Information Policy: NTIS' Financial Position Provides an Opportunity to
Reassess Its Mission (Letter Report, 06/30/2000, GAO/GGD-00-147).
Pursuant to a legislative requirement, GAO reviewed the National
Technical Information Service's (NTIS) financial position, focusing on
whether: (1) NTIS can continue to be self-sufficient and, if not, what
issues need to be addressed; and (2) NTIS' World News Connection's (WNC)
online foreign news service exceeds NTIS' statutory authority to the
detriment of private firms offering similar news services.
GAO noted that: (1) NTIS may be able to remain self-sufficient for a few
years, but its solvency beyond fiscal year (FY) 2003 remains in doubt;
(2) solvency for a few years may be possible because the Department of
Commerce and NTIS officials acted in FY 1999 to reduce costs when it
appeared there would not be sufficient funds to operate; (3) for
example, Commerce officials transferred 45 NTIS employees to other
agencies within the department; (4) these actions allowed NTIS to report
a $600,000 profit in FY 1999, and NTIS officials project an estimated $1
million in profit for FY 2000; (5) however, NTIS' solvency beyond FY
2003 is in doubt based on GAO's forecast of NTIS' revenues and costs
that suggests that losses will begin in FY 2001 and continue; (6) if
these losses are realized, retained earnings from previous years'
operations could be absorbed, and NTIS could run out of operating funds
after FY 2003; (7) however, if any of three events not included in GAO's
financial analysis occur, they could cause financial reversals that
would threaten NTIS' self-sufficiency before FY 2003; (8) the 5-year
decline in NTIS' revenues from selling reports may accelerate, as larger
segments of the public gain access to the World Wide Web and as more
agencies make their research reports available for free over the Web;
(9) NTIS' costs may increase faster than accounted for in GAO's
financial analysis because NTIS officials say they have nearly exhausted
their plans to reduce costs; (10) the fees that federal agencies pay
NTIS for various brokerage and Web services may begin to decline rapidly
if agencies decide to obtain those services elsewhere because of an
announced plan to close NTIS or for other reasons; (11) because of NTIS'
precarious financial position, policymakers may want to address the
question of whether the government still needs NTIS (or another agency)
to serve as a permanent repository and disseminator for research
reports; (12) to help in this reassessment, congressional committees
could benefit from the annual financial and operational reports on NTIS
that Commerce is required to submit to Congress but has not submitted
since FY 1995; (13) WNC's foreign news service falls within NTIS'
statutory mission to disseminate technical information; and (14)
nevertheless, WNC's service may have a detrimental impact on private
sector firms that offer similar electronic news services because NTIS
does not pay to obtain or translate the foreign news, or pay taxes as
private firms do.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-00-147
TITLE: Information Policy: NTIS' Financial Position Provides an
Opportunity to Reassess Its Mission
DATE: 06/30/2000
SUBJECT: Program graduation
Financial analysis
Research reports
Competitive advantage
Electronic publishing
Government information dissemination
Private sector
Statutory law
IDENTIFIER: NTIS World News Connection
World Wide Web
GPO Depository Library Program
Federal Employees Retirement System
Civil Service Retirement System
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GAO/GGD-00-147
United States General Accounting Office
GAO
Report to Congressional Committees
June 2000
GAO/GGD-00-147
INFORMATION POLICY
NTIS' Financial Position Provides an Opportunity
to Reassess Its Mission
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Contents
Page 201 GAO/GGD-00-147 NTIS' Financial Position
Letter 1
Appendix I 22
GAO Analysis of NTIS'
Financial Position
Appendix II 23
Comments from the
Department of Commerce
Appendix III 25
GAO Contacts and Staff
Acknowledgments
Tables Table I.1: Simple Revenue, Cost, and 22
Net Profit or Loss Trend Forecasts,
2001-2004
Abbreviations
CIA Central Intelligence Agency
EPA Environmental Protection Agency
FBIS Foreign Broadcast Information Service
GPO Government Printing Office
IRS Internal Revenue Service
NCLIS National Commission on Libraries and
Information Science
NTIS National Technical Information Service
WNC World News Connection
B-284351
Page 9 GAO/GGD-00-147 NTIS' Financial Position
B-284351
June 30, 2000
Congressional Committees
This report responds to the requirement in Senate
Report 106-76 that we examine an issue involving
the Department of Commerce's National Technical
Information Service (NTIS). NTIS is a permanent
repository and principal disseminator for
scientific, technical, and engineering information
(hereafter referred to as research). As agreed
with your offices, this report also responds to
broader NTIS issues of concern to the Senate
Committee on Commerce, Science, and Transportation
and the House Committee on Science.
NTIS' World News Connection (WNC) operates an on-
line foreign news service that disseminates to the
public, for a fee, news obtained from the Central
Intelligence Agency's (CIA) Foreign Broadcast
Information Service (FBIS). The Senate Report
asked us to determine whether WNC's foreign news
service (1) falls within NTIS' statutory authority
and (2) is detrimental to private businesses that
offer similar news services.
For over 55 years, NTIS (or its predecessor
agency) has collected and disseminated agencies'
research reports to the public. However, during
the late 1990s, the agencies increasingly began
making many of their research reports available to
the public for free through the World Wide Web.
This contributed to a decline in NTIS' revenues
from the sale of these reports.
This decline in sales is a serious problem for
NTIS because its enabling legislation requires
that to the fullest extent feasible, all of the
services and functions provided by NTIS be self-
sustaining.1 In August 1999, Secretary of Commerce
Daley proposed to close NTIS by September 2000
because he believed that declining sales revenues
soon would not be sufficient to recover all of
NTIS' operating costs. He also proposed
transferring NTIS' research report archives to the
Library of Congress and requiring federal agencies
to give the public free on-line access to new
research reports. Commerce's draft legislation to
close NTIS has not been introduced in Congress.
Our objectives were to (1) determine whether NTIS
can continue to be self-sufficient and, if not,
what issues need to be addressed; and (2)
determine whether WNC's on-line foreign news
service exceeds NTIS' statutory authority to the
detriment of private firms offering similar news
services.
Results in Brief
NTIS may be able to remain self-sufficient (or
solvent) for a few years, but its solvency beyond
fiscal year 2003 remains in doubt. Solvency for a
few years may be possible because Commerce and
NTIS officials acted in fiscal year 1999 to reduce
costs when it appeared there would not be
sufficient funds to operate. For example, Commerce
officials transferred 45 NTIS employees to other
agencies within the department. These actions
allowed NTIS to report a $600,000 profit in fiscal
year 1999, and NTIS officials project an estimated
$1 million profit for fiscal year 2000. However,
NTIS' solvency beyond fiscal year 2003 is in doubt
based on our forecast of NTIS' revenues and costs
that suggests that losses will begin in fiscal
year 2001 and continue. If these losses are
realized, retained earnings from previous years'
operations could be absorbed, and NTIS could run
out of operating funds after fiscal year 2003.
However, if any of three events not included in
our financial analysis occur, they could cause
financial reversals that would threaten NTIS' self-
sufficiency before fiscal year 2003. First, the 5-
year decline in NTIS' revenues from selling
reports may accelerate, as larger segments of the
public gain access to the Web and as more agencies
make their research reports available for free
over the Web. For example, Congress recently
appropriated $250,000 for the Department of
Transportation to give the public free on-line Web
access to more than 400,000 research reports.
Second, NTIS' costs may increase faster than
accounted for in our financial analysis because
NTIS officials say they have nearly exhausted
their plans to reduce costs. Third, the fees that
federal agencies pay NTIS for various brokerage
and Web services ($12.4 million, or 37 percent of
NTIS' total fiscal year 1999 revenue of $33.3
million) may begin to decline rapidly if agencies
decide to obtain those services elsewhere because
of the Secretary's announced plan to close NTIS or
for other reasons. For example, 11 percent of
NTIS' total revenues came from fees it charges the
Internal Revenue Service (IRS) to host that
agency's Web page and for other services. IRS
asked the Secretary of Commerce in May 2000 for
assurance that NTIS would continue to provide IRS
with services through fiscal year 2001.
Because of NTIS' precarious financial position,
policymakers may want to address the question of
whether the government still needs NTIS (or
another agency) to serve as a permanent repository
and disseminator for research reports. To help in
this reassessment, congressional committees could
benefit from the annual financial and operational
reports on NTIS that Commerce is required to
submit to Congress but has not submitted since
fiscal year 1995.
Regarding our second objective, WNC's foreign news
service falls within NTIS' statutory mission to
disseminate technical information. Nevertheless,
WNC's service may have a detrimental impact on
private sector firms that offer similar electronic
news services because NTIS does not pay to obtain
or translate the foreign news, or pay taxes, as
private firms do.
Although NTIS is still solvent, we suggest that
Congress consider whether and how NTIS' mission
should be carried out in the future. In addition,
we are recommending that the Secretary of Commerce
resume submitting the required annual reports to
the appropriate congressional committees to help
keep them fully informed on NTIS' operations and
financial condition. Commerce agreed that Congress
should review NTIS' mission and said it would work
to ensure that Congress receives all of the
relevant information.
Background
Since 1945, NTIS (or its predecessor agency) has
served as a permanent repository and principal
disseminator for scientific, technical, and
engineering information that is useful to American
business, industry, and the public. NTIS acquires
its information primarily from federal agencies
and their contractors and grantees, as well as
from international sources. Its collection
includes about 3 million titles.
Customers learn of the availability of NTIS
information through a variety of publications,
searches of major commercial information brokers,
and the NTIS bibliographic database in FedWorld.2
According to NTIS officials, NTIS classifies,
maintains, and disseminates information in the
formats most useful to customers; develops
electronic and other new methods and media for
information dissemination; provides information
processing services to other federal agencies; and
charges fees for its products and services that
recover its operating costs.
In addition to selling research reports, NTIS
offers various services to other federal agencies
that account for a significant portion of its
total revenues. For example, NTIS' FedWorld
provides agencies an on-line information network
that enables agencies to meet their information
dissemination obligations. Also, the systems,
equipment, financial structure, and specialized
staff skills used in the clearinghouse program
allow NTIS to offer production and dissemination
services to other agencies and provide them with
brokerage (billing, collection, and financial
management) services.
Although NTIS' enabling legislation intended that
to the fullest extent feasible, all the services
and functions provided by NTIS would be self-
sustaining, NTIS received annual appropriations
from its inception in 1945 through 1987. In 1988
Congress enacted legislation-the National
Technical Information Act3 - that expanded NTIS'
authority to, among other things, enter into
contracts, cooperative agreements, joint ventures,
and other transactions with private firms; and
make its bibliographic information products
(catalogs, abstracts, etc.) available to the
Government Printing Office's (GPO) Depository
Library Program. In 1992, legislation was enacted
to establish the National Technical Information
Service Revolving Fund.4 This legislation
provided that without further appropriations, all
expenses NTIS incurs shall be paid from the fund.
From fiscal years 1988 through 1994, NTIS showed a
net profit in all years except 1 and generated a
cumulative net profit of $5.8 million. However,
over the next 5-year period of fiscal years 1995
through 1999, NTIS had a cumulative net loss of
about $4.2 million. Revenue declined 3 percent
during this period, decreasing from $34.3 million
to $33.3 million; sales of research reports
declined 28 percent from about 1.8 million to 1.3
million. Over this same period, the number of
reports that NTIS obtained from agencies declined
by 51 percent, from 104,000 to 51,000. In fiscal
year 1998, NTIS lost $1.3 million. Through some
cost reduction initiatives, such as reducing staff
from 337 at the end of fiscal year1998 to 255 at
the end of fiscal year 1999, NTIS rebounded in
fiscal year 1999 and showed a profit of $600,000.
According to NTIS' 1999-2003 Strategic Plan, the
decline in sales revenue that began in 1995 can be
attributed, at least in part, to the explosive
growth of the World Wide Web. Agencies made
greater use of the Web to disseminate their
reports, and some customers may have expected that
federal information was free or inexpensive from
the Web. This may have affected what people were
willing to pay NTIS for the same reports. Also, as
more information became available for free on the
Web, customers abandoned the information brokers
that paid fees to NTIS for access to NTIS'
database of reports. According to NTIS' strategic
plan, this resulted in the loss of potential sales
as well as reduced revenues from fees.
In order for Congress to provide oversight of
NTIS' financial condition, the Secretary of
Commerce and the NTIS Director are required to
keep the appropriate committees of Congress fully
and currently informed about all activities
related to the performance of NTIS, including
changes in fee policies. Section 3704b(f)(3) of
Title 15 of the U.S. Code requires that the
Secretary submit an annual report to Congress
that, among other things, summarizes the
operations of NTIS during the preceding year,
including financial details and staff levels
broken down by major activities, and discusses its
operating plan for the upcoming year.
As discussed previously, WNC is an on-line
electronic foreign news service that is accessible
via NTIS' World Wide Web page. WNC receives
foreign news from the CIA's FBIS, which collects
this information from foreign newspapers,
conference proceedings, television and radio
broadcasts, periodicals, and nonclassified
reports. FBIS translates the news into English if
necessary and provides it daily to WNC in an
electronic format without charge. WNC updates this
information on-line daily, so it is usually
available for sale to the public within 48 to 72
hours after the original publication or broadcast
appeared in the foreign media. NTIS is responsible
for resolving any copyright complaints resulting
from its dissemination of FBIS information. From
1974 to 1996, NTIS sold the foreign information in
paper form but no longer does.
Scope and Methodology
To evaluate whether NTIS can continue to be self-
sufficient and, if not, what issues need to be
addressed, we analyzed NTIS' audited financial
data for fiscal years 1991 through 1999.5 We used
the simple trend forecasting method to forecast
NTIS' costs and revenues through fiscal year 2004.
Forecasting methods use data about past history to
develop models to predict the future. If trends
for the future do not follow what occurred in the
past, then the future predictions will be
inaccurate. To perform this analysis, we assumed
that future costs and revenues would change at a
rate approximately equal to NTIS' historical 8-
year average. (See app. I for more detail on our
forecast and the results.) To determine when NTIS'
retained earnings would be depleted, we compared
our projected losses for NTIS to NTIS' projected
retained earnings at the end of fiscal year 2000.
In addition to this analysis, we interviewed NTIS
and Commerce officials, as well as officials from
agencies that paid NTIS at least $140,000 in fees
in fiscal year 1999 for various services that NTIS
provided. These interviews were to determine if
agencies had contingency plans to find a
source-other than NTIS- as a result of Commerce's
announced plan to close NTIS. We also monitored a
study by the National Commission on Libraries and
Information Science (NCLIS)6 on alternatives to
NTIS operating the repository.
To determine whether WNC's on-line foreign news
service exceeds NTIS' statutory authority to the
detriment of private firms offering similar news
services, we interviewed NTIS, Commerce, and FBIS
officials; reviewed various federal laws and
accounting rules and regulations; obtained NTIS'
audited financial documentation on amounts of
retirement contributions, taxes, etc. paid; and
contacted private sector firms considered to be
competitors of WNC to determine how their foreign
news services and prices compared to WNC's
services. We also determined how WNC sets prices
for its products.
We conducted our work between September 1999 and
June 2000 in accordance with generally accepted
government auditing standards. On June 8, 2000, we
provided a draft of this report to the Secretary
of Commerce for review and comment. The
Secretary's comments are discussed at the end of
this letter and reprinted in appendix II.
NTIS May Be Able to Remain Self-Sufficient for a
Few Years, but Future Solvency Is in Doubt
NTIS may be able to remain self-sufficient (or
solvent) for a few years, but its solvency beyond
fiscal year 2003 remains in doubt, particularly if
it experiences one or more potential financial
reversals. Solvency through fiscal year 2003 may
be possible because Commerce and NTIS officials
acted in fiscal year 1999 to reduce costs when it
appeared there would not be sufficient funds to
operate. Commerce and NTIS officials transferred
45 NTIS employees to other agencies within the
department, implemented an NTIS hiring freeze,
consolidated NTIS operations into 1 building, and
canceled NTIS staff bonuses and awards. These
actions allowed NTIS to report a $600,000 profit
in fiscal year 1999, and NTIS officials project an
estimated $1 million profit for fiscal year 2000.
However, based on our forecast of NTIS' revenues
and costs that suggests that losses will begin in
fiscal year 2001 and continue through fiscal year
2004, NTIS' solvency beyond fiscal year 2003 is in
doubt. If these losses are realized, nearly all
the funds in retained earnings from previous
years' operations could be absorbed, and NTIS
could run out of operating funds after fiscal year
2003. Our forecast, which incorporated some
financial data not available to the Secretary when
he proposed in August 1999 to close NTIS by
September 2000, generally supports the Secretary's
view of the viability of NTIS.
Financial Statement Audit Report Cites NTIS Profit
in Fiscal Year 1999
The fiscal year 1999 financial statement audit
report showed significant cost reductions and
areas where revenues increased. This report noted
several positive developments that occurred during
the year:
� NTIS made a $600,000 profit in 1999, after
reporting losses the 2 previous years.
� NTIS' brokerage services for agencies
recorded their fifth consecutive year of profits,
and profits were at the highest levels in fiscal
year 1999.
� NTIS had seven new FedWorld projects that
generated almost $300,000.
Not all of the report's findings were positive,
however. For example:
� NTIS' total revenue declined $3.4 million.
� The number of research reports that NTIS
acquired from agencies for sale to the public
declined significantly.
� The number of paper copies of reports sold
declined 4.6 percent.
NTIS Management Forecasts $1 Million Profit in
Fiscal Year 2000
In April 2000, NTIS' Deputy Director and former
Chief Financial Officer told us that the agency is
estimating about $1 million profit in fiscal year
2000 and that the agency should be able to remain
self-sufficient in the near future. However,
without any appropriated funds, he said that NTIS
would not be able to invest adequately in
technology, products, and services to position
itself in the marketplace to serve its customers,
safeguard its collection of reports, and maximize
the public's investment in research. He added: "In
short, we can survive-but we cannot operate as all
similar organizations do by building upon the
rapid technological change that is now occurring."
Financial Forecast Suggests That Retained Earnings
Are Sufficient to Absorb Losses for 3 Additional
Years
Our analysis of NTIS' financial data suggests that
it has sufficient funds in retained earnings from
previous years' operations to absorb estimated
future losses and remain self-sufficient through
fiscal year 2003-barring any financial reversals.
This statistical analysis used NTIS financial data
as of September 30, 1999, and assumes that
revenues and costs would change at a rate
approximately equal to NTIS' historical 8-year
average.
The financial statement audit report for fiscal
year 1999 cited about $1.63 million in retained
earnings. If the agency realizes its projected $1
million profit for fiscal year 2000, total
retained earnings would be about $2.63 million as
of September 30, 2000.
Our forecast of NTIS' costs and revenues suggests
these retained earnings would be sufficient to
continue operations through the end of fiscal year
2003 if past cost and revenue trends continue.
According to our forecast, the agency's losses
could exceed the funds it has available in
retained earnings in the middle of fiscal year
2004. Specifically, the forecast shows losses of
$0.2 million in fiscal year 2001, $0.6 million in
fiscal year 2002, $1.0 million in fiscal year
2003, and $1.4 million in fiscal year 2004. In
sum, we estimate a total of $3.2 million in losses
for the 4 fiscal years starting in fiscal year
2001-more than the projected $2.63 million in
retained earnings available to absorb these
losses. Our forecast can be found in appendix I.
However, NTIS' costs may increase or revenues
decrease faster than accounted for in our forecast
for various reasons. If this occurs, losses could
increase significantly beyond those in our
forecast and absorb all of NTIS' $2.63 million in
retained earnings earlier than fiscal year 2003.
Financial Reversal Could Affect Forecast
Three events not included in our forecast could,
if they occur, lead to financial reversals that
could threaten NTIS' self-sufficiency before
fiscal year 2003.7
First, the 5-year decline in NTIS' revenues from
selling reports might accelerate, as larger
segments of the public gain access to the Web and
as more agencies make their research reports
available for free over the Web. For example,
Congress recently appropriated $250,000 for the
Department of Transportation to give the public
free on-line Web access to more than 400,000
research reports.
In addition, Congress appropriates about $25
million annually to GPO for its free dissemination
of agency and congressional reports to the
nation's 1,400 depository libraries. Other
agencies, including us, disseminate free copies of
their reports over the Web. A search of NTIS'
report database revealed a December 1997 report of
ours that NTIS is selling for $27 ($12 for
microfiche), plus the $5 per order handling fee.
That same report is available for free from our
Web page, or the public can order one paper copy
for free. Other examples of agency Web pages
offering free copies of research reports are
discussed below.
� The public can visit the Environmental
Protection Agency's (EPA) Web site to order one
free paper copy of each publication listed until
supplies are exhausted, then customers can order
them for a fee from NTIS or the Educational
Resources Information Center. One particular 1989
EPA document could not be found in the EPA
database; however, it was available from NTIS for
$28.50 (or $15 on microfiche), plus a $5 handling
fee per order. This is also an example of how NTIS
provides the public with permanent public access
to research reports that may not be available on
agencies' Web pages.
� The public can visit the Department of
Agriculture's Economic Research Service Web site,
which gives the public free access to electronic
copies of selected reports, but it notes that
reports issued before 1989 may not be available.
Second, as previously discussed, NTIS' costs may
increase faster than accounted for in our
forecast. NTIS officials told us that (1) the
recent reductions in NTIS' staff and
office/warehouse expenses have nearly exhausted
their options for lowering costs; (2) actions
taken to reduce costs may harm the agency's future
capacity to service its existing customers and
keep up with technology (possibly reducing
revenue); and (3) higher than average cost
increases are possible in payroll, rent, and other
items in future years. As an example of how costs
may increase faster than our projections, which
used data through fiscal year 1999, NTIS officials
told us that their fiscal year 2001 projected
savings in rent from consolidating buildings will
not be realized for various reasons and that it is
possible rent will actually increase over previous
years' costs. If so, NTIS may run out of operating
funds sooner than forecast unless additional
sources of revenue or other cost reductions are
found.
Third, the fees that federal agencies pay NTIS for
various services-FedWorld and production and
brokerage services-may begin to decline rapidly if
agencies decide to obtain those services
elsewhere, possibly because of the Secretary's
announced plan to close NTIS. In fiscal year 1999,
these fees of $12.4 million represented more than
one-third of NTIS' total revenues of $33.3
million. IRS alone paid NTIS $3.5 million (or 11
percent of NTIS' total revenues) to host its Web
page and for other services.
The loss of a major customer like IRS could
adversely affect NTIS' financial condition.
Therefore, we contacted the top nine agency
customers of NTIS for FedWorld and production and
brokerage services for fiscal year 1999-all of
whom paid at least $140,000 or more in fees. The
agencies were generally very satisfied with NTIS'
services and prices and did not want to see NTIS
close. Of the nine, one agency told us it was
actively looking for an alternative to NTIS-and
that was due to the prices that NTIS charges the
public for its products. All of the agencies had
heard of the proposed closure of NTIS, and a few
were making contingency plans in case NTIS does
close. For example, on May 18, 2000, the IRS
Commissioner sent a letter to Commerce requesting
assurance that NTIS would continue to provide IRS
with services through fiscal year 2001. As of May
25, 2000, the Secretary had not responded.
Annual Financial and Operational Reports Could
Help Congress Make Policy and Funding Decisions
Given NTIS' uncertain financial future, Congress
could benefit from detailed information on NTIS'
operations that would highlight potential problem
areas and plans for the future. Commerce is
currently required by Section 3704b(f)(3) of Title
15 of the U.S. Code to provide this type of
information to Congress annually. The required
reports to Congress are to contain a summary of
NTIS operations for the year, including financial
details and staff levels by major activities; a
detailed operating plan; details of modernization
progress and long-term plans; and the results of
the most recent annual audit by independent
auditors. According to NTIS officials, however,
those annual reports have not been prepared since
fiscal year 1995.
NTIS officials told us that they stopped providing
this annual report because they believed the
information was being given to Congress in other
formats, specifically the annual financial
statement audits. However, according to Commerce's
Office of the Inspector General, these audits -
which contain only some of the required
information - are not routinely provided to
Congress. Also, even though Commerce provides some
information about NTIS' operations in the reports
required by the Government Performance and Results
Act, the information is not detailed enough to
assist policymakers considering the future of
NTIS. For example, in its first Annual Program
Performance Report for fiscal year 1999, Commerce
stated that the goal for NTIS was to "collect,
preserve, and disseminate government scientific,
technical, and business-related information." The
measures for performance were "number of items in
archive," which it met; and "documents reproduced
from electronic media," which it exceeded.
Policymakers May Want to Debate Whether a Central
Repository Is Still Needed and How It Should Be
Funded
Although NTIS may be able to remain solvent
for a few years, our analyses suggest that
solvency beyond fiscal year 2003 remains in doubt.
Consequently, NTIS would have to significantly
increase revenues beyond what we project or make
even more cost reductions in order to survive
without appropriations. Also, according to NTIS'
Deputy Director, without appropriations, NTIS will
not be able to adequately invest in technology and
other improvements necessary to serve its
customers and safeguard its collection. Thus, at
some point in the not too distant future, it may
not be possible for NTIS to continue serving as a
self-sufficient permanent repository and principal
disseminator for agency reports.
The precarious nature of NTIS' financial
condition means that policymakers may soon want to
consider whether and, if so, how NTIS' statutory
mission should continue to be carried out and
funded. Among the questions to be considered are:
� Should the policy of permanently retaining
and disseminating federal research results be
continued?
� If that policy is continued, should permanent
retention be the responsibility of a single entity
or the individual agencies?
� Should NTIS continue to serve as a
disseminator of federal research; if so, should it
continue to do so on a self-sustaining basis?
After the Secretary's proposal to close NTIS was
announced, NCLIS began a study to evaluate the
pros and cons of various other agencies performing
the NTIS repository function. On March 16, 2000,
NCLIS released a preliminary assessment outlining
eight alternatives and recommended that Congress
appropriate funds to NTIS to continue operations
while NCLIS completes its study-expected to take
18 months. It should be noted that the Library of
Congress, GPO, and the National Archives and
Records Administration - potential alternatives to
NTIS that NCLIS is considering as permanent
repositories-all indicated that additional
appropriations would be required for them to take
over NTIS' mission. The results of NCLIS' study
may be useful if Congress decides that a permanent
repository for reports is still needed.
The circumstances leading to NTIS' current
situation are part of a broader set of
circumstances that have affected all aspects of
how the federal government collects, stores, and
disseminates information. Technological advances,
such as the Internet, are dramatically affecting
all of these processes. Therefore, Congress is
likely to have a range of options - those
recommended by NCLIS and possibly others - to
consider in addressing whether NTIS' mission
should be abolished, altered, or otherwise carried
out more effectively.
NTIS' World News Connection Operates Within its
Statutory Mission but Has a Cost Advantage Over
Private Sector Firms
WNC's sale of foreign news to the public falls
within NTIS' statutory mission. NTIS has certain
cost and tax advantages over private sector firms
that provide similar services, which may have a
detrimental impact on those firms.
WNC Is Within NTIS' Mission
Under statutory authority enacted in 1950,8 NTIS
is directed to collect scientific, technical, and
engineering information from both domestic and
foreign sources and make it available to industry
and business, to state and local governments, to
other federal agencies, and to the general public.
The statute does not define scientific, technical,
and engineering information. However, in 1954, in
response to a request from the Secretary of
Commerce as to whether certain studies qualified
as such information, we endorsed the Secretary's
position that the statute included "all types of
information which have a more or less direct
bearing on business and industry generally."9 The
Secretary specifically described such information
as including "economic information, market
information, and related information so long as it
is reasonably specific and bears some direct
relationship to the organization and operation of
industrial or business enterprise." Our decision
stated that there was nothing in the legislative
history requiring a contrary interpretation and
pronounced the Secretary's interpretation to be
reasonable.
In 1992 Congress enacted a statute providing that
the head of each executive agency or department is
to transfer to NTIS unclassified scientific,
technical, and engineering information that
results from federally funded research and
development activities. The statute directed the
Secretary of Commerce to issue regulations
outlining procedures for the transfer of such
information to NTIS. Under the authority of that
provision the Secretary issued regulations that
define scientific, technical, and engineering as
basic and applied research that results from the
efforts of scientists and engineers in any medium
and information that bears on business and
industry generally, such as economic information,
market information, and related information.10
Commerce further clarified this definition of
technical information by stating that the term
"can embrace matters beyond the restricted field
of applied science and mechanical arts," but must
be "limited to information which has a direct
relationship to business, industry or technology."11
NTIS stated that the type of information required
by business has significantly changed since 1950
when NTIS' legislation was enacted. NTIS stated
that there is an accelerating pace of
technological change, rapid emergence and
disappearance of new products and industries, a
global outlook in terms of potential exports and
location of industrial facilities, and a need to
make rapid decisions. NTIS stated that given these
circumstances, information such as that in WNC
that can reasonably affect decisions on how to
allocate research and development resources, how
and where to organize and locate production
facilities, and how to identify market
opportunities has the direct bearing described in
our opinion. We have no basis to question NTIS'
position.
For over 20 years, NTIS sold FBIS Daily Reports to
the public in printed form. With the advent of new
technologies and demands by the public, by the end
of 1996 FBIS decided to provide its products only
in electronic form and NTIS offered them to the
public through WNC. A private sector firm that
says it competes with WNC told us its sales
revenue initially declined an estimated $500,000
to $600,000 when WNC began selling its foreign
news in electronic format. Prior to WNC being in
electronic format, that firm had provided an
electronic index of the printed FBIS Daily Reports
as a product for its customers. WNC's searchable
electronic database negated the need for such an
index. In addition to electronically disseminating
the news to the public, NTIS assumed the
responsibility of ensuring compliance with
copyright provisions.
According to NTIS officials, WNC was not a product
developed to generate additional revenues-instead,
WNC only replaced the hard copy version previously
sold by NTIS when FBIS changed the format.
Furthermore, with regard to NTIS' dissemination of
WNC in electronic format, in 1988 the National
Technical Information Act specifically directed
NTIS to "implement new methods or media for the
dissemination of scientific, technical, and
engineering information." In 1992, legislation was
enacted to amend the 1988 act by inserting
"including producing and disseminating information
products in electronic format."
WNC Has a Cost Advantage Over Private Sector Firms
NTIS officials said that WNC's prices do not
include any of the CIA's costs to acquire or
translate the news. This gives WNC a cost
advantage over private news services that must pay
to acquire and translate the news. Specifically,
it permits WNC's sales prices to be lower than its
competitors' prices. Differences in the products
that WNC and competing news services offer (e.g.,
subscription provisions, such as number of
authorized users and search capabilities) preclude
any meaningful direct price comparisons. NTIS also
has certain tax advantages as a federal entity
with regard to WNC. This WNC cost advantage allows
NTIS to set its prices at a level that may have a
detrimental impact on private sector firms
offering, or considering offering, similar
electronic news services.
Our answers to the other specific questions in
Senate Report 106-76 follow:
� Does WNC's pricing structure of news products
include a complete accounting of costs?
WNC's prices do not include the costs of
collecting and translating the information, which
are borne by the CIA. NTIS receives the daily data
file from FBIS and must delete from it those items
for which it has no copyright agreements. NTIS
then converts the file to WNC format and indexes
it for searching. Finally, NTIS prepares and E-
mails specific profiles of regions of the world to
those who ordered them.
The NTIS price for a report on the results of a
research project does not include an amount to
recover the cost of the research. Likewise, NTIS
does not attempt to recover the FBIS cost to
produce WNC through its subscription price. FBIS
collects the foreign news to fulfill its own
mission and provides it to NTIS at no cost. NTIS
does set its prices to recover its dissemination
costs, royalty costs to foreign news organizations
for use of their copyrighted material, and a share
of NTIS' overall operating costs.
� To what extent does NTIS pay federal, state,
and local taxes on its news products?
NTIS, like other federal agencies, does not pay
any federal, state, or local taxes on its news
products.12
� Does NTIS pay translation costs for
information provided by FBIS?
No. Although some foreign news media are published
in English, many others are not and need to be
translated. According to NTIS officials, FBIS'
translation of sources is being done for internal
purposes, not for WNC's benefit. For this reason,
FBIS provides the translated news to WNC at no
charge.
� Does NTIS have to pay employer's Social
Security contributions for its employees?
Like other federal agencies, NTIS is required by
law13 to make Social Security contributions for
employees hired since January 1, 1984, who are
covered under the Federal Employees Retirement
System and for those employees who transferred
from the Civil Service Retirement System to the
Federal Employees Retirement System. NTIS is also
required to make retirement contributions for
those employees covered by the Civil Service
Retirement System and for those participating in
the Thrift Savings Plan. In fiscal year 1999,
NTIS' reported pension cost for WNC employees was
$48,649.
� Are the subscription prices for NTIS products
fairly priced relative to similar products offered
by the private sector?
As previously discussed, NTIS officials said that
WNC's prices do not include any of the CIA's
estimated costs to acquire or translate the news.
Although this practice is consistent with NTIS'
enabling legislation, it gives WNC a cost
advantage over private news services that pay to
acquire and translate foreign news.
Conclusions
Although NTIS is solvent under its current
statutory framework, it is doubtful whether NTIS
can remain self-sufficient. If NTIS is no longer
able to fund its operations out of sales of
products and other services, it would have to
curtail operations unless it received additional
appropriations.
The doubt about NTIS' ability to remain
solvent suggests that Congress should consider
whether and how NTIS' statutory mission should be
carried out in the future. The increasing use made
of the Internet by federal agencies to disseminate
information and reports is a recent development
that is integrally related to NTIS' mission and
ability to remain self-sufficient. The annual
reports that the Secretary of Commerce is required
to submit under section 3704b(f)(3) of Title 15 of
the U.S. Code could provide useful information to
Congress on NTIS' evolving financial status and
any detailed operating plans that NTIS develops to
remain solvent. Costcutting initiatives have made
the short-term projections encouraging, but NTIS'
financial condition should be closely monitored to
determine if it has sufficient revenues to
continue operating in the longer term.
WNC's operations are within NTIS' statutory
mission. However, because NTIS does not pay to
acquire or translate foreign news used by WNC and
does not pay taxes on revenues generated by WNC,
WNC has a cost advantage over private sector
firms.
Matter for Congressional Consideration
While NTIS is still solvent, we believe
Congress should reassess whether NTIS should
continue to serve as a disseminator of federal
research and, if so, whether it should be required
to do so on a self-sustaining basis.
Recommendation
In order to keep the appropriate committees of
Congress fully informed about NTIS' activities and
comply with current law, we recommend that the
Secretary of Commerce submit the annual reports in
accordance with Section 3704b(f)(3) of Title 15 of
the U.S. Code.
Agency Comments and Our Evaluation
On June 8, 2000, we provided the Secretary of
Commerce with a draft of this report for comment.
We received Commerce's comments in a letter dated
June 20, 2000, which is reprinted in appendix II.
In commenting on our report, the Deputy Secretary
of Commerce said that Commerce agrees that (1)
Congress should review NTIS' mission in the age of
the Internet, (2) NTIS' insolvency may occur in
the near future, and (3) WNC is within NTIS'
statutory mission. The Deputy Secretary also
stated that NTIS, as currently structured, is not
viable.
The Deputy Secretary disagreed, however, with an
implication in the draft report that WNC had
harmed a competitor because of NTIS' advantage of
paying neither taxes nor translation costs. The
Deputy Secretary noted that the competitor's
product-an index to the printed reports-was not
comparable to WNC and became obsolete because WNC
is a searchable electronic database. We moved the
reference to a competitor losing revenue to
another section of the report so as not to imply
that any revenue loss was due to an NTIS cost
advantage. We also revised the report language to
better reflect that the need for the competitor's
index was negated after WNC was changed to
electronic form.
The Deputy Secretary agreed with our
recommendation that Congress would benefit from
annual submission of detailed information on NTIS'
operations. Although he said that the report
referred to in our recommendation and a separately
required independent financial audit are
duplicative, he also said that Commerce would work
with the Inspector General to ensure that Congress
receives a single report containing all relevant
information. We believe this action would fulfill
the intent of our recommendation.
We are sending copies of this report to the
Honorable William M. Daley, Secretary of Commerce;
and Mr. Ronald Lawson, Director of NTIS. We will
make copies available to others upon request.
Major contributors are acknowledged in appendix
III. If you have any questions, please contact me
or Alan Stapleton on (202) 512-8676.
Michael Brostek
Associate Director, Federal Management
and Workforce Issues
Report Addressees:
The Honorable John McCain, Chairman
The Honorable Ernest F. Hollings, Ranking Minority
Member
Committee on Commerce, Science, and Transportation
United States Senate
The Honorable Judd Gregg, Chairman
The Honorable Ernest F. Hollings, Ranking Minority
Member
Subcommittee on Commerce, Justice, State,
the Judiciary, and Related Agencies
Committee on Appropriations
United States Senate
The Honorable F. James Sensenbrenner, Jr.,
Chairman
The Honorable Ralph M. Hall, Ranking Minority
Member
Committee on Science
House of Representatives
_______________________________
1 15 U.S.C. 1153.
2 FedWorld is an on-line information network
system, allowing users with a computer and a modem
or Internet connection to identify and gain access
to a broad array of government information
products.
3 P.L. 100-519, October 24, 1988.
4 P.L. 102-395. October 6, 1992.
5 We excluded data for the midpoint of our series
- fiscal year 1995 -from our forecasting method
because the method required an even number of data
points.
6 NCLIS is an independent agency of the federal
government charged by P. L. 91-345 to take a
leadership position on matters pertaining to the
library and information needs of the nation and
advise the President and Congress on the
implementation of national policy.
7 Commerce officials told us that if NTIS suffers
a rapid financial decline, resources available in
retained earnings might not be sufficient to cover
all of the costs, such as those associated with a
reduction-in-force, that would be required to
close operations.
8 15 U.S.C. 1152.
9 34 Comp. Gen. 58 (1954).
10 15 C.F.R. 1180.2.
11 This regulation was discussed and endorsed as an
appropriate interpretation of the statute in Wade
v. Department of Commerce, Civil Action No. 96-
0717, (D.D.C. March 26, 1998). The Court found
that the IRS Electronic Filer Mail List that NTIS
sells to the public has a direct relationship to
business because it contains information on people
who are in the business of filing tax documents
electronically.
12 The doctrine of sovereign immunity and the
Supremacy Clause of the Constitution (Art. VI, cl.
2) combine to prohibit the states from taxing the
federal government or its activities. McCulloch v.
Maryland, 17 U.S. (4 Wheat.) 316 (1819).
13 42 U.S.C. 410.
Appendix I
GAO Analysis of NTIS' Financial Position
Page 22 GAO/GGD-00-147 NTIS' Financial Position
In our analysis of the National Technical
Information Service's (NTIS) financial position,
we used a simple trend forecasting method that
uses data about past history to predict the
future. If trends for the future do not follow
what occurred in the past, then our future
predictions for NTIS will be inaccurate.
For our simple trend analysis, we entered cost and
revenue data from fiscal years 1991 through 1999
for NTIS' three business lines combined
(Clearinghouse, FedWorld, and Production/Brokerage
Services). We excluded data for the midpoint of
our series,1995, from our forecasting method
because the method required an even number of data
points. These data show a general trend over the 9-
year period towards both higher costs and revenues
until fiscal year 1999, when costs and revenues
declined significantly. We did not include
Cyberfile costs and revenues in 1996, a one-time
project that was conducted for the Internal
Revenue Service. We also did not include cost or
revenue data for the first half of fiscal year
2000 because of concerns that such data could vary
significantly in the second half of the year.
The following table shows our simple trend
forecasts for NTIS' financial position for the
period 2001 through 2004 for (1) revenue, applying
the annual trend to the 1999 value and forward;
(2) cost, applying the annual trend to the 1999
value and forward; and (3) net (profit or loss).
The numbers may not add up due to rounding.
Table I.1: Simple Revenue, Cost, and Net Profit or
Loss Trend Forecasts, 2001-2004
Dollars in
millions
Year 2001 2002 2003 2004
Revenue $34.4 $34.9 $35.5 $36.0
Cost 34.6 35.5 36.4 37.4
Net -0.2 -0.6 -1.0 -1.4
Source: GAO analysis of NTIS' financial data.
Appendix II
Comments from the Department of Commerce
Page 24 GAO/GGD-00-147 NTIS' Financial Position
Appendix III
GAO Contacts and Staff Acknowledgments
Page 25 GAO/GGD-00-147 NTIS' Financial Position
GAO Contacts
Michael Brostek (202) 512-8676
Alan M. Stapleton (202) 512-8676
Acknowledgments
In addition to those named above, Alan N.
Belkin, Jessica A. Botsford, Michael W. Jarvis,
Larry J. Modlin, Bonita L. Mueller, Sidney H.
Schwartz, and Warren Smith made key contributions
to this report.
*** End of Document ***