    Opportunities for Congressional Oversight and Improved Use of
    Taxpayer Funds: Budgetary Implications of Selected GAO Work
    (07-MAY-04, GAO-04-649).

    This report contains in a single document the budgetary
    implications of selected program reforms discussed in past GAO
    work but not yet implemented or enacted. Since 1994, we have
    prepared annual reports similar to this product, in order to
    continue to assist congressional committees in identifying
    approaches to reduce federal spending or increase revenues. This
    year's report contains over 100 examples of budget options
    organized by budget function. Where possible, budgetary savings
    estimates provided by the Congressional Budget Office (CBO) or
    the Joint Committee on Taxation (JCT) are presented.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-649
        ACCNO:   A09951
      TITLE:     Opportunities for Congressional Oversight and Improved
    Use of Taxpayer Funds: Budgetary Implications of Selected GAO
    Work
         DATE:   05/07/2004
      SUBJECT:   Beneficiaries
    	     Budget administration
    	     Budget functions
    	     Cost control
    	     Eligibility criteria
    	     Productivity in government
    	     Program management

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    GAO-04-649

    Report to the Committees on the Budget

    May 2004

    OPPORTUNITIES FOR CONGRESSIONAL OVERSIGHT AND IMPROVED USE OF TAXPAYER
    FUNDS

    Budgetary Implications of Selected GAO Work

    Contents

    Tables

    May 7, 2004Letter

    The Honorable Don Nickles Chairman The Honorable Kent Conrad Ranking
    Minority Member Committee on the Budget United States Senate

    The Honorable Jim Nussle Chairman The Honorable John Spratt Ranking
    Minority Member Committee on the Budget House of Representatives

    This report contains in a single document the budgetary implications of
    selected program reforms discussed in past GAO work but not yet
    implemented or enacted. Since 1994, we have prepared annual reports
    similar to this product, in order to continue to assist congressional
    committees in identifying approaches to reduce federal spending or
    increase revenues. This year's report contains over 100 examples of budget
    options organized by budget function. Where possible, budgetary savings
    estimates provided by the Congressional Budget Office (CBO) or the Joint
    Committee on Taxation (JCT) are presented. The conventions used by CBO and
    JCT to estimate budgetary savings are described in appendix I.

    Following the events of September 11, 2001 and the return of unified
    budget deficits in fiscal year 2002, the Congress and the administration
    face both immediate and long-term challenges. In the near term, Congress
    and the administration are faced with the challenge of combating terrorism
    and ensuring the security of our homeland. In the long term, the nation
    faces immense fiscal and economic pressures created by known demographic
    trends and rising health care costs. Both new commitments undertaken after
    September 11 and longer-term pressures sharpen the need to look at
    competing claims and new priorities. As we have noted in a recent
    testimony,1 there is a need to begin reexamining the base of government
    programs, policies, and operations to make government more effective and
    relevant to a changing society.

    In this report, we highlight opportunities for, and specific examples of,
    legislative and administrative change that might yield budgetary savings.
    These budget options are based on past GAO work. While this report is not
    intended to represent a complete summary of all possible options, it does
    provide specific examples that demonstrate the programmatic and fiscal
    oversight needed as our nation's priorities are reassessed in light of
    short and long-term challenges.

    As consistent with our prior budgetary implications reports, we have
    organized the options presented in this report as falling in one of the
    following three areas:

    o Reassess objectives: Options for reconsidering whether to terminate or
    revise services and programs because goals have been achieved, have been
    persistently not met, or are no longer relevant due to changing
    conditions.

    o Redefine beneficiaries: Options for revising formulas or eligibility
    rules or improving the targeting of benefits or fees.

    o Improve efficiency: Options to address program execution problems
    through consolidation, reorganization, improving collections methods, or
    attacking high-risk activities.

    The specific options described in each example are not intended to suggest
    the only way to address some of the significant problems identified in our
    reviews of federal programs and activities. Each example presents only one
    of many possible options available to the Congress, and including a
    specific option in this report does not mean that we endorse it or that
    the chosen option is the only or the most feasible approach.

    Options in this report include a listing of relevant GAO reports and
    testimonies and a GAO contact. Although we derived the examples in this
    report from our existing body of work, there are similarities between the
    specific options presented in this report and other proposals. For
    example,

    some options contained in this report have also been included in CBO's
    annual spending and revenue options publication.2

    We are also sending copies of this report to other interested committees
    of the Congress. Copies will be made available to others upon request.

    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. Specific questions about individual options may be directed
    to the GAO contact listed with each option.

    David M. Walker Comptroller General of the United States

    Explanation of Conventions Used to Estimate Savings and Revenue
    GainsAppendix I

    The Congressional Budget Office (CBO) and the Joint Committee on Taxation
    (JCT) provided cost estimates where possible for many of our options. As
    in our April 2002 report, a brief explanation is included with the option
    if specific estimates could not be provided.1 Where estimates are
    provided, the following conventions were followed.2

    o For revenue estimates, the increase in collections reflects what would
    occur, over and above amounts due under current law, if the option were
    enacted. Most of the estimates come from the JCT, although a few were
    produced by CBO.

    o For direct spending programs, estimated savings show the difference
    between what the program would cost under the CBO baseline, which assumes
    continuation of current law, and what it would cost after the suggested
    modification.

    o For discretionary spending programs the estimates show savings compared
    to the fiscal year 2004 funding level adjusted for inflation. Savings for
    most defense options are estimated relative to DOD's planned program
    levels.

    Subsequent savings and revenue estimates provided by CBO and JCT may not
    match exactly those contained in this report. Differences in details of
    specific proposals, changes in assumptions that underlie the analyses, and
    updated baselines can all lead to significant differences in estimates.

    Finally, some of the options could not be scored by CBO or JCT. Several of
    these involve management improvements that we believe can contribute to
    reduced spending or increased revenues but whose effects are too uncertain
    to be estimated. A few options are not estimated because they concern
    future choices about spending that are not currently in the baseline used
    to calculate annual spending and revenue. In other cases, savings are
    likely to come in years beyond the 10-year estimation period that CBO
    uses.

    Budget Options by ThemeAppendix II

    As consistent with our previous past budgetary implications reports, this
    appendix groups our options in one of three broad themes: reassess
    objectives, redefine beneficiaries, and improve efficiency. These three
    themes are based on an implicit set of decision rules that encourage
    decision makers to think systematically, within an ever-changing
    environment, about

    o what services the government provides or should continue to provide,

    o for whom these services are or should be provided, and

    o how services are or should be provided.

    Reassess Objectives

    The first theme focuses on the objectives of federal programs or services.
    These options (see table 1) offer opportunities to periodically reconsider
    a program's original purpose, the conditions under which it continues to
    operate, and whether its cost effectiveness is appropriate. Our work
    suggests three decision rules that illustrate this strategy.

    Programs can be considered for termination if they have succeeded in
    accomplishing their intended objectives or if it is determined that the
    programs have persistently failed to accomplish their objectives.

    Programs can be considered for termination or revision when underlying
    conditions change so that the original objectives may no longer be valid.

    Programs can be reexamined when cost estimates increase significantly
    above those associated with original objectives, when benefits fall
    substantially below original expectations, or both.

    For example, aircraft carrier strike groups are the centerpiece of the
    Navy's surface force and significantly influence the size, composition,
    and cost of the fleet. Our analysis indicates that there are opportunities
    to use less costly options to satisfy many of the carrier 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
    Nuclear-Powered Guided Missile Submarines for overseas presence and crisis
    response.

    Table 1: Reassess Objectives

    Budget function                           Option
    050             Reduce the Number of Carrier Strike Group Expansions and
                       Upgrades
    050             Limit Commitment to Production of the F/A-22 Fighter until
                       Operational Testing Is Complete
    050             Reassess Business Cases for Selected Weapon Systems Before
                       Making Further Investments
    150             Eliminate U.S. Contributions to Administrative Costs in
                       Rogue States
    150             Reduce International Broadcasting Overlap
    250             Continue Oversight of the International Space Station and
                       Related Support Systems
    270             Corporatize or Divest Selected Power Marketing
                       Administrations
    300             Terminate Land-Exchange Programs
    300             Deny Additional Funding for Commercial Fisheries Buyback
                       Programs
    350             Eliminate or Reduce the Agriculture Department's Market
                       Access Program
    350             Eliminate Public Law 480 Title I Food Aid Program
    350             Reduce or Eliminate the Export Credit Guarantee Program
    370             Eliminate NIST's Advanced Technology Program
                       Make Further Appropriations on the Pulsed Fast Neutron
    400             Analysis Inspection System Dependent on Results of
                       Operational Testing
    400             Develop a Passenger Intercity Rail Policy to Meet National
                       Goals
    400             Eliminate Cargo Preference Laws to Reduce Federal
                       Transportation Costs
    450             Reduce or Eliminate the Trade Adjustment Assistance
                       Program for Firms and Industries
    550             Improve Fairness of Medicaid Matching Formula
    570             Reassess Medicare Incentive Payments in Health Care
                       Shortage Areas
    600             Revise Benefit Payments under the Federal Employees'
                       Compensation Act
    700             Revise VA's Disability Ratings Schedule to Better Reflect
                       Veterans' Economic Losses
    800+            Improve IRS's Ability to Collect Delinquent Taxes
    Receipt         Implement Tolling or Other Alternative Revenue Sources for
                       the Fuel Tax on Highways
    Receipt         Restrict the Preferential Federal Income Tax Treatment of
                       Business-Owned Life Insurance
    Receipt         Reassess Annual Charges for FERC-licensed Hydropower
                       Projects that Use Federal Lands
    Receipt         Tax Interest Earned on Life Insurance Policies and
                       Deferred Annuities
    Receipt         Further Limit the Deductibility of Home Equity Loan
                       Interest
    Receipt         Increase Penalties and Consistency of Disclosure for
                       Abusive Tax Shelters
    Receipt         Authorize IRS to Use Private Collection Agencies to
                       Collect Certain Delinquent Taxes

    Source: GAO analysis.

    Redefine Beneficiaries

    The second theme focuses on the intended beneficiaries for federal
    programs or services (see table 2). The Congress originally defines the
    intended audience for any program or service based on some perception of
    eligibility and/or need. To better reflect and target increasingly limited
    resources, these definitions can be periodically reviewed and revised. Our
    body of work suggests four decision rules that illustrate this strategy.

    o Formulas for a variety of grant programs to state and local governments
    can be revised to better reflect the fiscal capacity of the recipient
    jurisdiction. This strategy could reduce overall funding demands while
    simultaneously redistributing available grant funds so that the most needy
    receive the same or increased levels of support.

    o Eligibility rules can be revised, without altering the objectives of the
    program or service.

    o Fees can be targeted to individuals, groups, or industries that directly
    benefit from federal programs. Also, existing charges can be increased so
    that the direct beneficiaries share a greater portion of a program's cost.

    o Tax preferences can be narrowed or eliminated by revising eligibility
    criteria or limiting the maximum amount of preference allowable.

    For example, at a time when federal domestic discretionary resources are
    constrained, better targeting of grant formulas offers a strategy to bring
    down federal outlays by concentrating reductions on wealthier localities
    with fewer needs and greater capacity to absorb cuts. Federal grant
    formulas could be redesigned to lower federal costs by disproportionately
    reducing federal funds to states and localities with the strongest tax
    bases and fewer needs, as shown in our option on formula grants.

    Table 2: Redefine Beneficiaries

    Budget function                           Option
    150             Reduce or Eliminate Eximbank Subsidies
    270             Recover Power Marketing Administrations' Costs
    270             Increase Nuclear Waste Disposal Fees
    270             Recover Federal Investment in Successfully Commercialized
                       Technologies
    300             Revise the Mining Law of 1872
    300             Reexamine Federal Policies for Subsidizing Water for
                       Agriculture and Rural Uses
    370             Recapture Interest on Rural Housing Loans
    370             Require Self-Financing of Mission Oversight by Fannie Mae
                       and Freddie Mac
    400             Increase Aircraft Registration Fees to Enable the Federal
                       Aviation Administration to Recover Actual Costs
    450             Eliminate the Flood Insurance Subsidy on Properties That
                       Suffer the Greatest Flood Loss
    450             Eliminate Flood Insurance for Certain Repeatedly Flooded
                       Properties
    500             Improve Targeting of Title I Basic Grants
    550             Prevent States from Using Illusory Approaches to Shift
                       Medicaid Program Costs to the Federal Government
    550             Eliminate Federal Funding for SCHIP Covering Adults
                       without Children
    550             Charge Beneficiaries for Food Inspection Costs
    550             Redirect Carcass-by-Carcass Inspection Resources in Meat
                       and Poultry Plants
                       Implement a Service Fee for Successful Non-Temporary
    600             Assistance for Needy Families Child Support Enforcement
                       Collections
    600             Improve Reporting of DOD Reserve Employee Payroll Data to
                       State Unemployment Insurance Programs
    600             Better Congressional Oversight of PRWORA's Fugitive Felon
                       Provisions
    600             Share the Savings from Bond Refundings
    700             Discontinue Veterans' Disability Compensation for
                       Nonservice Connected Diseases
    800+            Prevent Delinquent Taxpayers from Benefiting from Federal
                       Credit Programs
    800+            Target Funding Reductions in Formula Grant Programs
    800+            Adjust Federal Grant Matching Requirements
    Receipt         Increase Highway User Fees on Heavy Trucks
    Receipt         Limit the Individual Tax Exclusions for Employer-Paid
                       Health Insurance
    Receipt         Repeal the Partial Exemption for Alcohol Fuels from Excise
                       Taxes on Motor Fuels
    Receipt         Index Excise Tax Rates for Inflation

    Source: GAO analysis.

    Improve Efficiency

    The third theme addresses how the program or service is delivered (see
    table 3). This strategy suggests that focusing on the approach or delivery
    method can significantly reduce spending or increase collections. Our body
    of work suggests the following decision rules that illustrate this
    strategy.

    o Reorganizing and consolidating programs or activities with similar
    objectives and audiences can eliminate duplication and improve operational
    efficiency.

    o Using reengineering, benchmarking, streamlining, and other process
    change techniques can reduce the cost of delivering services and programs.

    o Using performance measurement and generally improving the accuracy of
    available program information can promote accountability and effectiveness
    and reduce errors.

    o Attacking activities at risk of fraud, waste, abuse, and mismanagement.

    o Improving collection methods and ensuring that all revenues and debts
    owed are collected can increase federal revenues.

    o Establishing market-based prices can help the government recover the
    cost of providing services while encouraging the best use of the
    government's resources.

    As an illustration of this theme, in May 2000, GAO reported that 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; in 2003, the cost was nearly $50
    billion annually. Over the past two decades, DOD and VA have entered into
    a sharing program that has yielded benefits in both dollar savings and
    qualitative gains, illustrating what can be achieved when the two agencies
    work together to identify where excess capacity and cost advantages exist.
    However, although VA and DOD continue to share resources to provide
    quality and cost-effective health care services, existing sharing
    agreements are not being taken full advantage of and additional sharing
    opportunities could be pursued. Long-standing barriers continue to present
    challenges for future collaboration and cost efficiencies, such as the
    current inability of VA and DOD to electronically share health data
    information in a two-way exchange. Given the changing health care
    environment, the criteria and conditions that make resource sharing a
    cost-effective option for the federal government need to be reviewed and
    strategies for sharing rethought. VA and DOD need to work together to
    determine an appropriate course of action to ensure that resource-sharing
    opportunities are realized.

    Table 3: Improve Efficiency

    Budget function                           Option
    050             Acquire Conventionally Rather Than Nuclear-Powered
                       Aircraft Carriers
    050             Reorganize C-130 Reserve Squadrons
    050             Continue Defense Infrastructure Reform
    050             Improve DOD Procurement Practices Regarding Canceling
                       Orders
    050             Revising Occupancy Policies Could Reduce Barracks
                       Requirements
    050             Reduce Construction Cost of Military Barracks
    050             Reduce the Corrosion of Military Assets
    050             Address Overpayments to Defense Contractors
    050             Require DOD Report Its Progress in Implementing the Debt
                       Collection Improvement Act of 1996 (DCIA)
    050             Improve the Administration of Defense Health Care
                       Seek Additional Opportunities for VA and DOD to Increase
    050             Joint Activities to Enhance Services to Beneficiaries and
                       Reduce Costs
    150             Streamline U.S. Overseas Presence
                       Improve the Department of Energy's Management of Its
    270             Capital Asset Acquisition, Weapons Refurbishment, and Site
                       Cleanup Projects
    270             Reduce the Costs of the Rural Utilities Service's
                       Electricity Loan Program
    300             Reassess Federal Land Management Agencies' Functions and
                       Programs
    350             Consolidate Common Administrative Functions at the U.S.
                       Department of Agriculture
    350             Further Consolidate the U.S. Department of Agriculture's
                       County Offices
    370             Reduce Federal Housing Administration's Insurance Coverage
                       Merging Department of Agriculture and Department of
    370             Housing and Urban Development Single-Family Insured
                       Lending Programs and Multifamily Portfolio Management
                       Programs
    370             Consolidate Homeless Assistance Programs
    370             Reorganize and Consolidate Small Business Administration's
                       Administrative Structure
    370             Improve Reviews of Small Business Administration's
                       Preferred Lenders
    400             Close, Consolidate, or Privatize Some Coast Guard
                       Operating and Training Facilities
    400             Convert Some Support Officer Positions to Civilian Status
    400             Improve the Coordination of Transportation Services for
                       Transportation-Disadvantaged Populations
    450             Improve Federal Foreclosure and Property Sales Processes
    500             Change Borrower Interest Rate on Federal Consolidation
                       Loans From Fixed to Variable
    550             Control Provider Enrollment Fraud in Medicaid
    550             Create a Uniform Federal Mechanism for Food Safety
    570             Adjust Medicare Payment Rates to Reflect Changing
                       Technology, Costs, and Market Prices
    570             Increase Medicare Program Safeguard Funding
    570             Modify the New Skilled Nursing Facility Payment Method to
                       Ensure Appropriate Payments
    570             Implement Risk-Sharing in Conjunction with Medicare Home
                       Health Agency Prospective Payment System
    570             Allow Provisions for Direct Laboratory Payment for Certain
                       Medicare Pathology Services to Expire
                       Require Information on Enrollees from Private Health
    570             Insurers to Improve Identification of Medicare
                       Beneficiaries with Other Health Coverage
    600             Improve Social Security Benefit Payment Controls
    600             Simplify Supplemental Security Income Recipient Living
                       Arrangements
    600             Sustain/Expand Range of SSI Program Integrity Activities
    600             Improve the Administrative Oversight of Food Assistance
                       Programs
    600             Reduce Federal Funding Participation Rate for Automated
                       Child Support Enforcement Systems
    700             Reassess Unneeded Health Care Assets within the Department
                       of Veterans Affairs
    700             Reducing VA Inpatient Food and Laundry Service Costs
    800+            Taking a Strategic Approach Could Improve Federal
                       Agencies' Acquisition of Supplies and Services
    800+            Improper Benefit Payments Could Be Avoided or More Quickly
                       Detected if Data from Various Programs Were Shared
    800+            Increase Fee Revenue from Federal Reserve Operations
    800+            Eliminate the 1-Dollar Note
    800+            Better Target Infrastructure Investments to Meet Mission
                       and Results-Oriented Goals
    800+            Identify and Dispose of Unneeded Real Property Assets Held
                       by GSA
    800+            Consolidate Grants for First Responders to Improve
                       Efficiency
    Receipt         Enhance Nontax Debt Collection Using Available Tools
    Receipt         Require Corporate Tax Document Matching
    Receipt         Improve Administration of the Tax Deduction for Real
                       Estate Taxes
    Receipt         Increase Filing of Returns by U.S. Citizens Living Abroad
    Receipt         Increase the Use of Seizure Authority to Collect
                       Delinquent Taxes
    Receipt         Increase Collection of Self-employment Taxes
    Receipt         Increase the Use of Electronic Funds Transfer for
                       Installment Tax Payments
    Receipt         Reduce Gasoline Excise Tax Evasion
    Receipt         Improve Independent Contractor Tax Compliance
    Receipt         Expand the Use of IRS's TIN-Matching Program
    Receipt         Improve Administration of the Federal Payment Levy Program

    Source: GAO analysis.

    Opportunities to Improve the Economy, Efficiency, and Effectiveness of
    Federal ProgramsAppendix III

    050 National Defense

    Reduce the Number of Carrier Strike Group Expansions and Upgrades Acquire
    Conventionally Rather Than Nuclear-Powered Aircraft Carriers Reorganize
    C-130 Reserve Squadrons Continue Defense Infrastructure Reform Improve DOD
    Procurement Practices Regarding Canceling Orders Revising Occupancy
    Policies Could Reduce Barracks Requirements Reduce Construction Cost of
    Military Barracks Reduce the Corrosion of Military Assets Limit Commitment
    to Production of the F/A-22 Fighter until Operational   Testing Is
    Complete Reassess Business Cases for Selected Weapon Systems Before Making
         Further Investments Address Overpayments to Defense Contractors Require
    DOD Report Its Progress in Implementing the Debt Collection   Improvement
    Act of 1996 (DCIA) 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

    Reduce the Number of Carrier Strike Group Expansions and Upgrades

    Aircraft carrier strike 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 strike group is about $2.2 billion (in fiscal year 2004 dollars)
    and is likely to increase as older units are replaced and modernized. The
    strike group includes the carrier and its air wing, and the cruisers,
    destroyers and other ships that accompany the carrier during its
    deployment, as well as the costs to support the carrier strike group. The
    Navy has several costly ongoing carrier-related programs: one
    nuclear-powered Nimitz-class carrier is under construction ($5.2 billion);
    a research and development program ($3.6 billion) for a new
    nuclear-powered carrier design is underway; production ($8.7 billion) of
    that new carrier is set to begin in 2007; and 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 2006. 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 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
    strike groups centered around increasingly capable amphibious assault
    ships, surface combatants and Trident SSGNs for overseas presence and
    crisis response.

    CBO estimates that savings could total $3.7 billion over the 2005-2009
    period from retiring one aircraft carrier (CVN-70), and one carrier air
    wing. This estimate includes savings from foregoing the overhaul ($2.4
    billion) and savings from not operating the carrier ($1.3 billion).

    Source: Congressional Budget Office.

    Note: The Navy's plans call for production of a replacement carrier
    (CVN-21) in 2007 and a refueling complex overhaul of an existing carrier
    (CVN-70) in 2006. This option would continue the production of the CVN-21
    carrier but would retire the CVN-70 in 2005.

    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

    Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers

    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
    nuclear-powered 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
    nuclear-powered 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.1 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
    nuclear-powered carriers.

    CBO estimates that savings could be achieved if the Congress chose to
    acquire a conventionally powered carrier in 2007 instead of a
    nuclear-powered carrier.

    Source: Congressional Budget Office.

    Note: The Navy's plans call for production of a replacement carrier
    (CVN-21) in 2007 and a refueling complex overhaul of an existing carrier
    (CVN-70) in 2006. This option would replace the CVN-21 carrier with a CVX
    carrier.

    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.

    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

    Reorganize C-130 Reserve Squadrons

    Currently, the majority of the Air Force's C-130 aircraft is 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.2

    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 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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    Continue Defense Infrastructure Reform

    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 costs.3
    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.

    Secretary of Defense Rumsfeld announced his own management reform program
    in 2001, referred to as the DOD Business Transformation program, also with
    the intent of improving the effectiveness and efficiency of the
    department's business operations. The new management structure-led by the
    Senior Executive Council and the Business Initiative Council-recommends
    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. While council members have put forth many
    new initiatives, they also have endorsed several initiatives that were
    part of the DRI program (e.g., family housing and utilities privatization
    and public-private competitions under the Office of Management and
    Budget's Circular A-76). Further, most of the other DRI initiatives have
    continued, although not under the direct oversight of the new business
    transformation structure. The new councils plan to 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 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 reported that as
    of June 1, 2003 it has met OMB's short-term goal. While OMB has revised
    its goals to allow each agency flexibility in order to better reflect
    agency missions, DOD's goal is to meet the 50 percent target by 2009.
    Regardless, this longer-term goal could be a challenge, requiring
    completion of a significantly larger number of positions for study than
    has actually been completed in a similar period in the past. 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 projected. Congress authorized
    a base realignment and closure (BRAC) round in 2005  4 to reduce unneeded
    infrastructure and free up funds for readiness, weapon modernization, and
    other needs. DOD projects that 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 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 was not able to determine the budgetary effect of this option.

    Related GAO Products

    Defense Management: DOD Faces Challenges Implementing Its Core Competency
    Approach and A-76 Competitions. GAO-03-818. Washington, D.C.: July 15,
    2003.

    Defense Management: New Management Reform Program Still Evolving.
    GAO-03-58. Washington, D.C.: December 12, 2002.

    Military Base Closures: Progress in Completing Actions from Prior
    Realignments and Closures. GAO-02-433. Washington, D.C.: April 5, 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.

    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/NSIAD-97-127BR. Washington, D.C.: April 4, 1997.

    GAO Contact

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

    Improve DOD Procurement Practices Regarding Canceling Orders

    As of September 30, 2002, Department of Defense (DOD) records showed that
    the department had inventory on order valued at about $1.75 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. We
    reported in May 2003 that the causes most frequently cited by DOD
    inventory managers for excess inventory are (1) buildup of repair parts to
    support a new program or for a retrofit, modification, upgrade, or
    replacement; (2) foreign military sales program requirements; (3) low or
    decreasing demand for a specific part; and (4) retirement or phasing out
    of an aircraft. We also 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 was not able to determine the budgetary effect of this option.

    Related GAO Products

    Defense Inventory: Air Force Item Manager Views of Repair Parts Issues
    Consistent With Issues Reported in the Past. GAO-03-684R. Washington,
    D.C.: May 21, 2003.

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

    GAO Contact

    William Solis, (202) 512-8365

    Revising Occupancy Policies Could Reduce Barracks Requirements

    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. 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 that
    consider the contemporary needs of junior servicemembers, quality-of-life
    issues, the services' mission requirements, and other relevant data 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. An option for Congress is
    to require DOD to revise its barracks occupancy guidance according to our
    above recommendation, lowering significantly the future construction and
    operation costs for barracks.

    Although CBO agrees that the option may result in savings, it could not
    develop a savings estimate for this option.

    Related GAO Products

    Military Housing: Opportunities That Should Be Explored to Improve Housing
    and Reduce Costs for Unmarried Junior Servicemembers. GAO-03-602.
    Washington, D.C.: June 10, 2003.

    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

    Reduce Construction Cost of Military Barracks

    In June 2003, GAO reported that opportunities existed to reduce costs of
    constructing barracks through adoption of private-sector construction
    practices. Traditional barracks construction practices call for the use of
    steel frame, concrete, and cement block. Similar multi-unit housing in the
    private sector, such as college dormitories and hotels, normally use
    construction practices that include the use of wood frame construction.

    The Army estimated that the use of private-sector wood frame construction
    instead of steel frame, concrete, and cement block could reduce barracks
    construction costs by 23 percent, or about $11,200 per occupant. Because
    of its lower initial construction costs and comparable operations and
    maintenance costs, Army analyses also indicate that total lifetime costs
    for barracks constructed with private-sector construction practices would
    be less than barracks using traditional construction practices. For
    example, the Army estimated that using residential construction practices
    will cost from $12,600 to $31,800 less per occupant at its pilot project
    under construction at Fort Meade, Maryland. However, barriers-including
    unanswered questions about durability and the ability of wood-frame
    barracks to meet all antiterrorism force protection requirements-have
    prevented widespread adoption of these cost saving private-sector
    practices.

    GAO recommended that the military services jointly undertake an
    engineering study to resolve questions about use of private-sector
    construction practices for barracks. We also recommended that, if the
    engineering study shows that barracks built with private-sector
    construction practices can economically meet all force protection
    requirements, the military services adopt to the maximum extent practical
    private-sector construction practices for future barracks projects. DOD
    stated that it supports the study and that the Army Corps of Engineers had
    begun a study of private-sector construction practices and compliance with
    antiterrorism force protection requirements for barracks.

    One option for Congress, providing that the engineering studies show that
    barracks built with residential construction practices can economically
    meet all force protection requirements, is to require that the funding
    amounts that DOD requests for barracks construction projects be based on
    use of residential construction practices to the maximum extent practical.

    CBO was not able to determine the budgetary effect of this option.

    Related GAO Products

    Military Housing: Opportunities That Should Be Explored to Improve Housing
    and Reduce Costs for Unmarried Junior Servicemembers. GAO-03-602.
    Washington, D.C.: June 10, 2003.

    Military Housing: Opportunity for Reducing Planned Military Construction
    Costs for Barracks. GAO-03-275R. Washington, D.C.: January 7, 2003.

    GAO Contact

    Barry Holman, (202) 512-8412

    Reduce the Corrosion of Military Assets

    Congress has recognized the need to significantly reduce the economic
    burden on the military services from damage caused by corrosion5 on
    military equipment and infrastructure and of the efforts to mitigate its
    adverse affects. In fact, corrosion's impact on military costs appears to
    be enormous, representing one of the largest life-cycle cost components of
    military weapon systems and infrastructure. In a 2001 government-sponsored
    study, corrosion was estimated to cost the Department of Defense (DOD) at
    least $20 billion a year.

    The Bob Stump National Defense Authorization Act for Fiscal Year 2003
    required the DOD to take several steps to address corrosion and provide
    Congress a long-term strategy for corrosion prevention and mitigation.
    Major commands, program offices, and research and development centers
    servicewide have made and continue to make improvements in the methods and
    techniques for preventing corrosion. For example, durable coatings,
    composite materials, and cathodic protection are being incorporated to an
    increasing extent in the design and construction of military facilities
    and equipment to reduce corrosion-related maintenance. The military
    services estimate that as much as 25 to 35 percent of corrosion costs can
    be eliminated by using corrosion prevention efforts, amounting to billions
    of dollars in potential savings each year.

    There is much evidence that corrosion is an extensive problem and impacts
    military costs, readiness and safety. For example, in 1993, the Army
    estimated spending about $2 billion to $2.5 billion a year to mitigate the
    corrosion of wheeled vehicles, including 5-ton trucks. Also, in a 1998
    analysis, the estimated cost to repair damage to Army helicopters
    attributed to corrosion was about $4 billion. In addition, many proposed
    projects-even those with the potential for very large future-cost
    savings-are often assigned a low funding priority compared to operations
    and repair projects offering more immediate results, potentially costing
    billions of dollars in additional net savings annually that would accrue
    from a long-term reduction in corrosion of military equipment and
    infrastructure. For example, the Naval Sea Systems Command has developed
    durable coatings that increase the amount of corrosion protection for
    various kinds of tanks (such as fuel and ballast tanks) on Navy ships to
    20 years instead of 5 years. While the Navy has installed the coatings on
    less than 7 percent of the tanks, it has estimated the net savings at
    about $10 million a year. If the Navy fully funded this effort, it
    projects than an additional $161 million annual net cost savings could be
    achieved.

    Without a more systematic approach to corrosion problems, prevention
    efforts that have a high return on investment potential will likely
    continue to be underresourced and continue to proceed at a slow pace. We
    have identified several examples of projects, such as the Army National
    Guard's Controlled Humidity Preservation project that pumps dehumidified
    air into buildings or equipment to reduce the rate of corrosion, that show
    potential for a high return on investment and advances in the technologies
    of corrosion prevention but which have not, for various reasons, been
    fully implemented. In this case, project officials claimed net savings of
    $225 million through the end of fiscal year 2002.

    DOD and the military services have not systematically assessed proposals
    for corrosion control projects; they have disseminated project results on
    a limited, ad hoc basis. This approach has led to readiness and safety
    issues as well as billions of dollars of corrosion-related maintenance
    costs for DOD and the services annually.

    DOD recently submitted its report to Congress on its long-term strategy
    for reducing corrosion and its effects on military equipment and
    facilities.6 However, the department has had little time to implement the
    strategy and, as a result, has not yet demonstrated progress towards
    reducing corrosion impacts. To minimize the costs associated with
    corrosion-related maintenance, one option for the Congress is to require
    DOD to place a high priority on the implementation of its new strategy to
    prevent and mitigate corrosion, and that the strategy emphasize
    coordination within and among the services and has effective incentives
    and priorities.

    Although CBO agrees that the option may result in savings, it could not
    develop a savings estimate for this option.

    Related GAO Product

    Defense Management: Opportunities to Reduce Corrosion Costs and Increase
    Readiness.  GAO-03-753. Washington, D.C.: July 7, 2003.

    GAO Contact

    William Solis, (202) 512-8365

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

    The fiscal year 2004 Defense Appropriations Act provided funds for
    low-rate initial production of 22 F/A-22 aircraft, and Department of
    Defense (DOD) plans to procure 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 DOD should minimize commitments to F/A-22
    production until completion of initial operational testing, now planned
    for October 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 and test program is ongoing. Avionics problems have not been
    resolved and the start of initial operational testing has been delayed
    another 7 months to March 2004. While the start has slipped 7 months, the
    completion date has slipped only 4 months to October 2004, compressing the
    time available to complete this testing. With the aircraft still
    experiencing problems, the start of testing could be further delayed.
    Additionally, if problems occur during initial operational testing, more
    time will be needed to complete actual flight testing, analysis of data,
    and reporting of the results. These results are needed to prepare the
    Beyond Low-Rate Initial Production Report required to start full rate
    production.

    The Congress for fiscal year 2004 has approved low-rate initial production
    of 22 aircraft. To avoid the acceleration of production until completion
    of operational testing, the low-rate production could be maintained at 22
    aircraft through fiscal year 2005. If Congress were to limit funding to no
    more than 22 aircraft in fiscal year 2005, and then proceed with the
    planned acceleration of production to 26 aircraft in 2006, and 32 aircraft
    in 2007, budget savings could be achieved. 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 277 production
    aircraft, lead to difficulties in completing the production program within
    the production cost estimate.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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.

    GAO Contact

    Allen Li, (202) 512-4841

    Reassess Business Cases for Selected Weapon Systems Before Making Further
    Investments

    The Department of Defense (DOD) is currently in the midst of a
    modernization and transformation effort that will drive its spending
    priorities well into the next decade. Investment in the research,
    development, and procurement of major weapon systems is expected to grow
    considerably as these efforts progress, rising from $135 billion in fiscal
    year 2004 to a projected $166 billion in 2009. DOD's total investment over
    this period will, in fact, approach almost $1 trillion. Weapon systems
    routinely take much longer to field, cost more to buy, and require more
    support than investment plans provide for. This results in reduced buying
    power of the defense dollar, delayed capabilities for the war fighter, and
    unplanned-and possibly unnecessary-trade-offs in desired acquisition
    quantities, as well as an adverse ripple effect among other weapon
    programs or defense needs.

    The Army dealt with such consequences in its recent decision to end
    development of the RAH-66 Comanche helicopter program after almost 16
    years of development. Since July 2000, the research and development costs
    had grown 41 percent, the unit costs had grown 62 percent and the
    quantities had shrunk 46 percent. While the need for an armed
    reconnaissance helicopter may remain, the Army in effect decided that the
    business case for investing in the Comanche as the best solution for that
    need was no longer valid. Instead the Army opted for other investments
    that would provide significantly more quantities of less expensive
    aircraft and take into consideration lessons learned from recent military
    operations. There are several weapon system programs that have experienced
    significant cost increases and schedule delays and were conceived before
    recent operations such as those in Afghanistan and Iraq. An option for the
    Congress is to have the Secretary of Defense reexamine the business cases
    for such programs before additional investments are made. Such a business
    case analysis should consider (1) the continued need for the capability
    and (2) whether the program at hand is still the best way to meet the need
    given lessons learned from recent military operations, the likelihood that
    the weapon system can be delivered within estimated costs and schedule,
    and the viability of alternatives. Weapon system programs that warrant a
    renewed look at their business cases follow.

    F/A-22 Raptor Fighter

    The Air Force's F/A-22 program began in 1986. It was originally planned to
    be an air superiority fighter, but is currently planned to also have
    air-to-ground attack capability. It is being designed with advanced
    features, such as stealth characteristics, to make it less detectable to
    adversaries and capable of high speeds for long ranges. It also has
    integrated aviation electronics (avionics) designed to greatly improve
    pilots' awareness of the situation surrounding them. It is designed to
    replace the Air Force's F-15 aircraft.

    Factors that affect its business case include:

    o A 127 percent increase in development costs.

    o A 122 percent increase in unit procurement costs.

    o A 111 percent increase in development time.

    o A 94 percent increase in testing time.

    Instead of buying 750 aircraft as originally planned, the Air Force can
    only afford 218 aircraft, assuming a production cost limitation that
    Congress has imposed is maintained. Even without the limitation, the Air
    Force plans allow for only 277 aircraft.

    Furthermore, the development and test program continues to experience
    problems and risks further delays. Initial operational testing, to
    demonstrate the system's effectiveness and suitability, has not yet
    started. The F/A-22's advanced avionics system, maintenance systems and
    its reliability are all experiencing problems that could result in further
    increases in development costs and delays in delivering the F/A-22 to the
    war fighter.

    The Air Force has also decided to add, as part of its modernization plan,
    an air-to-ground attack capability not previously envisioned but now
    considered necessary to increase the utility of the aircraft. The Office
    of Secretary of Defense estimated the Air Force would need as much as
    $11.7 billion to develop and incorporate the planned modernization efforts
    into the F/A-22. Excluding these improvements and assuming no new problems
    occur, $33 billion (in fiscal year 2004 dollars) will be needed to
    complete the program from fiscal year 2005 on. This does not include the
    cost needed to provide new avionics computer processors and architecture,
    which are needed to support some planned enhancements. The Air Force
    version of the Joint Strike Fighter currently in development will
    primarily be an air-to-ground replacement for the F-16 and the A-10, and
    should be considered in any review of the F/A-22 business case.

    Advanced SEAL Delivery System (ASDS)

    The Special Operations Forces' ASDS has been in development since 1994. It
    is a battery-powered, dry interior mini-submarine developed for
    clandestine insertion and extraction of Navy SEALs and their equipment. It
    is carried to its deployment area by a specially configured SSN-688 class
    submarine. ASDS is intended to provide increased range, payload,
    on-station loiter time, and endurance over current submersibles.

    Factors that affect its business case include:

    o A 227 percent increase in development costs.

    o A 985 percent increase in production costs.

    o A 235 percent increase in unit procurement costs.

    Two of ASDS's three critical technologies, the battery and the propulsion,
    are not fully mature, even though system development began over 9 years
    ago. Key technical problems, such as the battery and the propeller, were
    discovered late-during testing on the first boat-rather than in component
    or subsystem-level testing. Although significant progress has been made in
    the past year, not all critical technologies have achieved maturity and
    will not meet maturity until the second ASDS boat is produced, currently
    estimated to be in 2008. Assuming no new problems are encountered, $1.3
    billion (in fiscal year 2004 dollars) will be needed to complete the
    program from fiscal year 2005 and beyond.

    Extended Range Guided Munition (ERGM)

    The Navy's ERGM program began development in 1996. It is a rocket-assisted
    projectile that is fired from a gun aboard ships. It can be guided to
    targets on land at ranges of between about 15 and 50 nautical miles to
    provide fire support for ground troops. ERGM is expected to offer
    increased range and accuracy compared to the Navy's current gun range of
    13 nautical miles. ERGM requires modifications to existing 5-inch guns, a
    new munitions-handling system (magazine), and a new fire control system.

    Factors that affect its business case include:

    o A 316 percent increase in development costs.

    o A 262 percent increase in unit procurement costs.

    o A 147 percent increase in development time.

    o A 63 percent reduction in quantities.

    The ERGM program began development with very few of its critical
    technologies mature. Design stability was also not achieved by the design
    review in May 2003. Finally, due to several test failures, the program did
    not meet a Navy deadline that required successful completion of two
    land-based flight tests by November 2003. The Navy is conducting an
    independent assessment of the program's readiness to proceed with further
    flight-testing.

    Program costs may grow because the current estimate is based on a much
    lower production quantity than is contained in current program documents
    and the Navy has yet to establish a firm ERGM inventory requirement.

    In October 2003, the Navy issued a solicitation for alternative
    precision-guided munition concepts that could be a complement or
    competitor to ERGM. In particular, the Navy is concerned about the unit
    cost of the ERGM round and is looking to develop alternatives that could
    offer cost savings. The Navy plans to spend $35 million in fiscal years
    2004 and 2005 to pursue a technology demonstration of other extended range
    munition concepts by September 2005. Assuming no new problems are
    encountered, $207 million (in fiscal year 2004 dollars) will be needed to
    complete the program from fiscal year 2005 and beyond.

    CBO was not able to determine the budgetary effect of this option.

    Related GAO Products

    Defense Acquisitions: Assessments of Major Weapon Programs. GAO-04-248.
    Washington, D.C.: March 31, 2004.

    Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 Business
    Case. GAO-04-391. Washington, D.C.: March 15, 2004.

    Defense Acquisitions: Assessments of Major Weapon Programs. GAO-03-476.
    Washington, D.C.: May 15, 2003.

    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.

    Defense Acquisitions: Advanced SEAL Delivery System Program Needs
    Increased Oversight. GAO-03-442. Washington, D.C.: March 31, 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.

    GAO Contact

    Paul Francis, (202) 512-2811

    Address Overpayments to Defense Contractors

    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 interest-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 did

    not address overpayments stemming from financing payments7-although GAO
    found that most overpayments involve contracts with financing payments.
    Subsequently, in October 2003, the Civilian Agency Acquisition Council and
    the Defense Acquisition Regulations Council revised the FAR 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. In turn, contracting officers, in
    coordination with the cognizant payment office, are to promptly provide
    instructions to the contractor regarding the timely disposition of the
    overpayment.

    Given the extent of the overpayment problem 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 estimates the following revenues with this option.

    Source: Congressional Budget Office.

    Related GAO Products

    Financial Management: Status of the Governmentwide Efforts to Address
    Improper Payment Problems. GAO-04-99. Washington, D.C.: October 17, 2003.

    DOD Contract Payments: Management Action Needed to Reduce Billions in
    Adjustments to Contract Payment Records. GAO-03-727. Washington, D.C.:
    August 8, 2003.

    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

    Require DOD Report Its Progress in Implementing the Debt Collection
    Improvement Act of 1996 (DCIA)

    Department of Defense (DOD) and Internal Revenue Service (IRS) records
    showed that over 27,000 contractors registered in DOD's Central Contractor
    Registration system owed about $3 billion in unpaid taxes as of September
    30, 2002. DOD has not fully implemented provisions of the Debt Collection
    Improvement Act of 1996 (DCIA) that would assist IRS in levying up to 15
    percent of each contract payment to offset a DOD contractor's federal tax
    debt. We estimate that DOD could have collected at least $100 million in
    fiscal year 2002 had it and IRS fully utilized the levy process authorized
    by the Taxpayer Relief Act of 1997. As of September 2003, DOD had
    collected only about $687,000, in part, because DOD provides contractor
    payment information from only 1 of its reported more than 20 payment
    systems to the Treasury Offset Program (TOP).

    IRS's continuing challenges in collecting unpaid federal taxes also
    contributed to the problem. In several of our case study contractors, IRS
    was not pursuing DOD contractors due to resource and workload management
    constraints. For other cases, control breakdowns resulted in IRS freezing
    collection activities for reasons that were no longer applicable. For many
    of our case study contractors, this resulted in businesses and individuals
    continuing to receive federal contract payments without making any
    payments on their unpaid federal taxes.

    To improve collection of DOD contractor tax debt, we have recommended to
    DOD that it immediately provide its contractor payment information to TOP
    and to IRS to use the levy program as one of the first steps in the
    collection process. Until such time as DOD is able to demonstrate that it
    is meeting its responsibilities under DCIA, including providing payment
    information to TOP, and to facilitate action by the Department, Congress
    may wish to consider requiring that DOD report periodically to Congress on
    its progress in implementing DCIA for each of its contract and vendor
    payment systems. This report should include details of actual collections
    by system and in total for all contract and vendor payment systems during
    the reporting period.

    We believe that DOD's reporting of its progress in implementing DCIA to
    Congress is necessary to facilitate oversight since DOD, until recently,
    had taken little action to implement the offset provisions of DCIA since
    its passage almost 8 years ago. We believe that Congress may wish to
    consider such oversight as the federal government is missing opportunities
    to collect hundreds of millions of dollars in unpaid taxes owed by DOD
    contractors.

    Although CBO agrees that the option may result in savings, it could not
    develop a savings estimate for this option.

    Related GAO Product

    Financial Management: Some DOD Contractors Abuse the Federal Tax System
    with Little Consequence. GAO-04-95. Washington, D.C.: February 12, 2004.

    GAO Contact

    Gregory Kutz, (202) 512-9505

    Improve the Administration of Defense Health Care

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

    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

    Marcia Crosse, (202) 512-7114

    Seek Additional Opportunities for VA and DOD to Increase Joint Activities
    to Enhance Services to Beneficiaries and Reduce Costs

    Together, the Department of Veterans Affairs (VA) and the Department of
    Defense (DOD) provide health care services to about 12 million
    beneficiaries at a cost of more than $50 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. 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 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
    included 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 was not able to determine the budgetary effect of this option.

    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

    150 International Affairs

    Eliminate U.S. Contributions to Administrative Costs in Rogue States
    Streamline U.S. Overseas Presence Reduce International Broadcasting
    Overlap Reduce or Eliminate Eximbank Subsidies

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

    International organizations, such as the U.N. 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 countries falling under section 307, known as rogue states,
    have varied over time but have included Burma, Cuba, Iran, Libya, and
    Syria. To comply with the legislation, the State Department 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 supports 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.

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

    Savings could be achieved if the State Department 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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    aLess than $500,000.

    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 Contacts

    Joseph Christoff, (202) 512-8979 Tet Miyabara, (202) 512-8974

    Streamline U.S. Overseas Presence

    The U.S. overseas presence consists of more than 90,000 people (including
    dependents) at more than 260 overseas posts. The workforce at these posts
    has been estimated to comprise as many as 60,000 personnel representing
    over 30 U.S. agencies. The State Department employs about a third of the
    U.S. overseas workforce, 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 non-foreign affairs agencies.

    The costs of overseas operations and related security requirements are
    directly linked to the size of the overseas workforce. Reducing the number
    of employees at posts where U.S. strategic interests are lower priority,
    consolidating functions, establishing regional centers, or relocating
    personnel to the United States could significantly reduce the costs of
    overseas operations. The average annual cost of stationing an American
    (and dependents) overseas varies by location but can amount to several
    hundred thousand dollars (not including salary) and has been estimated at
    about twice the average cost for Washington-based staff. Reducing the
    number of personnel overseas also could substantially enhance the safety
    of Americans and other U.S. employees, lower the costly security demands
    placed on the State Department, and help control new embassy construction
    costs. (The State Department has embarked on a $16 billion program to
    build modern, safe, and secure diplomatic facilities.)

    In late 1999, the Overseas Presence Advisory Panel concluded that
    substantial monetary savings and reductions in security vulnerabilities
    could be achieved through streamlining staffing at overseas posts. Because
    of the high cost of stationing personnel and their families overseas, The
    President's Management Agenda identified rightsizing of embassies and
    consulates as a management priority. One administration goal is to develop
    accurate staffing projections for new overseas construction. OMB is
    leading an interagency effort to develop a cost-sharing mechanism for
    funding embassy construction that would provide more discipline for
    determining overseas staffing needs and encourage agencies to scrutinize
    their overseas staffing more closely.

    We have encouraged actions to reevaluate overseas staffing requirements
    and levels since the mid-1990s. In 2002, we developed a rightsizing
    framework that facilitates basing overseas staffing decisions on a full
    consideration of cost, security, and mission factors. In 2003, we reported
    that staffing projections for new embassy compounds are developed without
    a systematic approach or comprehensive rightsizing analysis. The State
    Department gave agencies little guidance on factors to consider in
    developing staffing projections, and agencies consequently did not take
    consistent or systematic approaches to determining long-term staffing
    needs. Limited documentation of embassy staffing projection exercises
    further complicated the process. Additionally, the State Department did
    not consistently vet overseas posts' staffing projections with agencies'
    headquarters.

    In 2003, we also reported on the administration's plans for implementing
    cost-sharing arrangements, including proposals that would require agencies
    to pay rent or a construction surcharge based on their worldwide overseas
    staffing levels. The Overseas Presence Advisory Panel had reported that
    tenant agencies did not share overseas facility costs, particularly for
    capital improvements and maintenance. The panel recommended charging
    tenant agencies rent for space in overseas facilities, just as the General
    Services Administration would charge agencies for use of domestic office
    space. In 2003, we reported that a number of issues needed to be resolved
    before effective cost-sharing mechanisms could be implemented, such as how
    the mechanism would be structured and how charges would be calculated.
    Additionally, we reported that some agencies were reluctant to assume
    costs that the State Department had previously paid.

    Since our 2003 report, the State Department and OMB have developed a
    cost-sharing mechanism. Starting in fiscal year 2005, all agencies with
    staff overseas will be required to pay a portion of the cost of State's
    embassy construction program. In March 2004, we started a review of the
    development and implementation of this new cost-sharing mechanism.

    Congress could consider a range of options for streamlining staffing at
    overseas posts, such as mandating rightsizing requirements or
    across-the-board cuts for overseas staffing. CBO estimates that the
    following savings could be achieved for every 1 percent reduction in
    overseas staffing.

    Source: Congressional Budget Office.

    Source: Congressional Budget Office.

    Related GAO Products

    Overseas Presence: Rightsizing Is Key to Considering Relocation of
    Regional Staff to New Frankfurt Center. GAO-03-1061. Washington, D.C.:
    September 2, 2003.

    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.
    GAO-03-557T. Washington, D.C.: March 20, 2003.

    Overseas Presence: Framework for Assessing Embassy Staff Levels Can
    Support Rightsizing Efforts. GAO-02-780. Washington, D.C.: July 26, 2002.

    GAO Contacts

    Jess T. Ford, (202) 512-4268 John Brummet, (202) 512-5260

    Reduce International Broadcasting Overlap

    The Broadcasting Board of Governors oversees 5 broadcast entities that
    provide a variety of news and information programming to more than 125
    markets worldwide. Each broadcast entity is responsible for a collection
    of language services that produce program content.

    o The Voice of America provides news and the U.S. position on various
    foreign policy matters to a global audience;

    o Radio Free Europe/Radio Liberty provides entertainment and regional and
    local news to countries in Central, Eastern, and Southeastern Europe;
    Russia; the Caucasus; and Central and Southwestern Asia;

    o The Middle East Television Network provides entertainment and regional
    and local news to countries throughout the Middle East;8 and

    o Radio Free Asia and Radio/TV Marti provide regional and local news to
    Asia and Cuba, respectively.

    In July 2003, we reported that there was about a 55 percent overlap
    between the Voice of America and the other broadcast entities9 that was
    intended to allow them to achieve their distinct missions by offering

    separate program content in the same language.10 This overlap among
    language services has been a long-standing issue of concern to the Board
    given evolving broadcast priorities and a desire to maximize the use of
    limited resources. We recommended that the Board develop a vision of its
    target scope-of-operations and more precisely define the appropriate level
    of overlap between Voice of America's and other broadcast entities'
    language services.

    In response to our recommendation, the board conducted a detailed overlap
    analysis as part of its 2003 language service review. This analysis
    reviewed all overlapping language services in light of several potential
    approaches to managing overlap. The Board's 2004 program plan to Congress
    proposes the reallocation of $4.9 million in savings generated by this
    analysis. The Board plans to conduct this analysis annually to determine
    if additional opportunities for savings exist. Although it is difficult to
    predict potential future savings, the Board has noted that the Voice of
    America's worldwide English broadcasts represent a special case of overlap
    that deserves closer scrutiny.11 According to Board records, only a very
    small number of individuals listen to the Voice of America's broadcasts
    exclusively in English.12 The annual budget for the Voice of America's
    worldwide English program is about $14.9 million.

    CBO was not able to determine the budgetary effect of reducing
    international broadcasting overlap.

    Related GAO Products

    U.S. International Broadcasting: Challenges Facing the Broadcasting Board
    of Governors. GAO-04-627T. Washington, D.C.: April 1, 2004.

    U.S. International Broadcasting: Enhanced Measure of Local Media
    Conditions Would Facilitate Decisions to Terminate Language Services.
    GAO-04-374. Washington, D.C.: February 26, 2004.

    U.S. Public Diplomacy: State Department and the Broadcasting Board of
    Governors Expand Efforts in the Middle East but Face Significant
    Challenges. GAO-04-435T. Washington, D.C.: February 10, 2004.

    U.S. International Broadcasting: New Strategic Approach Focuses on
    Reaching Large Audiences but Lacks Measurable Program Objectives.
    GAO-03-772. Washington, D.C.: July 15, 2003.

    U.S. International Broadcasting: Strategic Planning and Performance
    Management System Could Be Improved. GAO/NSIAD-00-222. Washington, D.C.:
    September 27, 2000.

    GAO Contacts

    Reduce or Eliminate Eximbank Subsidies

    The Export-Import Bank of the United States (Eximbank) is an independent
    federal agency that assists in financing the export of U.S. goods and
    services to international markets. Eximbank is intended to absorb risks
    that the private sector is unable or unwilling to assume and also to help
    level the playing field for U.S. exporters by matching the financing that
    foreign governments provide to their exporters. Eximbank offers subsidized
    direct loans, guarantees of private loans, and export credit insurance;
    its congressional mandate is to supplement (but not compete with) private
    financing. Eximbank operates under a renewable charter that has been
    reauthorized through September 30, 2006.13 The President's fiscal year
    2005 budget requests $125.7 million for Eximbank subsidies and an
    additional $73.2 million for administrative expenses.14

    Eximbank programs require substantial levels of taxpayer support. Our work
    has identified two broad options that would allow Eximbank to reduce its
    subsidy costs and operate with reduced federal funding while remaining
    competitive with foreign export credit agencies. First, Eximbank could
    raise its loan risk exposure and insurance fees15 to the mid-range of
    those charged by foreign export credit agencies. Currently its fees are as
    low as, or lower than, about 75 percent of those charged by other major
    export credit agencies. However, Eximbank officials have expressed
    concerns that raising fees could affect U.S. export competitiveness and
    need to be considered in the broader context of international efforts to
    reduce government export finance subsidies. Second, Eximbank could reduce
    program risks by capping the maximum allowable subsidies offered, limiting
    program availability in high-risk markets, or lowering loan risk
    protection.16 Eximbank provides financing in a greater number of high-risk
    markets than other major export credit agencies. Although financing
    commitments for high-risk markets represent a relatively small share of
    Eximbank's total financing commitments-about 15 percent of total
    commitments over the period from 1999 to 2003-these markets absorb a
    relatively large share of its credit subsidy costs and, under Eximbank's
    revised subsidy estimates, the share absorbed by high-risk markets has
    increased.17

    CBO estimates that providing only short-term coverage in high-risk markets
    could produce substantial subsidy savings relative to the President's
    request.

    Source: Congressional Budget Office.

    Another option for achieving savings would be to consider reducing
    Eximbank's program budget or eliminating Eximbank altogether.18 In recent
    years, there has been considerable debate about whether Eximbank makes a
    significant contribution to the U.S. economy by promoting exports and jobs
    or unfairly subsidizes large corporations that have adequate access to
    private export financing and insurance. Our past work indicates that the
    economic benefits of Eximbank's programs are uncertain. However, the
    agency's programs may help "level the playing field" for U.S. exporters by
    offsetting the subsidies that foreign governments provide to their
    exporters.19

    CBO estimates that reducing Eximbank's program budget by 5 percent20 or
    eliminating Eximbank altogether would result in savings relative to the
    President's request.

    Source: Congressional Budget Office.

    Source: Congressional Budget Office.

    Related GAO Products

    U.S. Export-Import Bank: Issues Raised by Recent Market Developments and
    Foreign Competition. GAO/T-NSIAD-99-23. Washington, D.C.: October 7, 1998.

    International Affairs Budget: Framework for Assessing Relevance, Priority,
    and Efficiency. GAO/T-NSIAD-98-18. Washington, D.C.: October 30, 1997.

    Export-Import Bank: Key Factors in Considering Eximbank Reauthorization.
    GAO/T-NSIAD-97-215. Washington, D.C.: July 17, 1997.

    Export Finance: Federal Efforts to Support Working Capital Needs of Small
    Business. GAO/NSIAD-97-20. Washington, D.C.: February 13, 1997.

    Export-Import Bank: Options for Achieving Possible Budget Reductions.
    GAO/NSIAD-97-7. Washington, D.C.: December 20, 1996.

    Export Finance: Comparative Analysis of U.S. and European Union Export
    Credit Agencies. GAO/GGD-96-1. Washington, D.C.: October 24, 1995.

    Export Finance: The Role of the U.S. Export-Import Bank. GAO/GGD-93-39.
    Washington, D.C.: December 23, 1992.

    GAO Contact

    Loren Yager, (202) 512-4347

    250 General Science, Space, and Technology

    Continue Oversight of the International Space Station and Related Support
        Systems

    Continue Oversight of the International Space Station and Related Support
    Systems

    Since 1990, the National Aeronautics and Space Administration (NASA) has
    been on GAO's high-risk list for contract management, in part because the
    agency has failed to implement a modern, fully integrated financial
    management system. The lack of such a system has hampered NASA's ability
    to oversee contracts, control program costs, and ensure an effective human
    capital strategy, raising serious concerns about NASA's management of its
    largest and most costly programs, including the space shuttle program and
    the International Space Station (ISS). Although NASA implemented the Core
    Financial module of its Integrated Financial Management Program in June
    2003, the agency cannot ensure that the system routinely provides its
    program managers with the financial information needed to measure program
    performance and ensure accountability.

    The importance of resolving this weakness was recently amplified. In
    January 2004, President Bush announced a new vision for space exploration
    that will provide NASA with increased funding and require the agency to
    examine its current space flight and exploration activities and direct
    them towards new goals. The President's plan calls for (1) completing
    assembly of the ISS by 2010 with its research focused on the long-term
    effects of space travel on human biology, and retiring the space shuttle
    upon station completion, (2) developing a new multipurpose spacecraft-the
    Crew Exploration Vehicle (CEV)-to carry humans into space by 2014, and (3)
    returning to the moon by 2020 as a precursor for missions to Mars and
    beyond. The plan also calls for the development of enabling technologies,
    such as power generation, propulsion, life support, and other systems that
    can support more distant travels. The President's estimate for the new
    vision is $12 billion over the next five years, $1 billion of which is
    additional funding.

    The Congress is well aware of the challenges NASA faces in developing,
    building, and transporting crew to and from the ISS-challenges that have
    in the past resulted in schedule delays and higher program costs. However,
    the President's vision offers additional challenges. First, NASA's own
    Return to Flight Task Group recently reported that it is too soon to
    predict the timing of the next shuttle flight, thus rendering the ISS
    completion date uncertain. Second, the CEV is NASA's fourth attempt since
    1994 to modernize its human space transportation system. Finally, NASA
    will be challenged with effectively managing a larger budget and refocused
    programs and contracts. For example, the ISS and shuttle programs must
    undergo changes to align with the new vision, while a relatively new
    program-the nuclear systems initiative-could provide power generation and
    propulsion necessary for journeys to Mars and beyond.

    As NASA returns the shuttle fleet to safe flight and refocuses its
    programs to implement the President's vision, continued congressional
    oversight is critical to ensure that NASA's priorities and supporting
    funding are appropriately matched. In addition, continued improvements in
    the Agency's financial management infrastructure-people, systems and
    processes-must keep pace with anticipated project management challenges.

    CBO was not able to determine the budgetary effect of this option.

    Related GAO Products

    Business Modernization: NASA's Challenges in Managing Its Integrated
    Financial Management Program. GAO-04-255. Washington, D.C.: November 21,
    2003.

    Business Modernization: Disciplined Processes Needed to Better Manage
    NASA's Integrated Financial Management Program. GAO-04-118. Washington,
    D.C.: November 21, 2003.

    NASA: Shuttle Fleet's Safe Return to Flight Is Key to Space Station
    Progress. GAO-04-201T. Washington, D.C.: October 29, 2003.

    Space Station: Impact of the Grounding of the Shuttle Fleet. GAO-03-1107.
    Washington, D.C.: September 12, 2003.

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

    Business Modernization: Improvements Needed in Management of NASA's
    Integrated Financial Management Program. GAO-03-507. Washington, D.C.:
    April 30, 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

    Corporatize or Divest Selected Power Marketing Administrations Recover
    Power Marketing Administrations' Costs Increase Nuclear Waste Disposal
    Fees Recover Federal Investment in Successfully Commercialized
    Technologies Improve the Department of Energy's Management of Its Capital
    Asset   Acquisition, Weapons Refurbishment, and Site Cleanup Projects
    Reduce the Costs of the Rural Utilities Service's Electricity Loan Program

    Corporatize or Divest Selected Power Marketing Administrations

    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. In addition,
    appropriated and other debt that is recoverable through the PMAs' power
    sales totaled about $19.5 billion at the end of fiscal year 2002.
    Furthermore, our work has demonstrated that the availability of federal
    power plants to generate electricity has, in the past, been below that of
    nonfederal plants because federal planning and resource allocation
    decisions 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 estimates 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.

    Dollars in millions
                                        FY05      FY06     FY07     FY08     FY09
    Discretionary spending
    Budget authority                    0         0        0      233      241
    Outlays                             0         0        0      230      237

    Source: Congressional Budget Office.

    Note: Figures are based on the most recent audited statements of assets
    and liabilities.

    Source: Congressional Budget Office.

    Note: Figures are based on the most recent audited statements of assets
    and liabilities. The receipt in 2007 would be an inflow of cash to the
    government from the sale of PMA assets. The loss of receipts after that
    would be from the loss of the stream of annual receipts received from the
    sale of electricity.

    Related GAO Products

    Bonneville Power Administration: Long-Term Fiscal Challenges. GAO-03-918R.
    Washington, D.C.: July 1, 2003.

    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/RCED-99-15.
    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

    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.21 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.

    In part because the PMAs sell power generated almost exclusively from
    hydropower and are not required to earn a profit or pay taxes, they are
    generally able to sell power more cheaply than other providers. 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 $19.5 billion at the end of fiscal year 2002. This option
    would likely also lead to more efficient management of the taxpayers'
    assets.

    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.

    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/RCED-99-15.
    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

    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. The Nuclear Waste Policy Act
    requires DOE to annually assess the adequacy of the fee. Despite this
    requirement, DOE has not reported on the fee adequacy since May 2001.
    Accordingly, utilities continue to pay a fee of 0.1 cent per
    kilowatt-hour, without any adjustment for inflation. To help ensure that
    sufficient revenues are collected to cover increases in cost estimates
    caused by price inflation, we recommend that the Congress 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.

    Source: Congressional Budget Office.

    Note: Since this is a mandatory account, the increase in receipts is a
    negative number. However, the proposal would end up bringing in more
    receipts to the Treasury.

    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 Robin Nazzaro, (202) 512-3841

    Recover Federal Investment in Successfully Commercialized Technologies

    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. We 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. However, we found that DOE
    generally has not required repayment of its investment in technologies
    that are successfully commercialized. 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 currently exist for substantial repayment in some of
    DOE's programs, one option for the Congress is to require repayment under
    a flexible policy that would allow the government to share in the benefits
    of successfully commercialized technologies, which could result in
    significant cost savings. However, repayment provisions would only apply
    to future technology development projects not yet negotiated with
    industry.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate.

    Related GAO Products

    Fossil Fuel R&D: Lessons Learned in the Clean Coal Technology Program.
    GAO-01-854T. Washington, D.C.: June 12, 2001.

    Clean Coal Technology: Status of Projects and Sales of Demonstrated
    Technology. GAO/RCED-00-86R. Washington, D.C.: March 9, 2000.

    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

    Improve the Department of Energy's Management of Its Capital Asset
    Acquisition, Weapons Refurbishment, and Site Cleanup Projects

    As of January 2002, the Department of Energy (DOE) had at least 42 ongoing
    projects estimated to cost more than $100 million at its national
    laboratories, weapons production facilities, and other locations. These
    projects included the construction of new specialized facilities, such as
    the National Ignition Facility at Lawrence Livermore National Laboratory;
    the refurbishment of nuclear weapons; and the cleanup of nuclear waste at
    active and closed DOE facilities. Our September 2002 review of 16 major
    DOE projects found no indication that DOE or its contractors had improved
    their management performance as compared with our 1996 assessment of
    management performance. Specifically, we found that the estimated cost of
    6 of the 16 projects was more than double DOE's initial estimate and that
    6 projects had experienced schedule delays of 5 years or more.

    DOE has taken several steps to improve the way its major projects are
    managed. For example, in 2000 DOE issued new policy, order, and guidance
    on managing and controlling projects, including enhancing the project
    management skills within the department. The DOE Order requires detailed
    project reviews by senior managers at five different decision points
    during the project. In addition, DOE's Office of Engineering and
    Construction Management set a goal for 2002 that 85 percent of the
    projects it tracks (projects costing more than $5 million) will have less
    than a 10-percent variance in cost and schedule. For 2004, the office's
    goal is that 90 percent of the projects it tracks will have less than a
    10-percent variance in cost and schedule.

    Even with these project management requirements and controls in place,
    performance problems continue. One reason for continuing problems is that
    DOE is not consistently applying the requirements and controls to all of
    its acquisition, refurbishment, and cleanup projects. For example, some
    projects in DOE's Office of Science and its National Nuclear Security
    Administration (NNSA) have avoided project validation and other
    requirements. As a result, the cost and schedule estimates may not be
    reliable and the projects may have a greater likelihood to cost more and
    take longer to complete than DOE had estimated.

    One option available to the Congress to help minimize cost and schedule
    increases on DOE projects is to require that all DOE projects costing more
    than $5 million, regardless of the responsible DOE program office, (1)
    follow the requirements in DOE's project management order and (2) be
    validated and approved by DOE's Office of Engineering and Construction
    Management-or a similar office within NNSA for nuclear weapons
    refurbishment-before construction funding is requested in DOE's budget
    submission to Congress.

    CBO was not able to determine the budgetary effect of this option.

    Related GAO Products

    Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost
    Accounting, and Management Associated with the Stockpile Life Extension
    Program. GAO-03-583. Washington, D.C.: July 28, 2003.

    Nuclear Waste: Challenges to Achieving Potential Savings in DOE's
    High-Level Waste Cleanup Program. GAO-03-593. Washington, D.C.: June 17,
    2003.

    Department of Energy: Status of Contract and Project Management Reform.
    GAO-03-570T. Washington, D.C.: March 20, 2003.

    Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure
    Initiatives Have Improved Results. GAO-02-798. Washington, D.C.: September
    13, 2002.

    Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca
    Mountain Repository Project. GAO-02-191. Washington, D.C.: December 21,
    2001.

    National Ignition Facility: Management and Oversight Failures Caused Major
    Cost Overruns and Schedule Delays. GAO/RCED-00-271. Washington, D.C.:
    August 8, 2000.

    Nuclear Waste Cleanup: DOE's Paducah Plan Faces Uncertainties and Excludes
    Costly Cleanup Activities. GAO/RCED-00-96. Washington, D.C.: April 28,
    2000.

    Department of Energy: Opportunity to Improve Management of Major System
    Acquisitions. GAO/RCED-97-17. Washington, D.C.: November 26, 1996.

    GAO Contacts

    Bob Robinson, (202) 512-3841 Robin Nazzaro, (202) 512-3841

    Reduce the Costs of the Rural Utilities Service's Electricity Loan Program

    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 2003
    of Rural Development (the U.S. Department of Agriculture agency
    responsible for administering RUS), RUS loans receivable totaled about
    $40.1 billion as of September 30, 2003. From a financial standpoint, RUS
    has successfully operated the telecommunications loan program, but the
    agency 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.

    The Congress may need to consider options to reduce RUS's vulnerability to
    losses in its electricity program such as (1) establishing loan and
    indebtedness limits, (2) setting the loan repayment guarantee at a level
    below 100 percent, and (3) prohibiting loans to delinquent borrowers or to
    borrowers who have caused the agency to incur loan losses.

    CBO agrees that the option would result in savings, but it could not
    develop a savings estimate.

    Related GAO Products

    Financial Management: Impact of RUS' Electricity Loan Restructurings.
    GAO/AIMD-00-288. Washington, D.C.: September 29, 2000.

    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 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

    Terminate Land-Exchange Programs

    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, problems still exist given the inherent difficulties and
    inefficiencies in exchange programs in general. On the basis of these
    difficulties and inefficiencies, the Congress may wish to consider
    directing both agencies to terminate their land-exchange programs.

    CBO could not develop a savings estimate for this option.

    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

    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 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 continues to be a problem in many fisheries, several additional
    buybacks have been proposed and authorized since we last reported on this
    issue in June 2000.

    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 over-fishing-one option the Congress may wish to consider is
    limiting additional funding for proposed programs until these fundamental
    weaknesses are resolved.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate for this option.

    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

    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.

    Since we issued our report in 2001, one option that remains available is
    to require the payment of fair market value for a patent, or otherwise
    modify the requirements for patenting. Without a specific definition of
    fair market value or other specific proposals to reform the patenting
    system, CBO cannot estimate savings from this option.

    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 estimates below that a 5 percent royalty could increase gross
    receipts, but the estimates do not account for subsequent receipt-sharing,
    if any, with states.

    Source: Congressional Budget Office.

    Note: Estimates do not account for subsequent receipt-sharing, if any,
    with states.

    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
    Mineral-Producing 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

    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.
    Although we first raised this issue in 1990, these options remain valid.

    The Congress could, for example, consider collecting the full costs of
    federal water for large farms. The Reclamation Reform Act of 1982 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, the act does not prohibit multiple landholdings from being
    operated collectively as one farm while individually qualifying for
    federally subsidized water. Some farmers have reorganized large farming
    operations into multiple, smaller land holdings to be eligible to receive
    federally subsidized irrigation water. As a result, the flow of federally
    subsidized water to large farms has not been stopped, and the government
    is not receiving the revenues to which it would have been entitled if the
    multiple landholdings were considered collectively as one farm subject to
    the act's 960 acre limit.

    Another option would be for the Congress to consider restructuring the
    subsidies for crops produced with federally subsidized water. According to
    the Department of the 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.

    CBO was not able to develop a savings estimate without a specific
    proposal.

    Related GAO Products

    Freshwater Supply: States' View of How Federal Agencies Could Help Them
    Meet the Challenges of Expected Shortages. GAO-03-514. Washington, D.C.:
    July 9, 2003.

    Bureau of Reclamation: Water Marketing Activities and Costs at the Central
    Valley Project. GAO-01-553. Washington, D.C.: March 4, 2001.

    Bureau of Reclamation: Information on Operations and Maintenance
    Activities and Costs at Multipurpose Water Projects. GAO/AIMD-00-127.
    Washington, D.C.: May 31, 2000.

    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 Lawrence J. Dyckman, (202) 512-9692

    Reassess Federal Land Management Agencies' Functions and Programs

    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 constraints
    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.

    CBO could not develop a savings estimate for this option.

    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

    Eliminate or Reduce the Agriculture Department'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 Eliminate Public Law 480 Title I Food Aid Program Reduce or
    Eliminate the Export Credit Guarantee Program

    Eliminate or Reduce the Agriculture Department's Market Access Program

    The Market Access Program is an export promotion program operated by the
    Department of Agriculture's Foreign Agricultural Service. 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. About three-quarters of
    the program budget supports generic promotions, with the remaining funds
    supporting brand-name promotions. Under the Farm Security and Rural
    Development Act of 2002, authorized funding for the program has increased
    from $110 million in fiscal year 2003 to $125 million in fiscal year 2004,
    $140 million in fiscal year 2005, and rising to $200 million in fiscal
    years 2006 and 2007.

    Beginning in fiscal year 1993, the Congress directed that the program to
    increase its 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 brand-name
    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 OMB benefit-cost guidelines. In
    addition, the evidence from market-level studies is inconclusive regarding
    program impact on specific commodities in specific markets. Moreover, it
    is difficult to ensure that funds for promotional activities supplement
    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
    benefit-cost guidelines, and evaluates the additional spending of
    participants and additional exports resulting from the program. As of
    2003, the Foreign Agricultural Service had not completed this report.
    CBO's budget options reports in recent years have included an option to
    eliminate the Market Access Program.22 Congress might choose to terminate
    the program or significantly reduce its funding 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
    (rather than supplants) private sector expenditures.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892

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

    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 currently 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 not all service center employees have 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 still 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. While it has been a few years since we
    last reported on this issue, the situation has not materially changed.

    CBO agreed that this option would result in budgetary savings, but it
    could not develop a savings estimate.

    Related GAO Products

    Major Management Challenges and Program Risks: Department of Agriculture.
    GAO-03-96. 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

    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
    approximately 100,000 employees are involved in delivering the nearly $25
    billion a year farm and rural programs. 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-Farm Service
    Agency, Natural Resources Conservation Service, and Rural Development-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 this 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.
    USDA's county offices are managed through a state office structure that
    could also be streamlined. Currently, USDA maintains a state office for
    each of its three service center agencies in each of the 50 states. As
    with the county offices, as the client base for USDA's programs change and
    as technology offers opportunities for program delivery efficiencies, USDA
    could consolidate some state offices to a regional or national level.

    CBO agreed that this option would result in budgetary savings, but it
    could not develop a savings estimate.

    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

    Eliminate the Public Law 480 Title I Food Aid Program

    Over the past 50 years, the United States has allocated billions of
    dollars in food assistance under Title I of the 1954 Agricultural Trade
    Development and Assistance Act, commonly known as P.L. 480.23 Under the
    Title I program, administered by the Department of Agriculture (USDA),
    U.S. agricultural commodities are sold to eligible countries under
    concessional terms.24 In support of broad U.S. foreign policy goals, the
    program's objectives are to enhance food security, promote broad-based
    sustainable development, develop and expand markets for U.S. agricultural
    commodities, and prevent conflict. However, the Title I program does not
    effectively further these goals.

    First, there is little evidence that the Title I program has promoted
    broad-based sustainable development. In 1995, we reported that the primary
    means by which Title I assistance could contribute to broad-based
    sustainable development would be by helping recipient countries save
    foreign exchange when importing U.S. agricultural commodities; the savings
    could be invested in projects that promote long-term economic development.
    However, we found that the value of foreign exchange that countries might
    save through purchasing Title I commodities on concessional terms is small
    relative to their development needs. Also, the program provides USDA with
    little leverage to influence development activities or initiate policy
    reforms in recipient countries, and competing objectives dilute whatever
    leverage might be associated with the program.

    Second, there is little evidence that the Title I program has contributed
    to the long-term, foreign market development for U.S. agricultural goods.
    None of the many studies of the Title I program that we reviewed
    established a link between Title I assistance and the establishment of a
    long-term commercial market for U.S. agricultural products. Title I
    commodities tend to be price sensitive, making it difficult to transform
    the concessional market share established through the Title I program into
    commercial market share.

    Moreover, we found that legislative requirements impose constraints on
    recipient countries that undermine market development efforts. For
    example, "cargo preference" provisions require that 75 percent of food aid
    tonnage be shipped on U.S.-flagged ships. As a result, some recipient
    countries were forced to purchase different commodities than planned based
    on the availability of U.S.-flagged ships rather than the availability of
    U.S. commodities. Other program requirements severely restrict recipients'
    ability to reexport Title I commodities after processing, which
    discouraged potential importers from participating and eliminated an
    important source of foreign exchange earnings for recipient countries.

    Since the 1980s, the Title I program has accounted for a declining share
    of total U.S. food assistance. Title I accounted for about 52 percent of
    the $15.8 billion in food assistance provided between fiscal years 1980
    and 1989 but only about 11 percent of the $9.2 billion in food assistance
    provided between fiscal years 2000 and 2004. This decline reflects a
    growing need and priority for humanitarian food assistance provided under
    other programs (primarily Title II) and concerns about the Title I
    program's effectiveness.

    In 2001, The President's Management Agenda identified U.S. food aid
    programs (including Title I) as 1 of 14 government areas most in need of
    reform and characterized these programs as duplicative, wasteful, and
    inefficient. The agenda commented on the fact that six different food aid
    programs are administered by two government agencies with similar
    bureaucracies (USDA and the U.S. Agency for International Development).
    The agenda called for more direct feeding of hungry populations as a
    primary goal; better analysis of benefits, costs, and performance to
    determine priorities; minimizing bureaucratic duplication and
    inefficiency; and greater efficiency and transparency in program
    management and implementation.

    OMB's fiscal year 2004 Program Assessment Rating Tool rated USDA's food
    aid programs25 as "results not demonstrated." OMB's assessment concluded
    that these programs were not optimally designed, lacked performance
    measures linked to strategic goals and the budget, and did not collect
    annual performance data or make such data available to the public in a
    transparent and meaningful manner. Additionally, OMB's assessment
    identified the need for better coordination between USDA and the U.S.
    Agency for International Development, but concluded that meaningful steps
    to address this and other strategic planning deficiencies had not been
    taken.

    In summary, there is little evidence that the Title I program has promoted
    economic development or contributed to developing long-term foreign
    markets for U.S. agricultural goods. Moreover, multiple and sometimes
    competing objectives, as well as contradictory program requirements,
    encumber the program, making it difficult to create and implement an
    effective program strategy. Furthermore, the trend in U.S. food aid
    reflects a growing need and priority for humanitarian food assistance
    provided under other programs. Thus, one option that Congress may wish to
    consider is the elimination of the Title I program.

    CBO estimates that eliminating the Title I program would produce savings.

    Source: Congressional Budget Office.

    Related GAO Products

    Food Aid: Experience of U.S. Programs Suggests Opportunities for
    Improvement. GAO-02-801T. Washington, D.C.: June 4, 2002.

    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.

    Food Aid: Competing Goals and Requirements Hinder Title I Program Results.
    GAO/GGD-95-68. Washington, D.C.: June 26, 1995.

    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.

    Public Law 480 Title I: Economic and Market Development Objectives Not
    Met. GAO/T-GGD-94-191. Washington, D.C.: August 3, 1994.

    GAO Contacts

    Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892

    Reduce or Eliminate the Export Credit Guarantee Programs

    Export credit guarantee programs are intended to promote the export of
    U.S. agricultural products by facilitating access to export credit for
    countries that lack adequate commercial credit. These programs encourage
    U.S. lenders to extend credit to approved foreign banks financing imports
    of U.S. agricultural products. Under these programs, the Department of
    Agriculture (USDA) provides a guarantee to U.S. banks willing to finance
    such transactions for exporters shipping U.S. products to foreign
    importers in eligible countries. The Export Credit Guarantee Program
    covers loans up to 3 years, while the Intermediate Export Credit Guarantee
    Program covers loans up to 10 years.26 Through 2007, USDA is authorized to
    make a total of $5.5 billion in government loan guarantees available each
    year to finance imports of U.S. agricultural commodities, plus an
    additional $1 billion for "emerging markets"-countries that are in the
    process of becoming commercial markets for U.S. agricultural products.27
    The actual level of credit guarantees depends on market conditions and the
    demand for financing by eligible (i.e., creditworthy) countries.

    Since the export credit guarantee programs began in the 1980s, the U.S.
    government has paid billions in claims because foreign country buyers
    rescheduled or defaulted on their loan repayments.28 USDA reports that, as
    of February 2004, the government had paid claims totaling about $8.9
    billion against issued guarantees of about $77.6 billion.29 In 1997, we
    reported that the programs had incurred high claims costs because USDA
    provided a large amount of loan guarantees to high-risk countries (such as
    Iraq and the former Soviet Union) for market development reasons and
    foreign policy considerations. According to USDA officials, claims have
    been lower in recent years because fewer guarantees have been issued for
    exports to high-risk countries.30 USDA reports that activity in fiscal
    year 2003 for both export credit programs totaled $2.55 billion. The major
    recipient countries were Turkey ($532 million), South Korea ($372
    million), and Mexico ($177 million). Guarantees have helped facilitate
    sales of a broad range of commodities but, according to CRS, have mainly
    benefited exports of wheat, wheat flour, oil seeds, feed grains, and
    cotton.31

    Proponents of the export credit guarantee (and other export assistance)
    programs, including USDA and some industry groups, maintain that these
    programs benefit the overall U.S. economy, benefit the U.S. agricultural
    sector, counter competitor nations' agricultural export programs, and
    promote U.S. trade negotiating objectives. However, we reported in 1997
    that there is limited evidence that these programs have (1) measurably
    expanded aggregate employment and output, (2) reduced trade and budget
    deficits, or (3) provided income and employment benefits in the U.S.
    agricultural sector. These programs largely reallocate production,
    employment, and income between sectors or targeted markets. Regarding
    competitor nations' programs, we reported that that lack of openness in
    other nations' agricultural assistance efforts makes it difficult to
    determine conclusively how effectively U.S. export programs counter these
    foreign practices. Additionally, several economic studies indicated that
    foreign competitors find U.S. export subsidies relatively inexpensive to
    offset.

    Concerning U.S. trade negotiating objectives, we reported in 1997 that
    there are widely divergent views about the amount of leverage these
    programs have provided in the past. Although USDA views the credit
    guarantee programs as commercial programs, the European Union and other
    trading partners charge that these programs have a subsidy element that
    gives the United States an unfair competitive advantage. In September
    1999, U.S. negotiators presented a comprehensive proposal for significant
    disciplines on the use of agriculture export credit programs to the
    Organization for Economic Cooperation and Development. Many in the U.S.
    agricultural community have expressed concern that these programs-which
    they regard as effective tools for expanding agricultural exports-not be
    adversely affected by trade negotiations. The Trade Act of 2002 (P.L.
    107-210) makes preservation of export credit programs a principal U.S.
    negotiating objective for the current round of multilateral trade
    negotiations. Nevertheless, CRS reports that U.S. officials have indicated
    a willingness to discuss new disciplines on export credit programs. These
    new disciplines would mainly focus on limiting the repayment period of the
    credit programs.

    Congress may wish to consider reducing these programs' costs. One option
    would be to reduce credit guarantees to high-risk countries, which would
    lessen the potential for additional program costs due to defaults. A
    second option would be to reduce USDA's annual program budget for credit
    guarantees, allowing USDA to determine where to make reductions. A third
    option would be to eliminate one or both of the programs.

    Although CBO agreed that these options could result in budgetary savings,
    it could not develop savings estimates.

    Related GAO Products

    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.

    Former Soviet Union: Creditworthiness of Successor States and U.S. Export
    Credit Guarantees. GAO/GGD-95-60. Washington, D.C.: February 24, 1995.

    GSM Export Credit Guarantees. GAO/GGD-94-211R. Washington, D.C.: September
    29, 1994.

    U.S. Department of Agriculture: Issues Related to the Export Credit
    Guarantee Programs. GAO/T-GGD-93-28. Washington, D.C.: May 6, 1993.

    Loan Guarantees: Export Credit Guarantee Programs' Costs Are High.
    GAO/GGD-93-45. Washington, D.C.: December 22, 1992.

    International Trade: Iraq's Participation in U.S. Agricultural Export
    Programs. GAO/NSIAD-91-76. Washington, D.C.: November 14, 1990.

    GAO Contacts

    Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892

    370 Commerce and 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 Eliminate NIST's
    Advanced Technology Program

    Recapture Interest on Rural Housing Loans

    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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    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
    government-sponsored 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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Products

    Housing Enterprises: The Roles of Fannie Mae and Freddie Mac in the U.S.
    Housing Finance System. GAO/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

    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.

    CBO could not provide an estimate for this option.

    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 Department of Agriculture and Department of Housing and Urban
    Development Single-Family Insured Lending Programs and Multifamily
    Portfolio Management Programs

    The Department of Agriculture (USDA), primarily through its Rural Housing
    Service (RHS), has jurisdiction over most federal rural housing programs.
    The Department of Housing and Urban Development (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.

    Although CBO agrees that the option may result in savings, it could not
    develop a savings estimate for this option.

    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

    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
    long-term 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 2001, the targeted programs were funded at roughly $1.7 billion.

    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.

    CBO was not able to estimate the budget savings for this option.

    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-RCED-00-187.
    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

    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. In October 2003, GAO reported that SBA had
    made some progress in implementing the first phase of its transformation
    but that further progress could be hampered by budget staff realignment
    challenges. 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

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

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

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

    Related GAO Products

    Small Business Administration: Progress Made, but Transformation Could
    Benefit from Practices Emphasizing Transparency and Communication.
    GAO-04-76. Washington, D.C.: October 31, 2003.

    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

    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 in recent 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, including
    ranking SBA lenders based on their projected financial risk to the agency.
    However, SBA has yet to fully develop and implement effective oversight
    programs that assess lenders' decisions on borrowers' creditworthiness and
    eligibility.

    To improve its reviews of preferred lenders, SBA should develop specific
    criteria to apply to the "credit elsewhere" standard,32 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.

    CBO could not estimate the budget savings for this option.

    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

    Eliminate NIST's Advanced Technology Program

    The Advanced Technology Program, administered by the National Institute of
    Standards and Technology (NIST), was established in 1988 to improve the
    competitive position of U.S. businesses by supporting private industry
    research that accelerates the development of high-risk technologies with
    potential for broad-based economic benefits for the nation. The Advanced
    Technology Program is designed to fund research that businesses alone
    would not fund. While NIST has reported successes, NIST cannot ensure that
    the business or a competitor would not conduct this research in the same
    time period without government assistance. For example, our April 2000
    retrospective look at three Advanced Technology Program research projects
    found that their goals were similar to research goals already being funded
    by the private sector.

    In 2004, U.S. businesses are in a markedly improved competitive position
    compared with Japanese and other foreign businesses competing in the
    global economy. In addition, NIST cannot ensure that Advanced Technology
    Program funding is critical for the timely development of generic
    technologies that may be vital to the U.S. and global economies. For these
    reasons, one option for the Congress is to terminate the Advanced
    Technology Program.

    CBO estimates the following budgetary savings with this option.

    Dollars in millions
                                                FY05    FY06   FY07   FY08   FY09
    Change from the 2004 funding level
    Budget authority                          172     174    178    181    186
    Outlays                                   173     171    173    176    180

    Source: Congressional Budget Office.

    Related GAO Products

    Advanced Technology Program: Inherent Factors in Selection Process Could
    Limit Identification of Similar Research. GAO/RCED-00-114. Washington,
    D.C.: April 24, 2000.

    Federal Research: Information on the Advanced Technology Program's Award
    Selection. GAO/RCED-99-258R. Washington, D.C.: August 3, 1999.

    Federal Research: Information on the Advanced Technology Program's 1997
    Award Selection. GAO/RCED-98-82R. Washington, D.C.: February 24, 1998.

    National Institute of Standard and Technology: Carryover Balances for
    Fiscal Year 1997. GAO/RCED-97-144R. Washington, D.C.: April 30, 1997.

    R&D Funding Sources for ATP Applicants. GAO/RCED/OCE-96-258R. Washington,
    D.C.: September 20, 1996.

    Measuring Performance: The Advanced Technology Program and Private-Sector
    Funding. GAO/RCED-96-47. Washington, D.C.: January 11, 1996.

    Federal Research: Advanced Technology Program's Indirect Cost Rates and
    Program Evaluation Status. GAO/RCED-93-221. Washington, D.C.: September
    10, 1993.

    GAO Contacts

    Bob Robinson, (202) 512-3841 Robin Nazzaro, (202) 512-3841

    400 Transportation

    Make Further Appropriations on the Pulsed Fast Neutron Analysis
    Inspection System Dependent on Results of Operational Testing Close,
    Consolidate, or Privatize Some Coast Guard Operating and Training
    Facilities Convert Some Support Officer Positions to Civilian Status
    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 Improve the Coordination of Transportation
    Services for Transportation-  Disadvantaged Populations

    Make Further Appropriations on the Pulsed Fast Neutron Analysis Inspection
    System Dependent on Results of Operational Testing

    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.
    Four government agencies-the Transportation Security Administration (TSA),
    Bureau of Customs and Border Protection (CBP), Department of Defense
    (DOD), and Federal Aviation Administration (FAA)-are currently involved in
    two separate joint efforts to test and demonstrate PFNA's capabilities at
    ports of entry. As we reported initially in 1999 and in subsequent budget
    options reports for Congress, the agencies involved in developing PFNA
    believed that PFNA was too expensive33 and too large for operational use
    in most ports of entry or other sites. TSA continues to believe that PFNA
    will not meet its operational requirements for maritime and land
    applications. While CBP also believes PFNA will not be able to meet its
    operational requirements, it also believes PFNA shows enough promise to
    continue with the operational test. DOD now prefers not to express an
    opinion on whether PFNA would satisfy its requirements or be too expensive
    until after operational testing and a cost benefit analysis are completed.

    The first PFNA effort,34 is a DOD-led joint operational evaluation with
    CBP and TSA at the Ysleta border crossing in El Paso, Texas. This
    operational evaluation will test PFNA's ability to detect drugs,
    explosives, chemical warfare agents, currency, and nuclear materials. It
    is currently scheduled for completion in October 200435 with a final
    report due in December 2004, and a cost benefit analysis scheduled for
    completion in March 2005. It is estimated to cost $17.8 million36 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 $17.8 million
    total consists of $6.7 million from DOD, $4.8 million from TSA, and $6.3
    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.

    The second PFNA effort,37 is a demonstration at the George Bush
    Intercontinental Airport in Houston, Texas. TSA is currently in
    discussions with FAA and Ancore's parent company, OSI Systems, Inc., to
    conduct a joint demonstration. A total of $8 million in government funds
    has thus far been allocated for the demonstration-$4 million each from TSA
    and FAA with an additional $4 million to be provided by OSI Systems. TSA
    began the discussions in February 2004 and could not provide additional
    information at this time. TSA also stated that this demonstration is
    unrelated to a previous cooperative agreement it had made with Ancore to
    test PFNA in a laboratory for aviation applications, which could have led
    to an operational test at an airport, as we reported last year. TSA stated
    that it discontinued funding the cooperative agreement before systems
    development was completed.

    One option is for the Congress to make further appropriations dependent
    upon a careful evaluation of the results of both the Ysleta land border
    crossing operational test and the Bush Intercontinental Airport
    demonstration.

    CBO said that it could not estimate the savings from this option, since it
    is subject to appropriation, which could be higher or lower, depending on
    the results of the evaluation.

    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

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

    The Coast Guard could achieve budget savings by downsizing its facilities.
    One such facility is the Curtis Bay facility, which the Coast Guard
    abandoned plans to close 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. A
    second group of facilities includes over 20 small boat stations, which in
    fiscal year 1996, GAO testified that if closed or consolidated, could save
    the Coast Guard $6 million. Third, GAO recommended in 1996 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 year 1995, GAO recommended that
    the Coast Guard close one of its large training centers in Petaluma,
    Calif.-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, Calif.,
    would help the Coast Guard to achieve these required savings.

    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/RCED-97-110. 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

    Margaret Wrightson, (415) 904-2200

    Convert Some Support Officer Positions to Civilian Status

    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.

    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

    Margaret Wrightson, (415) 904-2200

    Develop a Passenger Intercity Rail Policy to Meet National Goals

    The National Railroad Passenger Corporation (Amtrak) operates the nation's
    intercity passenger rail service. As a private corporation, it operates
    trains in 46 states, and, in fiscal year 2002, served 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 has proposed a
    fundamental restructuring of intercity passenger rail in the U.S. The
    administration's proposal would transition the responsibility for Amtrak
    operations to the states. The federal government would support capital
    costs. States and multi-state compacts would decide the type and amount of
    passenger rail service to be provided, and states would select operators
    for passenger trains based on competition. Various members of Congress
    have also proposed other legislative visions for intercity passenger rail.

    One option for the Congress is to develop a passenger intercity rail
    policy to meet national goals, based on an evaluation framework. In
    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 was not able to estimate the budgetary savings of this option.

    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

    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. Our work showed that four federal
    agencies-the Departments of Defense, Agriculture, Energy, and the Agency
    for International Development-were responsible for almost all of the
    government cargo subject to cargo preference laws and that these laws
    increased these agencies' transportation costs substantially. In recent
    years, the Office of Management and Budget's Program Assessment Rating
    Tool summaries have stated that the Public Law 480 Title II food aid
    program would be more cost effective if these laws were eliminated,
    because they increase delivery cost and time.

    CBO estimates the following budget savings if cargo preference laws were
    eliminated.

    Source: Congressional Budget Office.

    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 Contacts

    Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892

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

    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 2003, 334,594 aircraft were registered in the
    United States. In fiscal year 2003, 61,074 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.

    CBO estimates additional revenue could be achieved if the FAA recovers the
    full cost of processing aircraft registration applications.

    Source: Congressional Budget Office.

    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

    Improve the Coordination of Transportation Services for
    Transportation-Disadvantaged Populations

    The ability to access personal or public transportation is fundamental for
    people to connect with employment opportunities, health and medical
    services, educational services, and the community at large. However,
    transportation-disadvantaged persons-those who may have an age-related
    condition, a disability, or income constraints-lack the ability to provide
    their own transportation or have difficulty accessing whatever
    conventional public transportation may be available. This is a sizeable
    group; according to the 2000 U.S. Census, 35.1 million people were over
    the age of 65, 44.5 million were over age 21 and disabled, and 33.9
    million people were living below the poverty line.

    Providing transportation services to these populations and coordinating
    them across program lines are becoming more critical issues as the
    transportation-disadvantaged populations grow and financial constraints on
    the federal government and other government levels increase. With these
    trends, it will become more important to maximize efficiency wherever
    possible to avoid having to reduce services. The coordination of
    transportation services-through pooling resources, consolidating
    transportation services under a single state or local agency, or sharing
    information about available services-has been found to improve the
    cost-effectiveness and quality of service. At the state and local levels,
    some agencies have realized substantial benefits by coordinating their
    transportation services while others that do not coordinate have
    experienced overlapping, fragmented, or confusing services. In locations
    where coordination among programs has occurred, agencies and users are
    realizing significant benefits such as improved customer service. In areas
    without coordination, local officials reported some examples of (1)
    overlapping services, such as the transportation provider who often runs
    two vehicles on the same route at nearly the same time to accommodate
    different paperwork requirements; (2) fragmented services, when
    transportation services by different counties or programs do not connect
    and riders have difficulty scheduling complete trips; and (3) confusion,
    when both providers and users are overwhelmed by the sheer number of
    programs and their different requirements.

    Although decision makers face numerous obstacles in trying to coordinate
    transportation services for the transportation-disadvantaged, GAO
    identified several options to mitigate the obstacles and improve
    coordination among federal, state, and local agencies. We grouped the
    obstacles into three categories: (1) reluctance to share vehicles and fund
    coordination activities due to concerns about possible adverse effects on
    clients; (2) different eligibility requirements, safety standards, and
    other programmatic requirements that can limit programs' ability to share
    transportation resources; and (3) lack of leadership and commitment to
    coordinate, as evidenced by the limited guidance and information provided
    by federal and state agencies on the possible techniques for coordinating
    services. The options for addressing these obstacles include:

    o Harmonizing program standards among federal programs so that programs
    can serve additional populations or better share transportation resources,
    e.g., providing more flexible regulatory language that would allow
    providers to serve additional client groups, developing consistent cost
    accounting methods, and adopting common safety standards.

    o Expanding interagency forums that would facilitate communication among
    agencies involved in coordination efforts and sharing additional technical
    guidance and information on coordination among federal and state agencies
    through a central clearinghouse or improved Web site.

    o Providing financial incentives or mandates that would give priority in
    federal funding to those grant applicants that show a strong commitment to
    coordinate or requiring specific coordination efforts among grant
    recipients as a condition of receiving federal funding.

    CBO could not estimate a budget savings for this option.

    Related GAO Products

    Transportation-Disadvantaged Populations: Some Coordination Efforts Among
    Programs Providing Transportation Services, but Obstacles Persist.
    GAO-03-697. Washington, D.C.: June 30, 2003.

    Transportation-Disadvantaged Populations: Many Federal Programs Fund
    Transportation Services, but Obstacles to Coordination Persist.
    GAO-03-698T. Washington, D.C.: May 1, 2003.

    Transportation Coordination: Benefits and Barriers Exist, and Planning
    Efforts Progress Slowly. GAO/RCED-00-1. Washington, D.C.: October 22,
    1999.

    Hindrances to Coordinating Transportation of People Participating in
    Federally Funded Grant Programs: Volume I. GAO/RCED-77-119. Washington,
    D.C.: October 17, 1977.

    GAO Contact

    Kate Siggerud, (202) 512-6570

    450 Community and Regional Development

    Eliminate the Flood Insurance Subsidy on Properties That Suffer the
    Greatest Flood Loss Eliminate Flood Insurance for Certain Repeatedly
    Flooded Properties Reduce or Eliminate the Trade Adjustment Assistance
    Program for Firms   and Industries Improve Federal Foreclosure and
    Property Sales Processes

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

    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 low-interest loans from the Small Business Administration
    or grants from Federal Emergency Management Agency (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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Products

    National Flood Insurance Program: Actions to Address Repetitive Loss
    Properties. GAO-04-401T. Washington, D.C.: March 25, 2004.

    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

    William Jenkins, Jr., (202) 512-8757

    Eliminate Flood Insurance for Certain Repeatedly Flooded Properties

    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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    William Jenkins, Jr., (202) 512-8757

    Reduce or Eliminate the Trade Adjustment Assistance Program for Firms and
    Industries

    The Trade Adjustment Assistance Program for Firms and Industries is
    designed to assist domestic firms that have been adversely affected by
    imports. The Department of Commerce's Economic Development Administration
    (EDA) administers the program. EDA is responsible for certifying firms'
    eligibility to receive assistance and approving the certified firms'
    business plans for economic recovery. Twelve regional centers help firms
    prepare petitions for certification, assess their economic viability,
    develop business recovery plans, and fund and oversee consultants' efforts
    to implement the business recovery plans. In 2002, Congress extended the
    Trade Adjustment Assistance Program through fiscal year 2007 at an
    authorized annual funding level of $16 million. The President's fiscal
    year 2003 budget request was for $13 million.

    Between fiscal years 1995 and 1999, EDA annually certified an average of
    157 firms as eligible for assistance38 (about 13 per regional center) and
    127 firms had certified recovery plans (about 11 per regional center).
    During this period, most Trade Adjustment Assistance 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 business recovery plans. The remainder of the
    program funding-an annual average of $3.8 million, or approximately 39
    percent of the total-was used to fund technical assistance to implement
    the business recovery plans.

    In December 2000, we reported that the impact of the Trade Adjustment
    Assistance Program was unclear. EDA had not developed appropriate outcome
    measures to demonstrate the program's value in achieving its goal of
    assisting firms adversely affected by imports and did not formally monitor
    and track program outcomes for program recipients. In April 2003, the
    Congressional Research Service reported that evaluation of the program had
    been largely inconclusive. An independent study suggested that the Trade
    Adjustment Assistance Program had been helpful to firms at the margin;
    however, this study had several flaws that may have biased its results.
    EDA added new performance measures for the Trade Adjustment Assistance
    Program for fiscal year 2003 to better track outcomes of the assistance
    provided by the regional centers. However, we have not evaluated whether
    these new measures are sufficient to assess how the program is helping
    firms adjust to import competition.

    Given the low percentage of program funds used to implement the business
    recovery plans and the lack of information about the program's impact,
    Congress may wish to consider several options for this program:

    o Direct the Commerce Department to consolidate the 12 regional centers to
    reduce administrative and overhead costs.

    o Direct the Commerce Department to co-locate the regional centers with
    other programs (such as the department's Manufacturing Extension
    Partnership) to reduce administrative and overhead costs and provide some
    synergy with other federal efforts to assist firms.

    o Reduce or eliminate the Trade Adjustment Assistance Program.

    CBO estimates that the following budgetary savings would occur if the
    Congress chooses to terminate the program.

    Source: Congressional Budget Office.

    aEstimate reflects savings if the Trade Adjustment Assistance Program is
    eliminated.

    Related GAO Product

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

    GAO Contacts

    Loren Yager, (202) 512-4347 Phil Herr, (202) 512-8509

    Improve Federal Foreclosure and Property Sales Processes

    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.39 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 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 recommended 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 December 2003 conversation, a VA official
    said that the department expects to complete its review in early calendar
    year 2004.

    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 was not able to determine if this option would result in a budget
    savings.

    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

    500 Education, Training, Employment, and Social Services

    Improve Targeting of Title I Basic Grants Change Borrower Interest Rate on
    Federal Consolidation Loans From   Fixed to Variable

    Improve Targeting of Title I Basic Grants

    Title I is the largest federal program supporting elementary and secondary
    education. While state and local funds account for the vast majority of
    total education expenditures nationally, Title I is an important source of
    funding for many high-poverty districts and schools. Created in 1965 as
    part of the War on Poverty, Title I is designed to help educate
    disadvantaged children-those with low academic achievement attending
    schools serving high-poverty areas.

    To distribute Title I funds to school districts, the law authorizing the
    program provides for several types of grants; "basic grants," however, are
    the primary vehicle for Title I funding and are the easiest grants for
    which school districts can qualify. Districts are eligible for basic
    grants if they have at least 10 poor children and the number of poor
    children is more than 2 percent of the district's school-age children.
    Nationally, about 92 percent of school districts (containing over 99
    percent of poor children) received basic grants in fiscal year 1999,
    accounting for about 85 percent of total Title I funds.

    Title I grants have sometimes been criticized because the poverty
    threshold for basic grant eligibility is so low that nearly all school
    districts can participate in the program. It is often noted that by
    funding nearly all districts, less funding is available for districts with
    higher concentrations of poverty. One policy option to further target
    funding for higher poverty districts would be to raise the basic grant
    eligibility threshold, making fewer districts eligible. With fewer
    districts eligible, the remaining districts would receive more funds per
    poor child, even if total Title I funding were to remain constant. Another
    policy option would be to raise the basic grant eligibility threshold, but
    redistribute only half of the funds resulting from fewer districts being
    eligible, while reducing federal expenditures by retaining the remaining
    funds. Yet another option would be to raise the basic grant eligibility
    threshold without redistributing any of the funds obtained from doing so.
    We reported in 2002 that increasing the poverty threshold for basic grant
    eligibility from 2 to 10 percent would reduce the percentage of school
    districts qualifying for basic grants from 92 to 74 percent of school
    districts nationwide. Such an increase in the eligibility threshold would
    have generated over $570 million, which could have been used to
    redistribute to school districts remaining eligible for Title I basic
    grants and/or to reduce federal expenditures.

    CBO estimates no budgetary savings from this option with a decrease in
    appropriation.

    Related GAO Product

    Title I Funding: Poor Children Benefit Though Funding Per Poor Child
    Differs. GAO-02-242. Washington, D.C.: January 31, 2002.

    GAO Contact

    Marnie S. Shaul, (202) 512-7215

    Change Borrower Interest Rate on Federal Consolidation Loans From Fixed to
    Variable

    Student consolidation loans, available under the Department of Education's
    two major student loan programs-the Federal Family Education Loan Program
    (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP)-were
    created to help borrowers cope with large amounts of federal student loan
    debt. Consolidation loans allow borrowers to combine loans, extend their
    repayment period, and reduce monthly repayments, thereby helping to reduce
    the government's costs of paying for defaults. Consolidation loans also
    allow borrowers to lock in a fixed interest rate, unlike most other
    federal student loans, which carry an interest rate that varies from year
    to year. Between fiscal year 2000 and 2002, the number of borrowers
    consolidating their federal student loans nearly doubled to almost 1
    million, and the total amount of loans being consolidated rose from $12
    billion to over $31 billion. Lower interest rates and the increased
    consolidation loan volumes of recent years have increased the estimated
    long-term cost-or subsidy cost-to the government of guaranteeing FFELP
    consolidation loans. The estimated subsidy costs for FFELP consolidation
    loans grew from $1.3 billion for loans made in fiscal year 2002 to nearly
    $3 billion for loans made in fiscal year 2003. Interest rates and loan
    volume also affected costs for FDLP consolidation loans by reducing the
    net gain to the government to $286 million for loans made in fiscal year
    2003, down from $460 million the year before.

    The surge in the number of borrowers consolidating their loans suggests
    that many borrowers who face little risk of default are choosing
    consolidation as a way of obtaining low fixed interest rates. If borrowers
    continue to consolidate their loans in the current low interest rate
    environment, and interest rates rise, the government will continue to
    assume relatively high subsidy costs for FFELP consolidation loans due to
    the payments the government must make to lenders to ensure their
    statutorily guaranteed rate of return on the loans they make. (Lenders'
    guaranteed rates of return vary, based on prevailing market interest rates
    and are projected to be higher in the future.) Providing for higher
    subsidy costs for consolidation loans may outweigh any government savings
    associated with the reduced costs of loan defaults for the smaller number
    of borrowers who might default in the absence of the repayment flexibility
    offered by consolidation loans.

    One option for the Congress is to change the interest charged to borrowers
    on consolidation loans from a fixed to a variable rate that is consistent
    with the interest rates carried by most other federal student loans-which
    underlie borrowers' consolidation loans. Such an option might reduce
    overall federal costs by reducing the volume and subsidy costs of
    consolidation loans. When low fixed interest rates are no longer an option
    on consolidation loans, borrowers who are not experiencing difficultly in
    managing their student loan debt would have less incentive to consolidate
    their loans.40 For borrowers who are, however, experiencing difficulties
    in paying their student loans and at risk of default, the program would
    continue to be an important tool to help them manage their educational
    debt by consolidating multiple loan repayments into one and extending
    their repayment term, thereby reducing their monthly repayments.

    CBO was not able to determine if this option would result in a budget
    savings.

    Related GAO Product

    Student Loan Programs: As Federal Costs of Loan Consolidation Rise, Other
    Options Should be Examined. GAO-04-101. Washington, D.C.: October 31,
    2003.

    GAO Contact

    Cornelia M. Ashby, (202) 512-8403

    550 Health

    Improve Fairness of Medicaid Matching Formula Prevent States from Using
    Illusory Approaches to Shift Medicaid Program   Costs to the Federal
    Government Control Provider Enrollment Fraud in Medicaid Eliminate Federal
    Funding for SCHIP Covering Adults without Children Charge Beneficiaries
    for Food Inspection Costs Redirect Carcass-by-Carcass Inspection Resources
    in Meat and Poultry   Plants Create a Uniform Federal Mechanism for Food
    Safety

    Improve Fairness of Medicaid Matching Formula

    The Medicaid program provides medical assistance to individuals who are
    low-income, aged, blind, or disabled. 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 was not able to determine if this option would result in a budget
    savings.

    Related GAO Products

    Medicaid Formula: Differences in Funding Ability among States Often Are
    Widened.  GAO-03-620.  Washington, D.C.: July 10, 2003.

    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

    Kathryn G. Allen, (202) 512-7114

    Prevent States from Using Illusory Approaches to Shift Medicaid Program
    Costs to the Federal Government

    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, which
    limits such payments to unreimbursed Medicaid and uninsured costs for
    state-owned facilities, (2) the Balanced Budget Act of 1997, which further
    limits Medicaid payments to state psychiatric hospitals, and (3) the
    Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of
    2000,41 which directed the Health Care Financing Administration (HCFA) to
    issue a final regulation that further curtailed states' ability to claim
    excessive federal matching funds through financing schemes, which HCFA,
    now called the Centers for Medicare & Medicaid Services (CMS), did in
    January 2001.

    Despite these legislative and regulatory restrictions, our ongoing work
    has demonstrated that some states continue to benefit from financing
    schemes to draw down federal Medicaid payments that substantially exceed
    costs. Moreover, while CMS has taken steps to strengthen its oversight of
    states' financing arrangements, these steps have not gone far enough to
    ensure that federal funds are used for the purposes for which Medicaid
    funds are intended. For example, a 2001 regulation limited the use of
    these arrangements and provided for transition periods for states to phase
    out their excessive claims for federal matching funds. Our ongoing work
    has found that CMS's decisions to grant 8-year transition periods to two
    states with nursing home arrangements were not consistent with the stated
    purpose of the agency's regulation intended to curtail these financing
    schemes. We are also currently examining the extent to which states are
    hiring private consulting firms to inappropriately maximize federal
    reimbursement through the Medicaid program.

    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 agrees that the option may result in savings, but it could not develop
    a savings estimate for this option.

    Related GAO Products

    Medicaid: Intergovernmental Transfers Have Facilitated State Financing
    Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.

    Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed.
    GAO-04-228. Washington, D.C.: February 13, 2004.

    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

    Kathryn G. Allen, (202) 512-7118

    Control Provider Enrollment Fraud in Medicaid

    Continuing prosecutions of provider fraud in the California Medicaid
    program, which have resulted in more than $134 million in restitution and
    550 criminal convictions since 1999, 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. Since 1999, California has
    coupled its increased enforcement with closer monitoring of providers and
    increased scrutiny prior to enrollment.

    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 reported 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 & 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.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate for it.

    Related GAO Products

    Major Management Challenges and Program Risks: Department of Health and
    Human Services. GAO-03-101. Washington, D.C.: January 2003.

    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

    Leslie G. Aronovitz, (312) 220-7767

    Eliminate Federal Funding for SCHIP Covering Adults without Children

    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. In January 2004, we reported that HHS
    has continued to approve waivers that allow states to use SCHIP funds to
    cover childless adults. We concluded that it appeared likely that HHS
    will, in the absence of action in response to the matters for
    congressional consideration raised in our July 2002 report, continue to
    allow states to use SCHIP funds to cover childless adults.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Products

    SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with Program
    Goals. GAO-04-166R. Washington, D.C.: January 5, 2004.

    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) 512-7118

    Charge Beneficiaries for Food Inspection Costs

    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 currently 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.
    While it has been a few years since we last reported on this issue, the
    situation has not materially changed. Accordingly, an option the Congress
    may want to consider is to set the user fees to cover the full cost of
    USDA inspection services provided to meat and poultry slaughter and
    processing plants.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry
    Plants

    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.

    Currently, 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 relies on outdated, labor-intensive inspection
    methods. Under current law, USDA inspects each of the over 8 billion
    livestock and bird carcasses slaughtered annually. 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 most
    microbial contamination. While USDA has implemented a risk-based meat and
    poultry inspection system, it still maintains a carcass-by-carcass
    inspection system under current law.

    Legislative revisions could allow FSIS to further emphasize risk-based
    inspections. Much of the funding used to fulfill current meat and poultry
    carcass-by-carcass inspection activities could be redirected.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate for this option.

    Related GAO Products

    Meat and Poultry: Better USDA Oversight and Enforcement of Safety Rules
    Needed to Reduce Risk of Foodborne Illnesses. GAO-02-902. Washington,
    D.C.: August 30, 2002.

    Food Safety: Weaknesses in Meat and Poultry Inspection Pilot Should Be
    Addressed Before Implementation. GAO-02-59. Washington, D.C.: December 17,
    2001.

    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

    Create a Uniform Federal Mechanism for Food Safety

    Today, a multitude of agencies oversees food safety. Two agencies account
    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 brings 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 inspection activities in
    an existing department, such as USDA or HHS.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate for this option.

    Related GAO Products

    Food Safety: Continued Vigilance Needed to Ensure Safety of School Meals.
    GAO-02-669T. Washington, D.C.: April 30, 2002.

    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,
    Risk-Based 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

    570 Medicare

    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 New Skilled
    Nursing Facility Payment Method to Ensure   Appropriate Payments Implement
    Risk-Sharing in Conjunction with Medicare Home Health   Agency Prospective
    Payment System Allow Provisions for Direct Laboratory Payment for Certain
    Medicare   Pathology Services to Expire Require Information on Enrollees
    from Private Health Insurers to Improve   Identification of Medicare
    Beneficiaries with Other Health Coverage

    Reassess Medicare Incentive Payments in Health Care Shortage Areas

    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 2002,
    Medicare Incentive Payments totaled $104 million.

    This program, however, may not be the most appropriate means of addressing
    medical underservice.

    o 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.

    o 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.

    o 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.

    o The program provides no incentives or assurances that physicians
    receiving bonuses will actually treat people who have problems obtaining
    health care.

    o 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 was not able to determine if this option would result in a budget
    savings.

    Related GAO Products

    Physician Workforce: Physician Supply Increased in Metropolitan and
    Nonmetropolitan Areas but Geographic Disparities Persisted. GAO-04-124.
    Washington, D.C.: October 31, 2003.

    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

    A. Bruce Steinwald, (202) 512-7114

    Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, and
    Market Prices

    Medicare's supplementary medical insurance program (Medicare Part B) spent
    almost $9.4 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 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 that the Congress has recently acted upon is
    to give CMS the authority to implement competitive bidding for durable
    medical equipment, prosthetics, orthotics, and supplies. Competitive
    bidding creates incentives for providers to provide items and services at
    lower costs to obtain business. The Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003 requires CMS to develop
    programs for the competitive acquisition of durable medical equipment and
    supplies and off the shelf orthotics in 10 of the largest statistical
    metropolitan areas in 2007, 80 of the largest metropolitan statistical
    areas in 2009, and in additional areas thereafter. Priority may be given
    to those items and services that represent the highest cost and volume to
    the Medicare program or have the greatest potential for program savings.
    CMS can use information on the payments determined through competitive
    bidding in these localities for specific items to adjust the amounts
    Medicare will pay for them in other localities.

    In November 2003, CBO estimated that giving CMS authority to conduct
    competitive bidding for durable medical equipment, off-the-shelf orthotics
    and supplies and other changes in payment for these items in the Medicare
    legislation could result in a net reduction of Medicare spending of $6.8
    billion from fiscal years 2004 through 2013.

    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 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.

    CBO was not able to determine if this option would result in a budget
    savings.

    Related GAO Products

    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 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/HEHS-97-157R.
    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/T-HEHS-95-75. Washington, D.C.: February 6, 1995.

    GAO Contact

    Leslie G. Aronovitz, (312) 220-7767

    Increase Medicare Program Safeguard Funding

    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 was not able to determine if this option would result in a budget
    savings.

    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-HEHS-97-165.
    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

    Leslie G. Aronovitz, (312) 220-7767

    Modify the New Skilled Nursing Facility Payment Method to Ensure
    Appropriate Payments

    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 higher payments relative to service costs for some categories 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. This is true despite the fact
    that Medicare margins were high-a median of almost 19 percent for
    free-standing facilities in 2000. 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. Under the PPS, 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
    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 agrees that improved payment methods and oversight could reduce
    spending. However, by convention, CBO only estimates the costs or savings
    of proposals that change current law, not administrative changes.

    Related GAO Products

    Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but
    Not All Facilities. GAO-03-183. Washington, D.C.: December 31, 2002.

    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

    Laura A. Dummit, (202) 512-7114

    Implement Risk-Sharing in Conjunction with Medicare Home Health Agency
    Prospective Payment System

    Following a dramatic increase in Medicare spending for home health
    agencies (HHA), the Balanced Budget Act of 1997 (BBA) required the
    implementation of a prospective payment system (PPS) for HHAs. Under the
    PPS, which began October 1, 2000, Medicare pays a fixed, predetermined
    amount for each 60-day episode of care, adjusted for patient
    characteristics that are expected to affect the costs of providing care.
    Under this system, agencies are rewarded financially for keeping their
    per-episode costs below the payment rate and thus 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 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, 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, on average, the Medicare program is paying HHAs considerably more
    than the estimated costs of care beneficiaries are actually 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 was not able to determine if this option would result in a budget
    savings.

    Related GAO Products

    Medicare Home Health Payment: Nonroutine Medical Supply Data Needed to
    Assess Payment Adjustments. GAO-03-878. Washington, D.C.:  August 15,
    2003.

    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: Clarifying the Homebound Definition Is Likely to
    Have Little Effect on Costs and Access. GAO-02-555R. Washington, D.C.:
    April 26, 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

    Laura A. Dummit, (202) 512-7114

    Allow Provisions for Direct Laboratory Payment for Certain Medicare
    Pathology Services to Expire

    Hospitals receive fixed, predetermined amounts under Medicare's hospital
    inpatient and outpatient prospective payment systems (PPS) for providing
    necessary services to Medicare beneficiaries. By paying hospitals fixed
    amounts under a PPS, Medicare seeks to encourage them to operate
    efficiently, because hospitals retain the difference if payments exceed
    their costs to provide necessary services. Hospitals that outsource
    services for their patients generally pay suppliers of those services
    directly, and the suppliers do not receive payment from Medicare.

    In 2000, the Congress enacted provisions in the Medicare, Medicaid, and
    SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) to delay for
    2 years application of a rule issued by the Health Care Financing
    Administration (HCFA), now called the Centers for Medicare & Medicaid
    Service (CMS). The rule terminated an exception to the inpatient and
    outpatient PPS that permitted one type of supplier-laboratories-to receive
    payment directly from Medicare when providing technical pathology
    services42 to beneficiaries who are hospital patients. The BIPA provisions
    applied only to "covered hospitals," those hospitals that had agreements
    with laboratories for outsourced technical pathology services in effect as
    of July 22, 1999, the date HCFA proposed the rule. By terminating direct
    payments to laboratories, HCFA's 1999 rule would have resulted in
    hospitals either paying laboratories for outsourced services or providing
    the services themselves.

    Although the BIPA provisions expired at the end of 2002, CMS made an
    administrative decision to continue directly paying laboratories for
    technical pathology services provided to hospital patients. In the
    Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
    the BIPA provisions were amended to also apply to technical pathology
    services provided during 2005 and 2006.

    We reported in 2003 that if laboratories had not received direct payment
    for services to hospital patients, Medicare spending would have been an
    estimated $42 million less in 2001, with $18 million and $24 million in
    savings for inpatient and outpatient services, respectively. In addition,
    overall beneficiary cost sharing would have been reduced by $2 million. We
    believe hospitals are unlikely to experience a large financial burden from
    paying laboratories to provide technical pathology services.

    In light of expected Medicare savings, we suggest that for calendar year
    2005, the Congress may wish to consider permanently removing the exception
    that allows direct Medicare payment to laboratories for technical
    pathology services provided to hospital patients.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Product

    Medicare: Modifying Payments for Certain Pathology Services Is Warranted.
    GAO-03-1056. Washington, D.C.: September 30, 2003.

    GAO Contact

    A. Bruce Steinwald, (202) 512-7119

    Require Information on Enrollees from Private Health Insurers to Improve
    Identification of Medicare Beneficiaries with Other Health Coverage

    Until 1980, the Medicare program was the primary payer for covered health
    services for all beneficiaries, except those involving workers'
    compensation or veterans benefits. Since 1980, new laws have made Medicare
    the secondary payer for individuals with certain employer group health
    plan coverage43 and other categories of beneficiaries. The Centers for
    Medicare & Medicaid Services (CMS) uses a contractor to conduct a variety
    of activities to identify whether beneficiaries might have other sources
    of health insurance coverage with primary payment responsibility for their
    health care claims. For example, CMS's contractor matches Medicare data
    with employment and earnings data maintained by the Internal Revenue
    Service and the Social Security Administration to identify beneficiaries
    who may have health insurance through their or their spouse's employer.
    However, there can be a 2-year time lag between when a beneficiary or
    spouse is employed and when contractors can confirm the information about
    employment. As a result, even with current data match activities, Medicare
    can have paid for claims long before another liable insurer is identified.

    GAO has long recognized that private health insurance companies and
    employers sponsoring their own health plans are in the best position to
    routinely identify enrollees who might also be Medicare beneficiaries.
    Currently, private health insurance companies are under no obligation to
    inform CMS that some of their enrollees are Medicare beneficiaries, unless
    there is a court settlement requiring such data sharing. CMS has entered
    into voluntary data sharing agreements with some private health insurers
    and employers to obtain data on their working enrollees and dependents.
    These private health insurers and employers represent over 40 percent of
    Medicare beneficiaries and their voluntary data sharing agreements
    resulted in at least $61 million in Medicare savings in fiscal year 2003.

    We believe if private health insurers were required to share the names and
    identifying information on their enrollees, CMS could more effectively
    identify beneficiaries with other primary health insurance coverage. As a
    result, one option we have suggested is that the Congress consider
    requiring private health insurers to provide CMS information on their
    enrolled beneficiaries, on a schedule and using a format determined by
    CMS. The President's budget made a similar proposal for fiscal year 2003,
    with a cost savings estimate of $1.0 billion over a ten-year period.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Product

    Medicare: HCFA Could Do More to Identify and Collect Overpayments.
    GAO/HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.

    GAO Contact

    Leslie G. Aronovitz, (312) 220-7767

    600 Income Security

    Revise Benefit Payments under the Federal Employees' Compensation Act
    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 Sustain/Expand
    Range of SSI Program Integrity Activities Better Congressional Oversight
    of PRWORA's Fugitive Felon Provisions Improve the Administrative Oversight
    of Food Assistance Programs Share the Savings from Bond Refundings Reduce
    Federal Funding Participation Rate for Automated Child Support
    Enforcement Systems

    Revise Benefit Payments under the Federal Employees' Compensation Act

    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 Spendable Earnings

    For almost all totally disabled individuals, FECA benefits are 66 and two
    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 (take-home 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.

    CBO was not able to determine if this option would result in a budget
    savings.

    Revising Benefits for Retirement-Eligible Beneficiaries

    Retirement-eligible federal workers who continue to be disabled as a
    result 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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Source: Congressional Budget Office.

    FECA Cases Involving Third Parties

    FECA authorizes federal agencies to continue paying employees their
    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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Comparability of FECA and Other Compensation Laws

    We identified three major ways in which FECA differs from other federal
    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. Only six states authorize additional benefits for
    dependents (about $5-$10 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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Source: Congressional Budget Office.

    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

    Implement a Service Fee for Successful Non-Temporary Assistance for Needy
    Families Child Support Enforcement Collections

    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, about 80 percent of the total cases
    were non-TANF cases-about 45 percent were former TANF recipients and about
    36 percent had never received TANF benefits.

    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.

    CBO made the following estimates based on a service fee of 5 percent for
    each successful non-TANF child support collection.

    Source: Congressional Budget Office.

    Note: Estimates based on a service fee of 5 percent for each successful
    non-TANF child support collection.

    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.
    Washington, D.C.: 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 Programs

    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 showed that some Reserve personnel were receiving improper benefit
    payments from state UI programs. In the seven states in our analysis, we
    estimated 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 were 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 Homeland Security'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
    cost-effective 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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    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
    1998 report, 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. In 2003, 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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    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 self-reporting 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.

    Related GAO Products

    Supplemental Security Income: SSA Could Enhance Its Ability to Detect
    Residency Violations. GAO-03-724. Washington, D.C.: July 29, 2003.

    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

    Robert E. Robertson, (202) 512-7215

    Sustain/Expand Range of SSI Program Integrity Activities

    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 processed 138,000 more
    financial redeterminations in FY 2003 than it did in FY 2002, and plans to
    increase redeterminations in FY 2004. SSA should continue to increase the
    number of redeterminations processed to the extent feasible.

    CBO agrees that this option would result in budgetary savings, but it
    could not develop a savings estimate.

    Related GAO Products

    Supplemental Security Income: SSA Could Enhance Its Ability to Detect
    Residency Violations. GAO-03-724. Washington, D.C.: July 29, 2003.

    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

    Robert E. Robertson, (202) 512-7215

    Better Congressional Oversight of PRWORA's Fugitive Felon Provisions

    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 felon44 status grounds for termination of tenancy in many
    federal housing assistance programs, administered by the Department of
    Housing and Urban Development (HUD).

    In our September 2002 report, we found that, since PRWORA was enacted the
    SSI, Food Stamp, and TANF programs 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. SSA recently reported that, between August 1996
    and February 2003, it identified more than 51,000 fugitive felons on the
    SSI rolls, incurring savings of over $83 million. In addition, SSA
    estimates that it may save an additional $206.9 million through recovery
    of fugitive felon overpayments for months up to and including February
    2003.

    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 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
    since the enactment of PRWORA in 1996, 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 may wish to
    consider amending the Housing Act of 1937 to explicitly make fugitive
    felons ineligible for housing benefits.

    CBO was not able to determine if this option would result in a budget
    savings.

    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

    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, about 1 in every 5 Americans receives
    nutrition assistance through 1 or more of the 15 programs administered by
    this agency. These programs, which accounted for more than half of USDA's
    budget authority for fiscal year 2003, provide children and low-income
    adults with access to food, a healthful diet, and nutrition education.
    Specifically, for fiscal year 2003, the Congress appropriated about $41.9
    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 21.3 million individuals with more than $21.4 billion
    in benefits in fiscal year 2003. 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
    152,000 authorized retail food stores, and in a July 2003 report, USDA
    estimated that stores trafficked about $395 million, or about 2.5 cents of
    every dollar of food stamp benefits issued per year from 1999 through
    2002. 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 1998.45 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. Since that time, they have developed a new
    EBT-based technique for fighting trafficking that has become an important
    source of findings of trafficking. 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.46 The Food and
    Nutrition Service has taken some actions to implement this recommendation,
    by providing increased financial incentives for states to be more
    aggressive in pursuing recipients who traffic food stamp benefits and by
    assisting states in the use of EBT data to identify traffickers.

    USDA also faces fraud and abuse challenges in other nutrition programs,
    including the Child and Adult Care Food Program (CACFP), which for fiscal
    year 2003 was funded at $1.9 billion, and the National School Lunch and
    School Breakfast programs, which for that year were funded at $8.8
    billion. In fiscal year 2003, CACFP provided subsidized meals for a daily
    average of 2.9 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
    recommendation47 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.

    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.

    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

    Share the Savings from Bond Refundings

    During the 1970s and early 1980s, the Department of Housing and Urban
    Development (HUD) administered programs to develop housing for low-income
    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 agrees that this option would result in budgetary savings, but it
    could not develop a savings estimate.

    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

    Reduce Federal Funding Participation Rate for Automated Child Support
    Enforcement Systems

    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 2002, the states
    reportedly spent about $7.0 billion to develop these systems, including
    about $5.0 billion from the federal government.

    The 90 percent funding participation rate for development costs 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 for development costs, 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 costs.

    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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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

    700 Veterans Benefits and Services

    Discontinue Veterans' Disability Compensation for Nonservice Connected
    Diseases Revise VA's Disability Ratings Schedule to Better Reflect
    Veterans'   Economic Losses Reassess Unneeded Health Care Assets within
    the Department of Veterans   Affairs Reducing VA Inpatient Food and
    Laundry Service Costs

    Discontinue Veterans' Disability Compensation for Nonservice Connected
    Diseases

    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
    service-connected 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 service-connected
    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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    The Congress may also wish to consider enacting legislation proposed by VA
    to prohibit the payment of compensation for a disability related to drug
    or alcohol abuse, even if it is secondary to a service-connected
    disability such as Post-Traumatic Stress Disorder. Payment of VA
    compensation for alcohol or drug abuse related disabilities as a primary
    service-connected condition has been expressly prohibited by law since
    1990. VA proposed this legislation in response to a February 2001 court
    decision that allowed VA to compensate veterans for substance
    abuse-related disabilities if they arose secondarily from a
    service-connected disability. VA estimated that this legislative change,
    if enacted, would lead to savings of $55.1 million in fiscal year 2004,
    and $2.8 billion over 10 years.

    Source: Congressional Budget Office.

    Related GAO Products

    VA Benefits: Fundamental Changes to VA's Disability Criteria Need Careful
    Consideration. GAO-03-1172T. Washington, D.C.: September 23, 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.

    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

    Revise VA's Disability Ratings Schedule to Better Reflect Veterans'
    Economic Losses

    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
    service-connected 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.

    CBO was not able to determine the budgetary effect of this option.

    Related GAO Products

    VA Benefits: Fundamental Changes to VA's Disability Criteria Need Careful
    Consideration. GAO-03-1172T. Washington, D.C.: September 17, 2003.

    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

    Reassess Unneeded Health Care Assets within the Department of Veterans
    Affairs

    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. 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 in
    early calendar year 2004. Continued congressional oversight is warranted
    to review VA's plans and assess their impact on costs and services.

    CBO was not able to determine the budgetary effect of this option.

    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

    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 because its
    general counsel determined that VA could not use Veterans Health
    Administration appropriations for such studies without specific
    authorization from the Congress. VA has requested that Congress grant it
    this authorization.

    CBO agrees that the option may result in savings, but it could not develop
    a savings estimate for this option.

    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

    800 General Government; 900 Net Interest; 999 Multiple

    Taking a Strategic Approach Could Improve Federal Agencies' Acquisition
    of Costs of Supplies and Services Improper Benefit Payments Could Be
    Avoided or More Quickly Detected if   Data from Various Programs Were
    Shared Prevent Delinquent Taxpayers from Benefiting from Federal Credit
    Programs Increase Fee Revenue from Federal Reserve Operations Eliminate
    the 1-Dollar Note Better Target Infrastructure Investments to Meet Mission
    and Results-  Oriented Goals Identify and Dispose of Unneeded Real
    Property Assets Held by GSA Target Funding Reductions in Formula Grant
    Programs Adjust Federal Grant Matching Requirements Consolidate Grants for
    First Responders to Improve Efficiency Improve IRS's Ability to Collect
    Delinquent Taxes

    Taking a Strategic Approach Could Improve Federal Agencies' Acquisition of
    Supplies and Services

    Federal agencies procured more than $250 billion in goods and services
    during fiscal year 2002. Additionally, federal civilian agencies spent
    over $15 billion using purchase cards in fiscal year 2002. 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 procurement 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 requirements, 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. 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.

    Thus far, our work has focused on applying best practices to improving
    Department of Defense (DOD) acquisition of services-an agency where
    spending on information technology, administrative support, research and
    development and a wide range of other services is approaching $100 billion
    annually. Recent legislation intends for DOD to manage its services
    procurement more effectively by promoting the use of best commercial
    practices. As a result, DOD is in the early stages of 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. The military
    departments are also in the early stages of separate initiatives that may
    lead them to adopt a strategic approach to buying services at lower cost.
    Such commercial best practices could also benefit civilian agencies'
    procurement by leveraging buying power to reduce costs of supplies and
    services.

    CBO was not able to determine if this option would result in a budgetary
    savings.

    Related GAO Products

    Contract Management: High-Level Attention Needed to Transform DOD Services
    Acquisition. GAO-03-935. Washington, D.C.: September 10, 2003.

    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.

    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.

    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

    Improper Benefit Payments Could Be Avoided or More Quickly Detected if
    Data from Various Programs Were Shared

    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, based on a study that matched
    Department of Education (Education) and Internal Revenue Service (IRS)
    income information, the Education estimates that it made approximately
    $602 million in grant overpayments during fiscal years 2001 and 2002.
    Access to IRS 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. The
    Administration's fiscal year 2004 budget estimates that access to IRS
    income data could save $638 million in Pell Grant costs over 2003-2004.

    CBO was not able to determine if this option would result in a budgetary
    savings.

    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

    Prevent Delinquent Taxpayers from Benefiting from Federal Credit Programs

    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 $246 billion at the
    end of fiscal year 2003. 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, GAO reviews of unpaid taxes conducted as part of its
    annual audits of IRS's financial statements, and as part of other
    financial management work at the agency, indicate that 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 implementing the prohibitions contained in 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 was not able to determine if this option would result in a budgetary
    savings.

    Related GAO Products

    Financial Management: Some DOD Contractors Abuse the Federal Tax System
    with Little Consequence. GAO-04-95. Washington, D.C.: February 12, 2004.

    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

    Increase Fee Revenue from Federal Reserve Operations

    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.

    CBO estimates 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.

    Source: Congressional Budget Office.

    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

    Eliminate the 1-Dollar Note

    Replacing the 1-dollar note with the new gold-colored 1-dollar coin would
    save the government hundreds of millions of dollars annually. Substituting
    a dollar coin for a 1-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-dollar 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-dollar
    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-dollar 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-dollar note.

    CBO estimates that budgetary savings could be achieved by eliminating the
    1-dollar note.

    Source: Congressional Budget Office.

    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

    Mark L. Goldstein, (202) 512-2834

    Better Target Infrastructure Investments to Meet Mission and
    Results-Oriented Goals

    The federal government plays a prominent role in identifying the nation's
    infrastructure investment needs and spent $160.6 billion on the nation's
    infrastructure in 2002. 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.

    The Office of Management and Budget (OMB) has developed a Capital
    Programming Guide to assist agencies with developing a disciplined capital
    programming process. OMB strongly recommends, but does not require,
    agencies to follow its guidance. In addition, GAO's Executive Guide:
    Leading Practices in Capital Decision-Making summarizes fundamental
    practices that have been successfully implemented by organizations that
    are recognized for their outstanding capital decision-making practices and
    provides examples of leading practices from which the federal government
    may draw lessons and ideas. In a review of seven federal agencies' U.S.
    infrastructure 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 infrastructure 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. Similarly, in a January 2004 review of four
    agencies' use of capital planning, GAO found that, while some of these
    agencies have long-term planning documents, none has a comprehensive plan
    that defines its long-term investment decisions.

    Given the importance of federal infrastructure investment to the nation,
    developing long-term agency capital plans and following other leading
    practices are critical for sound infrastructure investment. One option for
    improving capital planning is to have the OMB require that agencies comply
    with the principles and practices of its Capital Programming Guide.
    Requiring agencies to link the benefits of investment projects to the
    achievement of mission goals and long-term strategic 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.

    CBO was not able to determine if this option would yield budgetary
    savings.

    Related GAO Products

    Budget Issues: Agency Implementation of Capital Planning Principles Is
    Mixed. GAO-04-138. Washington, D.C.: January 16, 2004.

    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

    Identify and Dispose of Unneeded Real Property Assets Held by GSA

    Despite significant changes in the size and mission needs of the federal
    government in recent years, the federal portfolio of real property assets
    in many ways still largely reflects the business model and technological
    environment of the 1950s. Many of the assets are no longer aligned with,
    or responsive to, agencies' changing missions, and are therefore no longer
    needed. Retaining unneeded assets presents significant potential risks for
    (1) lost dollars because such properties are costly to maintain; and (2)
    lost opportunities because the properties could be put to more
    cost-beneficial uses, exchanged for other needed property, or sold to
    generate revenue for the government. According to government data, as of
    September 2002, the federal government owned about 3 billion square feet
    of building floor space in the United States, and the General Services
    Administration (GSA) was the second largest nondefense holder of this
    space, after the U.S. Postal Service. GSA provides real estate services
    for federal agencies and owns approximately 1,700 facilities with about
    200 million square feet of building floor space. GSA facilities include
    office buildings, courthouses, and border stations.

    In June 2001, GSA started an overall effort, commonly referred to as the
    portfolio restructuring initiative, where it is reviewing its real
    property inventory nationwide to identify and remove all vacant and
    underutilized assets that are not financially self-sustaining, or for
    which there is not a substantial, long-term federal purpose. The objective
    of this initiative is to better align GSA's properties with its mission of
    providing quality space and services at a cost that is competitive with
    the private sector. GSA plans to complete implementation of the portfolio
    restructuring initiative by 2007 and expects by that time to have a
    portfolio of strong, income-producing properties that is much more
    responsive to changing agency mission needs. As of October 1, 2002, GSA
    reported that it had 236 vacant and underutilized properties with about
    18.4 million square feet of space.

    As part of its oversight of this effort, Congress could consider having
    GSA provide information on the status of properties it has identified as
    candidates for disposal or transfer and identify the specific steps
    Congress could take to facilitate the disposal or transfer of these
    properties. Oftentimes, GSA is hampered by factors outside of its control.
    Our work has shown that decisions about real property often do not reflect
    the most cost-effective alternative that is in the interest of the agency
    or the government as a whole but instead reflect other priorities. In
    particular, this situation often arises when the federal government
    attempts to consolidate facilities or otherwise dispose of unneeded
    assets. Congress's direct involvement could serve as a catalyst for action
    on individual properties. This would be particularly important in light of
    the cost of securing and maintaining these unneeded properties; the
    opportunity costs associated with not selling or exchanging these assets;
    and the image of government waste and inefficiency that these facilities
    present to the public.

    CBO was not able to determine if this option would yield budgetary
    savings.

    Related GAO Products

    Federal Real Property: Vacant and Underutilized Properties at GSA, VA, and
    USPS.  GAO-03-747. Washington, D.C.: August 19, 2003.

    High-Risk Series: Federal Real Property.  GAO-03-122. Washington, D.C.:
    January 2003.

    GAO Contact

    Mark L. Goldstein, (202) 512-2834

    Target Funding Reductions in Formula Grant Programs

    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 1998,48 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. There are a
    variety of ways in which budgetary savings could be achieved to improve
    the targeting of these programs, including the following:

    o Reduce the minimum federal reimbursement rate to below 50 percent for
    Medicaid, for example. 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.

    o 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.

    o 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.

    o 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. The
    estimated 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 estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    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/AIMD-98-137. 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.

    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

    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
    inflation-adjusted 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.

    CBO estimates the following budgetary savings with this option.

    Source: Congressional Budget Office.

    Related GAO Products

    Disadvantaged Students: Fiscal Oversight of Title I Could Be Improved.
    GAO-03-377. Washington, D.C.: February 28, 2003.

    Welfare Reform: Challenges in Maintaining a Federal-State Fiscal
    Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

    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

    Consolidate Grants for First Responders to Improve Efficiency

    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 example of this fragmentation, in September 2003 GAO
    identified at least 21 different grant programs that can be used by the
    nation's first responders to address homeland security needs. 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, Congress' alternatives might include consolidating existing
    grants, using performance partnerships, and simplifying and streamlining
    administrative and planning requirements. 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 was not able to determine if this option would yield budgetary
    savings.

    Related GAO Products

    Homeland Security: Reforming Federal Grants to Better Meet Outstanding
    Needs. GAO-03-1146T. Washington, D.C.: September 3, 2003.

    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

    Improve IRS's Ability to Collect Delinquent Taxes

    From fiscal years 1996 through 2001, the Internal Revenue Service's (IRS)
    compliance and enforcement programs experienced almost universal declines
    in workload coverage, cases closed, direct staff time used, productivity,
    and dollars of unpaid taxes collected. While IRS has other efforts to help
    taxpayers comply with tax laws, such as ensuring the clarity of tax forms
    and instructions, IRS's enforcement programs are viewed by many as
    critical for maintaining the public's confidence in our tax system. The
    Congress and others have expressed concern about the compliance and
    collections trends for their potential to undermine taxpayers' motivation
    to fulfill their tax obligations. IRS's inventory of delinquent accounts
    continues to grow and age as the gap in workload and capacity to complete
    work increases. For example, in 2002, IRS was deferring collection action
    on tax debts at a rate equal to one out of three new collection cases. One
    way to reverse the declines in IRS's compliance and enforcement programs
    would be to: devote more resources to them. This would enable IRS to close
    more delinquent tax cases and collect more unpaid tax revenues.

    Congress has two basic alternatives if it wishes to devote more resources
    to IRS's enforcement programs. One, increase IRS's budget with additional
    funds targeted to compliance and collection staff and two, reallocate
    resources from other IRS programs. In recent years, IRS has proposed
    increasing enforcement staff funded partly out of budget increases and
    partly by reallocating resources from other areas within IRS. Despite
    budget requests that were almost fully funded and despite realizing some
    savings, the number of skilled enforcement staff actually declined between
    1998 and 2003 because of other priorities including unbudgeted expenses.

    JCT was not able to estimate a revenue effect for this option because the
    JCT does not estimate discretionary re-allocations of IRS resources.
    Nevertheless, we believe that should IRS succeed at increasing its ability
    to collect delinquent taxes, it would bring in additional revenues.

    Related GAO Products

    Tax Administration: IRS Should Continue to Expand Reporting on Its
    Enforcement Efforts. GAO-03-378. Washington, D.C.: January 31, 2003.

    Tax Administration: Impact of Compliance and Collection Program Declines
    on Taxpayers. GAO-02-674. Washington, D.C.: May 22, 2002.

    GAO Contact

    James R. White, (202) 512-9110

    Receipts

    Enhance Nontax Debt Collection Using Available Tools Increase Highway User
    Fees on Heavy Trucks Implement Tolling or Other Alternative Revenue
    Sources for the Fuel Tax   on Highways Restrict the Preferential Federal
    Income Tax Treatment of Business-Owned   Life Insurance Reassess Annual
    Charges for FERC-licensed Hydropower Projects that Use   Federal Lands Tax
    Interest Earned on Life Insurance Policies and Deferred Annuities Further
    Limit the Deductibility of Home Equity Loan Interest Limit the Individual
    Tax Exclusions for Employer-Paid Health Insurance Repeal the Partial
    Exemption for Alcohol Fuels from Excise Taxes on   Motor Fuels Index
    Excise Tax Rates for Inflation Require Corporate Tax Document Matching
    Improve Administration of the Tax Deduction for Real Estate Taxes Increase
    Filing of Returns 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
    Increase Penalties and Consistency of Disclosure for Abusive Tax Shelters
    Authorize IRS to Use Private Collection Agencies to Collect Certain
    Delinquent Taxes

    Enhance Nontax Debt Collection Using Available Tools

    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 annually in recent 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 a Treasury
    official, as of October 2003 only two of the nine large agencies, the
    Departments of Housing and Urban Development and Education (for
    administrative debts), 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 a Treasury official,
    FMS has implemented a new Internet-based program to assist agencies in
    identifying delinquent debtors. As of June 17, 2003, SBA is using this
    system to initiate searches of limited information from the TOP database
    to determine whether SBA applicants owe delinquent nontax debt. FMS is
    planning for additional agencies to participate in the future.

    We have recommended that agencies begin implementing AWG and that FMS
    enhance or supplement information in the TOP database to assist agencies
    in identifying delinquent debtors to prevent them from obtaining access to
    future federal financial assistance in the form of loans, loan guarantees,
    and loan insurance. 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 agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    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

    Increase Highway User Fees on Heavy Trucks

    To develop and maintain highways, the federal 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 2002,
    about $33.9 billion was collected from general federal 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.

    JCT made the following revenue estimates, effective the taxable years
    beginning after December 31, 2004.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    Related GAO Products

    Freight Transportation: Strategies Needed to Address Planning and
    Financing Limitations. GAO-04-165. Washington, D.C.: December 19, 2003.

    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

    Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax on
    Highways

    The Transportation Equity Act for the 21st Century (TEA-21) expired on
    September 30, 2003, and while the Congress has passed a short extension,
    it is considering a new reauthorization bill this session. The House has
    passed a $275 billion bill over six years, and the Senate has passed a
    $318 billion bill. To provide the necessary revenues needed, proposals
    such as spending down the balance in the Highway Trust Fund and
    transferring some gasohol tax revenues (currently deposited in the General
    Fund) into the Highway Trust Fund have been discussed.

    Other sources of funding are available to supplement the current gas tax
    structure. Tolling has perhaps the most widespread support and appeal as
    an additional revenue source, and this method is more closely aligned with
    the "user pays" principle supported by GAO and most transportation
    experts. It is recognized, for example, that motor fuel taxes have the
    attribute of being a pay-as-you-go form of user charge. However, the
    amount of excise tax a user pays is only weakly related to the costs
    generated. Heavier trucks, for example, pay a smaller share of the
    expenditures highway agencies incur to serve them. Therefore, it may
    appear that these trucks are a less expensive means for shippers to
    transport their goods than railroads or other modes, resulting in a
    distortion of the competitive environment. From the standpoint of
    efficiency, motor fuel taxes are not entirely sufficient because it is not
    possible for government agencies to provide incentives to vehicle
    operators to change the nature of their road use. Improved pricing of
    transportation facilities could yield large payoffs in efficiency and
    promote competition. The more widespread use of tolling to raise revenues
    could provide this system benefit.

    Congress may wish to consider several other revenue sources, including
    tolling and a weight-distance tax (where vehicles are charged based on the
    distance driven and the weight of the vehicle). Tolling of our nation's
    most congested highways could provide needed revenue as well as change
    driving patterns to reduce congestion. Based on estimates developed in a
    recent Federal Highway Administration (FHWA) study, we estimate that net
    revenues derived from peak-period tolling at the nation's 26 most
    congested urban areas would amount to $1.9 billion annually. However, one
    challenge in implementing congestion pricing is that, at present, greater
    use of pricing is limited by statutory restrictions. Another challenge
    involves effectively addressing concerns raised about equity and fairness.
    One equity concern that has frequently been raised about congestion
    pricing of public roads has been the potential effects of surcharges or
    tolls on lower-income drivers. Because a surcharge would represent a
    higher portion of the earnings of lower-income households, it imposes a
    greater financial burden on them and, therefore, is considered unfair.
    Other revenue approaches, such as a weight-distance tax, would also
    provide a more equitable tax form that would tie more closely to the "user
    pays" principle.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    Related GAO Products

    Freight Transportation: Strategies Needed to Address Planning and
    Financing Limitations. GAO-04-165. Washington, D.C.: December 19, 2003.

    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 Contacts

    JayEtta Z. Hecker, (202) 512-8984 Kate Siggerud, (202) 512-6570

    Restrict the Preferential Federal Income Tax Treatment of Business-Owned
    Life Insurance

    Business-owned life insurance-permanent life insurance on employees where
    the business is both the owner and the beneficiary-receives preferential
    federal income tax treatment because the policies' accumulated earnings
    are tax-deferred and death benefit payments are tax-free. Businesses
    purchase such policies for various reasons, such as to insure against
    financial losses associated with the deaths of key employees and to fund
    employee benefits. Questions have been raised about whether these policies
    should continue to receive preferential tax treatment, particularly when
    they cover other than key employees, and legislative proposals have sought
    to limit the preferences. Federal revenue estimators have estimated
    forgone tax revenues from the tax preferential treatment on policies'
    accumulated earnings for the 5-year period 2004-2008 as $7.3 billion to
    $9.5 billion, not including the forgone tax revenues on additional income
    from death benefit payments.

    Disagreement exists over the appropriateness of preferential tax treatment
    on business-owned life insurance policies when businesses use policy
    proceeds to meet their general business needs, including the payment of
    employee benefits. Some assert that the purchase of business-owned life
    insurance is often related to employee benefit liabilities and that the
    tax preferential treatment is needed to help reduce these costs. Others
    state that allowing preferential tax treatment of business-owned life
    insurance undermines the laws Congress enacted that define the type and
    scope of preferential tax treatment businesses should receive for
    providing employee benefits. Also, the preferential tax treatment of
    business-owned life insurance provides this investment vehicle an
    advantage over other investments that lack such preferences.

    IRS and others have expressed concern that businesses may be borrowing to
    indirectly finance life insurance purchases, even though 1986, 1996, and
    1997 laws sought to restrict such borrowing. However, firms increase their
    liabilities for many purposes, making it difficult to make a direct
    connection between borrowing and purchasing life insurance. The Health
    Insurance Portability and Accountability Act of 1996 provided that no
    deduction is allowed for interest paid or accrued on any debt with respect
    to a life insurance contract, with an exception which allowed deduction
    for interest paid to insure key persons. The Taxpayer Relief Act of 1997
    provided that no deduction is allowed for that portion of a business's
    total deductions for interest expense equal to the portion of its total
    assets invested in permanent life insurance, with an exception for life
    insurance on 20-percent owners, officers, directors, and employees. An
    amendment was offered during the House Budget Committee's mark up of the
    Fiscal Year 2004 Concurrent Budget Resolution in March 2003, as well as in
    prior Clinton administration budget proposals, to change the exception to
    only apply to key persons, but the change was not adopted. The
    Congressional Budget Office included a similar proposal in its March 2003
    budget options.

    Several other congressional proposals have attempted to limit the tax
    preferential treatment of business-owned life insurance. In May 2003, a
    bill was introduced in the House of Representatives and an amendment was
    offered in the Senate to repeal the preferential tax treatment of the
    proceeds related to certain business-owned life insurance policies. In
    addition, an amendment passed the Senate Finance Committee in September
    2003 that would have required businesses to treat life insurance policy
    payments received as gross income, if the insured had not been an employee
    in the year preceding his or her death. These various proposals generally
    made an exception for insuring against the death of a key employee and may
    have included other exceptions, such as when the life insurance was held
    by a qualified retirement plan. Also, these various proposals would have
    generally grandfathered existing policies, allowing businesses to continue
    receiving tax-preferenced proceeds from existing policies. None of the
    proposals was enacted by the end of the first session of the 108th
    Congress.

    To the extent that only new purchases of business-owned life insurance are
    taxed, revenues from changes in the tax treatment of the policies will be
    more limited because, without preferential tax treatment, purchases of the
    policies will likely decline. Because it is unclear what alternative
    investments businesses will make, the tax implications of their actions
    cannot be determined. Nonetheless, without further restrictions on the
    tax-preferred treatment of business-owned life insurance, the federal
    government will continue to forego tax revenue attributable to deferred
    policy earnings and tax-free death benefit payments.

    In light of the potential for collecting tax revenues on business-owned
    life insurance and reducing the amount of foregone federal tax revenue
    attributable to business-owned life insurance, Congress may wish to
    consider further  restrictions on the tax-preferred treatment of these
    policies.

    JCT made the following revenue estimates, effective the taxable years
    after December 31, 2004.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    Related GAO Product

    Business-Owned Life Insurance: Preliminary Observations on Uses,
    Prevalence, and Regulatory Oversight. GAO-04-191T. Washington, D.C.:
    October 23, 2003.

    GAO Contact

    Davi M. D'Agostino, (202) 512-8678

    Reassess Annual Charges for FERC-licensed Hydropower Projects that Use
    Federal Lands

    The Federal Power Act directs the Federal Energy Regulatory Commission
    (FERC) to establish and collect reasonable annual charges from hydropower
    projects that use federal lands. Since 1987, FERC's annual charges for the
    use of federal lands have been based on a linear rights-of-way fee
    schedule that was originally used to determine the annual fees other
    agencies charged for the rights to locate, among other things, powerlines,
    pipelines and communications lines on federal lands-uses that are
    generally less valuable than hydropower. FERC chose this system because it
    was simple and predictable and would not subject the commission to appeals
    from the electricity industry. However, this system has no relationship to
    the economic benefit of the federal lands used to produce hydropower.

    The annual charges FERC currently collects for the use of federal lands
    are significantly less than the fair market value of these lands,
    according to our analysis of a stratified random sample of 24 hydropower
    projects that use federal lands. On the basis of this analysis, FERC is
    receiving less than 2 percent of the fair market value for the use of
    these lands. In total, the estimated fair market value of the land used by
    our sample of projects is at least $157 million annually and, under some
    market conditions, the value of these lands is worth hundreds of millions
    more. In comparison, FERC collected about $2.7 million in annual charges
    from the 24 sample projects in 2002.

    One option would be for Congress to direct FERC to develop new strategies
    for assessing annual charges for the use of federal lands that are
    proportionate with the benefits conveyed to hydropower project owners. If
    FERC decides to collect annual charges that more closely reflect the fair
    market value of federal lands, it would need to take into account the
    Federal Power Act's requirement to seek to avoid unreasonable rate
    increases to consumers, and the act's goal of encouraging the development
    of hydropower.

    CBO agrees that this option would result in budgetary savings, but it
    could not develop a savings estimate.

    Related GAO Product

    Federal Energy Regulatory Commission: Charges for Hydropower Projects' Use
    of Federal Lands Need to Be Reassessed. GAO-03-383. Washington, D.C.: May
    20, 2003.

    GAO Contact

    Barry T. Hill, (202) 512-3841

    Tax Interest Earned on Life Insurance Policies and Deferred Annuities

    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. Investment income from annuities
    purchased as part of a qualified individual retirement account would be
    tax-deferred until benefits were paid.

    JCT estimated the following revenues, effective the taxable years after
    December 31, 2004.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    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

    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.

    JCT made the following revenue estimates, effective the date of enactment.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    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 Individual Tax Exclusions for Employer-Paid Health Insurance

    The current tax treatment of health insurance 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 self-employed 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.

    JCT agrees that the option has the potential for increased revenue, but an
    estimate is not available.

    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

    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 for
    transportation. 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. (As of 2002, alcohol fuels still accounted for
    less than 1 percent of U.S. energy consumption for transportation.) 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.

    JCT estimated the following revenues, effective January 1, 2005.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    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

    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.

    JCT made the following revenue estimates, for beverages and tobacco
    removed after December 31, 2004.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    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

    Require Corporate Tax Document Matching

    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.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    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

    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 state governments that 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. JCT agrees
    that the option has the potential for increased revenue, but it cannot be
    estimated without additional specification.

    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.

    JCT made the following revenue estimates, effective for rebates issued
    after December 31, 2004, and amounts reported on tax bills after December
    31, 2005.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    aGain of less than $50 million.

    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 Filing of Returns by U.S. Citizens Living Abroad

    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.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    Related GAO Products

    Tax Administration: Nonfiling Among U.S. Citizens Abroad. GAO/GGD-98-106.
    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

    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.

    Since the enactment of the IRS Restructuring and Reform Act of 1998
    (Restructuring Act), IRS's use of seizure authority has declined. In
    fiscal year 1997, IRS carried out 10,090 seizures compared to only 399 in
    fiscal year 2003. At this greatly reduced level of seizures, IRS is at
    risk of foregoing the collection of millions of dollars as indicated in
    our 1999 report. We reported that, 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.

    Our 2002 survey of IRS employees showed that nearly two-thirds of those
    who collect tax debts said that their likelihood of recommending a seizure
    of a taxpayer's assets had decreased due to concerns about the
    Restructuring Act's requirements. According to an IRS official in 2003,
    the level of seizures is expected to remain substantially below the level
    before the Restructuring Act 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, and (3) increased time available to taxpayers to
    exercise rights to challenge seizures.

    At the greatly reduced level of seizures that IRS has implemented since
    1997, it is at risk of foregoing the collection of millions of dollars.
    Although it may not be necessary to revert back to the 1997 levels, the
    Congress may want to ask IRS whether it is making full appropriate use of
    its seizure authority.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    Related GAO Products

    Tax Administration: IRS and TIGTA Should Evaluate Their Processing of
    Employee Misconduct under Section 1203. GAO-03-394. Washington, D.C.:
    February 14, 2003.

    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 Self-employment Taxes

    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
    self-employment 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.

    JCT cannot estimate the revenue effect of this option without additional
    specification.

    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

    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 April
    2003, IRS had about 251,000 installment agreements outstanding, worth
    about $2.3 billion. At the end of fiscal year 2000, approximately 35
    percent of such 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.

    JCT cannot estimate the revenue effect of this option without additional
    specification.

    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

    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.

    JCT made the following revenue estimates, effective January 1, 2005.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    aGain of less than $50 million.

    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

    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.

    While there have been various proposals on clarifying the definition of
    independent contractors and improving related information reporting, as
    well as various congressional hearings that have dealt with some of these
    bills, there remain opportunities for change. One option the Congress may
    consider is to require the IRS clarify the definition of independent
    contractors and extend information reporting requirements for
    unincorporated independent contractors to incorporated ones. We believe
    that revenues from this option could possibly increase by billions of
    dollars.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    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

    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 match 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.

    JCT estimates the following revenue for contracts entered into or after
    December 31, 2004.

    Source: Joint Committee on Taxation.

    Note: JCT provided its revenue estimates in billions of dollars.

    aGain of less than $50 million.

    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

    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
    because of expected impact on workload. The sooner IRS unblocks these
    accounts, the more likely it is to collect the delinquent taxes.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    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

    Increase Penalties and Consistency of Disclosure for Abusive Tax Shelters

    Abusive tax shelters tend to be very complicated transactions promoted to
    corporations and wealthy individuals to exploit tax loopholes by providing
    these taxpayers with large, unintended tax benefits designed to lower
    their overall tax bills. By their nature, abusive tax shelters are varied,
    complex, and difficult to detect and measure.

    Recently, Internal Revenue Service (IRS) has been giving abusive tax
    shelters substantially increased attention. IRS's strategy for combating
    the use of abusive tax shelters includes assessing penalties and requiring
    taxpayers to disclose information about their use of abusive transactions.
    IRS has data that suggest the tax loss to be in the tens of billions of
    dollars. As of September 2003, an IRS database of tax avoidance
    transactions contained information estimating a tax loss of $33 billion,
    the majority of which concentrated from tax year 1993 to the present.

    Measures such as increased penalties and consistency of disclosure could
    possibly reduce the use of abusive shelters and the resulting loss of tax
    revenues. In 2002, the Treasury Department developed an enforcement
    proposal to increase penalties and uniformity of disclosure for taxpayers
    and promoters of abusive tax shelters. Similar enforcement measures are
    contained in the President's FY 2005 budget proposal, which has provisions
    for expanded penalties and more uniform disclosure rules for taxpayers and
    promoters involved in abusive tax shelters.

    Congress has considered various options for expanding abusive shelter
    penalties including the Treasury proposal. To reduce the use of abusive
    shelters and the loss of tax revenues, one option the Congress may want to
    consider is enacting legislation to expand penalties and make disclosure
    more uniform for taxpayers and promoters of abusive tax shelters.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without more specifics of penalties and disclosures to
    be required.

    Related GAO Products

    Internal Revenue Service: Challenges Remain in Combating Abusive Tax
    Schemes. GAO-04-50. Washington, D.C.: November 19, 2003.

    Internal Revenue Service: Challenges Remain in Combating Abusive Tax
    Shelters. GAO-04-104T. Washington, D.C.: October 21, 2003.

    Internal Revenue Service: Efforts to Identify and Combat Abusive Tax
    Schemes Have Increased, but Challenges Remain. GAO-02-733. Washington,
    D.C.: May 22, 2002.

    GAO Contact

    Michael Brostek, (202) 512-9110

    Authorize IRS to Use Private Collection Agencies to Collect Certain
    Delinquent Taxes

    The Department of the Treasury has proposed that Congress authorize the
    Internal Revenue Service (IRS) to contract with private collection
    agencies (PCA) to help collect the growing inventory of tax debts.
    According to IRS, as of May 2003, the total amount of outstanding tax
    liabilities was $283.5 billion, of which IRS believes $85.4 billion has a
    realistic possibility of being collected. Treasury and IRS have identified
    a portion-as much as 25 percent of the $85.4 billion-as potentially being
    eligible for referral to PCAs. In addition, IRS is continuing to assess
    the inventory of outstanding tax liabilities to determine whether
    additional amounts may be appropriate for referral to PCAs.

    In pursing the private collection of tax debts, IRS would have to address
    certain important issues, including selecting cases appropriate for PCAs
    and assuring the protection of taxpayer rights. IRS's 1996-1997 pilot
    program using private collection agencies showed that various challenges
    must be overcome to assure the success of such a program. As of January
    2004, IRS has taken a number of steps to address critical success factors
    for this proposed program. For example, IRS has (1) developed program
    performance measures and goals, (2) been planning to implement a computer
    system to transmit data to PCAs, (3) been developing a method to select
    PCA cases based on collection potential, and (4) written draft contract
    provisions to govern the security of taxpayer data and PCAs' interactions
    with taxpayers.

    The proposal would allow IRS to pay PCAs from money collected. According
    to Treasury, using PCAs would yield $1.5 billion over 10 years. One option
    the Congress may wish to consider is allowing IRS to contract with private
    collection companies to collect delinquent taxes.

    JCT agrees that the option has the potential for increased revenue, but it
    cannot be estimated without additional specification.

    Related GAO Product

    Compliance and Collections: Challenges for IRS in Reversing Trends and
    Implementing New Initiatives. GAO-03-732T. Washington, D.C.: May 7, 2003.

    GAO Contact

    Michael Brostek, (202) 512-9110

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