGD- 75- 75. Washington, D. C.: August 19, 1975.

    GAO Contact Paul L. Posner, (202) 512- 9573

    CBO Options Where Related GAO Work Is Identified 36

    800- 03 Eliminate Federal Antidrug Advertising

    Related GAO Products Anti- Drug Media Campaign: Aspects of Advertising
    Contract Mismanaged by the Government; Contractor Improperly Charged Some
    Costs. GAO- 01- 1017T. Washington, D. C.: August 1, 2001. 36

    Anti- Drug Media Campaign: Aspects of Advertising Contract Mismanaged by
    the Government; Contractor Improperly Charged Some Costs. GAO- 01- 623.
    Washington, D. C.: June 25, 2001.

    GAO Contact Bernard L. Ungar, (202) 512- 4232 920- 03 Impose a Fee on the
    Investment Portfolios of Government- Sponsored Enterprises

    Related GAO Products Government- Sponsored Enterprises: Federal Oversight
    Needed for Nonmortgage Investments. GAO/ GGD- 98- 48. Washington, D. C.:
    March 11, 1998.

    Housing Enterprises: Potential Impacts of Severing Government Sponsorship.
    GGD- 96- 120. Washington, D. C.: May 13, 1996.

    GAO Contact Thomas J. McCool, (202) 512- 8678 36 We list GAO reports
    identified as relating to options included in the CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    Receipts Examples from Selected GAO Work

    Tax Interest Earned on Life Insurance Policies and Deferred Annuities
    Further Limit the Deductibility of Home Equity Loan Interest Limit the Tax
    Exemption for Employer- Paid Health Insurance Repeal the Partial Exemption
    for Alcohol Fuels from Excise Taxes on Motor Fuels

    Index Excise Tax Rates for Inflation Increase Highway User Fees on Heavy
    Trucks Require Corporate Tax Document Matching Improve Administration of
    the Tax Deduction for Real Estate Taxes

    Increase Collection of Returns Filed by U. S. Citizens Living Abroad
    Increase the Use of Seizure Authority to Collect Delinquent Taxes Increase
    Collection of Self- employment Taxes Increase the Use of Electronic Funds
    Transfer for Installment Tax Payments

    Reduce Gasoline Excise Tax Evasion Improve Independent Contractor Tax
    Compliance Expand the Use of IRS*s TIN- Matching Program Improve
    Administration of the Federal Payment Levy Program Enhance Nontax Debt
    Collection Using Available Tools

    Examples from Selected GAO Work

    Tax Interest Earned on Life Insurance Policies and Deferred Annuities

    Primary agency Internal Revenue Service Spending type Direct

    Interest earned on life insurance policies and deferred annuities, known
    as *inside buildup,* is not taxed as long as it accumulates within the
    contract. Although the deferred taxation of inside buildup is similar to
    the tax treatment of income from some other investments, such as capital
    gains, it differs from the policy of taxing interest as it accrues on
    certain other investments, such as certificates of deposit and original
    issue discount bonds.

    Not taxing inside buildup may have merit if it increases the amount of
    insurance coverage purchased and the amount of income available to
    retirees and beneficiaries. However, the tax preference given life
    insurance

    and annuities mainly benefits middle- and upper- income people. Coverage
    for low- income people is largely provided through the Social Security
    system, which provides both insurance and annuity protection. The Congress
    may wish to consider taxing the interest earned on life insurance policies
    and deferred annuities. In the past, JCT estimated that this option

    would result in budgetary savings. Investment income from annuities
    purchased as part of a qualified individual retirement account would be
    tax- deferred until benefits were paid.

    JCT 5- Year Estimate Included in Yes.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Policy: Tax Treatment of Life Insurance and
    Annuity Accrued Interest. GAO/ GGD- 90- 31. Washington, D. C.: January 29,
    1990.

    GAO Contact James R. White, (202) 512- 9110

    Further Limit the Deductibility of Home Equity Loan Interest

    Primary agency Department of the Treasury Spending type Direct

    The term home equity borrowing or financing is usually applied to
    mortgages other than the original loan used to acquire a home or to any
    subsequent refinancing of that loan. Interest is deductible on up to
    $100,000

    of home equity indebtedness and $1 million of indebtedness used to acquire
    a home. Home equity financing is not limited to home- related uses and can
    be used to finance additional consumption by borrowers.

    Use of mortgage- related debt to finance nonhousing assets and consumption
    purchases through home equity loans could expose borrowers to increased
    risk of losing their homes should they default. Equity concerns may exist
    because middle- and upper- income taxpayers who itemize primarily take
    advantage of this tax preference, and such an option is not available to
    people who rent their housing.

    One way to address the issues concerning the amounts or uses of home
    equity financing would be to limit mortgage interest deductibility up to
    $300,000 of indebtedness for the taxpayer*s principal and second
    residence. In the past, JCT estimated that this option would generate
    additional

    revenues. JCT 5- Year Estimate Included in

    Yes. GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Policy: Many Factors Contributed to the Growth in
    Home Equity Financing in the 1980s. GAO/ GGD- 93- 63. Washington, D. C.:
    March 25, 1993.

    GAO Contact James R. White, (202) 512- 9110

    Limit the Tax Exemption for Employer- Paid Health Insurance

    Primary agency Internal Revenue Service Spending type Direct

    The current tax treatment of health insurance* amounting to revenue losses
    of about $67.6 billion in 2001* gives few incentives to workers to
    economize on purchasing health insurance. Employer contributions for
    employee health protection are considered deductible, ordinary business
    expenses and employer contributions are not included in an employee*s
    taxable income. The same is true for a portion of the premiums paid by
    selfemployed

    individuals. Although some employers or employees could drop employer-
    sponsored coverage without the tax exemption, some analysts believe that
    the tax- preferred status of these benefits has contributed to the overuse
    of health care services and large increases in our nation*s health care
    costs. In addition, the primary tax benefits accrue to those in high tax
    brackets who also have above average incomes.

    Placing a cap on the amount of health insurance premiums that could be
    excluded* including in a worker*s income the amount over the cap* could
    improve incentives and, to a lesser extent, tax equity. Alternatively,
    including health insurance premiums in income but allowing a tax credit

    for some percentage of the premium would improve equity since tax savings
    per dollar of premium would be the same for all taxpayers. Incentives
    could be improved for purchasing low- cost insurance if the

    amounts given credits were capped. One specific option the Congress may
    wish to consider would be to tax all employer- paid health insurance,
    while providing individuals a refundable tax credit of 20 percent of
    premiums that they or their employers would

    pay, with eligible premiums capped at $500 and $200 per month for family
    coverage and individuals, respectively.

    In the past, JCT could not develop a revenue estimate for this option due
    to uncertainty in determining the amount of health insurance that would be
    purchased given a repeal of the employer exclusion.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Policy: Effects of Changing Tax Treatment of
    Fringe Benefits.

    GAO/ GGD- 92- 43. Washington, D. C.: April 7, 1992. GAO Contact James R.
    White, (202) 512- 9110

    Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on Motor
    Fuels

    Primary agency Internal Revenue Service Spending type Direct

    The tax code partially exempts biomass- derived alcohol fuels* made from
    nonfossil material of biological origin* from excise taxes on motor fuels.
    The tax code also provides that income tax credits for alcohol fuel use
    may be claimed instead of the excise tax exemption. However, the credit is
    in almost all cases less valuable than the exemption and is rarely used.
    Tax incentives that encourage alternatives to fossil fuels might have
    merit if energy security or environmental benefits were realized. However,
    as we reported in 1997, if alcohol fuel use was not subsidized it is
    unlikely that

    U. S. energy security or air quality would be significantly affected. Even
    with tax subsidies, alcohol fuels were not competitive in price with
    fossil fuels in most markets. In 1995, alcohol fuels accounted for less
    than 1 percent of total U. S. energy consumption. Our report concluded
    that the incentives have not created enough usage to affect the likelihood
    of an oil price shock. Nor could their use be expanded enough to counter
    such a shock given existing production technologies. Use of oxygenated
    fuels such as ethanol- gasoline mixtures in motor vehicles generally
    produces less carbon monoxide pollution than does straight gasoline.
    However, the Clean Air Act Amendments of 1990 reduced the need for an
    ethanol subsidy by mandating the minimum oxygen content of gasoline in
    areas with poor

    air quality. The global warming effects of using ethanol are likely to be
    no better than, and could be worse than, those of gasoline. The Congress
    may wish to consider repealing the partial excise tax exemption and the
    alcohol fuels tax credit. The repeal could result in higher federal
    outlays for price support loan programs, but any increase in outlays
    probably would be much smaller than the estimated revenue increase. The
    excise tax exemption is currently scheduled to expire on October 1, 2007;
    the equivalent blender*s tax credit is scheduled to expire

    on January 1, 2008. In the past, JCT estimated that this option would
    result in budgetary savings.

    JCT 5- Year Estimate Included in Yes.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Policy: Effects of the Alcohol Fuels Tax
    Incentives. GAO/ GGD- 97- 41. Washington, D. C.: March 6, 1997.

    GAO Contact James R. White, (202) 512- 9110

    Index Excise Tax Rates for Inflation

    Primary agency Internal Revenue Service Spending type Direct

    Federal excise taxes are sometimes set at a fixed dollar amount per unit
    of taxed good. For example, alcoholic beverages are taxed at a set rate
    per gallon or barrel, with the rate varying for different types of
    beverages and

    differing concentrations of alcohol. When set in this manner, the real
    dollar value of the tax falls with inflation.

    The real dollar value of these taxes can be maintained over time if the
    tax is indexed for inflation or set as a percentage of the price of the
    taxed product or service. Tax policy issues would need to be considered,
    and administrative difficulties may be encountered, but they are not
    insurmountable. The Congress may wish to consider indexing excise tax
    rates for alcohol and tobacco. In the past, JCT estimated that this option
    would generate additional revenues.

    JCT 5- Year Estimate Included in Yes.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Products Alcohol Excise Taxes: Simplifying Rates Can Enhance
    Economic and Administrative Efficiency. GAO/ GGD- 90- 123. Washington, D.
    C.: September 27, 1990.

    Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels.
    GAO/ GGD- 89- 52. Washington, D. C.: May 9, 1989. GAO Contact James R.
    White, (202) 512- 9110

    Increase Highway User Fees on Heavy Trucks

    Primary agency Department of Transportation Spending type Direct

    To develop and maintain highways, the government collects user fees
    including fuel taxes, a heavy vehicle use tax, an excise tax on truck and
    tractor sales, and an excise tax on heavy tires. In fiscal year 1999,
    about $35.1 billion was collected from general highway user taxes. For
    many years, questions have been raised concerning whether highway users,
    including owners of heavy trucks, pay taxes in proportion to the wear and

    tear that their vehicles impose on highway pavement. In 1982, the Congress
    passed the first major increase in federal highway use taxes since 1956 in
    order to increase highway revenues and to respond to a Federal Highway
    Administration (FHWA) report that heavy trucks underpaid by about 50
    percent their fair share relative to the pavement

    damage that they caused. FHWA also reported that lighter trucks were
    overpaying by between 30 and 70 percent (depending on weight), and
    automobiles were overpaying by 10 percent. The 1982 tax increase required
    that the ceiling for the heavy vehicle use tax be increased from $240 a
    year

    to $1,900 a year by 1989. In response to the concerns of the trucking
    industry about the new tax structure, the Congress again revised the
    system in the Deficit Reduction Act of 1984. Under the act, the ceiling
    for the heavy vehicle use tax was lowered from $1, 900 to $550 a year. To
    ensure that this action was revenue neutral, the Congress raised the tax
    on diesel fuel from 9 cents to 15 cents per gallon. As GAO recommended in
    June 1994, FHWA conducted a cost allocation study. The study, released in
    August 1997, noted that the overall equity of highway user fees could be
    incrementally improved by implementing either a weight- distance tax or
    eliminating the existing $550 cap on the Heavy Vehicle Use Tax. However,
    the study made no recommendations; the administration continues to monitor
    highway user fees but plans no action unless the overall equity of highway
    user fees worsens. In the past, JCT

    estimated that removing the $550 cap on the Heavy Vehicle Use Tax would
    generate additional revenues.

    JCT 5- Year Estimate Included in Yes.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Products Highway Financing: Factors Affecting Highway Trust
    Fund Revenues.

    GAO- 02- 667T. Washington, D. C.: May 9, 2002.

    Highway User Fees: Updated Data Needed To Determine Whether All Users Pay
    Their Fair Share. GAO/ RCED- 94- 181. Washington, D. C.: June 7, 1994.

    GAO Contact Katherine Siggerud, (202) 512- 6570

    Require Corporate Tax Document Matching

    Primary agency Internal Revenue Service Spending type Direct

    The Internal Revenue Service*s (IRS) document matching program for
    payments to individuals has proven to be a highly cost- effective way of
    bringing in billions of dollars in tax revenues to the Department of the
    Treasury while at the same time boosting voluntary compliance. However,
    unlike payments to individuals, the law does not require that information

    returns be submitted on most payments to corporations. Generally using
    IRS*s assumptions, we estimated the benefits and costs for a corporate
    document matching program that would cover interest, dividends, rents,
    royalties, and capital gains. Assuming that a corporate document matching
    program began in 1993, we estimated that for years 1995 through 1999,
    IRS*s annual costs would have been about $70 million and annual increased
    revenues about $1 billion. This estimate did not factor in compliance
    costs and changes in taxpayer behavior. Given increased corporate
    noncompliance, and declining audit coverage, the Congress may wish to
    require a corporate document matching program.

    In the past, JCT agreed that the option had the potential for increased
    revenue, but it could not develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Administration: Benefits of a Corporate Document
    Matching Program Exceed the Costs. GAO/ GGD- 91- 118. Washington, D. C.:
    September 27, 1991.

    GAO Contact James R. White, (202) 512- 9110

    Improve Administration of the Tax Deduction for Real Estate Taxes

    Primary agency Internal Revenue Service Spending type Direct

    Based on the Internal Revenue Service*s (IRS) last compliance measurement
    study, individuals overstated their real estate tax deductions by about
    $1.5 billion nationwide in 1988. We estimate that this resulted in about
    $400 million federal tax loss for 1992. However, this may understate lost
    revenues because our review also found that IRS auditors detected only
    about 29 percent of $127 million in overstated deductions in three
    locations we reviewed. Revenues could be lost not only for the federal
    government but also for the 31 states that in 1991 tied their itemized
    deductions to those used for federal tax purposes.

    Two changes to the reporting of real estate cash rebates and real estate
    taxes could reduce noncompliance and increase federal tax collections.
    First, the Congress could require that states report to IRS, and to
    taxpayers on Form 1099s, cash rebates of real estate taxes. Second, the
    Congress could require that state and local governments conform real
    estate tax statements to specifications issued by IRS that would separate
    real estate taxes from nondeductible fees, which are often combined on
    these statements.

    In the past, JCT estimated that the proposals would increase federal
    fiscal revenues.

    JCT 5- Year Estimate Included in Yes.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Administration: Overstated Real Estate Tax
    Deductions Need To Be Reduced. GAO/ GGD- 93- 43. Washington, D. C.:
    January 19, 1993.

    GAO Contact James R. White, (202) 512- 9110

    Increase Collection of Returns Filed by U. S. Citizens Living Abroad

    Primary agency Internal Revenue Service Spending type Direct

    U. S. citizens residing abroad are generally subject to the same filing
    requirements as citizens residing in the United States. Some evidence
    suggests that the failure to file tax returns may be relatively prevalent
    in

    some segments of the U. S. population abroad, and the revenue impact,
    while unknown, could be significant.

    IRS*s ability to identify and collect taxes from nonfilers residing abroad
    is restricted by the limited reach of U. S. laws in foreign countries,
    particularly U. S. laws on tax withholding, information reporting, and
    enforced collection through liens, levies, and seizures. Another factor
    that could contribute to nonfiling abroad is the ambiguity in IRS*s filing
    instructions for its Form 1040 and related guidance. For example, it may
    not be clear that income qualifying for the foreign earned income or
    housing expense exclusions must be considered in determining whether one*s
    gross income exceeds the filing threshold.

    In pursuing nonfilers abroad, IRS has not fully explored the usefulness of
    passport application data as a means of identifying potential nonfilers.
    While passport applications contain no income information, they could be

    used to collect applicants* social security number, age, occupation, and
    country of residence.

    IRS may want to take additional steps to enforce the current information
    requirement that all passport applicants provide their social security
    numbers as a means of identifying potential nonfilers abroad. IRS may also
    want to clarify its instructions for determining what income must be
    considered in determining whether gross income exceeds the filing
    threshold. Initial projects to increase the number of returns filed from
    overseas suggest that the potential increase in tax revenues would justify
    the costs to improve compliance.

    In the past, JCT agreed that the option had the potential for increased
    revenue, but it could not develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Products Tax Administration: Nonfiling Among U. S. Citizens
    Abroad. GAO/ GGD98- 106. Washington, D. C.: May 11, 1998.

    IRS Activities to Increase Compliance on Overseas Taxpayers.

    GAO/ GGD- 93- 93. Washington, D. C.: May 18, 1993. GAO Contact James R.
    White, (202) 512- 9110

    Increase the Use of Seizure Authority to Collect Delinquent Taxes

    Primary agency Internal Revenue Service Spending type Direct

    The Internal Revenue Service*s (IRS) use of its statutory authority to
    seize taxpayer assets has been instrumental in bringing into compliance
    (i. e., full pay status) many delinquent taxpayers who had been
    unresponsive to other

    tax collection efforts, including demands for payment through letters,
    phone calls, personal visits, and levies on bank accounts and wages. Of
    the approximate 8, 300 taxpayers whose assets were seized by IRS in fiscal
    year 1997, about 42 percent became fully tax compliant-- resolving about
    $186 million in tax debts-- as a result of the seizures. In total, the
    seizure of

    taxpayer property in fiscal year 1997 resulted in resolving about $235
    million, or about 22 percent of the $1.1 billion of tax debts owed by the
    8,300 taxpayers. IRS*s use of seizure authority has declined since the
    enactment of the IRS Restructuring and Reform Act of 1998. Seizures
    declined from 10, 090 in FY 1997 to 234 in FY 2001* a decline of about 98
    percent. In 2002, the number

    of seizures was essentially unchanged with IRS completing 296 seizures.
    According to an IRS official the number of seizures is not expected to
    change in 2003. At this greatly reduced level of seizures, IRS is at risk
    of

    foregoing the collection of millions of dollars as indicated by the 1997
    data. IRS employees told GAO in 2000 that seizures have nearly stopped
    because of their uncertainty over the act*s seizure requirements and IRS*
    slow development of workable policies and procedures for implementing the
    act. IRS officials indicated to GAO that they expected the future level of
    seizures to be substantially below the level before the Reconstruction Act
    experience given (1) IRS program changes that provide taxpayers with
    additional opportunities to resolve their tax delinquencies prior to
    seizure, (2) expanded definition of taxpayer property statutorily exempt
    from seizure, (3) increased time available to taxpayers to exercise rights
    to

    challenge seizures, and (4) reductions in collection staff available to
    make seizures. GAO has recently reported that the number of revenue
    officers* the IRS staff responsible for making seizures* decreased about
    35 percent from 1997 to 2002.

    To help ensure that revenue officers have clear guidance for the use of
    seizure authority, GAO has made a number of recommendations to IRS. In

    part, GAO recommended that IRS provide written guidance to describe when
    seizure action ought to be taken; that is, the conditions and
    circumstances that would justify seizure action and the responsibilities
    of senior managers to ensure that such actions are taken. GAO also has
    recommended that IRS develop a computer based information system to
    monitor compliance with the seizure guidance. IRS has issued the revised
    seizure guidance and will implement a limited seizures monitoring system
    this fall. In the past, JCT agreed that the option has the potential for
    increased revenue, but it could not develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product IRS Seizures: Needed for Compliance but Processes for
    Protecting Taxpayer Rights Have Some Weaknesses. GAO/ GGD- 00- 4.
    Washington, D. C.: November 29, 1999.

    GAO Contact James R. White, (202) 512- 9110

    Increase Collection of Selfemployment Taxes

    Primary agency Internal Revenue Service Spending type Direct

    Self- employed taxpayers can get Social Security benefits based on
    earnings for which they did not pay taxes because the Social Security Act
    requires the Social Security Administration to grant earnings credits,
    which are used to determine benefit eligibility and amounts, and pay
    benefits without

    regard to whether the Social Security taxes have been paid. We reported in
    1999 that, as of September 1997, more than 1.9 million self- employed
    taxpayers were delinquent in paying $6. 9 billion in self- employment
    taxes. Also, more than 144, 000 taxpayers with delinquent self- employment
    taxes of $487 million were receiving about $105 million annually in
    monthly Social Security benefits.

    While IRS*s ability to collect self- employment taxes before taxpayers
    become delinquent is hampered because there is no withholding on
    selfemployment income, most self- employed taxpayers are required to make
    estimated tax payments. However, as of September 1997, about 90 percent of
    the delinquent self- employed taxpayers required to make estimated tax
    payments did not.

    In the past, there have been proposals to deny social security credits to
    taxpayers that fail to pay their self- employment taxes and to require
    withholding on certain self- employment income. No actions were taken on
    these proposals. One way to collect self- employment taxes before

    taxpayers become delinquent that does not require a law change would be to
    encourage more self- employed individuals to make their required estimated
    tax payments. IRS could do this by establishing a program to

    remind previously noncompliant taxpayers (i. e., those who were assessed
    an estimated tax penalty the previous year) to make such payments.

    In the past, JCT agreed that the option had the potential for increased
    revenue, but it could not develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Administration: Billions in Self- Employment Taxes
    Are Owed.

    GAO/ GGD- 99- 18. Washington, D. C.: February 19, 1999. GAO Contact James
    R. White, (202) 512- 9110

    Increase the Use of Electronic Funds Transfer for Installment Tax Payments

    Primary agency Internal Revenue Service Spending type Direct

    The Internal Revenue Code authorizes the Internal Revenue Service (IRS) to
    allow taxpayers to pay their taxes in installments, with interest, if this
    arrangement would facilitate collection of the liability. As of September
    2000, IRS had about 2.2 million installment agreements outstanding, worth
    about $8.3 billion. At the end of fiscal year 2000, approximately 35
    percent of these installment agreements were in default.

    A number of states use electronic funds transfer (EFT) to make their
    installment agreement program more efficient and effective. In 1998, we
    reported on two states* use of EFT. Minnesota, requires taxpayers to pay
    by EFT, with some exceptions. As of late 1997, approximately 90 percent of
    Minnesota*s installment agreements were EFT agreements, and the default
    rate had dropped from about 50 percent to between 3 percent and 5 percent
    in the 2 years the EFT requirement had been in effect. In California,
    within 6 months of implementing its EFT procedures, its default rate for
    new installment agreements dropped from around 40 percent to 5 percent.

    EFT payments also produce administrative savings through lower processing
    costs involved in recording and posting remittances, lower postage and
    handling costs associated with sending monthly payment reminders, and
    lower collection enforcement costs needed to pursue fewer taxpayers in
    default. IRS*s initial comparison of the cost of EFT payments with the
    cost of having taxpayers send installment payments to lockboxes in
    commercial banks showed that EFT payment costs were about 37 percent less
    than the lockbox costs.

    The reported benefits for IRS of using EFT for installment agreement
    payments include the potential to reduce the percentage of taxpayer
    defaults, decrease administrative costs, and achieve faster collections.
    At the end of fiscal year 2000, less than 1.5 percent of IRS*s outstanding

    installment agreements were EFT agreements. In the past, JCT agreed that
    the option had the potential for increased revenue, but it could not
    develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Products Tax Administration: Increasing EFT Usage for
    Installment Agreements Could Benefit IRS. GAO/ GGD- 98- 112. Washington,
    D. C.: June 10, 1998.

    Tax Administration: Administrative Improvements Possible in IRS*
    Installment Agreement Program. GAO/ GGD- 95- 137. Washington, D. C.: May
    2, 1995.

    GAO Contact James R. White, (202) 512- 9110

    Reduce Gasoline Excise Tax Evasion

    Primary agency Internal Revenue Service Spending type Direct

    Although no current and reliable estimate of gasoline excise tax evasion
    exists, the most recent Federal Highway Administration estimate, from
    1992, was that evasion amounted to between 3 and 7 percent of gasoline
    excise tax revenue. From a tax administration perspective, moving the
    collection point for gasoline excise taxes from the terminal to the
    refinery

    level may reduce tax evasion because (1) gasoline would change hands fewer
    times before taxation, (2) refiners are presumed to be more financially
    sound and have better records than other parties in the distribution
    system, and (3) fewer taxpayers would be involved. However, industry
    representatives raise competitiveness and cost- efficiency questions
    associated with moving the collection point.

    In a May 1992 report, we suggested that the Congress explore the level of
    gasoline excise tax evasion and, if it was found to be sufficiently high,
    move tax collection to the point at which gasoline leaves the refinery. In
    the past, JCT agreed that the option had the potential for increased
    revenue, but it could not develop estimates of revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Administration: Status of Efforts to Curb Motor
    Fuel Tax Evasion.

    GAO/ GGD- 92- 67. Washington, D. C.: May 12, 1992. GAO Contact James R.
    White, (202) 512- 9110

    Improve Independent Contractor Tax Compliance

    Primary agency Internal Revenue Service Spending type Direct

    Common law rules for classifying workers as employees or independent
    contractors are unclear and subject to conflicting interpretations. While
    recognizing this ambiguity, the Internal Revenue Service (IRS) enforces
    tax laws and rules through its Employment Tax Examinations program. For
    fiscal year 2002, 90 percent of the examinations found misclassified
    workers and associated unpaid taxes. Establishing clear rules is
    difficult. Nevertheless, taxpayers need-- and the government is obligated
    to provide- clear rules for classifying workers if businesses are to
    voluntarily comply. In addition, improved tax compliance could be gained
    by requiring businesses to (1) withhold taxes from payments to independent
    contractors and/ or (2) file information returns with IRS on payments made
    to independent contractors constituted as corporations. Both approaches

    have proven to be effective in promoting individual tax compliance. In the
    past, the Congress considered but rejected extending information reporting
    requirements for unincorporated independent contractors to incorporated
    ones. Thus, independent contractors organized as either sole proprietors
    or corporations could have been on equal footing, and IRS could have had a
    less intrusive means of ensuring their tax compliance.

    There have been various proposals on clarifying the definition of
    independent contractors and improving related information reporting.
    Congressional hearings dealt with some of these bills.

    We believe that revenues from this option could possibly increase by
    billions of dollars. In the past, JCT agreed that the option had the
    potential for increased revenue, but it could not develop estimates of
    revenue gain.

    JCT 5- Year Estimate Included in No.

    GAO*s 2002 Budgetary Implications Report

    Related GAO Products Tax Administration: Estimates of the Tax Gap for
    Service Providers.

    GAO/ GGD- 95- 59. Washington, D. C.: December 28, 1994.

    Tax Administration: Approaches for Improving Independent Contractor
    Compliance. GAO/ GGD- 92- 108. Washington, D. C.: July 23, 1992. GAO
    Contact James R. White, (202) 512- 9110

    Expand the Use of IRS*s TIN- Matching Program

    Primary agency Internal Revenue Service Spending type Direct

    The Internal Revenue Service*s (IRS) and the Department of Treasury*s
    Financial Management Service (FMS) have initiated a continuous tax levy
    program designed to identify and levy federal payments to taxpayers that
    owe federal taxes. The potential effectiveness of this program will be
    reduced because payment records submitted to FMS by federal agencies often
    have an inaccurate Taxpayer Identification Number (TIN) and/ or name.

    Since 1997, IRS has had a TIN- matching program that federal agencies can
    use to verify the accuracy of TIN and name combinations furnished by
    federal payees that are necessary for issuing information returns. This
    program was intended to reduce the number of notices of incorrect TIN and
    name combinations issued for backup withholding by allowing agencies the
    opportunity to identify TIN and name discrepancies and to contact payees
    for corrected information before issuing an information return. Monthly,
    federal agencies may submit a batch of name and TIN combinations to IRS
    for verification. IRS matches each record submitted and informs the agency
    whether the TIN and name submitted matches its records. However, IRS
    cannot explicitly tell an agency what the correct TIN, name, or both TIN
    and name should be if the records do not match. To do so would violate tax
    disclosure laws.

    In an April 2000 report, we found that about 33 percent of vendor payment
    records submitted by federal agencies to FMS during one quarter in fiscal
    year 1999 had TINs and/ or names that differed with the TINs and/ or names
    in IRS*s accounts receivable records. As a result, vendor payment records
    totaling almost $20 billion were unsuitable for matching against IRS*s
    accounts receivable records and therefore would not be included in the
    joint FMS/ IRS continuous tax levy program for the purpose of reducing
    federal tax delinquencies.

    The Congress may wish to expand the use of IRS*s TIN- matching program for
    purposes other than information reporting to enable federal agencies to
    specifically verify the accuracy of vendor TINs and names. This would help
    to reduce the number of federal payment records that are unsuitable for

    matching against IRS*s accounts receivable records and to increase the
    number of federal tax delinquencies that could be collected through the
    continuous tax levy program. We estimate that resolving inconsistencies
    between the names payees use to receive federal payments and the names
    payees use on their federal tax returns could generate as much as $74
    million annually. In the past, JCT estimated that savings would result

    from this option. JCT 5- Year Estimate Included in

    Yes. GAO*s 2002 Budgetary Implications Report

    Related GAO Product Tax Administration: IRS* Levy of Federal Payments
    Could Generate Millions of Dollars. GAO/ GGD- 00- 65, April 7, 2000.

    GAO Contact James R. White, (202) 512- 9110

    Improve Administration of the Federal Payment Levy Program

    Primary agency Internal Revenue Service Spending type Direct/
    Discretionary

    The Internal Revenue Service (IRS) and the Department of Treasury*s
    Financial Management Service (FMS) have initiated the Federal Payment Levy
    Program, which is designed to continuously levy federal payments made to
    taxpayers that owe federal taxes. The potential effectiveness of this
    program will be reduced because IRS has blocked certain delinquent
    taxpayers from being levied.

    Since July 2000, IRS has been levying federal payments of delinquent
    taxpayers. Certain taxpayers are not levied because they meet certain
    exclusion criteria, such as taxpayers who are paying their taxes through
    installment agreements or those who have contacted IRS and demonstrated
    that they currently do not have the means to pay their taxes. However,
    there are many other delinquent taxpayers who do not meet IRS*s exclusion
    criteria but are not having their federal payments levied. In a March 2003
    report, we found that about 112,000 delinquent taxpayers were collectively
    receiving about $6.8 billion in federal payments and owed about $1.6
    billion in delinquent taxes that IRS had blocked from the levy program.
    While IRS began to unblock about 20,000 of these accounts in January 2003,
    it does not plan to unblock the remaining portion until sometime in 2005.
    The sooner IRS unblocks these accounts, the more likely it is to collect
    the delinquent taxes.

    JCT 5- Year Estimate Included in No, this is a new example. CBO could not
    develop an estimate for this

    GAO*s 2002 Budgetary example.

    Implications Report Related GAO Product Tax Administration: Federal
    Payment Levy Program Measures,

    Performance, and Equity Can Be Improved. GAO- 03- 356. Washington, D. C.:
    March 6, 2003.

    GAO Contact Michael Brostek, (202) 512- 9110

    Enhance Nontax Debt Collection Using Available Tool s

    Primary agency Department of the Treasury Spending types Direct/
    Discretionary

    Nontax federal debt delinquent more than 180 days continues to be a
    significant problem governmentwide. The Department of Treasury reported
    that such debt totaled over $60 billion for each of the last 4 fiscal
    years. As delinquent debts age, they become increasingly difficult to
    collect. In 1996, the Congress enacted the Debt Collection Improvement Act
    of 1996 (DCIA) to provide for more aggressive pursuit of delinquent debt.
    Treasury*s Financial Management Service (FMS) has been instrumental in
    helping agencies identify and refer more seriously delinquent nontax debts
    to FMS for additional effort. FMS has had some success in these
    centralized efforts; however, two key aspects of the 1996 legislation have
    lagged behind other initiatives. In particular, the law authorized federal
    agencies to perform administrative wage garnishment (AWG) for certain
    delinquent debt. Debt collection

    experts have emphasized that AWG is a powerful instrument for collecting
    debt since the mere threat of using it is often enough to motivate
    voluntary payment. Properly used in tandem with other debt recovery
    techniques such as Treasury*s centralized debt collection program, AWG
    should generate collections and provide leverage for agencies to obtain
    voluntary payments from delinquent debtors. However, few agencies are
    using AWG. Although the Department of Education had implemented AWG
    granted under separate authority, none of the nine large Chief Financial
    Officers Act agencies we reviewed in fiscal year 2001 had fully
    implemented AWG as authorized by the DCIA. According to Treasury
    officials, as of March 2003, only one of the nine large agencies, the
    Department of Housing and Urban

    Development, had authorized Treasury to perform AWG as part of its
    centralized debt collection efforts. Although AWG is not mandatory, by
    failing to employ this tool* more than 7 years after the DCIA*s enactment*

    agencies have missed collection opportunities. DCIA also called for steps
    to prevent certain delinquent debtors from receiving additional federal
    financial assistance in the form of loans, loan guarantees, and loan
    insurance. Our March 2002 report discussed three

    major information sources that contain data on delinquent federal debtors:
    credit bureau reports, the Department of Housing and Urban

    Development*s Credit Alert Interactive Voice Response System, and the
    Department of the Treasury*s offset program (TOP) database. Each
    information source contained certain information on delinquent federal
    nontax debtors, but none provided all- inclusive, timely data or
    maintained data long enough to be an adequate basis for successfully
    barring future financial assistance to current or prior delinquent
    debtors. According to Treasury officials, FMS is in the initial
    implementation phase of a new Internet- based program to assist agencies
    in identifying delinquent debtors. As currently envisioned, the program
    will allow agencies to initiate

    searches of limited information from the TOP database to determine whether
    applicants for direct or guaranteed loans owe delinquent federal nontax
    debt. We have recommended that agencies begin implementing AWG and that

    FMS augment its current plans for using the TOP database to bar delinquent
    debtors from obtaining access to future federal financial assistance.
    Because it is not clear at this time how much federal agency debt is
    eligible for AWG, an estimate of additional receipts from full
    implementation of this debt collection tool would only be a preliminary
    indication. The same uncertainty exists for estimated benefits related to
    full implementation of the delinquent debtor bar provision. Given the pace
    of implementation, it may be desirable for the Congress to establish
    certain milestones and performance expectations for the debt collection
    function.

    JCT 5- Year Estimate Included in No, this is a new example. CBO could not
    develop an estimate for this

    GAO*s 2002 Budgetary example.

    Implications Report Related GAO Products Debt Collection: Agriculture
    Making Progress in Addressing Key

    Challenges. GAO- 03- 202T. Washington, D. C.: November 13, 2002.

    Debt Collection Improvement Act of 1996: Major Data Sources Inadequate for
    Implementing the Debtor Bar Provision. GAO- 02- 462. Washington, D. C.:
    March 29, 2002.

    Debt Collection Improvement Act of 1996: Status of Selected Agencies*
    Implementation of Administrative Wage Garnishment. GAO- 02- 313.
    Washington, D. C.: February 28, 2002.

    Debt Collection Improvement Act of 1996: Department of Agriculture Faces
    Challenges Implementing Certain Key Provisions. GAO- 02- 277T. Washington,
    D. C.: December 5, 2001.

    Debt Collection Improvement Act of 1996: Agencies Face Challenges
    Implementing Certain Key Provisions. GAO- 02- 61T. Washington, D. C.:
    October 10, 2001.

    GAO Contact Gary T. Engel, (202) 512- 8815

    Slowing the Long- Term

    CBO Options Where Related GAO Work Is Identified

    Growth of Social Constrain the Increase in Initial Benefits

    Security and Medicare Raise the Retirement Age

    CBO Options Where Related GAO Work Is Identified 37

    Constrain the Increase in Initial Benefits Related GAO Products Social
    Security: Analysis of Issues and Selected Reform Proposals. GAO03- 376T.
    Washington, D. C.: January 15, 2003. 37

    Social Security Reform: Analysis of Reform Models Developed by the
    President*s Commission to Strengthen Social Security. GAO- 03- 310.
    Washington, D. C.: January 15, 2003.

    GAO Contact Barbara Bovbjerg, (202) 512- 7215 Raise the Retirement Age
    Related GAO Product Social Security Reform: Implications of Raising the
    Retirement Age.

    GAO/ HEHS- 99- 112. Washington, D. C.: August 27, 1999. GAO Contact
    Barbara Bovbjerg, (202) 512- 7215

    37 We list GAO reports identified as relating to options included in the
    CBO March 2003

    Budget Options report. Only those CBO options for which we identified
    related GAO products are included. We included GAO reports if they related
    to the topic of the CBO option, regardless of whether our work supported
    the option or not.

    (450220)

    a

    GAO United States General Accounting Office

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    Page 1 GAO- 03- 1006 Opportunities for Oversight United States General
    Accounting Office Washington, D. C. 20548

    Comptroller General of the United States A

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