    Addressing the Deficit: Budgetary Implications of Selected GAO Work
    (Letter Report, 03/14/97, GAO/OCG-97-2).

    GAO provided updated information on options that could be used to reduce
    the deficit, focusing on the budgetary implications of selected program
    reforms discussed in GAO's work but not yet implemented or enacted.

    GAO noted that: (1) clearly, Congress has many available options for
    dealing with the deficit; (2) under the Budget Enforcement Act (BEA), as
    amended, the spending and revenue options included in the report could
    be used either to reduce the deficit or to free up funds for other
    programs; (3) under the pay-as-you-go rules of BEA, savings from direct
    spending programs (entitlement and mandatory programs) or revenue
    options would reduce the deficit unless these savings were used to
    offset either direct spending program expansions or tax cuts; (4) for
    discretionary spending programs, savings from changes would contribute
    to additional deficit reduction if BEA caps on discretionary spending
    were lowered; otherwise, the savings would be available for use in other
    discretionary programs; (5) although GAO derived the options from its
    existing body of work, there are similarities with other deficit
    reduction proposals; and (6) the analytical framework for considering
    individual deficit reduction options focused on reassessing objectives,
    redefining beneficiaries, and improving efficiency.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  OCG-97-2
         TITLE:  Addressing the Deficit: Budgetary Implications of Selected
                 GAO Work
          DATE:  03/14/97
       SUBJECT:  Budget deficit
                 Deficit reduction
                 Fiscal policies
                 Budget cuts
                 Budget outlays
                 Budget administration
                 Spending legislation
                 Cost control

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    Cover
    ================================================================ COVER

    Report to the Congress

    March 1997

    ADDRESSING THE DEFICIT - BUDGETARY
    IMPLICATIONS OF SELECTED GAO WORK
    FOR FISCAL YEAR 1998

    GAO/OCG-97-2

    Addressing the Deficit

    (935213)

    Abbreviations
    =============================================================== ABBREV

      AFDC - Aid to Families With Dependent Children
      AIP - Airport Improvement Program
      AOC - Administrative Office of the U.S.  Courts
      ARS - Agricultural Research Service
      AWIPS - Advanced Weather Interactive Processing System
      BBS - broad-based, sustainable
      BEA - Budget Enforcement Act
      BLM - Bureau of Land Management
      BRAC - Base Realignment and Closure
      BUR - bottom-up review
      CBO - Congressional Budget Office
      CERCLA - Comprehensive Environmental Response, Compensation, and
         Liability Act
      CDR - continuing disability review
      CFO - Chief Financial Officer
      CHAMPUS - Civilian Health and Medical Program of the Uniformed
         Services
      COP - continuation-of-pay
      CVP - Central Valley Project
      DBOF - Defense Business Operations Fund
      DFAS - Defense Finance and Accounting Service
      DFSC - Defense Fuel Supply Center
      DI - Disability Insurance
      DLA - Defense Logistics Agency
      DOD - Department of Defense
      DOE - Department of Energy
      DOT - Department of Transportation
      DUR - drug utilization review
      EDWAA - Economic Dislocation and Worker Adjustment Assistance
      EM - Environmental Management
      EOS - Earth Observing System
      EOSDIS - Earth Observing System Data and Information System
      EPA - Environmental Protection Agency
      FAIR - Federal Agriculture Improvement and Reform Act of 1996
      FAA - Federal Aviation Administration
      FAS - Foreign Agricultural Service
      FDIC - Federal Deposit Insurance Corporation
      FDSL - Federal Direct Student Loan
      FECA - Federal Employees' Compensation Act
      FEMA - Federal Emergency Management Agency
      FFEL - Federal Family Education Loan
      FHWA - Federal Highway Administration
      FSN - foreign service national
      FY - fiscal year
      GAO - General Accounting Office
      GPS - global positioning systems
      GSA - General Services Administration
      HACCP - Hazard Analysis and Critical Control Point
      HCFA - Health Care Financing Administration
      HHS - Department of Health and Human Services
      HMO - health maintenance organization
      HPSA - Health Professional Shortage Area
      HUD - Department of Housing and Urban Development
      IDB - industrial development bond
      IFAD - International Fund for Agricultural Development
      INS - Immigration and Naturalization Service
      IRS - Internal Revenue Service
      JCS - Joint Chief of Staff
      JCT - Joint Committee on Taxation
      JFMIP - Joint Financial Management Improvement Program
      JROTC - Junior Reserve Officers' Training Corps
      JTPA - Job Training Partnership Act
      LRIP - low-rate initial production
      MAP - Military Airport Program
      MIP - Medicare Incentive Payment
      MRI - magnetic resonance imaging
      MTMC - Military Traffic Management Command
      MWR - morale, welfare, and recreation
      NASA - National Aeronautics and Space Administration
      NOAA - National Oceanic and Atmospheric Administration
      NORAD - North American Aerospace Defense Command
      NTC - non-time-critical
      NWS - National Weather Service
      OCSE - Office of Child Support Enforcement
      OMB - Office of Management and Budget
      O&M - operation and maintenance
      OST - Office of the Secretary
      OTC - over the counter
      PASS - plan for achieving self-support
      PAYGO - pay-as-you-go
      PHS - Public Health Service
      PILT - Payment in Lieu of Taxes
      PMA - Power Marketing Administration
      RHC - Rural Health Clinic
      RCRA - Resource Conservation and Recovery Act
      RFA - Radio Free Asia
      RFE/RL - Radio Free Europe/Radio Liberty
      RHS - Rural Housing Service
      RTC - Resolution Trust Corporation
      SAA - state approving agency
      SBU - strategic business unit
      SSA - Social Security Administration
      SSI - Supplemental Security Income
      SSN - nuclear-powered attack submarine
      TANF - Temporary Assistance for Needy Families
      TDY - temporary duty
      TRICARE - DOD's managed health care system
      UI - unemployment insurance
      USAID - U.S.  Agency for International Development
      USDA - U.S.  Department of Agriculture
      USIA - United States Information Agency
      USTF - Uniformed Services Treatment Facility
      USTRANSCOM - U.S.  Transportation Command
      USUHS - Uniformed Services University of the Health Sciences
      VA - Department of Veterans Affairs
      VOA - Voice of America

    Letter
    =============================================================== LETTER

    B-274810

    March 14, 1997

    To the President of the Senate and
    the Speaker of the House of Representatives

    This report is part of our continuing effort to help the Congress
    identify options that could be used to reduce the deficit.\1 It
    updates our previous work in this area with new information and
    systematically identifies in a single document the budgetary
    implications of selected program reforms discussed in our work but
    not yet implemented or enacted.  Where available, budgetary savings
    estimates provided by the Congressional Budget Office (CBO) or the
    Joint Committee on Taxation (JCT) are presented for each of the
    options.

    This year's report contains 147 options.  Nearly half of these
    options--71--are new to this year's report; the remainder are updated
    versions of options that appeared in last year's report.  To update
    last year's options, we reviewed and analyzed congressional and
    agency actions taken over the past year that affected the substantive
    content of the option and/or its likely savings.  In fact, some
    options from last year's report were not included in this year's
    report (see appendix IV) because the Congress has already addressed
    the relevant issues.  The remaining options from last year's report
    have been updated and modified to reflect recent congressional or
    agency actions.

    All of the options are based on key findings and issues developed in
    our audits and evaluations.  Some of the options reflect our
    recommendations.  Others do not, but rather represent one way to
    address, in a budgetary context, some of the significant problems
    identified in our reviews of federal programs and activities.  The
    Congress has many available options for dealing with the deficit.
    Inclusion of a specific option in this report does not mean that we
    endorse it as the only or most feasible approach, or that other
    options are not also appropriate for consideration by the Congress.\2

    This report is divided into four appendixes.  Appendix I discusses
    the conventions used to provide estimates of cost savings or
    additional revenues.  As in our previous report, appendix II provides
    for congressional consideration an analytical framework of individual
    options.  This framework provides one set of criteria that may be
    used to assess goals, scope, and approaches for delivering federal
    programs.  It is organized around the following three broad themes:

      -- reassess objectives, that is, reconsider whether to terminate or
         revise services and programs provided;

      -- redefine beneficiaries, that is, reconsider who pays for or
         benefits from a particular program; and

      -- improve efficiency, that is, reconsider how a program or service
         is provided.

    Appendix III presents narrative descriptions of the options,
    organized by budget function and receipts.  As mentioned above,
    appendix IV lists options from last year's report that were not
    updated for this year's volume.

    Although we derived the options from our existing body of work, there
    are similarities with other deficit reduction proposals.  For
    example, some options contained in this report have also been
    included in past editions of CBO's annual publication, Reducing the
    Deficit:  Spending and Revenue Options, House and Senate Budget
    Resolution proposals, and the President's annual budget submission.

    We are sending copies of this report to the appropriate congressional
    committees and every Member of the Congress.  Copies will be made
    available to others upon request.

    --------------------
    \1 See Addressing The Deficit:  Updating the Budgetary Implications
    of Selected GAO Work (GAO/OCG-96-5, June 28, 1996); Deficit
    Reduction:  Opportunities to Address Long-Standing Government
    Performance Issues (GAO/T-OCG-95-6, September 13, 1995); Addressing
    The Deficit:  Budgetary Implications of Selected GAO Work for Fiscal
    Year 1996 (GAO/OCG-95-2, March 15, 1995); and Addressing The Deficit:
    Budgetary Implications of Selected GAO Work (GAO/OCG-94-3, March 11,
    1994).

    \2 Under the Budget Enforcement Act (BEA), as amended, the spending
    and revenue options included in this report could be used either to
    reduce the deficit or to free up funds for other programs.  Under the
    pay-as-you-go (PAYGO) rules of BEA, savings from direct spending
    programs (entitlement and mandatory programs) or revenue options
    would reduce the deficit unless these savings were used to offset
    either direct spending program expansions or tax cuts.  For
    discretionary spending programs, savings from changes would
    contribute to additional deficit reduction if BEA caps on
    discretionary spending were lowered; otherwise, the savings would be
    available for use in other discretionary programs.

    ---------------------------------------------------------- Letter :0.1

    This report was prepared under the direction of Paul L.  Posner,
    Director for Budget Issues, who may be reached at (202) 512-9573.
    Specific questions about individual options may be directed to the
    GAO contact listed with each option.  Major contributors to this
    report are listed in appendix V.

    James F.  Hinchman
    Acting Comptroller General
    of the United States

    EXPLANATION OF CONVENTIONS USED TO
    ESTIMATE SAVINGS AND REVENUE GAINS
    =========================================================== Appendix I

    Cost estimates for many of our options were provided by CBO and JCT.
    As in last year's report, if specific estimates could not be
    provided, a brief explanation is included with the option.  Where
    estimates are provided, the following conventions were followed:\3

      -- For revenue estimates, the increase in collections reflects that
         which would occur, over and above that due under current law, if
         the option were enacted.

      -- 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.

      -- For nondefense discretionary spending programs, two estimates
         are provided.  One estimate is of savings compared to the actual
         fiscal year 1997 appropriations increased for projected
         inflation.  A second estimate is of savings compared to the
         fiscal year 1997 appropriations in nominal terms (held constant
         for the next 4 years).

      -- For defense discretionary spending programs, estimates are of
         savings compared to the 1997 Defense Plan that CBO uses for its
         defense discretionary estimates.  CBO uses this plan because it
         provides the programmatic detail necessary to estimate the
         effects of changes in force structures and weapons systems.

    Specific assumptions made in estimating individual options are noted
    in the option narratives in appendix III.

    Subsequent savings and revenue estimates provided by CBO and JCT may
    not match exactly those contained in this report.  Differences in the
    details of specific proposals, changes in assumptions which underlie
    the analyses, and updated baselines can all lead to significant
    differences in estimates.  Also, a few of our options--involving
    sales of real estate and other government-owned property--constitute
    asset sales.  Under the Balanced Budget and Emergency Deficit Control
    Act of 1985, as amended, proceeds from asset sales are not counted in
    determining compliance with the discretionary spending limits or
    PAYGO requirements.  In order to provide policymakers the fullest
    possible picture of the budgetary implications of our work, we have
    included those options which constitute asset sales.  They are
    clearly identified as such.

    Finally, some of the options could not be scored by CBO or JCT under
    current scorekeeping conventions.  Several of these involve
    management improvements that we believe can contribute to solving the
    deficit problem but whose effects are too indirect for estimation
    purposes.  A few options are not estimated because they concern
    future choices about spending that is not currently in the baseline
    used to calculate annual spending and revenue.  In other cases,
    savings are likely to come in years beyond the 5-year estimation
    period that CBO uses.

    --------------------
    \3 For a complete discussion of the uses and caveats of the CBO
    estimates, see CBO's August 1996 report, Reducing the Deficit:
    Spending and Revenue Options.

    A FRAMEWORK FOR DEFICIT REDUCTION
    ========================================================== Appendix II

    The history of deficit reduction efforts suggests that basing
    decisions on explicit policy rationales, rather than considering
    separate program-by-program assessments, may improve chances for
    success.  A consistent and systematic framework can be an effective
    means to formulate and package broad-based deficit reduction
    proposals.  Also, this kind of approach can be used regardless of any
    other budgetary control mechanism (for example, discretionary
    spending limits or sequestration procedures) or any given level of
    desired deficit reduction.

    GAO's deficit reduction framework consists of three broad themes:
    reassess objectives, redefine beneficiaries, and improve efficiency
    and accuracy.  These three fundamental strategies are based on an
    implicit set of decision rules that encourage decisionmakers to think
    systematically, within an ever-changing environment, about

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

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

      -- how services are or should be provided.

    By using a policy-oriented framework such as this, choices can be
    made more clearly and the results become more defensible.

       REASSESS OBJECTIVES
    -------------------------------------------------------- Appendix II:1

    The first theme within our deficit reduction framework focuses on the
    objectives for federal programs or services.  Our premise is that
    periodically reconsidering a program's original purpose, the
    conditions under which it continues to operate, and its
    cost-effectiveness, is appropriate.  Our work suggests three decision
    rules which 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 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, the Public Law 480 Title I Food Aid Program allows U.S.
    agricultural commodities to be sold to developing countries on
    long-term credit at below-market interest rates.  The current goal of
    the program is to promote U.S.  foreign policy by enhancing the food
    security of developing countries.  The program is also designed to
    expand markets for U.S.  agricultural commodities.  However, multiple
    and sometimes competing objectives, as well as contradictory program
    requirements, have hampered the program, and its contribution to
    long-term, foreign market development for U.S.  agricultural
    commodities has not been demonstrated.

       REDEFINE BENEFICIARIES
    -------------------------------------------------------- Appendix II:2

    The second theme within our deficit reduction framework focuses on
    the intended beneficiaries for federal programs or services.  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.

      -- 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.

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

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

      -- 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
    GAO's option on formula grants.

       IMPROVE EFFICIENCY
    -------------------------------------------------------- Appendix II:3

    The third theme within our deficit reduction framework addresses how
    the program or service is delivered.  This strategy suggests that
    focusing on the approach or delivery method can significantly reduce
    spending or increase collections.  Our body of work suggests five
    decision rules which illustrate this strategy.

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

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

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

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

      -- 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, GAO has identified over 150 federal
    programs and funding streams providing employment and training
    assistance.  These programs are spread across 15 departments and
    independent agencies with a total budget of about $20 billion.  Many
    of these programs have similar goals and provide the same services to
    similar populations using separate, parallel delivery structures.
    Consolidating these programs where it is appropriate can reduce
    administrative costs as well as increase efficiencies in service
    delivery.  GAO's option illustrates how opportunities to improve
    efficiency and flexibility in employment and training programs can
    provide a basis for reducing program funding.

    OPTIONS FOR DEFICIT REDUCTION
    ========================================================= Appendix III

    This appendix describes each of GAO's options for deficit reduction,
    organized by budget function and receipts.  For each option, we
    provide, when relevant, information about the authorizing committee,
    appropriations subcommittee, primary agency, budget account, spending
    type, budget subfunction, and framework theme.  We then provide a
    summary and description of budgetary implications, which is followed
    by an estimate (when available) of savings or revenue increase,
    relevant GAO reports, and a GAO contact.

       050 NATIONAL DEFENSE
    ------------------------------------------------------- Appendix III:1

      -- Defense Infrastructure Reform

      -- Fiscal Year 1998 Defense Operation and Maintenance Budget

      -- Continental Air Defense

      -- Carrier Battle Group Expansions and Upgrades

      -- Army's Comanche Helicopter Program

      -- F/A-18E/F Fighter

      -- F-22 Fighter

      -- Air Force Bomber Force Requirements

      -- Air Force Fighter Squadrons

      -- C-17 Strategic Airlift

      -- Nuclear Submarine Force Reductions

      -- Major Weapon System Warranty Law

      -- Base Alignment and Closure Accounts

      -- Defense Inventories Reform

      -- Defense Transportation Restructuring

      -- Depot Maintenance Program Excess Capacity

      -- Military Exchange Stores Consolidation

      -- Budgeted Civilian Personnel Requirements

      -- Convert Some Support Officer Positions to Civilian Status

      -- Attrition of Enlisted Personnel from the Military Services

      -- Army National Guard Divisions

      -- Junior Reserve Officers' Training Corps

      -- DOD's Acquisition Workforce

      -- DOD's Finance and Accounting Infrastructure

      -- DOD's Training Infrastructure

      -- DOD's Transportation Migration Systems

      -- DOD's Materiel Management Migration Systems

      -- DOD's Bulk Fuel Budgeting

      -- Navy Financial Management of Operating Materials and Supplies

      -- Copayments for Care in Military Treatment Facilities

      -- Administering Defense Health Care

      -- Uniformed Services University of the Health Sciences

      -- Uniformed Services Treatment Facilities

      -- Department of Energy's Procurement of Laboratory Testing
         Services

       OPTION:
       DEFENSE INFRASTRUCTURE
       REFORMDEFENSE INFRASTRUCTURE
       REFORM
    ------------------------------------------------------- Appendix III:2

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Although the Department of Defense (DOD) has in recent years
    undergone substantial downsizing in funding, personnel, and force
    structure, commensurate infrastructure support reductions have not
    been achieved.  For fiscal 1997, DOD estimates that about $152
    billion, or 60 percent of the Defense budget will still be needed for
    infrastructure requirements which include installation support,
    training, medical care, logistics, force management, acquisition
    infrastructure, and personnel.  Despite progress in reducing excess
    infrastructure through the Base Realignment and Closure (BRAC)
    rounds, it is generally recognized that much excess capacity will
    remain.

    Significant budget reductions could be achieved by streamlining the
    command structure of the remaining forces; sharing medical facilities
    and services; consolidating depots and shipyards; reforming
    acquisition processes; consolidating and eliminating research,
    development, and training facilities; using simulators for training
    and exercises; and reducing dependence on government-owned housing.

    Savings for this option cannot be fully estimated until a
    comprehensive consolidation and downsizing plan is specified.
    However, in an April 1996 report, GAO identified some specific
    options for reducing defense infrastructure spending.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:2.1

    Defense Infrastructure (GAO/HR-97-7, February 1997).

    Defense Acquisition Infrastructure:  Changes in RDT&E Laboratories
    and Centers (GAO/NSIAD-96-221BR, September 13, 1996).

    Military Bases:  Update on the Status of Bases Closed in 1988, 1991,
    and 1993 (GAO/NSIAD-96-149, August 6, 1996).

    Defense Infrastructure:  Costs Projected to Increase Between 1997 and
    2001 (GAO/NSIAD-96-174, May 31, 1996).

    Military Bases:  Opportunities for Savings in Installation Support
    Costs Are Being Missed (GAO/NSIAD-96-108, April 23, 1996).

    Military Bases:  Closure and Realignment Savings are Significant, but
    Not Easily Quantified (GAO/NSIAD-96-67, April 8, 1996).

    Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
    Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996).

    DOD Training:  Opportunities To Reduce the Training Infrastructure
    (GAO/NSIAD-96-96, March 29, 1996).

    Military Bases:  Analysis of DOD's 1995 Process and Recommendations
    for Closure and Realignment (GAO/NSIAD-95-133, April 14, 1995).

    Defense Infrastructure:  Enhancing Performance Through Better
    Business Practices (GAO/T-NSIAD/AIMD-95-126, March 23, 1995).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:2.2

    David R.  Warren, (202) 512-8412

       OPTION:
       FISCAL YEAR 1998 DEFENSE
       OPERATION AND MAINTENANCE
       BUDGETFISCAL YEAR 1998 DEFENSE
       OPERATION AND MAINTENANCE
       BUDGET
    ------------------------------------------------------- Appendix III:3

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The military services' operation and maintenance (O&M) accounts are
    used to fund a wide range of military and support activities
    including training, purchasing spare and repair parts, and paying
    civilian personnel.

    GAO analysis of selected O&M requests for fiscal year 1997 showed
    that the budget for that year could have been reduced by $3.4 billion
    without damaging defense operations and capabilities.  The largest
    potential reductions, each for over $180 million, were associated
    with improved inventory management, excess bulk fuel requirements,
    excess unobligated funds, storage of unneeded aircraft, O&M
    pass-throughs to the Defense Business Operations Fund (DBOF),
    overstated civilian personnel requirements, and funds requested for
    ground operation tempo that are not needed for training purposes.\4

    Based on GAO's analysis regarding potential savings in the fiscal
    year 1997 O&M budget, the Congress may wish to consider reductions of
    a similar magnitude, $3.4 billion, when formulating fiscal year 1998
    appropriations for O&M accounts.  It is important for the Congress to
    be aware that savings for this option include savings for other
    options involving the individual services' O&M accounts since the
    problems GAO identified persist.  CBO estimated the following 5-year
    savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                 3,400       0       0       0       0
    Outlays                          2,530     677     112      37      17
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \4 Specific options related to bulk fuel (see "DOD's Bulk Fuel
    Budgeting"), civilian personnel reductions (see "Budgeted Civilian
    Personnel Requirements"), and Army spare parts (see "Defense
    Inventories Reform") are contained in this report.  Therefore, the
    projected savings from these specific options should not be added to
    the $3.4 billion in potential savings shown here.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:3.1

    1997 DOD Budget:  Potential Reductions to Operation and Maintenance
    Programs (GAO/NSIAD-96-220, September 18, 1996).

    1996 DOD Budget:  Potential Reductions to Operation and Maintenance
    Programs (GAO/NSIAD-95-200BR, September 26, 1995).

    1995 Budget:  Potential Reductions to the Operation and Maintenance
    Programs (GAO/NSIAD-94-246BR, September 6, 1994).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:3.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       CONTINENTAL AIR
       DEFENSECONTINENTAL AIR DEFENSE
    ------------------------------------------------------- Appendix III:4

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The continental air defense mission evolved during the Cold War to
    detect and intercept Soviet bombers attacking North America via the
    North Pole.  The force that carries out that mission is within the
    North American Aerospace Defense Command (NORAD), which is a joint
    U.S.  and Canadian command.  As of the beginning of fiscal year 1997,
    the force consisted of 150 primary aircraft (Air National Guard F-15
    and F-16 aircraft in 10 dedicated units which stand alert for
    NORAD).\5 The Air Force budgeted about $345 million in fiscal year
    1997, to operate and support the continental air defense force.

    The former Soviet Union no longer poses a significant threat of a
    bomber attack on the continental United States.  Further, internal
    problems within Russia and other former Soviet Union countries have
    extended the time it would take them to return to previous levels of
    military readiness and capabilities.  Reflecting these changing
    realities, the Chairman of the Joint Chiefs of Staff determined in
    1993 that the United States no longer needed a large, dedicated air
    defense force and that the dedicated force could be significantly
    reduced or eliminated.

    Since the threat of a Soviet-style air attack against the United
    States has largely disappeared, the air defense force now focuses its
    activities on air sovereignty missions.  These missions provide
    surveillance and control of territorial airspace, including
    activities such as assisting aircraft in distress or intercepting
    aircraft as part of antidrug smuggling efforts.  However, active and
    reserve general-purpose and training forces could perform this
    mission because they (1) have comparable or better aircraft, (2) are
    located at or near existing air defense bases, and (3) have pilots
    who possess similar skills or who could acquire the necessary skills
    used by air defense and air sovereignty pilots.

    Based on our audit work, GAO has concluded that significant savings
    could be achieved by dual-tasking the active, reserve, and training
    forces.  If the dedicated continental air defense force were
    eliminated, the following savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   153     314     322     331     341
    Outlays                            126     278     309     322     333
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \5 DOD's 1997 plan reduced the number of dedicated continental air
    defense Air National Guard aircraft from 150 to 90.

          RELATED GAO PRODUCT
    ----------------------------------------------------- Appendix III:4.1

    Continental Air Defense:  A Dedicated Force Is No Longer Needed
    (GAO/NSIAD-94-76, May 3, 1994).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:4.2

    Richard Davis, (202) 512-3504

       OPTION:
       CARRIER BATTLE GROUP EXPANSIONS
       AND UPGRADESCARRIER BATTLE
       GROUP EXPANSIONS AND UPGRADES
    ------------------------------------------------------- Appendix III:5

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Operation and Maintenance, Navy
                                        (17-1804)
                                        Military Personnel, Navy (17-
                                        1453)
                                        Procurement-funded Replenishment
                                        Spares (17-1506)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Aircraft carrier battle groups are the centerpiece of the Navy's
    surface force and significantly influence the size, composition, and
    cost of the fleet.  The annualized cost to acquire, operate, and
    support a single Navy carrier battle group is from $1.7 billion to $2
    billion (in fiscal year 1996 dollars) and will continue to increase.
    The Navy is embarking on several costly carrier-related
    programs--procuring another carrier, refueling existing carriers, and
    replacing/upgrading combat aircraft.

    GAO's analysis indicates that there are opportunities to use less
    costly options to satisfy many of the carrier battle groups'
    traditional roles without unreasonably increasing the risk that U.S.
    national security would be threatened.  For example, one less costly
    option would be to rely more on increasingly capable surface
    combatants, such as cruisers, destroyers, or frigates, for overseas
    presence and crises response.  If the Congress chose to retire one
    aircraft carrier and one active air wing in 1998, the following
    savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   350     710   1,170     900   6,580
    Outlays                            260     580     690     840   1,190
    ----------------------------------------------------------------------
    Note:  Estimate includes savings from not buying a new carrier in
    fiscal year 2002.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:5.1

    Navy's Aircraft Carrier Program:  Investment Strategy Options
    (GAO/NSIAD-95-17, January 1, 1995).

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

          GAO CONTACT
    ----------------------------------------------------- Appendix III:5.2

    Richard Davis, (202) 512-3504

       OPTION:
       ARMY'S COMANCHE HELICOPTER
       PROGRAMARMY'S COMANCHE
       HELICOPTER PROGRAM
    ------------------------------------------------------- Appendix III:6

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Research, Development, Test and
                                        Evaluation, Army (21-2040)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Comanche helicopter is to replace the Vietnam-era scout and
    attack helicopters that the Army considers incapable of meeting
    existing or future requirements.  The Comanche's overall program cost
    has grown to approximately $50 billion, with an estimated program
    unit cost of about $39 million.  Anticipated cost increases and other
    unresolved technical risks indicate that future cost growth is
    likely.  In December 1994, the Secretary of Defense decided to
    restructure the Comanche program, reducing program cost by about $2
    billion for fiscal years 1996 through 2001.  This action extended the
    development phase until 2006 and deferred the production decision
    until then.

    Although light attack missions are part of the Army's plan for the
    Comanche, its lethality is now expected to rival or surpass that of
    the Apache--the Army's premiere attack helicopter.  In addition, as
    the Army reduces its total helicopter fleet, it plans to modify many
    that will remain to increase combat capabilities.  For example, the
    Army is arming its scout helicopter, the Kiowa, and modifying 227
    basic model Apaches with the Longbow system, which includes a fire
    control radar with a radar detector and a Hellfire missile with a
    radio-frequency seeker.  These actions, collectively, tend to blur
    the distinction in roles among the Army's helicopter fleet.

    GAO's work has pointed to real and probable development cost
    increases, uncertain operating and support cost savings, questions
    about the role of the Comanche compared to other more affordable Army
    helicopters, and deferral of the production decision.  If the
    Congress would elect to terminate the program, the following savings
    would be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   144     384     454     602     650
    Outlays                             82     268     397     520     607
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:6.1

    Comanche Helicopter:  Testing Needs To Be Completed Prior to
    Production Decisions (GAO/NSIAD-95-112, May 18, 1995).

    Army Aviation:  Modernization Strategy Needs To Be Reassessed
    (GAO/NSIAD-95-9, November 21, 1994).

    Comanche Helicopter:  Program Needs Reassessment Due To Increased
    Unit Cost and Other Factors (GAO/NSIAD-92-204, May 27, 1992).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:6.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       F/A-18E/F FIGHTERF/A-18E/F
       FIGHTER
    ------------------------------------------------------- Appendix III:7

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Aircraft Procurement, Navy (17-
                                        1506)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    In 1992, the Navy justified the F/A-18E/F Fighter to correct
    operational deficiencies that were projected to occur in its
    F/A-18C/D aircraft.  As of December 1995, the total program cost was
    projected to be almost
    $81 billion in then year dollars.  In its fiscal year 1996/1997
    Biennial Budget, the Navy requested $236.882 million and $306.344
    million to cover long lead requirements for the procurement of 12
    F/A-18E/F aircraft in fiscal year 1997 and 24 aircraft in fiscal year
    1998.  An F/A-18E/F low rate initial production (LRIP) milestone
    decision is scheduled for the first quarter of calendar year 1997.

    In a report issued in June 1996, GAO concluded that the need for the
    F/A-18E/F is questionable.  Operational deficiencies that in 1992 the
    Navy stated existed in the current F/A-18C/D either have not
    materialized as projected or can be corrected with nonstructural
    changes to the F/A-18C/D.  Furthermore, operational improvements that
    the E/F will have over the C/D would be marginal.

    GAO also reported that DOD's $43.6 million (in fiscal year 1996
    dollars) unit recurring flyaway cost\6 for the F/A-18E/F is
    understated because E/F procurement cost estimates are based on
    annual (72 aircraft) and total procurement (1,000 aircraft) levels
    that are overstated.  The Congress has indicated that an annual
    production rate of 72 aircraft is not possible in the current budget
    environment.  Also, total production of 1,000 aircraft is overstated
    by 340 aircraft--the number of Marine Corps E/Fs that are included in
    the total buy but which the Corps has decided it will not procure.
    GAO estimated that lowering the E/F annual production rate to a more
    realistic level of 36 aircraft and procuring a total of 660 aircraft
    would increase F/A-18E/F unit costs by about $10 million to $53
    million in fiscal year 1996 dollars.  This compares to about $29.6
    million for the current F/A-18C/D.

    GAO further reported that procuring 660 C/Ds rather than the E/F
    would save almost $17 billion (fiscal year 1996 dollars).  Savings
    would be greater if fewer than 660 C/Ds are needed to maintain Navy
    tactical aircraft inventories.  Near term savings associated with
    procuring the C/D rather than the E/F would be significant.  Through
    fiscal year 2002 the unit recurring flyaway cost of the E/F averages
    about $99.6 million (then-year dollars), or more than three times the
    $29.6 million unit recurring flyaway cost of the F/A-18C/D over this
    same period.

    Because continued procurement of the less expensive F/A-18C/D would
    provide the Navy a capable tactical aircraft, the Congress may wish
    to reconsider the need to procure the F/A-18E/F.  CBO estimates that
    canceling the program would achieve the following budget savings
    during the next 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                 1,812   2,116   2,233   1,654   2,410
    Outlays                            252     932   1,630   1,886   1,943
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \6 Recurring flyaway costs include costs related to the production of
    the basic aircraft and do not include all procurement costs.  DOD
    consistently maintains that these costs are the most appropriate to
    compare the costs of different aircraft.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:7.1

    Navy Aviation:  F/A-18E/F Will Provide Marginal Operational
    Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996).

    Naval Aviation:  F/A-18 E/F Acquisition Strategy (NSIAD-94-194,
    August 18, 1994).

    Naval Aviation:  Consider All Alternatives Before Proceeding With the
    F/A-E/F (NSIAD-93-144, August 27, 1993).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:7.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       F-22 FIGHTERF-22 FIGHTER
    ------------------------------------------------------- Appendix III:8

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Aircraft Procurement, Air Force
                                        (57-3010)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Air Force's F-22 program was initiated in 1981 to replace F-15s
    and to meet the evolving threat projected for the mid-1990s.
    Although the Department of Defense (DOD) procurement plans support
    achievement of initial operational capability in 2004, our reports
    issued in 1993 and 1994 indicated the need to replace F-15s with
    F-22s was not urgent.  Our reports indicated that potential adversary
    air forces are expected to include few fighters that have the
    capability to challenge the F-15--a U.S.  frontline fighter.

    DOD is currently planning to procure a significant number of F-22s
    before completing operational tests and evaluations, thereby
    increasing the cost, schedule, and performance risks within the
    system.\7 Initial operational tests and evaluations, which provide a
    valid estimate of expected system operational effectiveness and
    operational suitability, are not scheduled to be completed until
    after the Air Force will have committed to procure 76 aircraft
    involving an investment of nearly $11 billion.  Air Force plans call
    for procurement of 4 aircraft a year, increasing to 12, 24, and 36 a
    year before initial operational tests and their evaluation are
    completed.  Many aircraft systems entering production before starting
    operational testing have required major modification later, which is
    often costly.

    Using DOD guidelines, F-22 program concurrency is high because the
    F-22 program is scheduled to proceed into low rate initial production
    well before any operational testing starts.  Furthermore, the F-22
    program contemplates a higher commitment as a percentage of total
    production prior to completion of initial operational testing than
    most modern fighter programs.

    Since the need for the F-22 is not urgent, the Congress could choose
    to restrict production of F-22s to six aircraft in 2000, eight
    aircraft in 2001, and eight aircraft in 2002 until initial
    operational tests and evaluations are completed in April 2002.
    Further, maintaining production quantities at eight or less aircraft
    per year could defer the purchase of $282 million of production
    tooling--$109 million in fiscal year 2000 to increase production to
    12 aircraft per year, $116 million in fiscal year 2001 to increase
    production from 12 to 24 aircraft per year, and $57 million in fiscal
    year 2002 to increase production from 24 to 36 per year.

    If the Congress were to restrict funding in this way and restrict
    procurement of tooling to limit production to eight aircraft a year,
    the following budget savings could be achieved during the next 5
    years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     0     127   1,340   2,608   3,810
    Outlays                              0       8     114     527   1,332
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \7 In December 1996, the Air Force announced the results of a review
    of the program by a joint cost estimating team.  Significant changes
    to the program, including changes to the procurement plan, are being
    considered as a result of that team's report.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:8.1

    Combat Air Power:  Joint Mission Assessments Needed Before Making
    Program and Budget Decisions (GAO/NSIAD-96-177, September 20, 1996).

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

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

    Tactical Aircraft:  F-15 Replacement Is Premature as Currently
    Planned (GAO/NSIAD-94-118, March 25, 1994).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:8.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       AIR FORCE BOMBER FORCE
       REQUIREMENTSAIR FORCE BOMBER
       FORCE REQUIREMENTS
    ------------------------------------------------------- Appendix III:9

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Bombers currently in the force, B-2s, B-1Bs, and B-52Hs, were
    initially designed and procured by the Department of Defense (DOD)
    primarily to meet nuclear war-fighting requirements.  Since the end
    of the Cold War, DOD has placed increased emphasis on the role of
    bombers in future conventional conflicts while reducing the number of
    bombers significantly from a total of about 360 in 1989 to a planned
    retention of 187 bombers through the early part of the next century.

    Senior DOD officials have said that DOD cannot afford all of the
    services' stated requirements and difficult decisions must be made on
    which investment programs to cancel so that DOD can develop and
    implement a long-term, sustainable recapitalization plan.  While DOD
    believes it needs a level of redundancy to provide commanders in
    chief with a safety margin and flexibility, it may not need to
    upgrade its capabilities to the extent currently planned.  GAO's
    analysis shows that DOD has not made a compelling case to retain and
    upgrade 187 bombers to support future war-fighting requirements.
    While there are a number of ways to reduce capabilities to strike
    ground targets, a smaller bomber force may be one option to reduce
    overlap that would result in an acceptable loss to DOD's overall
    war-fighting capabilities.

    Because DOD's plans to modernize combat airpower may be prohibitively
    expensive, DOD is seeking ways to reduce costs.  With this in mind,
    GAO has identified three options to reduce or restructure the bomber
    force that would achieve cost savings yet enable DOD to retain
    extensive aggregate airpower capabilities.  The first two
    options--retiring all or a portion of the B-1B fleet--would result in
    a smaller bomber force than DOD currently plans.  Retiring or
    reducing the B-1B force may result in an acceptable decrease in DOD's
    existing capabilities.  The third option--increasing the number of
    B-1Bs in the Air National Guard--would not result in a smaller force
    but would achieve some cost savings because reserve units are less
    expensive to operate than active units.  Options two and three are
    not mutually exclusive.  The three options and their projected cost
    savings are detailed below.

          RETIRE ENTIRE B-1B FORCE
    ----------------------------------------------------- Appendix III:9.1

    Retiring the entire B-1B force of 95 aircraft would reduce DOD's
    aggregate conventional airpower capabilities somewhat but would yield
    significant cost savings.  Eliminating the B-1B force would decrease
    DOD's inventory of long-range airpower assets.  However, B-2s and
    B-52Hs would still be available for missions requiring long-range and
    large payload capabilities.  Retiring the B-1B force also would have
    no adverse effect on DOD's nuclear mission.  The B-1B will no longer
    have a nuclear mission once B-2s enter the force.

    If the Congress directed DOD to retire the B-1B force, CBO estimates
    it would save about $6 billion in budget authority and about $5.2
    billion in budget outlays for fiscal years 1998-2002 as shown in the
    following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   750   1,190   1,220   1,300   1,490
    Outlays                            430     950   1,130   1,290   1,440
    ----------------------------------------------------------------------
    Note:  In estimating the cost savings of this option, CBO assumed
    that the B-1B force would be retired over a 1-year period beginning
    immediately, resulting in smaller savings for fiscal year 1998.

    Source:  Congressional Budget Office.

          RETIRE 27 B-1BS IN
          RECONSTITUTION RESERVE
    ----------------------------------------------------- Appendix III:9.2

    The Air Force currently has 27 B-1B aircraft in reconstitution
    reserve that lack aircrews and funding for operations.  In fiscal
    year 1997, the Air Force will begin reducing the number of unfunded
    reconstitution reserve aircraft, will establish two new operational
    B-1B squadrons using the aircraft that are currently in
    reconstitution reserve, and will fund additional aircrews and flying
    hours.  The Air Force has included the cost of upgrading
    reconstitution reserve aircraft in the B-1B Conventional Munitions
    Upgrade Program estimated to cost $2.4 billion from fiscal years 1996
    through 2008.

    If DOD perceives that the risks to retire the entire B-1B fleet
    outweigh the savings that could be realized, it could retire 27
    reconstitution reserve B-1Bs and keep 68 B-1Bs in the force, 60 of
    which would be funded for combat operations or training.  This option
    would not result in as much loss in capability as retiring the entire
    B-1B fleet.  If 27 B-1Bs were retired, DOD would still have numerous
    other combinations of platforms and weapons to attack the types of
    targets that the B-1B is planned to destroy.  Compared to retiring
    all 95 B-1Bs, this option would provide commanders in chief with more
    flexibility in planning air campaigns and basing aircraft in theater,
    since B-1Bs would be based farther away from the theater of
    operations and would not require refueling during a typical wartime
    mission, unless operating from the United States.

    Retiring the 27 B-1Bs in reconstitution reserve would save about $750
    million in budget authority for fiscal years 1998-2002.
    Reconstitution reserve aircraft place an increased maintenance
    workload on the squadron and require the Air Force to authorize and
    fund four additional maintenance personnel per reconstitution reserve
    aircraft.  Savings in the near-term would reflect the immediate
    termination of these positions.  Savings would increase significantly
    in fiscal year 2000 because DOD would not establish two additional
    operation squadrons and could eliminate the personnel and flying-hour
    costs associated with these aircraft.  Retiring 27 B-1Bs also would
    save procurement funds since DOD would upgrade only 68 B-1Bs for the
    conventional mission instead of 95 B-1Bs.\8 If the Congress directed
    DOD to retire the 27 B-1Bs in reconstitution reserve, CBO estimates
    the following savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     2       4      80     270     390
    Outlays                              2       4      64     230     350
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \8 According to CBO, savings from forgoing these upgrades would occur
    after fiscal year 2002.

          PLACE 24 ADDITIONAL B-1BS IN
          THE AIR NATIONAL GUARD
    ----------------------------------------------------- Appendix III:9.3

    Placing more B-1Bs in the Air National Guard is an option that could
    reduce the cost to operate DOD's bomber force while preserving the
    war-fighting capability of DOD's planned bomber force.  By fiscal
    year 1998, the Air Force will have 18 B-1Bs assigned to the National
    Guard and fully trained in the conventional role.  B-1Bs will no
    longer have a nuclear role in the near future, thus making the
    transfer of B-1Bs to the Air National Guard somewhat easier than
    transferring B-52s to the Air Force Reserve.

    Placing 24 more B-1Bs in the Air National Guard would save about $110
    million in budget authority for fiscal years 1998 to 2002.  We
    examined placing 24 more B-1Bs in the Air National Guard because this
    would achieve a 50/50 active/reserve ratio when attrition and backup
    aircraft are excluded and the Air Force has placed 50 percent or more
    of some refueling and air mobility assets in the reserve component.
    Transferring additional B-1Bs to the Air National Guard is not likely
    to degrade combat effectiveness or result in loss of war-fighting
    capability.  Air Reserve combat units generally have readiness
    similar to active-duty units and are required to be ready to deploy
    within the same time as active units based in the continental United
    States.  A major benefit of transferring bombers to the reserve
    component is that reserve units traditionally are less expensive to
    operate than active duty counterparts.  Air National Guard B-1B
    squadrons will require fewer flying hours than active squadrons
    because Air National Guard units are able to recruit more experienced
    pilots who require less frequent training to maintain their
    proficiency.  Also, in contrast to active duty units that rely
    primarily on active military personnel, Air National Guard units rely
    heavily on less costly civilians and part-time Guard personnel.

    If the Congress directed DOD to place an additional 24 B-1Bs in the
    Air National Guard, CBO estimates cost savings of about $110 million
    in budget authority for fiscal years 1998 through 2002 could be
    achieved as shown in the table below.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     0       0      10      40      60
    Outlays                              0       0       9      37      59
    ----------------------------------------------------------------------
    Note:  One additional Guard unit would be started in fiscal year 2000
    and two additional units would be started in fiscal year 2001.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ----------------------------------------------------- Appendix III:9.4

    Air Force Bombers:  Options to Retire or Restructure the Force Would
    Reduce Planned Spending (GAO/NSIAD-96-192, September 30, 1996).

    Embedded Computers:  B-1B Computers Must Be Upgraded to Support
    Conventional Requirements (GAO/AIMD-96-28, February 27, 1996).

    B-1B Conventional Upgrades (GAO/NSIAD-96-52BR, December 4, 1995).

    B-1B Bomber:  Evaluation of Air Force Report on B-1B Operational
    Readiness Assessment (GAO/NSIAD-95-151, July 18, 1995).

    Air Force:  Assessment of DOD's Report on Plan and Capabilities for
    Evaluating Heavy Bombers (GAO/NSIAD-94-99, January 10, 1994).

    Strategic Bombers:  Issues Relating to the B-1B's Availability and
    Ability to Perform Conventional Missions (GAO/NSIAD-94-81, January
    10, 1994).

    Strategic Bombers:  Adding Conventional Capabilities Will Be Complex,
    Time-Consuming, and Costly (GAO/NSIAD-93-45, February 5, 1993).

    Strategic Bombers:  Need to Redefine Requirements for B-1B Defensive
    Avionics System (GAO/NSIAD-92-272, July 17, 1992).

    Strategic Bombers:  Updated Status of the B-1B Recovery Program
    (GAO/NSIAD-91-189, May 9, 1991).

    Strategic Bombers:  Issues Related to the B-1B Aircraft Program
    (GAO/T-NSIAD-91-11, March 6, 1991).

          GAO CONTACT
    ----------------------------------------------------- Appendix III:9.5

    Richard Davis, (202) 512-3504

       OPTION:
       AIR FORCE FIGHTER SQUADRONSAIR
       FORCE FIGHTER SQUADRONS
    ------------------------------------------------------ Appendix III:10

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Operation and Maintenance, Air
                                        Force
                                        (57-3400)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Air Force accounts for its fighter force structure in wing
    equivalents that represent 72 aircraft.  At the end of the Air
    Force's planned drawdown, the Air Force's active component F-15 and
    F-16 communities will make up about 10 fighter wing equivalents.  The
    Air Force plans to organize these aircraft in 37 squadrons at 17
    bases in the United States and overseas.  Until recently, Air Force
    fighter wings were predominantly organized in 3 squadrons of 24
    aircraft.  However, the Air Force has decided to reduce its squadron
    size to 18, which consequently reduced its wing size to 54.  This
    change in unit size increased the number of wings and squadrons to
    more than would have been needed had the squadron size stayed at 24.

    The Air Force has not demonstrated that it needs additional
    squadrons.  Air Force officials believe that more squadrons are
    needed to provide the Air Force with additional flexibility to
    respond to numerous potential conflicts across the globe.  Although
    the Air Force considers smaller fighter squadrons beneficial, it had
    not performed any analysis to justify its decision.  Further,
    according to Air Force officials, Commanders in Chief, who are
    responsible for conducting these operations, developed plans based on
    the number of aircraft that are needed to execute
    missions--regardless of squadron size.

    Keeping more squadrons than are needed increases operating costs and
    may result in more base infrastructure than the Air Force needs.  GAO
    developed several notional basing plans that the Air Force could use
    in considering how to consolidate its fighter force into fewer
    squadrons.  Implementing these plans could eliminate not only between
    two and seven squadrons, but also a wing and/or fighter base.  CBO
    identified operating and support cost savings ranging between $38
    million and $149 million annually (in 1997 dollars).\9 Recurring
    savings resulting from a base closure are estimated at an additional
    $40 million annually (in 1997 dollars).  However, these savings would
    not begin to accrue until 3 to 4 years after the base closure
    decision.  If the Congress chose to consolidate the Air Force's
    fighter force into fewer squadrons by eliminating seven of them, the
    following operating savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                    75     153     157     161     165
    Outlays                             71     149     156     160     165
    ----------------------------------------------------------------------
    Note:  Savings estimates do not include funds associated with the
    base closure.  The savings could be significant depending on the base
    selected for closure.

    Source:  Congressional Budget Office.

    --------------------
    \9 The CBO savings estimate is based on GAO's personnel reduction
    estimates.  Based on these reductions, GAO's work shows that
    operating costs savings could range between $25 million and $115
    million annually.  Differences between CBO and GAO estimates are
    attributable to the larger infrastructure cost savings estimated by
    CBO and not included in GAO's estimates.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:10.1

    Air Force Aircraft:  Consolidating Fighter Squadrons Could Reduce
    Costs (GAO/NSIAD-96-82, May 6, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:10.2

    Richard Davis, (202) 512-3504

       OPTION:
       C-17 STRATEGIC AIRLIFTC-17
       STRATEGIC AIRLIFT
    ------------------------------------------------------ Appendix III:11

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Aircraft Procurement, Air Force
                                        (57-3010)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The C-17 jet transport is being manufactured for the Air Force by
    McDonnell Douglas Corporation.  The Air Force originally planned to
    acquire 210 C-17s; however, as a result of the Major Aircraft Review,
    that number was reduced to 120.  In 1993, because of ongoing problems
    with the C-17 program, the Department of Defense (DOD) explored the
    possibility of acquiring a mixed fleet of C-17s and nondevelopmental
    commercial transport aircraft, such as Boeing 747-400s.  In November
    1995, as a result of an Air Force study which considered a number of
    possible mixes of C-17s and non-developmental airlift aircraft and a
    Defense Acquisition Board decision, DOD decided that the advantages
    of a transport fleet with only C-17s outweighed the cost savings of
    acquiring a mixed fleet.  Thus, DOD is planning to acquire 120 C-17s
    to replace the C-141s that are being retired.

    An option not considered by the Defense Acquisition Board, which may
    also satisfy airlift requirements, would be to acquire 100 C-17s and
    no nondevelopmental airlift aircraft.  This option could save over $7
    billion in life cycle costs.  Airlift needs could be met with this
    reduced number of C-17s if DOD implemented other individual measures,
    such as increasing, by a small amount, prepositioning; using training
    aircraft that were assumed to be unavailable in the analyses
    presented to the Defense Acquisition Board; increasing the use of the
    Civil Reserve Air Fleet aircraft, extending slightly the time frame
    for delivery, or a combination of these measures.

    Because of the potential for cost savings, the Congress may wish to
    consider funding only 100 C-17s rather than the 120 that are
    currently planned for acquisition.  If the Congress chose to fund
    only 100 C-17s, CBO estimates that the following budget savings could
    be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     0       0       0     240   2,974
    Outlays                              0       0       0      15     242
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:11.1

    Military Airlift:  DOD Could Meet Mobility Needs With Fewer C-17s and
    Save Billions (GAO/NSIAD-97-38, December 30, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:11.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       NUCLEAR SUBMARINE FORCE
       REDUCTIONSNUCLEAR SUBMARINE
       FORCE REDUCTIONS
    ------------------------------------------------------ Appendix III:12

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Shipbuilding and Conversion, Navy
                                        (17-1611)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Nuclear-powered attack submarines (SSN) are the Navy's prime
    antisubmarine warfare asset.  Today, faced with a changed world
    threat and a new defense posture, the Navy is reducing the size of
    its SSN fleet.  The Department of Defense's (DOD's) Bottom-Up Review
    (BUR) determined that the Navy needed to maintain a force of 45 to 55
    SSNs after fiscal year 1999 to meet the requirements of the defense
    strategy, including both regional conflicts and peacetime presence
    operations.  There are less costly alternatives than the approach the
    Navy has chosen to maintain the required SSN force structure.  As we
    have reported, these alternative approaches would save billions of
    dollars and meet the Navy's force structure and threat requirements.

    In October 1994, we reported that there were less costly alternatives
    than the Navy shipbuilding plan for maintaining DOD's approved attack
    submarine force structure of 45 to 55 submarines.  Under two of the
    three alternatives, the Navy could maintain a sustained low-rate
    production, and under the third, the Navy could defer SSN
    construction until early in the next century.  The Navy and the
    Congress subsequently decided not to defer SSN construction.

    This alternative, would build only 25 SSNs through 2014, 6 fewer than
    the Navy currently plans.  This alternative allows a force structure
    of close to 55 submarines through 2014, before declining to 45 SSNs
    in 2020.  The alternative would buy one submarine in each year from
    1998 through 2002 and, eventually buy 3 submarines every other year
    until 25 submarines are purchased.  If the Navy accepted this
    alternative and bought 6 fewer submarines than currently planned, the
    following savings would be achieved through 2002.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     0     160     240     170   1,730
    Outlays                              0      10      50     110     220
    ----------------------------------------------------------------------
    Note:  Estimate includes savings from not buying a new submarine in
    fiscal year 2002.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:12.1

    Attack Submarines:  Alternatives for a More Affordable SSN Force
    Structure (GAO/NSIAD-95-16, October 13, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:12.2

    Richard Davis, (202) 512-3504

       OPTION:
       MAJOR WEAPON SYSTEM WARRANTY
       LAWMAJOR WEAPON SYSTEM WARRANTY
       LAW
    ------------------------------------------------------ Appendix III:13

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Aircraft Procurement, Air Force
                                        (57-3010)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    During the 1970s and the 1980s, the Congress was faced with an
    acquisition process that delivered weapon systems that often failed
    to meet their military missions, were operationally unreliable, and
    had defective and poor workmanship and material.  As a result, in
    1984 the Congress passed legislation requiring the Department of
    Defense (DOD) to obtain warranties on major weapon systems.  The
    warranties were expected to improve weapon system reliability by
    providing a mechanism to hold contractors liable for poor
    performance.  Prior to the warranty law, DOD was permitted but not
    required to obtain a warranty.

    GAO estimated that the military services spend approximately $271
    million annually obtaining weapon system warranties.  GAO found that
    none of the warranties reviewed, where claim and price data were
    available, were cost-effective.  For example, for the warranties
    reviewed, the government only collected $5 million after paying $94
    million for these weapon system warranties.

    Despite DOD's efforts to address administrative weaknesses, such as
    failing to file all warranty claims or making use of adequate
    cost-benefit analyses, DOD continues to have fundamental problems
    managing the warranty program.  The administrative problems appear to
    be unintended consequences of the warranty law.  Attempts to
    administratively correct the warranty law have not been successful.
    Because of the potential for cost savings, the Congress should repeal
    the warranty law (10 U.S.C.  2403).  Savings under this option would
    depend on the extent the military departments still obtain warranties
    for some programs after the law is repealed, therefore, CBO is unable
    to provide a savings estimate at this time.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:13.1

    Weapons Acquisition:  Warranty Law Should Be Repealed
    (GAO/NSIAD-96-88, June 28, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:13.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       BASE ALIGNMENT AND CLOSURE
       ACCOUNTSBASE ALIGNMENT AND
       CLOSURE ACCOUNTS
    ------------------------------------------------------ Appendix III:14

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Military Construction (Senate)
                                        Military Construction (House)

    Primary agency                      Department of Defense

    Account                             Base Realignment and Closure (97-
                                        0103)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Changing national security needs and the Department of Defense's
    (DOD) recognition that its base structure was larger than required
    led to a decision to close numerous bases around the country.
    Consequently, the Congress enacted legislation that instituted
    closures of facilities identified by the Base Realignment and Closure
    (BRAC) Commission as part of the base closure process.

    The Congress appropriates BRAC funds on a no year and lump sum basis.
    Funds can be used for a variety of purposes including construction,
    family housing, and environmental restoration costs associated with
    base closures and realignment.  Therefore, DOD is provided a
    tremendous amount of flexibility to finance BRAC expenditures from
    the BRAC account.  While DOD budget guidance directs services to
    request only funds needed in the appropriation year, large
    unobligated balances indicate the services have been requesting more
    than necessary.  Because requirements lack the specificity of regular
    DOD requirements, large unobligated balances represent funds the
    Congress may wish to rescind.  The following savings represent a
    rescission of the $148 million.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   148       0       0       0       0
    Outlays                             46      53      28      15       2
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:14.1

    Military Bases:  Potential Reductions to the Fiscal Year 1997 Base
    Closure Budget (GAO/NSIAD-96-158, July 15, 1996).

    Military Bases:  Update on the Status of Bases Closed in 1988, 1991,
    and 1993 (GAO/NSIAD-96-149, August 6, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:14.2

    David R.  Warren, (202) 512-8412

       OPTION:
       DEFENSE INVENTORIES
       REFORMDEFENSE INVENTORIES
       REFORM
    ------------------------------------------------------ Appendix III:15

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Over 100 GAO reports have pointed out Department of Defense (DOD)
    inventory management problems and have shown that DOD has accumulated
    inventory that greatly exceeds its operational and war reserve needs.
    Systemic problems in determining requirements and inadequate
    financial accountability and control have contributed to poor
    inventory management practices.  Traditionally, DOD's culture has
    emphasized overbuying and placed little value on economy and
    efficiency, causing unneeded items to pile up in warehouses.

    DOD could be more aggressive in implementing private sector practices
    that could reduce inventory costs.  DOD has implemented, in a limited
    manner, certain commercial practices such as direct vendor delivery
    for medical and food items.  However, these initiatives represent
    only about 3 percent of the items for which this concept could be
    used.

    Systemic reforms--such as improving the way inventory requirements
    are determined, using commercial inventory management practices, and
    changing financial management policies and practices--continue to be
    needed to achieve further reductions in DOD's budget requirements.
    GAO estimates that, as of September 1995, only about half of DOD's
    $69.6 billion in inventory had to be on hand to support current
    operations and war reserves.  GAO's work has shown that several
    private business have been able to reduce their on hand inventories
    by more than 50 percent by implementing best practices.

    Unless DOD takes more aggressive actions, its inventory management
    problems will continue into the next century.  We have identified
    four specific inventory related options the Congress may wish to
    consider for DOD budget reduction purposes.

          USE PRIME VENDORS TO SUPPLY
          HIGH-VOLUME CLOTHING AND
          TEXTILE ITEMS
    ---------------------------------------------------- Appendix III:15.1

    DOD spends over a billion dollars for clothing and textile items sold
    to military service customers, primarily the services' 14 recruit
    induction centers and over 300 military exchange stores.  GAO has
    reported that while private sector companies are cutting costs by
    minimizing inventories, DOD continues to store redundant levels of
    clothing and textile inventories throughout its wholesale and retail
    system.  Much of this inventory is aged; for about 26 percent of the
    items, DOD had 10 years of supply on hand.  To maintain these stocks,
    DOD employs a large operations infrastructure and thus incurs
    unnecessary inventory storage and handling costs.

    Many private sector firms and some federal agencies with uniformed
    employees are relying on prime vendors to manage their clothing
    inventories.  Prime vendors provide timely and direct delivery
    between customers and suppliers, and order additional stock from
    manufacturers on short notice, with quick turnaround, to minimize
    inventory holding costs and improve customer service.  GAO believes
    that substantial opportunities exist to reduce DOD annual
    expenditures on clothing and textile items by adopting best
    commercial practices on a wide-scale basis.  For example, the
    Congress may wish to direct DOD to adopt a primary vendor program for
    supplying clothing and textile items to it's 14 recruit induction
    centers.  Although CBO believes that initiating such actions would
    save money, it was unable to calculate a savings estimate at this
    time.

          USE INNOVATIVE COMMERCIAL
          PRACTICES TO SUPPLY
          ELECTRONICS ITEMS TO
          MAINTENANCE AND REPAIR
          FACILITIES
    ---------------------------------------------------- Appendix III:15.2

    The Defense Logistics Agency (DLA) manages over 1 million electronics
    items such as resistors, fuses, and switches.  It stores this
    inventory, valued at over $2 billion, at 28 distribution depots and
    other storage locations.  This large level of inventory reflects
    DLA's practice of buying and storing electronics supplies to ensure
    they are available to customers--sometimes several years in advance
    of when the supplies are actually needed.  The turnover of DLA's
    electronics inventory is slow.  In fiscal year 1993, the wholesale
    inventory of such items would turn over once every 4 years.  In
    comparison, private sector suppliers often turn their stock over four
    times a year.

    Many private sector companies have adopted modern inventory
    management practices, including long-term relationships with
    suppliers, direct delivery programs, and direct communication
    channels between suppliers and end users.  With these practices,
    companies do not store supplies at intermediate handling and storage
    locations, as DOD does.  Instead, they arrange for suppliers to
    deliver inventory items directly to the end user's facility at about
    the time when the items are needed.  The result is a reduction in
    inventories and related holding costs as well as improved customer
    service.

    DLA has initiated several programs to adopt commercial practices for
    electronics items, but overall progress is slow and projected results
    are limited.  Substantial opportunities exist and significant savings
    would result if electronics items were managed by adopting best
    commercial practices on a wide-scale basis.  The Congress may wish to
    direct DLA to adopt modern inventory management practices that would
    result in a similar 50 percent decrease in electronics items
    inventory.  Although CBO believes that initiating such actions would
    save money, it was unable to calculate a savings estimate at this
    time.

          DOD SPARE AND REPAIR PARTS
          STORAGE LOCATIONS
    ---------------------------------------------------- Appendix III:15.3

    The Army, Navy, and Air Force store the majority of their general
    issue spare and repair parts inventories at a few locations with the
    remaining inventory being stored at hundreds of other locations.  To
    illustrate, over 95 percent of the Army's general issue inventory is
    stored at 7 major locations and the remaining 5 percent is stored at
    110 other locations.  The Navy stores 81 percent of its inventory at
    6 locations and the other 19 percent at 52 locations.  The Air
    Force's storage pattern is similar to that of the Army and Navy.  It
    stores 96 percent of its inventory at 6 major locations and the other
    4 percent at 105 locations.

    Most of the items stored at other than major locations had small
    quantities of onhand inventory.  In fact, over 53 percent of the
    items had onhand quantities of three or less, while only 25 percent
    of the items had quantities of 11 or more.  Our analysis also showed
    that many of the Army items\10 had infrequent issues over the 2-year
    period ending August, 1996.  Over 53 percent of the inventory items
    at other than major storage locations had no issues and, an
    additional 33 percent of the items had less than five issues during
    the same 2-year period.  The need for many of the items stored at
    other than major locations is questionable.

    Maintaining inventory that is not needed is expensive and does not
    contribute to an effective, efficient, and responsive supply system.
    Our analysis showed that $2.7 billion of the inventory was not needed
    to meet the services' current operating and war reserve requirements.
    CBO agrees that DOD could save millions of dollars annually in
    inventory holding costs by eliminating at other than major locations
    inventory that is not needed to meet current operating and war
    reserve requirements.  However, CBO could not provide a savings
    estimate at this time.

    --------------------
    \10 Information was not readily available from the Air Force and Navy
    to determine the number of inventory issues on an item-by-item basis
    at each storage location.

          ARMY SPARE AND REPAIR PARTS
          BUDGET
    ---------------------------------------------------- Appendix III:15.4

    The Army budget stratification reports which are used to determine
    spare and repair parts budget requests are based on inaccurate data.
    When an item's available inventory is not sufficient to meet the
    requirements, the item is considered to be in a shortage position,
    and the aggregate value of shortage items is the basis for
    determining the budget request.

    Our review of 258 items with a reported shortage value of $519
    million showed that the shortage position for $211 million of the
    items was incorrect.  If accurate requirements and inventory data had
    been used, the inventory shortage for these items would have been $23
    million rather than the $211 million reported.  As a result, the
    fiscal year 1996 budget request included $188 million ($211 million
    minus $23 million) for items that were not in a shortage position.

    Because corrective actions were not taken in time to affect the
    fiscal year 1997 budget request, we believe the fiscal year 1997
    request is also overstated.  Therefore, the Congress may want to
    reduce the Army's fiscal year 1998 spare and repair parts budget
    request by the $188 million it was overstated in fiscal year 1996.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   188       0       0       0       0
    Outlays                            143      35       6       2       1
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:15.5

    Defense Inventory Management (GAO/HR-97-5, February 1997).

    Defense Inventory:  Spare and Repair Parts Inventory Costs Can Be
    Reduced (GAO/NSIAD-97-47, January 17, 1997).

    1997 DOD Budget:  Potential Reductions to Operation and Maintenance
    Program (GAO/NSIAD-96-220, September 18, 1996).

    Navy Financial Management:  Improved Management of Operating
    Materials and Supplies Could Yield Significant Savings
    (GAO/AIMD-96-94, August 16, 1996).

    Inventory Management:  Adopting Best Practices Could Enhance Navy
    Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July
    12, 1996).

    Defense Logistics:  Requirement Determinations for Aviation Spare
    Parts Need to Be Improved (GAO/NSIAD-96-70, March 19, 1996).

    Best Management Practices:  Reengineering the Air Force's Logistics
    System Can Yield Substantial Savings (GAO/NSIAD-96-5, February 21,
    1996).

    Army Inventory:  Budget Requests for Spare and Repair Parts Are Not
    Reliable (GAO/NSIAD-96-3, December 29, 1995).

    Inventory Management:  DOD Can Build on Progress in Using Best
    Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, August 4,
    1995).

    Best Practices Methodology:  A New Approach for Improving Government
    Operations (GAO/NSIAD-95-154, May 25, 1995).

    Commercial Practices:  DOD Could Reduce Electronics Inventories by
    Using Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).

    Commercial Practices:  Leading-Edge Practices Can Help DOD Better
    Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, April 13, 1994).

          GAO CONTACTS
    ---------------------------------------------------- Appendix III:15.6

    David R.  Warren, (202) 512-8412

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       DEFENSE TRANSPORTATION
       RESTRUCTURINGDEFENSE
       TRANSPORTATION RESTRUCTURING
    ------------------------------------------------------ Appendix III:16

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In 1993 and again in 1996, we reported that the Department of
    Defense's (DOD) current transportation processes are fragmented,
    inefficient, and costly.  Beginning in 1949, various studies,
    commissions, and task forces have recommended changes in the defense
    transportation system organizational structure.  In 1987, after the
    Goldwater-Nichols Act of 1986 urged that actions be taken to unify
    transportation management, the Secretary of Defense established the
    U.S.  Transportation Command (USTRANSCOM).  USTRANSCOM's own study
    shows that little has changed since it was created and charged with
    responsibility for unifying DOD's transportation infrastructure.

    Our work shows that opportunities exist to reduce defense
    transportation infrastructure and improve efficiency of cargo traffic
    management operations.  For example, combining common-user traffic
    management functions and positions under the direct command and
    control of a single manager, USTRANSCOM, would reduce overhead and
    eliminate duplicative functions.  Moreover, nearly all defense
    surface cargo moves by commercial carriers during peacetime and
    noncontingency operations.  More outsourcing of the traffic
    management functions related to shipments by commercial carriers is
    possible and would further reduce transportation costs.

    Overall, fixing the organizational structure is a mandatory first
    step to substantially reduce transportation costs.  One logical way,
    though not the only one, as related to surface traffic management
    functions, would be to (1) place the Defense Business Operations
    Fund-Transportation staff of the Navy's Military Sealift Command
    staff worldwide together with the staff of the Army's Military
    Traffic Management Command (MTMC), thereby eliminating duplicative
    staff and overlapping layers of management, (2) consolidate or
    eliminate the resulting continental United States area command
    offices thereby eliminating duplicate staff functions, (3)
    consolidate or eliminate the resulting overseas area offices, and (4)
    consolidate or eliminate the resulting port command and area offices.

    Although MTMC, because of the recommendations of the 1995 Defense
    Base Closure and Realignment Commission to close the Military Ocean
    Terminal at Bayonne, New Jersey, and California's Oakland Army Base,
    has announced plans to consolidate the continental United States area
    command staff in a new location, opportunities still exist to reduce
    infrastructure and improve efficiency of traffic management
    operations.  If the Congress chose to restructure the organization as
    noted, the following civilian personnel savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                    16      33      51      70      73
    Outlays                             16      32      50      69      73
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:16.1

    Defense Transportation:  Reengineering the DOD Personal Property
    Program (GAO/NSIAD-97-49, November 27, 1996).

    Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
    Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996).

    Defense Transportation:  Streamlining of the U.S.  Transportation
    Command Organization Is Needed (GAO/NSIAD-96-60, February 22, 1996).

    Defense Transportation:  Commercial Practices Offer Improvement
    Opportunities (GAO/NSIAD-94-26, November 26, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:16.2

    David R.  Warren, (202) 512-8412

       OPTION:
       DEPOT MAINTENANCE PROGRAM
       EXCESS CAPACITYDEPOT
       MAINTENANCE PROGRAM EXCESS
       CAPACITY
    ------------------------------------------------------ Appendix III:17

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Defense's (DOD) annual $15 billion depot
    maintenance program provides for the repair and overhaul of military
    parts, weapon systems, and equipment.  This work is accomplished by
    commercial contractors as well as by DOD employees in large
    industrial depots maintained by the military departments.

    Factors such as threat changes, new war-fighting plans, force
    structure reductions, and increased reliability and maintainability
    of many military systems have significantly reduced depot maintenance
    requirements over the past few years.  Faced with substantial excess
    depot capacity and high infrastructure costs, DOD has been struggling
    to implement initiatives to more cost effectively (1) utilize
    existing maintenance resources at depots and operational units, (2)
    reduce excess depot maintenance infrastructure, largely by closing
    depots as a part of the base closure and realignment process, and (3)
    reallocate workload from closing depots.  At the same time, DOD has
    embarked on the implementation of a depot maintenance strategy that
    will privatize much of the depot maintenance workload without
    determining whether privatizing specific depot workloads will result
    in savings.

    In previous reports and as a part of our ongoing review of DOD depot
    maintenance operations and management, GAO has identified the
    following shortcomings in these initiatives and has highlighted other
    actions that could be taken to improve the cost-effectiveness of the
    DOD depot maintenance program.

    First, DOD has not been successful in achieving an optimal balance
    between maintenance work performed at operational units and at
    depots.  Cost-benefit evaluations of competing alternatives that
    consider infrastructure, personnel, material, transportation, and
    equipment tradeoffs could result in significant savings.

    Second, the services continue to rely largely on their own service
    depots rather than maximizing interservicing opportunities by
    consolidating similar maintenance operations at a single location.
    On many occasions, we have pointed out that this approach leads to
    unnecessary duplication of resources.  A greater use of
    cross-servicing could eliminate costly redundancies and excess
    capacity.

    Third, DOD plans to privatize-in-place depot maintenance activities
    without evaluating other alternatives such as public-private
    competitions or interservicing.  Such privatization-in-place
    initiatives will do little to resolve the extensive excess capacity
    problem that currently exists in both public and private sector
    industrial facilities and may not be the most cost-effective
    solution.  An option that could result in substantial savings would
    be to reallocate core workload to remaining military depots when
    determined to be more cost-effective and use competitive procedures
    to include public and private entities to determine the
    source-of-repair for noncore workload.

    Fourth, DOD is reluctant to use competitions between the public and
    private sector to ensure that the privatization of maintenance
    workloads will result in savings.  While there are opportunities to
    achieve cost savings by privatizing depot maintenance workloads which
    have commercial counterparts and where there is a substantial private
    sector competitive market, it is less likely the private sector will
    be more cost-effective in an uncompetitive environment.  A greater
    reliance on public-private competitions as a means of depot
    maintenance workload reallocations could produce significant savings.

    Fifth, while the four previous base realignment and closure (BRAC)
    rounds have resulted in the identification of four naval shipyards,
    three naval aviation depots and two warfare centers, three Air Force
    depots, and five Army depots for closure or realignment, significant
    excess capacity will remain in the public depot system, particularly
    if DOD proceeds with its privatization-in-place plans.  Additional
    closures and/or realignments could reduce costly excess capacity and
    produce significant savings.

    Sixth, we have reported that reengineering the processes and
    procedures for organic workloads that have been subjected to
    competition resulted in significant efficiency gains and productivity
    improvements.  Similar reengineering initiatives for other organic
    workloads should also result in significant savings.

    One option the Congress may wish to consider is to direct DOD, prior
    to privatizing any depot workloads at depots identified by the BRAC
    for closure or realignment, to complete cost analyses that consider
    the savings potential of consolidating those BRAC-identified depot
    maintenance workloads at other DOD depots.  Such analyses should
    include determining savings that can be achieved for existing
    workloads by reducing overhead rates through more efficient capacity
    utilization of fixed overhead at underused military depots.  The
    magnitude of savings would depend on the resulting structure and size
    of the depot maintenance system and workload split between the
    private and public sectors.  CBO agrees that savings would occur but
    were unable to provide a savings estimate at this time.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:17.1

    Defense Infrastructure (GAO/HR-97-7, February 1997).

    Air Force Depot Maintenance:  Privatization-in-Place Plans Are Costly
    While Excess Capacity Exists (GAO/NSIAD-97-13, December 31, 1996).

    Depot Maintenance:  Opportunities to Privatize Repair of Military
    Engines (GAO/NSIAD-96-33, March 5, 1996).

    Closing Maintenance Depots:  Savings, Workload and Redistribution
    Issues (GAO/NSIAD-96-29, March 4, 1996).

    Navy Maintenance:  Assessment of the Public-Private Competition
    Program for Aviation Maintenance (GAO/NSIAD-96-30, January 22, 1996).

    Depot Maintenance:  The Navy's Decision To Stop F/A-18 Repairs at
    Ogden Air Logistics Center (GAO/NSIAD-96-31, December 15, 1995).

    Military Bases:  Analysis of DOD's 1995 Process and Recommendations
    for Closure and Realignment (GAO/NSIAD-95-133, April 14, 1995).

    Aerospace Guidance and Metrology Center:  Cost Growth and Other
    Factors Affect Closure and Privatization (GAO/NSIAD-95-60, December
    9, 1994).

    Correspondence to the Chairman, Subcommittee on Readiness, Senate
    Committee on Armed Services, follow-up to April 12, 1994, Depot
    Maintenance Testimony (GAO/NSIAD-94-242R, July 28, 1994).

    Navy Maintenance:  Assessment of the Public and Private Shipyard
    Competition Program (GAO/NSIAD-94-184, May 25, 1994).

    Depot Maintenance:  Issues in Allocating Workload Between the Public
    and Private Sectors (GAO/T-NSIAD-94-161, April 12, 1994).

    Depot Maintenance:  Issues in Management and Restructuring To Support
    a Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:17.2

    David R.  Warren, (202) 512-8412

       OPTION:
       MILITARY EXCHANGE STORES
       CONSOLIDATIONMILITARY EXCHANGE
       STORES CONSOLIDATION
    ------------------------------------------------------ Appendix III:18

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    GAO reviewed the morale, welfare, and recreation (MWR) program--a $12
    billion dollar enterprise that provides service members, their
    dependents, and eligible civilians with an affordable source of goods
    and services like those available to civilians--and found that
    revenue generated by the MWR activities is likely to decrease in the
    1990's because of the downsizing of forces and increasing private
    sector competition.  Appropriated funds--which now constitute 10
    percent of MWR funding--are also expected to decline as overall
    budgets decline.

    Exchange stores are the largest producer of MWR revenue.  The
    Department of Defense's (DOD) decentralized approach to managing the
    MWR program will not work well in this environment.  Since 1968,
    studies by GAO, DOD, and others have recommended the consolidation of
    exchanges into a single entity.  Each study predicted financial
    benefits could be achieved through consolidation.  While the Army and
    Air Force exchanges have been consolidated, the Navy and Marine Corps
    retain independent exchanges.  Further consolidations could achieve
    additional savings.  For example, consolidating the Navy and Marine
    Corps exchange systems with the Air Force/Army exchange system would
    eliminate entire headquarters operations and the corresponding
    overhead costs.  The Congress may wish to direct DOD to consolidate
    the Navy and Marine Corps exchange systems with the existing Air
    Force/Army exchange system.  CBO estimated that the following 5-year
    savings might be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                    40      60      60      60      60
    Outlays                             30      50      60      60      60
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:18.1

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:18.2

    David R.  Warren, (202) 512-8412

       OPTION:
       BUDGETED CIVILIAN PERSONNEL
       REQUIREMENTSBUDGETED CIVILIAN
       PERSONNEL REQUIREMENTS
    ------------------------------------------------------ Appendix III:19

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The services determined their civilian personnel requirements for
    fiscal year 1997 based on the estimated end-strength for fiscal year
    1996 adjusted for program changes that are expected to occur during
    fiscal year 1997.  Once the beginning and ending strength for the
    budget year are determined, the services compute the estimated work
    years and multiply the result by the average civilian personnel
    salary cost.\11 If fiscal year 1996 actual end strength was less than
    budgeted, the beginning point for determining the fiscal year 1997
    requirement was overstated.

    Based on the actual number of civilian personnel on board as of April
    1996 for the Navy and other DOD agencies and as of May 1996 for the
    Army and Air Force, we estimated that the actual end strength at the
    end of fiscal year 1996--the beginning figure for fiscal year
    1997--would be 7,331\12 less than the figure used by the services for
    determining their fiscal year 1997 budget request.  Because the
    services used a larger beginning figure, the number of work years
    used in the budget request is also overstated by 3,665 work years
    ($185.5 million).  In addition, our comparison of the civilian
    personnel requirements shown in the President's Budget to the
    justification documents prepared in support of the budget request
    showed that the budget request was overstated $60 million.  Thus, the
    total overstated personnel requirements equate to about $245.5
    million.

    In view of the overstated personnel requirements, the Congress may
    want to reduce the services' fiscal year 1998 budget requests for
    civilian personnel by the amounts of the overstatements; the Army's
    by $33.3 million, the Navy's by $108.3 million, the Air Force's by
    $70 million, and other DOD agencies by $33.9 million.

    CBO agrees that the differences in proposed versus actual reductions
    in personnel creates windfall surpluses in personnel accounts during
    a single budget year.  More accurate reporting and subsequent
    tightening of the O&M budget may produce savings; however, CBO is
    unable to estimate a five-year cost savings for this option.

    --------------------
    \11 The average salary cost includes an estimate of funds needed for
    severance pay and separation incentives purposes as well as for
    compensation.

    \12 This equates to 3,665 work years.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:19.1

    1997 DOD Budget:  Potential Reductions to Operation and Maintenance
    Program (GAO/NSIAD-96-220, September 18, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:19.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       CONVERT SOME SUPPORT OFFICER
       POSITIONS TO CIVILIAN
       STATUSCONVERT SOME SUPPORT
       OFFICER POSITIONS TO CIVILIAN
       STATUS
    ------------------------------------------------------ Appendix III:20

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Commissioned military officers are required to provide leadership and
    command military organizations.  The services use officers in such
    warfighting positions as infantry commander and fighter pilot and
    such support positions as civil engineer, personnel officer, and
    veterinarian.

    Thousands of officers are staffing positions that could be converted
    to civilian status without reducing operational forces.  GAO
    evaluated about 32,000 officer positions in the Army, Air Force, and
    Navy (about 30 percent of all officers in support positions), and
    found that about 9,500 are performing work that could be performed by
    civilians at lower cost.  Independently, the Army identified about
    6,100 officer and enlisted positions that it believes could be
    converted to civilian status and the Air Force found between about
    15,200 and about 25,400 officer positions that it believes could be
    converted.

    Savings can only be obtained if the military position is deleted from
    end strength.  Also, the savings are partially offset by the need to
    staff converted positions with civilian personnel, but GAO found that
    civilians of roughly equal grade are less expensive than
    corresponding military personnel.  GAO did not evaluate the potential
    to use contractors rather than federal civilians in converted
    positions although using contractors might produce greater savings.

    DOD is in the midst of an extensive drawdown of civilian personnel.
    Military to civilian conversions, however, do not necessarily
    conflict with plans to reduce the size of government.  For example,
    DOD currently plans to reduce civilian endstrength by 26 percent
    between fiscal year 1993 and 2001.  If DOD reduced civilian
    endstrength by about 25 percent (rather than 26 percent), it would
    have enough civilian authorizations to replace the 9,500 officer
    positions.

    If the Congress directed the Department of Defense to civilianize, at
    a minimum, the 9,500 officer support positions identified by GAO and
    then maintain the grade structure that existed prior to conversion,
    the following budget savings could be achieved.  These savings assume
    that the commissioned military officer positions are deleted from
    DOD's force.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                    97     100     103     106     110
    Outlays                             95     100     103     106     110
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:20.1

    DOD Force Mix Issues:  Converting Some Support Officer Positions to
    Civilian Status Could Save Money (GAO/NSIAD-97-15, October 23, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:20.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       ATTRITION OF ENLISTED PERSONNEL
       FROM THE MILITARY
       SERVICESATTRITION OF ENLISTED
       PERSONNEL FROM THE MILITARY
       SERVICES
    ------------------------------------------------------ Appendix III:21

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    For at least the last decade, about one-third of enlistees in the
    military services have failed to complete their first tours of duty.
    A large percentage of this attrition occurs in the first 6 months of
    enlistees' first terms, before they have reported to their first duty
    stations.  For example, more than 25,000 of the 176,000 recruits who
    were enlisted in fiscal year 1994 were separated before they had
    completed 6 months of service.  In fiscal year 1994, the services'
    enlisted attrition rates at the 6-month point were as follows:  15.7
    percent for the Army, 15.7 for the Navy, 12.5 for the Marine Corps,
    and 11.6 for the Air Force.

    Thousands of recruits are separated in their first 6 months of
    service because the services do not adequately screen applicants for
    disqualifying medical conditions or for preservice drug use.  One
    reason that this screening is inadequate is that recruiters do not
    have sufficient incentives to ensure that their recruits are
    qualified.  Thousands of recruits also are separated who fail to meet
    minimum performance criteria.  Recruits have problems meeting
    performance standards because they are not physically prepared for
    basic training and because they lack motivation.  At present, DOD
    lacks consistent and complete information on the percentage of
    attrition that is unnecessary.  DOD's primary database for managing
    attrition does not allow it to adequately determine the reasons that
    enlisted recruits separate and set appropriate targets for reducing
    attrition.

    In our recently issued report, to reduce the attrition of enlisted
    personnel during the first 6 months of their terms of enlistment and
    ensure that only qualified personnel are enlisted, we recommended
    that the Secretary of Defense direct the services to

      -- strengthen their recruiter incentive programs to encourage
         recruiters to thoroughly prescreen potential recruits with
         medical histories;

      -- link recruiting quotas to recruits' successful completion of
         basic training;

      -- require potential recruits to provide the names of their medical
         insurers and providers and allow the services access to past
         medical information;

      -- revise their forms for collecting information from recruits; and

      -- use a newly proposed DOD database of medical diagnostic codes to
         determine whether medical screening tests should be added to
         preenlistment examinations.

    The recommendations, if implemented would help the services meet
    their goals to reduce attrition in the first 6 months.

    All the services agree that reducing early attrition is desirable.
    To this end, three services have attrition-reducing targets ranging
    from 4 to 10 percent.  If the services reach their goals, they would
    realize immediate short-term annual savings because they would be
    transporting, feeding, clothing, and paying fewer recruits.  We
    estimated short-term annual savings would range from around $5
    million to $12 million.  Even greater dollar savings could be
    realized over time as the services began to reduce the infrastructure
    associated with recruiting and training enlistees.  We estimated the
    services possible long-term infrastructure savings could range from
    $15 million to $39 million.  However, these long-term savings
    probably would not be proportional to the decrease in attrition.\13

    CBO could not provide a 5-year cost savings that might occur if DOD
    reduced enlisted attrition by at least 4 percent because of
    limitations with DOD's and the services' attrition data.  However,
    CBO was able to calculate an estimated cost savings that might result
    if DOD and the services reduced those attritions that result from
    inadequate medical screenings designed to identify pre-existing
    conditions.  Those estimated cost savings are shown in the table
    below.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     5       5       5       6       6
    Outlays                              5       5       5       6       6
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \13 GAO's short-term cost savings are based on cost data provided by
    the Navy and includes the cost to transport a recruit to basic
    training; pay, feed, and house the recruit while at basic training;
    provide the recruit's medical examination while at basic training;
    and transport the recruit home after separation.  Long-term cost
    savings are based on cost data provided by the Office of the
    Secretary of Defense and includes the cost of recruiting and training
    each new recruit up to the 6-month point in their first terms.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:21.1

    Military Attrition:  DOD Could Save Millions by Better Screening
    Enlisted
    Personnel (GAO/NSIAD-97-39, January 6, 1997).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:21.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       ARMY NATIONAL GUARD
       DIVISIONSARMY NATIONAL GUARD
       DIVISIONS
    ------------------------------------------------------ Appendix III:22

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In March 1996, we reported that the Army National Guard's combat
    structure, with 42 combat brigades, exceeds projected requirements
    for two major regional conflicts, according to war planners and
    Department of Defense (DOD) and Army studies.  Although the National
    Guard has state missions in addition to its federal role, RAND
    studied the use of Guard forces for state missions and concluded that
    even in a peak year, such missions would not require a large portion
    of the Guard and therefore should not be used as a basis for sizing
    the Guard's force.

    In our report, we noted that the Army has a shortage of support
    troops for a two regional conflict strategy and was studying
    alternatives to redesign the Guard's combat structure to meet
    critical shortages that the Army identified in its support
    capabilities.  We recommended that the Secretary of Defense validate
    the size and structure of all the Guard's combat forces and that the
    Secretary of the Army prepare and execute a plan to bring the size
    and structure in line with validated requirements.  We further
    recommended that the Secretary of Defense consider eliminating Guard
    forces that exceed validated requirements.  DOD's Commission on Roles
    and Missions had similar recommendations in their report.

    In January 1997, we reported on the study to redesign the Guard's
    combat structure.  We stated that the study developed an option that
    provides for the conversion of some Guard combat and supporting
    forces to fill needed, but unresourced, support requirements.
    However, neither this study nor other studies deal with the critical
    issues of validating the need for the remaining Guard combat
    structure or eliminating any excess forces.  As a result, substantial
    Guard combat structure is left in place that has no valid war
    fighting missions.  We recommended that the Secretary of Defense, as
    he guides the Quadrennial Defense Review, direct that the Review
    process validate any requirement for Guard combat structure.  We
    further recommended that once this validation is complete, the
    Secretary of Defense, in concert with the Secretary of the Army,
    eliminate any structure beyond validated requirements.

    If the validation process determines that there is structure beyond
    validated needs, savings could be achieved by eliminating those
    excess forces.  For example, the following savings could be achieved,
    if the equivalent of one division were eliminated from the force
    structure.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   117     240     245     252     259
    Outlays                            105     225     242     248     255
    ----------------------------------------------------------------------
    Note:  For estimating purposes, CBO used the cost of an armored
    division.  Since the Army has identified a shortage in its support
    forces, this option would retain all support personnel indirectly
    associated with the eliminated division.  The elimination of each
    additional division would yield more or less savings, depending on
    the type of division eliminated.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:22.1

    Army National Guard:  Planned Conversions Are A Positive Step, but
    Unvalidated Combat Forces Remain (GAO/NSIAD-97-55BR, January 29,
    1997).

    Army National Guard:  Validate Requirements for Combat Forces and
    Size Those Forces Accordingly (GAO/NSIAD-96-63, March 14, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:22.2

    Richard Davis, (202) 512-4032

       OPTION:
       JUNIOR RESERVE OFFICERS'
       TRAINING CORPSJUNIOR RESERVE
       OFFICERS' TRAINING CORPS
    ------------------------------------------------------ Appendix III:23

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Operation and Maintenance--Army,
                                        Navy, Marine Corps, and Air Force

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The National Defense Act of 1916 established the Junior Reserve
    Officers' Training Corps (JROTC) program for high schools and private
    secondary schools.  The program's primary purpose was to disseminate
    military knowledge among the secondary school population of the
    United States.  The ROTC Vitalization Act of 1964 expanded the
    program and required the Secretary of each military department to
    establish and maintain JROTC units.  In the wake of the August 1992
    Los Angeles riots, the President and the Chairman of the Joint Chiefs
    of Staff made plans to double the size of the program within 5 years.

    The Army, Navy, Marine Corps, and Air Force Operation and Maintenance
    (O&M) budget requests for fiscal year 1997 included $135.3 million
    for the JROTC program.  This program was in place in over 2,300 high
    schools in economically disadvantaged areas, affluent areas, private
    schools, and Department of Defense (DOD) dependent schools at the
    time of our review in 1996.  The program objectives are to teach
    military and citizenship subjects.  The JROTC program is essentially
    a "stay in school" program.  In addition, the Army runs a summer camp
    and O&M funds are used to help pay instructors' salaries.  Service
    officials emphasized that JROTC is not viewed as a recruiting tool.

    In our September 1995 report we stated that while the program may
    provide worthwhile benefits to the community and the public in
    general, the question is whether DOD should be involved in funding
    this type program or if the program should be funded by a non-DOD
    appropriation account.  Congress may wish to discontinue or phase out
    the program.  If the program was eliminated, the following savings
    could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   170     170     180     180     190
    Outlays                            130     160     170     180     180
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:23.1

    1996 DOD Budget:  Potential Reduction to Operation and Maintenance
    Program (GAO/NSIAD-95-200BR, September 26, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:23.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       DOD'S ACQUISITION
       WORKFORCEDOD'S ACQUISTION
       WORKFORCE
    ------------------------------------------------------ Appendix III:24

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In November 1995, GAO reported that the Department of Defense (DOD)
    had a combined acquisition workforce of about 464,000--398,000
    civilians and 66,000 military personnel in fiscal year 1994.  The DOD
    acquisition infrastructure consumes enormous resources that could
    otherwise be utilized to meet modernization needs.  In 1994, DOD's
    civilian acquisition workforce was 12 percent lower than in 1980;
    however, these personnel reductions have not resulted in a
    commensurate decline in civilian payroll costs.  This is due in part
    to the significant decline in blue-collar workers and an increase in
    white-collar workers.  In addition, DOD officials stated that
    civilian payroll costs increased because of other factors, such as
    the advent of locality pay and changes in grade structure.

    Despite declines in both the defense procurement budget and the
    civilian workforce since 1990, the number of acquisition
    organizations remains relatively constant.  Each acquisition
    organization maintains similar occupational fields in common areas,
    such as personnel, budgeting, computer specialists, and contracting,
    and many of the duties performed in these occupations are not unique
    to an acquisition organization's mission.  As a result, there are
    significant opportunities to improve efficiencies in these areas,
    such as consolidating, cross-servicing, and streamlining certain
    functions.

    The National Defense Authorization Act for Fiscal Year 1996 contains
    a provision (Title IX, section 906) that required DOD to provide a
    plan to reduce the number of personnel (both military and civilian)
    assigned to defense organizations by 25 percent, or 90,000 personnel
    over a 4-year period.  The provision also required an actual
    reduction of 15,000 personnel during fiscal year 1996.  In addition,
    the Defense Authorization Act for 1997 reemphasized congressional
    commitment to realizing significant reductions and increased
    efficiencies from the defense acquisition infrastructure.  Although
    the 1997 Act requires a specific reduction of 15,000 in the number of
    personnel assigned to defense acquisition organizations during fiscal
    year 1997, it also directs DOD to assess the impact of the reductions
    prior to consideration of further cuts.  Stopping at the 30,000
    person reduction level would amount to only one-third of the total
    25-percent reduction required by Title-IX, section 906.

    The savings from a 90,000 person reduction in civilian personnel
    salaries alone are estimated in the following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   805   1,657   2,556   3,513   3,636
    Outlays                            781   1,631   2,529   3,485   3,633
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:24.1

    Defense Acquisition Organizations:  Changes in Cost and Size of
    Civilian Workforce (GAO/NSIAD-96-46, November 13, 1995).

    Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
    Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:24.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       DOD'S FINANCE AND ACCOUNTING
       INFRASTRUCTUREDOD'S FINANCE AND
       ACCOUNTING INFRASTRUCTURE
    ------------------------------------------------------ Appendix III:25

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    After several false starts, in May 1994 the Department of Defense
    (DOD) announced it would begin consolidating and reducing the size of
    its finance and accounting infrastructure during fiscal year 1995.
    It plans to reduce the number of sites where finance and accounting
    activities are conducted from over 300 to 26, which will result in a
    major reduction in staff years.  The 26 sites are composed of 5 large
    existing finance centers and 21 new sites that are called operating
    locations.  To date, 16 operating locations have been opened.

    Despite these consolidation efforts, additional opportunities exist
    to reduce the infrastructure and improve the efficiency of finance
    and accounting operations.  In September 1995, we reported that the
    process DOD used to identify the appropriate size and location of its
    consolidated operations was flawed.  Not only would the planned
    infrastructure be larger than necessary, but it would also perpetuate
    the continued use of older, inefficient, and duplicative systems.
    With fewer people available to support the same operations and
    systems at fewer locations, the consolidation could degrade, rather
    than improve, customer service.  Moreover, DOD's plan does not
    reflect leading-edge business practices and, therefore, may require
    additional consolidations if business process reengineering
    techniques are used to identify more productive business practices
    for DOD finance and accounting operations.

    Because DOD's decision to open 21 new operating locations was not
    based on current or future operating requirements, customer needs, or
    leading-edge business practices, other consolidation alternatives
    could produce substantial infrastructure savings.  The Defense
    Finance and Accounting Service (DFAS) Consolidation Task Force showed
    that savings could occur by retaining the 5 large centers plus 6, 10,
    or 15 operating locations.  The Task Force concluded, however, that 6
    new operating locations was the best alternative because it would
    save more money and allow an optimum consolidation of finance and
    accounting functions.  Based on this and other factors, we
    recommended that DOD reassess the number of operating locations
    needed to efficiently perform finance and accounting operations.

    DOD's subsequent reassessment concluded that 16 rather than 21
    operating locations are needed to support its finance and accounting
    operations.  Because of its interpretation of congressional intent,
    however, DOD continues to support the opening of all 21 locations.
    In presenting this option, we relied on the analysis performed by the
    DFAS Consolidation Task Force which identified 6 as the optimum
    number of operating locations.

    Recognizing the costs DOD has incurred to open 16 centers, reducing
    the number of operating locations from 16 to 6 could achieve savings
    in several different ways.  First, a reduction in the infrastructure
    would require fewer support and management personnel and related
    items to operate the locations.  Second, military construction
    funding for sites that would require extensive renovations would not
    be necessary.  Third, in anticipation of the efficiencies and service
    improvements that would be achieved under DOD's reengineering and
    privatization efforts, annual funding could be reduced 10 to 15
    percent.  If the Congress was to direct the Secretary of Defense to
    reduce the existing 16 locations to 6, as recommended by the DFAS
    Consolidation Task Force, the following savings could be achieved in
    civilian personnel and military construction.  This represents the
    optimum consolidation of locations according to the DFAS
    Consolidation Task Force.  The savings estimate assumes that by
    reducing the number of sites to six, 6,500 civilian personnel
    positions would be eliminated.  This magnitude of personnel
    reductions can only be attained if DOD achieves the productivity
    gains it expects from reengineering and privatization/outsourcing
    initiatives.  However, the Congress and DOD will need to reach an
    agreement on the exact number of operating locations and reductions
    in personnel.  Moreover, DOD may need to make investments in this
    area to improve its financial management systems.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   174     299     369     382     395
    Outlays                            171     295     367     381     395
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:25.1

    Defense Financial Management (GAO/HR-97-3, February 1997).

    DOD Infrastructure:  DOD's Planned Finance and Accounting Structure
    Is Not Well Justified (GAO/NSIAD-95-127, September 18, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:25.2

    David R.  Warren, (202) 512-8412

       OPTION:
       DOD'S TRAINING
       INFRASTRUCTUREDOD'S TRAINING
       INFRASTRUCTURE
    ------------------------------------------------------ Appendix III:26

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Analysis of the Department of Defense's (DOD) end strengths, training
    workloads, and overall training budgets between fiscal years 1987 and
    1995 showed that end strengths and training workloads have decreased
    at much greater rates than the training budget.  Between fiscal years
    1987 and 1995, the number of Army, Navy, Marine Corps, and Air Force
    active duty personnel decreased from about 2.2 million to about 1.5
    million--a reduction of about 30 percent.  During the same period,
    the training workloads for formal training and education programs
    decreased from about 248,000 to about 178,000--a reduction of about
    28 percent.  However, military personnel funding, which is used to
    pay military students, instructors, and training support and
    management personnel, decreased by only about 15 percent, and
    operation and maintenance (O&M) funding, which is used to pay DOD
    civilian and contractor instructors and to operate, maintain, and
    support training facilities and equipment, increased about 30
    percent.

    The cost of providing formal military training and education to
    individuals increased significantly between fiscal years 1987 and
    1995.  During this period, the training cost per student increased
    from about $53,194 to $72,546.  (After considering the effects of
    inflation, the cost per student increased about $4,200 a year.) This
    cost differential when multiplied by the fiscal year 1995 training
    workload shows that it cost about $745 million more to train students
    in fiscal year 1995 than it would have taken to train the same number
    of students in 1987, even after accounting for inflation.  Officials
    told us that the primary reason that training had become more
    expensive was the increased use of government civilian and
    private-sector instructors and facilities rather than military
    instructors.

    DOD and the services have completed several actions to reduce the
    training infrastructure, and even more actions will be implemented
    over the next several years.  The actions are intended to (1) reduce
    the number of locations where a particular course is taught, (2)
    increase interservice training, and (3) increase the use of private
    sector instructors and facilities.  Also, actions by the Base
    Realignment and Closure (BRAC) Commission to close and realign bases
    where training is conducted are also expected to reduce the training
    infrastructure.  However, an overall plan to guide and measure the
    progress of reducing the training infrastructure is lacking.

    The lack of a management information system with reliable cost data
    within the various training categories makes it difficult for DOD to
    evaluate the overall effectiveness of alternate methods of providing
    training and assess whether actions taken to reduce costs are
    achieving the expected results.  The need for reliable data and a
    system for evaluating it has become even more critical because excess
    training infrastructure identified in the future will be difficult to
    eliminate in the absence of a BRAC-like process.

    In view of the disparity between training workload and training
    costs, Congress may want to cap the funding level for O&M-related
    formal education and training at the fiscal year 1997 level until DOD
    develops a management plan to guide and measure progress in reducing
    the training infrastructure.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   144     300     461     635     818
    Outlays                            130     281     441     615     797
    ----------------------------------------------------------------------
    Note:  The savings shown in the above table represent the amounts
    estimated for O&M-related formal education and training above the
    fiscal year 1997 funding level.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:26.1

    DOD Training:  Opportunities Exist to Reduce the Training
    Infrastructure (GAO/NSIAD-96-93, March 29, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:26.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       DOD'S TRANSPORTATION MIGRATION
       SYSTEMSDOD'S TRANSPORTATION
       MIGRATION SYSTEMS
    ------------------------------------------------------ Appendix III:27

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    In April 1994, DOD developed a structured approach to identify,
    select, and implement transportation migration systems.\14 However,
    in its haste to meet a March 1997 deadline, DOD selected these
    systems without fully analyzing alternatives, such as acquiring new
    systems or contracting for services.  Further, in making a quarter of
    its transportation migration system selections, DOD relied on
    incomplete and unverified cost data.  Finally, DOD did not assess how
    making significant changes to transportation operations--through
    reengineering and outsourcing--will affect its migration systems.  By
    relying on such inadequate analyses in making its system selections,
    DOD essentially gambled that systems migration would achieve
    anticipated savings and resolve problems with transportation business
    processes.  As a result, its selections may turn out to be poor
    investments and preclude the use of better commercial alternatives.

    DOD has little assurance that its selection of 28 transportation
    migration systems is cost effective.  At a minimum, had DOD followed
    its own regulations and calculated investment returns, it would have
    found--based on data available when the migration systems were
    selected--that two of the selected systems would produce a negative
    return if implemented as migration systems.  The Air Loading Module
    would lose 67 cents out of every dollar invested and the Cargo
    Movement Operations Systems would lose 4 cents out of every dollar
    invested.

    Before proceeding with its systems migration effort, DOD should
    immediately establish current cost, benefit, investment return, and
    schedule baselines and terminate the migration of transportation
    systems for which migration is shown to be a poor investment.  For
    example, if the Air Loading Module and the Cargo Movement Operations
    Systems were not deployed as migration systems, the following savings
    could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     3       0       0       0       0
    Outlays                              2       1       0       0       0
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \14 A migration system is an automated information system which
    replaces several systems that perform similar functions.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:27.1

    Defense IRM:  Strategy Needed for Logistics Information Technology
    Improvement Efforts (GAO/AIMD-97-6, November 14, 1996).

    Defense Transportation:  Migration Systems Selected Without Adequate
    Analysis (GAO/AIMD-96-81, August 29, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:27.2

    Jack L.  Brock, Jr., (202) 512-6240

       OPTION:
       DOD'S MATERIEL MANAGEMENT
       MIGRATION SYSTEMSDOD'S MATERIEL
       MANAGEMENT MIGRATION SYSTEMS
    ------------------------------------------------------ Appendix III:28

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Defense Business Operations Fund
                                        (97-4930)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    In December 1995, the Department of Defense (DOD) determined that its
    goal of developing a standard suite of nine integrated systems to
    improve various aspects of materiel management operations--including
    asset management, requirements determination, and inventory
    management--would cost much more than the $5.3 billion originally
    estimated.  DOD abandoned its plan to deploy all nine systems as an
    integrated suite across all inventory control points and now plans to
    deploy the systems individually as they are developed at selected
    sites.  It has also embarked on an accelerated deployment schedule to
    provide these systems from fiscal year 1996 through 1999.

    As a result, DOD is embarking on a new strategy before taking a
    number of steps to ensure that the hundreds of millions of dollars to
    be spent on materiel management systems, as well as the monies
    already invested, bring positive results.  Specifically, DOD did not
    first conduct economic and risk assessments that would ensure its
    strategy would be cost-effective.  DOD also did not incorporate
    efforts to improve, consolidate, and privatize logistics operations
    into its strategy.  Such changes will impact the processes the
    systems are being developed to support.  Further, this strategy was
    not justified within DOD's own oversight process, nor were documents
    critical to defining the program's objectives, costs, goals, and risk
    mitigation strategies prepared.  As a result, DOD decisionmakers were
    not afforded an opportunity to thoroughly review the new program
    before deploying new systems.

    Moreover, DOD is proceeding with deployments under the new strategy
    without accommodating the time required for testing the new systems.
    This greatly increases the risk that DOD will experience problems
    associated with shifting testing to system users and curtailing the
    levels of testing normally done.  As a result, DOD is likely to incur
    substantial additional costs to operate and maintain its current
    systems and to correct deficiencies with the new systems.

    To provide more timely service, DOD made a major change in its
    materiel migration system\15 policy.  In doing so, it is clearly on a
    course to accelerate system deployments before critical steps are
    taken that would help ensure that good business decisions are made
    and that risks are minimized.  As a result, DOD is likely to deploy
    systems that will not be significantly better than the hundreds of
    systems already in place and could waste millions of dollars
    resolving problems that result from the lack of developing and
    implementing a clear and cohesive strategy.  Before proceeding with
    any new strategy, it is imperative that DOD takes the necessary steps
    to fully define its approach, plan for risks, ensure adequate
    oversight, and complete testing of the new systems.  DOD must also
    immediately establish current cost, benefit, investment return, and
    schedule baselines and terminate materiel management migration
    systems for which migration is shown to be a poor investment.

    Savings for this option cannot be estimated at this time.  The amount
    of savings would depend on the outcome of DOD's review of its
    systems.

    --------------------
    \15 A migration system is an automated information system which
    replaces several systems that perform similar functions.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:28.1

    Defense IRM:  Strategy Needed for Logistics Information Technology
    Improvement Efforts (GAO/AIMD-97-6, November 14, 1996).

    Defense IRM:  Critical Risks Facing New Materiel Management Strategy
    (GAO/AIMD-96-109, September 6, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:28.2

    Jack L.  Brock, Jr., (202) 512-6240

       OPTION:
       DOD'S BULK FUEL BUDGETINGDOD'S
       BULK FUEL BUDGETING
    ------------------------------------------------------ Appendix III:29

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Defense Fuel Supply Center (DFSC) has the primary responsibility
    for providing the services with the fuel they need.  DFSC purchases
    the fuel from commercial sources and sells it to the services.
    Although DFSC is the primary source, the services also buy a small
    amount of fuel direct from commercial sources.  For fiscal year 1996,
    the Army, Navy, and Air Force budget requests for bulk fuel totaled
    $4.12 billion.  Of this total, the three services planned to buy $107
    million, or 2.6 percent, from commercial sources.  Therefore, the
    amount of funds requested to buy fuel from DFSC was about $4.01
    billion.

    At the time that the Department of Defense (DOD) submitted its fiscal
    year 1996 budget request, DFSC estimated that the services would
    purchase about $3.68 billion of fuel in fiscal year 1996, or about
    $330 million less than the amount requested.  During the
    authorization and appropriation process, the Congress reduced the
    budget request $100 million.  Based on historical usage data adjusted
    for factors expected to occur in fiscal year 1996, DFSC estimated, in
    February 1996, that the services' fuel purchases in fiscal year 1996
    would be about $3.57 billion, or about $440 million less than the
    amount the services requested in their budgets.

    For fiscal year 1997, the services have again requested more funds
    for fuel than they will need.  The services budgeted for 117.8
    million barrels of fuel at a cost of $3.796 billion.  However, DFSC
    estimates that the services will buy 113.2 million barrels at a cost
    of about $3.613 billion, or $183 million less than the services
    estimate.

    Because the over budgeting for bulk fuel seems to be a recurring
    practice, the Congress may want to reduce the services' fiscal year
    1998 budget requests by the $183 million overbudgeted for fiscal year
    1997.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   183       0       0       0       0
    Outlays                            136      36       6       2       1
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:29.1

    1997 DOD Budget:  Potential Reductions to Operation and Maintenance
    Program (GAO/NSIAD-96-220, September 18, 1996).

    DOD Bulk Fuel:  Budgeting for Bulk Fuel and Other Operation and
    Maintenance Activities (GAO/T-NSIAD-96-208, July 30, 1996).

    DOD Bulk Fuel:  Services' Fuel Requirements Could Be Reduced and
    Funds Used for Other Purposes (GAO/NSIAD-96-96, March 28, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:29.2

    Mark E.  Gebicke, (202) 512-5140

       OPTION:
       NAVY FINANCIAL MANAGEMENT OF
       OPERATING MATERIALS AND
       SUPPLIESNAVY FINANCIAL
       MANAGEMENT OF OPERATING
       MATERIALS AND SUPPLIES
    ------------------------------------------------------ Appendix III:30

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Operations and Maintenance, Navy
                                        (17-1804)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Chief Financial Officers Act of 1990, as amended, requires that
    each agency Chief Financial Officer (CFO) develop an integrated
    agency accounting and financial management system that complies with
    applicable principles and standards and provides for complete,
    reliable, consistent, and timely information that is responsive to
    the agency's financial information needs.  The act also specifies
    that each agency CFO should direct, manage, and provide policy
    guidance and oversight of asset management systems, including
    inventory management and control.

    Our broad-based review of various aspects of the Department of the
    Navy's financial management operations and its ability to meet the
    management and reporting requirements of the CFO Act identified
    numerous deficiencies.  These deficiencies can have significant
    budgetary implications.  For example, we found that, because of
    inadequate systems, Navy item managers did not have sufficient
    visibility over $5.7 billion in operating materials and supplies on
    ships and at 17 Navy redistribution sites.  About $883 million, 15
    percent of the $5.7 billion, was excess to current operating
    allowances or needs.

    Lacking adequate visibility, item managers incurred unnecessary costs
    of approximately $27 million in the first half of fiscal year 1995 as
    a result of ordering or purchasing items that were already on-hand at
    operating locations and classified as excess.  Also, our analysis of
    planned purchases through the end of fiscal year 1997 showed that the
    Navy could incur an estimated additional $38 million in unnecessary
    costs by procuring items which are already in operating level stock
    as excess.

    We recommended that the Navy could achieve savings by providing item
    managers with full visibility over such materials and eliminating
    redundant or unnecessary redistribution sites.  Almost half of the
    excess items were stored at the Navy's 17 redistribution sites.
    These sites are often located in the same general area as other DOD
    suppliers.  Eliminating the 17 sites would reduce associated
    operating costs by $3 million annually and could reduce redundant
    supply operations and streamline visibility efforts.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                     3       3       3       3       3
    Outlays                              2       3       3       3       3
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:30.1

    Defense Financial Management (GAO/HR-97-3, February 1997).

    Navy Financial Management:  Improved Management of Operating
    Materials and Supplies Could Yield Significant Savings (GAO/AIMD-
    96-94, August 16, 1996).

    CFO Act Financial Audits:  Navy Plant Property Accounting and
    Reporting Is Unreliable (GAO/AIMD-96-65, July 8, 1996).

    Financial Management:  Control Weaknesses Increase Risk of Improper
    Navy Civilian Payroll Payments (GAO/AIMD-95-73, May 8, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:30.2

    Lisa G.  Jacobson, (202) 512-9542

       OPTION:
       COPAYMENTS FOR CARE IN MILITARY
       TREATMENT FACILITIESCOPAYMENTS
       FOR CARE IN MILITARY TREATMENT
       FACILITIES
    ------------------------------------------------------ Appendix III:31

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Defense Health Program (97-0130)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    Numerous GAO reports and testimonies have documented the problems of
    controlling costs in the military health service system.  In
    particular, we have reported that currently care received by military
    beneficiaries in military hospitals and clinics is free.  However,
    when care must be obtained through civilian providers, military
    beneficiaries share in the costs of the care they receive.  This
    uneven system has led to confusion, uncertainty, and inequity among
    beneficiaries as to what their health care benefits are.  Further,
    research has shown that free care leads to greater (and unnecessary)
    use and, therefore, greater costs.

    The Department of Defense (DOD) managed care system--TRICARE--is
    intended to make health care benefits uniform regardless of venue,
    but some cost sharing is still based on where patients receive their
    care.  Under TRICARE, beneficiaries pay the same enrollment fees
    whether they are enrolled with a military or civilian primary care
    manager.  However, subsequent cost-sharing--in the form of copays for
    visits--is still not required for care provided in military clinics
    but is required for care from civilian providers.

    The Congress may wish to establish beneficiary cost-sharing
    requirements in military facilities that are similar to the cost
    sharing for care that beneficiaries receive from civilian providers.
    CBO estimates that such a change would result in the following
    savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   305     300     302     305     307
    Outlays                            258     292     298     303     305

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   305     300     302     305     307
    Outlays                            258     292     298     303     305
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:31.1

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

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

    Defense Health Care:  DOD's Managed Care Program Continues to Face
    Challenges (GAO/T-HEHS-95-117, March 28, 1995).

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

    Defense Health Care:  Lessons Learned From DOD's Managed Health Care
    Initiatives (GAO/T-HRD-93-21, May 10, 1993).

    Defense Health Care:  Obstacles in Implementing Coordinated Care
    (GAO/T-HRD-92-24, April 7, 1992).

    Defense Health Care:  Implementing Coordinated Care--A Status Report
    (GAO/HRD-92-10, October 3, 1991).

    The Military Health Services System--Prospects for the Future
    (GAO/T-HRD-91-11, March 14, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:31.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       ADMINISTERING DEFENSE HEALTH
       CAREADMINISTERING DEFENSE
       HEALTH CARE
    ------------------------------------------------------ Appendix III:32

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Defense Health Program (97-0130)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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 systems perform many of the same
    administrative, management, and operational functions.

    Since 1949 over 22 studies have reviewed whether a central entity
    should be created within the Department of Defense (DOD) for the
    centralized management and administration of the three systems.  Most
    of these studies encouraged some form of organizational
    consolidation.  A Defense health agency would consolidate the three
    military medical systems into one centrally managed system,
    eliminating duplicate administrative, management, and operational
    functions.  No specific budget estimate can be developed until
    numerous variables, such as the extent of consolidation and the
    impact on command and support structures, are determined.

    DOD's implementation of a systemwide managed care program--
    TRICARE--adds to the advantages to be gained by eliminating the
    separate medical systems within the department.  DOD has divided the
    country into 12 regions, each with its own administrative staff
    headed by a Lead Agent.  These Lead Agents have the responsibility
    for administering TRICARE in their regions.  However, because all of
    the operational control over medical facilities is still with the
    separate services, the Lead Agents do not have the command and
    control authority to manage the medical care delivered directly by
    DOD, which is most of the care received by military health care
    beneficiaries.  Presumably, a single Defense health agency would
    incorporate this new regional structure and give Lead Agents genuine
    control over all DOD care in their regions.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:32.1

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

    Defense Health Care:  Medicare Costs and Other Issues May Affect
    Uniformed Services Treatment Facilities' Future (GAO/HEHS-96-124, May
    17, 1996).

    Defense Health Care:  Effects of Mandated Cost Sharing on Uniformed
    Services Treatment Facilities Likely to Be Minor (GAO/HEHS-96-141,
    May 13, 1996).

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

    Defense Health Care:  DOD's Managed Care Program Continues to Face
    Challenges (GAO/T-HEHS-95-117, March 28, 1995).

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

    Defense Health Care:  Lessons Learned From DOD's Managed Health Care
    Initiatives (GAO/T-HRD-93-21, May 10, 1993).

    Defense Health Care:  Obstacles in Implementing Coordinated Care
    (GAO/T-HRD-92-24, April 7, 1992).

    Defense Health Care:  Implementing Coordinated Care--A Status Report
    (GAO/HRD-92-10, October 3, 1991).

    The Military Health Services System--Prospects for the Future
    (GAO/T-HRD-91-11, March 14, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:32.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       UNIFORMED SERVICES UNIVERSITY
       OF THE HEALTH SCIENCESUNIFORMED
       SERVICES UNIVERSITY OF THE
       HEALTH SCIENCES
    ------------------------------------------------------ Appendix III:33

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    With the end of the draft in 1972, the military services needed new
    ways to obtain active duty physicians.  To address this need, Public
    Law 92-426 established two complementary programs:  the Health
    Profession Scholarship Program and the Uniformed Services University
    of the Health Sciences (USUHS), a medical school operated by DOD.

    Under the scholarship program, DOD pays tuition and fees, plus a
    monthly stipend for students enrolled in civilian medical schools.
    In return, the students incur an obligation to serve a year of active
    duty for each year of benefits received, with a 2-year minimum
    obligation.  Upon graduation, most scholarship program participants
    go on active duty and begin graduate medical education (GME) in
    military hospitals.  In 1994, 987 scholarship program participants
    graduated from medical school.

    Students at USUHS enter active military service as medical students,
    receive the pay and benefits of officers at the O-1 level, and incur
    7-year service obligations.  In 1994, 155 medical students graduated
    from the University.  Overall, USUHS graduates represent about 14
    percent of military physicians on active duty.

    In the 2 decades since its legislative establishment, proposals have
    been made to close USUHS.  Those who propose closing the University
    assert that DOD's need for physicians can be met at a lower cost
    using physicians educated at civilian medical schools under the DOD
    scholarship program.  GAO's analysis shows that USUHS is a more
    costly source of military physicians on a per graduate basis when
    DOD's and total federal costs are considered.  With DOD education and
    retention costs of about $3.3 million over the course of a
    physician's career, the cost of a University graduate is more than 2
    times greater than the $1.5 million cost for a scholarship program
    graduate.  However, GAO estimates show that the annual costs of USUHS
    graduates ($182,000) are comparable to scholarship graduates
    ($181,000) when total federal costs are amortized over the expected
    years of military service because USUHS graduates are expected to
    have longer military careers and the University receives less non-DOD
    federal support than civilian medical schools.  USUHS graduates are
    expected to serve for about 18.5 years, on average, while scholarship
    program physicians serve for 9.8 years, on average.

    Those who propose retaining the University assert that it is needed
    to provide a stable cadre of physicians trained to meet the unique
    demands of military medicine.  GAO's analysis shows that USUHS
    provides a medical education that compares well with that of other
    U.S.  medical schools.  However, while USUHS graduates begin their
    military medical careers with more readiness training than their
    peers, the significance of the additional training is unclear.

    In addition, to help meet standards required for accreditation as an
    academic institution, USUHS provides education and training for other
    health care and related professions and engages in research,
    consultation, and archival activities.  While these activities do not
    directly contribute to the education of military physicians, they do
    involve USUHS faculty and staff, and University officials believe
    that DOD would continue to conduct these activities even if USUHS is
    closed.  USUHS officials estimated the value of these activities to
    be about $18.6 million--a figure that GAO did not validate.

    Given the changes in operational scenarios and DOD's approach for
    delivering peacetime health care, new assessments of the military's
    physician needs and the means to acquire and retain physicians are in
    order.  If DOD continues to need a cadre of experienced career
    physicians, alternative strategies, such as an additional scholarship
    option with a longer service obligation, could be considered as a
    potentially less expensive way to increase the length of selected
    military physicians' careers.

    This option assumes that (1) the University would close at the end of
    fiscal year 2000 after the current freshman class graduates, (2) the
    scholarship program would be expanded to offset the loss of
    physicians trained at USUHS, and (3) scholarship program participants
    incur a 2-year service obligation for each year of benefits received.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    17      32      45      83      81
    Outlays                             14      28      42      76      79

    Savings from 1997 funding levels adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    19      37      53      94      94
    Outlays                             16      33      49      86      92
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:33.1

    Military Physicians:  DOD's Medical School and Scholarship Program
    (GAO/HEHS-95-244, September 29, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:33.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       UNIFORMED SERVICES TREATMENT
       FACILITIESUNIFORMED SERVICES
       TREATMENT FACILITIES
    ------------------------------------------------------ Appendix III:34

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Defense (Senate)
                                        National Security (House)

    Primary agency                      Department of Defense

    Account                             Defense Health Program (97-0130)

    Spending type                       Discretionary

    Budget subfunction                  Department of Defense--Military

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    In 1982, the Congress enacted legislation that designates nine former
    Public Health Service hospitals now under civilian ownership as
    Uniformed Services Treatment Facilities (USTF) and makes them part of
    the Department of Defense's (DOD) health care system.  Between 1994
    and 1997, DOD has spent over $1.3 billion on noncompetitive,
    set-aside contracts with the USTFs to deliver health care to what now
    totals about 124,000 beneficiaries.  This arrangement with DOD has
    guaranteed the USTFs, in addition to their private health care
    business, a stable revenue source by enabling them to provide care to
    uniformed services beneficiaries.  The USTFs offer their members the
    full Civilian Health and Medical Program of the Uniformed Services
    (CHAMPUS)\16 benefit package plus additional preventive services not
    covered by CHAMPUS.  But unlike CHAMPUS, USTF members do not lose
    their eligibility when they reach age 65 and become
    Medicare-eligible.  At the beginning of fiscal year 1996, 22 percent
    (about 27,000) of the USTF members were Medicare-eligible.

    GAO and others have reported that the USTFs are not as cost-effective
    as alternative federal sources of health care.  The Institute for
    Defense Analyses estimated that the USTFs cost the government $110
    million more per year than what costs would be if the beneficiaries
    had to rely on the current military health services system and
    Medicare for their care.  Also, the Institute reported that high
    numbers of USTF beneficiaries have private insurance coverage, and
    GAO found that many are receiving Medicare services outside the USTF,
    even though DOD has already paid the USTFs in advance for all USTF
    members' care.  In response to GAO's recommendations, DOD and the
    Health Care Financing Administration have recently estimated about
    $33 million in unnecessary costs to the government from USTF members'
    use of Medicare between October 1993 and December 1995.

    The Congress included reforms in the fiscal year 1997 DOD
    authorization act to reduce the relative costliness of the USTFs
    compared with alternative programs, such as military hospitals,
    TRICARE, and Medicare.  However, before any savings can be realized,
    DOD must complete new sole-source contract negotiations with each
    USTF.  An immediate, cost-effective, and equitable option would be to
    terminate the USTF program by repealing the hospitals' status as
    designated, sole-source providers of DOD health care.  Instead,
    former USTF beneficiaries would be treated the same way all other DOD
    beneficiaries are treated under DOD's managed care support contracts
    and direct care system.  Such beneficiaries would retain their
    eligibility for Medicare-financed care, as well as DOD's direct care
    system.  And, as noted above, a high number of such beneficiaries
    already have private insurance.  Ending the USTFs' current
    sole-source, noncompetitive contractual relationship with DOD would
    remove their decided business advantage over other, competitive
    TRICARE providers.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   118     107      95      81      71
    Outlays                            118     107      95      81      71

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   121     122     123     128     128
    Outlays                            121     122     123     128     128
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \16 CHAMPUS is a fee-for-service health insurance program that pays
    for a substantial part of the health care that civilian hospitals,
    physicians, and others provide to nonactive duty DOD beneficiaries.
    DOD is in the process of changing its military health services system
    from the separate systems of direct care in military facilities and
    CHAMPUS to TRICARE, a nationwide managed care program.  TRICARE
    involves managing beneficiary care using all available military
    hospitals and clinics, supplemented by contracted civilian services.
    TRICARE offers CHAMPUS-eligible beneficiaries choice between three
    benefit plans--fee for service, preferred provider, and health
    maintenance organization.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:34.1

    Defense Health Care:  Medicare Costs and Other Issues May Affect
    Uniformed Services Treatment Facilities' Future (GAO/HEHS-96-124, May
    17, 1996).

    Defense Health Care:  Effects of Mandated Cost Sharing on Uniformed
    Services Treatment Facilities Likely to Be Minor (GAO/HEHS-96-141,
    May 13, 1996).

    Defense Health Care:  Uniformed Services Treatment Facility Health
    Care Program (GAO/HEHS-94-174, June 2, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:34.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       DEPARTMENT OF ENERGY'S
       PROCUREMENT OF LABORATORY
       TESTING SERVICESDEPARTMENT OF
       ENERGY'S PROCUREMENT OF
       LABORATORY TESTING SERVICES
    ------------------------------------------------------ Appendix III:35

    Authorizing committees              Energy and Natural Resources
                                        (Senate)
                                        Resources (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)

    Primary agency                      Department of Energy

    Account                             Defense Environmental Restoration
                                        and Waste Management (89-0242)

    Spending type                       Discretionary

    Budget subfunction                  Atomic Energy Defense Activities

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Both the Department of Energy (DOE) and the Environmental Protection
    Agency (EPA) are responsible for large environmental cleanup efforts.
    A major component of DOE's cleanup program involves analyses of toxic
    and radioactive contaminants.  DOE has estimated that these analyses
    may cost the federal government more than $15 billion over the next
    30 years.  While both agencies analyze nonradioactive organic and
    inorganic chemicals using some of the same testing methods, the
    agencies procure these commonly-used analyses in a different manner.
    EPA centrally contracts for them while DOE employs a decentralized
    procurement approach that relies heavily on its operating contractors
    to subcontract for them through commercial laboratories.

    Under its procurement approach, DOE pays higher prices to its
    commercial laboratories than EPA does for the same analyses and
    methods, partly because decentralized purchasing practices do not
    produce price competition, volume discounts, and compliance with one
    standard contract format.  Also, DOE's decentralized approach to
    procuring commonly-used analyses results in duplication of contractor
    efforts in the award and management of commercial laboratory
    subcontracts, which adds inefficiencies and increases administrative
    costs.  GAO's analysis indicates that if DOE contracted for these
    services through one central procurement function, similar to EPA's
    approach, it would receive substantially lower prices from commercial
    laboratories by consolidating its overall buying power and greatly
    reduce the inherent duplication in contract award and oversight
    activities.  DOE is currently attempting to contract for these
    services on a regional basis.

    DOE estimated that laboratory analyses costs are at least 15 percent
    of its cleanup costs, and in fiscal year 1997, DOE was appropriated
    about $6 billion for Defense Environmental Restoration and Waste
    Management.  While we believe savings could be achieved through
    centralization, a 5-year savings amount is difficult to estimate for
    several reasons, including the lack of current and complete data and
    the extent to which DOE's prices would be affected by the potential
    for radioactivity in DOE's samples.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:35.1

    Nuclear Facility Cleanup:  Centralized Contracting of Laboratory
    Analysis Would Produce Budgetary Savings (GAO/RCED-95-118, May 8,
    1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:35.2

    Victor S.  Rezendes, (202) 512-3841

       150 INTERNATIONAL AFFAIRS
    ------------------------------------------------------ Appendix III:36

      -- USAID's Housing Guaranty Program

      -- Excess Real Estate at Overseas Diplomatic Posts

      -- Overseas Diplomatic Posts

      -- State Department Functions and Activities

      -- State Department Support Functions

      -- TV Marti

      -- USIA Exchange Programs

      -- USIA Overseas Posts, Activities, and Cultural Centers

      -- International Broadcasting

      -- Risk-Based Exposure Fees for Export-Import Bank

      -- Export-Import Bank Programs

       OPTION:
       USAID'S HOUSING GUARANTY
       PROGRAMUSAID'S HOUSING GUARANTY
       PROGRAM
    ------------------------------------------------------ Appendix III:37

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Foreign Operations (Senate and
                                        House)

    Primary agency                      Agency for International
                                        Development

    Account                             Housing Guaranty Program Account
                                        (72-0401)

    Spending type                       Discretionary

    Budget subfunction                  International Development and
                                        Humanitarian Assistance

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Foreign Assistance Act of 1961, as amended, authorizes the U.S.
    Agency for International Development (USAID) to guaranty loans made
    by U.S.  investors to borrowers in developing countries for
    shelter-related projects.  With this authority, USAID operates the
    Housing Guaranty Program.  A long-run goal of this program is to
    increase shelter for low-income families in developing countries by
    stimulating local credit institutions to provide the necessary
    investment capital and other resources.  Since 1961, USAID has
    guarantied over $2.7 billion in loans to 44 countries for home
    construction, mortgages, home improvements, urban infrastructure, and
    other shelter-related projects.

    In June 1995, GAO reported that USAID had not achieved the key
    objectives of the Housing Guaranty Program despite over 30 years of
    trying.  GAO's analysis showed that U.S.-sponsored housing
    construction projects had not actually stimulated private investment.
    Nonetheless, USAID continued to guaranty loans for housing projects
    under this program.  Furthermore, GAO found that USAID does not
    always know whether the program is benefiting the poor target
    population.  On the contrary, we found numerous instances where the
    program was benefiting higher-income families.  We also reported that
    many borrowers have defaulted on previous loan payments forcing
    USAID, as guarantor, to make these payments for them.  The fees that
    USAID charges borrowers do not generate sufficient income to cover
    these costs.

    GAO recommended that the Congress terminate the program.  Although
    defaults on outstanding loan balances could cost USAID in excess of
    $1 billion, CBO estimates that terminating the Housing Guaranty
    Program would produce $24 million in savings over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     4       4       4       5       5
    Outlays                              0       1       2       3       3

    Savings from the 1997 funding level adjusted for inflati
    ----------------------------------------------------------------------
    Budget authority                     4       5       5       5       5
    Outlays                              0       1       2       3       4
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:37.1

    Foreign Housing Guaranty Program:  Financial Condition Is Poor and
    Goals Are Not Achieved (GAO/NSIAD-95-108, June 2, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:37.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       EXCESS REAL ESTATE AT OVERSEAS
       DIPLOMATIC POSTSEXCESS REAL
       ESTATE AT OVERSEAS DIPLOMATIC
       POSTS
    ------------------------------------------------------ Appendix III:38

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of State

    Account                             Security and Maintenance of U.S.
                                        Missions (19-0535)

    Spending type                       Discretionary

    Budget subfunction                  Conduct of Foreign Affairs

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Department of State has millions of dollars invested in overseas
    properties that may be unneeded or too expensive to maintain.  Proper
    management of the sale of these assets could generate considerable
    revenue.  State's process for selling unneeded real estate requires
    weighing multiple factors presented by different groups with
    competing interests.  Resistance from the host government can add
    further to delays in selling these properties.  Resolving these
    differences often stalls potential sales for years.  Furthermore,
    State has the authority to retain and use the proceeds from real
    estate sales for other facilities' needs without specific approval
    from the Office of Management and Budget (OMB) or the Congress.  The
    Congress did not appropriate funds for any new facilities in fiscal
    year 1997; therefore, State will likely use sales receipts for that
    purpose.  To reduce the deficit, the Congress would have to restrict
    the proceeds from the asset sales from reverting to the State
    Department.

    As of October 1995, State had a list of over 100 properties for
    potential sale valued at $467 million, including high-value
    properties in Manila, Paris, Singapore, and Bangkok.  In addition,
    our review of State's records identified other properties not on the
    list that potentially could be sold, including properties at closed
    posts in Zanzibar, Tanzania, and Alexandria, Egypt; and properties
    that are vacant or unsuitable for the purposes for which they were
    acquired including high-value properties in Hamilton, Bermuda, and
    Buenos Aires, Argentina.

    The 104th Congress endorsed our recommendation that the Department of
    State establish an independent panel to review and recommend the sale
    of real estate.  The panel could review the list identified by State
    as well as properties identified in our report or by other sources.
    If State establishes a panel to review and sell only those properties
    it has identified, and if the Congress specifically restricted the
    proceeds from reverting back to the State Department, CBO estimates
    that $150 million in assets could be generated and earmarked for
    deficit reduction over the next five years.  We believe that
    substantial additional revenues could be generated through the sale
    of other assets, such as the property in Hamilton, Bermuda, and
    Buenos Aires, Argentina.

    In addition, in 1995 we reported that certain high-value properties
    in Tokyo are unneeded.  Our analysis demonstrated the feasibility
    of--and identified options for--selling portions of this property.
    For example, selling the Deputy Chief of Mission residence and
    constructing a less costly replacement residence on the
    government-owned housing compound could generate proceeds that could
    be used for deficit reduction.  The State Department has rejected
    this option because the embassy desired to retain the facility for
    representational purposes.

    The current sales value of the Tokyo property is uncertain.  There
    has been no recent appraisal of the Deputy Chief of Mission
    residence, but in 1990, it was valued at $92 million.  Embassy
    information, based on Japanese government reports in September 1994,
    shows that residential property values have declined about 30 percent
    since 1990.  GAO assumes that the Deputy Chief of Mission residence
    is valued at $40 million--less than 50 percent of its value in 1990.
    In preparing the following estimate, CBO assumes that the
    construction of the new Deputy Chief of Mission residence on the
    Mitsui compound would cost $4 million and that the sale of the old
    residence would take place after the construction of the replacement
    residence is completed.  The sale of the old residence for $40
    million would count towards deficit reduction only if the Congress
    specifically restricted the proceeds from reverting back to the State
    Department.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Sell unnecessary real estate at overseas diplomatic
    ----------------------------------------------------------------------

    Asset sale
    ----------------------------------------------------------------------
    Budget authority                    30      30      30      30      30
    Outlays                              9      17      24      29      30
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Sell high value property in Tokyo
    ----------------------------------------------------------------------

    Asset sale
    ----------------------------------------------------------------------
    Budget authority                    -4       0       0       0      40
    Outlays                             -1      -1      -1      -1      40
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:38.1

    State Department:  Options for Addressing Possible Budget Reductions
    (GAO/NSIAD-96-124, August 29, 1996).

    Overseas Real Estate:  Millions of Dollars Could Be Generated By
    Selling Unneeded Real Estate (GAO/NSIAD-96-36, April 23, 1996).

    Overseas Real Estate:  Inaction on Proposals to Sell High-Value
    Property in Tokyo (GAO/NSIAD-95-73, April 7, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:38.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       OVERSEAS DIPLOMATIC
       POSTSOVERSEAS DIPLOMATIC POSTS
    ------------------------------------------------------ Appendix III:39

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of State

    Account                             Diplomatic and Consular Programs
                                        (19-0113)
                                        Salaries and Expenses (19-0107)

    Spending type                       Discretionary

    Budget subfunction                  Conduct of Foreign Affairs

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    In fiscal year 1995, State spent about $1.9 billion, or almost 70
    percent of its budget, operating overseas posts.  State maintains a
    diplomatic presence in 252 overseas locations, including countries
    where the United States has limited interests.  Because overseas
    posts consume such a large portion of State's operating budget,
    closing posts or reducing their size offers the greatest potential
    for achieving substantial budget reductions.  Balanced, thoughtful
    decisions on closing and/or reducing the size of posts must be made
    to ensure that U.S.  interests are well served overseas and Americans
    are protected within available funding.

    In response to funding constraints in recent years, State has closed
    and reduced the size of a number of posts and has proposed the
    closure of additional posts.  However, it has made little headway
    because of internal and external resistance to these changes.  In
    GAO's August 1996 report, we suggested that one strategy to reduce
    the controversy surrounding post closings would be to establish an
    independent post closure panel like the Defense Base Closure and
    Realignment Commission.  Such an approach would allow for
    decision-making based on the need to support both State and non-State
    activities, consistent with overall U.S.  policy interests and
    priorities as well as available resources.  It would also have the
    advantage of mitigating at least some of the pressures and parochial
    interests that have historically operated to maintain a U.S.
    overseas presence in some locations.

    Reducing the number of overseas posts might be accomplished in any
    number of ways.  For example, one option would be to use multiple
    country accreditation in some regions, where an ambassador operating
    from a regional post would "circuit ride" to several small,
    neighboring countries, eliminating the need for permanent embassy
    structures in each country.  Regional posts would allow consolidation
    of staff and other resources, although cost reductions would be
    offset to some degree by travel and other related expenses.  The
    British government employs this approach in some African countries,
    and the U.S.  Embassy in Bridgetown, Barbados, executes diplomatic
    responsibilities for a number of countries in the eastern Caribbean.
    State could expand this approach to include other regions, such as
    the Baltic States, Africa, and countries in South America.  The State
    Department's financial management systems could not readily provide
    post-specific operating costs and closing costs to estimate the
    savings for this option.  However, we calculate that if State closed
    20 small embassies and employed the "circuit rider" approach to cover
    its diplomatic responsibilities in these countries, State could
    reduce its costs by up to $40 million annually, after closing costs
    have been dealt with and if the U.S.  direct-hire positions were
    eliminated.

    A second option would be to reevaluate the need for State's 77
    consulates and consulates general.  Although many consulates are
    small or moderately sized, some are bigger and more expensive to
    operate than major embassies.  Some believe that the end of the Cold
    War, expanded media coverage, and improved information and
    telecommunications technology make it possible for State to close
    consulates and consolidate staff at embassies or other consulates
    located in the same countries.  Our analysis has shown that if State
    closed one of its largest consulate generals it could reduce its
    annual operating costs by nearly $20 million, after closing costs
    have been dealt with and if the U.S.  direct-hire positions were
    eliminated.

    Another way to reduce costs would be to reduce overseas staffing--an
    item that accounts for a large portion of overseas costs.  Large and
    comprehensive posts understandably absorb a disproportionate share of
    the total costs of U.S.  overseas posts and, therefore, represent a
    significant opportunity in this regard.  In fiscal year 1995, the
    cost of operating the posts in Germany alone totaled over $90
    million.  The cost of operating the posts in Japan totaled over $54
    million during the same period.  Although the cost reductions from
    eliminating U.S.  direct-hire positions overseas vary by region and
    post, using average costs, CBO estimates that $45 million could be
    saved by eliminating 100 such positions through attrition over 5
    years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Eliminating 100 overseas positions
    ----------------------------------------------------------------------

    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     3       6       9      12      15
    Outlays                              3       5       8      11      14

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     3       6       9      12      15
    Outlays                              3       5       8      11      14
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:39.1

    State Department:  Options for Addressing Possible Budget Reductions
    (GAO/NSIAD-96-124, August 29, 1996).

    Overseas Presence:  Staffing at U.S.  Diplomatic Posts
    (GAO/NSIAD-95-50FS, December 28, 1994).

    State Department:  Overseas Staffing Process Not Linked to Policy
    Priorities (GAO/NSIAD-94-228, September 20, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:39.2

    Benjamin F.  Nelson (202) 512-4128

       OPTION:
       STATE DEPARTMENT FUNCTIONS AND
       ACTIVITIESSTATE DEPARTMENT
       FUNCTIONS AND ACTIVITIES
    ------------------------------------------------------ Appendix III:40

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of State

    Account                             Diplomatic and Consular Programs
                                        (19-0113)
                                        Salaries and Expenses (19-0107)

    Spending type                       Discretionary

    Budget subfunction                  Conduct of Foreign Affairs

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of State's functional bureaus share responsibility
    with several other U.S.  agencies on various overlapping policy
    issues.  The involvement of many agencies in similar or related
    functions does not mean the agencies unnecessarily duplicate
    activities, but it does suggest the potential for consolidation or
    transfer of some of State's duties.  For example, we identified
    nearly 30 agencies and offices involved in trade policy and export
    promotion, about 35 engaged in global programs, and over 20 involved
    in international security functions.  For many of these functions,
    several offices and bureaus within State headquarters and overseas
    posts are involved.

    State's costs could be reduced by lessening the degree of its
    involvement in functions that overlap with other agencies or by
    lessening overlap within State's offices.  For example, CBO estimates
    that if the 45 overseas labor attach� and 6 corresponding
    headquarters positions were eliminated through attrition over five
    years it would produce savings of $30 million.  According to several
    officials at overseas posts, labor issues could be adequately covered
    by political and/or economic officers.  In addition, several State
    bureaus monitor labor issues.  State has proposed abolishing or
    lowering the rank of some labor attach� positions in the past but has
    encountered resistance from the Department of Labor and others.

    In addition, State could cut costs if some of its legislatively
    mandated workload requirements were reduced.  In fiscal year 1996,
    State was required to produce over 130 congressionally mandated
    reports.  While some reports could be eliminated or curtailed, it is
    not clear which are the best candidates because their cost and
    relative value to the users are not known.  For example, country
    reports on economic policy and trade practices, required by the
    Omnibus Trade and Competitiveness Act of 1988, consume the equivalent
    of 5 staff years at headquarters and 100 posts at an annual cost of
    at least $500,000 and State Department officials indicated that the
    information in the reports is available through other sources.  Since
    the personnel and expenses involved in preparing these reports would
    likely be reallocated rather than eliminated, CBO does not anticipate
    any budgetary savings from this option.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Eliminating Labor Attach� and corresponding headquar
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     2       4       6       8      10
    Outlays                              2       4       6       8       9

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     2       4       6       8      10
    Outlays                              2       4       6       8       9
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:40.1

    Foreign Affairs:  Perspectives on Foreign Affairs Programs and
    Structures (GAO/NSIAD-97-6, November 8, 1996).

    State Department:  Options for Addressing Possible Budget Reductions
    (GAO/NSIAD-96-124, August 29, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:40.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       STATE DEPARTMENT SUPPORT
       FUNCTIONSSTATE DEPARTMENT
       SUPPORT FUNCTIONS
    ------------------------------------------------------ Appendix III:41

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of State

    Accounts                            Diplomatic and Consular Programs
                                        (19-0113)
                                        Salaries and Expenses (19-0107)

    Spending type                       Discretionary

    Budget subfunction                  Conduct of Foreign Affairs

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In fiscal year 1995, State allotted $1.8 billion, or about 65 percent
    of its budget, to domestic and overseas support operations.  These
    funds provided support for both Department staff and employees from
    other federal agencies.  Centrally funded operations account for
    approximately $1.1 billion of the support budget and cover central
    administration costs and the costs of running several regional
    centers that provide financial and information management services to
    overseas posts.  The geographic bureaus control the remaining portion
    of State's support budget, which is largely used to fund the salaries
    of those employees in support positions.

    Cost-cutting measures being considered by State include hiring more
    U.S.  family members to fill overseas staffing positions, increasing
    employees' payments for medical services, and increasing the length
    of overseas tours.  Over the long term, State hopes to further reduce
    its operating expenses through business process reengineering and the
    outsourcing of certain support functions.  In both areas, however,
    only limited progress has been made.

    GAO identified several additional options State could implement to
    adjust to potential budget cuts as well as some of the potential
    adverse consequences of these options.  These options include (1)
    expanding the use of foreign service nationals (FSN) in support
    positions at overseas posts, (2) reviewing employees' benefits and
    allowances, and (3) reviewing support staff levels in headquarters.

    While cost-savings estimates for the last two options are not
    available until reforms are specified, CBO estimates that expanding
    the use of foreign nationals in selected posts could result in $165
    million in savings over 5 years.  Specifically, State could increase
    its use of FSNs to replace Foreign Service specialists working in
    non-sensitive positions.  Employment of FSNs is far less costly than
    the employment of Foreign Service specialists because FSNs do not
    receive the benefits and allowances payable to Foreign Service
    employees.  We estimate that State currently has 500 Foreign Service
    specialists in six job categories it considers nonsensitive.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    11      22      33      44      55
    Outlays                              9      20      30      41      52

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    11      22      33      44      55
    Outlays                              9      20      30      41      52
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:41.1

    Foreign Affairs:  Perspectives on Foreign Affairs Programs and
    Structures (GAO/NSIAD-97-6, November 8, 1996).

    State Department:  Options for Addressing Possible Budget Reductions
    (GAO/NSIAD-96-124, August 29, 1996).

    State Department:  Actions Needed to Improve Embassy Management
    (GAO/NSIAD-96-1, March 12, 1996).

    State Department:  Widespread Management Weaknesses at Overseas
    Embassies (GAO/T-NSIAD-93-17, July 13, 1993).

    State Department:  Survey of Administrative Issues Affecting
    Embassies (GAO/NSIAD-93-218, July 12, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:41.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       TV MARTITV MARTI
    ------------------------------------------------------ Appendix III:42

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, and the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      U.S. Information Agency

    Account                             Broadcasting to Cuba (67-0208)

    Spending type                       Discretionary

    Budget subfunction                  Foreign Information and Exchange
                                        Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The U.S.  Information Agency (USIA) recognizes that although it
    provides television broadcasts to Cuba through TV Marti, the
    broadcasts are constantly and effectively jammed.  USIA's research
    data shows that, mainly as a result of the jamming, the number of
    Cubans who are able to watch the broadcasts is small.  Other factors
    that decrease effectiveness of TV Marti include broadcast hours that
    are not convenient to viewers and a broadcast signal that does not
    reach much beyond the greater Havana area.  The U.S.  Advisory
    Commission on Public Diplomacy has reported that TV Marti is not
    cost-effective and has repeatedly recommended that it be terminated.
    In March 1994, the Advisory Panel on Radio Marti and TV Marti
    concluded that TV Marti cannot be considered cost-effective and would
    not be cost-effective unless the viewing audience in Cuba could be
    substantially expanded.  TV Marti broadcasts daily from 3:30 am to 8
    am, but Cuba jams the broadcasts.  In an attempt to overcome jamming,
    TV Marti is converting from VHF to UHF transmission even though Cuba
    could acquire equipment to jam the new signal at relatively little
    cost.  Further, GAO has criticized controls over program quality and
    objectivity, and according to the Advisory Panel, identified problems
    do not appear to have been fully resolved.

    The Congress may wish to eliminate TV Marti given its persistent
    problems and its limited ability to achieve its goals.  The savings
    that could be achieved if TV Marti were eliminated are shown in the
    following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     6      11      11      11      11
    Outlays                              5      10      11      11      11

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     6      12      12      13      13
    Outlays                              5      11      12      13      13
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:42.1

    TV Marti:  Costs and Compliance With Broadcast Standards and
    International Agreements (GAO/NSIAD-92-199, May 6, 1992).

    Broadcasts to Cuba:  TV Marti Surveys Are Flawed (GAO/NSIAD-90-252,
    August 9, 1990).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:42.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       USIA EXCHANGE PROGRAMSUSIA
       EXCHANGE PROGRAMS
    ------------------------------------------------------ Appendix III:43

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      U.S. Information Agency

    Account                             Educational and Cultural Exchange
                                        Programs (67-0209)

    Spending type                       Discretionary

    Budget subfunction                  Foreign Information and Exchange
                                        Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The U.S.  Information Agency (USIA) manages a variety of exchange
    programs to foster mutual understanding between the people of the
    United States and other countries.  In 1994, USIA academic exchanges
    accounted for less than 24 percent of all U.S.  government-funded
    international exchange and training activities.  In fiscal year 1996,
    these exchanges cost about $210 million plus approximately $29
    million to manage them.

    In recent years, funding levels have not permitted USIA to maintain
    the same number of exchanges it supported in the past.  Should
    funding be further reduced, options to cut costs include eliminating
    certain exchanges entirely, reducing the amount of funds USIA
    allocates to each program, or obtaining more financial support from
    the private sector or foreign governments.  The advisability of
    implementing any or all of these options would need to be evaluated
    along with the impact such actions might have on U.S.  bilateral
    relationships and on the promotion of ties between private citizens
    and organizations in the United States and abroad.  Whether the
    federal government still needs to fund each exchange, whether the
    exchange is targeted at the most appropriate countries, whether it is
    unique and unavailable from the private sector, and whether it is
    effective are questions requiring review if the budget for exchanges
    is significantly cut.

    Savings resulting from reduced funding for certain programs would
    depend on the specific programs and the level of cuts.  Likewise,
    savings that result from obtaining more financial support from the
    private sector would depend on specific negotiations with companies
    and new bilateral agreements with other countries.  However, critics
    of one program, USIA's high school exchange, argue that it is more
    expensive and has less immediate impact than other programs.  For
    example, in fiscal year 1995 USIA spent more than $56 million on the
    Congress-Bundestag Program with Germany and the Freedom Support
    Act/Newly Independent States and Support for East European Democracy
    Act Programs that specialized in exchanges of secondary school
    students and educators.  CBO estimates that $222 million in savings
    over 5 years could be generated if these programs were eliminated.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    41      41      41      41      41
    Outlays                             21      36      39      41      41

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    42      43      44      46      47
    Outlays                             21      37      42      44      46
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:43.1

    U.S.  Information Agency:  Options for Addressing Possible Budget
    Reductions (GAO/NSIAD-96-179, September 23, 1996).

    Exchange Programs:  Inventory of International Educational, Cultural,
    and Training Programs (GAO/NSIAD-93-157BR, June 23, 1993).

    Exchange Programs:  Observations on International Educational,
    Cultural, and Training Programs (GAO/T-NSIAD-93-7, March 23, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:43.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       USIA OVERSEAS POSTS,
       ACTIVITIES, AND CULTURAL
       CENTERSUSIA OVERSEAS POSTS,
       ACTIVITIES, AND CULTURAL
       CENTERS
    ------------------------------------------------------ Appendix III:44

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (Senate and House)

    Primary agency                      U.S. Information Agency

    Accounts                            Salaries and Expenses (67-0201)
                                        Educational and Cultural Exchange
                                        Programs (67-0209)

    Spending type                       Discretionary

    Budget subfunction                  Foreign Information and Exchange
                                        Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The mission of the U.S.  Information Agency (USIA) is to explain and
    advocate U.S.  policy to foreign publics, provide information about
    the United States, build lasting relationships and mutual
    understanding, and advise U.S.  decisionmakers on foreign public
    opinion and its implications for the United States.  In fiscal year
    1996, USIA spent $310 million, or about 28 percent of its $1.1
    billion budget, on personnel, infrastructure, programs and
    headquarters activities to support its 199 overseas posts in 143
    countries.

    Although U.S.  foreign policy objectives may have changed in light of
    post-cold war needs, USIA has not determined if its organizational
    structure and public diplomacy programs have outlived their
    usefulness.  Agency officials believe it is difficult to link a
    program to a desired result, and existing evidence of impact is
    largely anecdotal.  However, such assessments are critical to USIA's
    ability to remain viable while managing budgetary reductions.

    This option is divided into three parts:  eliminating some USIA
    overseas posts, activities, and cultural centers.

          POSTS
    ---------------------------------------------------- Appendix III:44.1

    GAO reported in 1996 that USIA maintains overseas missions in
    countries that are relatively less important to the U.S.  foreign
    policy and retains overseas infrastructure and programs which may no
    longer be relevant.  For example, in fiscal year 1997 at a cost of
    about $29 million, USIA operated posts in more than 50 countries
    where it believed the United States had limited public diplomacy
    goals.

    Reducing or eliminating these posts or activities are options to
    lower costs but actual savings will depend on the current costs of
    the posts closed or reduced.  Based on fiscal year 1997 costs, CBO
    estimates that closing these posts in countries where the United
    States has limited public diplomacy goals would produce $148 million
    in savings over 5 years.

          ACTIVITIES
    ---------------------------------------------------- Appendix III:44.2

    One activity we believe merits review is USIA's student advising
    operation.  USIA spends about $2.6 million annually to subsidize more
    than 400 educational advisory centers worldwide that provide
    information about the U.S.  system of education.  Some of these
    centers are housed in USIA offices and are fully funded by the U.S.
    government.  Others are operated by host country universities or U.S.
    nonprofit organizations and are partially funded by USIA.  An
    additional $1.4 million is spent annually for training, materials,
    and other activities.

    Proponents of the student advising operation believe that it is in
    the best interests of the United States to support student advising
    because international students spend nearly $7 billion a year in the
    United States, contributing substantially to the U.S.  economy, and
    American students are introduced to different cultures, enhancing
    diversity.  Critics have concluded, however, that new worldwide
    trends to internationalize higher education, advancements in
    communication technology, and the increased sophistication of
    non-U.S.-government-sponsored educational advising institutions
    indicate that a guidance and oversight role for USIA is more
    appropriate than an operational one.  They argue that the increase in
    private sector counseling services, coupled with dwindling USIA
    resources, suggest it is an appropriate time for USIA to turn over
    its educational advising role to the private sector.  CBO estimates
    that eliminating student advising operations would result in savings
    of $15 million over 5 years.

          CULTURAL CENTERS
    ---------------------------------------------------- Appendix III:44.3

    USIA maintains more than 70 cultural centers, libraries, and branch
    offices overseas.  Because they may not be colocated with an embassy
    and require staff to deal directly with the public, they are often
    expensive to operate.  In Germany, for example, the fiscal year 1995
    cost to operate six cultural centers (called America Houses) was
    nearly $9 million, which was for 77 staff and for activities such as
    reference centers with online databases, student counseling
    activities, and cultural events.

    USIA could cut costs by finding alternatives for its cultural
    centers.  For example, critics of the cultural centers believe that
    binational centers are a cost-effective alternative to cultural
    centers.  Binational centers are private, autonomous institutions
    established to promote mutual understanding between the United States
    and host countries.  USIA may have only minimal or no funds invested
    in the centers and may or may not assign staff.  USIA successfully
    encouraged the formation of a binational center when funding
    limitations forced it to close an America House in Germany.  The
    agency collaborated with private industry and the local German
    government to establish a German-American Institute to further
    relations through cultural and educational events.  CBO estimates
    that if USIA closed its cultural centers it could achieve $141
    million in savings over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Eliminate USIA posts
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    16      29      29      29      29
    Outlays                             13      27      29      29      29

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    17      31      32      33      35
    Outlays                             14      29      32      33      35
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Eliminate student advising operations
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     2       3       3       3       3
    Outlays                              2       3       3       3       3

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     2       3       3       3       4
    Outlays                              2       3       3       3       4
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Eliminate USIA cultural centers
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    14      28      28      28      28
    Outlays                             12      26      28      28      28

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    15      30      31      32      33
    Outlays                             13      27      31      32      33
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:44.4

    U.S.  Information Agency:  Options for Addressing Possible Budget
    Reductions (GAO/NSIAD-96-179, September 23, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:44.5

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       INTERNATIONAL
       BROADCASTINGINTERNATIONAL
       BROADCASTING
    ------------------------------------------------------ Appendix III:45

    Authorizing committees              Foreign Relations (Senate)
                                        International Relations (House)

    Appropriations subcommittees        Foreign Operations (Senate and
                                        House)

    Primary agency                      U.S. Information Agency

    Account                             International Broadcasting
                                        Operations (67-0206)

    Spending type                       Discretionary

    Budget subfunction                  Foreign Information and Exchange
                                        Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The United States broadcasts over 1,600 hours of radio programming in
    53 languages and over 400 hours of television in several languages
    weekly to support U.S.  foreign policy objectives.  In fiscal year
    1996, $405 million, or 38 percent of the U.S.  Information Agency's
    budget supported the Voice of America (VOA) (47 languages), Radio
    Free Europe/Radio Liberty (RFE/RL)(21 languages), Radio and TV Marti
    broadcasts to Cuba, and Worldnet television broadcasts.  Also, Radio
    Free Asia (RFA) began broadcasting to China in September 1996 and to
    Tibet in December 1996.  VOA, RFE/RL, and RFA have different purposes
    and therefore broadcast in some of the same languages.  VOA's mission
    is to provide accurate and objective world news and present a
    balanced portrayal of U.S.  institutions and policies.  In contrast,
    RFE/RL's and RFA's mission is to present accurate news about
    political, social, and economic developments within the countries
    themselves in the absence of fully functional or free media.

    Funding for international broadcasting has dropped considerably since
    fiscal year 1994 as VOA and RFE/RL consolidated functions such as
    engineering, eliminated overlapping broadcast hours to the same
    target audience, and cut 1,500 positions.  Further savings would
    require changes in the number of language services and/or broadcast
    hours.  Over the years, very few language services have been
    terminated despite changing world conditions.  The Broadcasting Board
    of Governors is developing a plan to review all language services and
    broadcast entities to determine their continued need and
    effectiveness.  This review may identify less necessary language
    services that could be eliminated.  Estimated annual savings that
    would result from reducing the number of broadcast languages would
    range from $230,000 for VOA's Slovene language broadcast to $12.7
    million for both VOA and RFE/RL's Russian language broadcasts.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:45.1

    U.S.  Information Agency:  Options for Addressing Possible Budget
    Reductions (GAO/NSIAD-96-179, September 23, 1996).

    International Broadcasting:  Downsizing and Relocating Radio Free
    Europe/Radio Liberty (GAO/NSIAD-95-53, April 5, 1995).

    Voice of America:  Station Modernization Projects Need to Be
    Justified (GAO/NSIAD-94-69, January 24, 1994).

    Voice of America:  Management Actions Needed to Adjust to a Changing
    Environment (GAO/NSIAD-92-150, July 24, 1992).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:45.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       RISK-BASED EXPOSURE FEES FOR
       EXPORT-IMPORT BANKRISK-BASED
       EXPOSURE FEES FOR EXPORT-IMPORT
       BANK
    ------------------------------------------------------ Appendix III:46

    Authorizing committees              Banking, Housing, and Urban
                                        Affairs (Senate)
                                        Banking and Financial Services
                                        (House)

    Appropriations subcommittees        Foreign Operations (Senate)
                                        Foreign Operations, Export
                                        Financing, and Related Programs
                                        (House)

    Primary agency                      U.S. Export-Import Bank

    Account                             Export-Import Bank Program Account
                                        (83-0100)

    Spending type                       Discretionary

    Budget subfunction                  International Financial Programs

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The U.S.  Export-Import Bank's (Eximbank) fees are currently lower
    than those charged by most foreign export credit agencies because
    Eximbank has interpreted its broad congressional mandate to be "fully
    competitive" by setting its sovereign fees as low or lower than about
    75 percent of those offered by other major export credit agencies.

    Decision makers will need to address several trade and foreign policy
    issues before making changes in Eximbank's programs.  Eximbank
    officials said that any proposed fee increases need to be considered
    within the broader context of current international efforts to
    gradually reduce government export finance subsidies.  They also
    stated that these options could make Eximbank programs less
    competitive relative to foreign export credit agencies but
    acknowledged that it would be difficult to determine the precise
    trade effects of such actions.

    Using 1995 Eximbank transaction data, we estimated that the bank
    could have saved about $84 million in fiscal year 1995 if it had
    raised its fees to a level in the mid-range of fees charged by other
    major export credit agencies of other nations.  Any fee increases are
    likely to reduce demand for Eximbank financing and the savings
    associated with such an increase would depend on its magnitude and on
    other variables, such as the sensitivity of demand to the price
    increase as well as the risk levels, terms, and conditions of future
    transactions.  CBO estimates that changing the fee structure
    accordingly could save more than $450 million over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    90      90      90      90      90
    Outlays                             10      24      36      46      56

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    92      95      97     100     103
    Outlays                             10      25      37      49      60
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:46.1

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

    Foreign Affairs:  Perspectives on Foreign Affairs Programs and
    Structures (GAO/NSIAD-97-6, November 8, 1996).

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:46.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       EXPORT-IMPORT BANK
       PROGRAMSEXPORT-IMPORT BANK
       PROGRAMS
    ------------------------------------------------------ Appendix III:47

    Authorizing committees              Banking, Housing, and Urban
                                        Affairs (Senate)
                                        Banking and Financial Services
                                        (House)

    Appropriations subcommittees        Foreign Operations (Senate)
                                        Foreign Operations, Export
                                        Financing, and Related Programs
                                        (House)

    Primary agency                      U.S. Export-Import Bank

    Account                             Export-Import Bank Loans Program
                                        Account (83-0100)

    Spending type                       Discretionary

    Budget subfunction                  International Financing Programs

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The U.S.  Export-Import Bank (Eximbank) was created to facilitate
    exports of U.S.  goods and services by offering a wide range of
    financing at terms competitive with those of other governments'
    export financing agencies.  Eximbank is to absorb risks that the
    private sector is unwilling or unable to assume.  Higher risk
    markets, such as the Newly Independent States of the Former Soviet
    Union, constitute a relatively small share of the Eximbank's total
    financing commitments yet absorb a relatively large share of its
    subsidy costs.  From fiscal year 1992 to 1996, Eximbank has used an
    average of $750 million of its credit subsidy appropriation to
    support an average of $13.3 billion in export financing commitments
    (loans, loan guarantees, and insurance).  Eximbank's congressional
    mandate is to supplement, not compete with, private capital.  Thus it
    provides financing in a wide variety of markets, including more
    markets in higher-risk categories than those of any of its major
    competitors.

    The level and scope of the risks of the Eximbank's programs could be
    reduced by several means, such as placing a ceiling on the maximum
    subsidy rate allowed in Eximbank programs, reducing or eliminating
    program availability offered in high-risk markets, and offering less
    than 100-percent risk protection.  These changes would have only a
    slight effect (less than 5 percent) on the overall level of U.S.
    exports supported with Eximbank financing.  However, these options
    raise several trade and foreign policy issues that decisionmakers
    would need to address before making any changes in Eximbank's
    programs.  Eximbank officials noted that these options could
    undermine U.S.  government efforts to provide support in some
    higher-risk markets, such as the Newly Independent States of the
    Former Soviet Union, that exhibit promising long-term potential.

    The specific level of savings resulting from these program changes
    would be dependent on several factors, including the willingness of
    exporters and participating banks to absorb increased costs and
    risks, and the reaction of foreign export credit agencies.  We
    estimated, based on 1995 transaction levels, that $157 million in
    program subsidy savings could be achieved annually if Eximbank
    provided only short-term cover in high-risk markets.  The following
    CBO estimates are based on an increase in Eximbank transaction levels
    in these markets.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   244     244     244     244     244
    Outlays                             27      66      97     125     150

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   248     255     262     269     276
    Outlays                             28      68     101     133     162
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:47.1

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

    Foreign Affairs:  Perspectives on Foreign Affairs Programs and
    Structures (GAO/NSIAD-97-6, November 8, 1996).

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:47.2

    Benjamin F.  Nelson, (202) 512-4128

       250 GENERAL SCIENCE, SPACE, AND
       TECHNOLOGY
    ------------------------------------------------------ Appendix III:48

      -- Space Station

      -- NASA's Earth Observing System Data and Information System

       OPTION:
       SPACE STATIONSPACE STATION
    ------------------------------------------------------ Appendix III:49

    Authorizing committees              Commerce, Science and
                                        Transportation (Senate)
                                        Science (House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      National Aeronautics and Space
                                        Administration

    Account                             Human Space Flight (80-0111)

    Spending type                       Discretionary

    Budget subfunctions                 Space Flight, Research, and
                                        Supporting Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    In 13 reports and testimonies issued since 1991, GAO has expressed
    concerns about various aspects of the space station, including rising
    cost estimates that have prompted several redesigns since the project
    was first funded in fiscal year 1985.  In 1993, the station was
    redesigned again and Russia was brought in as a partner.  The
    National Aeronautics and Space Administration (NASA) believed that
    Russian participation would improve the station's capabilities and
    reduce the estimated cost to complete its assembly.  Subsequently,
    annual funding through completion of assembly was capped at about
    $2.1 billion and the total project cost was capped at $17.4 billion.

    Since 1993, GAO has reported that NASA has made some progress on the
    space station, but it still has considerable challenges to overcome,
    including lower financial reserves and significant risk related to
    the space shuttle's ability to support the space station's launch and
    assembly schedule.  Most recently, in July 1996, GAO reported that
    the cost and schedule threats have continued.  The cost threat is
    particularly severe over the next few years, due to the limited
    reserves for additional cost risks such as possible reduced Russian
    participation.

    The Congress may wish to closely monitor NASA's efforts to manage
    station development to enable it to act quickly should estimated
    costs to complete the project increase substantially.  Such actions
    could include acceptance of the cost increases, further reduction in
    the project's scope, or terminating the project.  If the project were
    terminated, the following savings would result.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                 1,449   2,149   2,149   2,149   2,149
    Outlays                            947   1,884   2,136   2,148   2,149

    Savings from the 1997 Defense Plan adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 1,503   2,263   2,323   2,385   2,450
    Outlays                            982   1,976   2,289   2,362   2,426
    ----------------------------------------------------------------------
    Note:  This estimate assumes termination costs of $700 million.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:49.1

    Space Station:  Cost Control Difficulties Continue
    (GAO/T-NSIAD-96-210, July 24, 1996).

    Space Station:  Cost Control Difficulties Continue (GAO/NSIAD-96-135,
    July 17, 1996).

    Space Station:  Declining Budgets and Tight Schedules Could
    Jeopardize Space Station Support (GAO/NSIAD-95-171, July 28, 1995).

    Space Station:  Estimated Total U.S.  Funding Requirements
    (GAO/NSIAD-95-163, June 12, 1995).

    Space Station:  Plans to Expand Research Community Do Not Match
    Available Resources (GAO/NSIAD-94-33, November 22, 1994).

    Space Station:  Update on the Impact of the Expanded Russian Role
    (GAO/NSIAD-94-248, July 29, 1994).

    Space Station:  Impact of the Expanded Russian Role on Funding and
    Research (GAO/NSIAD-94-220, June 21, 1994).

    Space Station:  Information on National Security Applications and
    Cost (GAO/NSIAD-93-208, May 18, 1993).

    Space Station:  Program Instability and Cost Growth Continue Pending
    Redesign (GAO/NSIAD-93-187, May 18, 1993).

    NASA:  Large Programs May Consume Increasing Share of Limited Future
    Budgets (GAO/NSIAD-92-278, September 4, 1992).

    Space Station:  Status of Financial Reserves (GAO/NSIAD-92-279, July
    20, 1992).

    NASA Budget:  Potential Shortfalls in Funding NASA's 5-Year Plan
    (GAO/T-NSIAD-92-18, March 17, 1992).

    Questions Remain on the Costs, Uses, and Risks of the Redesigned
    Space Station (GAO/T-NSIAD-91-26, May 1, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:49.2

    Louis J.  Rodrigues, (202) 512-4841

       OPTION:
       NASA'S EARTH OBSERVING SYSTEM
       DATA AND INFORMATION
       SYSTEMNASA'S EARTH OBSERVING
       SYSTEM DATA AND INFORMATION
       SYSTEM
    ------------------------------------------------------ Appendix III:50

    Authorizing committees              Commerce, Science and
                                        Transportation (Senate)
                                        Science (House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      National Aeronautics and Space
                                        Administration (NASA)

    Account                             Space, Aeronautics, and Technology
                                        (80-0110)

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    NASA's Earth Observing System (EOS) is a comprehensive program to
    study global change by gathering and analyzing data about how the
    earth functions as a single, integrated system.  About a third of the
    cost for EOS will go to the Earth Observing System Data and
    Information System (EOSDIS), which will operate EOS satellites and
    instruments and provide ground acquisition, processing, storage,
    management, and distribution of the EOS data.  In addition to the EOS
    data, EOSDIS will incorporate and make available data from previous
    NASA missions, non-NASA systems, and atmosphere-, ocean-, and
    land-based sensors.  Developing EOSDIS is a massive undertaking; its
    intended scope far exceeds that of any previous civilian data
    management system.  Over its lifetime, EOSDIS could accumulate
    information comparable to more than 1,000 times the amount of text
    stored in the Library of Congress.  A major objective of EOSDIS is to
    make this enormous quantity of data easily accessible and usable to
    many earth scientists.

    The bulk of EOSDIS development is being carried out under a single,
    comprehensive contract, known as the EOSDIS Core System contract.
    The Core System contract was awarded to Hughes Applied Information
    Systems in early 1993 and will cost NASA an estimated $930 million
    through 2003.  Hughes is responsible for building and integrating the
    major elements of EOSDIS, including hardware and software to be
    installed at eight data centers around the country.

    In March 1995, GAO observed that NASA's emphasis on large-scale
    development in the near term may be unwise and recommended deferring
    full-scale development until technology and standards have further
    advanced and user needs are better known.  Also, in 1995, the
    National Research Council expressed its concerns about the EOSDIS
    development effort and recommended a new approach to EOSDIS, which
    would streamline some EOSDIS functions and transfer other functions
    to a competitively selected federation of partners in government,
    academia, and the private sector.  Since that time, NASA has been
    changing its plans for EOSDIS to try to accommodate the vision of a
    federation of partners recommended by the National Research Council.
    Given that these changes should lead to a less intensive near-term
    systems development effort, it is reasonable to consider reducing
    planned funding for EOSDIS.  However, GAO has not made a
    determination of the exact size of the most appropriate reduction.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:50.1

    Earth Observing System:  Funding Requirements for NASA's EOSDIS
    (GAO/AIMD-95-153FS, June 8, 1995).

    Earth Observing System:  Concentration on Near-term EOSDIS
    Development May Jeopardize Long-term Success (GAO/T-AIMD-95-103,
    March 16, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:50.2

    Jack L.  Brock, Jr., (202) 512-6240

       270 ENERGY
    ------------------------------------------------------ Appendix III:51

      -- Clean Coal Technology Funds

      -- Department of Energy's National Laboratories

      -- Use of Carryover Balances to Offset Future Budget Needs

      -- Department of Energy's Overtime Costs

      -- Department of Energy's Cleanup Studies

      -- Department of Energy's Contractors' Separation Benefits Package

      -- >Federal Exemption to Certain State Taxes for Department of
         Energy's Operating Contractors

      -- Nuclear Waste Disposal Fees

      -- Power Marketing Administrations Cost Recovery

      -- Federal Investment in Successfully Commercialized Technologies

       OPTION:
       CLEAN COAL TECHNOLOGY
       FUNDSCLEAN COAL TECHNOLOGY
       FUNDS
    ------------------------------------------------------ Appendix III:52

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Science (House)

    Appropriations subcommittees        Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Energy

    Account                             Clean Coal Technology (89-0235)

    Spending type                       Discretionary

    Budget subfunction                  Energy Supply

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    A number of clean coal technology demonstration projects are
    experiencing problems and difficulties in meeting cost, schedule, and
    performance goals.  DOE has extended deadlines several times on some
    projects to allow their sponsors to restructure the projects, find
    suitable alterative project sites, and firm up financing commitments
    to make the projects economically viable.  In April 1995, the
    Congress rescinded $200 million of this program's budget authority
    which DOE achieved by using unobligated funds associated with
    projects that were subsequently terminated.  DOE's fiscal year 1997
    budget request proposed an additional $325 million rescission, but
    the Congress only rescinded $123 million.  As of October 1996, DOE
    had achieved this rescission and also accumulated about $159 million
    of unobligated funds in the clean coal reserve as a result of
    terminated projects.  DOE expects additional savings ranging from
    about $50 million to $100 million or more from combining or
    terminating certain other ongoing projects.  DOE plans to use the
    reserve funds to pay for program direction beginning in fiscal year
    1998 through the end of the program (which DOE estimates could total
    about $50 million) and to help pay for cost growth for selective
    ongoing projects.  To the extent that the reserve funds are not used
    for cost growth, about $160 million to about $210 million in
    unobligated funds may be available for rescission.  If the Congress
    chose to rescind $160 million in budget authority, the following
    savings could occur.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   160       0       0       0       0
    Outlays                              0       0      25      25      50

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   160       0       0       0       0
    Outlays                              0       0      25      25      50
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:52.1

    Fossil Fuels:  Lessons Learned in DOE's Clean Coal Technology Program
    (GAO/RCED-94-174, May 26, 1994).

    Fossil Fuels:  Improvements Needed in DOE's Clean Coal Technology
    Program (GAO/RCED-92-17, October 30, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:52.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       DEPARTMENT OF ENERGY'S NATIONAL
       LABORATORIESDEPARTMENT OF
       ENERGY'S NATIONAL LABORATORIES
    ------------------------------------------------------ Appendix III:53

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)

    Primary agency                      Department of Energy

    Account                             Energy Supply, R&D Activities
                                        (89-0224)

    Spending type                       Discretionary

    Budget subfunction                  Atomic Energy Defense Activities

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Department of Energy's (DOE) laboratory network is comprised of
    approximately 30 labs, with a budget of about $8 billion and
    employing over 25,000 scientists and engineers.  Recent shifts in
    national priorities--principally, the dramatic reduction in the arms
    race and proposed cutbacks in energy and nuclear research
    funding--raise questions about the need for all these labs.  In
    particular, DOE's three large defense labs, costing about $1 billion
    annually, were created to design and test nuclear weapons, a role
    which has greatly diminished over time.  Currently, these labs
    allocate less than half their budgets to nuclear weapons design,
    development, and testing--the principal reasons they were created.
    Yet, as GAO has reported, DOE still maintains a redundant structure
    with respect to nuclear weapons work, an arrangement that may no
    longer be the most efficient alternative for meeting defense
    requirements.

    The 1995 Galvin Task Force, commissioned by DOE, also argued for more
    focused missions for the national laboratories.  In addition, the
    task force said that the national laboratory system is oversized for
    its current mission assignments.  Several congressional bills have
    been introduced in recent years calling for the creation of a
    separate structure for determining the best way to streamline
    national laboratories.

    Aside from deciding on the ideal number of labs, most experts GAO
    consulted agree that the missions of the laboratories now need to be
    clarified if their resources are to be used most effectively.  Some
    are suggesting the current laboratory structure may not be the most
    rational if the labs are to move into newer mission areas.
    Suggestions for restructuring range from converting some labs into
    private or quasi-public entities, transferring labs to universities,
    or assigning them to different agencies whose missions better match
    lab strengths.

    In addition to supporting DOE's efforts to streamline individual
    labs, the Congress should reconsider the role and mission of the
    laboratories as a group, which could be restructured in various ways.
    For example, the Galvin Task Force examined a transfer of most of the
    nuclear weapons functions of Lawrence Livermore to the Los Alamos
    laboratory.  Los Alamos officials estimated that having both
    facilities design weapons but only one engineer and test them would
    eventually save about $200 million in annual operating costs.  The
    table below reflects savings from phasing in such a consolidation
    over a 5-year period.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    32      66     102     140     179
    Outlays                             24      58      93     131     169

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    33      70     110     156     205
    Outlays                             25      60     100     144     192
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:53.1

    Federal R&D Laboratories (GAO/RCED/NSIAD-96-78R, February 29, 1996).

    National Laboratories Need Clearer Mission and Better Management
    (GAO/RCED-95-10, January 27, 1995).

    DOE's National Laboratories:  Adopting New Missions and Managing
    Effectively Pose Significant Challenges (GAO/T-RCED-94-113, February
    3, 1994).

    Department of Energy:  Management Problems Require a Long-term
    Commitment to Change (GAO/RCED-93-72, August 31, 1993).

    Nuclear Weapons Complex:  Issues Surrounding Consolidating Los Alamos
    and Lawrence Livermore National Laboratories (GAO/RCED-92-98,
    September 24, 1992).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:53.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       USE OF CARRYOVER BALANCES TO
       OFFSET FUTURE BUDGET NEEDSUSE
       OF CARRYOVER BALANCES TO OFFSET
       FUTURE BUDGET NEEDS
    ------------------------------------------------------ Appendix III:54

    Authorizing committees              Armed Services (Senate)
                                        Energy and Natural Resources
                                        (Senate)
                                        National Security (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)
                                        Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Carryover balances represent funding from prior years' budgets and
    consist of both unobligated balances and uncosted obligations.  Each
    fiscal year, the Department of Energy (DOE) requests obligational
    authority from the Congress to meet the costs of running its
    programs.  Once DOE receives this authority, it obligates funds by
    placing orders or awarding contracts for goods and services that will
    require payment during the same fiscal year or in the future.
    Unobligated balances represent the portion of its authority that the
    Department has not obligated.  Uncosted obligations represent the
    portion of the Department's authority that it has obligated for goods
    and services but for which it has not yet incurred costs.  Uncosted
    obligations may occur because goods and services have not yet been
    provided or they may reflect amounts no longer needed because of cost
    underruns, reductions in the projects' scope, or cancellation of
    projects.  DOE's carryover balances are distributed among operating
    activities, capital equipment procurement, and construction projects.
    At the beginning of fiscal year 1996, DOE's carryover balances
    totaled $9.6 billion.

    Over the past several years, GAO has audited DOE's carryover balances
    and found amounts that were no longer needed for their original
    purposes, and thus, could be used to offset future funding
    requirements.  For example, a 1994 GAO review of two DOE program
    areas--Environmental Management and Defense Programs--identified over
    $500 million in unneeded funds.  In its most recent review, GAO found
    that while DOE programs need some carryover balances to pay for
    commitments made in prior years that have not been completed, the
    Department may have had as much as $2.1 billion in operating activity
    and capital procurement carryover balances that were potentially
    available to offset the Department's fiscal year 1997 budget request.
    Of this total, $1.6 billion was contained in the Energy Research,
    Energy Efficiency, and Fossil Energy programs.  GAO also found that
    the Department had $73.5 million in funding for construction projects
    that was available.  Future appropriations could be reduced to
    reflect these carryover balances.

    While GAO recognizes that the $2.1 billion in potentially available
    balances represents a starting point from which to identify the
    amount of balances that could actually be used to offset DOE's
    budget, the Congress may wish to consider reducing fiscal year 1998
    appropriations to reflect some portion of these available funds.
    Based on GAO's prior work, reducing appropriations by $500 million in
    fiscal year 1998 could achieve the following savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 Defense Plan
    ----------------------------------------------------------------------
    Budget authority                   500       0       0       0       0
    ----------------------------------------------------------------------
    Note:  The budget authority reduction for this option is based on
    GAO's estimate.  CBO does not estimate any corresponding reduction in
    outlays for the five-year period as the carryover balance is reduced.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:54.1

    DOE's Carryover Balances and Fiscal Year 1997 Budget
    (GAO/RCED-96-239R, September 6, 1996).

    DOE Management:  DOE Needs to Improve Its Analysis of Carryover
    Balances (GAO/RCED-96-57, April 12, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:54.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       DEPARTMENT OF ENERGY'S OVERTIME
       COSTSDEPARTMENT OF ENERGY'S
       OVERTIME COSTS
    ------------------------------------------------------ Appendix III:55

    Authorizing committees              Armed Services (Senate)
                                        Energy and Natural Resources
                                        (Senate)
                                        National Security (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)
                                        Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Energy's (DOE) direct overtime costs for its
    federal employees increased from $15.5 million in 1989 to $26.5
    million in 1993.  In 1995, overtime costs dropped to about $21.9
    million.

    In the past, DOE's efforts to manage and minimize such costs have
    been limited.  DOE has (1) incurred costs for questionable overtime
    work, such as driving DOE officials to the airport from their homes
    on weekends, (2) not fully utilized compensatory time as a less
    costly alternative to paid overtime, and (3) not consistently planned
    annual leave to minimize the use of overtime.  In order to better
    manage overtime and minimize costs, DOE should (1) ensure that the
    types of work driving overtime costs are essential, (2) increase the
    use of compensatory time as an alternative to paid overtime, and (3)
    ensure that annual leave is planned to minimize the use of overtime.
    The Congress may wish to reduce DOE appropriations in anticipation of
    changes in DOE's direct overtime costs practices.  The following
    table illustrates the savings that could be realized over 5 years if
    DOE reduced its overtime expenditures annually by 6 percent.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     1       3       4       5       7
    Outlays                              1       2       4       5       6

    Savings from the 1997 funding level adjusted for inflati
    ----------------------------------------------------------------------
    Budget authority                     1       3       4       6       7
    Outlays                              1       2       4       5       7
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:55.1

    Energy Management:  Department of Energy's Efforts to Manage Overtime
    Costs Have Been Limited (GAO/RCED-94-282, September 27, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:55.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       DEPARTMENT OF ENERGY'S CLEANUP
       STUDIESDEPARTMENT OF ENERGY'S
       CLEANUP STUDIES
    ------------------------------------------------------ Appendix III:56

    Authorizing committees              Armed Services (Senate)
                                        Energy and Natural Resources
                                        (Senate)
                                        National Security (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)
                                        Interior and Related Agencies
                                        (House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Energy's (DOE) Environmental Management (EM)
    program oversees and directs all aspects of the agency's nuclear
    weapons complex cleanup.  DOE has been criticized for the high cost
    of the program and for spending too much money studying sites, rather
    than cleaning them up.

    Remediation activities at DOE's facilities are governed by the
    Comprehensive Environmental Response, Compensation, and Liability Act
    (CERCLA) of 1980, as amended, and the Resource Conservation and
    Recovery Act (RCRA) of 1976, as amended.  These laws lay out
    requirements for identifying waste sites, studying the extent of
    their contamination and identifying possible remedies, and involving
    the public in making decisions about the sites.  CERCLA offers three
    methods for determining how a waste site will be remediated:  the
    full CERCLA process, interim remedial measures, and removal actions.
    Removal actions are the most abbreviated of the three processes.

    Removal actions save time and money and can provide other benefits,
    such as quickly reducing continued risks to the environment.  For
    example, GAO found that removal actions cost from 80 to 90 percent
    less than the other approaches.  While DOE has a policy that
    encourages the greater use of removal actions, DOE has made limited
    use of removal actions for a variety of reasons, including
    requirements in interagency agreements and contracts with DOE's
    cleanup contractors that do not encourage the use of removal actions.
    GAO also found that while complete, reliable data on the number of
    sites where removal actions could be used is not available, many of
    DOE's cleanup sites share the same characteristics as the sites where
    removal actions have been used.  For example, at DOE's Hanford
    facility about 33 percent of all clean-up sites are similar to those
    where removal actions were used.

    In fiscal year 1995, DOE spent about $845 million on studying cleanup
    sites under CERCLA and/or RCRA.  Assuming that 25 percent of these
    studies could be performed as removal actions and that cost
    reductions of 85 percent could be achieved for these sites, the
    Congress could require DOE's EM program to increase the use of
    removal actions and reduce DOE's budget by about $190 million.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   190     190     190     190     190
    Outlays                            143     190     190     190     190

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   195     200     206     211     217
    Outlays                            146     199     204     210     216
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:56.1

    Nuclear Waste:  Greater Use of Removal Actions Could Cut Time and
    Cost for Cleanups (GAO/RCED-96-124, May 23, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:56.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       DEPARTMENT OF ENERGY'S
       CONTRACTORS' SEPARATION
       BENEFITS PACKAGEDEPARTMENT OF
       ENERGY'S CONTRACTORS'
       SEPARATION BENEFITS PACKAGE
    ------------------------------------------------------ Appendix III:57

    Authorizing committees              Armed Services (Senate)
                                        National Security (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    Since 1993, the Department of Energy (DOE) has spent nearly $600
    million to provide benefits to contractor employees separated in
    workforce restructuring and downsizing efforts at its facilities.
    About 88 percent of the costs were for enhanced retirement incentives
    or severance pay.  Enhanced retirement programs typically added 3
    years to age and service for the purpose of calculating pension
    benefits.  Some enhanced retirement programs included an additional
    incentive payment.  Other benefits included extended medical
    insurance and help with retraining, relocating, and finding new jobs
    for affected employees.  More than half of the workforce
    restructuring plans provided more generous severance pay than would
    have normally been provided by the contractors under existing
    contracts, and all facilities provided other benefits not normally
    provided by contractors.  Moreover, benefits provided under the
    workforce restructuring plans exceeded those that would be provided
    to federal employees in a reduction in force.

    As DOE continues to align its contractor workforce because of its
    reduced defense mission and as it completes environmental cleanup
    efforts, it will undergo further downsizing.  The Congress could take
    action to bring separation benefits in line with existing DOE
    contracts or with those benefits provided federal employees.  CBO
    estimates such action would result in the following savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    26       4      10      15      10
    Outlays                             26       4      10      15      10

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    27       4      11      17      12
    Outlays                             27       4      11      17      12
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:57.1

    Department of Energy:  Value of Benefits Paid to Separated Contractor
    Workforce Varied Widely (GAO/RCED-97-33, January 23, 1997).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:57.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       FEDERAL EXEMPTION TO CERTAIN
       STATE TAXES FOR DEPARTMENT OF
       ENERGY'S OPERATING
       CONTRACTORSFEDERAL EXEMPTION TO
       CERTAIN STATE TAXES FOR
       DEPARTMENT OF ENERGY'S
       OPERATING CONTRACTORS
    ------------------------------------------------------ Appendix III:58

    Authorizing committees              Armed Services (Senate)
                                        Energy and Natural Resources
                                        (Senate)
                                        National Security (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)
                                        Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The federal government is exempt from paying certain state taxes,
    such as gross receipts and use taxes.  However, the Department of
    Energy's (DOE) contractor-operated laboratories and production
    plants, although wholly government-owned and dedicated exclusively to
    government programs, are subject to such taxes.  Because DOE has
    fully reimbursable contracts with its operating contractors, DOE is,
    in effect, paying these taxes.  The amounts reimbursed can be
    significant.  For example, in fiscal year 1995, the contractors at
    DOE's Oak Ridge and Sandia facilities were reimbursed almost $69
    million for gross receipts, sales, and/or use taxes.  The Congress
    could take action to designate DOE operating contractors as
    "instrumentalities of the federal government." Such action would make
    the contractors immune from state taxation and thereby eliminate this
    expense.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    90      90      90      90      90
    Outlays                             90      90      90      90      90

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    90      90      90      90      90
    Outlays                             90      90      90      90      90
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:58.1

    Energy Management:  DOE Controls Over Contractor Expenditures Need
    Strengthening (GAO/RCED-87-166, August 28, 1987).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:58.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       NUCLEAR WASTE DISPOSAL
       FEESNUCLEAR WASTE DISPOSAL FEES
    ------------------------------------------------------ Appendix III:59

    Authorizing committees              Energy and Natural Resources
                                        (Senate)
                                        Commerce (House)
                                        Resources (House)

    Primary agency                      Department of Energy

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Utilities pay a fee to the Nuclear Waste Fund to finance the
    development of storage and permanent disposal facilities for
    high-level radioactive wastes.  The amount of this fee has not
    changed since 1983, making the fund susceptible to future budget
    shortfalls.  To help ensure that sufficient revenues are collected to
    cover increases in cost estimates caused by price inflation, the
    Congress should amend the Nuclear Waste Policy Act of 1982 to direct
    the Secretary of Energy to automatically adjust for inflation the
    nuclear waste disposal fee that utilities pay into the Nuclear Waste
    Fund.  If the fee were indexed to inflation, the following additional
    receipts could be expected.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                      16      33      51      69      88
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:59.1

    Status of Actions to Improve DOE User-Fee Assessments
    (GAO/RCED-92-165, June 10, 1992).

    Changes Needed in DOE User-Fee Assessments (GAO/T-RCED-91-52, May 8,
    1991).

    Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall
    (GAO/RCED-90-65, June 7, 1990).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:59.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       POWER MARKETING ADMINISTRATIONS
       COST RECOVERYPOWER MARKETING
       ADMINISTRATIONS COST RECOVERY
    ------------------------------------------------------ Appendix III:60

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Resources (House)

    Primary agency                      Department of Energy

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    Three of the Department of Energy's (DOE) power marketing
    administrations (PMAs)--the Southeastern Power Administration, the
    Southwestern Power Administration, and the Western Area Power
    Administration--market primarily wholesale power in 30 states
    produced at large, multiple-purpose water projects.  The three PMAs
    receive annual appropriations to cover operating and maintenance
    (O&M) expenses and, if applicable, the capital investment in
    transmission assets.  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.

    GAO identified five major power-related costs that have not been
    fully recovered by one or more of the three PMAs through rates:  (1)
    pensions and postretirement health benefits for current employees;
    (2) construction costs for some power-generating and transmission
    projects; (3) construction and O&M costs that have been allocated to
    irrigation facilities at the Pick-Sloan Program that are incomplete
    and infeasible; (4) costs of mitigating the environmental impact of
    certain water projects; and (5) certain O&M costs and interest
    expense payments due from the Western Area Power Administration.  In
    some cases, the PMAs are not required to recover these costs because
    of legislation or DOE policy.  GAO estimated that these unrecovered
    costs amounted to about $83 million for fiscal year 1995 and
    cumulatively as much as $1.8 billion as of September 30, 1995.  GAO
    has also determined that financing of power-related capital projects
    is subsidized by the federal government and estimates that the
    financing subsidies were about $200 million in fiscal year 1995.  GAO
    estimates that the cumulative financing subsidy over the last 30
    years has been several billion dollars.

    The Congress and/or the Secretary of Energy may wish to consider
    directing the PMAs to more fully recover power-related costs or
    revising DOE's policy on high-interest debt repayment.  For example,
    changes could be implemented to recover the full costs to the federal
    government of providing postretirement health benefits and pensions
    for current employees and operating agency employees engaged in
    producing and marketing the power sold by the PMAs.  CBO estimates
    that such action would result in the following savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                      16      16      17      17      18
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:60.1

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

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

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

    Federal Electric Power:  Operating and Financial Status of DOE's
    Power Marketing Administrations (GAO/RCED/AIMD-96-9FS, October 13,
    1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:60.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       FEDERAL INVESTMENT IN
       SUCCESSFULLY COMMERCIALIZED
       TECHNOLOGIESFEDERAL INVESTMENT
       IN SUCCESSFULLY COMMERCIALIZED
       TECHNOLOGIES
    ------------------------------------------------------ Appendix III:61

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Science (House)
                                        Commerce (House)

    Appropriations subcommittees        Energy and Water Development
                                        (Senate and House)
                                        Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Energy

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Department of Energy (DOE) and the private sector are involved in
    hundreds of cost-shared projects aimed at developing a broad spectrum
    of cost-effective, energy-efficiency technologies that protect the
    environment, support the nation's economic competitiveness, and
    promote the increased use of oil, gas, coal, nuclear, and renewable
    energy resources.  In June 1996, GAO reported that DOE generally does
    not require repayment of its investment in technologies that are
    successfully commercialized.  GAO's review identified only four DOE
    programs that require industry repayment if the technologies are
    ultimately commercialized.  The offices in which GAO focused most of
    its work planned to devote about $8 billion in federal funds to
    cost-shared projects over their lifetime, of which about $2.5 billion
    is subject to repayment.

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

    Because opportunities exist for substantial repayment in some of
    DOE's programs, requiring repayment under a flexible policy would
    allow the government to share in the benefits of successfully
    commercialized technologies that could amount to hundreds of millions
    of dollars.  The potential for repayment can be illustrated by
    assuming that if only 50 percent of the $5.5 billion planned for
    projects that are currently not subject to repayment lend themselves
    to repayment and if about 15 percent of research and development
    funds result in commercialized technologies (which DOE officials say
    is about average), then about $400 million could be repaid to the
    federal government.  However, a 5-year savings estimate cannot be
    developed at this time because new repayment provisions would only
    apply to future technology development projects not yet negotiated
    with industry.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:61.1

    Energy Research:  Opportunities Exist to Recover Federal Investment
    in Technology Development Projects (GAO/RCED-96-141, June 26, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:61.2

    Victor S.  Rezendes, (202) 512-3841

       300 NATURAL RESOURCES AND
       ENVIRONMENT
    ------------------------------------------------------ Appendix III:62

      -- Federal Land Policies

      -- Collaborative Federal Land Management Approach

      -- Federal Timber Sales

      -- Fair Market Value for Natural Resources

      -- Recreation Fees at Federal Sites

      -- Hardrock Mining Royalties

      -- Natural Resources Revenue Sharing

      -- Federal Water Policies

      -- Water Transfers

      -- Pollution Fees and Taxes

      -- Hazardous Waste Cleanup Cost Recovery

      -- Non-Time-Critical Removals in Superfund Cleanups

      -- Excess Funds in Superfund Contracts

      -- Weather Service Modernization Project

       OPTION:
       FEDERAL LAND POLICIESFEDERAL
       LAND POLICIES
    ------------------------------------------------------ Appendix III:63

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Energy and
                                        Natural Resources (Senate)
                                        Agriculture (House)
                                        Resources (House)
                                        Transportation and Infrastructure
                                        (House)

    Primary agencies                    Department of the Interior
                                        Department of Agriculture

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The federal government owns and manages about 650 million
    acres--nearly one-third of the U.S.  landmass.  For many years, these
    lands have been sold or otherwise made available for a variety of
    purposes to private citizens, corporations, and state and local
    governments.  In many cases, the rate of return received by the
    government for the sale or use of these valuable natural resources
    has fallen far below reasonable market-based levels.

    This option has two components:  increased fees for patenting
    hardrock mining claims and higher fees for concessionaires operating
    on federal lands.  Descriptions of each component follow.

          INCREASED FEES FOR PATENTING
          HARDROCK MINING CLAIMS
    ---------------------------------------------------- Appendix III:63.1

    The Mining Law of 1872 allows holders of economically minable claims
    to obtain all rights and interests to both the land and the minerals
    by patenting them for $2.50 or $5.00 an acre--an amount that
    approximated the fair market value for western grazing land and
    farmland in 1872.  Over the last 124 years, the federal government
    has sold about 3.2 million acres of public lands, or an area about
    the size of Connecticut, under this patent provision.  As a result,
    some patent holders have reaped huge profits at the government's
    expense.  At the time of GAO's 1989 study, 265 patent applications
    were pending for more than 80,000 acres of public land.  At just 12
    of these sites, if all the land applied for was patented, the
    government would have received about $16,000 for land appraised in
    1988 at between $14.4 million and $47.1 million.

    The 104th Congress considered several bills that address patenting of
    hardrock mining claims.  Two companion bills (H.R.  1580 and S.  506)
    would have repealed the current congressional moratorium against new
    mining patents.  Four other bills (H.R.  357 and its companion S.
    504, as well as H.R.  721 and H.R.  3102) would have eliminated
    patenting of mining claims.  Under a seventh bill (S.  639),
    patenting would have granted the claimholder title to the mineral
    only.

    Revising the patent fees for hardrock mining claims could take many
    forms (assuming the current moratorium on patenting is lifted).  For
    example, fees could be set to recover the agency's administrative
    costs to process the patents, or the fees could be set to capture the
    fair market value of selling the land and/or the mineral resources.
    The amount of additional receipts from increased fees would depend on
    the specific proposal implemented.  In any case, estimating savings
    is difficult because of the large variation in surface land values,
    the lack of essential data about the mineral resources on current
    claims, and the lack of multiple bidders on any claim to allow a
    competitive process.  CBO cannot develop a 5-year estimate of
    additional receipts due to increased fees for patenting hardrock
    mining claims at this time.

          HIGHER FEES FOR
          CONCESSIONAIRES OPERATING ON
          FEDERAL LANDS
    ---------------------------------------------------- Appendix III:63.2

    The federal government enters into agreements with concessionaires to
    provide key services in parks, forests, and other recreation areas.
    In 1991, GAO reported that concessionaires generated about $1.4
    billion in gross revenues and paid the government about $35 million
    in concession fees--an average return to the government of about 2
    percent.  The Department of the Interior's follow-on report to the
    Vice President's National Performance Review concluded that receipts
    from concession franchise fees must be actively pursued by the
    National Park Service, estimating that substantial revenue could be
    generated by promoting competition, expediting contract
    renegotiations, and boosting the government's return.

    The 104th Congress considered several bills that would reform
    concession policies.  All of these bills were intended to increase
    the return to the government by limiting preferential rights of
    renewal, thus increasing competition.  H.R.  773 and S.  309 focused
    only on the National Park Service and would have allowed the agency
    to keep increased fee revenue.  H.R.  2028, which was included in the
    fiscal year 1996 omnibus budget reconciliation bill (H.R.  2491),
    would have increased fees for several land management agencies.
    Under H.R.  2028, fees up to a minimum amount would have been
    credited to the U.  S.  Treasury and fees above that level would have
    stayed within the agencies.

    CBO cannot provide a savings estimate for higher fees at this time.
    The Park Service has recently renegotiatied many of its existing
    agreements with concessionaires.  Therefore, some of the savings from
    this option may occur beyond the year 2002.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:63.3

             LAND OWNERSHIP
    -------------------------------------------------- Appendix III:63.3.1

    Land Ownership:  Information on the Acreage, Management, and Use of
    Federal and Other Lands (GAO/RCED-96-40, March 13, 1996).

             HARDROCK MINING PATENTS
    -------------------------------------------------- Appendix III:63.3.2

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

    Federal Land Management:  The Mining Law of 1872 Needs Revision
    (GAO/RCED-89-72, March 10, 1989).

             CONCESSIONAIRES OPERATING
             ON FEDERAL LANDS
    -------------------------------------------------- Appendix III:63.3.3

    Federal Lands:  Concession Reform Is Needed (GAO/T-RCED/GGD-96-223,
    July 18, 1996).

    NPS Projected Returns From Concessionaires (GAO/RCED-96-48R, November
    28, 1995).

    National Parks:  Difficult Choices Need to Be Made About the Future
    of the Parks (GAO/RCED-95-238, August 30, 1995).

    Federal Lands:  Views on Reform of Recreation Concessionaires
    (GAO/T-RCED-95-250, July 25, 1995).

    National Parks:  Difficult Choices Need to Be Made About the Future
    of the Parks (GAO/T-RCED-95-124, March 7, 1995).

    Federal Lands:  Little Progress Made in Improving Oversight of
    Concessionaires (GAO/T-RCED-93-42, May 27, 1993).

    Forest Service:  Little Assurance That Fair Market Value Fees Are
    Collected From Ski Areas (GAO/RCED-93-107, April 16, 1993).

    Federal Lands:  Improvements Needed in Managing Concessionaires
    (GAO/RCED-91-163, June 11, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:63.4

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       COLLABORATIVE FEDERAL LAND
       MANAGEMENT
       APPROACHCOLLABORATIVE FEDERAL
       LAND MANAGEMENT APPROACH
    ------------------------------------------------------ Appendix III:64

    Authorizing committees                  Agriculture, Nutrition, and
                                            Forestry (Senate)
                                            Energy and Natural Resources
                                            (Senate)
                                            Agriculture (House)
                                            Resources (House)

    Appropriations subcommittees            Interior and Related Agencies
                                            (Senate and House)

    Primary agencies                        Department of the Interior
                                            Department of Agriculture

    Accounts                                Multiple

    Spending type                           Discretionary

    Budget subfunction                      Conservation and Land
                                            Management

    Framework theme                         Improve efficiency
    ----------------------------------------------------------------------
    The responsibilities of the four major federal land management
    agencies--the National Park Service, Bureau of Land Management (BLM),
    Fish and Wildlife Service within the Department of Interior, and the
    Forest Service within the Department of Agriculture--have grown more
    similar over time.  Most notably, the Forest Service and BLM now
    provide more noncommodity uses, including recreation and protection
    for fish and wildlife, on their lands.  In addition, managing federal
    lands has become more complex.  Managers have to reconcile
    differences among a growing number of laws and regulations, and the
    authority for these laws is dispersed among several federal agencies
    and state and local agencies.  These changes have coincided with two
    other developments--the federal government's increased emphasis on
    downsizing and budgetary constraint and scientists' increased
    understanding of the importance and functioning of natural systems
    whose boundaries may not be consistent with existing jurisdictional
    and administrative boundaries.  Together, these changes and
    developments suggest a basis for reexamining the processes and
    structures under which the federal land management agencies currently
    operate.

    Over the last 26 years, 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
    collocated 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.

    Without a specific restructuring proposal that would eliminate
    certain programs or revise how the land is managed, CBO does not
    estimate savings due to sharing resources between the four major land
    management agencies.  Savings would depend on the extent of a
    workforce restructuring and implementation proposal.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:64.1

    Federal Land Management:  Streamlining and Reorganization Issues
    (GAO/T-RCED-96-209, June 27, 1996).

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

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:64.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       FEDERAL TIMBER SALESFEDERAL
       TIMBER SALES
    ------------------------------------------------------ Appendix III:65

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Agriculture
                                        (House)

    Appropriation subcommittees         Interior and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Agriculture

    Accounts                            National Forest System (12-1106)
                                        National Forest Service Receipts
                                        (12-9990)

    Spending type                       Discretionary/Direct

    Budget subfunction                  Conservation and Land Management

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Agriculture's Forest Service does not always
    recover all of its timber-related costs from the sale of timber.
    Currently, the Service receives most of its timber funding from
    timber sales and from appropriated funds linked primarily to timber
    management and harvest.

    GAO estimated that in fiscal year 1990, under the most conservative
    definition of costs, $35.6 million in Forest Service preparation and
    administration expenses went unrecovered.  GAO's estimates ranged as
    high as $112.2 million when all operating costs and payments to
    states were considered.  According to the Forest Service's fiscal
    year 1995 Timber Sale Program Annual Report, timber sale program
    costs exceeded revenues by about $195 million when payments to states
    are considered as costs of the program.

    The escalating costs of the Forest Service's timber sale program has
    long been a concern of the Congress.  In response to this concern,
    the Forest Service has taken efforts to achieve cost efficiencies and
    is reviewing its policy regarding below-cost timber sales.  The
    primary objective of some timber sales is to achieve forest
    stewardship objectives such as forest health--generating revenues is
    secondary.  However, notwithstanding these types of timber sales, at
    some forests, the costs to prepare and administer timber sales still
    exceed total receipts.

    The Congress may wish to cease all below-cost federal timber sales.
    For example, all future timber sales could be eliminated in three of
    the Forest Service's nine regions where, on average over the last
    decade, cash expenditures have exceeded cash receipts.  This also
    would reduce Forest Service outlays for timber management,
    reforestation, construction of logging roads, and other program
    costs.  CBO estimates that the following net 5-year savings in
    federal outlays could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    25      35      40      50      60
    Outlays                             20      30      35      45      55

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    25      35      40      50      60
    Outlays                             20      30      35      45      55
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:65.1

    Forest Service:  Observations on the Emergency Salvage Sale Program
    (GAO/T-RCED-96-38, November 29, 1995).

    Forest Service:  Distribution of Timber Sales Receipts Fiscal Years
    1992-94 (GAO/RCED-95-237FS, September 8, 1995).

    Forest Service:  Status of Efforts to Achieve Cost Efficiency
    (GAO/RCED-94-185FS, April 26, 1994).

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

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

    Comments on Below-Cost Timber Bills (GAO/RCED-92-160R, April 1,
    1992).

    Forest Service Needs to Improve Efforts to Reduce Below-Cost Timber
    Sales (GAO/T-RCED-91-43, April 25, 1991).

    Forest Service Needs to Improve Efforts to Protect the Government's
    Financial Interest and Reduce Below-Cost Timber Sales
    (GAO/T-RCED-91-42, April 24, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:65.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       FAIR MARKET VALUE FOR NATURAL
       RESOURCESFAIR MARKET VALUE FOR
       NATURAL RESOURCES
    ------------------------------------------------------ Appendix III:66

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Energy and
                                        Natural Resources (Senate)
                                        Agriculture (House)
                                        Resources (House)

    Primary agencies                    Department of Agriculture
                                        Department of the Interior

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Implementing market-based incentives and management practices may
    encourage more economically and environmentally sound use of federal
    lands and resources.  The existing arrangement for use of the public
    domain provides subsidies to users--such as grazers, miners, and
    communication site lessees--that may encourage poor use of scarce
    resources and/or deprive the government of revenues to which it is
    entitled.  In addition, certain non fee-related provisions of the
    governing laws may also encourage less than optimal use of those
    lands and resources.  For example, currently livestock operators on
    Forest Service lands are required to graze livestock on their
    allotments or lose their permits.  Removing this "use-it-or-lose-it"
    requirement would not only promote economically efficient use of the
    resources, but also improve ecological conditions on Forest Service
    lands since environmental groups may often outbid ranchers for the
    permits in order to rest the land.

    Many proposals have been advanced to alter the existing arrangements
    to stress better use of the lands and/or increased revenue to the
    federal government including:  implementing new user fees for a
    variety of uses; charging fair market value for goods and recovering
    costs for services; opening certain uses to competitive bidding and
    removing restrictions on how the land must be used; funding land
    management units out of net receipts; and entering into partnership
    arrangements with other governmental and non-governmental entities.
    Some of these ideas would require specific new statutory authority,
    while others could be implemented under current authority.

    According to the Thoreau Institute, charging fair market value for
    all uses, including timber, grazing, recreation, and minerals and
    subsequently funding forests, parks, and public lands out of the net
    income would save taxpayers more than $21 billion over 5 years.  No
    more funds would be appropriated for these uses.

    In this report, GAO presents several specific options that illustrate
    how market-based incentives could be implemented.  See the options
    "Federal Land Policies," "Federal Timber Sales," "Recreation Fees at
    Federal Sites," "Hardrock Mining Royalties," "Federal Water
    Policies," and "Water Transfers."

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:66.1

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:66.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       RECREATION FEES AT FEDERAL
       SITESRECREATION FEES AT FEDERAL
       SITES
    ------------------------------------------------------ Appendix III:67

    Authorizing committees                  Agriculture, Nutrition, and
                                            Forestry (Senate)
                                            Energy and Natural Resources
                                            (Senate)
                                            Agriculture (House)
                                            Resources (House)
                                            Transportation and
                                            Infrastructure (House)

    Primary agencies                        Department of the Interior
                                            Department of Agriculture

    Spending type                           Direct

    Framework theme                         Improve efficiency
    ----------------------------------------------------------------------
    Improved pricing of user fees at recreational sites could help defray
    direct costs to the government, shift the cost burden from the
    taxpayers to the beneficiaries of the services, and alleviate
    overcrowding at many sites.  Entrance and user fees are charged at
    some sites, but the fees generally cover only a small portion of the
    costs for services provided to visitors.  For example, in 1993, the
    Department of the Interior's National Park Service spent an estimated
    $230 million on services for visitors but recovered only an estimated
    $90 million in fees.

    Interior's follow-on report to the Vice President's National
    Performance Review concluded that reform in the nature, level, and
    collection of fees in national parks could generate substantial
    revenues.

    Fiscal year 1996 and 1997 appropriations legislation for the Park
    Service, as well as some other land management agencies, included
    language that permits these agencies to experiment with increased
    entrance fees at a number of locations.  In addition, legislation was
    introduced in the 104th Congress to permanently authorize higher fees
    throughout the Park Service and several other land management
    agencies.

    Requiring the Park Service to charge fees to cover direct as well as
    associated costs and disallowing their use for increased park
    spending would yield net new receipts over the fiscal year 1998
    through 2002 period as shown in the following table.  Any spending
    increases resulting from increased fees would be subject to future
    appropriations action.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                     200     207     215     222     231
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:67.1

    Comments on H.R.  2107 (GAO/RCED-96-189R, June 11, 1996).

    National Parks:  Difficult Choices Need to Be Made About the Future
    of the Parks (GAO/RCED-95-238, August 30, 1995).

    National Parks:  Difficult Choices Need to Be Made About the Future
    of the Parks (GAO/T-RCED-95-124, March 7, 1995).

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

    Forest Service:  Difficult Choices Face the Future of the Recreation
    Program (GAO/RCED-91-115, April 15, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:67.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       HARDROCK MINING
       ROYALTIESHARDROCK MINING
       ROYALITIES
    ------------------------------------------------------ Appendix III:68

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Energy and
                                        Natural Resources (Senate)
                                        Agriculture (House)
                                        Resources (House)

    Primary agencies                    Department of the Interior
                                        Department of Agriculture

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The government receives no financial compensation for hardrock
    minerals extracted from federal lands.  In 1990, hardrock minerals
    worth at least $1.2 billion were extracted from federal lands, while
    known, economically recoverable reserves of hardrock minerals
    remaining on federal lands were valued at $64.9 billion.

    The 104th Congress considered several bills that would have imposed
    royalties on hardrock minerals extracted from federal lands.  H.R.
    1580 and S.  506 would have imposed a royalty of 3 percent of the net
    proceeds for mines grossing at least $500,000 annually.  Two other
    bills (H.R.  721 and S.  504) would have imposed a royalty fee of 8
    percent of the gross income.  H.R.  357 and H.R.  3102 would have
    imposed a royalty of 8 percent of the net smelter return.  Another
    bill, S.  639, would have assessed royalties for gold at 3 percent of
    the gross value, and for minerals other than gold at 2 percent of the
    gross value.

    Assuming that the Congress adopted an 8-percent royalty on gross
    profits, CBO estimates that the following receipts would be gained.
    CBO's estimate reflects a reduction since 1990 in the expected amount
    of hardrock minerals produced on federal lands as a result of
    patenting.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                      12      55      39      39      39
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:68.1

    Mineral Royalties:  Royalties in the Western States and in Major
    Mineral-Producing Countries (GAO/RCED-93-109, March 29, 1993).

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:68.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       NATURAL RESOURCES REVENUE
       SHARINGNATURAL RESOURCES
       REVENUE SHARING
    ------------------------------------------------------ Appendix III:69

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Energy and
                                        Natural Resources (Senate)
                                        Agriculture (House)
                                        Resources (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Interior and Related Agencies
                                        (Senate and House)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agencies                    Department of the Interior
                                        Department of Agriculture

    Accounts                            Multiple

    Spending type                       Direct

    Budget subfunction                  Conservation and Land Management

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The federal government collects fees from private interests for the
    sale or use of natural resources on federal lands.  A percentage of
    these fees is, under certain conditions, allocated to states and
    counties as an offset for tax revenues not received from the federal
    lands.

    Federal land-managing agencies typically do not deduct the full costs
    of their programs from the gross receipts that the programs generate
    before sharing the receipts with states and counties.  Sharing
    federal receipts on a gross, rather than a net, basis often reduces
    the federal government's share of the revenues.

    According to CBO, changing revenue sharing from a gross-receipt to a
    net-receipt basis would reduce net federal outlays and produce the
    savings shown as follows.\17

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   180     190     195     200     205
    Outlays                            180     190     195     200     205

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   180     190     195     200     205
    Outlays                            180     190     195     200     205
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \17 The projected savings do not include a potential federal cost
    increase under the Payment in Lieu of Taxes (PILT) program.  Payments
    under the discretionary PILT program would increase by about $30
    million per year beginning in fiscal year 1999 if net program
    receipts were shared and the Congress appropriated such an increase.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:69.1

    Forest Service:  Distribution of Timber Sales Receipts Fiscal Years
    1992-94 (GAO/RCED-95-237FS, September 8, 1995).

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

    Rangeland Management:  Current Formula Keeps Grazing Fees Low
    (GAO/RCED-91-185BR, June 11, 1991).

    Forest Service Needs to Improve Efforts to Reduce Below-Cost Timber
    Sales (GAO/T-RCED-91-43, April 25, 1991).

    Mineral Revenues:  Collection and Distribution of Revenues From
    Acquired Lands (GAO/RCED-90-7, August 2, 1990).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:69.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       FEDERAL WATER POLICIESFEDERAL
       WATER POLICIES
    ------------------------------------------------------ Appendix III:70

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Resources (House)

    Primary agency                      Department of the Interior

    Accounts                            Multiple

    Spending type                       Direct

    Budget subfunction                  Water Resources

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    This broad option has five components:  increased fees for subsidized
    federal water to large farms, subsidized water to produce subsidized
    crops, repayment of water project construction costs, recovery of
    federal investment in hydropower facilities, and federal water
    subsidies.  Descriptions of each of the components follow.

          SUBSIDIZED FEDERAL WATER TO
          LARGE FARMS
    ---------------------------------------------------- Appendix III:70.1

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

          SUBSIDIZED WATER TO PRODUCE
          SUBSIDIZED CROPS
    ---------------------------------------------------- Appendix III:70.2

    The use of federally subsidized water to produce federally subsidized
    crops results in the government paying double subsidies.  According
    to the Department of the Interior, between 1976 and 1985, an average
    of 38 percent of the acreage served by the Bureau of Reclamation
    nationwide was used to produce crops that are also eligible for
    subsidies through the Department of Agriculture's commodity programs.
    Estimates of the cost of federal water subsidies vary but are
    substantial.  The Department of the Interior estimated that
    irrigation subsidies used to produce subsidized crops throughout the
    17 western states totaled $203 million in 1986; the Bureau of
    Reclamation placed the figure at $830 million.

          TIME FRAME FOR REPAYING
          WATER PROJECT CONSTRUCTION
          COSTS
    ---------------------------------------------------- Appendix III:70.3

    By the end of fiscal year 1990, after receiving water from the
    Central Valley Project (CVP) in California's Central Valley Basin for
    over 40 years, irrigators had repaid only $10 million, 1 percent, of
    the over $1 billion in construction costs that they owe the federal
    government.  In 1986, the Congress required irrigators and other
    users to pay their share of the federal investment in the CVP by
    2030.  While construction costs ultimately may be recovered by 2030,
    the dollars that eventually flow to the Treasury could be worth much
    less than if they had been repaid sooner.  The Congress may wish to
    accelerate the repayment schedule.

          RECOVERY OF FEDERAL
          INVESTMENT IN HYDROPOWER
          FACILITIES
    ---------------------------------------------------- Appendix III:70.4

    Under the current repayment criteria, approximately $454 million of
    the federal investment in the Pick-Sloan Basin Program (a
    comprehensive plan to manage the water and hydropower resources of
    the Missouri River basin) is unrecoverable.  A portion of
    Pick-Sloan's completed facilities were intended for use with
    irrigation facilities that have not been completed and are no longer
    considered feasible.  In addition, as the overall federal investment
    in the other aspects of the completed hydropower facilities increases
    because of changes such as renovations and replacements, the amount
    of the federal investment that is unrecoverable will increase.
    Changing the terms of repayment to recover any of the $454 million
    investment would require congressional action.  Consistent with
    previous congressional action concerning the program, the Congress
    could direct the Western Area Power Administration to recover the
    investment through power revenues and to take action to minimize any
    impact on power rates.

          FEDERAL INTEREST SUBSIDIES
          FOR IRRIGATORS
    ---------------------------------------------------- Appendix III:70.5

    Estimates of the current cost of federal water subsidies are
    substantial.  For example, the Department of the Interior reported
    that irrigation subsidies throughout the 17 western states totaled
    $534 million in 1986, while the Bureau of Reclamation placed the cost
    at $2.2 billion.  Estimates differ because of different definitions
    of an irrigation subsidy, different interest rates used to calculate
    the subsidies, and different methods for compounding unpaid interest.
    Much has changed in the West since the subsidies were established in
    1902, and it is not known whether the subsidies are still warranted
    or whether irrigators could pay more of the cost of the water
    delivered.

    The added receipts shown in the tables below would be achieved if the
    Congress collected the full cost of federally subsidized water to
    large farms, required CVP irrigators to repay the costs of the CVP by
    2020 (roughly two-thirds the time required under current law),
    recovered the investment in the Pick-Sloan Basin Program, and/or
    phased out the interest subsidy for western irrigators.\18

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Increased fees for subsidized water to large farms
    ----------------------------------------------------------------------
    Added receipts                       4       8       8       8       8
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Time frame for repaying water project construction costs
    ----------------------------------------------------------------------
    Added receipts                       0       3       8      11      11
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Recovery of federal investment in hydropower facilitie
    ----------------------------------------------------------------------
    Added receipts                       0      18      18      18      18
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Federal interest subsidies for irrigators
    ----------------------------------------------------------------------
    Added receipts                       0       4      11      14      14
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \18 Implementing some of these options would affect the potential
    savings from the remaining options.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:70.6

             SUBSIDIZED FEDERAL WATER
             TO LARGE FARMS
    -------------------------------------------------- Appendix III:70.6.1

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

    Water Subsidies:  Basic Changes Needed to Avoid Abuse of the 960-Acre
    Limit (GAO/RCED-90-6, October 12, 1989).

             SUBSIDIZED WATER TO
             PRODUCE SUBSIDIZED CROPS
    -------------------------------------------------- Appendix III:70.6.2

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

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

             TIME FRAME FOR REPAYING
             WATER PROJECT
             CONSTRUCTION COSTS
    -------------------------------------------------- Appendix III:70.6.3

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

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

             RECOVERY OF FEDERAL
             INVESTMENT IN HYDROPOWER
             FACILITIES
    -------------------------------------------------- Appendix III:70.6.4

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

             FEDERAL INTEREST
             SUBSIDIES FOR IRRIGATORS
    -------------------------------------------------- Appendix III:70.6.5

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

    Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:70.7

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       WATER TRANSFERSWATER TRANSFERS
    ------------------------------------------------------ Appendix III:71

    Authorizing committees              Energy and Natural Resources
                                        (Senate) Resources (House)

    Primary agency                      Department of the Interior

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Water transfers, in which rights to use water are bought and sold,
    are a mechanism for relocating scarce water to new users by allowing
    those who place the highest economic value on it to purchase it.
    Water transfers from irrigation to municipal and industrial uses can
    increase federal revenues because municipal and industrial users pay
    rates based on their full share of the project's construction cost
    plus interest.  In contrast, many irrigators pay only a portion of
    their share of the construction costs and are exempt from paying
    interest.  However, increasing federal revenues will reduce the net
    benefits to the buyers and sellers, thereby discouraging some
    transfers.  Deciding how much the Bureau of Reclamation should charge
    for transferred water involves balancing the increase in federal
    revenues with retaining incentives for water transfers to occur.

    A 5-year estimate of additional receipts cannot be developed at this
    time.  The difficulties of estimating the highest economic value of
    water and which users are willing to pay that value inhibit
    estimation.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:71.1

    Water Markets:  Increasing Federal Revenues Through Water Transfers
    (GAO/RCED-94-164, September 21, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:71.2

    Victor S.  Rezendes, (202) 512-3841

       OPTION:
       POLLUTION FEES AND
       TAXESPOLLUTION FEES AND TAXES
    ------------------------------------------------------ Appendix III:72

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Environmental Protection Agency

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    User fees, cost reimbursement mechanisms, and pollution taxes could
    be designed as a way to control pollutants and harmful substances by
    preventing their further generation, thus supplementing regulatory
    efforts to meet the objectives of existing environmental laws.  These
    mechanisms also produce significant revenues which could help defray
    the costs of administering environmental protection programs or
    ultimately reduce the budget deficit.  Based on audit work, GAO has
    identified several specific areas where fees and taxes might be
    effective, including, but not limited to (1) requiring states to
    collect permit fees on industrial and municipal dischargers to
    surface waters and (2) establishing a pollution tax on dischargers,
    based on volume, toxicity, or both.

    Based on our work, an example of a pollution fee which the Congress
    may wish to consider is an excise tax on toxic water pollutants.
    Savings below illustrate a tax on water pollution discharges whose
    rate increases with the toxicity of the discharge, effective on
    discharges of water pollutants made after December 31, 1997.  Rates
    range from $0.65 per pound for the least toxic pollutant to $63.40
    per pound for the most toxic pollutant.  Over time, revenue from a
    pollution fee tax should decline since the intent of such a tax is to
    provide an incentive to reduce the amount of pollutants generated.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                       0.2     0.2     0.2     0.2     0.2
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    Source:  Joint Committee on Taxation (JCT).

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:72.1

    Environmental Protection:  Implications of Using Pollution Taxes to
    Supplement Regulation (GAO/RCED-93-13, February 17, 1993).

    Hazardous Waste:  Much Work Remains to Accelerate Facility Cleanups
    (GAO/RCED-93-15, January 19, 1993).

    Drinking Water:  Widening Gap Between Needs and Available Resources
    Threatens Vital EPA Program (GAO/RCED-92-184, July 6, 1992).

    Water Pollution:  Stronger Efforts Needed by EPA to Control Toxic
    Water Pollution (GAO/RCED-91-154, July 19, 1991).

    Environmental Protection:  Meeting Public Expectations With Limited
    Resources (GAO/RCED-91-97, June 18, 1991).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:72.2

    Peter F.  Guerrero, (202) 512-6111

       OPTION:
       HAZARDOUS WASTE CLEANUP COST
       RECOVERYHAZARDOUS WASTE CLEANUP
       COST RECOVERY
    ------------------------------------------------------ Appendix III:73

    Authorizing committees              Environment and Public Works
                                        (Senate)
                                        Commerce (House)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Environmental Protection Agency

    Account                             Hazardous Substance Superfund
                                        (20-8145)

    Spending type                       Discretionary

    Budget subfunction                  Pollution Control and Abatement

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Comprehensive Environmental Response, Compensation and Liability
    Act (CERCLA), which created the Superfund program, requires that the
    parties responsible for contaminating Superfund sites clean them up
    or reimburse the Environmental Protection Agency (EPA) for doing so.
    However, through 1995, EPA had reached agreements with responsible
    parties to recover only 14 percent of its costs.  Recoveries have
    been low because EPA has narrowly defined which costs it will seek to
    recover--excluding, for example, research and development costs.  As
    a result, the agency has foregone any opportunity to recover over
    $3.8 billion in indirect costs.  Moreover, CERCLA prevents EPA from
    charging polluters hundreds of millions of dollars in additional
    interest on the cost EPA incurs to clean up Superfund sites by
    setting an interest rate significantly lower than commercial rates
    and preventing the accrual of interest on costs until demand for
    payment is made.  If EPA had been allowed to accrue interest at a
    commercial rate from the date funds were expended, GAO estimates that
    $105 million in interest could have been accrued in 1990 on the funds
    EPA expended in fiscal year 1989 alone.

    EPA should amend its definition of recoverable costs to permit
    greater recoveries.  The Congress should amend CERCLA to allow EPA to
    recover from responsible parties more interest on the cost it incurs
    to clean up Superfund sites.

    Savings could not be estimated due to EPA's varying success in
    collecting the full amount of current penalty and interest charges.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:73.1

    Superfund:  EPA Has Opportunities to Increase Recoveries of Costs
    (GAO/RCED-94-196, September 28, 1994).

    Superfund:  More Settlement Authority and EPA Cost Controls Could
    Increase Cost Recovery (GAO/RCED-91-144, July 18, 1991).

    Superfund:  A More Vigorous and Better Managed Enforcement Program Is
    Needed (GAO/RCED-90-22, December 14, 1989).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:73.2

    Peter F.  Guerrero, (202) 512-6111

       OPTION:
       NON-TIME-CRITICAL REMOVALS IN
       SUPERFUND
       CLEANUPSNON-TIME-CRITICAL
       REMOVALS IN SUPERFUND CLEANUPS
    ------------------------------------------------------ Appendix III:74

    Authorizing committees              Environment and Public Works
                                        (Senate) Commerce (House)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Environmental Protection Agency

    Account                             Hazardous Substance Superfund (20-
                                        8145)

    Spending type                       Discretionary

    Budget subfunction                  Pollution Abatement and Control

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Superfund is the Environmental Protection Agency's (EPA) program for
    cleaning up the nation's highly contaminated hazardous waste sites,
    either through undertaking a cleanup action itself or compelling
    responsible private parties to do so.  After spending more than 16
    years and $15 billion on Superfund, cleanups have been completed at
    only about 400 of the 1,300 sites currently on EPA's priority cleanup
    list.

    EPA has two processes for conducting Superfund cleanups:  (1) the
    removal process which is typically used to respond to urgent
    situations, and (2) the remedial process which has traditionally been
    used for conducting more comprehensive cleanup actions.  To
    accelerate the cleanup of Superfund sites, EPA has begun expanding
    the use of its removal process to conduct substantial nonemergency
    cleanup actions.  These Non-Time-Critical (NTC) removals result in
    equally protective but quicker cleanups than under the remedial
    process because they streamline cleanup planning.  NTC removals can
    be used to clean up at least a portion of almost any Superfund site,
    particularly the highest risk portions.

    In April 1996, we reported on the 81 cleanup actions that EPA had
    conducted under the NTC removal process.  We found that compared to
    the remedial process, the NTC removal process accelerated cleanup
    actions by an average of 2 years per action and, consequently,
    reduced human health risks sooner and prevented the further spread of
    contamination.  Using NTC removals also reduced the cost of the
    cleanup actions, from $4.1 million to $3.6 million, on average, for a
    savings of $500,000 per action.

    If NTC removals were consistently used, the backlog of contaminated
    sites in the Superfund program could be more quickly addressed.  This
    would reduce total costs over the life of the Superfund program but,
    given the current backlog, could not be expected to yield short-term
    savings.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:74.1

    A Superfund Tool for More Efficient Cleanups (GAO/RCED-96-134R, April
    15, 1996).

    Superfund:  Non-Time-Critical Removals as a Tool for Faster and Less
    Costly Cleanups (GAO/T-RCED-96-137, April 17, 1996).

    Time and Cost Limits on Superfund Removals (GAO/RCED-96-195R, June
    10, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:74.2

    Peter F.  Guerrero, (202) 512-6111

       OPTION:
       EXCESS FUNDS IN SUPERFUND
       CONTRACTSEXCESS FUNDS IN
       SUPERFUND CONTRACTS
    ------------------------------------------------------ Appendix III:75

    Authorizing committees              Environment and Public Works
                                        (Senate) Commerce (House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Environmental Protection Agency

    Account                             Hazardous Substances Superfund
                                        (20-8145)

    Spending type                       Discretionary

    Budget subfunction                  Pollution Control and Abatement

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Environmental Protection Agency's (EPA) Superfund program, which
    the Congress created in 1980, was intended to clean up those sites
    considered to be the most serious of the hazardous waste sites
    identified in the United States.  EPA is authorized to compel parties
    responsible for causing the hazardous waste pollution to clean up the
    sites.  If these parties cannot be found, or if a settlement with
    them cannot be reached, EPA can hire contractors to conduct the clean
    up.  EPA has reported spending over $10 billion for cleaning up
    nonfederal Superfund sites.

    If EPA took more aggressive action in identifying and closing
    completed contracts under the Superfund program, excess amounts could
    be recovered and used for new Superfund work, obviating the need for
    additional appropriations to perform such work.  During fiscal years
    1990 through 1996, EPA obligated about $4.4 billion dollars for
    Superfund contracts.  As the work is performed under these contracts,
    the contractors are paid and EPA's obligations are liquidated.  For
    various reasons, the amount of funds obligated for a particular
    contract often exceeds the amount eventually paid to the contractor.
    In these circumstances, the unspent funds should be deobligated and
    used for other Superfund activities, once the original contracts are
    closed.

    In 1994, EPA's Office of Inspector General reported that contracts
    awarded under the Superfund program had balances of over $100 million
    in unspent obligated funds that were no longer needed for their
    original purposes.  In the same year, an EPA task force was
    established to develop guidance on and pursue the recovery of excess
    funds.  However, in May 1996 we reported that substantial amounts
    remained obligated for completed projects.  Using EPA data systems,
    we identified $164 million in potential recoveries, and we encouraged
    EPA to aggressively pursue these recoveries.  EPA's failure to take
    aggressive actions in identifying and closing completed contracts in
    the past has contributed greatly to its failure to recover unneeded
    funds.  For example, in some cases, contracts had not been closed
    when work had been completed many years ago.

    Our current work, which will be completed by May 1997, indicates that
    similar excess funds could be available during fiscal year 1998.
    Accordingly, in considering EPA's fiscal year 1998 budget request,
    the Congress may wish to consider reducing EPA's budget to encourage
    the agency to aggressively seek recovery of such funds.  For example,
    the Congress may want to reduce EPA's fiscal year 1998 appropriation
    by $164 million to encourage greater recovery of funds.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   164       0       0       0       0
    Outlays                             41      57      33      16       8

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   164       0       0       0       0
    Outlays                             41      57      33      16       8
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:75.1

    Environmental Protection:  Selected Issues Related to EPA's Fiscal
    Year 1997 Appropriation (GAO/T-RCED-96-164, May 1, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:75.2

    Peter F.  Guerrero, (202) 512-6111

       OPTION:
       WEATHER SERVICE MODERNIZATION
       PROJECTWEATHER SERVICE
       MODERNIZATION PROJECT
    ------------------------------------------------------ Appendix III:76

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Science (House)

    Appropriations subcommittees        Commerce, Justice, State, and the
                                        Judiciary (Senate)
                                        Commerce, Justice, State, the
                                        Judiciary, and Related Agencies
                                        (House)

    Primary agency                      Department of Commerce

    Account                             Operations, Research and
                                        Facilities (13-1450)

    Spending type                       Discretionary

    Budget subfunction                  Other Natural Resources

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The National Weather Service (NWS) uses a variety of systems and
    manual processes to collect, process, and disseminate weather data to
    and among its network of field offices and regional and national
    centers.  Many of these systems and processes are outdated, and
    during the 1980s, NWS began modernizing its systems.  NWS' current
    modernization project includes four new major system development
    programs including the Advanced Weather Interactive Processing System
    (AWIPS).  AWIPS is designed to integrate for the first time
    satellite, radar, and other data to support weather forecaster
    decision-making and communications.  NWS estimates that the AWIPS
    workstations and network will cost $525 million and be fully deployed
    in 1999.

    GAO reports and testimony note that NWS has not demonstrated that all
    AWIPS capabilities will result in the promised mission improvements,
    such as better forecasts, fewer field offices, and reduced staffing
    levels.  Therefore, GAO recommended that NWS (1) expand ongoing AWIPS
    requirements review activities to include validation that proposed
    capabilities are justified on the basis of mission impact and (2)
    implement only those capabilities that are validated.  NWS disagreed
    with this recommendation stating that completed and ongoing
    requirements reviews and risk reduction activities as well as
    operational test and evaluation of each AWIPS software release are
    sufficient to ensure that unneeded AWIPS capabilities are revised or
    not implemented.  However, GAO believes that none of the NWS-cited
    activities were or are intended to demonstrate the mission impact of
    AWIPS capabilities.

    Recently, the Congress, in conference report language accompanying
    the National Oceanic and Atmospheric Administration's 1997
    appropriations bill, placed a cap of $525 million on AWIPS and
    recommended that the Commerce Department delay a decision to deploy
    AWIPS nationwide until it conducts more operational testing.  Unless
    NWS validates AWIPS capabilities to measurable mission improvements,
    it runs the risk of wasting taxpayers' money.  Savings could
    potentially be achieved depending on the outcome of the capabilities
    validation.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:76.1

    Weather Forecasting:  Recommendations to Address New Weather
    Processing System Development Risks (GAO/AIMD-96-74, May 13, 1996).

    Weather Forecasting:  NWS Has Not Demonstrated That New Processing
    System Will Improve Mission Effectiveness (GAO/AIMD-96-29, February
    29, 1996).

    Weather Forecasting:  New Processing System Faces Uncertainties and
    Risks (GAO/T-AIMD-96-47, February 29, 1996).

    Weather Forecasting:  Radars Far Superior to Predecessors, but
    Location and Availability Questions Remain (GAO/T-AIMD-96-2, October
    17, 1995).

    Weather Service Modernization Staffing (GAO/AIMD-95-239R, September
    26, 1995).

    Weather Forecasting:  Radar Availability Requirements Not Being Met
    (GAO/AIMD-95-132, May 31, 1995).

    Weather Forecasting:  Unmet Needs and Unknown Costs Warrant
    Reassessment of Observing System Plans (GAO/AIMD-95-81, April 21,
    1995).

    Weather Service Modernization Questions (GAO/AIMD-95-106R, March 10,
    1995).

    Weather Service Modernization:  Despite Progress, Significant
    Problems and Risks Remain (GAO/T-AIMD-95-87, February 21, 1995).

    Weather Forecasting:  Improvements Needed in Laboratory Software
    Development Processes (GAO/AIMD-95-24, December 14, 1994).

    Weather Forecasting:  Systems Architecture Needed for National
    Weather Service Modernization (GAO/AIMD-94-28, March 11, 1994).

    Weather Forecasting:  Important Issues on Automated Weather
    Processing System Need Resolution (GAO/IMTEC-93-12BR, January 6,
    1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:76.2

    Joel C.  Willemssen, (202) 512-6253

       350 AGRICULTURE
    ------------------------------------------------------ Appendix III:77

      -- Food Aid:  Public Law 480 Title I Program

      -- The Market Access Program

      -- Export Credit Guarantee Programs

      -- Agricultural Research Service Funding

      -- USDA Telecommunications and Information Systems

       OPTION:
       FOOD AID:  PUBLIC
       LAW 480 TITLE I PROGRAMFOOD
       AID:  PUBLIC LAW 480 TITLE I
       PROGRAM
    ------------------------------------------------------ Appendix III:78

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Commerce,
                                        Science and Transportation
                                        (Senate)
                                        Agriculture (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agency                      Department of Agriculture

    Accounts                            P.L. 480 Grants (12-2278)
                                        P.L. 480 Program (12-2277)

    Spending type                       Discretionary/Direct

    Budget subfunction                  Farm Income Stabilization

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Through the Public Law 480 Title I Food Aid Program, U.S.
    agricultural commodities are sold to developing countries on
    long-term credit at below-market interest rates.  The current goal of
    the program is to promote the foreign policy of the United States by
    enhancing the food security of developing countries.  The Public Law
    480 legislation specifies ways that agricultural commodities provided
    under the program can support this goal, including their use to
    promote broad-based, sustainable (BBS) development, and develop and
    expand markets for U.S.  agricultural commodities.

    Title I's contribution to BBS development and long-term market
    development for U.S.  agricultural goods is limited for many reasons.
    The value of foreign exchange a country might save through purchasing
    Title I commodities on concessional terms--the vehicle through which
    BBS development could occur--is small relative to the country's
    development needs.  Also, the program provides the Department of
    Agriculture (USDA) little leverage to influence development
    activities or initiate policy reforms in the recipient country.
    Further, other competing objectives dilute whatever leverage might be
    associated with the program.

    Title I's contribution to long-term, foreign market development for
    U.S.  agricultural commodities has not been demonstrated.  Title I
    commodities tend to be price sensitive; therefore, it is difficult to
    transform the concessional market share established through the Title
    I program into commercial market share, unless the United States can
    offer competitive prices and financing.

    In addition, legislatively mandated program requirements
    (particularly cargo preference rules and reexport restrictions)
    impose constraints on recipients that undermine market development
    efforts.

    Title II of the Federal Agriculture Improvement and Reform (FAIR) Act
    of 1996 amended the Title I program to provide greater program
    flexibility, make improvements in operations and administration, and
    extend authority to enter into new agreements through 2002.  Notably,
    the FAIR Act (1) authorized agreements with private entities in
    addition to foreign governments, (2) eliminated the minimum repayment
    period of 10 years for Title I concessional credits and reduced the
    maximum grace period from 7 to 5 years, (3) permitted an agricultural
    trade organization to carry out a project or program in a developing
    country using funds derived from Title I sales if the organization
    has a market development plan approved by the Secretary of
    Agriculture, and (4) simplified the process by which the Secretary
    determines the commodities eligible for the program.

    Despite these reforms, and the management streamlining required in
    1990 amendments to the Title I program, multiple and sometimes
    competing objectives, as well as contradictory program requirements,
    continue to encumber the Title I program, making it difficult to
    create and implement an effective program strategy.  Furthermore, the
    reforms did not address primary concerns regarding the program's
    level of effectiveness in developing long-term foreign markets and
    achieving economic development.  Thus, from this perspective, the
    Congress may wish to consider reducing or eliminating funding for the
    Title I program.  The savings presented below assume that the program
    authority would not be extended beyond fiscal year 1998.\19 The delay
    would permit USDA to lower production through an increased acreage
    set-aside in 1998 which would not build surpluses or otherwise affect
    the budget.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     0     200     200     200     200
    Outlays                              0     110     190     200     200

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     0     210     216     221     227
    Outlays                              0     116     203     219     224
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \19 The savings include $14 million for ocean freight differential
    costs for the shipment of agricultural commodities.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:78.1

    Farm Bill Export Options (GAO/GGD-96-39R, December 15, 1995).

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

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:78.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       THE MARKET ACCESS PROGRAMTHE
       MARKET ACCESS PROGRAM
    ------------------------------------------------------ Appendix III:79

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Agriculture
                                        (House)

    Primary agency                      Department of Agriculture

    Accounts                            Commodity Credit Corporation Fund
                                        (12-4336)

    Spending type                       Direct

    Budget subfunction                  Farm Income Stabilization

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    Under the Agriculture Trade Title (Title II) of the Federal
    Agriculture Improvement and Reform (FAIR) Act of 1996, the Congress
    changed the name of the Market Promotion Program to the Market Access
    Program.  The Market Access Program is an export promotion program
    that subsidizes overseas promotional activities for U.S.
    agricultural products.  The program uses government funds to help
    U.S.  producers, exporters, and trade associations finance cost-share
    promotional activities for U.S.  agricultural products abroad.  The
    Foreign Agricultural Service (FAS) operates the Market Access Program
    through 65 not-for-profit associations that either run the programs
    themselves or pass funds through to other entities.

    Adequate assurance does not exist to demonstrate that Market Access
    Program funds are supporting additional promotional activities rather
    than simply replacing company/industry funds.  Moreover, FAS has not
    provided adequate guidance or oversight in targeting Market Access
    Program funds to smaller and new-to-export industries which are less
    likely to supplant them.

    Under Title II of the FAIR Act, the Congress cut annual program
    funding from $110 million to $90 million for fiscal years 1996
    through 2002.  The legislation also prohibits program funding for
    direct assistance of branded promotions from being provided to
    foreign companies for promotion of foreign produced products or to
    companies that are not recognized as small business concerns under
    the Small Business Act, with the exception of cooperatives and
    nonprofit trade associations.

    Based on the examinations of the program since its inception, members
    of Congress have asked GAO to continue monitoring this program to
    ensure that executive and legislative branch reforms are effectively
    and efficiently implemented, particularly those pertaining to funding
    additionality, graduation of private companies out of the program,
    and greater small company participation.  Because questions have been
    raised as to whether continued substantial funding of large
    cooperatives is consistent with the intent of the program, further
    program funding reductions might be considered.  In addition, based
    on graduation criteria effective in fiscal year 1999, some companies
    may no longer be eligible for subsidies.  This could facilitate the
    reduction of program funding levels.  For example, if the Congress
    were to reduce the annual program funding to $50 million for fiscal
    years 1998 through 2002, the following savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    40      40      40      40      40
    Outlays                              3      31      40      40      40
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:79.1

    Agricultural Trade:  Competitor Countries Foreign Market Development
    Programs (GAO/T-GGD-95-184, June 14, 1995).

    Farm Bill Export Options (GAO/GGD-96-39R, December 15, 1995).

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

    U.S.  Department of Agriculture:  Improvements Needed in Market
    Promotion Program (GAO/T-GGD-93-17, March 25, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:79.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       EXPORT CREDIT GUARANTEE
       PROGRAMSEXPORT CREDIT GUARANTEE
       PROGRAMS
    ------------------------------------------------------ Appendix III:80

    Authorizing committees              Agriculture, Nutrition and
                                        Forestry (Senate) Agriculture
                                        (House)

    Primary agency                      Department of Agriculture

    Accounts                            Commodity Credit Corporation Loans
                                        Program Account (12-1336)
                                        Commodity Credit Corporation Fund
                                        (12-4336)

    Spending type                       Direct

    Budget subfunction                  Farm Income Stabilization

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Under the U.S.  Department of Agriculture (USDA), the Export Credit
    and Intermediate Export Credit Guarantee Programs are major
    agricultural export promotion programs.  The main objective of these
    programs is to increase U.S.  agricultural exports.  Based on
    legislative requirements, USDA is required to make a total of $5.5
    billion in government loan guarantees available each year to foreign
    country buyers of U.S.  agricultural commodities.

    Since the programs began in the 1980s, and as of January 1997, the
    government had paid out approximately $7.8 billion in claims because
    of loan repayment defaults and reschedulings by foreign country
    buyers.  Past operations of the programs have incurred high costs
    because USDA had provided a large amount of guarantees to high-risk
    countries, such as Iraq and the former Soviet Union.  Guarantees had
    been extended to such high-risk countries for market development
    reasons and foreign policy considerations.  Extending guarantees and
    increasing exposure to new and existing high-risk participants will
    result in higher program costs.

    The Agriculture Trade Provisions (Title II) of the Federal
    Agriculture Improvement and Reform Act of 1996 reformed the
    operations of the Export Credit Guarantee Programs.  Notably, the
    Act:  (1) authorized short-term supplier credit guarantees; (2)
    listed criteria to be used by the Secretary of Agriculture in
    deciding whether a country is creditworthy for intermediate-term
    credit guarantees; (3) mandated annual program levels at $5.5 billion
    through 2002 but allowed for flexibility in how much is provided for
    each program; (4) clarified that the 1 percent maximum origination
    fee is to be applied to the amount of short-term credit to be
    guaranteed and removed the cap on the origination fee charged for
    Commodity Credit Corporation Facilities Financing Guarantees; and (5)
    permitted the use of credit guarantees for high-value products with
    at least 90 percent U.S.  content by weight.  Minimum amounts of
    credit guarantees will be required to be available for processed and
    high-value products:  25 percent in 1996 and 1997; 30 percent in 1998
    and 1999; and 35 percent thereafter.  Minimum requirements are not
    applicable if they cause a reduction in total commodity sales under
    the program.

    It is unclear that the export credit guarantee programs have resulted
    in increased agricultural exports.  Also, there is a history of poor
    management control of these programs, principally because USDA
    officials viewed the export credit guarantee programs as "commercial"
    programs that are subject to the normal controls that exist for
    commercial sales transactions.  USDA is taking steps to improve
    program management.

    The Congress may wish to reduce the programs' budgets.  For example,
    reducing guarantees for sales to high-risk countries would permit
    reductions in annual loan guarantees to about $3 billion, about $800
    million less than current levels assumed in CBO's baseline.  The
    Congress may also wish to consider whether such beneficiary countries
    might be more appropriately assisted with food aid programs.
    However, this would offset some or all of the savings cited in the
    following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   108     143     147     154     159
    Outlays                            108     143     147     154     159
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:80.1

    Farm Bill Export Options (GAO/GGD-96-39R, December 15, 1995).

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

    GSM Export Credit Guarantees (GAO/GGD-94-211R, September 29, 1994).

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:80.2

    Benjamin F.  Nelson, (202) 512-4128

       OPTION:
       AGRICULTURAL RESEARCH SERVICE
       FUNDINGAGRICULTURAL RESEARCH
       SERVICE FUNDING
    ------------------------------------------------------ Appendix III:81

    Authorizing committees              Agriculture, Nutrition, and
                                        Forestry (Senate) Agriculture
                                        (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agency                      Department of Agriculture

    Account                             Agricultural Research Service (12-
                                        1400)

    Spending type                       Discretionary

    Budget subfunction                  Agricultural Research and Services

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The U.S.  agricultural research system is decentralized and diverse,
    spanning federal, state, and private institutions.  The Agricultural
    Research Service (ARS), which was appropriated about $717 million for
    its fiscal year 1997 research activities, conducts most federal
    in-house agricultural research in laboratories located nationwide and
    in several foreign countries.  ARS' role is to develop the knowledge
    essential to solving technical agricultural problems that are broad
    in scope and have high national priority.

    In June 1996, GAO provided information on ARS' fiscal year 1996
    research projects that the Congress could use if it chose to reduce
    ARS funding.  As of January 29, 1996, ARS had used about 91 percent
    of its fiscal year 1996 research appropriations to fund 1,198
    projects at an estimated cost of $648 million.  Of the projects, 495
    (valued at $257 million) involved mostly nonbasic research.\20
    Similarly, 432 projects (valued at $220 million) were outside the
    high-priority research areas designated in ARS' 6-year implementation
    plan.  GAO identified 148 projects valued at $78 million which fell
    into both of these categories.

    Should the Congress wish to reduce nonbasic federal agricultural
    research and/or research that is not high-priority, we believe the
    ARS budget could sustain a commensurate reduction.  For example, the
    Congress could eliminate the 148 projects which involved mostly
    nonbasic research and were outside high-priority research areas.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    78      78      78      78      78
    Outlays                             61      73      78      78      78

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    81      83      86      89      92
    Outlays                             63      78      85      88      91
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \20 Nonbasic research is applied and developmental research, which
    produces knowledge relevant to a technology or service and is
    generally completed in a few years.  In contrast, basic research
    creates new knowledge and may take years to complete.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:81.1

    ARS' Research Activities (GAO/RCED-96-153R, June 14, 1996).

    Agricultural Research:  Information on Research System and USDA's
    Priority Setting (GAO/RCED-96-92, March 28, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:81.2

    Robert A.  Robinson, (202) 512-5138

       OPTION:
       USDA TELECOMMUNICATIONS AND
       INFORMATION SYSTEMSUSDA
       TELECOMMUNICATIONS AND
       INFORMATION SYSTEMS
    ------------------------------------------------------ Appendix III:82

    Authorizing committees              Agriculture, Nutrition, and
                                        Forestry (Senate)
                                        Agriculture (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agency                      Department of Agriculture

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The U.S.  Department of Agriculture (USDA) and its 29 component
    agencies spend over $100 million on telecommunications annually,
    including more than $50 million for commercial telecommunications
    services obtained from over 1,500 telephone companies.

    We have reported that USDA does not cost-effectively manage and plan
    its telecommunications resources.  USDA agencies are spending
    hundreds of millions of dollars continuing to develop their own
    telecommunications networks that overlap and perpetuate long-standing
    information sharing problems.  We also found that USDA agencies waste
    millions of dollars each year paying for (1) unnecessary
    telecommunications services, (2) leased equipment that is not used
    and services billed for but never provided, and (3) commercial
    carrier services that cost more than 3 times what they would under
    the Federal Telecommunications System 2000 program.  In addition,
    USDA pays tens of thousands of dollars each month for collect and
    long-distance calls without knowing whether such calls are
    appropriate.  We found that about 50 percent of all collect calls
    accepted by USDA officials in the Washington, D.C., metropolitan area
    over a 4-month period were from callers at correctional institutions.
    We also found that USDA wasted tens of thousands of dollars because
    it had not established adequate procedures for reviewing bills to
    verify the appropriateness of telephone charges made by private
    vendors.

    Although the full extent of USDA's telephone fraud, waste, and abuse
    problem is unknown, USDA officials have indicated that as much as $15
    million to $30 million could be saved annually by eliminating
    redundant commercial telecommunications services and by sharing
    resources.  If our recommendations to the Secretary to take
    aggressive action to improve USDA's management of telecommunications
    and information systems were fully implemented, we believe
    substantial savings could be achieved.  However, the amount of such
    savings cannot be known with certainty until USDA takes action to
    fully identify and eliminate spending on fraudulent and wasteful
    telecommunications services.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:82.1

    USDA Telecommunications:  More Effort Needed to Address Telephone
    Abuse and Fraud (GAO/AIMD-96-59, April 16, 1996).

    USDA Telecommunications:  Better Management and Network Planning
    Could Save Millions (GAO/AIMD-95-203, September 22, 1995).

    USDA Telecommunications (GAO/AIMD-95-219R, September 5, 1995).

    USDA Telecommunications:  Missed Opportunities to Save Millions
    (GAO/AIMD-95-97, April 24, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:82.2

    Joel C.  Willemssen, (202) 512-6253

       370 COMMERCE AND HOUSING CREDIT
    ------------------------------------------------------ Appendix III:83

      -- Rural Housing Loans Interest Recapture

      -- Use of Sampling for the 2000 Decennial Census

       OPTION:
       RURAL HOUSING LOANS INTEREST
       RECAPTURERURAL HOUSING LOANS
       INTEREST RECAPTURE
    ------------------------------------------------------ Appendix III:84

    Authorizing committees              Banking, Housing, and Urban
                                        Affairs (Senate)
                                        Banking and Financial Services
                                        (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agency                      Department of Agriculture

    Account                             Rural Housing Insurance Fund (12-
                                        2081)

    Spending type                       Direct

    Budget subfunction                  Mortgage Credit

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Housing Act of 1949, as amended, requires the U.S.  Department of
    Agriculture's 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 being
    that because taxpayers paid a portion of the mortgage, they are
    entitled to a portion of the property's appreciation.

    In a recent report, we pointed out that because recapture is not
    mandated when homes are refinanced, RHS' 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 June 30,
    1995, RHS' records showed that about $119 million was owed by
    borrowers who had refinanced their mortgages but continue 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.  CBO's estimate of
    the savings for this option is presented on a net present value basis
    as required by the Federal Credit Reform Act of 1990.  Actual savings
    could differ depending on how this proposal would affect the rate at
    which homes are sold.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Budget authority                    50       0       0       0       0
    Outlays                             50       0       0       0       0
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:84.1

    Rural Housing Programs:  Opportunities Exist for Cost Savings and
    Management Improvement (GAO/RCED-96-11, November 16, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:84.2

    Judy A.  England-Joseph, (202) 512-7631

       OPTION:
       USE OF SAMPLING FOR THE 2000
       DECENNIAL CENSUSUSE OF SAMPLING
       FOR THE 2000 DECENNIAL CENSUS
    ------------------------------------------------------ Appendix III:85

    Authorizing committees              Governmental Affairs (Senate)
                                        Government Reform and Oversight
                                        (House)

    Appropriations subcommittees        Commerce, Justice, State, and the
                                        Judiciary and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Commerce

    Account                             Periodic Censuses and Programs
                                        (13-0450)

    Spending type                       Discretionary

    Budget subfunction                  Other Advancement of Commerce

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Since 1992, GAO reports and testimonies have identified opportunities
    to reduce the cost of the 2000 Decennial Census without decreasing
    accuracy.  The Census Bureau estimated that using the 1990
    census-taking approach without modification could cost about $4.8
    billion in current dollars for the 2000 Decennial Census.

    GAO believes the Census Bureau should pursue several cost-saving
    options currently being evaluated by the Bureau.  Census Bureau
    estimates suggest that the use of these options could result in
    savings for the 2000 Decennial Census.  These options are as follows:

      -- Promoting a higher mail response rate by simplifying and
         streamlining the census questionnaire and using a strategy of
         multiple mail contacts.  A simplified, more user-friendly
         questionnaire could promote better response rates by reducing
         the time and effort needed for respondents to understand and
         complete the form.  Additionally, tests have shown that the use
         of multiple contacts, such as targeted reminder cards and second
         mailings, improves response rates.

      -- Using the Postal Service to identify vacant and invalid
         addresses during the mailing of questionnaires to avoid costly
         and unnecessary follow-up efforts.  In order to maximize
         savings, the Census Bureau must ascertain the earliest point at
         which vacant and invalid housing units are accurately classified
         to eliminate futile follow-up on them.

      -- Gathering data on only a sample of those households not
         responding by mail, rather than attempting to contact them all
         in person.  Savings estimates would vary according to the
         initial percentage of households responding by mail and the
         sampling rate and method selected.

    The Census Bureau estimates that it could have saved between $700
    million and $800 million of the $2.6 billion that it spent on the
    1990 Decennial Census if it had incorporated the procedures listed
    above.  Almost all of these savings would have occurred in fiscal
    year 1990.  With inflation and workload adjustments, this figure
    should be somewhat higher for fiscal year 2000.

    In addition, by eliminating or reducing costly labor-intensive
    address list operations through greater reliance on the Postal
    Service and local communities, the Census Bureau estimates that it
    could save as much as $188 million for the 2000 Census.  This
    cooperative effort will be permissible under 1994 legislation (P.L.
    103-430).  To realize these savings, the Census Bureau estimated in
    1995 that it would incur costs of about $5.1 million in fiscal years
    1995, 1996, and 1997.  However, thereafter, the Bureau will generate
    net savings of $13.5 million in fiscal year 1998, between $129.4
    million and $179.4 million in fiscal year 1999, and another $10.8
    million in fiscal year 2000.

    The dollar amounts above are Census Bureau estimates.  The Census
    Bureau will have to spend several million each year to prepare for
    the change.  However, the Census Bureau should require less in budget
    authority to accomplish the 2000 Decennial Census than it would
    without implementing this proposal.  Because of the unique nature of
    the census, a cyclical program with the majority of spending
    occurring once every 10 years, estimates against an interim year
    baseline would be inappropriate.

    To illustrate the potential savings, CBO estimates that using
    sampling for nonresponse follow-up for the 2000 Decennial Census
    could result in the following savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Budget authority                     0       0     500       0       0
    Outlays                              0       0     395     105       0
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:85.1

    Decennial Census:  Fundamental Design Decisions Merit Congressional
    Attention (GAO/T-GGD-96-37, October 25, 1995).

    Decennial Census:  1995 Test Census Presents Opportunities to
    Evaluate New Census-Taking Methods (GAO/T-GGD-94-136, September 27,
    1994).

    Decennial Census:  Promising Proposals, Some Progress, but Challenges
    Remain (GAO/T-GGD-94-80, January 26, 1994).

    Decennial Census:  Test Design Proposals Are Promising, but
    Fundamental Reform Is Still at Risk (GAO/T-GGD-94-12, October 7,
    1993).

    Decennial Census:  Focused Action Needed Soon to Achieve Fundamental
    Breakthroughs (GAO/T-GGD-93-32, May 27, 1993).

    Decennial Census:  Fundamental Reform Jeopardized by Lack of Progress
    (GAO/T-GGD-93-6, March 2, 1993).

    Transition Series:  Commerce Issues (GAO/OCG-93-12TR, December 1992).

    Decennial Census:  1990 Results Show Need for Fundamental Reform
    (GAO/GGD-92-94, June 9, 1992).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:85.2

    L.  Nye Stevens, (202) 512-7824

       400 TRANSPORTATION
    ------------------------------------------------------ Appendix III:86

      -- State Share of State-Supported Intercity Rail Passenger Service

      -- Amtrak Subsidies

      -- Military Airport Program Funds

      -- Cargo Preference Laws

      -- Fees Paid by Foreign-Flagged Cruise Ships

      -- Department of Transportation's Oversight of Its University
         Research

      -- Fees for Certification of New Airlines

      -- Fees for Registering Aircraft

       OPTION:
       STATE SHARE OF STATE-SUPPORTED
       INTERCITY RAIL PASSENGER
       SERVICESTATE SHARE OF
       STATE-SUPPORTED INTERCITY RAIL
       PASSENGER SERVICE
    ------------------------------------------------------ Appendix III:87

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        Transportation (Senate)
                                        Transportation and Related
                                        Agencies (House)

    Primary agency                      Department of Transportation

    Account                             Grants to National Railroad
                                        Passenger Corporation
                                        (69-0704)

    Spending type                       Discretionary

    Budget subfunction                  Ground Transportation

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    Section 403(b) of the Rail Passenger Service Act authorizes Amtrak to
    initiate and/or operate intercity rail services, in addition to its
    basic system, when such services are financially supported by the
    states.  As of January 1996, Amtrak had contracts with 11 states to
    operate such service over 15 routes.\21 These operations account for
    about 15 percent of Amtrak's ridership.  Under the provisions of the
    Rail Passenger Service Act, the states contribute at least 45 percent
    of section 403(b) service operating losses in the first year of
    operation and 65 percent of these losses in subsequent years.  For
    service that began prior to 1989, states reimburse Amtrak for
    short-term avoidable losses, while for service that began after 1989,
    states reimburse Amtrak for long-term avoidable losses.  Although
    long-term avoidable losses are a larger amount than short-term
    avoidable losses, they are only about 55 percent of losses that are
    based on fully allocated costs--including capital costs.  The states
    do pay 50 percent of the capital equipment costs (primarily
    depreciation and interest) associated with section 403(b) service.

    In fiscal year 1994, Amtrak sustained about $82.2 million in losses
    on section 403(b) services and this increased to $88.2 million in
    fiscal year 1995.  The states receiving section 403(b) services
    contributed $32.6 million in 1994 and $35.7 million in 1995.  These
    amounts are consistent with Amtrak's experience in recent years.
    However, Amtrak is planning to substantially increase the share of
    section 403(b) service losses that the individual states will bear.
    In fiscal year 1996, Amtrak planned to collect $72.6 million in state
    contributions to cover section 403(b) losses.  However, it actually
    collected $64.2 million.  Amtrak plans to eventually recover the
    fully allocated losses from section 403(b) services, but has not yet
    secured the states' agreement.

    The Congress could require that the states reimburse Amtrak for the
    fully allocated costs of providing section 403(b) services.  While
    this is Amtrak's goal, supporting legislation would pave the way for
    fully allocated loss reimbursement.  Currently, Amtrak must negotiate
    reimbursement with each state and the state contributions vary
    widely.  On the basis of Amtrak's experience in recent years (as
    opposed to its plan for the current year), the following savings
    would apply if federal subsidies were reduced by the estimated 403(b)
    losses that Amtrak now must absorb.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    46      46      46      46      46
    Outlays                             46      46      46      46      46

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    47      48      50      51      52
    Outlays                             47      48      50      51      52
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \21 These states were Alabama, California, Illinois, Michigan,
    Missouri, New York, North Carolina, Wisconsin, Oregon, Washington,
    and Vermont.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:87.1

    Amtrak's Strategic Business Plan:  Progress to Date (GAO/RCED-96-187,
    July 24, 1996).

    Northeast Rail Corridor:  Information on Users, Funding Sources, and
    Expenditures (GAO/RCED-96-144, June 27, 1996).

    Intercity Passenger Rail:  Amtrak's Financial and Operating
    Conditions Threaten Its Longterm Viability (GAO/RCED-95-71, February
    6, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:87.2

    John H.  Anderson, Jr., (202) 512-2837

       OPTION:
       AMTRAK SUBSIDIESAMTRAK
       SUBSIDIES
    ------------------------------------------------------ Appendix III:88

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        Transportation (Senate)
                                        Transportation and Related
                                        Agencies (House)

    Primary agency                      Department of Transportation

    Account                             Grants to National Railroad
                                        Passenger Corporation
                                        (69-0704)

    Spending type                       Discretionary

    Budget subfunction                  Ground Transportation

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Amtrak's financial condition has deteriorated rapidly in the first
    half of the decade, seriously threatening Amtrak's ability to provide
    high-quality passenger rail service nationwide.  The time has come
    for Amtrak and the federal government to make key long-term decisions
    concerning the quality and extent of passenger rail service and the
    government's commitment to subsidize such operations.  Recognizing
    Amtrak's need for financial support, the Congress has provided
    significant funding since Amtrak began operating in 1971.  Since
    1990, however, Amtrak's federal subsidy has not covered the gap
    between operating expenses and revenues.  Total operating deficits
    had exceeded federal operating subsidies by $175 million.  This
    imbalance occurred because passenger revenues have been lower than
    projected while expenses have been higher than expected.
    Furthermore, between 1990 and 1994, Amtrak steadily reduced its
    working capital by $254 million.  Although Amtrak's working capital
    position improved in fiscal year 1995, current liabilities still
    exceeded current assets by $149 million.

    Over the next few years, Amtrak will face difficult and costly
    challenges that could impede its financial recovery.  At the same
    time, Amtrak faces few opportunities to substantially increase
    revenues.  The challenges include (1) maintaining its aging passenger
    cars, (2) modernizing the Beech Grove, Indiana, repair facility,
    which services all equipment used outside the Northeast Corridor, (3)
    modernizing its locomotive and passenger car fleet, acquiring
    high-speed trains, and continuing rail improvements in the Northeast
    Corridor, (4) negotiating new operating agreements with the freight
    railroads, which own about 97 percent of the track over which Amtrak
    operates, (5) negotiating labor issues and work rules with Amtrak's
    union employees, and (6) incurring higher costs for employee health
    benefits and environmental clean-up.

    To address its financial and operating problems, Amtrak has developed
    a strategic and business plan that is designed to eliminate the need
    for federal operating subsidies by the year 2002.  To facilitate the
    proposed changes, Amtrak has been reorganized into strategic business
    units (SBU) which are responsible for different "product lines." The
    West Coast SBU is responsible for operations in California,
    Washington, and Oregon; the Northeast Corridor SBU is responsible for
    the Metroliners and other operations between Washington and Boston;
    and the Intercity SBU has responsibility for the remaining rail
    passenger operations.  The parent SBU in Washington, D.C., handles
    the corporate operations, such as legal affairs and national
    advertising, that transcend the geographic areas covered by the SBUs.
    Amtrak believes that decentralization of authority and
    responsibility, combined with route, service, and fare changes, will
    allow it to achieve operating self-sufficiency.  However, Amtrak's
    plan is predicated on continued availability of federal funds for
    capital improvements, greater state support for 403(b) services, and
    significant productivity savings.  While Amtrak continues to work
    toward eliminating federal operating subsidies by the year 2002, it
    remains to be seen whether it can achieve self-sufficiency if its
    assumptions are not wholly fulfilled.

    If substantially increasing the level of federal funding for Amtrak,
    especially for capital investments, is not possible in today's
    budgetary environment, now may be the time for the Congress to
    consider refocusing Amtrak's efforts and reducing its current route
    system, retaining service in locations where Amtrak can carry the
    largest number of passengers in the most cost-effective manner.  The
    Congress could consider establishing a temporary commission similar
    to the military base closure commission to restructure Amtrak's
    operations and reduce the route network so that efficient and quality
    service can be provided within the available funding from all
    sources--federal, state and local, and private.

    Savings estimates cannot be made until specific proposals are
    developed regarding changes in Amtrak operations and routes.  These
    estimates cannot be made because restructuring proposals would affect
    the amount of the reduction in federal funding for Amtrak's capital,
    operating, and Northeast Corridor activities.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:88.1

    Amtrak's Strategic Business Plan:  Progress to Date (GAO/RCED-96-187,
    July 24, 1996).

    Northeast Rail Corridor:  Information on Users, Funding Sources, and
    Expenditures (GAO/RCED-96-144, June 27, 1996).

    Intercity Passenger Rail:  Amtrak's Financial and Operating
    Conditions Threaten Its Longterm Viability (GAO/RCED-95-71, February
    6, 1995).

    Amtrak:  Key Decisions Need to be Made in the Face of Deteriorating
    Financial Condition (GAO/T-RCED-94-186, April 13, 1994).

    Amtrak:  Deteriorated Financial Condition and Costly Future
    Challenges (GAO/T-RCED-94-145, March 23, 1994).

    Amtrak:  Financial Condition has Deteriorated and Future Costs Make
    Recovery Difficult (GAO/T-RCED-94-155, March 17, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:88.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       MILITARY AIRPORT PROGRAM
       FUNDSMILITARY AIRPORT PROGRAM
       FUNDS
    ------------------------------------------------------ Appendix III:89

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Primary agency                      Department of Transportation

    Account                             Grants-in-Aid for Airports
                                        (Airport and Airway Trust Fund)
                                        (69-8106)

    Spending type                       Discretionary/Direct

    Budget subfunction                  Air Transportation

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Airport Improvement Program (AIP), the nation's multibillion
    dollar program for planning and improving its airport infrastructure,
    includes legislatively established funding categories for specific
    uses.  One such category--the Military Airport Program (MAP)--was
    established in 1990 to assist current and former military airports
    located in congested metropolitan areas in converting to viable
    civilian airports.

    However, 9 of the 12 airports selected by the Federal Aviation
    Administration (FAA) to participate in MAP do not meet key
    legislatively established program goals.  Five of the airports are
    not located in congested air traffic areas and are unlikely to
    increase capacity, either in major metropolitan areas or systemwide.
    Nine airports selected had already been operating as joint or
    civilian airports for 10 or more years, and many of these already had
    the types of facilities in place that the program was designed to
    develop.

    The Congress could suspend participation in MAP or further limit
    participation.  In extending authorization for the AIP in 1996, the
    Congress reduced from 15 to 12 the number of airports that could
    participate in MAP during a fiscal year.  The Congress retained the
    criteria that to participate in MAP an airport would reduce
    congestion at airports experiencing 20,000 hours of annual delays in
    their commercial passenger traffic.  Also, the Congress revised the
    criteria to allow MAP designation for recently closed and realigned
    military airfields under the Defense Base Closure and Realignment
    Acts that could be classified as civil commercial or reliever
    airports.  The Congress also could limit participation to those
    airports where first civilian use occurred after the 1988 and later
    base closure and realignment processes.  If the Congress did not wish
    airports participating in MAP to receive AIP funding in lieu of MAP
    funding, it would need to specify this.  However, because any or all
    of these actions could result in a redirection rather than a
    reduction in AIP spending, the Congress also would need to reduce the
    contract authority and obligation limitation for the AIP to achieve
    savings.  Given past problems in selecting airports that meet
    legislatively-established criteria, one option the Congress could
    consider is eliminating MAP as shown in the table below.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    19      19      19      19      19
    Outlays                              3      11      15      17      18

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    19      19      20      21      21
    Outlays                              3      11      16      18      20
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:89.1

    Airport Improvement Program:  The Military Airport Program Has Not
    Achieved Intended Impact (GAO/RCED-94-209, June 30, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:89.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       CARGO PREFERENCE LAWSCARGO
       PREFERENCE LAWS
    ------------------------------------------------------ Appendix III:90

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        Multiple

    Primary agency                      Multiple

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Water transportation

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Cargo preference laws require that certain government-owned or
    financed cargo shipped internationally be carried on U.S.-flagged
    vessels.  This guarantees a minimum amount of business for the U.S.
    merchant fleet.  This promotes other sectors of the maritime industry
    because U.S.-flagged 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 time of
    national emergencies.

    However, because U.S.-flagged vessels often charge higher rates to
    transport cargo than foreign-flagged vessels, cargo preference laws
    increase the government's transportation costs.  For fiscal years
    1989 through 1993, four federal agencies--the Departments of Defense,
    Agriculture, and Energy and the Agency for International
    Development--were responsible for more than 99 percent, by tonnage,
    of government cargo subject to cargo preference laws.\22 Cargo
    preference laws increased these federal agencies' transportation
    costs by an estimated $578 million per year in fiscal years 1989
    through 1993 because U.S.-flagged vessels generally charge more to
    carry cargo than their foreign-flagged counterparts.  The average was
    about $710 million per year when the costs associated with the
    Persian Gulf War were included.  In an October 1996 letter to GAO,
    the Maritime Administrator claimed that CBO's estimate\23 of savings
    from the elimination of cargo preference laws was too high but agreed
    that savings would occur.

    The effect of cargo preference laws on the U.S.  merchant marine
    industry is mixed.  On one hand, the share of international
    oceanborne cargo carried by U.S.  vessels has declined despite cargo
    preference laws because most oceanborne international cargo is not
    subject to cargo preference laws.  On the other hand, these laws
    appear to have a substantial impact on the U.S.  merchant marine
    industry by providing incentive for vessels to remain in the U.S.
    fleet.

    If the Congress eliminated cargo preference laws, federal agencies
    would save hundreds of millions of dollars yearly, but the U.S.
    fleet would be significantly smaller and shipboard jobs would be
    lost.  If the laws were eliminated, the following savings could be
    achieved.\24

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   216     266     317     367     418
    Outlays                            154     238     295     346     397

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   221     279     341     406     477
    Outlays                            157     250     315     381     450
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \22 Currently, the Departments of Defense and Agriculture, the Agency
    for International Development, and the Export-Import Bank are
    responsible for most of the payments made to shippers under cargo
    preference laws.

    \23 See Addressing the Deficit:  Updating the Budgetary Implications
    of Selected GAO Work (GAO/OCG-96-5, June 28, 1996) for CBO's previous
    estimate of savings for this option.

    \24 The termination of cargo preference requirements for all
    government-sponsored cargoes would probably cause additional defaults
    on outstanding loans guaranteed by the Maritime Administration.  CBO
    estimates that such defaults would increase mandatory spending by
    between $2 million and $20 million over the next several years.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:90.1

    Management Reform:  Implementation of the National Performance
    Review's Recommendations (GAO/OCG-95-1, December 5, 1994).

    Maritime Industry:  Cargo Preference Laws--Their Estimated Costs and
    Effects (GAO/RCED-95-34, November 30, 1994).

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:90.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       FEES PAID BY FOREIGN-FLAGGED
       CRUISE SHIPSFEES PAID BY
       FOREIGN-FLAGGED CRUISE SHIPS
    ------------------------------------------------------ Appendix III:91

    Authorizing committees              Judiciary (Senate and House)

    Primary agency                      Department of Justice

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The multibillion dollar passenger cruise market in the United States
    is almost exclusively served by foreign-flagged cruise vessels.  With
    the exception of two, there are no oceangoing U.S.-flagged cruise
    vessels of any substantial size.  Access to the U.S.  market is,
    therefore, a very lucrative privilege, which is made even more so
    because the vessels and their crews pay virtually no corporate or
    personal U.S.  income tax.

    To ensure adequate shoreside facilities, the safety of U.S.
    passengers and property, and enforcement of immigration laws, the
    federal government has enacted laws and dispersed responsibility for
    their administration and enforcement throughout several departments
    and agencies of the federal government.  This raises the question of
    whether the foreign-flagged cruise vessels, which are enjoying
    substantial profits as a result of their monopoly, are paying their
    fair share of the cost to the federal government of ensuring that
    this extremely valuable U.S.  market operates safely and in
    accordance with our laws and regulations.

    Seven agencies provide services to foreign-flagged cruise vessels.
    For fiscal year 1993, we found that all but two agencies--the Coast
    Guard and the Immigration and Naturalization Service (INS)--charged
    fees for these services that were about equal to or exceeded their
    costs to provide the services.  In 1996, the Congress authorized the
    Coast Guard to begin collecting fees for its inspection services.
    However, INS is still not collecting fees that recover the cost of
    passenger inspections because passengers are exempt from its fee when
    arriving at a port of entry in the United States on a cruise
    originating in Canada, Mexico, a territory or possession of the
    United States, or any adjacent island.  If the Congress lifted this
    exemption, the following savings would occur.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                      37      37      37      37      37
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:91.1

    None

          GAO CONTACT
    ---------------------------------------------------- Appendix III:91.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       DEPARTMENT OF TRANSPORTATION'S
       OVERSIGHT OF ITS UNIVERSITY
       RESEARCHDEPARTMENT OF
       TRANSPORTATION'S OVERSIGHT OF
       ITS UNIVERSITY RESEARCH
    ------------------------------------------------------ Appendix III:92

    Authorizing committees              Commerce, Science and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Appropriations subcommittees        Transportation (Senate)
                                        Transportation and Related
                                        Agencies (House)

    Primary agency                      Department of Transportation

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunction                  Ground, Air, Water, and Other
                                        Transportation

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Transportation (DOT) conducts a variety of research
    to enhance safety, mobility, environmental quality, efficiency, and
    economic growth in the nation's transportation system.  The results
    of DOT's research programs include prototypes of systems, new
    operating procedures, data used to focus policy decisions, and
    regulations.  Within DOT several offices are responsible for the
    oversight of research and development activities.  In addition, each
    of DOT's operating administrations is responsible for reviewing and
    monitoring its own research to ensure that the university awards'
    objectives are met and the costs are appropriate.

    While DOT's spending on research at universities has grown
    significantly between fiscal years 1988 and 1993, DOT does not have
    an integrated plan to ensure that sponsored research is needed to
    meet departmental goals.  In addition, a lack of oversight on some
    university awards led to overcharges of almost $450,000 and unpaid
    cost-sharing totaling $3 million in a sample of awards reviewed in
    detail.  More effective planning and management of the research
    program could reduce costs by limiting duplicate research and
    ensuring that recipients follow award guidelines on allowable costs
    and cost sharing.

    As GAO recommended, DOT has completed the development of a
    departmentwide database to track the purpose and costs associated
    with each university research award.  GAO continues to recommend that
    DOT evaluate the operating administrations' processes to ensure that
    they have adequate policies and procedures to carry out their
    responsibilities for monitoring awards.

    CBO does not disagree that improved monitoring and oversight of DOT's
    university research can reduce outlays.  GAO findings of overcharges
    and unpaid cost sharing for a sample of grants suggest that the
    Congress could slow DOT's university research spending by reducing
    appropriations until improvements in necessary planning and
    management processes are made.  However, savings from this option
    would depend on which among many small accounts are reduced and the
    amounts of these reductions.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:92.1

    Department of Transportation:  University Research Activities Need
    Greater Oversight (GAO/RCED-94-175, May 13, 1994).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:92.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       FEES FOR CERTIFICATION OF NEW
       AIRLINESFEES FOR CERTIFICATION
       OF NEW AIRLINES
    ------------------------------------------------------ Appendix III:93

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Primary agency                      Department of Transportation

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    To obtain the necessary certification to begin operations, applicants
    currently pay nominal fees to the Department of Transportation's
    (DOT) Office of the Secretary (OST) but nothing to the Federal
    Aviation Administration (FAA).  The fees that applicants currently
    pay represent only a small fraction of what it costs the government
    to conduct certification activities.  For example, applicants that
    completed OST's and FAA's certification processes paid an average fee
    of $760 for certification, less than 1 percent of the government's
    average estimated cost of $154,000 to certify each applicant.

    Department of Transportation officials said that a portion of the
    certification costs is recouped from ticket and fuel taxes paid by
    the operating airlines.  These taxes are deposited into the Airport
    and Airway Trust Fund.  Even so, applicants do not pay into the fund
    until they begin operations; therefore, applicants that never begin
    operations never contribute to the fund.  For example, 80 of the 180
    applicants that filed applications with OST between January 1990 and
    July 1995 never began operations and thus had never contributed to
    the fund.

    OST and FAA officials recognize that the existing fees are
    insufficient to cover certification costs but have not yet determined
    the appropriateness of the current fee structures.  OST has recently
    undertaken a review of all fees it charges for aviation licensing
    activities, which were last updated 10 years ago, and plans to issue
    a notice of proposed rulemaking to update the fees.  According to the
    Deputy Director of the Flight Standards Service, FAA plans to examine
    all services, such as new airlines, pilot training, and aircraft
    inspection requiring certificates and to review the existing fee
    structures to determine the extent to which the government's costs
    have been or should be recouped.  Legislation introduced in the 104th
    Congress would have allowed FAA to charge fees for various aviation
    services, including new airline certification fees.

    If the Congress were to direct OST and FAA to fully recover the costs
    of airline certification from applicants, the following revenue could
    be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                       3       3       3       3       3
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:93.1

    Certification of New Airlines:  Department of Transportation Has
    Taken Action to Improve Its Certification Process (GAO/RCED-96-8,
    January 11, 1996).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:93.2

    John H.  Anderson, Jr.  (202) 512-2834

       OPTION:
       FEES FOR REGISTERING
       AIRCRAFTFEES FOR REGISTERING
       AIRCRAFT
    ------------------------------------------------------ Appendix III:94

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Primary agency                      Department of Transportation

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    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 1996, 307,503 aircraft were
    registered in the United States.  From fiscal year 1993 to 1996, the
    number of registrations processed annually has ranged from about
    45,000 to 49,000.

    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.  In 1993, we recommended that FAA accelerate implementation
    of rules it proposed in 1990 for increasing aircraft registration
    fees.  FAA now expects that a Notice of Proposed Rulemaking will be
    issued in November 1997, with an effective date of January 1998.  The
    Congress may want to encourage FAA to meet these milestones in order
    to avoid any further losses in revenues.

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

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                       1       1       1       1       1
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    ---------------------------------------------------- Appendix III:94.1

    Aviation Safety:  Unresolved Issues Involving U.S.-Registered
    Aircraft (GAO/RCED-93-135, June 18, 1993).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:94.2

    John H.  Anderson, Jr.  (202) 512-2834

       450 COMMUNITY AND REGIONAL
       DEVELOPMENT
    ------------------------------------------------------ Appendix III:95

      -- Eligibility for Federal Emergency Management Agency Public
         Assistance

       OPTION:
       ELIGIBILITY FOR FEDERAL
       EMERGENCY MANAGEMENT AGENCY
       PUBLIC ASSISTANCEELIGIBILITY
       FOR FEDERAL EMERGENCY
       MANAGEMENT AGENCY PUBLIC
       ASSISTANCE
    ------------------------------------------------------ Appendix III:96

    Authorizing committees              Environment and Public Works
                                        (Senate) Transportation and
                                        Infrastructure (House)

    Appropriations subcommittees        VA, HUD and Independent Agencies
                                        (Senate and House)

    Primary agency                      Federal Emergency Management
                                        Agency

    Account                             Disaster Relief Fund (58-0104)

    Spending type                       Discretionary

    Budget subfunction                  Disaster relief and insurance

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Federal Emergency Management Agency's (FEMA) Public Assistance
    Program helps pay state and local governments' costs of repairing and
    replacing eligible public facilities and equipment damaged by natural
    disasters.  It also pays other disaster-related costs, such as debris
    removal, emergency protective measures, and the administrative costs
    of managing the recovery effort.  Many private nonprofit
    organizations, such as schools, hospitals, and utilities are also
    eligible for assistance.  The cost of the Public Assistance Program
    has increased dramatically in recent years--in constant 1995 dollars,
    FEMA obligated over $6.5 billion in public assistance for 246
    disasters and emergencies declared during fiscal years 1989 through
    1994, as compared with about $1 billion for 151 disasters and
    emergencies declared during the preceding 6 fiscal years.  Although
    much of this is due to increased disaster activity, changes in the
    amount and types of assistance provided and eligible recipients of
    assistance have also been a factor.

    In a May 1996 report, GAO presented a number of options identified by
    public assistance program officials in FEMA's 10 regional offices
    that, if implemented, could reduce the cost of the program.  Among
    the options recommended most strongly were:  placing limits on the
    appeals process; eliminating eligibility for some facilities that
    generate revenue, lack required insurance, or are not delivering
    government services; and limiting the impact of codes and standards.
    Savings for all of these options could not be estimated because it is
    difficult to isolate the effects of fluctuating disaster activity
    versus changes in eligibility and because FEMA's data base does not
    enable the separation of costs related to some of these options.
    However, CBO estimates that eliminating eligibility for all private
    nonprofit organizations--many of which are revenue-generating
    facilities such as utilities, hospitals, and universities--would
    yield the following savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    52      52      52      52      52
    Outlays                             10      23      34      42      47

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    53      55      56      58      59
    Outlays                             11      24      36      45      51
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:96.1

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

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

          GAO CONTACT
    ---------------------------------------------------- Appendix III:96.2

    Judy A.  England-Joseph, (202) 512-7631

       500 EDUCATION, TRAINING,
       EMPLOYMENT, AND SOCIAL SERVICES
    ------------------------------------------------------ Appendix III:97

      -- Consolidation of Student Aid Programs

      -- Consolidation of Employment and Training Programs

       OPTION:
       CONSOLIDATION OF STUDENT AID
       PROGRAMSCONSOLIDATION OF
       STUDENT AID PROGRAMS
    ------------------------------------------------------ Appendix III:98

    Authorizing committees              Labor and Human Resources
                                        Committee (Senate)
                                        Economic and Educational
                                        Opportunities Committee (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        Education, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Education

    Account                             Student Financial Assistance (91-
                                        0200)

    Spending type                       Discretionary/Direct

    Budget subfunction                  Higher Education

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Education provides loans and grants to students to
    help finance their higher education.  The federal government's role
    in supporting higher education is contributing about 50 percent of
    its education budget to postsecondary education programs and
    activities, most of which are for student financial aid.  The largest
    programs provide federally insured loans and Pell grants for
    students.  The Federal Family Education Loan (FFEL) and Federal
    Direct Student Loan (FDSL) programs compose the largest source of
    federal student financial aid.  FFEL and FDSL programs are
    entitlements, but Pell grants, the largest federal grant-in-aid
    program, are awarded to the most needy eligible students, dependent
    on the availability of appropriated funds.

    Although the student loan and Pell grant programs provide the
    majority of federal financial aid to students for postsecondary
    education, another 22 smaller programs are targeted to specific
    segments of the postsecondary school population.  These programs were
    collectively funded at $1.1 billion for fiscal year 1995.  The
    programs fund remedial and support services for prospective students
    from disadvantaged families, programs to enhance the labor pool in
    designated specialties, grants to students for volunteer activities,
    and grants to women and minorities who are underrepresented in
    graduate education.

    These smaller grant programs may be considered candidates for
    consolidation.  They could be consolidated with other larger programs
    or among themselves.  For example, programs directed to attracting
    minority and disadvantaged students could be consolidated into one
    program.  Or a certain amount of funds could be provided to states
    through a single grant, in lieu of several smaller grants, to cover
    some or all of the purposes of several small grant programs.  In
    1995, we identified 22 programs that could be candidates for
    consolidation.  In anticipation of the administrative savings that
    could be achieved through consolidation, funding for these programs
    could be reduced 10 percent each year as part of the consolidation.
    Since all savings achieved through consolidation would be
    administrative in nature, we assume that there would be no adverse
    impact on students' access to postsecondary education--a principal
    objective of the enabling legislation, the Higher Education Act of
    1965, as amended.

                               Five-year Savings

                             (Dollars in millions)

                                     FY 98   FY 99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   101     101     101     101     101
    Outlays                             12      81      99     100     101

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   104     107     110     113     116
    Outlays                             12      84     105     108     112
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:98.1

    Department of Education:  Information on Consolidation Opportunities
    and Student Aid (GAO/T-HEHS-95-130, April 6, 1995).

    Department of Education:  Opportunities to Realize Savings
    (GAO/T-HEHS-95-56, January 18, 1995).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:98.2

    Carlotta C.  Joyner, (202) 512-7002

       OPTION:
       CONSOLIDATION OF EMPLOYMENT AND
       TRAINING PROGRAMSCONSOLIDATION
       OF EMPLOYMENT AND TRAINING
       PROGRAMS
    ------------------------------------------------------ Appendix III:99

    Authorizing committees              Multiple

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agencies                    Multiple

    Accounts                            Multiple

    Spending type                       Discretionary/Direct

    Budget subfunction                  Training and Employment

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The challenges posed by increased global competition and a changing
    economy call for a renewed commitment to invest in the American
    workforce.  The federal government's effort to meet this commitment
    has been to increase investment in a wide array of programs that
    target people experiencing barriers to employment and to add other
    new programs that target particular groups.  Since 1992 GAO has
    issued numerous reports and testimonies commenting on federal
    employment and training programs.  Most recently, GAO identified more
    than 150 federal programs and funding streams providing employment
    and training assistance.  These programs are spread across 15
    departments and independent agencies with a total budget of about $20
    billion.

    GAO's analysis of programs that target the economically disadvantaged
    showed that those programs had similar goals, often served the same
    categories of people, and provided many of the same services using
    separate, yet parallel, delivery structures.  This overlap can add
    unnecessary administrative costs at each level of
    government--federal, state, and local.

    In the 104th Congress, the House and the Senate passed bills that
    would consolidate many of the federally funded employment training
    programs.  The House bill would have created three block grants by
    consolidating 74 employment training programs and eliminating 52
    higher education programs.  The Senate bill would have consolidated
    83 programs into a single block grant.  Although final passage was
    not accomplished before the Congress adjourned, it is likely that
    this issue will reemerge in the 105th Congress.

    The amount of any savings from consolidating programs will depend on
    how many programs are included, the degree and kind of reductions,
    and the level of federal involvement.  To illustrate the potential
    for savings from consolidating employment and training programs, one
    option would be to consolidate the following programs for the
    economically disadvantaged:  Job Training Partnership Act (JTPA) IIA
    Training Services for the Disadvantaged Adult, JTPA IIA State
    Education Programs, JTPA IIA Incentive Grants, Food Stamp Employment
    and Training, Family Self-Sufficiency Program, Vocational
    Education--Basic State Programs, Educational Opportunity Centers, and
    Student Literacy and Mentoring Corps.  A second option could
    consolidate the following programs for dislocated workers:  JTPA
    Economic Dislocation and Worker Adjustment Assistance (EDWAA)
    (substate allotment), JTPA EDWAA (governor's discretionary), JTPA
    EDWAA (Secretary's discretionary), JTPA Defense Conversion Adjustment
    Program, JTPA Clean Air Employment Transition Assistance, JTPA
    Defense Diversification, Trade Adjustment Assistance--Workers,
    Vocational Education--Demonstration Centers for the Training of
    Dislocated Workers, and the Transition Assistance Program.

    Consolidating similar employment and training programs would result
    in administrative efficiencies to the states as well as improved
    opportunities to reduce fragmentation and increase effectiveness in
    service delivery.  In consolidating programs, the Congress would also
    want to consider the implications for federal agency workloads and
    responsibilities.  In anticipation of the benefits states will
    receive, funding for the programs included could be reduced 10
    percent each year as part of the consolidation.  Savings from the
    consolidations are shown in the two sets of tables that follow, which
    separately identify direct and discretionary spending.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Disadvantaged adults
    ----------------------------------------------------------------------

    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   195     195     195     195     195
    Outlays                             14     168     193     196     196

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   199     205     211     216     222
    Outlays                             15     173     203     211     217
    ----------------------------------------------------------------------
    Note:  The Family Self Sufficiency Program did not receive an
    appropriation for fiscal year 1997.

    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Dislocated workers
    ----------------------------------------------------------------------

    Direct spending
    ----------------------------------------------------------------------
    Budget authority                     9       8       8       8       8
    Outlays                              3       7       8       8       8
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Dislocated workers
    ----------------------------------------------------------------------

    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   133     133     133     133     133
    Outlays                              9      94     127     133     133

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   136     140     144     148     152
    Outlays                              9      97     132     143     147
    ----------------------------------------------------------------------
    Note:  JTPA Defense Conversion, JTPA Clean Air, JTPA Defense
    Diversification, and Vocational Education Demonstration Centers did
    not receive appropriations in fiscal year 1997.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    ---------------------------------------------------- Appendix III:99.1

    Employment Training:  Successful Projects Share Common Strategy
    (GAO/HEHS-96-108, May 7, 1996).

    Block Grants:  Characteristics, Experience, and Lessons Learned
    (GAO/HEHS-95-74, February 9, 1995).

    Multiple Employment Training Programs:  Major Overhaul Is Needed to
    Create a More Efficient, Customer-Driven System (GAO/T-HEHS-95-70,
    February 6, 1995).

    Multiple Employment Training Programs:  Major Overhaul Is Needed to
    Reduce Costs, Streamline the Bureaucracy, and Improve Results
    (GAO/T-HEHS-95-53, January 10, 1995).

    Multiple Employment Training Programs:  Basic Program Data Often
    Missing (GAO/T-HEHS-94-239, September 28, 1994).

    Multiple Employment Training Programs:  Overlap in Programs Raises
    Questions About Efficiency (GAO/HEHS-94-193, July 11, 1994).

    Department of Labor:  Rethinking the Federal Role in Worker
    Protection and Workforce Development (GAO/T-HEHS-95-125, April 4,
    1994).

    Multiple Employment Training Programs:  Major Overhaul Is Needed
    (GAO/T-HEHS-94-109, March 3, 1994).

    Multiple Employment Training Programs:  Most Federal Agencies Do Not
    Know if Their Programs Are Working Effectively (GAO/HEHS-94-88, March
    2, 1994).

    Multiple Employment Training Programs:  Overlapping Programs Can Add
    Unnecessary Administrative Costs (GAO/HEHS-94-80, January 28, 1994).

    Multiple Employment Training Programs:  Conflicting Requirements
    Hamper Delivery of Services (GAO/HEHS-94-78, January 28, 1994).

    Multiple Employment Programs:  National Employment Training Strategy
    Needed (GAO/T-HRD-93-27, June 18, 1993).

    Multiple Employment Programs (GAO/HRD-93-26R, June 15, 1993).

    Multiple Employment Programs (GAO/HRD-92-39R, July 24, 1992).

          GAO CONTACT
    ---------------------------------------------------- Appendix III:99.2

    Carlotta C.  Joyner, (202) 512-7002

       550 HEALTH
    ----------------------------------------------------- Appendix III:100

      -- Prescription Drug and Medicaid Fraud

      -- Medicaid:  States Use Illusory Approaches to Shift Program Costs
         to the Federal Government

      -- Medicaid Formula:  Fairness Could Be Improved

      -- Automated Drug Utilization Reviews

      -- Payments to Rural Health Clinics

      -- Public Health Service Commissioned Corps

      -- Unified Risk-Based Food Safety System

       OPTION:
       PRESCRIPTION DRUG AND MEDICAID
       FRAUDPRESCRIPTION DRUG AND
       MEDICAID FRAUD
    ----------------------------------------------------- Appendix III:101

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Grants to States for Medicaid
                                        (75-0512)

    Spending type                       Direct

    Budget subfunction                  Health care services

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Medicaid program typically includes prescription drugs in its
    covered services, and diversion of these medications has been a
    problem for at least a decade.  Such diversion can involve
    pharmacists routinely adding drugs to legitimate prescriptions and
    keeping the overage for themselves or for sale to others; clinics
    providing inappropriate prescriptions to Medicaid recipients who
    trade them for cash or merchandise or have them filled and then sell
    the drugs themselves; and individuals who provide recipients with
    abusable drugs in exchange for subsequent illicit use of their
    Medicaid recipient numbers.  Participants in drug diversion schemes
    therefore frequently face added charges of fraud, false claims, or
    other related violations of state or federal law.

    The financial incentives for diverting drugs are substantial and
    apply to both controlled and noncontrolled substances.  Legal
    controlled drugs--those with significant potential for physical or
    psychological harm--are appealing because they are relatively cheap
    and chemically pure compared to illicit drugs.  Profits from street
    sales can amount to several thousand percent of initial investment.
    One drug costing the pharmacy less than 50 cents per pill sold on the
    street for $85 per pill.  Noncontrolled drugs, also, have recently
    become popular targets for diversion because they are comparatively
    easier to obtain and are particularly desirable if obtained under an
    insurance program--such as Medicaid--requiring little or no
    copayment.  With no or minimal outlay on the part of the recipient,
    the street price--while typically lower than the pharmacy price and
    thus attractive to buyers--is entirely profit.

    Medicaid accounts for 80 percent of all federal spending on
    prescription drugs.  In fiscal year 1995, Medicaid's drug benefit
    cost more than $10 billion.  While precise dollar losses due to
    diversion--as with all fraud--are impossible to identify, New York
    State officials estimate that in 1990, these losses represented about
    10 percent of the state's total Medicaid spending for prescription
    drugs.

    States have various initiatives under way to curb Medicaid
    prescription drug diversion but are hampered by insufficient
    resources, lengthy and frequently unproductive investigations, and
    the prevalence of repeat offenders and resilient schemes.  GAO
    believes that the Health Care Financing Administration should assume
    an active leadership role in orchestrating and encouraging states'
    efforts and fostering the development and implementation of
    preventive measures.  The Department of Health and Human Services
    (HHS) generally agrees with the GAO findings and recommendation, but
    believes it is not feasible unless new staff resources can be
    identified and allocated.

    The Congress should encourage HHS to take a stronger role.  If states
    curbed these losses by even a small percentage, future Medicaid costs
    would be reduced substantially.  However, CBO cannot develop an
    estimate for this option until specific strategies are identified.
    Moreover, savings would be net of the additional resources required
    to curb fraudulent activities.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:101.1

    Prescription Drugs and Medicaid:  Automated Review Systems Can Help
    Promote Safety, Save Money (GAO/AIMD-96-72, June 11, 1996).

    Medicare and Medicaid:  Opportunities to Save Program Dollars by
    Reducing Fraud and Abuse (GAO/T-HEHS-95-110, March 22, 1995).

    Prescription Drugs:  Automated Prospective Review Systems Offer
    Significant Potential Benefits for Medicaid (GAO/AIMD-94-130, August
    5, 1994).

    Medicaid:  A Program Highly Vulnerable to Fraud (GAO/T-HEHS-94-106,
    February 25, 1994).

    Medicaid Drug Fraud:  Federal Leadership Needed to Reduce Program
    Vulnerabilities (GAO/HRD-93-118, August 2, 1993).

    Medicaid Prescription Drug Diversion:  A Major Problem, but State
    Approaches Offer Some Promise (GAO/T-HRD-92-48, July 29, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:101.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICAID:  STATES USE ILLUSORY
       APPROACHES TO SHIFT PROGRAM
       COSTS TO THE FEDERAL
       GOVERNMENTMEDICAID:  STATES USE
       ILLUSORY APPROACHES TO SHIFT
       PROGRAM COSTS TO THE FEDERAL
       GOVERNMENT
    ----------------------------------------------------- Appendix III:102

    Authorizing committees              Finance (Senate)
                                        Commerce (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Grant to States for Medicaid
                                        (75-0512)

    Spending type                       Direct

    Budget subfunction                  Health care services

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    GAO raised a concern that in fiscal year 1993, 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.  GAO's 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.

    The practices that involve payments to state-owned facilities are
    restricted by Omnibus Budget Reconciliation Act of 1993 provisions
    that limit such payments to unreimbursed Medicaid and uninsured
    costs.  However, states can continue to make payments to local
    government-owned facilities, including payments that exceed costs,
    and have the facilities return the payments to the states.  States
    are not required to justify the need for increased reimbursements,
    nor is the Health Care Financing Administration required to verify
    that moneys are used for the purpose for which they were obtained.

    GAO believes 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 the care.  GAO believes the
    Congress should enact legislation to minimize the likelihood that
    states can develop arrangements whereby providers return Medicaid
    payments to the states, thus effectively reducing the state's share
    of Medicaid funding.  This legislation should 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.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:102.1

    State Medicaid Financing Practices (GAO/HEHS-96-76R, January 23,
    1996).

    Michigan Financing Arrangements (GAO/HEHS-95-146R, May 5, 1995).

    Medicaid:  States Use Illusory Approaches to Shift Program Costs to
    the Federal Government (GAO/HEHS-94-133, August 1, 1994).

    Medicaid:  The Texas Disproportionate Share Program Favors Public
    Hospitals (GAO/HRD-93-86, March 30, 1993).

          GAO CONTACT
    --------------------------------------------------- Appendix III:102.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICAID FORMULA:  FAIRNESS
       COULD BE IMPROVEDMEDICAID
       FORMULA:  FAIRNESS COULD BE
       IMPROVED
    ----------------------------------------------------- Appendix III:103

    Authorizing committees              Finance (Senate)
                                        Commerce (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Grant to States for Medicaid
                                        (75-0512)

    Spending type                       Direct

    Budget subfunction                  Health care services

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Medicaid program provides medical assistance to current
    beneficiaries of the Temporary Assistance for Needy Families (TANF)
    program who qualified under their states' pre-reform AFDC plans,
    low-income people who receive Supplemental Security Income, and
    certain other low-income individuals.  The federal government and the
    states share the financing of the program.  Under current law, the
    federal commitment is open-ended:  federal outlays rise with the
    costs and use of Medicaid services.  The federal share of the program
    costs varies with the per capita income of the state.  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, GAO has issued numerous reports and testimonies that
    identify ways in which the fairness of federal grant formulas could
    be improved.  With respect to Medicaid, GAO believes that the
    fairness of the matching formula in the open-ended program could be
    improved by replacing the per capita income factor with three
    factors--the number of people living below the official poverty line,
    the total taxable resources of the state, and the differences in
    health care costs across states--and by reducing the minimum federal
    share to 40 percent.  These changes could reduce federal
    reimbursements by reducing the federal share in states with the most
    generous benefits, the fewest low-income people in need, and the
    greatest ability to fund benefits from state resources.  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.

    To illustrate the savings that could be achieved from changes in the
    Medicaid formula, CBO estimates that if the minimum federal share
    were reduced to 40 percent, the following savings could be achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 7,040   7,590   8,210   8,880   9,630
    Outlays                          7,040   7,590   8,210   8,880   9,630
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:103.1

    Medicaid:  Matching Formula's Performance and Potential Modifications
    (GAO/T-HEHS-95-226, July 27, 1995).

    Medicaid Formula:  Fairness Could Be Improved (GAO/T-HRD-91-5,
    December 7, 1990).

          GAO CONTACT
    --------------------------------------------------- Appendix III:103.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       AUTOMATED DRUG UTILIZATION
       REVIEWSAUTOMATED DRUG
       UTILIZATION REVIEWS
    ----------------------------------------------------- Appendix III:104

    Authorizing committees              Finance (Senate)
                                        Commerce (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Grants to States for Medicaid
                                        (75-0512)

    Spending type                       Direct

    Budget subfunction                  Health Care Services

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Amendments to Title XIX of the Social Security Act required that
    states implement drug utilization review (DUR) programs in their
    Medicaid programs by January 1, 1993.  Under DUR, states must review
    Medicaid prescriptions to (1) determine whether they are appropriate,
    medically necessary, and not likely to result in adverse medical
    reactions and (2) identify fraud, waste, and abuse.  Reviews must be
    performed prospectively (before prescriptions are filled) and
    retrospectively (on a quarterly basis after prescriptions are
    filled).

    The amendments encourage, but do not require, states to use statewide
    automated systems to conduct prospective reviews.  However, use of
    these systems by some states shows significant potential to both
    improve patient safety and reduce Medicaid program costs.  Automated
    prospective DUR systems operated by five geographically diverse
    states--Maryland, Missouri, New Mexico, Oregon, and
    Pennsylvania--together cancel hundreds of thousands of Medicaid
    prescriptions annually that represent potential inappropriate drug
    therapy or instances of waste, fraud, and/or abuse.  Moreover,
    additional cancellations result from companion on-line screening
    capabilities that ensure recipients are eligible for Medicaid
    benefits at the time a prescription is presented.  During 12-month
    periods for these five states, automated prospective DUR systems
    cancelled prescriptions totaling over $30 million due to drug
    overutilization and Medicaid ineligibility.  In contrast, the total
    one-time costs to install these systems was only $1.9 million.
    Although these results are impressive, the greatest potential savings
    for the Medicaid program would result from avoiding hospitalizations
    due to inappropriate drug therapy (estimates of which range from 3
    percent for the general population to 28 percent for the elderly).
    With Medicaid's fiscal year 1995 inpatient hospitalizations totaling
    about $42 billion, even a limited implementation of automated
    prospective DUR systems could have a significant impact.

    Most states have currently implemented or plan to implement automated
    prospective DUR systems, however, states implement these systems
    differently.  The absence in some states of some types of drug
    therapy reviews, such as those for pregnancy conflict (use of
    prescribed drug is not recommended during pregnancy) and
    underutilization (an indication of noncompliance with a prescribed
    drug regimen), could have dramatic effects on patient safety.  Also,
    whether or not states automatically deny early refill claims (request
    for prescription refill before a predetermined amount of a drug--such
    as 75 percent--has been consumed) can substantially affect the
    relative amount of the savings and the prevention of potential waste,
    fraud, and abuse.

    Responsible for overseeing the states' implementation of DUR
    programs, the Health Care Financing Administration (HCFA) has
    encouraged the use of statewide automated prospective DUR systems
    through such statutorily-required efforts as conducting a
    demonstration project and issuing guidance to the states on
    prospective DUR cost and benefit reporting.  However, given both the
    substantial safety benefits that can accrue to Medicaid recipients
    and savings to the Medicaid program through the effective use of
    automated prospective DUR systems, HCFA could more actively
    facilitate states' coordination and sharing of experiences and best
    practices for the effective implementation and use of these systems.

    GAO work shows that the use of automated prospective DUR systems in
    five states saved millions of dollars by cancelling prescriptions
    which could have been inappropriate or fraudulent or where the
    recipient was not eligible for Medicaid benefits.  The following
    table shows potential annual savings that would result from operating
    automated prospective DUR systems in all states for fiscal years 1998
    through 2002.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    10      40      80     110     120
    Outlays                             10      40      80     110     120
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:104.1

    Prescription Drugs and Medicaid:  Automated Review Systems Can Help
    Promote Safety, Save Money (GAO/AIMD-96-72, June 11, 1996).

    Prescription Drugs and the Elderly:  Many Still Receive Potentially
    Harmful Drugs Despite Recent Improvements (GAO/HEHS-95-152, July 24,
    1995).

    Prescription Drugs:  Automated Prospective Review Systems Offer
    Potential Benefits for Medicaid (GAO/AIMD-94-130, August 5, 1994).

          GAO CONTACT
    --------------------------------------------------- Appendix III:104.2

    Joel C.  Willemssen, (202) 512-6253

       OPTION:
       PAYMENTS TO RURAL HEALTH
       CLINICSPAYMENTS TO RURAL HEALTH
       CLINICS
    ----------------------------------------------------- Appendix III:105

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Accounts                            Federal Supplemental Insurance
                                        Trust Fund Account (20-8004)
                                        Grants to States for Medicaid (75-
                                        0512)

    Spending type                       Direct

    Budget subfunction                  Health Care Services and Medicare

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    In 1977, the Rural Health Clinics (RHC) program was established to
    provide Medicare and Medicaid reimbursement to health clinics in
    underserved rural communities.  Today, Medicare and Medicaid continue
    to reimburse RHC providers on the basis of their actual costs of
    providing care, while most other providers receive lower Medicare and
    Medicaid payments limited by set fee schedules.  RHCs continue to
    receive cost-based reimbursement out of recognition that a fee
    schedule approach does not help ensure financial viability of low
    volume rural health care providers.  Since 1989, the number of RHCs
    has grown by over 30 percent a year to nearly 3,000, with total
    Medicare and Medicaid payments to them expected to be over $1 billion
    annually by the year 2000.

    We found that contrary to its purpose, the RHC program is generally
    not focused on serving populations that have difficulty obtaining
    primary care in isolated rural areas.  Rather, our work suggests that
    the additional Medicare and Medicaid funding provided to RHCs each
    year (estimated at $295 million in 1996) increasingly benefits
    well-staffed, financially viable clinics in populated areas that
    already have extensive health care delivery systems in place.  For
    example, almost half of the RHCs are located in areas with a nearby
    population of over 25,000.  The program's broad eligibility criteria
    entitles RHCs to be reimbursed at cost, even if they are already
    financially viable using standard Medicare/Medicaid payment methods.
    Further, once designated as an RHC, the clinic remains eligible for
    cost reimbursement indefinitely, even if the area no longer qualifies
    as rural or underserved.

    We recommended that the Congress eliminate cost-based reimbursement
    to RHCs unless they are located in areas with no other Medicare and
    Medicaid providers or can demonstrate that existing providers will
    not accept new Medicare and Medicaid patients and that the funding
    would be used to expand access to them.  Assuming such improvements
    in the targeting of payments, the following savings could be
    achieved.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Medicaid (Outlays)                  20      30      30      30      30
    Medicare (Outlays)                  30      40      40      40      50
    ======================================================================
    Total                               50      70      70      70      80
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:105.1

    Rural Health Clinics:  Rising Program Expenditures Not Focused on
    Improving Care in Isolated Areas (GAO/HEHS-97-24, November 22, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:105.2

    Bernice Steinhardt, (202) 512-7119

       OPTION:
       PUBLIC HEALTH SERVICE
       COMMISSIONED CORPSPUBLIC HEALTH
       SERVICE COMMISSIONED CORPS
    ----------------------------------------------------- Appendix III:106

    Authorizing committees              Labor and Human Resources (Senate)
                                        Commerce (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        Education, and Related Agencies
                                        (Senate and House)

    Primary agency                      Department of Health and Human
                                        Services

    Accounts                            Multiple

    Spending type                       Discretionary/Direct

    Budget subfunction                  Health Care Services

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Commissioned Corps of the Public Health Service (PHS) was
    established in the late 1800s to provide medical care to sick and
    injured merchant seamen.  Over the ensuing years, the Corps'
    responsibilities have grown, and Corps officers today are involved in
    a wide range of PHS programs, such as providing medical care to
    Native Americans at tribal and Indian Health Service facilities,
    psychiatric, medical, and other services in federal prisons, and
    health sciences research.  As the result of their temporary service
    with the armed forces during World Wars I and II, members of the
    Corps were authorized to assume military ranks and receive
    military-like compensation, including retirement eligibility (at any
    age) after 20 years of service.  Corps officers continue to receive
    virtually the same pay and benefits as military officers, including
    retirement.

    GAO found that the functions of the Corps are essentially civilian in
    nature, and, in fact, some civilian PHS employees carry out the same
    functions as Corps members.  Further,

      -- the Corps has not been incorporated into the armed forces since
         1952, and the Department of Defense (DOD) has no specific plans
         for how the Corps might be used in future emergency
         mobilizations;

      -- generally, the Corps does not meet the criteria and principles
         cited in a DOD report as justification for the military
         compensation system; and

      -- other than Corps officers who are detailed to the Coast Guard
         and DOD, Corps members are not subject to the Uniform Code of
         Military Justice, which underlies how military personnel are
         managed.

    Corps officials maintained that uniformed Corps members are needed as
    mobile cadres of professionals who can be assigned with little notice
    to any location and function, often in hazardous or harsh conditions.
    However, other agencies, such as the Environmental Protection Agency,
    the National Transportation Safety Board, and the Federal Emergency
    Management Agency, use civilian employees to respond quickly to
    disasters and other emergency situations that could involve both
    hazardous or harsh conditions.

    GAO's analysis showed that, based on 1994 costs, when all of the
    components of personnel costs--basic pay and salaries; special pay,
    allowances, and bonuses; retirement; health care; life insurance; and
    Corps members' tax advantages--are considered, PHS personnel costs
    could be reduced by converting the PHS Corps to civilian status.  The
    amount of any cost reductions would depend on various factors,
    including the method by which any changes are implemented, the
    accuracy of the data PHS and DOD provided GAO, the applicability of
    1994 costs to future years, how closely GAO's underlying assumptions
    match actual relationships between Corps and civilian personnel
    costs, and the manner in which any transition to civilian employment
    would be carried out.

    Any decision to convert the Corps could be implemented in a number of
    ways, including

      -- requiring all officers to immediately convert to civilian
         employment;

      -- allowing all current officers to remain in place until
         retirement or other separation and requiring all new entrants to
         be civilian employees;

      -- allowing all officers with a specific number of years in the
         Corps to continue in the Corps until retirement or other
         separation; or

      -- retaining a permanent smaller Corps to provide medical services
         in areas that are difficult to staff with civilian employees.

    The Congress may wish to refer to this information when considering
    the merits of converting the PHS Commissioned Corps to civilian
    status.  If the Congress does in fact choose to convert the Corps,
    the following savings could result, depending upon the factors
    mentioned above.

    To illustrate the savings that could be achieved through conversion
    to civilian status, CBO estimated that if officers with less than 15
    years of service were converted to civilian status effective January
    1, 1998, the following savings would apply.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    15      23      26      28      31
    Outlays                              9      18      24      26      29
    ----------------------------------------------------------------------

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Direct spending (Retirement Fund)
    ----------------------------------------------------------------------
    Agency contributions (Outlays)      18      27      30      34      37
    ----------------------------------------------------------------------

                               Five-Year Revenues

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Change in revenues (Retirement Fund)
    ----------------------------------------------------------------------
    Employee contributions              -1      -2      -2      -2      -3
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:106.1

    Federal Personnel:  Issues on the Need for the Public Health
    Service's Commissioned Corps (GAO/GGD-96-55, May 7, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:106.2

    L.  Nye Stevens, (202) 512-8676

       OPTION:
       UNIFIED RISK-BASED FOOD SAFETY
       SYSTEMUNIFIED RISK-BASED FOOD
       SAFETY SYSTEM
    ----------------------------------------------------- Appendix III:107

    Authorizing committees              Agriculture, Nutrition, and
                                        Forestry (Senate) Agriculture
                                        (House)

    Appropriations subcommittees        Agriculture, Rural Development,
                                        and Related Agencies (Senate)
                                        Agriculture, Rural Development,
                                        Food and Drug Administration, and
                                        Related Agencies (House)

    Primary agency                      Department of Agriculture

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Consumer and Occupational Health
                                        and Safety

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    GAO has issued 14 reports and testimonies on food safety issues.
    This work leads us to conclude that the federal system to ensure the
    safety and quality of the nation's food--at an annual cost of over $1
    billion a year--is inefficient and outdated and does not adequately
    protect the consumer against food-borne illness.  GAO has reported
    that as many as 12 different agencies administering over 35 different
    laws oversee food safety.  As a result, the current food safety
    system suffers from overlapping and duplicative inspections, poor
    coordination, and inefficient allocation of resources.

    To improve the effectiveness and efficiency of the federal food
    safety system, GAO has recommended the consolidation of federal food
    safety agencies and activities.  Specifically, GAO has recommended
    (1) consolidating food safety activities under a single, risk-based
    food safety agency with a uniform set of food safety laws, (2)
    establishing a Hazard Analysis and Critical Control Point system
    (HACCP) which emphasizes building safety into food production, and
    (3) placing responsibility for the system's implementation on the
    industry, with the government retaining an oversight role.  Since
    December 1995, federal rules and regulations have been revised to
    move the seafood and meat and poultry industries under a HACCP-based
    system.  The seafood industry is required to adopt and implement
    HACCP systems by the end of December 1997, and all meat and poultry
    plants are required to implement HACCP systems by 2000.  While HACCP
    may eliminate the need for some food safety inspectors, resulting in
    government cost savings, no move has been made to consolidate these
    activities in a single food safety agency which would further reduce
    costs.

    A 5-year estimate of savings from consolidating food inspection
    programs cannot be developed at this time.  The amount of any savings
    will depend on how many programs are included, the degree and kind of
    reductions, and the level of federal involvement.  In addition, the
    amount of savings will depend on the extent to which administrative
    cost savings are used to offset overall program costs.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:107.1

    Food Safety:  Reducing the Threat of Foodborne Illnesses
    (GAO/T-RCED-96-185, May 23, 1996).

    Food Safety:  Information on Foodborne Illnesses (GAO/RCED-96-96, May
    8, 1996).

    Food Safety:  New Initiatives Would Fundamentally Alter the Existing
    System (GAO/RCED-96-81, March 27, 1996).

    Food Safety:  Fundamental Changes Needed to Improve Monitoring of
    Unsafe Chemicals in Food (GAO/T-RCED-94-311, September 28, 1994).

    Food Safety:  Changes Needed to Minimize Unsafe Chemicals in Food
    (GAO/RCED-94-192, September 26, 1994).

    Food Safety:  A Unified, Risk-Based Food Safety System Needed
    (GAO/T-RCED-94-223, May 25, 1994).

    Meat Safety:  Inspectors' Ability to Detect Harmful Bacteria is
    Limited (GAO/T-RCED-94-228, May 24, 1994).

    Food Safety:  Risk-Based Inspections and Microbial Monitoring Needed
    for Meat and Poultry (GAO/RCED-94-110, May 19, 1994).

    Food Safety:  Risk-Based Inspections and Microbial Monitoring Needed
    for Meat and Poultry (GAO/T-RCED-94-189, April 19, 1994).

    Meat Safety:  Inspection System's Ability to Detect Harmful Bacteria
    Remain Limited (GAO/T-RCED-94-123, February 10, 1994).

    Food Safety:  A Unified Risk-Based System Needed to Enhance Food
    Safety (GAO/T-RCED-94-71, November 4, 1993).

    Food Safety:  Building a Scientific, Risk-Based Meat and Poultry
    Inspection System (GAO/T-RCED-93-22, March 16, 1993).

    Food Safety:  Inspection of Domestic and Imported Meat Should Be
    Risk-Based (GAO/RCED-93-10, February 18, 1993).

    Food Safety and Quality:  Uniform, Risk-Based Inspection System
    Needed to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:107.2

    Robert A.  Robinson, (202) 512-5138

       570 MEDICARE
    ----------------------------------------------------- Appendix III:108

      -- Teaching Hospitals' Medicare Payments

      -- Medicare Program Safeguards

      -- Medicare Payments for High Technology Procedures

      -- Medicare Rate-Setting Methods for HMOs

      -- Medicare Incentive Payments in Health Care Shortage Areas

       OPTION:
       TEACHING HOSPITALS' MEDICARE
       PAYMENTSTEACHING HOSPITALS'
       MEDICARE PAYMENTS
    ----------------------------------------------------- Appendix III:109

    Authorizing committees              Finance (Senate)
                                        Commerce (House)
                                        Ways and Means (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Federal Hospital Insurance Trust
                                        Fund Account (20-8005)

    Spending type                       Direct

    Budget subfunction                  Medicare

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Medicare's Prospective Payment System pays hospitals with graduate
    medical education programs at rates higher than those other hospitals
    receive for treating the same conditions.  The higher payments are to
    compensate for the higher costs teaching hospitals incur, which are
    thought to be due to such factors as increased diagnostic testing,
    increased number of procedures performed, and higher staffing ratios.
    The teaching adjustment is based on the ratio of interns and
    residents per bed and currently is set at a 7.65-percent increase in
    payments for each 0.1 increment in the ratio.

    In 1989, GAO found that the present adjustment factor was too high
    because it did not explicitly consider all relevant teaching hospital
    costs and did not accurately measure all cost factors.  Based on its
    analysis, GAO found that the adjustment should be no higher than 6.26
    percent and could be as low as 3.73 percent.  The 6.26-percent rate
    would better measure factors explicitly recognized by the current
    formula.  The 3.73-percent rate expands on the current formula to
    reflect additional factors that affect teaching hospital costs.

    CBO's analysis of Medicare's indirect medical education payments
    discusses rates of 6 percent and 3 percent.  Savings for those rates
    are reflected in the following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Reduce to 6-percent adjustment factor
    ----------------------------------------------------------------------
    Outlays                            910     970   1,040   1,120   1,120

    Option: Reduce to 3-percent adjustment factor
    ----------------------------------------------------------------------
    Outlays                          2,560   2,740   2,920   3,150   3,400
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:109.1

    Medicare:  Indirect Medical Education Payments Are Too High
    (GAO/HRD-89-33, January 5, 1989).

          GAO CONTACT
    --------------------------------------------------- Appendix III:109.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICARE PROGRAM
       SAFEGUARDSMEDICARE PROGRAM
       SAFEGUARDS
    ----------------------------------------------------- Appendix III:110

    Authorizing committees              Finance (Senate)
                                        Commerce (House)
                                        Ways and Means (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Health and Human
                                        Services

    Accounts                            Federal Hospital Insurance Trust
                                        Fund (20-8005)
                                        Federal Supplementary Medical
                                        Insurance Trust Fund (20-8004)
                                        Program Management (75-0511)

    Spending type                       Discretionary/Direct

    Budget subfunctions                 Health and Medicare

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Medicare receives over 800 million claims for reimbursement each
    year.  When Medicare pays contractors to process claims, one of the
    contractors' responsibilities is to ensure that Medicare only pays
    claims for covered services that are medically necessary and
    appropriate and for which Medicare is the primary payer.  Such
    activities are referred to as program safeguards.

    Recently GAO reported that the funding contractors receive to review
    each claim has declined since 1989 by over 20 percent.  In response,
    contractors apply fewer or less stringent payment controls, and
    claims are paid that otherwise would not be.  Historically, payment
    safeguards have returned $10 in savings for each dollar expended on
    them.  GAO believes additional program safeguard funding is necessary
    to better protect the program against erroneous payments.

    The Health Insurance Portability and Accountability Act of 1996
    increased funding to Medicare for program safeguards--a substantial
    reversal of the prolonged decline in funding per claim for those
    activities.  CBO estimated a net savings of over $3 billion from
    increased resources--for Medicare as well as for the HHS Office of
    Inspector General and Federal Bureau of Investigations--to identify
    and pursue individuals or entities that defraud federal health care
    programs.\25 However, the recently enacted increase in Medicare
    program safeguard funding alone--8.5 percent, or $34 million, for
    fiscal year 1997--must be spread over a volume of claims rising in
    recent years 5 to 8 percent annually.  Coupled with inflation, this
    growth in the number of claims will erode part of the effect of the
    funding increase enacted for future years.  While the Congress has
    provided safeguard funding substantially above 1996 levels, fiscal
    year 2002 funding, adjusted for projected inflation and claims
    growth, is projected to be about 10 percent below the 1991-96
    average.  Consequently, GAO believes that the potential exists for
    further funding increases to yield net savings.

    --------------------
    \25 In prior years, CBO did not score increases in such funding
    because the proposals violated rules (established in the conference
    report on the Omnibus Budget Reconciliation Act of 1993) that
    preclude attributing changes in mandatory spending to changes in
    discretionary funding for program administration.  That prohibition
    did not apply to this legislation, however, because it establishes
    long-term mandatory appropriations to cover all of the enforcement
    activities proposed.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:110.1

    Medicare (GAO/HR-97-10, February 1997).

    Funding Anti-Fraud and Abuse Activities (GAO/HEHS-95-263R, September
    29, 1995).

    Medicare:  High Spending Growth Calls for Aggressive Action
    (GAO/T-HEHS-95-75, February 6, 1995).

    Medicare Claims (GAO/HR-95-8, February 1995).

    Medicare:  Adequate Funding and Better Oversight Needed to Protect
    Benefit Dollars (GAO/T-HRD-94-59, November 12, 1993).

    Medicare:  Further Changes Needed to Reduce Program and Beneficiary
    Costs (GAO/HRD-91-67, May 15, 1991).

    Medicare:  Cutting Payment Safeguards Will Increase Program Costs
    (GAO/T-HRD-89-06, February 28, 1989).

    Medicare and Medicaid:  Budget Issues (GAO/T-HRD-87-1, January 29,
    1987).

          GAO CONTACT
    --------------------------------------------------- Appendix III:110.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICARE PAYMENTS FOR HIGH
       TECHNOLOGY PROCEDURESMEDICARE
       PAYMENTS FOR HIGH TECHNOLOGY
       PROCEDURES
    ----------------------------------------------------- Appendix III:111

    Authorizing committees              Finance (Senate)
                                        Commerce (House)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Federal Supplementary Medical
                                        Insurance Trust Fund (20-8004)

    Spending type                       Direct

    Budget subfunction                  Medicare

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    When new medical technologies first come into use, providers' unit
    costs often are high because of large capital expenditures and low
    initial utilization rates.  When Medicare sets its payment rates for
    these new technologies, the rates typically are based on the high
    initial unit costs.  Over time, providers' unit costs decline as
    equipment improves, utilization increases, and experience with the
    technology results in efficiencies.  However, Medicare does not have
    a process for routinely and systematically assessing these factors
    and adjusting its fee schedule payment rates to reflect the declining
    unit costs.

    The Congress has reacted to the identification of specific overpaid
    procedures and services by legislatively reducing rates.  For
    example, payments have been reduced for overpriced surgeries,
    selected items of durable medical equipment, magnetic resonance
    imaging (MRI) scans, and intraocular lenses.

    The Health Care Financing Administration (HCFA) has three projects
    underway which may help bring some Medicare payment rates more in
    line with actual costs and market prices.  First, by January 1, 1998,
    HCFA expects to implement revisions to the Medicare Fee Schedule that
    will take into account the actual cost of staff, equipment, and
    supplies associated with medical procedures, rather than past charges
    submitted for those procedures.

    Second, in October 1995, HCFA initiated a project to review 100 items
    of medical equipment and supplies to identify and address any
    excessive Medicare payments.  Under current law, this review requires
    the use of a lengthy "inherent reasonableness" process, and the
    project is expected to take at least 2 years.

    Third, a HCFA demonstration project will evaluate a competitive
    bidding process to set Medicare payment levels for some medical
    equipment and supplies.  Delays have postponed project implementation
    at the first of three proposed sites until August 1997.

    These projects may eventually bring some Medicare payment rates more
    in line with actual costs and market rates, but none of the three
    projects specifically targets expensive, evolving technologies.  GAO
    believes 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.

    Savings have not been estimated because revising the Medicare Fee
    Schedule potentially encompasses all procedures, and any savings
    would depend on the particular technologies for which Medicare
    payment rates are reduced.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:111.1

    Medicare Spending:  Modern Management Strategies Needed to Curb
    Billions in Unnecessary Payments (GAO/HEHS-95-210, September 19,
    1995).

    Medicare:  High Spending Growth Calls for Aggressive Action
    (GAO/T-HEHS-95-75, February 6, 1995).

    Medicare:  Excessive Payments Support the Proliferation of Costly
    Technology (GAO/HRD-92-59, May 27, 1992).

    Medicare:  Further Changes Needed to Reduce Program and Beneficiary
    Costs (GAO/HRD-91-67, May 15, 1991).

          GAO CONTACT
    --------------------------------------------------- Appendix III:111.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICARE RATE-SETTING METHODS
       FOR HMOSMEDICARE RATE-SETTING
       METHODS FOR HMOS
    ----------------------------------------------------- Appendix III:112

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Federal Supplementary Medical
                                        Insurance Trust Fund (20-8004)

    Spending type                       Discretionary/Direct

    Budget subfunction                  Medicare

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Hoping to take advantage of the potential cost savings associated
    with health maintenance organizations (HMO), the Congress created the
    Medicare risk contract program.  Under this program, Medicare pays
    HMOs a fixed amount (or capitation rate) for each beneficiary
    enrolled.  Capitation rates are set at 95 percent of the estimated
    average cost of beneficiaries in Medicare's fee-for-service program.
    These rates are adjusted based on enrollees' demographic traits:
    age, sex, Medicaid eligibility, working status, and whether the
    enrollee is in a nursing home or other institution.  These
    adjustments, known as "risk adjustments," are designed to reduce
    HMOs' ability to benefit from "favorable selection"--the tendency of
    HMO enrollees to be healthier and less costly to care for than
    fee-for-service beneficiaries.

    The risk contract program has not achieved its goal of reducing
    Medicare costs for two reasons.  First, the Health Care Financing
    Administration's (HCFA) risk adjustment methodology has proved
    insufficient to prevent HMOs from benefiting from favorable
    selection.  Consequently, Medicare has paid HMOs more than it would
    have if HMO enrollees had received fee-for-service care because the
    HMO enrollees are healthier and less costly to treat--by more than 5
    percent--than comparable fee-for-service beneficiaries.  GAO has
    estimated that, for counties containing 36 percent of risk contract
    HMO enrollment, Medicare excess payments to HMOs in 1995 were about
    $1 billion.  Excess payments are likely to increase as enrollment
    rates in the risk contract program continue to rise.  Second, in many
    areas, Medicare's 5-percent "discount" from fee-for-service costs is
    too modest.  By failing to reflect local market conditions and
    greater HMO efficiencies, the capitation rate causes Medicare to
    overpay HMOs.

    GAO has suggested that Medicare address the problem of excess
    payments to HMOs by pursuing a number of strategies, including
    fostering price competition among HMOs through competitive bidding,
    introducing more accurate risk adjusters, and modifying the current
    formula for HMO rates to reflect market competition and HMOs' local
    health care costs.  These strategies should be pursued concurrently
    since barriers exist to the development and implementation of each
    strategy, and any one strategy may not emerge as feasible or best for
    all areas.

    A 5-year estimate of savings from these strategies cannot be made at
    this time.  Available data are insufficient to permit determining the
    effect of many proposed alternate payment strategies on Medicare
    spending and on HMO participation in the risk contract program.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:112.1

    Medicare HMOs:  HCFA Could Promptly Reduce Excess Payments by
    Improving Accuracy of County Payment Rates (GAO/T-HEHS-97-78,
    February 25, 1997).

    Medicare Managed Care:  Growing Enrollment Adds Urgency to Fixing HMO
    Payment Problem (GAO/HEHS-96-21, November 8, 1995).

    Medicare:  Changes to HMO Rate Setting Method Are Needed to Reduce
    Program Costs (GAO/HEHS-94-119, September 2, 1994).

          GAO CONTACT
    --------------------------------------------------- Appendix III:112.2

    William J.  Scanlon, (202) 512-7114

       OPTION:
       MEDICARE INCENTIVE PAYMENTS IN
       HEALTH CARE SHORTAGE
       AREASMEDICARE INCENTIVE
       PAYMENTS IN HEALTH CARE
       SHORTAGE AREAS
    ----------------------------------------------------- Appendix III:113

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Federal Supplementary Insurance
                                        Trust Fund (20-8004)

    Spending type                       Direct

    Budget subfunction                  Medicare

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Medicare Incentive Payment (MIP) program was established in 1987
    amid concerns that low Medicare reimbursement rates for primary care
    services caused access problems for Medicare beneficiaries in
    underserved areas.  To encourage physicians to locate and serve
    Medicare beneficiaries in such areas, physicians receive an
    additional 10-percent payment from Medicare for the services they
    deliver in urban and rural Health Professional Shortage Areas (HPSA)
    designated by the Department of Health and Human Services (HHS).  In
    1995, a HCFA representative stated this program provided about $107
    million in bonuses to physicians in HPSAs, an amount 16 percent
    higher than the previous year.  Our work leads us to question the
    appropriateness of the program for the following reasons.

      -- The premise on which the program was created may no longer be
         valid because the basis for Medicare reimbursement has changed
         since 1987.  In fact, recent surveys of Medicare population show
         that neither provider shortages nor low Medicare reimbursement
         rates were causing wide spread access problems.

      -- The basis on which MIP funds are targeted is inadequate to
         assure that they are directed to improve access to care.  While
         nearly two-thirds of the U.S.  counties have HPSAs, we found
         that at least one-third of these designations are outdated or
         erroneous.  Furthermore, the HPSA designation system itself is
         not an appropriate vehicle to target MIP funds as it does not
         lend itself to directing program resources to those providing
         primary care services to the medically underserved.  HHS said
         they do not have an alternative system that would effectively
         allocate funding under this program.

      -- Evidence suggests that the MIP program did not play a
         significant role in physician decisions to practice in
         underserved areas.  For example, the median payment to urban and
         rural physicians in 1992 was about $1,239 and $869,
         respectively--an amount too low, according to an HHS Inspector
         General's report, to have a significant effect on physicians'
         practice location decisions.

    The savings estimate that follows assumes the Congress eliminates
    funding for the Medicare Incentive Payment program beginning in
    fiscal year 1998.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    40      70      80      90     100
    Outlays                             40      70      80      90     100
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:113.1

    Health Care Shortage Areas:  Designations Not a Useful Tool for
    Directing Resources to the Underserved (GAO/HEHS-95-200, September 8,
    1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:113.2

    Bernice Steinhardt, (202) 512-7119

       600 INCOME SECURITY
    ----------------------------------------------------- Appendix III:114

      -- Fees for Non-Temporary Assistance to Needy Families (TANF) Child
         Support Enforcement Services

      -- Automated Child Support Enforcement Systems

      -- Funding for State Automated Welfare Systems

      -- Benefits for Retirement Eligible FECA Beneficiaries

      -- Workers' Compensation Cases Involving Third Parties

      -- Workers' Compensation Payments

      -- Resource Transfers to Qualify for SSI

      -- Return-to-Work Strategies for People with Disabilities

      -- Reporting of Federal Employee Payroll Data to State Unemployment
         Insurance Programs

       OPTION:
       FEES FOR NON-TEMPORARY
       ASSISTANCE TO NEEDY FAMILIES
       (TANF) CHILD SUPPORT
       ENFORCEMENT SERVICESFEES FOR
       NON-TEMPORARY ASSISTANCE TO
       NEEDY FAMILIES (TANF) CHILD
       SUPPORT ENFORCEMENT SERVICES
    ----------------------------------------------------- Appendix III:115

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Family Support Payments to States
                                        (75-1501)

    Spending type                       Direct

    Budget subfunction                  Other Income Security

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The purpose of the Child Support Enforcement Program is to strengthen
    state and local efforts to obtain child support for both families
    eligible for Temporary Assistance to Needy Families (TANF) and
    non-TANF families.  The services provided to clients include locating
    noncustodial parents, establishing paternity, and collecting ongoing
    and delinquent child support payments.  From fiscal year 1984 through
    1995, non-TANF caseloads and costs have risen about 390 percent and
    810 percent, respectively.  States have exercised their discretion to
    charge only minimal application and service fees and, thus, are doing
    little to recover the federal government's 66-percent share of
    program costs.  In fiscal year 1995, for example, state fee practices
    returned $33 million of the $1.4 billion spent to provide non-TANF
    services.

    Since 1992, GAO has reported on opportunities to defray some of the
    costs of child support programs.  Based on this work, GAO believes
    that mandatory application fees should be dropped and that states
    should charge a minimum percentage service fee on successful
    collections for non-TANF families.  Application fees are
    administratively burdensome, and a service fee would ensure that
    families are charged only when the service has been successfully
    performed.

    If the Congress wishes to recover all of the administrative costs of
    the program, states could charge a service fee of about 18 percent on
    collections for non-TANF families.  The following savings assume
    states would be able to implement this option beginning October 1,
    1997.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   755     835     915   1,000   1,080
    Outlays                            755     835     915   1,000   1,080
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:115.1

    Child Support Enforcement:  Early Results on Comparability of
    Privatized and Public Offices (GAO/HEHS-97-4, December 16, 1996).

    Child Support Enforcement:  Reorienting Management Toward Achieving
    Better Program Results (GAO/HEHS/GGD-97-14, October 25, 1996).

    Child Support Enforcement:  States' Experience with Private Agencies'
    Collection of Support Payments (GAO/HEHS-97-11, October 23, 1996).

    Child Support Enforcement:  States and Localities Move to Privatized
    Services (GAO/HEHS-96-43FS, November 20, 1995).

    Child Support Enforcement:  Opportunity to Reduce Federal and State
    Costs (GAO/T-HEHS-95-181, June 13, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:115.2

    Jane L.  Ross, (202) 512-7215

       OPTION:
       AUTOMATED CHILD SUPPORT
       ENFORCEMENT SYSTEMSAUTOMATED
       CHILD SUPPORT ENFORCEMENT
       SYSTEMS
    ----------------------------------------------------- Appendix III:116

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Health and Human
                                        Services

    Account                             Family Support Payments to States
                                        (75-1501)

    Spending type                       Direct

    Budget subfunction                  Other Income Security

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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 non-welfare 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.  The
    states have spent about $2.7 billion to develop these systems,
    including over $2 billion from the federal government.

    The 90-percent funding participation rate was initially discontinued
    at the end of fiscal year 1995, the congressionally mandated date for
    the systems to be certified and operational.  However, the Congress
    subsequently extended the deadline for these systems to the end of
    fiscal year 1997.  Therefore, the 90-percent funding participation
    rate was continued for states that had an approved funding plan for
    systems development at the end of fiscal year 1995.  In addition, the
    federal government will continue to reimburse states' costs to
    operate these systems at the 66-percent rate established for
    administrative expenses.  Finally, The Personal Responsibility and
    Work Opportunity Reconciliation Act of 1996 (P.L.  104-193)
    authorized $400 million (with an 80-percent federal funding
    participation rate) for the states to meet new systems requirements
    under this law.  The 66-percent federal funding participation rate
    was continued for systems operation and administrative expenses.

    HHS estimates that the operation of these state automated systems
    will cost about $213 million in fiscal year 1997, including about
    $140 million in federal funds.  The Congress could choose to reduce
    the federal funding participation rate for operation of the automated
    child support enforcement systems from 66 percent to the 50-percent
    rate now common for such costs in welfare programs.  CBO estimates
    that doing so would produce the savings shown in the following table.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    65      70      80      85      95
    Outlays                             65      70      80      85      95
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:116.1

    Child Support Enforcement:  Timely Action Needed to Correct System
    Development Problems (GAO/IMTEC-92-46, August 13, 1992).

    Child Support Enforcement:  Opportunity to Defray Burgeoning Federal
    and State Non-AFDC Costs (GAO/HRD-92-91, June 5, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:116.2

    Joel C.  Willemssen, (202) 512-6253

       OPTION:
       FUNDING FOR STATE AUTOMATED
       WELFARE SYSTEMSFUNDING FOR
       STATE AUTOMATED WELFARE SYSTEMS
    ----------------------------------------------------- Appendix III:117

    Authorizing committees              Agriculture (Senate and House)
                                        Finance (Senate)
                                        Ways and Means (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        Education and Related Agencies
                                        (Senate)
                                        Agriculture (House)

    Primary agencies                    Department of Agriculture
                                        Department of Health and Human
                                        Services

    Account                             Multiple

    Spending type                       Discretionary/Direct

    Budget subfunction                  Food and Nutrition; Other Income
                                        Security

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    We reported that, from 1984 to 1992, federal agencies contributed
    over $6.8 billion, and $1.8 billion prior to 1984, to help fund
    development and operation of automated information systems for
    welfare and welfare-related programs.  These programs included:  Aid
    to Families with Dependent Children, Medicaid, Food Stamps, Child
    Support Enforcement, Job Opportunities and Basic Skills Training,
    Child Care, and Child Welfare Services and Foster Care/Adoption
    Assistance.  The Department of Health and Human Services (HHS)
    administers all of these programs except Food Stamps, which the
    Department of Agriculture (USDA) administers.  As part of their
    program administration responsibilities, these departments are to
    monitor the development of automated information systems to ensure
    that the systems meet federal requirements.

    We reported that ineffective oversight of state-developed systems had
    led to millions of dollars being spent on systems that did not work
    and/or did not meet federal requirements.  For example, one state
    spent $51 million on a system that could not be implemented as
    planned because important user requirements were not incorporated
    into its original design.  Moreover, even though millions of dollars
    have been spent on state-developed systems, the benefits of these
    systems in reducing administrative costs and mistakes have not been
    determined.

    Many states operate separate systems for separate programs even
    though the welfare clients the programs serve are often the same.
    The Personal Responsibility and Work Opportunity Reconciliation Act
    of 1996, (P.L.  104-193) changed the nation's welfare system into one
    that requires work in exchange for time-limited assistance.  This law
    affects many existing programs that have traditionally operated
    individually, but now must function together to achieve the
    legislative mandate.  The federal government continues to provide
    support for the operation of these automated systems.  However,
    states now have more responsibility for funding these welfare
    programs as well as the automated systems needed to allow them to
    function.  In addition, many states are now in the process of
    upgrading or replacing existing systems or developing or planning to
    develop new systems, which they estimate could cost at least $2.2
    billion from 1993 to 1999.

    Savings could be achieved and the usefulness of state automated
    systems improved if problems were identified and corrected early in
    the system development process.  In addition, more of these systems
    could be integrated, with the federal government providing model
    systems to further reduce development costs.  If it chooses, the
    Congress could slow HHS' and USDA's development funding to reflect
    the anticipated savings resulting from early detection of problems in
    the system development process, greater system integration, and
    greater use of models to guide state development efforts.  However, a
    savings estimate for this option cannot be developed at this time
    because yearly data on states' future spending for automated systems
    development in the affected welfare and welfare-related programs are
    not available.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:117.1

    Automated Welfare Systems:  Historical Costs and Projections
    (GAO/AIMD-94-52FS, February 25, 1994).

    Welfare Programs:  Ineffective Federal Oversight Permits Costly
    Automated System Problems (GAO/IMTEC-92-29, May 27, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:117.2

    Joel C.  Willemssen, (202) 512-6253

       OPTION:
       BENEFITS FOR RETIREMENT
       ELIGIBLE FECA
       BENEFICIARIESBENEFITS FOR
       RETIREMENT ELIGIBLE FECA
       BENEFICIARIES
    ----------------------------------------------------- Appendix III:118

    Authorizing committees              Labor and Human Resources (Senate)
                                        Economic and Educational
                                        Opportunity (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Labor

    Account                             Multiple

    Spending type                       Direct/Discretionary

    Budget subfunction                  Other Income Security

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Federal workers who continue to be disabled as a result of a
    work-related injury receive tax-free workers' compensation benefits
    under the Federal Employees' Compensation Act (FECA).  These benefits
    could continue for life and 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.  The following savings estimate assumes
    that such an annuity would equal two-thirds of the previously
    provided FECA compensation benefit and the annuity would begin
    following the disabled individual's eligibility for retirement
    benefits.  The CBO estimate assumes that changes in benefits would be
    made prospectively.  Additional savings could be achieved if changes
    were made to affect individuals who were already receiving FECA
    benefits.

                               Five-year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Direct spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level adjusted for inflati
    ----------------------------------------------------------------------
    Budget authority                     4       8       9       9       9
    Outlays                              4       8       9       9       9
    ----------------------------------------------------------------------

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     1       3       9      15      22
    Outlays                              1       3       9      15      22
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:118.1

    Federal Employees' Compensation Act:  Issues Associated With Changing
    Benefits for Older Beneficiaries (GAO/GGD-96-138BR, August 14, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:118.2

    L.  Nye Stevens, (202) 512-8676

       OPTION:
       WORKERS' COMPENSATION CASES
       INVOLVING THIRD PARTIESWORKERS'
       COMPENSATION CASES INVOLVING
       THIRD PARTIES
    ----------------------------------------------------- Appendix III:119

    Authorizing committees              Labor and Human Resources (Senate)
                                        Economic and Educational
                                        Opportunity (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Labor

    Account                             Multiple

    Spending type                       Discretionary

    Budget subfunction                  Other Income Security

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Federal Employees' Compensation Act (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 an injury
    for which a third party was 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
    that the following savings could be achieved if the Congress
    redefined COP so that it could be included in amounts employees are
    required to reimburse the government when they recover damages from
    third parties.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     1       1       1       1       1
    Outlays                              1       1       1       1       1

    Savings from the 1997 funding level adjusted for inflati
    ----------------------------------------------------------------------
    Budget authority                     1       1       1       1       1
    Outlays                              1       1       1       1       1
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:119.1

    Federal Employees' Compensation Act:  Redefining Continuation of Pay
    Could Result in Additional Refunds to the Government (GAO/GGD-95-135,
    June 8, 1995).

    Workers' Compensation:  Selected Comparisons of Federal and State
    Laws (GAO/GGD-96-76, April 3, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:119.2

    L.  Nye Stevens, (202) 512-8676

       OPTION:
       WORKERS' COMPENSATION
       PAYMENTSWORKERS' COMPENSATION
       PAYMENTS
    ----------------------------------------------------- Appendix III:120

    Authorizing committees              Labor and Human Resources (Senate)
                                        Economic and Educational
                                        Opportunity (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Labor

    Account                             Multiple

    Spending type                       Discretionary/Direct

    Budget subfunction                  Other Income Security

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    Federal workers who experience job-related injuries are entitled to
    workers' compensation benefits authorized under the Federal
    Employees' Compensation Act (FECA).  Our review identified three
    major ways in which FECA differed from other federal and state
    workers' compensation laws and which resulted 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, 1995, maximum authorized weekly
    FECA benefits were equal to $1,274, 75 percent of the base salary of
    a GS-15, step 10.  The maximum weekly benefit authorized under the
    other workers' compensation laws was $817 in Iowa.  FECA also
    authorizes additional benefits for one or more dependents equal to
    8.33 percent of salary.  Only seven states authorize additional
    benefits for dependents, ranging from $5 to $10 per week per
    dependent, with total benefits not exceeding 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 of
    time ranging from 5 to 42 days, depending on the jurisdiction,
    retroactive benefits to cover the waiting period would be paid.

    Reducing FECA's authorized maximum weekly benefit to make it
    comparable to other compensation laws would have little effect on
    compensation costs because very few federal workers receive maximum
    benefits.  However, CBO estimates (1) eliminating augmented
    compensation benefits for dependents and (2) placing a 5-day waiting
    period immediately following the injury, and before the continuation
    of pay period, would produce savings, as shown in the table below.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------

    Option: Eliminate augmented dependent compensation benefits
    ----------------------------------------------------------------------
    Budget authority                     2       2       7       8       8
    Outlays                              2       2       7       8       8

    Option: 5-day waiting period
    ----------------------------------------------------------------------
    Budget authority                    11      11      12      12      12
    Outlays                             11      11      12      12      12
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Direct spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level adjusted for inflatio
    ----------------------------------------------------------------------

    Option: Eliminate augmented dependent compensation benefits
    ----------------------------------------------------------------------
    Budget authority                     5       5       *       *       *
    Outlays                              5       5       *       *       *
    ----------------------------------------------------------------------
    *Savings of less than $500,000

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:120.1

    Workers' Compensation:  Selected Comparisons of Federal and State
    Laws (GAO/GGD-96-76, April 3, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:120.2

    L.  Nye Stevens, (202) 512-8676

       OPTION:
       RESOURCE TRANSFERS TO QUALIFY
       FOR SSIRESOURCE TRANSFERS TO
       QUALIFY FOR SSI
    ----------------------------------------------------- Appendix III:121

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Social Security Administration

    Account                             Supplemental Security Income
                                        Program (28-0406)

    Spending type                       Direct/Discretionary

    Budget subfunction                  Other Income Security

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Supplemental Security Income (SSI) program is the country's
    largest cash assistance program for the poor and one of the fastest
    growing entitlement programs.  Program costs grew 20 percent annually
    from 1991 through 1994.  In 1995, more than 6 million SSI recipients
    received nearly $25 billion in federal and state benefits.  Recent
    growth in the SSI program has increased congressional interest in
    ensuring that the SSI program focuses on individuals who have no
    resources with which to meet their needs and that to the extent
    possible, individuals rely on their own resources before turning to
    the SSI program for support.

    Currently, the law does not prohibit people from transferring
    resources to qualify for SSI benefits.  In a recent review, we found
    that the 3,505 SSI recipients who transferred resources between 1990
    and 1994 transferred cash, houses, land, and other items valued at an
    estimated $74 million.  However, we noted that the total amount of
    resources transferred was likely to be larger than our estimate
    because the Social Security Administration (SSA) is not required to
    verify the accuracy of resource transfer information, which is
    self-reported by individuals.

    Without a transfer-of-resource restriction, the 3,505 SSI recipients
    who transferred resources to qualify for benefits would receive about
    $7.9 million in SSI benefits in the 24 months after they transferred
    resources.  Although administrative costs may be associated with
    SSA's implementing a transfer-of-resource restriction, in our
    analysis we estimated that from 1990 through December 1995, $14.6
    million in program expenditures could have been saved with an SSI
    transfer-of-resource restriction similar to Medicaid's long-term care
    provision.  In addition, an SSI transfer-of-resource restriction
    could increase the public's confidence in the program's integrity by
    ensuring that individuals use their own resources for self-support
    before receiving SSI.

    In light of the potential for reduced program expenditures and
    increased program integrity, the Congress may wish to consider an SSI
    transfer-of-resource restriction.  The restriction could be
    calculated in a way that takes into account the value of the resource
    transferred so that individuals transferring more valuable resources
    would be ineligible for SSI benefits for longer periods of time than
    those who transfer less valuable resources.  The CBO estimate that
    follows is based on this assumption.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    \a       2       4       6       8
    Outlays                             \a       2       4       6       8
    Administrative costs                -1      -1      -1      -1      -1
     (discretionary)
    ----------------------------------------------------------------------
    \a Less than $1 million

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:121.1

    Supplemental Security Income:  Some Recipients Transfer Valuable
    Resources to Qualify for Benefits (GAO/HEHS-96-79, April 30, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:121.2

    Jane L.  Ross, (202) 512-7215

       OPTION:
       RETURN-TO-WORK STRATEGIES FOR
       PEOPLE WITH
       DISABILITIESRETURN-TO-WORK
       STRATEGIES FOR PEOPLE WITH
       DISABILITIES
    ----------------------------------------------------- Appendix III:122

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Social Security Administration

    Account                             Federal Disability Insurance Trust
                                        Fund
                                        (20-8007)
                                        Supplemental Security Income
                                        Program
                                        (20-0406)

    Spending type                       Direct

    Budget subfunction                  Multiple

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Social Security Administration (SSA) operates the Disability
    Insurance (DI) and Supplemental Security Income (SSI) programs--the
    nation's two largest federal programs providing cash benefits to
    people with disabilities.  SSA data show that between 1985 and 1994,
    the number of working-age people in these disability programs
    increased 59 percent from 4 million to 6.3 million.  Such growth has
    raised concerns that are compounded by the fact that less than half
    of 1 percent of DI beneficiaries ever leave the disability rolls by
    returning to work.

    We found that return-to-work strategies and practices may hold
    potential for improving federal disability programs by helping people
    with disabilities return to productive activity in the workplace and,
    at the same time, reducing benefit payments.  Our analysis of
    practices advocated and implemented by the private sector in the
    United States and by social insurance programs in Germany and Sweden
    revealed three common strategies in the design of their
    return-to-work programs:  intervene as soon as possible after an
    actual or potentially disabling event to promote and facilitate
    return to work, identify and provide necessary return-to-work
    assistance and manage cases to achieve return-to-work goals, and
    structure cash and medical benefits to encourage people with
    disabilities to return to work.

    In line with placing greater emphasis on return to work, the Congress
    could direct the Commissioner of SSA to develop a comprehensive
    return-to-work strategy that integrates, as appropriate, earlier
    intervention, earlier identification and provision of necessary
    return-to-work assistance for applicants and beneficiaries, and
    changes the structure of cash and medical benefits.  The Commissioner
    should also identify legislative changes needed to implement such a
    change.  We believe that substantial savings could be achieved if SSA
    were to develop such a program.  However, such savings would be
    offset by program costs and any net savings would depend on the
    program's participation rate.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:122.1

    People With Disabilities:  Federal Programs Could Work Together More
    Efficiently to Promote Employment (GAO/HEHS-96-126, September 3,
    1996).

    SSA Disability:  Return-to-Work Strategies From Other Systems May
    Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996).

    SSA Disability:  Program Redesign Necessary to Encourage Return to
    Work (GAO/HEHS-96-62, April 24, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:122.2

    Jane L.  Ross, (202) 512-7215

       OPTION:
       REPORTING OF FEDERAL EMPLOYEE
       PAYROLL DATA TO STATE
       UNEMPLOYMENT INSURANCE
       PROGRAMSREPORTING OF FEDERAL
       EMPLOYEE PAYROLL DATA TO STATE
       UNEMPLOYMENT INSURANCE PROGRAMS
    ----------------------------------------------------- Appendix III:123

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of Labor

    Account                             State Unemployment Insurance and
                                        Employment Service Operations (16-
                                        0179)

    Spending type                       Direct

    Budget subfunction                  Multiple

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    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 are also among the
    1.1 million personnel currently participating in the National Reserve
    forces (Army National Guard, Army Reserve, Naval Reserve, Marine
    Corps Reserve, Air National Guard, Air Force Reserve, and the Coast
    Guard Reserve).

    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 analysis of benefit and Reserve data from
    seven states shows that some Reserve personnel are receiving improper
    benefit payments from state UI programs.  In the seven states in our
    analysis, we estimate that UI claimants who were active participants
    in the Reserves failed to report over $7 milllion in Reserve income
    in fiscal year 1994.  This led to UI benefit overpayments of
    approximately $3.6 million, of which federal trust fund losses were
    about $1.2 million.  We expect that the federal and state trust fund
    losses from all UI programs are much greater because the seven states
    we reviewed account 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.

    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 on a
    regular basis.  The following CBO estimate assumes that such
    reporting would result in a reduction of overpayments of $44 million
    over 5 years.  It is noted 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.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    11      12      12      12      12
    Outlays                             11      12      12      12      12
    Reduction in receipts                0      -1      -3      -5      -7
    Net effect on deficit               11      11       9       7       5
    ----------------------------------------------------------------------
    Note:  UI trust fund receipts are dependent on prior year benefit
    outlays.  CBO estimates that, in addition to the savings, this option
    would have the effect of reducing trust fund receipts in the out
    years.

    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:123.1

    Unemployment Insurance:  Millions in Benefits Overpaid to Military
    Reservists (GAO/HEHS-96-101, August 5, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:123.2

    Carlotta C.  Joyner, (202) 512-7014

       650 SOCIAL SECURITY
    ----------------------------------------------------- Appendix III:124

      -- The PASS Work Incentive Program

       OPTION:
       THE PASS WORK INCENTIVE
       PROGRAMTHE PASS WORK INCENTIVE
       PROGRAM
    ----------------------------------------------------- Appendix III:125

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Social Security Administration

    Account                             Federal Disability Insurance Trust
                                        Fund (20-8007)

    Spending type                       Direct

    Budget subfunction                  Social Security

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Social Security Administration's (SSA) plan for achieving
    self-support (PASS) work incentive program was established in 1972 as
    part of the Supplemental Security Income (SSI) program to help
    disability benefit recipients return to gainful employment.  PASS
    program applicants submit plans outlining their employment goals,
    which are reviewed by staff in 1 of the more than 1,300 SSA field
    offices that administer SSI.  An approved PASS plan allows disabled
    individuals to exclude any non-SSI income or resources they have,
    including Disability Insurance (DI) benefits, from the determination
    of the amount of their SSI benefits.

    While the PASS program is currently small--only about 10,300
    individuals participated in December 1994--the number of PASSes has
    increased more than fivefold between 1990 and 1994 as awareness of
    the provision has grown.  Millions more DI and SSI beneficiaries are
    eligible to participate.  About 40 percent of PASS program
    participants, largely DI beneficiaries, would not be eligible for
    federal SSI payments if some of their income was not disregarded
    under PASS.  Additionally, nearly all DI beneficiaries who had
    participated in the PASS program received their full benefits in May
    1995.  We estimate the cost of additional SSI payments to all program
    participants to be $2.6 million for January 1995, or about $30
    million annually.

    We found that SSA has not translated the Congress' broad goals for
    the PASS work incentive into a coherent program design, provided
    adequate criteria or guidance to field offices charged with
    administering the program, or adequately addressed internal control
    weaknesses that have left the program vulnerable to abuse.  The
    Congress may wish to consider whether individuals otherwise
    financially ineligible for SSI because their DI benefits or other
    income exceed the eligibility threshold should continue to gain
    eligibility for SSI through the PASS program.  Also, SSA needs to
    make major improvements in the management of the program, including
    clarifying the program's goals, deciding whether fees paid to third
    parties should continue to be disregarded when calculating benefit
    payment amounts and whether the amount of disregarded fees should be
    capped, and strengthening internal controls.

    The following savings estimate is based on the assumption that the
    Congress takes legislative action to restrict individuals from
    gaining access to SSI through the PASS program when their DI benefits
    or other income exceed the eligibility threshold.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     5      10      15      15      15
    Outlays                              5      10      15      15      15
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:125.1

    PASS Program:  SSA Work Incentive for Disabled Beneficiaries Poorly
    Managed (GAO/HEHS-96-51, February 28, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:125.2

    Jane L.  Ross, (202) 512-7215

       700 VETERANS BENEFITS AND
       SERVICES
    ----------------------------------------------------- Appendix III:126

      -- Veterans' Disability Compensation for Nonservice Connected
         Diseases

      -- Approving Education and Training Programs for Veterans

      -- Cost Sharing for Veterans' Long-Term Care

      -- Effective VA Hospital Preadmission Certification

      -- Construction of Veterans' Medical Facilities

      -- Underused VA Hospitals

      -- VA's Medical Care Account Growth Rate

      -- Enrollment in VA Health Care System

      -- Outpatient Pharmacy Costs

      -- Sunset Date of VA's Income Verification Program

       OPTION:
       VETERANS' DISABILITY
       COMPENSATION FOR NONSERVICE
       CONNECTED DISEASESVETERANS'
       DISABILITY COMPENSATION FOR
       NONSERVICE CONNECTED DISEASES
    ----------------------------------------------------- Appendix III:127

    Authorizing committees              Veterans' Affairs (Senate and
                                        House)

    Primary agency                      Department of Veterans Affairs

    Account                             Compensation (36-0153)

    Spending type                       Direct

    Budget subfunction                  Income Security for Veterans

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    During 1986, the Department of Veterans Affairs (VA) paid
    approximately $1.7 billion in disability compensation payments to
    veterans with diseases neither caused nor aggravated by military
    service.  In 1996, CBO reported that about 230,000 veterans were
    receiving about $1.1 billion annually in VA compensation for these
    diseases.  GAO's study of five countries shows that those countries
    do not compensate veterans under such circumstances.  The Congress
    may wish to reconsider whether such diseases should be compensated as
    service-connected disabilities.  If disability compensation payments
    to veterans with nonservice connected, disease-related disabilities
    were eliminated in future cases, the following savings would apply.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    15      48      82     118     156
    Outlays                             14      44      87     105     151
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:127.1

    Disabled Veterans Programs:  U.S.  Eligibility and Benefit Types
    Compared With Five Other Countries (GAO/HRD-94-6, November 24, 1993).

    VA Benefits:  Law Allows Compensation for Disabilities Unrelated to
    Military Service (GAO/HRD-89-60, July 31, 1989).

          GAO CONTACT
    --------------------------------------------------- Appendix III:127.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       APPROVING EDUCATION AND
       TRAINING PROGRAMS FOR
       VETERANSAPPROVING EDUCATION AND
       TRAINING PROGRAMS FOR VETERANS
    ----------------------------------------------------- Appendix III:128

    Authorizing committees              Veterans Affairs (Senate and
                                        House)

    Appropriation subcommittees         VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Department of Veterans Affairs

    Account                             Readjustment Benefits (36-0137)

    Spending type                       Discretionary

    Budget subfunction                  Veterans Education, Training and
                                        Rehabilitation

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Veterans Affairs (VA) contracts with state
    approving agencies (SAA) to assess whether schools and training
    programs offer education of sufficient quality for veterans to
    receive VA education assistance benefits when attending them.  SAAs
    perform this "gatekeeping" or approval function by evaluating course
    quality, school financial stability, and student progress.  In fiscal
    year 1994, VA paid more than
    $1 billion in education assistance benefits to more than 450,000
    beneficiaries and spent about $12 million for SAA gatekeeping
    services.

    Other federal agencies--particularly the Department of Education and
    the Department of Labor--also perform gatekeeping by determining
    whether postsecondary educational and training programs and
    institutions meet federal requirements for student loans and grants,
    apprenticeship assistance, and other forms of federal support.

    An estimated $10.5 million of the $12 million paid to SAAs in 1994
    was spent to conduct assessments that overlapped those of the
    Department of Education.  These assessments involved reviews of
    academic and vocational schools that were already accredited by
    Education-approved agencies.  SAA efforts costing another $400,000 in
    1994 may have overlapped assessments of apprenticeship programs done
    by Labor, though the data were not available to determine if overlap
    was indeed occurring.  The remaining SAA assessment activity--costing
    about $1.1 million--did not overlap activities of other agencies
    because it involved on-the-job training programs and unaccredited
    schools, neither of which Education or Labor assessed.

    The substantial amount of overlap that occurred between SAA and other
    gatekeepers' efforts raises questions about whether SAA efforts
    should continue at their current level.  An estimated 87 percent of
    the approval effort expended by SAAs related to schools and programs
    also subject to accreditation by Education-approved entities.  Also,
    in a review of six jurisdictions, 93 percent of the accredited
    schools were also certified by Education to participate in Title IV
    student aid programs.  School certification involves applying
    standards that are similar to those used by SAAs.  On its face, an
    SAA review of courses of study at an Education-certified school would
    appear to add only marginal value.  An opportunity exists for
    reducing federal expenditures by over $10 million annually through
    elimination of overlapping SAA gatekeeping efforts.

    The following CBO savings estimate is based on the assumption that
    the Congress directs VA to discontinue contracting with SAAs to
    review and approve educational programs at schools that have already
    been reviewed and certified by Education.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    10      10      10      10      10
    Outlays                             10      10      10      10      10

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    10      11      11      11      12
    Outlays                             10      11      11      11      12
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:128.1

    VA Student Financial Aid:  Opportunity to Reduce Overlap in Approving
    Education and Training Programs (GAO/HEHS-96-22, October 30, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:128.2

    Carlotta C.  Joyner, (202) 512-7002

       OPTION:
       COST SHARING FOR VETERANS'
       LONG-TERM CARECOST SHARING FOR
       VETERANS' LONG-TERM CARE
    ----------------------------------------------------- Appendix III:129

    Authorizing committees              Veterans' Affairs (Senate and
                                        House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    State veterans' homes recover as much as 50 percent of the costs of
    operating their facilities through charges to veterans receiving
    services.  Similarly, Oregon recovers about 14 percent of the costs
    of nursing home care provided under its Medicaid program through
    estate recoveries.  In fiscal year 1990, the Department of Veterans
    Affairs (VA) offset less than one-tenth of 1 percent of its costs
    through beneficiary copayments.

    Potential recoveries appear to be greater within the VA system than
    under Medicaid.  Home ownership is significantly higher among VA
    hospital users than among Medicaid nursing home recipients, and
    veterans living in VA nursing homes generally contribute less toward
    the cost of their care than do Medicaid recipients, allowing veterans
    to build larger estates.

    The Congress may wish to consider increasing cost sharing for VA
    nursing home care by (1) adopting cost-sharing requirements similar
    to those imposed by most state veterans' homes and (2) implementing
    an estate recovery program similar to those operated by many states
    under their Medicaid programs.  If VA recovered either 25 percent or
    50 percent of its costs of providing nursing home and domiciliary
    care through a combination of cost sharing and estate recoveries, the
    savings shown in the following table would apply.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------

    Option: Recovery of 25 percent of costs
    ----------------------------------------------------------------------
    Budget authority                   678     678     678     678     678
    Outlays                            678     678     678     678     678

    Option: Recovery of 50 percent of costs
    ----------------------------------------------------------------------
    Budget authority                 1,359   1,359   1,359   1,359   1,359
    Outlays                          1,359   1,359   1,359   1,359   1,359
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------

    Option: Recovery of 25 percent of costs
    ----------------------------------------------------------------------
    Budget authority                   703     727     752     778     805
    Outlays                            703     727     752     778     805

    Option: Recovery of 50 percent of costs
    ----------------------------------------------------------------------
    Budget authority                 1,408   1,456   1,507   1,559   1,614
    Outlays                          1,408   1,456   1,507   1,559   1,614
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:129.1

    VA Health Care:  Potential for Offsetting Long-Term Care Costs
    Through Estate Recovery (GAO/HRD-93-68, July 27, 1993).

    VA Health Care:  Offsetting Long-Term Care Cost By Adopting State
    Copayment Practices (GAO/HRD-92-96, August 12, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:129.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       EFFECTIVE VA HOSPITAL
       PREADMISSION
       CERTIFICATIONEFFECTIVE VA
       HOSPITAL PREADMISSION
       CERTIFICATION
    ----------------------------------------------------- Appendix III:130

    Authorizing committees              Veterans' Affairs (House and
                                        Senate)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (House and Senate)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Department of Veterans Affairs (VA) hospitals too often serve
    patients whose care could be more efficiently provided in alternative
    settings, such as outpatient clinics or nursing homes.  In 1985, we
    reported that about 43 percent of the days of care that VA medical
    and surgical patients spent in the VA hospitals reviewed could have
    been avoided.  Since then, several studies by VA researchers and the
    VA Office of Inspector General have found that over 40 percent of VA
    hospitals admissions and days of care were not medically necessary.

    Private health insurers typically require their policyholders (or
    their physicians) to obtain authorization from the insurer or its
    agent prior to admission to a hospital.  Failure to obtain such
    preadmission certification can result in denial of insurance coverage
    or a reduction in payment.  For example, all fee-for-service health
    plans participating in the Federal Employees Health Benefits Program
    are required to operate a preadmission certification program to help
    limit nonacute admissions and days of care.

    We have recommended that VA establish an independent preadmission
    certification program.  Although VA agreed to establish such a
    program, it has provided no time frame for completing development and
    implementation of the program.  In addition, it has not indicated how
    compliance with the findings of external reviews will be enforced.
    Because VA facilities currently incur no financial risk from
    providing inappropriate care, external preadmission certification
    requirements may not be effective unless coupled with a financial
    penalty for noncompliance with review findings.

    CBO estimates that if VA were to establish precertification
    procedures similar to those used by private health insurers which
    result in a 40-percent reduction in admissions and days of care, VA's
    Medical Care spending could be reduced by $8.4 billion over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 1,655   1,670   1,682   1,693   1,703
    Outlays                          1,490   1,652   1,681   1,692   1,702
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:130.1

    VA Health Care:  Issues Affecting Eligibility Reform Efforts
    (GAO/HEHS-96-160, September 11, 1996).

    VA Health Care:  Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996).

    VA Health Care:  Opportunities to Increase Efficiency and Reduce
    Resource Needs (GAO/T-HEHS-96-99, March 8, 1996).

    VA Health Care:  Challenges and Options for the Future
    (GAO/T-HEHS-95-147, May 9, 1995).

    Better Patient Management Practices Could Reduce Length of Stay in VA
    Hospitals (GAO/HRD-85-52, August 8, 1985).

          GAO CONTACT
    --------------------------------------------------- Appendix III:130.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       CONSTRUCTION OF VETERANS'
       MEDICAL FACILITIESCONSTRUCTION
       OF VETERANS' MEDICAL FACILITIES
    ----------------------------------------------------- Appendix III:131

    Authorizing committees              Veterans Affairs (Senate and
                                        House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Department of Veterans Affairs

    Account                             Construction (36-0110)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Department of Veterans Affairs' (VA) health care system comprises
    one of the nation's largest networks of direct delivery health care
    providers, including 173 hospitals, 376 outpatient clinics, 133
    nursing homes, and 39 domicilaries.  These facilities provided care
    to about 2.2 million veterans at a cost of about $16 billion in
    fiscal year 1995.  For fiscal year 1996, VA medical centers proposed
    to headquarters more than $3 billion in funding requests for major
    construction projects.\26 In the fiscal year 1996 budget request, the
    President asked the Congress to appropriate $514 million for nine
    projects.  The projects range in size from $9 million to renovate
    nursing units in one hospital to $211.1 million to build a new
    medical center at Travis Air Force Base in California.

    Long-term commitments for any major construction or renovation of
    predominantly inpatient facilities in today's rapidly changing health
    care environment are accompanied by high levels of financial risk.
    VA's recent commitment to a major realignment of its health care
    system magnifies such risk by creating additional uncertainty.  In
    addition, we believe that analyzing such alternatives in connection
    with the other major construction projects in VA's budget proposal is
    entirely consistent with VA's suggested realignment criteria.
    Delaying funding for these projects until the alternatives can be
    fully analyzed may result in more prudent and economical use of
    already scarce federal resources.

    The potential savings of delaying funding for VA hospital
    construction are uncertain in the absence of an assessment of VA's
    needs based on its own realignment criteria.  However, we have
    recently reported that VA officials did not rigorously consider
    available alternatives to construction of two major new hospital
    facilities:  Brevard Hospital in Brevard County, Florida, and Travis
    Hospital at Travis Air Force Base in northern California.  The
    Congress directed VA to forgo construction of Brevard Hospital for
    savings totaling $155 million and develop lower cost alternatives to
    meet veterans' needs.

    Additionally, we found that construction of additional hospital beds
    and an outpatient clinic as large as VA proposes at Travis Air Force
    Base is unnecessary.  Although significant changes have occurred in
    the health care marketplace and in the way VA delivers health care in
    the 4 years since the project was planned, VA plans have not been
    revised accordingly.  These changes alone have resulted in over 3,300
    unused hospital beds in northern California hospitals, including beds
    in VA, Air Force, and community hospitals.  In addition, the veteran
    population in the service area is expected to drop by about 25
    percent between 1995 and 2010.  We also found that VA has not
    considered the likely negative effects the additional beds could have
    on other hospitals in northern California, particularly those
    community hospitals in the Solano County area surrounding Travis Air
    Force Base that have occupancy rates of around 40 percent.

    CBO estimates that if the Congress did not approve funding of any
    major construction projects until after VA has completed its
    realignment, savings totaling more than $1.2 billion could be
    achieved over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   219     219     219     219     219
    Outlays                             21      36     104     168     207

    Savings from 1997 funding levels adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   224     231     237     243     250
    Outlays                              1      37     108     175     220
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \26 Major projects are those costing $3 million or more.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:131.1

    VA Health Care:  Travis Hospital Construction Project Is Not
    Justified (GAO/HEHS-96-198, September 3, 1996).

    VA Health Care:  Effects of Facility Realignment on Construction
    Needs Are Unknown (GAO/HEHS-96-19, November 17, 1995).

    VA Health Care:  Need for Brevard Hospital Not Justified
    (GAO/HEHS-95-192, August 29, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:131.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       UNDERUSED VA HOSPITALSUNDERUSED
       VA HOSPITALS
    ----------------------------------------------------- Appendix III:132

    Authorizing committees              Veterans' Affairs (House and
                                        Senate)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (House and Senate)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Although the Department of Veterans Affairs (VA) took over 50,000
    hospital beds out of service between 1970 and 1995, it did not close
    any hospitals based on declining utilization.  With the declining
    veteran population, new technologies, and VA's plans to emphasize
    outpatient care, significant further declines in demand for VA
    hospital care are likely.  While closing wards clearly saves some
    money by reducing staffing costs, the cost per patient treated rises
    because the fixed costs of facility operation are disbursed over
    fewer patients.  At some point, closing a hospital and providing care
    either through another VA hospital or through contracts with
    community hospitals may become less costly than simply taking beds
    out of service.

    Potential savings from hospital closures are difficult to estimate
    because of uncertainties about which facilities would be closed, the
    increased costs that would be incurred in providing care through
    other VA hospitals or contracts with community hospitals, and the
    disposition of the closed facilities.  VA is currently developing
    strategic plans to assess veterans' future health care needs that
    could provide a basis for decisions regarding which hospitals to
    close.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:132.1

    VA Health Care:  Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996).

    VA Health Care:  Opportunities to Increase Efficiency and Reduce
    Resource Needs (GAO/T-HEHS-96-99, March 8, 1996).

    VA Health Care:  Challenges and Options for the Future
    (GAO/T-HEHS-95-147, May 9, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:132.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       VA'S MEDICAL CARE ACCOUNT
       GROWTH RATEVA'S MEDICAL CARE
       ACCOUNT GROWTH RATE
    ----------------------------------------------------- Appendix III:133

    Authorizing committees              Veterans' Affairs (House and
                                        Senate)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (House and Senate)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Department of Veterans Affairs' (VA) health care system was
    established in 1930, primarily to provide for the rehabilitation and
    continuing care of veterans injured during wartime service.  VA
    developed its health care system as a direct delivery system in which
    the government owned and operated its own health care facilities.  It
    grew into the nation's largest direct delivery system.  Veterans'
    health care benefits include medically necessary hospital and nursing
    home care and some outpatient care.

    We found that VA's health care system should be able to significantly
    contribute to deficit reduction in the next 5 years.  First, the
    system may not need to expend the level of resources that VA had
    previously estimated to meet the health care needs of veterans.
    These resources are overstated because (1) VA did not adequately
    reflect the declining demand for VA hospital care in estimating its
    resource needs and (2) eligibility for VA resources has been
    reformed, which, according to VA, will allow VA to divert 20 percent
    of its hospital admissions to less costly outpatient settings.
    Second, VA could reduce operating costs over the next 5 years by
    billions of dollars by completing actions on a wide range of
    efficiency initiatives.  Actions are planned or underway on many of
    the improvements.

    The success of these efforts, however, depends on the extent to which
    VA and its health care facilities are held accountable for how they
    spend appropriated funds.  We recently recommended that VA provide
    the Congress improved information supporting its budget request.
    Specifically, we recommended that VA provide the Congress information
    on the savings achieved through improved efficiency.  Providing the
    Congress with information on factors, such as inflation and creation
    of new programs, that increase resource needs without providing
    information on changes that could reduce or offset those needs leaves
    the Congress with little basis for determining appropriate funding
    levels.  VA, however, has been unwilling to provide the Congress such
    information.

    In 1995, the Congress adopted a budget resolution providing VA
    medical care budget authority of $16.2 billion annually for 7 years,
    essentially limiting VA spending at the fiscal year 1995 level.  VA
    estimated that such a limitation would result in a cumulative
    shortfall of almost $24 billion in the funds it would need to
    maintain current services to the veteran population through 2002.
    However, we reported that VA overestimated the potential budget
    shortfall because it assumed that (1) the VA facility workload would
    increase in fiscal year 1996 and that it would be sustained during
    the entire 7-year period, (2) limited savings would be achieved
    through improvements in the efficiency with which services are
    provided by VA facilities, and (3) costs, workload, and staffing
    would steadily increase due to opening or expanding facilities.

    Because VA facilities are essentially allowed to keep any funds they
    generate through efficiency improvements and seek additional funds to
    compensate for the effects of inflation, the true rate of increase in
    VA's medical care appropriation is understated.  One way for the
    Congress to respond to VA's unwillingness to provide information on
    savings from improved efficiency and the overestimation of needs
    would be to limit the VA medical care appropriation at the fiscal
    year 1997 level for the next 5 years.  CBO estimates that this would
    result in almost $9 billion in savings.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     0       0       0       0       0
    Outlays                              0       0       0       0       0

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   584   1,165   1,767   2,395   3,050
    Outlays                            525   1,101   1,701   2,326   2,978
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:133.1

    VA Health Care:  Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996).

    VA Health Care:  Opportunities to Increase Efficiency and Reduce
    Resource Needs (GAO/T-HEHS-96-99, March 8, 1996).

    Medical Care Budget Alternatives (GAO/HEHS-95-247R, September 12,
    1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:133.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       ENROLLMENT IN VA HEALTH CARE
       SYSTEMENROLLMENT IN VA HEALTH
       CARE SYSTEM
    ----------------------------------------------------- Appendix III:134

    Authorizing committees              Veterans' Affairs (House and
                                        Senate)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (House and Senate)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Department of Veterans Affairs' (VA) health care system was
    initially established to meet the special care needs of veterans
    injured during wartime and those wartime veterans permanently
    incapacitated and incapable of earning a living.  Although all
    veterans were eligible for hospital care, most veterans were eligible
    for only limited outpatient services.

    Recently enacted legislation expands eligibility for health benefits
    to make all veterans eligible for comprehensive inpatient and
    outpatient services, subject to the availability of resources.  The
    legislation also requires VA to establish a system of enrollment for
    VA health care benefits and establishes enrollment priorities to be
    applied within appropriated resources.  The lowest priority for
    enrollment are veterans with no service-connected disabilities and
    incomes that place them in the discretionary care category.

    However, VA does not currently provide the Congress the type of
    information on VA's workload that would enable it to make informed
    judgments about which portion of VA's workload to fund.  For example,
    it provides the Congress little data on the extent to which its
    resources are used to provide services to service-connected veterans,
    to veterans with low incomes, and to veterans with higher incomes.
    Without information on the extent to which VA resources are used to
    provide services to veterans in the priority categories established
    under the new law, the Congress lacks the basic information needed to
    guide decisions about what portion of VA's workload to fund.

    We found that about 15 percent of veterans with no service-connected
    disabilities who use VA medical centers have sufficiently high
    incomes that would place them in the lowest priority category under
    the new patient enrollment system.  If the Congress funded the VA
    health care system to cover only the expected enrollment of veterans
    in higher priority enrollment categories, such as veterans with
    service-connected disabilities and veterans without the means to
    obtain public or private insurance to meet their basic health care
    needs, CBO estimates that $1.7 billion in budget authority adjusted
    for inflation could be saved over 5 years.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   280     280     280     280     280
    Outlays                            252     277     280     280     280

    Savings from 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   323     335     346     358     371
    Outlays                            291     331     346     358     371
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:134.1

    VA Health Care:  Issues Affecting Eligibility Reform Efforts
    (GAO/HEHS-96-160, September 11, 1996).

    VA Health Care:  Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996).

    VA Health Care:  Approaches for Developing Budget-Neutral Eligibility
    Reform (GAO/T-HEHS-96-107, March 20, 1996).

    VA Health Care:  Opportunities to Increase Efficiency and Reduce
    Resource Needs (GAO/T-HEHS-96-99, March 8, 1996).

    VA Health Care:  Issues Affecting Eligibility Reform
    (GAO/T-HEHS-95-213, July 19, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:134.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       OUTPATIENT PHARMACY
       COSTSOUTPATIENT PHARMACY COSTS
    ----------------------------------------------------- Appendix III:135

    Authorizing committees              Veterans' Affairs (Senate and
                                        House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Department of Veterans Affairs

    Account                             Medical Care (36-0160)

    Spending type                       Discretionary

    Budget subfunction                  Hospital and Medical Care for
                                        Veterans

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    The Department of Veterans Affairs' (VA) pharmacies dispense over
    2,000 types of medications and medical supplies to veterans that are
    available over the counter (OTC) through local retail outlets.  Such
    products were dispensed more than 15 million times in 1995 at an
    estimated cost of $165 million.  The most frequently dispensed
    include aspirin, dietary supplements, and alcohol prep pads.  VA
    physicians and others are concerned that veterans who need such
    products may lack the resources to purchase them and, as a result,
    not use them.  However, only a few VA pharmacies restrict which
    veterans may receive OTC products or how many are provided.  While
    many veterans shared a modest portion of the costs of the OTC
    products, in most cases, the veterans paid no copayments and VA
    absorbed the total costs of these OTC products.

    Unlike VA, other public and private health care plans cover few, if
    any, OTC products for their beneficiaries.  These plans' coverage of
    OTC products is more restrictive than all but a few of VA's
    facilities.  In addition, VA facilities provide other features, such
    as free prescription mail service, that are commonly not available
    from other plans.  As a result, VA facilities devote significant
    resources to the provision of OTC products that other plans have
    elected not to cover.

    Our assessment of VA's operating practices suggests several ways that
    budget savings could be achieved.  First, VA could more narrowly
    define when to provide OTC products, reducing the number of OTC
    products available to veterans on an outpatient basis.  Second, VA
    could collect copayments for all OTC products.  CBO has estimated
    that these steps would save the following amounts.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Restrict availability of OTC products at VA pharmacies
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                    60      60      61      61      62
    Outlays                             54      59      61      61      62

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    62      64      67      70      74
    Outlays                             55      64      67      70      73
    ----------------------------------------------------------------------

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Option: Charge copayments on OTC products at VA pharmacies
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                     5       9      14      14      14
    Outlays                              5       9      14      14      14

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                     5       9      14      14      14
    Outlays                              5       9      14      14      14
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:135.1

    VA Health Care:  Opportunities to Significantly Reduce Outpatient
    Pharmacy Costs (GAO/HEHS-97-15, October 11, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:135.2

    Stephen P.  Backhus, (202) 512-7111

       OPTION:
       SUNSET DATE ON VA'S INCOME
       VERIFICATION PROGRAMSUNSET DATE
       ON VA'S INCOME VERIFICATION
       PROGRAM
    ----------------------------------------------------- Appendix III:136

    Authorizing committees              Veterans' Affairs (Senate and
                                        House)

    Appropriations subcommittees        VA, HUD, and Independent Agencies
                                        (Senate and House)

    Primary agency                      Department of Veterans Affairs

    Accounts                            Compensation (36-0153)
                                        Medical Care (36-0160)

    Spending type                       Direct

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Department of Veterans Affairs (VA) administers over $35 billion
    annually in benefits and health care programs for veterans and their
    dependents.  Eligibility for benefits and the level of benefits paid
    are often income dependent.  VA uses self-reported income in
    establishing eligibility for certain benefits.  In general, the lower
    the reported income, the higher the benefits.

    In 1988 we recommended that the Congress amend the Internal Revenue
    Code to give VA access to tax data to verify income reported by VA
    pension recipients.  We estimated that VA made potential overpayments
    of over $157 million in 1984 because it lacked access to tax data.
    Legislation was enacted in 1990 that gave VA access to Internal
    Revenue Service (IRS) tax data and Social Security Administration
    (SSA) earnings records to help VA verify incomes reported by
    beneficiaries.  Since 1990, millions of dollars in savings have been
    achieved as a result of VA's income verification program.

    However, the provision authorizing IRS and SSA assistance to VA in
    verifying income will expire on September 30, 1998--its "sunset"
    date.  If the provision is not extended, VA's outlays will be
    unnecessarily higher.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Budget authority                     0      22      27      31      36
    Outlays                              0      22      27      31      36
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:136.1

    VA Health Care:  Verifying Veterans' Reported Income Could Generate
    Millions in Copayment Revenues (GAO/HRD-92-159, September 15, 1992).

    Veterans' Benefits:  Millions in Savings Possible From VA's Matching
    Program With IRS and SSA (GAO/HRD-92-37, December 23, 1991).

    Veterans' Pensions:  Verifying Income With Tax Data Can Identify
    Significant Payment Problems (GAO/HRD-88-24, March 16, 1988).

          GAO CONTACT
    --------------------------------------------------- Appendix III:136.2

    Stephen P.  Backhus, (202) 512-7111

       750 ADMINISTRATION OF JUSTICE
    ----------------------------------------------------- Appendix III:137

      -- Border Patrol Resources

       OPTION:
       BORDER PATROL RESOURCESBORDER
       PATROL RESOURCES
    ----------------------------------------------------- Appendix III:138

    Authorizing committees              Judiciary (Senate and House)

    Appropriations subcommittees        Commerce, Justice, State, and the
                                        Judiciary (Senate and House)

    Primary agency                      Department of Justice

    Accounts                            Immigration and Naturalization
                                        Service Salaries and Expenses (15-
                                        1217)
                                        Violent Crime Reduction Fund
                                        Programs
                                        (15-8598)

    Spending type                       Discretionary

    Budget subfunction                  Federal Law Enforcement Activities

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Drug smuggling and illegal immigration are serious threats along the
    Southwest border.  Experts estimate that most of the cocaine and most
    illegal aliens entering the United States enter from Mexico across
    the Southwest border.  Unless border control efforts become more
    effective, illegal immigration is expected to increase over the next
    decade.

    The Department of Justice's Immigration and Naturalization Service
    (INS) is responsible for enforcing the nation's immigration laws.
    The INS has 3 regional offices, 33 district offices, 21 Border Patrol
    sectors with 145 Border Patrol offices, and 265 staffed ports of
    entry.  The three principal divisions with enforcement
    responsibilities include the Border Patrol, Investigations, and
    Inspections.

    The Violent Crime Control and Law Enforcement Act of 1994 increased
    funding for the Border Patrol to help stem the flow of illegal aliens
    crossing the Southwest border.  The legislation authorized an
    increase of 4,000 Border Patrol agents and support staff over four
    years to carry out the INS' new border enforcement strategy of
    "prevention through deterrence." Under this strategy, Border Patrol
    agents are to be deployed on the border to discourage aliens from
    entering illegally.  Previously, agents were deployed in border
    areas, but their strategy was to apprehend aliens after they had
    entered the United States.

    Nationwide, in fiscal year 1994, the Border Patrol reportedly spent
    63 percent of its enforcement time preventing illegal alien entry.
    The remaining 37 percent was spent apprehending aliens who illegally
    entered or violated the conditions upon which they entered.  The
    activities of Border Patrol agents generally vary according to their
    distance from the border.  Agents at most stations within 25 miles of
    the border were principally engaged in patrolling the border to
    prevent illegal entry of aliens.  In contrast, agents at stations
    over 25 miles from the border were principally engaged in
    apprehending illegal aliens after their entry.

    INS district offices and Border Patrol sectors geographically overlap
    throughout the country.  In addition, some Border Patrol enforcement
    activities parallel the enforcement activities of other INS
    enforcement divisions.  Border Patrol and Investigations are both
    responsible for identifying criminal and illegal aliens after they
    enter the country and reviewing employers' records to determine
    whether only authorized workers are employed.  The work in these
    parallel areas is usually a lower priority for the Border Patrol.

    INS data indicates that it costs half as much to redirect existing
    Border Patrol agents to the border than to hire and train new agents.
    Also, redirecting the time spent by agents at the 32 southwest border
    stations from apprehending aliens after entry to patrolling the
    border would decrease the number of new agents needed.  Furthermore,
    relocating interior Border Patrol agents to the borders could result
    in INS closing some Border Patrol stations and reducing some of its
    lease costs.  In a recent example of how this type of redirection and
    redeployment might be implemented, the Congress directed the Border
    Patrol to redeploy 200 agent positions from interior stations to the
    Southwest border.  Following this directive, INS set aside only 100
    investigator positions to perform the activities that had previously
    been performed by the 200 redeployed agents.

    The Congress could direct the INS to fully implement its new
    enforcement strategy by redeploying additional Border Patrol agents
    and closing Border Patrol stations that are not carrying out
    operations designed to prevent the entry of illegal aliens.  Given
    the emphasis that the President and the Congress have placed on
    controlling the nation's borders, one possible approach would be to
    redeploy resources to those border areas where there is an immediate
    threat of illegal entry.  Although CBO could not provide an estimate
    of savings at this time, under this approach Border Patrol stations
    where agents spend less than, for example, 50 percent of their time
    patrolling the border or less than 75 percent of their time
    conducting traffic checks, might be closed and have its agents
    redeployed.  Also, stations in close proximity to the Southwest or
    Canadian borders where agents do not spend a minimum of, for example,
    50 percent of their time patrolling the border or 75 percent of their
    time conducting traffic checks, might have the activities of its
    agents redirected to prevent entry of illegal aliens.  Further, the
    redirection of agents' activities should reduce the number of new
    agents the Border Patrol would need to hire to increase the amount of
    time spent patrolling the border.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:138.1

    Border Patrol:  Staffing and Enforcement Activities (GAO/GGD-96-65,
    March 11, 1996).

    Border Control:  Revised Strategy is Showing Some Positive Results
    (GAO/T-GGD-95-92, March 10, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:138.2

    Norman J.  Rabkin, (202) 512-8777

       800 GENERAL GOVERNMENT,
       900 NET INTEREST, AND 999
       MULTIPLE
    ----------------------------------------------------- Appendix III:139

      -- General Services Administration Supply Depot System

      -- Judiciary's Long-Range Space Planning System

      -- The 1-Dollar Coin

      -- Commemorative Coins

      -- Federal Reserve Operations

      -- Premium Payments to Employees While on Leave

      -- Davis-Bacon Act Reform

      -- Formula-Based Grant Programs

      -- Federal Grants

      -- Federal Travel Processing

       OPTION:
       GENERAL SERVICES ADMINISTRATION
       SUPPLY DEPOT SYSTEMGENERAL
       SERVICES ADMINISTRATION SUPPLY
       DEPOT SYSTEM
    ----------------------------------------------------- Appendix III:140

    Authorizing committees              Governmental Affairs (Senate)
                                        Government Reform and Oversight
                                        (House)

    Primary agency                      General Services Administration

    Account                             General Supply Fund (47-4530)

    Spending type                       Direct

    Budget subfunction                  General Property and Records
                                        Management

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The General Services Administration (GSA) has a multimillion dollar
    supply system to help support federal agencies' mission needs.  As
    part of this system, GSA buys and warehouses about 16,000 common-use
    supply products and resells and ships them to federal agencies
    through five depots.  An alternative method GSA uses is to have
    supplies delivered directly from suppliers to federal agencies.
    Agencies pay less when supplies are delivered directly.  At the time
    of GAO's most recent work, GSA marked up directly delivered products,
    on average, 10 percent of product cost, while products stored and
    shipped from GSA depots were marked up an average of 29 percent.  For
    fiscal year 1996, GSA's markups had increased to 22 percent and 35
    percent, respectively.  Although the cost difference between the two
    delivery options has lessened in the intervening years for a variety
    of reasons, including a changed methodology for calculating mark-ups
    developed in fiscal year 1995, the difference is still significant
    and reflects the higher costs associated with maintaining and
    operating a large depot distribution system.

    In fiscal year 1992, GAO's review showed that GSA directly delivered
    only an estimated $68 million of the estimated $800 million in sales
    that had potential for direct delivery during the 12-month period
    ending on February 14, 1991.  This means that over 80 percent of
    depot sales had potential to be supplied in this way.  The remaining
    depot sales were mostly low-value, small-quantity orders which may
    have been uneconomical for GSA to handle--more specifically, it cost
    them more to provide the materials than the customer paid.  Most of
    these orders could have been purchased locally without going through
    GSA.  If GSA increased direct delivery and encouraged agencies to
    purchase low-value, small-quantity orders locally, it could
    significantly reduce needed depot operations.

    Maintaining a large and costly depot distribution system may no
    longer be a viable or necessary activity for the federal government.
    Consistent with this position, the Vice President's National
    Performance Review recommended that supply inventories be reduced and
    agencies be allowed to choose sources of supply.  In response, GSA is
    studying its own and private-sector depot distribution costs to
    identify where greater efficiency could be achieved.  In addition,
    GSA (1) permits agencies to use supply sources other than depots for
    purchases under $5,000, which GSA estimated includes 99 percent of
    all potential purchases, (2) has actions to identify logistic models
    that may provide other sources of supply capable of providing items
    at reasonable costs, and (3) has increased the use of commercial
    rather than government-specific item descriptions, which should
    provide a clearer link between the items agencies need and those
    available commercially.  To the extent that GSA's efforts result in
    more economical and efficient ways for agencies to obtain needed
    supplies outside the depot system, GAO believes that there will be
    increased opportunities to reduce or possibly even eliminate GSA's
    depot system.

    The Congress could consider requiring increased use of direct
    delivery for high-dollar value supplies and only stocking items that
    are profitable.  After these changes are implemented, GSA or the
    Congress could phase out GSA depots that are no longer economically
    justifiable or needed.  If all the depots were phased out, the
    following savings would result.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    16      34      52      54      56
    Outlays                             12      30      48      54      55
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:140.1

    General Services Administration:  Increased Direct Delivery of
    Supplies Could Save Millions (GAO/GGD-93-32, December 28, 1992).

    Transition Series:  General Services Issues (GAO/OCG-93-28TR,
    December 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:140.2

    J.  William Gadsby, (202) 512-8387

       OPTION:
       JUDICIARY'S LONG-RANGE SPACE
       PLANNING SYSTEMJUDICIARY'S
       LONG-RANGE SPACE PLANNING
       SYSTEM
    ----------------------------------------------------- Appendix III:141

    Authorizing committees              Environment and Public Works
                                        (Senate) Transportation and
                                        Infrastructure (House)

    Primary agency                      Administrative Office of the
                                        United States Courts

    Account                             Federal Buildings Fund (47-4542)

    Spending type                       Direct

    Budget subfunction                  General Property and Records
                                        Management

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In 1988, the Administrative Office of the U.S.  Courts (AOC)
    developed a long-range plan for space needs.  Based on 1992 space
    projections by the AOC, GAO estimated that the total space
    requirements for courts and related agencies would increase to about
    36.9 million square feet over a 10-year period--a 97-percent
    increase.  GAO found that AOC's planning process resulted in higher
    estimates for court space than is warranted.  Using the judiciary's
    $31 per square foot average cost for all court space, GAO showed that
    the judiciary could save approximately $112 million annually, or $1.1
    billion in constant dollars over a 10-year period, if the errors in
    its planning process were corrected.

    The Congress should direct the judiciary to revise its planning
    process for identifying long-range space needs.  Specifically, the
    process should (1) treat all judicial districts consistently in terms
    of assumptions between caseloads, staff, and space, (2) establish a
    baseline of space needs for each district that reflects current
    caseloads, and (3) increase the reliability of its estimates by using
    an appropriate statistical methodology to project caseloads and by
    reducing the level of subjectivity in the process.  Because of
    uncertainty about the nature and extent of changes that might be made
    to the planning process, a 5-year estimate of savings cannot be
    developed for this option.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:141.1

    Federal Courthouse Construction:  More Disciplined Approach Would
    Reduce Costs and Provide for Better Decisionmaking (GAO/T-GGD-96-19,
    November 8, 1995).

    Federal Judiciary Space:  Progress Is Being Made To Improve The
    Long-Range Planning Process (GAO/T-GGD-94-146, May 4, 1994).

    Federal Judicial Space Follow-up (GAO/GGD-94-135R, April 22, 1994).

    Federal Judiciary Space:  Long-Range Planning Process Needs Revision
    (GAO/T-GGD-94-1B, October 7, 1993).

    Federal Judiciary Space:  Long-Range Planning Process Needs Revision
    (GAO/GGD-93-132, September 28, 1993).

          GAO CONTACT
    --------------------------------------------------- Appendix III:141.2

    J.  William Gadsby, (202) 512-8387

       OPTION:
       THE 1-DOLLAR COINTHE 1-DOLLAR
       COIN
    ----------------------------------------------------- Appendix III:142

    Authorizing committees              Banking, Housing, and Urban
                                        Affairs (Senate)
                                        Banking and Financial Services
                                        (House)

    Appropriations subcommittees        Treasury, Postal Service, and
                                        General Government (Senate and
                                        House)

    Primary agency                      Department of the Treasury

    Account                             United States Mint Public
                                        Enterprise Fund (20-4159)

    Spending Type                       Direct

    Budget subfunction                  Central Fiscal Operations

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In 1993 and 1995, GAO reported on cost savings associated with the
    1-dollar coin.  We said that because a dollar coin would have a
    longer life and be more easily processed than a note, and because the
    seigniorage\27 recognized reduces the amount of borrowing needed to
    finance the deficit, substituting a dollar coin for a dollar note
    would yield significant savings to the government.  Other countries
    have demonstrated that public resistance to such a change can be
    managed and overcome.

    The direct budgetary savings from this option, as scored by CBO, are
    relatively small during the 5-year estimating period.  Additional
    revenues, shown in the first table that follows, result from
    increases in payments of earnings by the Federal Reserve Bank into
    miscellaneous receipts of the Treasury due to the lower costs of
    purchasing and processing these coins relative to dollar bills.
    Although not reflected in the table, there are other substantial
    longer term savings due to the effects of seigniorage.  Seigniorage
    is not considered part of the budget, but it does substitute for
    borrowing from the public and, thus, lowers interest costs to the
    government.  The second table shows that, initially, the U.S.  Mint's
    costs would increase to cover the costs of research and development,
    metals acquisition, storage for coins stockpiled before their
    introduction into circulation,\28 and a public education campaign.
    CBO's estimate assumes that the Mint would pay for these costs by
    borrowing from seignorage generated by coins already in circulation.
    These costs would be repaid when new dollar coins are deposited at
    the Federal Reserve and begin generating their own seigniorage.  Over
    time, the net effect on direct spending would be zero.

                               Five-Year Revenues

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gains                        0       0       0      80     110
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

                       Five-Year Direct Spending Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Budget authority                   -88    -278     212     142       2
    Outlays                            -88    -278     212     142       2
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \27 Seigniorage is the difference between the face value of the coin
    and its cost of production, which includes the value of the metals
    contained in the coin and the U.S.  Mint's manufacturing and
    distribution costs.

    \28 CBO's estimate assumes 30 months of lead time for the U.S.  Mint
    to produce and stockpile new dollar coins before their introduction
    into circulation.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:142.1

    A Dollar Coin Could Save Millions (GAO/T-GGD-95-203, July 13, 1995).

    1-Dollar Coin:  Reintroduction Could Save Millions If It Replaced the
    1-Dollar Note (GAO/T-GGD-95-146, May 3, 1995).

    1-Dollar Coin:  Reintroduction Could Save Millions if Properly
    Managed (GAO/GGD-93-56, March 11, 1993).

    National Coinage Proposals:  Limited Public Demand for New Dollar
    Coin or Elimination of Pennies (GAO/GGD-90-88, May 23, 1990).

          GAO CONTACT
    --------------------------------------------------- Appendix III:142.2

    J.  William Gadsby, (202) 512-8387

       OPTION:
       COMMEMORATIVE
       COINSCOMMEMORATIVE COINS
    ----------------------------------------------------- Appendix III:143

    Authorizing committees              Banking, Housing and Urban Affairs
                                        (Senate)
                                        Banking and Financial Services
                                        (House)

    Primary agency                      Department of the Treasury

    Spending type                       Direct

    Budget subfunction                  Net Interest

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In 1996, GAO reported that if the Congress authorized the United
    States Mint to produce circulating commemorative coins, which are
    coins with distinctive designs that are issued at face value, the
    government could generate about $225 million in additional
    seigniorage annually.  Seigniorage is the difference between the face
    value of the coin and its cost of production and distribution.
    Seigniorage is not considered part of the budget, but it does
    substitute for borrowing from the public and, thus, lowers interest
    costs to the government.  Generating $225 million in additional
    seigniorage annually would result in about $16 million in interest
    savings on the national debt each year.

    GAO concluded that because the quarter is the highest denomination
    and the largest in size of the widely circulating coins, it would be
    likely to generate the most seigniorage.  GAO reported that in 1976,
    when the Mint produced a circulating quarter commemorating the
    Bicentennial, the Mint produced 83 percent more quarters
    commemorating the Bicentennial than its average annual production
    from 1971 to 1981.  GAO based its 1996 estimate on the assumption
    that the demand for quarters would increase 50 percent over the 1995
    production levels for the quarter.  CBO did not provide an estimate
    of the savings from producing a circulating commemorative quarter
    since it involves interest savings only.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:143.1

    U.S.  Mint:  Commemorative Coins Could Be More Profitable
    (GAO/GGD-96-113, August 7, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:143.2

    J.  William Gadsby, (202) 512-8387

       OPTION:
       FEDERAL RESERVE
       OPERATIONSFEDERAL RESERVE
       OPERATIONS
    ----------------------------------------------------- Appendix III:144

    Authorizing committees              Banking, Housing and Urban Affairs
                                        (Senate)
                                        Banking and Financial Services
                                        (House)

    Primary agency                      Federal Reserve Board

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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.

    From 1988 to 1994, the Federal Reserve's annual revenue averaged $22
    billion and greatly exceeded its average annual expenses and other
    deductions of $2.5 billion.  Consequently, the annual amount returned
    to the Treasury during this period ranged from about $16 billion to
    $24 billion.  The cost of Federal Reserve operations over this period
    increased steadily and substantially.  Specifically, operating
    expenses for the Board and Reserve banks increased by about 50
    percent, with the greatest increases occurring in the areas of bank
    supervision, personnel costs, and data-processing modernization.  The
    costs of providing services for which banks are charged have been
    rising faster than the corresponding revenues received.

    With the current budgetary climate, the Federal Reserve could do more
    to increase its cost consciousness and ensure that it is operating as
    efficiently as possible.  GAO has identified several inefficiencies
    in the Federal Reserve's policies and practices that have increased
    the cost of providing its current services, including its costs for
    travel, personnel benefits, building acquisition, and contracting and
    procurement.  For example, personnel benefit packages varied among
    Reserve banks and certain benefits--such as leave policies and
    savings plans--were generous compared to those of federal financial
    regulatory agencies with similar personnel requirements.  We have
    also identified opportunities for the Federal Reserve to strengthen
    internal controls over financial reporting and safeguarding of
    assets.

    The Federal Reserve could better control costs and increase
    efficiencies through management with a more systemwide focus.  Such
    management would include reducing or eliminating benefits that are
    not necessary to attract and retain a quality workforce and managing
    other benefits on a systemwide basis, using the combined bargaining
    power of the 12 Reserve banks.  The internal controls of all Reserve
    banks should be independently assessed annually to ensure reliable
    financial reporting, safeguarding of assets, and compliance with laws
    and regulations.

    In addition, the Federal Reserve's revenue, and hence its return to
    taxpayers, would be enhanced by charging fees for bank examinations.
    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.  Thus, taxpayers in effect bear the
    cost of these examinations, which totaled $368 million in 1994.  If
    fees were assessed similar to those charged national banks with a
    credit allowed for fees paid to state regulators, the following
    savings could be achieved.\29

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Added receipts                      72      75      78      82      86
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \29 CBO also assumes that the Federal Deposit Insurance Corporation
    (FDIC) begins to charge for bank examinations at the same rate;
    however, the effect on FDIC's budget is not included in its estimate.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:144.1

    Federal Reserve System:  Current and Future Challenges Require
    Systemwide Attention (GAO/T-GGD-96-159, July 26, 1996).

    Federal Reserve System:  Current and Future Challenges Require
    Systemwide Attention (GAO/GGD-96-128, June 17, 1996).

    Federal Reserve Banks:  Inaccurate Reporting of Currency at the Los
    Angeles Branch (GAO/AIMD-96-146, September 30, 1996).

    Federal Reserve Banks:  Internal Control, Accounting, and Auditing
    Issues (GAO/AIMD-96-5, February 9, 1996).

          GAO CONTACT
    --------------------------------------------------- Appendix III:144.2

    Thomas M.  McCool, (202) 512-8678

       OPTION:
       PREMIUM PAYMENTS TO EMPLOYEES
       WHILE ON LEAVEPREMIUM PAYMENTS
       TO EMPLOYEES WHILE ON LEAVE
    ----------------------------------------------------- Appendix III:145

    Authorizing committees              Multiple

    Appropriations subcommittees        Multiple

    Primary agency                      Multiple

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Office of Personnel Management has directed all federal agencies
    to pay employees who are scheduled to work on Sundays at the Sunday
    premium pay rate even if the employees take leave on Sunday.  The
    directive became effective on May 27, 1993, and was based on a U.S.
    Claims Court interpretation of federal leave statutes that prohibit
    an employee's pay from being diminished due to taking leave.  Prior
    to this time, employees who took leave on Sunday were paid at their
    basic pay rate for the leave rather than the Sunday premium rate of
    the base rate plus 25 percent.  GAO reviewed five agencies--the
    Federal Aviation Administration, the Customs Service, and the
    Departments of Defense, Justice, and Veterans Affairs--which are
    among the most frequent payers of Sunday premium pay in the federal
    government.  Using leave information provided by these five agencies
    for fiscal year 1994, we estimated that $17.9 million of the $146.1
    million in Sunday premium pay was paid to employees on leave.

    The Departments of Commerce, Justice, State, the Judiciary, and
    Related Agencies Appropriations Act of 1997 included a provision that
    precluded all the relevant agencies from paying premium pay for
    Sundays not actually worked.  GAO addressed this issue governmentwide
    in a 1995 report.  We suggested that to preclude federal employees
    from receiving Sunday premium pay while on leave and to reduce
    governmentwide employment costs, the Congress may wish to consider
    requiring that all agencies' employees actually must work on Sunday
    to receive Sunday premium pay.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:145.1

    Sunday Premium Pay:  Millions of Dollars in Sunday Premium Pay Are
    Paid to Employees on Leave (GAO/GGD-95-144, May 19, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:145.2

    L.  Nye Stevens, (202) 512-8676

       OPTION:
       DAVIS-BACON ACT
       REFORMDAVIS-BACON ACT REFORM
    ----------------------------------------------------- Appendix III:146

    Authorizing committees              Labor and Human Resources (Senate)
                                        Economic and Educational
                                        Opportunities (House)

    Appropriations subcommittees        Labor, Health and Human Services,
                                        and Education (Senate and House)

    Primary agency                      Department of Labor

    Accounts                            Multiple

    Spending type                       Discretionary/Direct

    Budget subfunctions                 Multiple

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The Davis-Bacon Act requires that workers on federally funded or
    federally assisted construction projects be paid wages at or above
    levels determined by the Department of Labor to be prevailing in an
    area.  The current dollar threshold for projects covered by
    Davis-Bacon is $2,000, an amount that has not changed since 1935.
    Critics of the act believe that it inflates federal construction
    costs because the wage rates set are actually higher than those
    prevailing in an area.  Supporters say it sets a basic responsibility
    for federal construction contractors to pay wages typical in an area,
    not lower wage rates in order to receive a contract.  They also argue
    that savings from lower wage rates would be offset by the higher
    total project costs and also from government revenue losses as a
    result of reduced tax collections.

    In 1979, GAO expressed major concern about the accuracy of the wage
    determinations and the impact of the inaccurately high wage rates on
    federal construction costs.  Since that time, Labor has made changes
    that have improved the administration of the Davis-Bacon Act and made
    it less likely that the wage rates would be artificially high.  For
    example, Labor has revised its criteria to require that 50 percent,
    rather than 30 percent, of the workers included on survey projects
    must receive the same wage for that rate to be considered the
    prevailing wage.  This made it less likely that the collectively
    bargained wage rate in an area would be used to set the prevailing
    wage and, as of 1995, less than 30 percent of all of Labor's wage
    determinations were set in that way.  In 1996, Labor also implemented
    recommendations to reduce the potential for its wage determinations
    to be based on erroneous wage data.  There is still an absence of
    current data, however, on the accuracy of wage rates set.

    In the past, CBO has noted that repealing the Davis-Bacon Act or
    raising the threshold for projects it covers would allow
    appropriators to reduce funds spent on federal construction.  In
    addition, either action would increase the opportunities for
    employment of less skilled workers.  However, such changes would
    lower the earnings of some construction workers.  In 1997, CBO
    estimates that repeal of Davis-Bacon would allow appropriators to
    reduce funds for construction with a resulting discretionary outlay
    savings of about $2.8 billion between fiscal years 1998 and 2002.
    CBO assumes that the currently suspended helper regulations will be
    reinstated beginning after the first quarter of fiscal year 1998.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Direct spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                    32      26      24      24      23
    Outlays                             28      27      25      24      24
    ----------------------------------------------------------------------
    Note:  CBO has identified some direct spending savings from the
    repeal of the Davis-Bacon Act, including a reclassification of about
    $1.6 billion in federal aid to highways in fiscal year 1996.

    Source:  Congressional Budget Office.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                   799     777     777     777     777
    Outlays                            196     458     602     683     734

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                   826     854     877     901     926
    Outlays                            196     463     625     739     816
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:146.1

    Information Regarding the Davis-Bacon Act, Correspondence to
    Representative Pete Hoekstra, (GAO/HEHS-97-30R, October 30, 1996).

    Information Regarding Davis-Bacon Wage Determinations, Correspondence
    to Representative Pete Hoekstra (GAO/HEHS-96-177R, July 17, 1996).

    Davis-Bacon Act:  Process Changes Could Address Vulnerability to Use
    Inaccurate Data in Setting of Prevailing Wage Rates
    (GAO/T-HEHS-96-166, June 20, 1996).

    Davis-Bacon Act Job Targeting Programs, Correspondence to
    Representative William M.  Thomas (GAO/HEHS-96-15R, June 3, 1996).

    Davis-Bacon Act:  Process Changes Could Raise Confidence That Wage
    Rates Are Based on Accurate Data (GAO/HEHS-96-130, May 31, 1996).

    Davis-Bacon Act, Correspondence to Senator Larry Craig and
    Representatives Charles Stenholm, William Goodling, Tim Valentine,
    and Thomas Petri (GAO/HEHS-94-95, April 27, 1996).

    Changes to the Davis-Bacon Act Regulations and Administration
    (GAO/HEHS-94-95R, February 7, 1994).

    The Davis-Bacon Act Should Be Repealed (GAO/HRD-79-18, April 27,
    1979).

          GAO CONTACT
    --------------------------------------------------- Appendix III:146.2

    Carlotta C.  Joyner, (202) 512-7002

       OPTION:
       FORMULA-BASED GRANT
       PROGRAMSFORMULA-BASED GRANT
       PROGRAMS
    ----------------------------------------------------- Appendix III:147

    Authorizing committees              Multiple

    Appropriations subcommittees        Multiple

    Primary agencies                    Multiple

    Accounts                            Multiple

    Spending type                       Discretionary/Direct

    Budget subfunctions                 Multiple

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    GAO has issued many reports over the past decade showing that the
    distribution of federal grants to state and local governments is not
    well-targeted to those jurisdictions with greatest programmatic needs
    or lowest fiscal capacity to meet those needs.  As a result, program
    recipients in areas with relatively lower needs and greater wealth
    may enjoy a higher level of services than is available in harder
    pressed areas, or the wealthier areas can provide the same level of
    services at lower tax rates than harder pressed areas.

    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 comparatively fewer needs and greater capacity to
    absorb the cuts.  At the same time, redesigned formulas could hold
    harmless the hardest pressed areas, which are most vulnerable.

    Cuts in federal grants to states could be targeted by
    disproportionately reducing federal funds to states with stronger tax
    bases and fewer needs.  Cuts in federal grants to local governments
    could be targeted by either concentrating cuts on areas with the
    strongest tax bases or by changing program eligibility to restrict
    grant funding only to those places with lower fiscal capacity or
    greatest programmatic needs.  As an example, during the debate in
    1986 over the termination of General Revenue Sharing, GAO reported
    that a better targeted formula and restricted eligibility could
    achieve a 50-percent cut in total outlays, while maintaining or
    increasing federal funds to harder pressed jurisdictions.  An example
    that illustrates the potential savings from this option is a
    10-percent reduction in the aggregate total of all closed-ended or
    capped formula grant programs exceeding $1 billion.\30 The dollar
    value for programs exceeding this threshold would include over 60
    percent of the dollars for such programs.  The savings achieved
    through this option could serve as a benchmark for overall savings
    from this approach but should not be interpreted as a suggestion for
    across-the-board cuts.  Rather, 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.

                               Five-Year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Discretionary spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                 2,903   2,903   2,903   2,903   2,903
    Outlays                          1,055   3,256   4,110   4,483   4,659

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 3,079   3,281   3,486   3,705   3,937
    Outlays                          1,086   3,413   4,446   5,085   5,532
    ----------------------------------------------------------------------

                               Five-Year Savings

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Direct Spending
    ----------------------------------------------------------------------

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 4,228   4,238   4,308   4,369   4,433
    Outlays                          1,612   1,811   1,809   1,816   1,825
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

    --------------------
    \30 In the transportation budget function, several very small
    closed-ended grants could not be easily isolated in the baseline and
    these are included in the estimate.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:147.1

    Federal Grants:  Design Improvements Could Help Federal Funds Go
    Further (GAO/AIMD-97-7, December 18, 1996).

    Public Health:  A Health Status Indicator for Targeting Federal Aid
    to States (GAO/HEHS-97-13, November 13, 1996).

    Highway Funding:  Alternatives for Distributing Federal Funds
    (GAO/RCED-96-6, November 28, 1995).

    Ryan White Care Act of 1990:  Opportunities to Enhance Funding Equity
    (GAO/HEHS-96-26, November 13, 1995).

    Department of Labor:  Senior Community Service Employment Program
    Delivery Could Be Improved Through Legislative and Administrative
    Action (GAO/HEHS-96-4, November 2, 1995).

    Rural Development:  USDA's Approach to Funding Water and Sewer
    Projects (GAO/RCED-95-258, September 22, 1995).

    Medicaid:  Matching Formula's Performance and Potential Modifications
    (GAO/T-HEHS-95-226, July 27, 1995).

    Older Americans Act:  Funding Formula Could Better Reflect State
    Needs (GAO/HEHS-94-41, May 12, 1994).

    Medicaid:  Alternatives for Improving the Distribution of Funds to
    States (GAO/HRD-93-112FS, August 20, 1993).

    Mental Health Grants:  Funding Not Distributed According to State
    Needs (GAO/T-HRD-91-32, May 16, 1992).

    Maternal And Child Health:  Block Grants Funds Should Be Distributed
    More Equitably (GAO/HRD-92-5, April 2, 1992).

    Remedial Education:  Modifying Chapter 1 Formula Would Target More
    Funds to Those Most in Need (GAO/HRD-92-16, March 28, 1992).

    Drug Treatment:  Targeting Aid to States Using Urban Population as
    Indicator of Drug Use (GAO/HRD-91-17, November 27, 1990).

    Block Grants:  Proposed Formulas for Substance Abuse, Mental Health
    Provide More Equity (GAO/HRD-87-109BR, July 16, 1987).

    Local Governments:  Targeting General Fiscal Assistance Reduces
    Fiscal Disparities (GAO/HRD-86-113, July 24, 1986).

    Highway Funding:  Federal Distribution Formulas Should Be Changed
    (GAO/RCED-86-114, March 31, 1986).

    Changing Medicaid Formula Can Improve Distribution of Funds to States
    (GAO/GGD-83-27, March 9, 1983).

          GAO CONTACT
    --------------------------------------------------- Appendix III:147.2

    Paul L.  Posner, (202) 512-9573

       OPTION:
       FEDERAL GRANTSFEDERAL GRANTS
    ----------------------------------------------------- Appendix III:148

    Authorizing committees              Multiple

    Appropriations subcommittees        Multiple

    Primary agency                      Multiple

    Accounts                            Multiple

    Spending type                       Discretionary

    Budget subfunctions                 Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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 more than 600 in 1995
    with outlays of $225 billion, about 15 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' most recent
    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 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 tradeoff 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, from 100 percent to 90
    percent--a reduction unlikely to discourage states from participating
    in the program.  CBO estimates that the introduction of a 10 percent
    matching requirement on some of the largest federal discretionary
    grant programs that are currently 100 percent federally funded and a
    corresponding ten percent reduction from the authorized grant levels,
    would reduce outlays by $20 billion over 5 years.  If such a change
    in match rates were combined with inflation-adjusted
    maintenance-of-effort requirements, states that choose to participate
    in the program would have to maintain the same or increase levels of
    program spending in order to receive federal funding.

                               Five-year Savings

                             (Dollars in millions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Savings from the 1997 funding level
    ----------------------------------------------------------------------
    Budget authority                 3,740   3,740   3,740   3,740   3,740
    Outlays                          1,120   2,810   3,550   3,670   3,740

    Savings from the 1997 funding level adjusted for inflation
    ----------------------------------------------------------------------
    Budget authority                 3,830   3,940   4,040   4,150   4,260
    Outlays                          1,150   2,910   3,750   3,970   4,150
    ----------------------------------------------------------------------
    Source:  Congressional Budget Office.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:148.1

    Federal Grants:  Design Improvements Could Help Federal Funds Go
    Further (GAO/AIMD-97-7, December 18, 1996).

    Block Grants:  Issues in Designing Accountability Provisions
    (GAO/AIMD-95-226, September 1, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:148.2

    Paul L.  Posner, (202) 512-9573

       OPTION:
       FEDERAL TRAVEL
       PROCESSINGFEDERAL TRAVEL
       PROCESSING
    ----------------------------------------------------- Appendix III:149

    Authorizing committees              Governmental Affairs (Senate)
                                        Government Reform and Oversight
                                        (House)

    Appropriations subcommittees        Multiple

    Primary agency                      Multiple

    Account                             Multiple

    Spending type                       Discretionary

    Budget subfunction                  Multiple

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    In fiscal year 1994, the federal government reported travel
    obligations for individuals of about $7.6 billion--about $5 billion
    for the Department of Defense (DOD) and about $2.6 billion for the
    civilian agencies.  This amount was for direct costs (i.e., costs
    directly related to travel, such as transportation, lodging, and
    rental cars) related primarily to two types of travel--temporary duty
    (TDY) and permanent relocation.  The General Services Administration
    (GSA) currently negotiates some of these direct rates with travel
    vendors, at significant savings to federal agencies.  The indirect
    costs for arranging and processing travel can be significant as well.

    GAO recently reviewed a number of private-sector companies that have
    set themselves apart from other organizations, both public and
    private, by streamlining and automating their travel processes and
    adopting a common set of best practices.  These organizations
    achieved improvements by consolidating travel management and
    processing centers, eliminating unnecessary review layers,
    simplifying the travel process, streamlining and automating the
    expense reporting process, and integrating travel processing with
    their financial management systems.  In doing so, these organizations
    have saved millions of dollars in administrative costs.

    DOD has recognized the need to improve travel management and has
    efforts underway to adopt industry best practices and reengineer its
    travel processing to reduce costs.  In anticipation of savings
    related to DOD's travel reengineering efforts and based on GAO
    recommendations, the Appropriations Conference Committee reduced
    DOD's operations and maintenance (O&M) funds for fiscal year 1996 by
    $128.5 million.

    A handful of federal agencies, such as the Departments of State,
    Energy, and Transportation, have also begun to implement best
    practices and reduce costs.  In addition, the Joint Financial
    Management Improvement Program (JFMIP) travel improvement task force,
    made up of representatives from several agencies across government,
    has assessed both TDY and permanent relocation travel and estimated
    that hundreds of millions of dollars could be saved by implementing a
    number of key recommendations.  JFMIP's recommendations mirror many
    of the best practices we found at leading organizations, including
    requiring the use of a corporate charge card and consolidating and
    automating travel data.

    CBO does not disagree that savings could be achieved if agencies were
    able to streamline their travel processing operations.  However, the
    amount of savings would depend on each agency's current costs and
    future streamlining actions.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:149.1

    Governmentwide Travel Management:  Federal Agencies Have
    Opportunities for Streamlining and Improving Their Travel Practices
    (GAO/T-AIMD-96-60, March 8, 1996).

    Business Process Reengineering:  DOD Has a Significant Opportunity to
    Reduce Travel Costs by Using Industry Practices (GAO/T-AIMD-95-101,
    March 28, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:149.2

    Jack L.  Brock, Jr., (202) 512-6240

       RECEIPTS
    ----------------------------------------------------- Appendix III:150

      -- Tax Treatment of Health Insurance Premiums

      -- Information Reporting on Forgiven Debts

      -- Administration of the Tax Deduction for Real Estate Taxes

      -- Corporate Tax Document Matching

      -- Tax Treatment of Interest Earned on Life Insurance Policies and
         Deferred Annuities

      -- Federal Agency Reporting to the Internal Revenue Service

      -- Independent Contractor Tax Compliance

      -- Deductibility of Home Equity Loan Interest

      -- Internal Revenue Staff Utilization

      -- Collecting Gasoline Excise Taxes

      -- Computing Excise Tax Bases

      -- Industrial Development Bonds Targeting

      -- Highway User Fees on Heavy Trucks

      -- Taxation of Additives to Diesel Fuel

      -- Electronic Filing of Tax Returns

       OPTION:
       TAX TREATMENT OF HEALTH
       INSURANCE PREMIUMSTAX TREATMENT
       OF HEALTH INSURANCE PREMIUMS
    ----------------------------------------------------- Appendix III:151

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    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.  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--that is 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 a refundable tax
    credit of 20 percent of all premiums, with eligible premiums capped
    at $350 and $170 per month for family coverage and individuals,
    respectively.  This option recognizes the gain from changing the
    treatment of insurance only for the individual income tax, not the
    payroll tax.  The option is effective for payments of health
    insurance premiums paid after December 31, 1997.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                      10.2    15.7    17.6    19.7    22.0
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:151.1

    Tax Policy:  Effects of Changing Tax Treatment of Fringe Benefits
    (GAO/GGD-92-43, April 7, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:151.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       INFORMATION REPORTING ON
       FORGIVEN DEBTSINFORMATION
       REPORTING ON FORGIVEN DEBTS
    ----------------------------------------------------- Appendix III:152

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The Internal Revenue Code requires taxpayers to report forgiven debts
    as income except under certain circumstances.  GAO reviewed taxpayer
    compliance in reporting the Federal Deposit Insurance Corporation's
    (FDIC) and Resolution Trust Corporation's (RTC) forgiven debt with
    and without information reporting by these corporations to IRS.

    Information reporting increased taxpayer compliance.  For example,
    without information reporting, 1 percent of taxpayers voluntarily
    reported FDIC forgiven debts.  With reporting, 48 percent voluntarily
    reported their forgiven debts.  With the information reports, IRS was
    able to detect that another 20 percent had failed to report their
    forgiven debts, yielding 68 percent of taxpayers eventually
    complying.

    In 1993, the Congress required information reporting on forgiven
    debts by FDIC, RTC, the National Credit Union Administration, credit
    unions, certain banks, and federal agencies.  In 1996, IRS began
    receiving these required information returns for tax year 1995 and
    has been matching them to tax returns.  The Congress could consider
    extending the requirement to other lending institutions.  Revenues
    for this option are difficult to estimate due to uncertainties about
    its effect on lending institution reporting practices.  However, to
    illustrate potential savings from this option, if the requirement
    were extended to finance companies, JCT estimates revenue gains of
    under $50 million, assuming an effective date of January 1, 1998.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                        \a      \a      \a      \a      \a
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    \a A gain of less than $50 million.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:152.1

    Tax Administration:  Information Returns Can Improve Reporting of
    Forgiven Debts (GAO/GGD-93-42, February 17, 1993).

          GAO CONTACT
    --------------------------------------------------- Appendix III:152.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       ADMINISTRATION OF THE TAX
       DEDUCTION FOR REAL ESTATE
       TAXESADMINISTRATION OF THE TAX
       DEDUCTION FOR REAL ESTATE TAXES
    ----------------------------------------------------- Appendix III:153

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    IRS audits show that individuals overstated their real estate tax
    deductions by about $1.5 billion nationwide in 1988.  GAO estimates
    that this resulted in a nearly $300 million federal tax loss, which
    would increase to about $400 million for 1992.  However, this may
    understate lost revenues because GAO's review also found that IRS
    auditors detected only about 29 percent of $127 million in overstated
    deductions in three locations GAO reviewed.  Revenues could be lost
    not only for the federal government, but also for the 31 states which
    in 1991 tied their itemized deductions to those used for federal tax
    purposes.

    Two changes to the reporting of real estate cash rebates and real
    estate taxes could reduce noncompliance and increase federal tax
    collections.  First, the Congress could require that states report to
    IRS, and to taxpayers on Form 1099s, cash rebates of real estate
    taxes.  Second, the Congress could require that state and local
    governments conform real estate tax statements to specifications
    issued by IRS that would separate real estate taxes from
    nondeductible fees, which are often combined on these statements.
    For estimation purposes, the proposals would be effective for rebates
    issued after December 31, 1998, and for amounts reported on tax bills
    after December 31, 1999.  Together, the proposals would increase
    federal fiscal year revenues as shown in the table below.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                         0      \a     0.1     0.2     0.2
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    \a A gain of less than $50 million.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:153.1

    Tax Administration:  Overstated Real Estate Tax Deductions Need To Be
    Reduced (GAO/GGD-93-43, January 19, 1993).

          GAO CONTACT
    --------------------------------------------------- Appendix III:153.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       CORPORATE TAX DOCUMENT
       MATCHINGCORPORATE TAX DOCUMENT
       MATCHING
    ----------------------------------------------------- Appendix III:154

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Internal Revenue Service (IRS) data show that corporate compliance
    with tax laws has declined to an alarming degree.  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 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' assumptions, GAO 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, GAO
    estimated that for years 1995 through 1999, IRS' annual costs would
    be about $70 million and annual increased revenues about $1 billion.
    This estimate did not factor in compliance costs and changes in
    taxpayer behavior.  Given continuing deficits, increased corporate
    noncompliance, and declining audit coverage, the Congress may wish to
    require a corporate document matching program.

    JCT has not developed an estimate of revenue gains from this
    proposal.  JCT agrees that this option will result in increased
    revenues, but those revenues will depend heavily on the scope of
    coverage under an expanded information reporting system.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:154.1

    Tax Administration:  Benefits of a Corporate Document Matching
    Program Exceed the Costs (GAO/GGD-91-118, September 27, 1991).

          GAO CONTACT
    --------------------------------------------------- Appendix III:154.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       TAX TREATMENT OF INTEREST
       EARNED ON LIFE INSURANCE
       POLICIES AND DEFERRED
       ANNUITIESTAX TREATMENT OF
       INTEREST EARNED ON LIFE
       INSURANCE POLICIES AND DEFERRED
       ANNUITIES
    ----------------------------------------------------- Appendix III:155

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    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 like
    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 want to reconsider granting preferential tax
    treatment to inside buildup, weighing the social benefits against the
    foregone revenue.  The Congress may wish to consider taxing the
    interest earned on life insurance policies and deferred annuities.
    The table below reflects the estimated savings from this option,
    effective for life insurance policies and annuities purchased after
    December 31, 1997.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                       7.8    19.1    21.5    23.7    25.9
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:155.1

    Tax Policy:  Tax Treatment of Life Insurance and Annuity Accrued
    Interest (GAO/GGD-90-31, January 29, 1990).

          GAO CONTACT
    --------------------------------------------------- Appendix III:155.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       FEDERAL AGENCY REPORTING TO THE
       INTERNAL REVENUE SERVICEFEDERAL
       AGENCY REPORTING TO THE
       INTERNAL REVENUE SERVICE
    ----------------------------------------------------- Appendix III:156

    Authorizing committees              Governmental Affairs (Senate)
                                        Finance (Senate)
                                        Government Reform and Oversight
                                        (House)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    According to Internal Revenue Service (IRS) data, corporate tax
    compliance decreased by 20 percentage points between 1980 and 1987.
    Information returns--reports provided to IRS by payers of interest,
    dividends, or other tax-related information--have proven to be highly
    cost-effective in generating billions of tax dollars from individual
    taxpayers.  However, no such program exists for payments to
    corporations.  IRS matches information return data to individuals'
    tax returns, which induces individuals to voluntarily report income
    and helps to identify those who do not.  Similar results might be
    obtained from corporations.

    Federal agencies could help increase corporate tax compliance by
    reporting their payments made to corporations for services.  Federal
    agencies paid corporations about $61 billion for service contracts of
    more than $25,000 in 1990.

    JCT has not developed an estimate of the revenue gains for this
    proposal.  JCT does not disagree that improved reporting could
    increase compliance.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:156.1

    Tax Administration:  Federal Agencies Should Report Service Payments
    Made to Corporations (GAO/GGD-92-130, September 22, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:156.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       INDEPENDENT CONTRACTOR TAX
       COMPLIANCEINDEPENDENT
       CONTRACTOR TAX COMPLIANCE
    ----------------------------------------------------- Appendix III:157

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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 employment tax examinations.
    Since 1989, 90 percent of these examinations had found misclassified
    workers.  From October 1987 through December 1991, the average IRS
    tax assessment relating to misclassified workers was $68,000.

    Establishing clear rules is difficult.  Nevertheless, taxpayers
    need--and 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.

    During 1993, the Congress considered but rejected extending current
    information reporting requirements for unincorporated independent
    contractors to incorporated ones.  Thus, independent contractors
    organized as either sole proprietors or corporations would have been
    on equal footing, and IRS would have had a less intrusive means of
    ensuring their tax compliance.

    In recent years, various proposals on clarifying the definition of
    independent contractors and improving related information reporting
    emerged.  Congressional hearings dealt with some of these bills.  As
    of January 1997, the Congress had not acted on any of them.

    JCT did not provide an estimate for this option.  Estimating the
    revenue gains from this option is difficult.  A previous estimate by
    the JCT showed that the proposal increased revenues by about $400
    million over 5 years.  In contrast, the Department of Treasury's
    Office of Tax Analysis estimated a 5-year gain of about $5 billion.
    Estimates can vary widely depending on the definition of independent
    contractor, the scope of coverage under an expanded information
    reporting or withholding system, and assumptions about how much more
    unreported income could be captured.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:157.1

    Tax Administration:  Approaches for Improving Independent Contractor
    Compliance (GAO/GGD-92-108, July 23, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:157.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       DEDUCTIBILITY OF HOME EQUITY
       LOAN INTERESTDEDUCTIBILITY OF
       HOME EQUITY LOAN INTEREST
    ----------------------------------------------------- Appendix III:158

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of the Treasury

    Spending type                       Direct

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    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 grew at
    an average annual rate of about 20 percent between 1981 and 1991.
    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 to
    the first $300,000 of indebtedness for the taxpayer's principal and
    second residence.  Assuming an effective date of January 1, 1999,
    this option would generate the following revenues.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                         0     1.9     2.7     2.9     3.1
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:158.1

    Tax Policy:  Many Factors Contributed to the Growth in Home Equity
    Financing in the 1980s (GAO/GGD-93-63, March 25, 1993).

          GAO CONTACT
    --------------------------------------------------- Appendix III:158.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       INTERNAL REVENUE SERVICE STAFF
       UTILIZATIONINTERNAL REVENUE
       SERVICE STAFF UTILIZATION
    ----------------------------------------------------- Appendix III:159

    Authorizing committees              Appropriations (Senate and House)
                                        Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The allocation of IRS' collection staff has not been based on the
    relative productivity of its collection programs.  Some of the more
    productive programs, such as IRS automatic call sites, have not
    reached their full potential because staff are assigned to less
    productive field collection activities.  The productivity of
    collection staff also varies greatly among collection locations.

    More emphasis on contacting delinquent taxpayers early using
    telephone collection techniques and allocating staff based on
    productivity should increase collections.  A rough GAO estimate
    indicated that the reassignment of about 1,000 staff from field
    collections--the least productive use of staff--to telephone
    collections could increase collections by about $1.2 billion per
    year.

    IRS' fiscal year 1997 budget included a decrease of 1,341 full-time
    equivalent positions in tax enforcement job categories, such as field
    revenue officers and revenue agents, that engage in face-to-face
    audit and collection activities.  IRS' budget stated that although
    "these positions still comprise the lion's share of IRS enforcement
    efforts, they also represent, on the margin, the least efficient use
    of IRS resources."

    On the other hand, because of other budget decisions, IRS targeted
    its telephone collection activity for a significant staff reduction
    in fiscal year 1997.  IRS officials subsequently decided that the
    impact of this staff reduction would be too severe.  As a result,
    they negotiated with the National Treasury Employees Union to allow
    for the temporary transfer of about 300 revenue officers and other
    compliance staff to telephone collections for at least 1 year.

    Although CBO does not disagree that better utilization of IRS staff
    can increase revenues, it does not make budget estimates of such
    increases.  This is because it is difficult to establish a clear
    connection between changes in staff allocations and revenue gains.
    In addition, even if such a connection can be established, the
    magnitude of such gains attributable to reallocation is not certain
    enough for budget scorekeeping purposes.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:159.1

    Tax Administration:  New Delinquent Tax Collection Methods of IRS
    (GAO/GGD-93-67, May 11, 1993).

    Tax Administration:  Improved Staffing of IRS' Collection Function
    Would Increase Productivity (GAO/GGD-93-97, May 5, 1993).

    Internal Revenue Service Receivables (GAO/HR-93-13, December 1992).

    Tax Administration:  IRS' System Used in Prioritizing Taxpayer
    Delinquencies Can Be Improved (GAO/GGD-92-6, March 26, 1992).

    Tax Administration:  Efforts To Prevent, Identify, and Collect
    Employment Tax Delinquencies (GAO/GGD-91-94, August 28, 1991).

          GAO CONTACT
    --------------------------------------------------- Appendix III:159.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       COLLECTING GASOLINE EXCISE
       TAXESCOLLECTING GASOLINE EXCISE
       TAXES
    ----------------------------------------------------- Appendix III:160

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Although reliable statistical data do not exist to estimate gasoline
    excise tax evasion, the Department of Transportation estimated in a
    report to the Congress that such evasion amounted to about $500
    million annually.  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, GAO 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.  The amount of revenue that would be generated
    from moving the collection point for gasoline excise taxes would
    depend on the accuracy of the $500 million estimate of evasion and
    how well the move curbed such evasion.

    JCT agrees that this option has the potential for increased revenue
    but has not developed estimates of revenue gains.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:160.1

    Tax Administration:  Status of Efforts to Curb Motor Fuel Tax Evasion
    (GAO/GGD-92-67, May 12, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:160.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       COMPUTING EXCISE TAX
       BASESCOMPUTING EXCISE TAX BASES
    ----------------------------------------------------- Appendix III:161

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    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.  Of the five excise taxes GAO studied in
    1989, alcohol and tobacco taxes yielded over 99 percent of the
    increased revenue that indexing would have generated.  The Congress
    may wish to consider indexing excise tax rates for alcohol and
    tobacco.  The table below reflects the estimated savings from this
    option with an effective date of January 1, 1998.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                       0.2     0.5     0.7     1.1     1.3
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:161.1

    Alcohol Excise Taxes:  Simplifying Rates Can Enhance Economic and
    Administrative Efficiency (GAO/GGD-90-123, September 27, 1990).

    Tax Policy:  Revenue Potential of Restoring Excise Taxes to Past
    Levels (GAO/GGD-89-52, May 9, 1989).

          GAO CONTACT
    --------------------------------------------------- Appendix III:161.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       INDUSTRIAL DEVELOPMENT BONDS
       TARGETINGINDUSTRIAL DEVELOPMENT
       BONDS TARGETING
    ----------------------------------------------------- Appendix III:162

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Department of the Treasury

    Spending type                       Direct

    Framework theme                     Reassess objectives
    ----------------------------------------------------------------------
    The interest earned on certain bonds used by private entities is
    tax-exempt because the activities financed are considered to produce
    public benefits.  The "private activity bonds" are issued by state
    and local governmental authorities who provide the proceeds to
    private entities to finance, among other things, the creation or
    expansion of manufacturing facilities.  Such private activity bonds
    are commonly referred to as Industrial Development Bonds (IDBs).

    Critics of IDBs argue that the benefits from private activity caps
    are ill-defined.  While IDBs clearly provide benefits to the private
    companies and to investors, there is no clear consensus on whether
    the bonds achieve public benefits.  Proponents of the bonds argue
    that IDBs can indeed achieve public benefits, such as creating jobs,
    assisting economically distressed areas, fostering start-up
    companies, and keeping manufacturing firms in the country.  However,
    IDBs do not appear to be targeted to states with large concentrations
    of communities in fiscal distress and possibly greatest need for bond
    market intervention.  The Tax Reform Act of 1986 imposed a limit
    (volume cap) that restricts the amount of bonds a state may issue to
    the greater of $50 per state resident or $150 million.

    This option illustrates three ways in which the Congress could choose
    to reduce the tax losses associated with IDBs.  If reductions in the
    cap were targeted, states with highest concentrations of fiscal
    stress could be spared the cuts while the deepest cuts were applied
    to states with the lowest concentration of communities in fiscal
    stress.  For example, this approach would cut 25 percent from the cap
    in a state with a majority of communities in fiscal stress and 75
    percent from the cap in states with low concentrations of communities
    in fiscal stress.  This approach would reduce the caps by 23 percent
    for net revenue gains of $800 million over 5 years.

    Another approach would simply be to reduce the cap proportionally
    across all states.  The 1995 cap was allocated to all states in such
    a way as to ensure a minimum of $150 million.  Many states received
    more than $150 million, however no states received less than this
    amount.  If the minimum allocation were reduced by $50 million and
    proportionally reduced in all states that received more than $150
    million, the total cap would be reduced by 48 percent.

    Still another approach would be to both reduce the cap proportionally
    across all states and to target additional cuts to states with low
    concentrations of communities in fiscal stress.  Such an approach
    would yield a 56 percent reduction in the caps.

    JCT estimates that the first option, targeting reductions in the cap
    for bonds issued after December 31, 1997, would result in the
    following revenue gain.

                               Five-year Revenues

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                        \a     0.1     0.2     0.2     0.3
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    \a A gain of less than $50 million.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:162.1

    Industrial Development Bonds:  Achievement of Public Benefits Is
    Unclear (GAO/RCED-93-106, April 22, 1993).

          GAO CONTACTS
    --------------------------------------------------- Appendix III:162.2

    Paul L.  Posner, (202) 512-9573
    Judy A.  England-Joseph, (202) 512-7631

       OPTION:
       HIGHWAY USER FEES ON HEAVY
       TRUCKSHIGHWAY USER FEES ON
       HEAVY TRUCKS
    ----------------------------------------------------- Appendix III:163

    Authorizing committees              Commerce, Science, and
                                        Transportation (Senate)
                                        Transportation and Infrastructure
                                        (House)

    Primary agency                      Department of Transportation

    Spending type                       Direct

    Framework theme                     Redefine beneficiaries
    ----------------------------------------------------------------------
    To develop and maintain highways, the Federal Highway Administration
    (FHWA) collects user fees.  In fiscal year 1993, FHWA collected over
    $18.5 billion from four user fees:  fuel taxes, a heavy vehicle use
    tax, a new vehicle excise tax, and an excise tax on heavy tires.  In
    1982, FHWA reported 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.

    To increase highway revenues and to respond to the FHWA study, the
    Congress in 1982 passed the first major increase in federal highway
    use taxes since 1956.  To increase revenues, the Congress raised
    gasoline and diesel taxes from 4 cents to 9 cents per gallon.  To
    improve equity, the Congress mandated 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 we recommended in June 1994, FHWA is conducting a formal cost
    allocation study to determine whether all highway users are paying
    their fair share of federal highway costs.  FHWA plans to complete
    this study by early 1997.  If this study finds that heavy trucks
    underpay their share, one solution could be to base the truck's fees
    on vehicle weight and distance traveled--a method currently employed
    by six states.  The precise revenue gain from this action would
    depend on the type and amount of user fee increases.  Increasing fuel
    taxes, the heavy vehicle use tax, the new vehicle excise tax, and the
    excise tax on heavy tires would generate additional revenues.  For
    example, in fiscal year 1994, heavy truck operators paid about $620
    million in heavy vehicle use taxes.  Raising the ceiling on this fee
    from $550 to $1,900 per user could raise between $800 million and $1
    billion.

    JCT does not disagree that this option could yield revenue.  However,
    an estimate of revenue gains is not available at this time.

          RELATED GAO PRODUCT
    --------------------------------------------------- Appendix III:163.1

    Highway User Fees:  Updated Data Needed To Determine Whether All
    Users Pay Their Fair Share (GAO/RCED-94-181, June 7, 1994).

          GAO CONTACT
    --------------------------------------------------- Appendix III:163.2

    John H.  Anderson, Jr., (202) 512-2834

       OPTION:
       TAXATION OF ADDITIVES TO DIESEL
       FUELTAXATION OF ADDITIVES TO
       DIESEL FUEL
    ----------------------------------------------------- Appendix III:164

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    The federal government generally imposes an excise tax of 24.4 cents
    per gallon on diesel fuel that is used on highways.  Diesel fuel for
    off-highway use, such as home heating, is not taxed.  In addition,
    certain entities, such as state and local governments, are exempt
    from paying tax on diesel fuel they use on highways.  This excise tax
    is collected at the fuel terminal and any diesel fuel removed from a
    terminal for tax-free use must be dyed.

    Diesel fuel additives, primarily kerosene, may be added to tax-paid
    diesel fuel after it leaves the terminal where taxes are collected.
    Fuel excise taxes are intended to be collected on each gallon of fuel
    used on the highway, including any additives, so that the tax
    revenues can be used to maintain and improve the highway system.
    Under current federal excise tax regulations, kerosene is not treated
    as a diesel fuel and is generally neither taxed nor dyed when removed
    from the terminal.  However, undyed tax-free kerosene can be used in
    blending schemes that could result in excise tax evasion.  For
    example, a dishonest retailer could take two gallons of tax-paid
    diesel fuel and mix it with one gallon of undyed kerosene on which no
    tax has been paid.  The retailer now has three gallons of
    "cocktailed" diesel fuel, but has only paid tax on two gallons of the
    product.

    In January 1996, GAO reported that under current IRS regulations,
    kerosene is not treated as a diesel fuel and is generally neither
    taxed nor dyed when removed from the terminal, although it may
    ultimately be used as a highway fuel.  Other uses of kerosene, such
    as for home heating, complicate its taxation.  Nevertheless, in July
    1995, the Treasury Department expressed support for subjecting
    kerosene to the same dyeing requirements as those applied to diesel
    fuel.  The Congress may wish to consider dyeing nontaxed kerosene in
    order to improve and increase collection of fuel excise taxes.  The
    table below reflects the estimated revenues from this option with an
    effective date of July 1, 1998.

                               Five-Year Revenues

                             (Dollars in billions)

                                      FY98    FY99    FY00    FY01    FY02
    ------------------------------  ------  ------  ------  ------  ------
    Revenue gain                        \a      \a      \a      \a      \a
    ----------------------------------------------------------------------
    Note:  JCT provided its revenue estimates in billions of dollars.

    \a A gain of less than $50 million.

    Source:  Joint Committee on Taxation.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:164.1

    Tax Administration:  Diesel Fuel Excise Tax Change (GAO/GGD-96-53,
    January 16, 1996).

    Tax Administration:  Status of Efforts to Curb Motor Fuel Tax Evasion
    (GAO/GGD-92-67, May 12, 1992).

          GAO CONTACT
    --------------------------------------------------- Appendix III:164.2

    Lynda D.  Willis, (202) 512-9110

       OPTION:
       ELECTRONIC FILING OF TAX
       RETURNSELECTRONIC FILING OF TAX
       RETURNS
    ----------------------------------------------------- Appendix III:165

    Authorizing committees              Finance (Senate)
                                        Ways and Means (House)

    Primary agency                      Internal Revenue Service

    Spending type                       Direct

    Framework theme                     Improve efficiency
    ----------------------------------------------------------------------
    Electronic filing sends data directly on-line to Internal Revenue
    Service (IRS) computers, thereby eliminating manual handling of
    paper, disks, computer tapes, and cartridges, which significantly
    reduces processing time and cost.  For example, electronically filed
    information returns can be fully processed and entered into IRS'
    computers within 2 days compared with an average of 58 days for
    magnetic media shipments.  Math errors on electronic returns are
    identified by the system and corrected by the taxpayer before IRS
    accepts the return.  Electronic returns also avoid the error-prone
    manual data entry system IRS uses to process paper returns.  Fewer
    errors mean fewer notices to taxpayers and less time spent with the
    resulting telephone calls and correspondence.

    Electronic filing can enhance IRS' compliance efforts.  However, of
    the 777 million nonwage information returns IRS processed in 1994,
    only 12.6 million (1.6 percent) were filed electronically.  Of the
    118 million individual income tax returns filed in 1996, only 15
    million (12.7 percent) were filed electronically.  Electronic filing
    of information returns would enable IRS to match more of these
    documents sooner to tax returns.  For example, matching information
    returns on partnership income (Schedule K-1) to individual tax
    returns has been a cost-effective means of detecting and assessing
    taxes on unreported partnership income.  But few Schedule K-1s have
    been matched.  For tax year 1991, GAO estimated that had IRS been
    able to match all Schedule K-1s, it could have assessed about $220
    million in additional taxes.  Similarly, with electronic returns, IRS
    can more effectively and efficiently validate social security
    numbers--a key control against refund fraud--because up-front filters
    prevent the submission of electronic returns with invalid social
    security numbers.  IRS cannot identify invalid social security
    numbers on paper returns until after the returns are filed, and the
    number of problem cases it can work is limited by the amount of
    available staff.

    Not only is the number of electronic returns relatively low, but the
    returns being filed electronically are generally those that
    contribute least to paper-processing workload and operating costs.
    For example, on the basis of IRS' 1993 service center processing cost
    estimates, it cost IRS $4.53 to process a paper Form 1040, $3.95 to
    process a paper Form 1040A, and $3.36 to process a paper Form 1040EZ.
    The most costly of the three (Form 1040) accounted for about 59
    percent of all individual returns (paper and electronic) processed in
    1994, yet Form 1040 accounted for only about 20 percent of the
    individual returns filed electronically.

    To reduce processing costs and increase compliance revenues, IRS
    needs to develop and implement a strategy for significantly
    increasing the number of returns filed electronically.  We have
    recommended that IRS identify those groups of taxpayers who offer the
    greatest opportunity to reduce IRS' paper-processing workload and
    operating costs if they were to file electronically and develop
    strategies that focus IRS' resources on eliminating or alleviating
    impediments that inhibit those groups from participating in the
    program, including the impediment posed by the program's cost.  No
    cost savings or revenue enhancement estimates can be made until IRS
    develops these strategies.

          RELATED GAO PRODUCTS
    --------------------------------------------------- Appendix III:165.1

    Tax Administration:  Electronic Filing Falling Short of Expectations
    (GAO/GGD-96-12, October 31, 1995).

    Tax Administration:  IRS' Partnership Compliance Activities Could Be
    Improved (GAO/GGD-95-151, June 16, 1995).

          GAO CONTACT
    --------------------------------------------------- Appendix III:165.2

    Lynda D.  Willis, (202) 512-9110

    OPTIONS NOT UPDATED FOR THIS
    REPORT
    ========================================================== Appendix IV

    The following table provides information on options from last year's
    report\31 that were not updated due to congressional or agency action
    or other factors.

    Option                                   Comments
    ---------------------------------------  ---------------------------------------
    Improved Material Management Can Reduce  See new option on Navy financial
    Shipyard Costs                           management of operating materials and
                                             supplies.

    Reduce Army's Unfilled War Reserve       See new option on defense inventories
    Requirements by Using Other Inventory    reform.
    Items

    MK-48 Advanced Capability Torpedo        Since the time this option was included
    Propulsion System                        in last year's report, the Navy has
                                             purchased the MK-48 propulsion
                                             improvements.

    Reassess Defense Conversion Spending     The Congress terminated funding for the
                                             centerpiece of the defense conversion
                                             initiative--the Technology Reinvestment
                                             Project.

    Improve Controls Over Payments to        In our 1997 high-risk series,\a we
    Defense Contractors                      pointed out that DOD has recognized
                                             problem disbursements as a major area
                                             of concern and is working hard to
                                             reduce them. However, we also noted
                                             that our preliminary work on DOD's
                                             reporting on problem disbursement data
                                             indicates that reported amounts are
                                             substantially understated and raises
                                             concerns over whether DOD has
                                             sufficient, reliable information to
                                             determine the extent to which
                                             disbursement problems have been
                                             reduced. We have several ongoing
                                             reviews directed at identifying
                                             opportunities for additional corrective
                                             actions.

    Negotiate More Realistic Environmental   The Department of Energy's
    Agreements                               Environmental Management Program is in
                                             the process of developing a new 10-
                                             year plan that will represent a more
                                             national approach to the cleanup and
                                             should result in more realistic cleanup
                                             agreements.

    U.S. Contribution to the International   The United States has committed to pay
    Fund for Agricultural Development        $30 million to the Fund in six
                                             installments, beginning in 1997, and
                                             may make additional contributions on a
                                             voluntary basis. However, the United
                                             States has decided that it will not
                                             participate in any future Fund
                                             replenishments.

    Shortwave Radio Modernization Program    The Voice of America (part of the U.S.
                                             Information Agency) has either
                                             completed or scaled back all projects
                                             in the modernization plan. The only new
                                             construction currently planned is for a
                                             facility on Tinian Island to support
                                             Radio Free Asia.

    Privatize Uranium Enrichment Program     As a result of recent amendments to the
                                             Energy Policy Act of 1992, CBO assumes
                                             that the United States Enrichment
                                             Corporation will be privatized in
                                             fiscal year 1998. We continue to
                                             recommend that the Secretary of the
                                             Treasury consider ways to ensure that
                                             the government is protected from an
                                             undervalued sale when the Corporation
                                             is sold.

    Privatize the Naval Petroleum Reserve-   The Defense Authorization Act (Public
    1                                        Law 104-106) established a schedule for
                                             selling the reserve by February 1998,
                                             unless DOE and OMB determine that
                                             selling the reserve is not in the
                                             interest of the United States or the
                                             proceeds are unlikely to reflect the
                                             reserve's fair market value. CBO's
                                             baseline assumes the reserve will be
                                             sold in fiscal year 1998.

    Consolidate Strategic Petroleum Reserve  In fiscal year 1996, the Congress
                                             required DOE to sell enough oil from
                                             the strategic petroleum reserve to pay
                                             for the cost of operating the reserve.
                                             CBO assumes that this funding mechanism
                                             will continue to be used. As a result,
                                             mothballing a storage site would reduce
                                             the reserve's operating costs but would
                                             also alleviate the need to sell a
                                             requisite amount of oil. Therefore,
                                             mothballing would conserve the
                                             reserve's oil but would not contribute
                                             to deficit reduction.

    National Oceanic and Atmospheric         Based on a series of reports on the
    Research Fleet Modernization             National Oceanic and Atmospheric
                                             Administration's (NOAA) fleet
                                             modernization, including prior GAO
                                             reports, the Inspector General of the
                                             Commerce Department issued a March 1996
                                             report recommending that the entire
                                             NOAA fleet be eliminated.

    Consolidation of U.S. Department of      The Personal Responsibility and Work
    Agriculture Food Assistance Programs     Opportunity Reconciliation Act of 1996
                                             consolidates two food assistance
                                             programs--the Emergency Food Assistance
                                             Program and Soup Kitchens/Food Banks.
                                             Consolidating these programs should
                                             give states greater flexibility to more
                                             effectively target resources to
                                             alleviate hunger and help streamline
                                             federal, state, and local
                                             administration of USDA's distribution
                                             of these commodities.

    Social Security Continuing Disability    The Contract with America Advancement
    Reviews (CDRs)                           Act of 1996 increased authorized
                                             funding for CDRs to almost $3 billion
                                             by 2002. With this and other funding
                                             earmarked from its administrative
                                             budget, SSA plans to eliminate the
                                             backlog of CDRs for disabled workers
                                             under age 59. While we believe that the
                                             program could be administered more cost
                                             effectively and that SSA's plan
                                             excludes some beneficiaries in the
                                             backlog, this option was not included
                                             because the potential for additional
                                             budget deficit reduction is not
                                             significant.

    Justice's Use of Private Counsel to      The Omnibus Consolidated Rescissions
    Collect Civil Debt                       and Appropriations Act of 1996 gives
                                             the Attorney General permanent
                                             authority to hire private debt
                                             contractors to collect a nontax debt or
                                             claim owed to the United States. The
                                             Department of Justice currently has
                                             contracts in 13 judicial districts.

    Global Positioning System (GPS)          In our report on global positioning
    Technology                               systems (GPS), we recommended that the
                                             Office of Management and Budget develop
                                             a stronger coordination mechanism for
                                             managing future federal GPS activities.
                                             Consistent with our recommendation, in
                                             March 1996, a Presidential Decision
                                             Directive established DOT as the lead
                                             agency for all federal civil GPS
                                             matters.

    Federal Agency Credit Management         The Debt Collection Improvement Act of
    Programs                                 1996 provided agencies with several new
                                             debt collection tools. Treasury is
                                             developing plans for, and beginning to
                                             implement, the requirements of the act.

    Improving Compliance of Sole             The Internal Revenue Service has
    Proprietors                              created a tracking system to manage its
                                             sole proprietor compliance projects and
                                             has been using its Taxpayer Compliance
                                             Management Program data to help
                                             identify projects that would address
                                             the most noncompliant sole proprietors.
                                             The agency has also reached an
                                             agreement with the trucking industry
                                             that should improve the industry's tax
                                             recordkeeping.
    --------------------------------------------------------------------------------
    \a See the high-risk series reports Defense Financial Management
    (GAO/HR-97-3, February 1997) and Defense Contract Management
    (GAO/HR-97-4, February 1997).

    --------------------
    \31 Addressing the Deficit:  Budgetary Implications of Selected GAO
    Work for Fiscal Year 1996 (GAO/OCG-96-5, June 28, 1996).

    MAJOR CONTRIBUTORS TO THIS REPORT
    =========================================================== Appendix V

    ACCOUNTING AND INFORMATION
    MANAGEMENT DIVISION, WASHINGTON,
    D.C.

    Thomas M.  James, Assistant Director
    Claudia J.  Dickey, Senior Evaluator
    Laura E.  Hamilton, Senior Evaluator
    Bill J.  Keller, Senior Evaluator

    *** End of document. ***