Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal
Year 2000 (Chapter Report, 04/16/99, GAO/OCG-99-26).

Pursuant to a congressional request, GAO reviewed the budgetary
implications of selected program reforms discussed in its work but not
yet implemented or enacted.

GAO noted that: (1) Congress has many available options for cutting
spending or raising revenue; (2) GAO discussed the conventions used to
estimate savings and revenue gains; (3) it provided for congressional
consideration an analytical framework in which to consider cost savings
or revenue increases; (4) this framework provides one set of criteria
that may be used to assess goals, scope, and approaches for delivering
federal programs; (5) GAO presented narrative descriptions of the
options, including available estimates of budgetary savings as
determined by the Congressional Budget Office or the Joint Committee on
Taxation; (6) GAO listed options from its March 1997 report that were
not updated for this year's volume based on the review of congressional
and agency actions taken over the past 2 years; (7) over 60 options from
GAO's last report are not included in this report because: (a) the
option was fully or substantially acted upon by Congress or the
cognizant agency; (b) the option was no longer appropriate due to
environmental changes or the aging of GAO's work; or (c) Congress or the
cognizant agency chose a different approach to address the issues
discussed in the option; and (8) GAO will continue to monitor many of
these options to assess whether underlying issues are ultimately
resolved based on the actions taken.

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

 REPORTNUM:  OCG-99-26
     TITLE:  Budget Issues: Budgetary Implications of Selected GAO Work 
             for Fiscal Year 2000
      DATE:  04/16/99
   SUBJECT:  Economic analysis
             Budget outlays
             Fiscal policies
             Financial management
             Budget administration
             Spending legislation
             Deficit reduction
             Cost control
             Balanced budgets
             Budget deficit

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


Report to Congressional Requesters

April 1999

BUDGET ISSUES - BUDGETARY
IMPLICATIONS OF SELECTED GAO WORK
FOR FISCAL YEAR 2000

GAO/OCG-99-26

Budget Implications of GAO Work

(935286)


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

  AAFES - Army/Air Force Exchange System
  ADR - Alternative Dispute Resolution
  ARS - Agricultural Research Service
  ASR - airport surveillance radar
  BLM - Bureau of Land Management
  BRAC - Base Realignment and Closure
  CBO - Congressional Budget Office
  CERCLA - Comprehensive Environmental Response, Compensation, and
     Liability Act
  CFO - Chief Financial Officer
  CONUS - continental United States
  COP - continuation of pay
  CSREES - Cooperative State Research, Education, and Extension
     Service
  CSRS - Civil Service Retirement System
  CT - computed tomography
  CVP - Central Valley Project
  DeCA - Defense Commissary Agency
  DFAS - Defense Finance and Accounting Service
  DI - Disability Insurance
  DLA - Defense Logistics Agency
  DOD - Department of Defense
  DOE - Department of Energy
  DOT - Department of Transportation
  DRI - Defense Reform Initiative
  EFT - electronic funds transfer
  EPA - Environmental Protection Agency
  Eximbank - U.S.  Export-Import Bank
  FAA - Federal Aviation Administration
  FDIC - Federal Deposit Insurance Corporation
  FDL - Federal Direct Loans
  FECA - Federal Employees' Compensation Act
  FEMA - Federal Emergency Management Agency
  FFEL - Federal Family Education Loan
  FHA - Federal Housing Administration
  FHWA - Federal Highway Administration
  FSA - Farm Service Agency
  FY - fiscal year
  GAO - General Accounting Office
  GME - graduate medical education
  GPO - government pension offset
  GS - General Schedule
  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
  INS - Immigration and Naturalization Service
  IRS - Internal Revenue Service
  ISS - International Space Station
  JCT - Joint Committee on Taxation
  JFMIP - Joint Financial Management Improvement Program
  MAP - Military Airport Program
  MIP - Medicare Incentive Payment
  MRI - magnetic resonance imaging
  MWR - morale, welfare, and recreation
  NASA - National Aeronautics and Space Administration
  NOAA - National Oceanic and Atmospheric Administration
  NORAD - North American Aerospace Defense Command
  NPR - National Performance Review
  NTC - non-time-critical
  O&M - operating and maintenance
  OCSE - Office of Child Support Enforcement
  OIG - Office of the Inspector General
  OMB - Office of Management and Budget
  OSD - Office of the Secretary of Defense
  OTC - over-the-counter
  PASS - plan for achieving self-support
  PAYGO - pay-as-you-go
  PHS - Public Health Service
  PMA - Power Marketing Administration
  PPS - prospective payment system
  REA - Rural Electrification Administration
  RFA - Radio Free Asia
  RFE/RL - Radio Free Europe/Radio Liberty
  RHS - Rural Housing Service
  RTC - Resolution Trust Corporation
  RUS - Rural Utilities Service
  SNF - skilled nursing facilities
  SSA - Social Security Administration
  SSI - Supplemental Security Income
  TANF - Temporary Assistance for Needy Families
  TDY - temporary duty
  TEA-21 - Transportation Equity Act for the 21\st Century
  TRICARE - DOD's managed health care system
  UI - unemployment insurance
  USDA - Department of Agriculture
  USIA - U.S.  Information Agency
  USTF - Uniformed Services Treatment Facility
  USUHS - Uniformed Services University of the Health Services
  VA - Department of Veterans Affairs
  VOA - Voice of America
  VR - vocational rehabilitation
  WEP - Windfall Elimination Provision

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


B-281041

April 16, 1999

The Honorable Pete V.  Domenici
Chairman
The Honorable Frank R.  Lautenberg
Ranking Minority Member
Committee on the Budget
United States Senate

The Honorable John R.  Kasich
Chairman
The Honorable John M.  Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives

As you requested, this report identifies in a single document the
budgetary implications of selected program reforms discussed in our
work but not yet implemented or enacted.  This report is part of a
special biennial series designed to help each new Congress identify
options that could be used to reduce federal spending or increase
revenues.  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 report contains over 100 options.  Twenty-three are new to this
year's report; the remainder are updated versions of options that
appeared in our March 1997 report.\1 All of these options are based
on key findings and issues developed in our audits and evaluations. 
Each option represents 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
cutting spending or raising revenue, and inclusion of a specific
option in this report does not mean we endorse it, nor does it mean
that the option presented is the only or most feasible approach to a
particular issue.  In addition, this report is not intended to
provide a comprehensive framework for addressing the major fiscal
challenges facing the nation arising from such critical programs as
Social Security and Medicare.\2

This report is divided into four appendixes.  Appendix I discusses
the conventions used to estimate savings and revenue gains.  Appendix
II provides for congressional consideration an analytical framework
in which to consider cost savings or revenue increases.  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--reconsider whether to terminate or revise
     services and programs provided;

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

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

Appendix III presents narrative descriptions of the options including
available estimates of budgetary savings as determined by CBO or JCT. 
This appendix presents reduced spending options firstï¿½organized by
budget functionï¿½and then additional receipt options.  Each option
also includes a listing of relevant GAO reports and testimonies and a
GAO contact. 

Lastly, appendix IV lists options from the March 1997 report that
were not updated for this year's volume based on our review of
congressional and agency actions taken over the past 2 years.  Over
60 options from our last report are not included in this report
because (1) the option was fully or substantially acted upon by the
Congress or the cognizant agency, (2) the option was no longer
appropriate due to environmental changes or the aging of our work, or
(3) the Congress or the cognizant agency chose a different approach
to address the issues discussed in the option.  We will continue to
monitor many of these options to assess whether underlying issues are
ultimately resolved based on the actions taken.  For example, our
work repeatedly has identified chronic problems with the space
station in terms of cost increases.  The Congress has decided to
begin deployment.  We will continue to monitor this and report
periodically. 

Although we derived the budget options in this report from our
existing body of work, there are similarities with other 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 Chairmen and Ranking
Minority Members of the Appropriations committees and relevant
subcommittees; the Chairmen and Ranking Minority Members of the
Senate Committee on Governmental Affairs and the Committee on
Finance; and to the Chairmen and Ranking Minority Members of the
House Committee on Government Reform and the Committee on Ways and
Means.  Copies will be made available to others upon request. 

This report was prepared under the direction of Paul L.  Posner,
Director, 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. 

David M.  Walker

Comptroller General
of the United States


--------------------
\1 Addressing the Deficit:  Budgetary Implications of Selected GAO
Work for Fiscal Year 1998 (GAO/OCG-97-2, Mar.  14, 1997). 

\2 For discussion of the fiscal and program issues facing Social
Security and Medicare, see Social Security and Surpluses:  GAO's
Perspective on the President's Proposals (GAO/T-AIMD/HEHS-99-96, Feb. 
23, 1999), Medicare and Budget Surpluses:  GAO's Perspective on the
President's Proposal and the Need for Reform (GAO/T-AIMD/HEHS-99-113,
Mar.  10, 1999), and Social Security:  Criteria for Evaluating Social
Security Reform Proposals (GAO/T-HEHS-99-94, Mar.  25, 1999). 


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

CBO and JCT provided cost estimates for many of our options.  As in
our March 1997 report, a brief explanation is included with the
option if specific estimates could not be provided.  Where estimates
are provided, the following conventions were followed.\1

  -- For revenue estimates, the increase in collections reflects what
     would occur, over and above amounts 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 discretionary spending programs the estimates show savings
     compared to the fiscal year 1999 appropriations in nominal terms
     (held constant for the next 10 years). 

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
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 optionsï¿½ involving the
sale of real estate and other government-owned propertyï¿½ constitute
asset sales.  Under the Balanced Budget and Emergency Deficit Control
Act of 1985, as amended, proceeds from a non-routine asset sale may
be counted only if the sale entails no net financial cost to the
government.  We have included those options that constitute asset
sales whether or not they meet that test. 

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 reduced
spending or increased revenues but whose effects are too uncertain to
be estimated.  A few options are not estimated because they concern
future choices about spending that 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 10-year estimation
period that CBO uses. 


--------------------
\1 For a complete discussion of the uses and caveats of the CBO
estimates, see CBO's report, Maintaining Budgetary Discipline
(forthcoming). 


A FRAMEWORK FOR CONSIDERING
SAVINGS AND REVENUE GAINS
========================================================== Appendix II

The recent 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 spending and revenue
proposals.  Also, this kind of approach can be used regardless of any
other budgetary control mechanism (for example, discretionary
spending limits or sequestration proced ures) or any given level of
desired deficit reduction. 

Our framework consists of three broad themes:  reassess objectives,
redefine beneficiaries, and improve efficiency.  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 framework focuses on the objectives of
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 that illustrate
this strategy. 

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

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

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

For example, the Comanche helicopter is intended to replace the
Vietnam-era scout and attack helicopters that the Army considers
incapable of meeting its existing or future requirements.  However,
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, deferral of the
production decision, and current defense budgets raise questions
about the cost/benefits of this program. 


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

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

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

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


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

The third theme within our 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
that illustrate this strategy. 

  -- Reorganizing and consolidating 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, 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
management 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.  Changing revenue sharing
from a gross-receipt to a net-receipt basis would reduce net federal
outlays and produce savings to the government. 


OPTIONS FOR INCREASED SAVINGS AND
REVENUE GAINS
========================================================= Appendix III

This appendix describes each of our options for increased savings and
revenue gains 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,
followed by an estimate (when available) of savings or revenue
increases, relevant GAO reports, and a GAO contact. 


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

Guided Weapons
Aircraft Carrier Propulsion Cost-Effectiveness
F-22 Fighter
Army's Comanche Helicopter Program
C-130 and KC-135 Reserve Squadrons
Continental Air Defense
Carrier Battle Group Expansions and Upgrades
Air Force Bomber Force Requirements
Air Force Fighter Squadrons
Military Exchange Stores Consolidation
Army National Guard Divisions
Fiscal Year 2000 Military Personnel Budget Requirements
DOD's Fiscal Year 2000 Civilian Personnel Budget Requirements
DOD's Transportation Migration Systems
Navy Financial Management of Operating Materials and Supplies
Defense Infrastructure Reform
DOD's Finance and Accounting Infrastructure
Sizing the Military Health System
Copayment for Care in Military Treatment Facilities
Administering Defense Health Care
Uniformed Services University of the Health Sciences


   OPTION:
   GUIDED WEAPONS
------------------------------------------------------- Appendix III:2


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             Missile Procurement, Air Force
                                    (57-3020)
                                    Weapons Procurement, Navy (17-
                                    1507)
                                    Missile Procurement, Army (21-
                                    2032)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Following the Persian Gulf War, DOD identified a need to improve its
arsenal of guided weapons.  These improvements would increase target
destruction while decreasing the number of missions and weapons used,
unwanted collateral damage, and exposure of our aircraft to enemy
defenses.  Thus, in the early 1990s, the services initiated a number
of programs to upgrade existing weapons and produce new guided
weapons.  The acquisition programs now underway are expected to cost
about $16.6 billion (then year dollars) from fiscal years 1998 to
2007.  These programs would almost double the existing inventory of
guided weapons through the acquisition of about 158,000 new guided
weapons.  This does not include the undetermined quantities and costs
for a number of guided weapons that are in early development.  DOD
already has enough guided weapons in its inventory to meet current
national security objectives for deep attack missions. 

To pay for all the new guided systems and upgrades, DOD will need to
more than double the average annual amount it has been spending on
guided weapons.  According to DOD's fiscal year 1999 Future Years
Defense Program, planned annual spending for guided weapons will need
to increase from about $775 million in fiscal year 1998 to more than
$2 billion in fiscal year 2003.  Cost growth would result in further
increases.  These increases are planned as other major procurement
programs are also forecasting large increases. 

In a report issued in December 1998, we found (1) widespread overlap
and duplication of guided weapons types and capabilities and (2)
questionable quantities being procured for each target class.  We
concluded that DOD is not providing effective management oversight
and coordination over the individual services' development and
procurement of guided weapons.  It also noted that DOD has no central
oversight body to examine guided weapons programs in the aggregate
and to assess the types and numbers of weapons needed to meet
national security objectives.  GAO recommended, among other things,
that DOD reevaluate the planned guided weapons acquisition programs
in light of existing capabilities and the current budgetary and
security environment to determine whether the procurement of all
planned guided weapon types and quantities (1) is necessary and
cost-effective in the aggregate and (2) can clearly be carried out as
proposed within realistic, long-term projections of procurement
funding. 

The large funding increases needed to support the services' plans for
acquiring additional guided weapons capabilities may not be cost
effective considering widespread overlap and duplication of guided
weapons types and capabilities, questions regarding quantity
requirements, existing capabilities and inventory levels, and other
high priority defense requirements competing for funding.  If the
Congress directed DOD to maintain annual guided weapons funding at
the already increased fiscal year 1999 level of $1.178 billion and
adjust only for inflation, DOD could still achieve substantial
improvements in its guided weapons capabilities with associated
savings as shown below. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   318     590     495     792     903
Outlays                             53     191     366     514     630
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

Weapons Acquisitions:  Guided Weapon Plans Need to Be Reassessed
(GAO/NSIAD-99-32, Dec.  9, 1998). 

Future Years Defense Program:  DOD's 1998 Plan Has Substantial Risks
in Execution (GAO/NSIAD-98-26, Oct.  23, 1997). 

Aircraft Acquisition:  Affordability of DOD's Investment Strategy
(GAO/NSIAD-97-88, Sept.  8, 1997). 

Weapons Acquisition:  Better Use of Limited DOD Acquisition Funding
Would Reduce Costs (GAO/NSIAD-97-23, Feb.  13, 1997). 

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

Weapons Acquisition:  Precision Guided Munitions in Inventory,
Production, and Development (GAO/NSIAD-95-95, June 23, 1995). 


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

Louis J.  Rodrigues, (202) 512-4841


   OPTION:
   AIRCRAFT CARRIER PROPULSION
   COST-EFFECTIVENESS
------------------------------------------------------- Appendix III:3


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

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

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

The U.S.  maintains a continuous presence in the Pacific region by
homeporting a conventionally powered carrier in Japan.  If the Navy
switches to an all nuclear carrier force, it would need to homeport a
nuclear-powered carrier there to maintain the current level of
worldwide overseas presence with a 12-carrier force.  Homeporting a
nuclear-powered carrier in Japan could prove difficult and costly
because of the need for support facilities, infrastructure
improvements, and additional personnel.  The U.S.  would need a
larger carrier force if it wanted to maintain a similar level of
presence in the Pacific region with nuclear-powered carriers
homeported in the U.S. 

The life-cycle costs--investment, operating and support, and
inactivation and disposal costs--are greater for nuclear-powered
carriers than conventionally powered carriers.  GAO's analysis, based
on historical and projected costs, shows that life-cycle costs for
conventionally powered and nuclear-powered carriers (for a notional
50-year service life) are estimated at $14.1 billion and $22.2
billion (in fiscal year 1997 dollars), respectively.  Our analysis
indicates that national security requirements can be met at less cost
with conventionally powered carriers rather than nuclear-powered
carriers.  Because no production funds were appropriated for the next
generation aircraft carrier in fiscal year 1999, and no request for
funds through 2004 were included in the 1999 plan, implementing this
option would not yield any savings relative to the current level of
funding.  Relative to the Administration's fiscal year 2000 budget
request, however, CBO estimates that nearly $2 billion could be saved
by implementing this option.  The savings estimate does not include
funding for research and development projects leading to infusion of
new technologies into existing and future aircraft carriers. 


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

Navy Aircraft Carriers:  Cost-Effectiveness of Conventionally and
Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug.  27, 1998). 

Nuclear Waste:  Impediments to Completing the Yucca Mountain
Repository Project (GAO/RCED-97-30, Jan.  17, 1997). 

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

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

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

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


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

Donna M.  Heivilin, (202) 512-6152


   OPTION:
   F-22 FIGHTER
------------------------------------------------------- Appendix III:4


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             Aircraft Procurement, Air Force
                                    (57-3010)

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The Air Force's F-22 fighter aircraft program was initiated in 1981
to replace F-15 fighters and to counter the threat then projected for
the mid-1990s.  Engineering and manufacturing development of the F-22
began in 1991 and flight testing began in September 1997.  Two of
nine planned test aircraft are active in flight testing.  Concurrent
with continuation of flight tests, the Air Force plans to procure two
production representative test vehicles with funding provided in
fiscal years 1998 and 1999.  Low-rate initial production of F-22s is
scheduled for fiscal year 2000 (6 aircraft), and funds were
appropriated to initiate advance procurement for those aircraft in
fiscal year 1999.  Low-rate initial production is planned to continue
in fiscal years 2001 (10 aircraft), 2002 (16 aircraft), and 2003 (24
aircraft). 

Our April 1995 report concluded that DOD should minimize commitments
to F-22 production until completion of Initial Operational Test and
Evaluation and recommended that the Secretary of Defense limit
low-rate initial production quantities to about six to eight aircraft
a year.  DOD reduced the planned acceleration of production rates
since that report, but progress of the flight test program and
delivery of flight test aircraft are now expected to be slower than
was intended when the production plans were last changed.  In March
1998, we reported that F-22 flight test aircraft were expected to
complete about 183 flight test hours, or about 4 percent of the total
flight test program, rather than the 14 to 27 percent that had been
planned.  DOD's Defense Science Board had previously noted that a
RAND Corporation study indicated that major problems in a flight test
program usually occurred within the first 10 to 20 percent of flight
testing.  Nevertheless, the Air Force did not delay the planned
contract award when it became clear that the amount of flight testing
would be decreased. 

In response to these concerns, the Strom Thurmond National Defense
Authorization Act for Fiscal Year 1999 restricted obligations of
fiscal year 1999 advance procurement funds for 6 aircraft until (1)
433 flight test hours, about 10 percent of the flight test program,
were completed, or (2) 183 hours were completed and the Secretary of
Defense determined that fewer than 433 hours provided the Defense
Acquisition Board with a sufficient basis for deciding to proceed
into F-22 production.  In December 1998, the Secretary determined
that it was more financially advantageous to proceed into production
than to wait until 433 hours of flight testing were completed, and he
certified that in excess of 195 test hours had been completed. 

Buying production articles before they can be adequately tested can
result in buying systems that require significant, and sometimes
costly, modifications to achieve satisfactory performance; accepting
less capable systems than planned; and deploying substandard systems
to combat forces.  Also, deferring a substantial increase in
production rates until completion of Initial Operational Test and
Evaluation will reduce the amount of needed production funding
committed, which may be an attractive option to maintain the aircraft
procurement budget and overall defense budget within congressional
targets.  Conversely, lower production rates could increase average
procurement cost over the life of the program and, if the Air Force
maintains its current plan to procure 339 production aircraft, lead
to difficulties in completing the production program within
congressional limitations on production costs. 

We continue to believe that low-rate initial production should be
limited to about 6 to 8 aircraft a year until Initial Operational
Test and Evaluation is complete.  If the Congress were to restrict
funding to eight aircraft for fiscal years 2000 through 2004, the
following budget savings could be achieved during the next 5 years. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    41     571   1,569   2,992     628
Outlays                              4      68     346     962   1,558
----------------------------------------------------------------------
Note:  Estimated savings in FY2004 are based on a CBO assumption of
an increased production quantity of 18 aircraft. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:4.1

Defense Acquisition:  Progress of the F-22 and F/A-18E/F Engineering
and Manufacturing Development Programs (GAO/T-NSIAD-99-113, Mar.  17,
1999). 

F-22 Aircraft:  Issues in Achieving Engineering and Manufacturing
Development Goals (GAO/NSIAD-99-55, Mar.  15, 1999). 

1999 DOD Budget:  DOD's Procurement and RDT&E Programs
(GAO/NSIAD-98-216R, Aug.  14, 1998). 

F-22 Aircraft:  Progress of the Engineering and Manufacturing
Development Program (GAO/T-NSIAD-98-137, Mar.  25, 1998). 

F-22 Aircraft:  Progress in Achieving Engineering and Manufacturing
Development Goals (GAO/NSIAD-98-67, Mar.  10, 1998). 

Aircraft Acquisition:  Affordability of DOD's Investment Strategy
(GAO/NSIAD-97-88, Sept.  8, 1997). 

F-22 Restructuring (GAO/NSIAD-97-100R, Feb.  28, 1997). 

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

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

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


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

Louis J.  Rodrigues, (202) 512-4811


   OPTION:
   ARMY'S COMANCHE HELICOPTER
   PROGRAM
------------------------------------------------------- Appendix III:5


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and 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 $48 billion, with an estimated program
unit cost of about $37 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. 

Given 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, deferral
of the production decision, and current defense budgets, the Congress
may wish to revisit the cost/benefits of this program.  If the
Congress elected to terminate the program, the following savings
would be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   219     586     739     784     788
Outlays                            127     412     634     734     765
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

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, Nov.  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:5.2

Louis J.  Rodrigues, (202) 512-4841


   OPTION:
   C-130 AND KC-135 RESERVE
   SQUADRONS
------------------------------------------------------- Appendix III:6


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Over the past few years, the Department of Defense (DOD) has been
interested in modernizing its forces with new weapons and equipment. 
For a variety of reasons, these efforts have been stymied, and funds
that DOD expected to have available to modernize the force have been
needed instead for current operational activities.  One way to
achieve savings is to reorganize the Air Force's reserve
components--C-130 and KC-135--into fewer and larger squadrons and
wings.\1

The majority of the Air Force's C-130 and KC-135 aircraft are in the
reserve component.  Reserve component wings generally have one
squadron of 8 C-130 aircraft or 10 KC-135 aircraft.  This is unlike
active Air Force wings, which generally have two to three squadrons
of 14 C-130 aircraft or 12 KC-135 aircraft.  Reserve component C-130
and KC-135 aircraft are dispersed throughout the continental United
States, Hawaii, and Alaska. 

The Air Force could reduce costs and meet peacetime and wartime
commitments if it reorganized its C-130 and KC-135 aircraft into
larger squadrons and wings at fewer locations.  These savings would
primarily result from fewer people being needed to operate these
aircraft.  For example, redistributing 16 C-130 aircraft from two
8-aircraft wings to one 16-aircraft wing could save about $11 million
dollars annually, primarily from personnel savings.\2 This
reorganization could eliminate about 155 full-time positions and 245
part-time positions.  The decrease in full-time positions is
especially significant, since the savings associated with these
positions represents about $8 million, or 75 percent of the total
savings.  Fewer people would be needed in areas such as wing
headquarters, logistics, operations, and support group staffs as well
as maintenance, support, and military police squadrons. 

We developed several alternatives that redistribute the existing
reserve component C-130 and KC-135 aircraft into larger squadrons and
show a gradual increase in savings in operating costs.  We found that
sufficient personnel could be recruited and most locations'
facilities could be inexpensively expanded to accommodate the unit
sizes.  The alternative that requires the most reorganizing would
increase the squadron size to 16 aircraft for the C-130 and 12 for
the KC-135 by redistributing aircraft from 13 C-130 squadrons and 5
KC-135 squadrons to other squadrons.  The table below shows the
potential savings from this option. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    93     170     267     349     376
Outlays                             83     160     255     338     369
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\1 The term "reserve component" refers to the Air Force Reserve and
the Air National Guard collectively. 

\2 Savings were calculated using the Air Force's Systemic Approach to
Better Long-Range Estimating model. 


      RELATED GAO PRODUCT
----------------------------------------------------- Appendix III:6.1

Air Force Aircraft:  Reorganizing Mobility Aircraft Units Could
Reduce Costs (GAO/NSIAD-98-55, Jan.  21, 1998). 


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

Donna M.  Heivilin, (202) 512-6152


   OPTION:
   CONTINENTAL AIR DEFENSE
------------------------------------------------------- Appendix III:7


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Operation and Maintenance, Air
                                    National Guard (57-3840)
                                    Operation and Maintenance, Air
                                    Force (57-3400)
                                    National Guard Personnel, Air
                                    Force (57-3850)
                                    Military Personnel, Air Force (57-
                                    3500)
                                    Procurement-funded Replenishment
                                    Spares
                                    Replacement Support Equipment and
                                    Modifications

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.  At the beginning of fiscal year 1998,
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). 
The Air Force budgeted about $333 million in fiscal year 1998 to
operate and support the continental air defense force.  The states of
the former Soviet Union do not pose 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 because
the United States no longer needed a large, dedicated air defense
force, this 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. 

During fiscal year 1999, the Air Force expects to retask four
dedicated continental air defense F-16 units (15 aircraft per unit)
to general purpose units with secondary tasking for the continental
air defense mission.  This action reduces the dedicated continental
air defense force by 60 aircraft from 150 to 90 aircraft.  The Air
Force has budgeted $267 million for its continental air defense for
fiscal year 1999.  If the remaining six dedicated air defense units
were eliminated or retasked, the following savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   178     367     379     391     403
Outlays                            147     327     365     381     395
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
----------------------------------------------------- Appendix III:7.1

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


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

Donna M.  Heivilin, (202) 512-6152


   OPTION:
   CARRIER BATTLE GROUP EXPANSIONS
   AND UPGRADES
------------------------------------------------------- Appendix III:8


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Multiple

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 about $2 billion (in
fiscal year 1998 dollars) and is likely to increase as older
components are replaced and modernized.  The Navy has several costly
ongoing carrier-related programs:  a nuclear-powered Nimitz-class
carrier, the Ronald Reagan (CVN-76), is being built and the Navy is
scheduled to begin to build the last carrier of this class in fiscal
year 2001; the formal design process for the next generation of
carriers, called the CVX class, began in 1996; the lead ship of the
10-ship Nimitz-class began its 3-year refueling complex overhaul in
1998; AEGIS destroyers are being procured and the next generation of
surface combatants is being designed; and carrier-based aircraft are
expected to be replaced/upgraded by a new generation of strike
fighters and mission support aircraft throughout the next decade. 

Our analysis indicates that there are opportunities to use less
costly options to satisfy many of the carrier battle groups'
traditional roles without unreasonably increasing the risk that U.S. 
national security would be threatened.  For example, one less costly
option would be to rely more on increasingly capable surface
combatants, such as cruisers, destroyers, or frigates, for overseas
presence and crisis response.  If the Congress chose to retire one
aircraft carrier and one active air wing in 1999, the following
savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   390     800     820     840     860
Outlays                            310     690     780     820     850
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

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

Cruise Missiles:  Proven Capability Should Affect Aircraft and Force
Structure Requirements (GAO/NSIAD-95-116, Apr.  20, 1995). 

Navy Aircraft Carriers:  Cost-Effectiveness of Conventionally and
Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug.  27, 1998). 

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

Aircraft Acquisition:  Affordability of DOD's Investment Strategy
(GAO/NSIAD-97-88, Sept.  8, 1997). 

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


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

Donna M.  Heivilin, (202) 512-6152


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


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             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. 


      PLACING ADDITIONAL B-1BS IN
      THE RESERVE COMPONENT
----------------------------------------------------- Appendix III:9.1

The Air Force has 18 B-1Bs assigned to the Air National Guard--10 to
the Kansas Air National Guard and 8 to the Georgia Air National
Guard.  No B-1Bs are currently assigned to Air Force Reserve units. 
Placing more B-1Bs in the reserve component (either the Air Force
Reserve or the Air National Guard) could reduce the cost to operate
the B-1B bomber force without adversely affecting day-to-day
peacetime training or critical wartime missions or closing any bases. 
However, the availability of recruitable personnel in some locations
limits where reserve component units can operate. 

B-1B reserve component units have training, readiness, and deployment
requirements similar to active-duty B-1B units and are considered
just as capable of carrying out operational missions as their active
duty counterparts.  Moreover, the cost to operate a reserve component
unit is generally lower than for an active duty unit for several
reasons.  First, reserve component aircrews are more experienced than
their active duty counterparts and require fewer flying hours to meet
mission training requirements.  Second, reserve component units
employ fewer full-time military personnel than active units. 
Additionally, because of the part-time manning of traditional reserve
component units, there are fewer requirements for permanent and
costly base infrastructure--such as family housing and base medical
care facilities--necessary to support full-time active duty personnel
and their families. 

Our analysis shows that the Air Force could select a variety of
options if it were to place more B-1Bs in the reserve component.  The
cost savings would vary depending upon the option selected.  If an 18
aircraft aircrew training squadron and 6 aircraft operational
squadron were transferred to the reserve component, the following
savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     0       5      20      36      42
Outlays                              0       2       9      22      34
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:9.2

Air Force Bombers:  Moving More B-1s to the Reserves Could Save
Millions Without Reducing Mission Capability (GAO/NSIAD-98-64, Feb. 
26, 1998). 

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

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

B-1B Conventional Upgrades (GAO/NSIAD-96-52BR, Dec.  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, Jan.  10, 1994). 

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

Strategic Bombers:  Adding Conventional Capabilities Will Be Complex,
Time-Consuming, and Costly (GAO/NSIAD-93-45, Feb.  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, Mar.  6, 1991). 


      GAO CONTACT
----------------------------------------------------- Appendix III:9.3

Donna M.  Heivilin, (202) 512-6152


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


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

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

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Air Force accounts for its fighter force structure in wing
equivalents that represent 72 aircraft.  At the end of its 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 they need more squadrons
to have additional flexibility to respond to numerous potential
conflicts across the globe.  Although the Air Force considers smaller
fighter squadrons beneficial, it has 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 needed to
execute missions--regardless of squadron size. 

Keeping more squadrons than necessary increases operating costs and
may result in more base infrastructure than the Air Force needs.  We
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.  If the
Air Force were to consolidate fighter squadrons to 24 aircraft per
squadron in the continental U.S.  only, annual savings would be $34
million.  If the Air Force were to consolidate fighter squadrons
worldwide, annual savings would be $134 million. 

If the Congress chose to consolidate the Air Force's fighter force
into fewer squadrons by eliminating 7 of the 37, the following
savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    18      37      38      39      40
Outlays                             17      36      38      39      40
----------------------------------------------------------------------
Note:  Savings estimates do not include funds associated with base
closure.  The savings could be significant depending on the base
selected for closure. 

Source:  Congressional Budget Office. 


      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

Donna M.  Heivilin, (202) 512-6152


   OPTION:
   MILITARY EXCHANGE STORES
   CONSOLIDATION
------------------------------------------------------ Appendix III:11


Authorizing committees              Armed Services (Senate and House)

Appropriation subcommittees         Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
We reviewed the morale, welfare, and recreation (MWR) program--a $12
billion enterprise that provides service members, their dependents,
and eligible civilians with an affordable source of goods and
services like those available to civilian communities--and found that
revenue generated by the MWR activities is likely to decrease in the
1990s because of the downsizing of forces and increasing private
sector competition.  Exchange stores are the largest producer of MWR
revenue. 

Since 1968, studies by GAO, the Department of Defense (DOD), and
others have recommended the consolidation of exchanges into a single
entity.  Each study predicted that financial benefits could be
achieved through consolidation.  In order to achieve such financial
benefits, the Office of the Secretary of Defense has recently
proposed the integration of the Army/Air Force Exchange System
(AAFES) with the Navy and Marine Corps exchange programs.  A task
force study commissioned to review this consolidation plan in 1996
concluded that if the exchange systems were merged there would be an
annual recurring savings and the contribution to MWR funds would
increase by $3 billion annually. 

In January 1997 DOD advised the congressional oversight committees of
the plan to continue with a systematic study on integrating exchange
functions, under the joint direction of the military departments. 
This plan is based on the premise that a more rigorous analysis is
needed before judgments can be made as to optimal exchange structure. 
DOD contracted with Price Waterhouse in April 1998 to further study
this matter.  A decision on implementation of study recommendations
is expected in the April/May 1999 time frame.  If major restructuring
of the exchange system is recommended and approved, it should take
3-5 years to implement.  The cost of the study is estimated at $3.1
million and has been split equally among the services. 

Another consolidation effort currently underway that also predicts
financial benefits not yet quantified is called the Hybrid
Initiative.  This initiative is aimed at consolidating exchanges and
commissaries with smaller versions of the larger commissary and
exchange stores.  These stores are called BXMARTs, which are military
retail stores that sell both the hard goods normally found in a base
exchange and the grocery type goods associated with military
commissaries. 

The Commissary Operating Board, which is made up of members from each
of the services and the Defense Commissary Agency (DeCA), has been
discussing ways to improve and expand this initiative.  BXMARTs have
traditionally been placed on bases that have been closed because of
the base realignment and closure (BRAC).  They are managed by AAFES
and supported by DeCA.  Presently, there are 11 BXMARTs in Europe, 2
on military bases in the U.S., and 1 currently being negotiated in
Orlando, Florida.  Further action on this initiative is awaiting DOD
processing, funding, and approval as well as congressional
notification to begin additional testing at other locations. 

The Congress may wish to direct DOD to consolidate the Navy and
Marine Corps exchange systems with the existing Air Force/Army
exchange systems.  CBO estimated that consolidating into a single
exchange system would yield the following 5-year savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    43      65      65      65      65
Outlays                             43      65      65      65      65
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:11.1

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

Excess Equipment for Former Castle AFB (BXMART) (GAO/NSIAD-98-94R,
Feb.  27, 1998). 


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

David R.  Warren, (202) 512-8412


   OPTION:
   ARMY NATIONAL GUARD DIVISIONS
------------------------------------------------------ Appendix III:12


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             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, exceeded 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 its 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 mission.  We recommended that the Secretary of Defense
direct that the Quadrennial Defense Review 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. 

The Quadrennial Defense Review, which was issued in May 1997, called
for reductions of 45,000 personnel from the Army reserve component. 
Subsequently, the Army National Guard agreed to reduce its forces by
17,000 through fiscal year 2000.  Although the Guard agreed to reduce
its total personnel, it did not agree to reduce its force structure. 
We believe that savings could be achieved by eliminating excess force
structure.  If the equivalent of one division were eliminated from
the force structure, the following savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   134     278     287     296     305
Outlays                            120     260     281     291     300
----------------------------------------------------------------------
Note:  Because the Army identified a shortage in its support forces,
this option would retain all support personnel indirectly associated
with the eliminated division. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:12.1

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

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


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

Donna M.  Heivilin, (202) 512-6152


   OPTION:
   FISCAL YEAR 2000 MILITARY
   PERSONNEL BUDGET REQUIREMENTS
------------------------------------------------------ Appendix III:13


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Military Personnel, Army (21-
                                    2020)
                                    Military Personnel, Navy (17-
                                    1453)
                                    Military Personnel, Marine Corps
                                    (17-1105)
                                    Military Personnel, Air Force (57-
                                    3500)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Department of Defense (DOD) budget request for pay and allowances
for officers and enlisted personnel comprise the major portion of
military personnel costs.  Military personnel strength and grade mix
are major factors in determining pay and allowances.  Our analysis of
DOD's fiscal year 1999 budget requests for military pay and
allowances showed that the budget for that year could have been
reduced at least $255.8 million because the services began fiscal
year 1999 with (1) 15,031 fewer active military personnel than
requested and (2) a different grade mix than planned.  The net effect
of these differences resulted in the following overstatement of the
services' budget requests:  $116.1 million for the Army, $86.9
million for the Air Force, $52.3 million for the Navy, and $0.5
million for the Marine Corps. 

Of the $255.8 million we identified in potential reductions, the
Congress reduced DOD's fiscal year 1999 budget requests for military
pay and allowances by $182.5 million.  In view of DOD's overstated
fiscal year 1999 budget requirements for military pay and allowances,
the Congress may wish to consider whether similar reductions are
needed in DOD's fiscal year 2000 appropriations for active force pay
and allowances.  CBO agrees that the differences in proposed versus
actual reductions in personnel can create windfall surpluses in
personnel accounts during a single budget year.  More accurate
reporting and subsequent tightening of budgets may produce savings. 
CBO, however, is unable to estimate a five-year cost savings for this
option because of the variability in proposed versus actual workyear
execution. 



         RELATED GAO PRODUCT
-------------------------------------------------- Appendix III:13.0.1

1998 DOD Budget:  Military Personnel Programs (GAO/NSIAD-97-240R,
Aug.  21, 1997). 


      GAO CONTACT
---------------------------------------------------- Appendix III:13.1

Mark E.  Gebicke, (202) 512-5140


   OPTION:
   DOD'S FISCAL YEAR 2000 CIVILIAN
   PERSONNEL BUDGET REQUIREMENTS
------------------------------------------------------ Appendix III:14


Authorzing committees               Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Operation and Maintenance,
                                    Defense-Wide (97-0100)
                                    Operation and Maintenance, Army
                                    (21-2020)
                                    Operation and Maintenance, Air
                                    Force (57-3400)
                                    Operation and Maintenance, Navy
                                    (17-1804)
                                    Operation and Maintenance, Marine
                                    Corps (17-1106)

Spending type                       Discretionary

Budget subfunction                  Department of Defenseï¿½Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Every year since fiscal year 1996, the military services and defense
agencies generally have had fewer civilian personnel on board than
budgeted for, resulting in fewer actual executed workyears and
overstated budget requirements.  Funds not used for civilian
personnel compensation can be used for other unfunded requirements. 
Our analysis of the services and selected defense agencies' fiscal
year 1999 budget requests for civilian personnel showed that the
requests could have been reduced by $487.3 million because (1) the
civilian personnel levels at the beginning of fiscal year 1999 were
lower than those used to determine requests and (2) the amount
requested in the President's budget differed from the amount shown in
the services' budget justification documents.  Based on the number of
Army, Navy, Air Force, and selected defense agency personnel on board
as of July 31, 1998, we estimated that the end strength at the end of
fiscal year 1998--the beginning figure for fiscal year 1999--was
8,737 personnel less than the figure used by the services and defense
agencies to determine their fiscal year 1999 budget requests. 
Because the services and selected defense agencies overstated the
number of personnel expected to be employed at the beginning of
fiscal year 1999, the requested work years were overstated by 4,368
work years.  Of the $487.3 million we identified in potential
reductions, the Congress reduced DOD's fiscal year 1999 budget
request for civilian personnel by $82.2 million.  Based on
overstatements in the services' and selected defense agencies' fiscal
year 1999 civilian personnel budget requirements, the Congress may
wish to consider whether similar reductions are needed in DOD's
civilian personnel appropriations for fiscal year 2000. 

CBO agrees that the differences in proposed versus actual reductions
in personnel can create windfall surpluses in personnel accounts
during a single budget year.  More accurate reporting and subsequent
tightening of budgets may produce savings.  CBO, however, is unable
to estimate a 5-year cost savings for this option because of the
variability in proposed versus actual workyear execution. 


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

1998 DOD Budget:  Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-97-239R, Aug.  21, 1997). 

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

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


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

Mark E.  Gebicke, (202) 512-5140


   OPTION:  DOD TRANSPORTATION
   MIGRATION SYSTEMS
------------------------------------------------------ Appendix III:15


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             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.\3 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 had 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 continuing 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 are not deployed as migration systems, the following savings
could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     3       0       0       0       0
Outlays                              2       1       0       0       0
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\3 A migration system is an automated information system which
replaces several systems that perform similar functions. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:15.1

Defense IRM:  Poor Implementation of Management Controls Has Put
Migration Strategy at Risk (GAO/AIMD-98-5, Oct.  20, 1997). 

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

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


      GAO CONTACT
---------------------------------------------------- Appendix III:15.2

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


   OPTION:
   NAVY FINANCIAL MANAGEMENT OF
   OPERATING MATERIALS AND
   SUPPLIES
------------------------------------------------------ Appendix III:16


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and 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
ï¿½visibilityï¿½ 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. 

As a result, we found that 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. 

We recommended that the Navy achieve savings by providing item
managers with full ï¿½visibilityï¿½ over such materials and eliminating
redundant or unnecessary redistribution sites.  Almost half of the
excess items were stored at 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     3       3       3       3       3
Outlays                              3       3       3       3       3
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

CFO Act Financial Audits:  Programmatic and Budgetary Implications of
Navy Financial Data Deficiencies GAO/AIMD-98-56, Mar.  16, 1998). 

High-Risk Series:  Defense Financial Management (GAO/HR-97-3, Feb. 
1997). 

Navy Financial Management:  Improved Management of Operating
Materials and Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, Aug.  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:16.2

Lisa G.  Jacobson, (202) 512-9542


   OPTION:
   DEFENSE INFRASTRUCTURE REFORM
------------------------------------------------------ Appendix III:17


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
DOD officials have repeatedly pointed to the importance of using
resources for the highest priority operational and investment needs
rather than maintaining unneeded property, facilities, and overhead. 
However, DOD has found that infrastructure reductions are a difficult
and painful process because achieving significant cost savings
requires up-front investments, the closure of installations, and the
elimination of military and civilian jobs.  DOD's ability to reduce
infrastructure has been affected by service parochialism, a cultural
resistance to change, and congressional and public concern about the
effects and impartiality of decisions.  For fiscal year 1998, DOD
estimated that about $147 billion, or 58 percent of the Defense
budget, would still be needed for infrastructure requirements, which
included installation support, training, medical care, logistics,
force management, acquisition infrastructure, and personnel. 

The Secretary of Defense's November 1997 Defense Reform Initiative
(DRI) Report emphasized the need to reduce excess Cold War
infrastructure to free up resources that otherwise could be spent on
modernization.  Specific initiatives cited in the report included
privatizing military housing and utility systems, emphasizing
demolition of excess buildings, consolidating and regionalizing many
defense support agencies, and requesting legislative authority to
conduct two additional base realignment and closure (BRAC) rounds. 
The Secretary noted that DOD continued to be weighed down by
facilities that are too extensive for its needs, more expensive than
it can afford, and detrimental to the efficiency and effectiveness of
the nation's armed forces.  Likewise, he noted that DOD must do a
better job of managing facility assets on its remaining bases.  The
problem of continuing excess infrastructure was also emphasized in
DOD's April 1998 report to the Congress concerning BRAC issues
mandated by Section 2824 of the Fiscal Year 1998 Defense
Authorization legislation.  More recently, the problem of excess
capacity was highlighted in our November 1998 report on Army
Industrial Facilities, which noted the continuing existence of
significant excess capacity in the Army's maintenance depots and
manufacturing arsenals. 

While the DRI initiatives are steps in the right direction and have
brought high-level attention to the need for infrastructure
reductions, they do not collectively provide a comprehensive
long-range plan for facilities infrastructure.  We have cited the
need for such a plan but have noted that plans that have existed were
not focused on long-term comprehensive strategies for facilities
revitalization, replacement, and maintenance, and they were not tied
to measurable goals to be accomplished over specified time frames or
linked to funding. 

The need for improved planning for facilities infrastructure is
underscored by the requirements of the Government Performance and
Results Act, which requires agencywide strategic plans and annual
program performance reports.  Improved infrastructure planning can
help agency components and programs to develop outcome-oriented goals
and performance measures that are linked to and support agencywide
goals. 

While we have not completed an in-depth analysis of all the
categories of infrastructure, our work has identified numerous areas
where infrastructure activities can be eliminated, streamlined, or
reengineered to be made more efficient.  Significant budget
reductions could be achieved in the areas of acquisition
infrastructure, central logistics, installation support, central
training, force management, and medical facilities and services.  We
present several other options that explore issues related to DOD's
infrastructure.  See the options ï¿½DOD's Finance and Accounting
Infrastructureï¿½ and ï¿½Sizing the Military Health System.ï¿½

Savings for this option cannot be fully estimated until a
comprehensive consolidation and downsizing plan is specified. 


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

Defense Reform Initiative:  Progress, Opportunities, and Challenges
(GAO/T-NSIAD-99-95, Mar.  2, 1999). 

Force Structure:  A-76 Not Applicable to Air Force 38\th Engineering
Installation Wing Plan (GAO/NSIAD-99-73, Feb.  26, 1999). 

Army Industrial Facilities:  Workforce Requirements and Related
Issues Affecting Depots and Arsenals (GAO/NSIAD-99-31, Nov.  30,
1998). 

Military Bases:  Review of DOD's 1998 Report on Base Realignment and
Closure (GAO/NSIAD-99-17, Nov.  13, 1998). 

Defense Infrastructure:  Challenges Facing DOD in Implementing Reform
Initiatives (GAO/T-NSIAD-98-115, Mar.  18, 1998). 

Best Practices:  Elements Critical to Successfully Reducing Unneeded
RDT&E Infrastructure (GAO/NSIAD/RCED-98-23, Jan.  8, 1998). 

Future Years Defense Program:  DOD's 1998 Plan Has Substantial Risk
in Execution (GAO/NSIAD-98-26 Oct.  23, 1997). 

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

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

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

Defense Acquisition Organizations:  Linking Workforce Reductions With
Better Program Outcomes (GAO/T-NSIAD-97-140, Apr.  8, 1997). 

Defense Budget:  Observations on Infrastructure Activities
(GAO/NSIAD-97-127BR, Apr.  4, 1997). 

Base Operations:  Challenges Confronting DOD as It Renews Emphasis on
Outsourcing (GAO/NSIAD-97-86, Mar.  11, 1997). 

Military Bases:  Cost to Maintain Inactive Ammunition Plants and
Closed Bases Could Be Reduced (GAO/NSIAD-97-56, Feb.  20, 1997). 

High-Risk Series:  Defense Infrastructure (GAO/HR-97-7, Feb.  1997). 


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

David R.  Warren, (202) 512-8412


   OPTION:
   DOD'S FINANCE AND ACCOUNTING
   INFRASTRUCTURE
------------------------------------------------------ Appendix III:18


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

GAO 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. 
At that time it planned to reduce the number of sites where finance
and accounting activities were conducted from over 300 to 26, that
would have resulted in a major reduction in staff years.  The 26
sites were composed of 5 large existing finance centers and 21 new
sites that are called operating locations.  To date, 19 operating
locations have been opened--18 in the continental United States
(CONUS) and 1 in Hawaii. 

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 did not reflect
leading-edge business practices and, therefore, might require
additional consolidations if business process reengineering
techniques were 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
opening 6, 10, or 15 operating locations.  The Task Force concluded,
however, that opening 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
factor 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 were needed to support its finance and accounting
operations.  Because of its interpretation of congressional intent,
however, DOD continued to support the opening of all 21 locations. 
As of November 1997, DOD had opened 19 operating locations.  Although
DOD has supported the opening of the remaining 2 locations, it
generally conceded that there was little need for these facilities. 

In November 1997, Secretary Cohen released DOD's Defense Reform
Initiative (DRI) report, that took a different position on the
required size of the DFAS infrastructure.  This report announced that
DFAS will continue its consolidation efforts by eliminating 8 of its
26 existing or planned facilities.  The report also said that DOD
would look at two DFAS functions--civilian pay and military retirees
and annuitant pay--for possible competition under the Office of
Management and Budget (OMB) A-76 process.  Since the report was
issued, DFAS has again assessed its future infrastructure needs.  The
latest assessment considered reform initiatives and infrastructure
reduction mandates included in both the May 1997 Quadrennial Defense
Review and the November 1977 Defense Reform Initiative report.  DFAS'
assessment showed that it had the capacity to support about 24,900
personnel--this included space in its 5 centers as well as its 18
CONUS operating locations.  This is significantly more capacity than
DFAS projects that it will need.  As of July 1998, DFAS was
programmed to support just over 22,000 workyears.  By the end of
fiscal year 2003, it is programmed to support just over 17,000
workyears.  Decreases in staffing will occur in all DFAS functions. 
However, travel pay, civilian pay, and disbursing--predominantly
operating location functions--are projected to experience the largest
decreases.  Given the current DFAS structure and projected workyear
decreases, it will have about 34 percent excess capacity by the end
of fiscal year 2003.  The excess capacity equates to infrastructure
for about 8,400 personnel.  Consistent with the DRI report, only the
18 CONUS operating locations will be studied for closure, and the 5
centers will be excluded. 

Recognizing the costs DOD has incurred to open 18 operating locations
and reducing the number of operating locations by 8 as called for in
the DRI report could still achieve savings.  First, a reduction in
the infrastructure would require fewer support and management
personnel and related items to operate the locations.  Second, in
anticipation of the efficiencies and service improvements that would
be achieved under DOD's reengineering and outsourcing efforts, annual
funding could be reduced commensurate with savings expected from
personnel reductions.  The next step, however, is for DOD to take
action on DFAS' capacity analysis by identifying those operating
locations that need to be eliminated to meet the objectives in the
DRI report. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:18.1

Defense Reform Initiative:  Progress, Opportunities, and Challenges
(GAO/T-NSIAD-99-95, Mar.  2, 1999). 

High-Risk Series:  Defense Financial Management (GAO/HR-97-3, Feb. 
1997). 

DOD Infrastructure:  DOD Is Opening Unneeded Finance and Accounting
Offices (GAO/NSIAD-96-113, Apr.  16, 1996). 

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


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

David R.  Warren, (202) 512-8412


   OPTION:
   SIZING THE MILITARY HEALTH
   SYSTEM
------------------------------------------------------ Appendix III:19


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
DOD has not yet completed an update of what is known as the "733
study" of April 1994.  In this study, conducted pursuant to section
733 of the National Defense Authorization Act for fiscal years 1992
and 1993, DOD's Office of Program Analysis and Evaluation challenged
the Cold War assumption that all military medical personnel employed
during peacetime are needed for wartime.  The study concluded that
DOD's wartime medical requirements are far lower--by as much as
half--than the $15.9 billion military health system budget for fiscal
year 1999.  Although DOD took no action as a result of that study,
the Deputy Secretary of Defense directed that the study be updated
and improved by March 1996. 

We have reported that if the conclusions of the updated study are
similar to those of the 733 study and if DOD acted on those
conclusions, the potential reductions in military medical personnel
could be significant.  However, the study is now almost 3 years
overdue. 

The Congress may wish to direct DOD to expeditiously complete a
current study of its wartime military medical requirements.  Such a
study could suggest a significant reduction in military medical
personnel and facilities.  No specific budget estimate can be
developed until DOD's study is completed. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:19.1

Defense Health Care:  Operational Difficulties and System
Uncertainties Pose Continuing Challenges for TRICARE
(GAO/T-HEHS-98-100, Feb.  26, 1998). 

Wartime Medical Care:  Personnel Requirements Still Not Resolved
(GAO/NSIAD-96-173, June 28, 1996). 


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

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   COPAYMENTS FOR CARE IN MILITARY
   TREATMENT FACILITIES
------------------------------------------------------ Appendix III:20


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and 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 system.  In particular, we
have reported that 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 health 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 facilities 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   375     498     502     507     513
Outlays                            316     468     493     504     510
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


         RELATED GAO PRODUCTS
-------------------------------------------------- Appendix III:20.0.1

Defense Health Care:  Operational Difficulties and System
Uncertainties Pose Continuing Challenges for TRICARE
(GAO/T-HEHS-98-100, Feb.  26, 1998). 

Military Retirees' Health Care:  Costs and Other Implications of
Options to Enhance Older Retirees' Benefits (GAO/HEHS-97-134, June
20, 1997). 

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, Aug.  3, 1995). 

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

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


      GAO CONTACT
---------------------------------------------------- Appendix III:20.1

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   ADMINISTERING DEFENSE HEALTH
   CARE
------------------------------------------------------ Appendix III:21


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and 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 separate systems, which cost
about $35 million annually, perform many of the same administrative,
management, and operational functions. 

Since 1949 numerous 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. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:21.1

Defense Health Care:  TRICARE Resource Sharing Program Failing to
Achieve Expected Savings (GAO/HEHS-97-130, Aug.  22, 1997). 

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

TRICARE Administrative Prices in the Northwest Region May Be Too High
(GAO/HEHS-97-149R, June 24, 1997). 

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, Aug.  3, 1995). 

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

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


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

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   UNIFORMED SERVICES UNIVERSITY
   OF THE HEALTH SCIENCES
------------------------------------------------------ Appendix III:22


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Defense (Senate and House)

Primary agency                      Department of Defense

Account                             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 0-1 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 2-1/2 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.  Our 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, our estimate shows 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.  Our 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 we 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 2002 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. 
Using these assumptions, CBO estimates the following savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    25      36      52      93      90
Outlays                             19      32      47      82      87
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:22.1

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


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

Stephen P.  Backhus, (202) 512-7101


   150 INTERNATIONAL AFFAIRS
------------------------------------------------------ Appendix III:23

State Department Business Processes
U.S.  Overseas Presence
International Broadcasting
Export-Import Bank Programs


   OPTION:
   STATE DEPARTMENT BUSINESS
   PROCESSES
------------------------------------------------------ Appendix III:24


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)
                                    Security/maint. of U.S. Missions
                                    (19-0535)

Spending type                       Discretionary

Budget subfunction                  Conduct of Foreign Affairs

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Department of State has a number of outmoded and inefficient
business processes.  For example, one of the problems confronting
State is how to efficiently relocate its employees overseas, find
suitable housing abroad, and provide household furniture.  Our work
suggests that millions of dollars could be saved while providing
high-quality services if State adopted relocation practices used in
the private sector--including outsourcing various parts of the
transfer process. 

State's employee transfer process has remained virtually unchanged
for years.  State employees are confronted with a myriad of steps and
multiple offices to navigate.  State also separately contracts for
each segment of most moves.  In addition to incurring annual direct
costs of about $36 million to ship household effects, State incurs as
much as $1,600 in overhead costs for each move.  Moves are typically
processed in State's Transportation Division in Washington, D.C.; one
of its four regional dispatch agencies; and its European Logistical
Support Office.  We found that leading companies in the private
sector use a number of "best practices" to provide better service and
reduce costs.  Such practices include having one point of contact for
assistance to employees, known as one-stop-shopping, and using
commercial door-to-door shipments to lower the cost of shipping
employees' household effects.  Private sector firms also generally
use one contractor for all segments of the move, minimizing in-house
support requirements and reducing total costs. 

Another important process is overseas housing.  State and other U.S. 
government agencies operating overseas spend over $200 million
annually to lease housing and purchase furniture for employees and
their families.  This process appears to be more costly than
necessary.  Our comparison of State's processes with those of key
private sector firms operating overseas indicates that if State
adopted private sector practices at a number of posts, it could
potentially save the U.S.  government substantial amounts of money
and still meet its employees' overseas residential housing and
furniture needs.  Specific practices that can reduce costs include
(1) using relocation companies and similar service providers to
search for housing and negotiate leases to reduce in-house support
costs and shift some property preparation expenses to landlords; (2)
providing employees with housing allowances to select their own homes
rather than managing and maintaining a housing pool of government
leases and preassigning residences; and (3) acquiring residential
furniture overseas instead of buying and shipping it from the United
States. 

Our cost analysis of the U.S.  mission's housing office in Brussels
and the housing support function at the U.S.  embassy in London
illustrate how using a relocation company could potentially yield
significant savings at those posts.  For example, based on cost data
provided by the mission in Brussels, the annual salary cost alone
attributable to the short-term leasing process totaled about $700,000
in fiscal year 1996.  If property preparation and other support costs
are included, the embassy's direct and indirect costs for short-term
residential leases exceed $1.5 million annually.  In contrast, a
relocation company would charge between $207,000 and $277,000 for
home-finding services.  For London, the support costs for residential
leasing totaled about $700,000 annually.  Outsourcing home-finding
services would cost between $118,000 and $151,000. 

While CBO agrees that improving State's business processes could
yield savings, it cannot develop an estimate until specific proposals
are identified. 


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

State Department:  Using Best Practices to Relocate Employees Could
Reduce Costs and Improve Service (GAO/NSIAD-98-19, Oct.  17, 1997). 

State Department:  Options for Reducing Overseas Housing and
Furniture Costs (GAO/NSIAD-98-128, July 31, 1998). 


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

Benjamin F.  Nelson (202) 512-4128


   OPTION:
   U.S.  OVERSEAS PRESENCE
------------------------------------------------------ Appendix III:25


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

Appropriation 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)
                                    Security/maint. of buildings (19-
                                    0535)

Spending type                       Discretionary

Budget subfunction                  Conduct of Foreign Affairs

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The Department of State, in coordination with the numerous other
agencies operating overseas, needs to systematically reevaluate its
overseas staffing requirements and the alternatives to stationing
large numbers of Americans overseas.  Not only is this increasingly
important for security concerns, the end of the cold war and the
availability of new communication technologies raises related
questions as to whether maintenance of a large overseas U.S. 
presence is necessary. 

State maintains a physical presence in the form of embassies in over
160 countries, usually in the capital city, and consulates general,
consulates, and other offices in the capital or other cities.  About
19,000 U.S.  direct-hire employees (over 7,000 from State and 12,000
from other agencies) work overseas at a total of more than 250
diplomatic posts.  In addition, the U.S.  direct-hire staffing levels
have increased over the years, most notably in the nonforeign affairs
agencies.  U.S.  embassies have become bases to at least 27 other
U.S.  government agencies involved in more than 300 activities. 

Security requirements and the increasing costs of diplomacy are
directly linked to size of the overseas workforce.  Moreover, U.S. 
foreign policy needs, which have changed dramatically with the end of
the cold war, call into question whether the current overseas post
and staff structure is appropriate.  By reducing the number of
Americans at posts where U.S.  interests are of lesser importance,
consolidating functions, or using regional embassies in certain
regions, State could reduce its security requirements and enhance the
safety of Americans overseas.  In addition to security concerns, the
costs of maintaining Americans overseas are high.  It costs over
$200,000 annually to station an American overseas, which is about two
times as much as for Washington-based staff.  If the Congress chose
to reduce overseas staffing by 1 percent, CBO estimates that the
following savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Relocate overseas staffing domestically by 1 pe
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     4       8      12      16      20
Outlays                              3       7      11      15      19
----------------------------------------------------------------------
Note:  CBO assumes that these direct hire positions would be
relocated gradually or through attrition to minimize costs.  This
would occur at an even pace over five years and, based on information
from GAO, savings are estimated at $100,000 per position. 

Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Eliminate overseas staffing by 1 percent
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     8      16      24      32      40
Outlays                              6      14      22      30      37
----------------------------------------------------------------------
Note:  CBO assumes that these direct hire positions would be
eliminated through attrition rather than a reduction-in-force which
would involve significant costs.  Attrition would occur at an even
pace over five years and, based on information from GAO, savings are
estimated at $200,000 per position eliminated. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:25.1

State Department:  Major Management Challenges and Program Risks
(GAO/T-NSIAD/AIMD-99-99, Mar.  4, 1999). 

Foreign Affairs Management:  Major Challenges Facing the Department
of State (GAO/T-NSIAD-98-251, Sept.  17, 1998). 

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

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


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

Benjamin F.  Nelson (202) 512-4128


   OPTION:
   INTERNATIONAL BROADCASTING
------------------------------------------------------ Appendix III:26


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

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

Primary agency                      Broadcasting Board of Governors

Account                             International Broadcasting
                                    Operations (95-0206)

Spending type                       Discretionary

Budget subfunction                  Foreign Information and Exchange
                                    Activities

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The United States broadcasts over 1,650 hours of radio programming in
58 languages and over 400 hours of television in several languages
weekly to support U.S.  foreign policy objectives.  In fiscal year
1998, $391.5 million of the U.S.  Information Agency's budget
supported the Voice of America (VOA) (53 languages), Radio Free
Europe/Radio Liberty (RFE/RL)(25 languages), Radio and TV Marti
broadcasts to Cuba, Radio Free Asia (RFA) (8 languages), and Worldnet
television broadcasts.  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 services have been terminated
despite changing world conditions.  The Broadcasting Board of
Governors plans to review all language services and broadcast
entities to determine their continued need and effectiveness.  These
reviews may identify less necessary services that could be
eliminated. 

Although CBO agrees that eliminating less necessary services would
produce savings, it cannot develop an estimate for this option until
specific proposals are identified. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:26.1

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

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

Voice of America:  Station Modernization Projects Need to Be
Justified (GAO/NSIAD-94-69, Jan.  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:26.2

Benjamin F.  Nelson, (202) 512-4128


   OPTION:
   EXPORT-IMPORT BANK PROGRAMS
------------------------------------------------------ Appendix III:27


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 years 1994 to 1998, Eximbank used an
average of about $859 million of its credit subsidy appropriation to
support an average of about $12.2 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 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 1998 transaction levels, that about $243 million
in program subsidy savings could be achieved annually if Eximbank
provided only short-term cover in higher risk markets. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   243     243     243     243     243
Outlays                             27      66     105     143     176
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

U.S.  Export-Import Bank:  Issues Raised by Recent Market
Developments and Foreign Competition (GAO/T-NSIAD-99-23, Oct.  7,
1998). 

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

Export-Import Bank:  Options for Achieving Possible Budget Reductions
(GAO/NSIAD-97-07, Dec.  20, 1996). 

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

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

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


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

Benjamin F.  Nelson, (202) 512-4128


   270 ENERGY
------------------------------------------------------ Appendix III:28

Corporatize or Divest Select Power Marketing Administrations
Power Marketing Administrations Cost Recovery
Department of Energy's National Laboratories
Department of Energy's Contractor Separation Benefits Package
Federal Exemption to Certain State Taxes for Department of Energy's
Operating Contractors
Nuclear Waste Disposal Fees
Federal Investment in Successfully Commercialized Technologies


   OPTION:
   CORPORATIZE OR DIVEST SELECTED
   POWER MARKETING ADMINISTRATIONS
------------------------------------------------------ Appendix III:29


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

Primary agency                      Department of Energy

Spending type                       Direct

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
The federal government began to market electricity after the Congress
authorized the construction of dams and established major water
projects, primarily in the 1930s to the 1960s.  The Department of
Energy's (DOE) power marketing administrations (PMA)--Bonneville
Power Administration, Southeastern Power Administration, Southwestern
Power Administration, and Western Area Power Administration--market
primarily wholesale power in 33 states produced at large,
multiple-purpose water projects.  Our March 1998 report identified
options that the Congress and other policymakers can pursue to
address concerns about the role of the three PMAs--Southeastern,
Southwestern, and Western--in emerging restructured markets or to
manage them in a more business-like fashion.  Our work has
demonstrated that, although federal laws and regulations generally
require that the PMAs recover the full costs of building, operating,
and maintaining the federal power plants and transmission assets, in
some cases federal statutes and DOE's rules are ambiguous about or
prohibit the recovery of certain costs.  For fiscal years 1992
through 1996, the federal government incurred a net cost of $1.5
billion from its involvement in the electricity-related activities of
Southeastern, Southwestern, and Western.  In addition, our work has
demonstrated that the availability of federal power plants to
generate electricity is below that of nonfederal plants because the
federal plants are aging and because the federal planning and
budgeting processes do not always ensure that funds are available to
make repairs when needed.  Our March report outlines three general
alternatives to address the federal role in restructuring markets: 
(1) maintaining the status quo of federal ownership and operation of
the power generating projects, (2) maintaining the federal ownership
of these assets but improving how they operated (an example of which
is reorganizing the PMAs to operate as federally owned corporations),
and (3) divesting these assets. 

Under the third alternative, divesting the three PMAs and federal
power assets would eliminate the government's presence in a
commercial activity and, depending on a divestiture's terms and
condition and the price obtained, could produce both a net gain and a
future stream of tax payments to the Treasury.  Corporatization or
divestitures of government assets have been accomplished recently in
the United States and also overseas; our March 1997 report concluded
that divesting the federal hydropower assets would be complicated but
not impossible.  Such a transaction would need to balance the
multiple purposes of the water project as well as other claims on the
water. 

CBO estimates that divesting the federal hydropower assets would
result in the savings shown below.  The estimate assumes that the
divestiture would not occur for two years.  Although the foregone
receipts result in a loss of revenue in 2003 and 2004, it is
mitigated by the large receipt from divestiture in 2003 and by the
savings in discretionary spending. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     0       0       0     580     580
Outlays                              0       0       0     290     464
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     0       0   5,100    -643    -670
Outlays                              0       0   5,100    -643    -670
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

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

Federal Power:  Options for Selected Power Marketing Administrations'
Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar.  6,
1998). 

Federal Electricity Activities:  The Federal Government's Net Cost
and Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept.  19,
1997). 

Federal Power:  Issues Related to the Divestiture of Federal
Hydropower Resources (GAO/RCED-97-48, Mar.  31, 1997). 

Power Marketing Administrations:  Cost Recovery, Financing, and
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept.  19,
1996). 

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


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   POWER MARKETING
   ADMINISTRATIONS' COST RECOVERY
------------------------------------------------------ Appendix III:30


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

Primary agency                      Department of Energy

Spending type                       Direct

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
Four of the Department of Energy's (DOE) power marketing
administrations (PMA)--Bonneville Power Administration, Southeastern
Power Administration, Southwestern Power Administration, and Western
Area Power Administration--market primarily wholesale power in 33
states produced at large, multiple-purpose water projects.  Except
for Bonneville, these PMAs receive annual appropriations to cover
operating and maintenance (O&M) expenses and, if applicable, the
capital investment in transmission assets.\4 Federal law requires the
PMAs to repay these appropriations as well as the power-related O&M
and the capital appropriations expended by the operating agencies
generating the power. 

Current monitoring activities do not ensure that the federal
government recovers the full cost of its power-related activities
from the beneficiaries of federal power.  The full cost of the
power-related activitiesï¿½which are to be recovered under current
legislation and DOE policyï¿½include all direct and indirect costs
incurred by the federal government in producing, transmitting, and
marketing federal power.  Neither DOE nor the Federal Energy
Regulatory Commission, which reviews the PMAs' rate proposals, is
effectively monitoring the rate-making process and the amounts due
and repayments made to ensure their accuracy, completeness, and
timeliness.  Unrecovered power-related costs relate to (1) Civil
Service Retirement System (CSRS) pensions and postretirement health
benefits, (2) life insurance benefits, (3) certain workers'
compensation benefits, and (4) interest on some of the federal
appropriations used to construct certain projects.  The full
magnitude of the under-recovery of power-related costs is unknown. 
Until an effective monitoring system is implemented, the federal
government will continue to be exposed to financial loss due to the
under-recovery of power-related costs. 

The federal government is also incurring other substantial net costs
annuallyï¿½the amount by which the full costs of providing electric
power exceed the revenues from the sale of powerï¿½from the
electricity-related activities of the PMAs.  Although the PMAs are
generally required to recover all costs, favorable financing terms
and the lack of specific requirements to recover certain costs have
resulted in net costs to the federal government because these PMAs'
electricity rates do not recover all costs that are to be repaid
through the sale of power.  It is important to note that the PMAs
were generally following applicable laws and regulations applying to
the recovery of costs; however, in some cases, federal statutes and
an applicable DOE order are ambiguous about or prohibit the recovery
of certain costs. 

The Congress and/or the Secretary of Energy may wish to consider
directing the PMAs to more fully recover power-related costs or
revising DOE's policy on high-interest debt repayment.  We have
recommended a number of specific actions aimed at enhancing DOE's
oversight.  For example, changes could be implemented to recover the
full costs to the federal government of providing postretirement
health benefits and pensions for current employees and operating
agency employees engaged in producing and marketing the power sold by
the PMAs.  GAO and CBO agree that several PMAs have begun to address
some of these actions.  CBO has not prepared a savings estimate for
this option because the extent of these changes and their effects are
not fully known at this time. 


--------------------
\4 In 1974, the Congress stopped providing Bonneville with annual
appropriations and instead provided it with a revolving fund
maintained by the Treasury; however, Bonneville remains responsible
for repaying its debt prior to 1974 and debt stemming from
appropriations expended by the operating agencies on power-related
expenses. 


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

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

Federal Power:  Options for Selected Power Marketing Administrations'
Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar.  6,
1998). 

Federal Electricity Activities:  The Federal Government's Net Cost
and Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept.  19,
1997). 

Federal Power:  Issues Related to the Divestiture of Federal
Hydropower Resources (GAO/RCED-97-48, Mar.  31, 1997). 

Power Marketing Administrations:  Cost Recovery, Financing, and
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept.  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, Oct.  13,
1995). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   DEPARTMENT OF ENERGY'S NATIONAL
   LABORATORIES
------------------------------------------------------ Appendix III:31


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
23 labs, with a budget of over $10 billion and employing about 60,000
people.  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 that 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 we have 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 we
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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    43      96     155     226     285
Outlays                             26      71     126     192     254
----------------------------------------------------------------------
Note:  This estimate assumes consolidation would take place over a
5-year period. 

Source:  Congressional Budget Office. 


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

Department of Energy:  Uncertain Progress in Implementing National
Laboratory Reforms (GAO/RCED-98-197, Sept.  10, 1998). 

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

Department of Energy:  National Laboratories Need Clearer Mission and
Better Management (GAO/RCED-95-10, Jan.  27, 1995). 

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

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

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


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   DEPARTMENT OF ENERGY'S
   CONTRACTORS' SEPARATION
   BENEFITS PACKAGE
------------------------------------------------------ Appendix III:32


Authorizing committees              Armed Services (Senate and House)

Appropriations subcommittees        Energy and Water Development
                                    (Senate and House)

Primary agency                      Department of Energy

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Multiple

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
Since 1993, the Department of Energy has spent about $1 billion to
provide benefits to contractor employees separated in workforce
restructuring and downsizing efforts at its facilities.  About 85
percent of the costs were for employee benefits including 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 act
to bring separation benefits in line with existing DOE contracts or
with those benefits provided to federal employees.  CBO estimates
such action would result in the following savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    13      13      13       0       0
Outlays                             13      13      13       0       0
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:32.1

Department of Energy:  Value of Benefits Paid to Separated Contractor
Workforce Varied Widely (GAO/RCED-97-33, Jan.  23, 1997). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   FEDERAL EXEMPTION TO CERTAIN
   STATE TAXES FOR DEPARTMENT OF
   ENERGY'S OPERATING CONTRACTORS
------------------------------------------------------ Appendix III:33

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

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

Primary agency                      Department of Energy

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  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 1998, the contractors at
DOE's Oak Ridge and Sandia facilities were reimbursed almost $60
million for gross receipts, sales, and/or use taxes.  If the Congress
chose to designate DOE operating contractors as "instrumentalities of
the federal government," the following savings could be achieved. 
Such action would make the contractors immune from state taxation and
thereby eliminate this expense. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    77      78      80      82      84
Outlays                             46      70      79      81      83
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

Energy Management:  DOE Controls Over Contractor Expenditures Need
Strengthening (GAO/RCED-87-166, Aug.  28, 1987). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   NUCLEAR WASTE DISPOSAL FEES
------------------------------------------------------ Appendix III:34


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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Added receipts                      12      25      37      50      63
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

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:34.2

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   FEDERAL INVESTMENT IN
   SUCCESSFULLY COMMERCIALIZED
   TECHNOLOGIES
------------------------------------------------------ Appendix III:35


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

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  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 funds 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, repayment provisions would only apply
to future technology development projects not yet negotiated with
industry.  CBO estimates that this option would have no effect on
receipts in the next 5 years because of the time lag between research
and commercialization. 


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

Energy Research:  Opportunities Exist to Recover Federal Investment
in Technology Development Projects (GAO/RCED-96-141, June 26, 1996). 


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

Victor S.  Rezendes, (202) 512-3841


   300 NATURAL RESOURCES AND
   ENVIRONMENT
------------------------------------------------------ Appendix III:36

Pursuing Cost-Effective Alternatives to NOAA's Research/Survey Fleet
Collaborative Federal Land Management Approach
Fair Market Value for Natural Resources
Hardrock Mining
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


   OPTION:
   PURSUING COST-EFFECTIVE
   ALTERNATIVES TO NOAA'S
   RESEARCH/SURVEY FLEET
------------------------------------------------------ Appendix III:37


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

Appropriations subcommittees        Commerce, Justice, State, and the
                                    Judiciary

Primary agency                      Department of Commerce

Account                             Operations, Research, and
                                    Facilities
                                    (13-1450)

Spending type                       Discretionary

Budget subfunction                  Other Natural Resources

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The National Oceanic and Atmospheric Administration (NOAA) has an
aging in-house fleet of 15 ships that are used to support its
programs in fisheries research, oceanographic research, and
hydrographic charting and mapping.  Most of NOAA's ships are past
their 30-year life expectancies, and many of them are costly and
inefficient to operate and maintain and lack latest state-of-the-art
technology.  NOAA's ships are managed and operated by a NOAA Corps of
about 240 uniformed service commissioned officers who, like the
Public Health Service Commissioned Corps, perform civilian rather
than military functions but are covered by a military-like pay and
benefits system. 

For more than a decade, congressional committees, public and private
sector advisory groups, the National Performance Review (NPR), the
Commerce Office of Inspector General (OIG), and our office have urged
NOAA to aggressively pursue more cost-effective alternatives to its
in-house fleet of ships.  Since 1990, NOAA has developed several
fleet replacement and modernization plans that call for investments
of millions of dollars to upgrade or replace these ships, and each
has been criticized by the Commerce OIG for not pursuing alternative
approaches strongly enough.  In 1996, the OIG recommended that NOAA
terminate its fleet modernization efforts; cease investing in its
ships; immediately begin to decommission, sell, or transfer them; and
contract for the required ship services. 

In response, NOAA has decommissioned almost one-third of its fleet
since 1990 and now outsources for about 40 percent of its research
and survey needs.  Although NOAA has increased its outsourcing for
these services and expects to further increase its use of outsourcing
to about 50 percent over the next 10 years, NOAA continues to rely
heavily on its old, inefficient fleet and still plans to replace or
upgrade some of these ships.  In this regard, the President's budget
for fiscal year 2000 proposes $52 million for construction of a new
fisheries research ship and indicates that NOAA plans to spend a
total of $185 million for four new replacement ships over the 5-year
period ending in fiscal year 2004. 

Because no funds were appropriated for modernizing and replacing the
NOAA fleet in fiscal year 1999, implementing this option would not
yield any savings relative to the current level of funding for NOAA
programs.  However, CBO agrees that implementing this option would
result in savings relative to the Administration's fiscal year 2000
budget request. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:37.1

Department of Commerce:  National Weather Service Modernization and
NOAA Fleet Issues (GAO/T-AIMD/GGD-99-97, Feb.  24, 1999). 

Major Management Challenges and Program Risks:  Department of
Commerce (GAO/OCG-99-3, Jan.  1999). 

Issues on the National Oceanic and Atmospheric Administration's
Commissioned Corps (GAO/GGD-98-35R, Dec.  2, 1997). 

National Oceanic and Atmospheric Administration:  Issues on the
Civilianization of the Commissioned Corps (GAO/T-GGD-98-22, Oct.  29,
1997). 

Federal Personnel:  Issues on the Need for NOAA's Commissioned Corps
(GAO/GGD-97-10, Oct.  31, 1996). 

Research Fleet Modernization:  NOAA Needs to Consider Alternatives to
the Acquisition of New Vessels (GAO/RCED-94-170, Aug.  3, 1994). 


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

L.  Nye Stevens, (202) 512-8676


   OPTION:
   COLLABORATIVE FEDERAL LAND
   MANAGEMENT APPROACH
------------------------------------------------------ Appendix III:38


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 among the four major land
management agencies.  Savings would depend on the extent of a
workforce restructuring and implementation proposal. 


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

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, Feb.  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, Feb.  1, 1994). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   FAIR MARKET VALUE FOR NATURAL
   RESOURCES
------------------------------------------------------ Appendix III:39


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 nonfee-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. 

We present several other options that illustrate how market-based
incentives could be implemented.  See the options "Hardrock Mining,"
"Federal Water Policies," and "Water Transfers."

CBO agrees that implementing market-based incentives and management
practices could generate additional offsetting receipts.  However, it
cannot develop an estimate until specific proposals are identified. 


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

Forest Service:  Lack of Financial and Performance Accountability Has
Resulted in Inefficiency and Waste (GAO/T-RCED/AIMD-98-135, Mar.  26,
1998). 

Forest Service:  Barriers to Generating Revenue or Reducing Costs
(GAO/RCED-98-58, Feb.  13, 1998). 

Forest Service Management:  Issues to Be Considered in Developing a
New Stewardship Strategy (GAO/T-RCED-94-116, Feb.  1, 1994). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   HARDROCK MINING
------------------------------------------------------ Appendix III:40


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 Mining Law of 1872 allows holders of economically minable claims
on federal lands to obtain all rights and interests to both the land
and the hardrock minerals by patenting the claims for $2.50 or $5.00
an acre--amounts that do not necessarily reflect the market value of
such lands today.  Since 1872, the federal government has patented
more than 3 million acres of mining claims (an area about the size of
Connecticut), and some patent holders have reaped huge profits by
reselling their lands.  For example, we examined 12 applications for
mining patents and reported in 1989 that the government would receive
only about $16,000 if the claims were patented, whereas the value of
these lands had been appraised in 1988 at between $14.4 million and
$47.1 million.  Furthermore, miners do not pay royalties to the
government on hardrock minerals they extract from federal lands.  In
1990, hardrock minerals worth at least $1.2 billion were extracted
from federal lands, while known and economically recoverable reserves
of hardrock minerals remaining on federal lands were estimated to be
worth almost $64.9 billion. 

Beginning in 1995, the Congress imposed a series of 1-year
moratoriums on patenting mining claims; during this time, it
considered bills that would prohibit the issuance of new patents,
require the payment of fair market value for a patent, or otherwise
modify the requirements for patenting.  The Congress also considered
bills that would impose royalties on hardrock minerals extracted from
federal lands, e.g., a royalty of 5 percent or 8 percent on net
proceeds, net smelter returns, or gross income.  Under the terms of
Interior's 1999 appropriations bill (P.L.  105-277), any revisions to
the hardrock mining regulations are postponed for a year, pending a
study by the National Academy of Sciences. 

Estimating the additional receipts that could be obtained if
patenting provisions were changed or if hardrock royalties were
imposed would depend on the specific proposals implemented.  For
example, receipts from a 5 percent royalty on net smelter returns
were estimated to average $35 million annually.  Estimating
additional receipts would be further complicated by the large
variation in land values and the lack of essential data about the
hardrock minerals on current mining claims.  Assuming that the
Congress adopted a 5 percent royalty on net smelter returns, CBO
estimates that the following receipts would be gained. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Offsetting receipts                 10      42      29      29      29
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


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

Mineral Royalties:  Royalties in the Western States and in Major
Mineral-Producing Countries (GAO/RCED-93-109, Mar.  29, 1993). 

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec.  1992). 

Mineral Resources:  Value of Hardrock Minerals Extracted From and
Remaining on Federal Lands (GAO/RCED-92-192, Aug.  24, 1992). 

Federal Land Management:  The Mining Law of 1892 Needs Revision
(GAO/RCED-89-72, Mar.  10, 1989). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   NATURAL RESOURCES REVENUE
   SHARING
------------------------------------------------------ Appendix III:41


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                       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
following savings.\5



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   185     190     190     195     175
Outlays                            185     190     190     195     175
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\5 The projected savings do not include a potential federal cost
increase under the Capital Payment in Lieu of Taxes (PILT) program. 
Payments under the discretionary PILT program would increase
beginning in fiscal year 1999 if net program receipts were shared and
the Congress appropriated such an increase. 


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

Land Management Agencies:  Revenue Sharing Payments to States and
Counties (GAO/RCED-98-261, Sept.  17, 1998). 

Forest Service:  Barriers to Generating Revenue or Reducing Costs
(GAO/RCED-98-58, Feb.  12, 1998). 

Forest Service:  Distribution of Timber Sales Receipts Fiscal Years
1992-94 (GAO/RCED-95-237FS, Sept.  8, 1995). 

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec.  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, Apr.  25, 1991). 

Mineral Revenues:  Collection and Distribution of Revenues From
Acquired Lands (GAO/RCED-90-7, Aug.  2, 1990). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   FEDERAL WATER POLICIES
------------------------------------------------------ Appendix III:42


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

Primary agency                      Department of the Interior

Spending type                       Direct

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. 


      INCREASED FEES FOR
      SUBSIDIZED FEDERAL WATER TO
      LARGE FARMS
---------------------------------------------------- Appendix III:42.1

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:42.2

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:42.3

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 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:42.4

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:42.5

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. 

CBO estimates that 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, eliminated double subsidies for
crops and water, required CVP irrigators to repay the costs of 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.\6



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Phase out double subsidies
----------------------------------------------------------------------
Added receipts                       3       6      10      10      10
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Accelerate
----------------------------------------------------------------------
Added receipts                       3       8      11      11      11
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Recovery of
----------------------------------------------------------------------
Added receipts                      18      18      18      18      18
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Option: Phase out i
----------------------------------------------------------------------
Added receipts                       4      11      14      14      14
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\6 Implementing some of these options would affect the potential
savings from the remaining options. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:42.6

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

Water Subsidies:  Impact of Higher Irrigation Rates on Central Valley
Project Farmers (GAO/RCED-94-8, Apr.  19, 1994). 

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec.  1992). 

Reclamation Law:  Changes Needed Before Water Service Contracts Are
Renewed (GAO/RCED-91-175, Aug.  22, 1991). 

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, Oct.  12, 1989). 


      GAO CONTACT
---------------------------------------------------- Appendix III:42.7

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   WATER TRANSFERS
------------------------------------------------------ Appendix III:43


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 reallocating scarce water to new users by
allowing those who place the highest economic value on the resource
to purchase it.  Water transfers are a valuable tool for improving
the efficiency of water use and environmental quality and can be a
promising way to increase federal revenues for water development
projects.  Current reclamation law provides the Secretary of the
Interior with discretion in establishing municipal and industrial
charges to recover some of the costs of constructing the projects. 
However, Interior's principles governing water transfers focus on
facilitating transfers and placing the government in the same or a
better financial condition after a transfer is made, rather than
charging the highest amounts possible without discouraging transfers. 
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.  Moreover, many
reclamation projects have specified interest rates in authorizing
legislation that limit interest charges below current levels. 

The Congress may wish to change reclamation law to allow the use of
current Treasury borrowing rates in establishing charges for
transferred water.  If this change was implemented in 2000, CBO
estimates the following additional receipts.  This estimate assumes
that 3 percent of the outstanding irrigation-related debt of about $2
billion is annually traded, with the interest rate tied to the
30-year Treasury rate. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Added receipts                       2       4       4       4       4
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:43.1

Water Markets:  Increasing Federal Revenues Through Water Transfers
(GAO/RCED-94-164, Sept.  21, 1994). 


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

Victor S.  Rezendes, (202) 512-3841


   OPTION:
   POLLUTION FEES AND TAXES
------------------------------------------------------ Appendix III:44


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)
                                    Environment and Public Works
                                    (Senate)
                                    Transportation and Infrastructure
                                    (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.  Based
on audit work, we have 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 discharges, effective on
discharges of water pollutants made after December 31, 1999.  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 Savings

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                       0.1     0.2     0.2     0.2     0.2
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:44.1

Environmental Protection:  Implications of Using Pollution Taxes to
Supplement Regulation (GAO/RCED-93-13, Feb.  17, 1993). 

Hazardous Waste:  Much Work Remains to Accelerate Facility Cleanups
(GAO/RCED-93-15, Jan.  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:44.2

Peter F.  Guerrero, (202) 512-6111


   OPTION:
   HAZARDOUS WASTE CLEANUP COST
   RECOVERY
------------------------------------------------------ Appendix III:45


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. 
Through fiscal year 1997, EPA had obtained legal agreements with
responsible parties to recover approximately $2.3 billion of the
$14.5 billion that it had spent.  EPA has made these agreements,
however, under a policy that limits the indirect costs that it will
seek to recover.  Since the early 1990s, EPA has been evaluating
changes to its methodology for calculating indirect costs.  The
agency is currently assessing one option that could increase future
recoveries by as much as an additional $500 million.  EPA should
amend its definition of recoverable costs to permit greater
recoveries. 

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:45.1

High-Risk Series:  Superfund Program Management (GAO/HR-97-14, Feb. 
1997). 

Superfund:  EPA Has Opportunities to Increase Recoveries of Costs
(GAO/RCED-94-196, Sept.  28, 1994). 

Superfund:  More Settlement Authority and EPA Cost Controls Could
Increase Cost Recovery (GAO/RCED-91-144, July 18, 1991). 


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

Peter F.  Guerrero, (202) 512-6111


   OPTION:
   NON-TIME-CRITICAL REMOVALS IN
   SUPERFUND CLEANUPS
------------------------------------------------------ Appendix III:46


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 18
years and $17 billion on Superfund, construction of cleanup remedies
(as of August 31, 1998) had been completed at only about 526 of the
1,193 sites 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 expanded 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:46.1

A Superfund Tool for More Efficient Cleanups (GAO/RCED-96-134R, Apr. 
15, 1996). 

Superfund:  Non-Time-Critical Removals as a Tool for Faster and Less
Costly Cleanups (GAO/T-RCED-96-137, Apr.  17, 1996). 

Time and Cost Limits on Superfund Removals (GAO/RCED-96-195R, June
10, 1996). 


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

Peter F.  Guerrero, (202) 512-6111


   OPTION:
   EXCESS FUNDS IN SUPERFUND
   CONTRACTS
------------------------------------------------------ Appendix III:47


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,
created in 1980, was intended to clean up those sites considered to
be the most serious of the hazardous waste sites.  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 1997, Superfund contracts accounted for $5.4 billion, or
49 percent, of the $11.1 billion that EPA obligated for all contracts
awarded during that period.  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 April 1997, we reported that substantial amounts
remained obligated for completed projects.  Using EPA data systems,
we identified $249 million in potential recoveries, and we encouraged
EPA to aggressively pursue these recoveries.  In some cases,
contracts had not been closed when work had been completed many years
ago. 

In response to our recommendation, EPA committed itself to expediting
agency efforts to deobligate and reuse funds.  In July 1998, we
reported that EPA recovered $210 million during fiscal year 1997 and
was projecting that it would recover $26 million during fiscal year
1998.  However, we also reported that EPA had an additional $125
million in potential recoveries for fiscal year 1998.  The Congress
may want to reduce EPA's fiscal year 2000 appropriation by $125 to
encourage greater recovery of funds. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   125       0       0       0       0
Outlays
----------------------------------------------------------------------
Note:  CBO did not estimate outlay savings. 

Source:  Congressional Budget Office. 


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

Environmental Protection:  Funds Obligated for Completed Superfund
Projects (GAO/RCED-98-232, July 21, 1998). 

Environmental Protection:  Opportunities to Recover Funds Obligated
for Completed Superfund Projects (GAO/T-RCED-97-134, Apr.  15, 1997). 


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

Peter F.  Guerrero, (202) 512-6111


   350 AGRICULTURE
------------------------------------------------------ Appendix III:48

More Effective Operation of Rural Utilities Service's Electricity and
 Telecommunications Loan Programs
Consolidation of Common Administrative Functions at USDA
Farm Service Agency County Office Restructuring
Charging Beneficiaries for Food-Related Service Costs
Agricultural Research Service Funding
USDA Telecommunications and Information Systems


   OPTION:
   MORE EFFECTIVE OPERATION OF
   RURAL UTILITIES SERVICE'S
   ELECTRICITY AND
   TELECOMMUNICATIONS LOAN
   PROGRAMS
------------------------------------------------------ Appendix III:49


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Accounts                            Multiple

Spending type                       Discretionary

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Rural Utilities Service (RUS), established by the Federal Crop
Insurance Reform and Department of Agriculture Reorganization Act of
1994 (P.L.  103-354, Oct.  13, 1994), administers the (1) electricity
and telecommunications loan programs that formerly were operated by
the Rural Electrification Administration (REA) and (2) water and
waste disposal loan program that was formerly operated by the Rural
Development Administration.  In recent years, RUS has made or
guaranteed an average of about $1.4 billion per year in loans to help
borrowers develop, upgrade, or expand their electricity and
telecommunications systems.  As of June 30, 1997, the outstanding
principal on RUS' electricity and telecommunications loans totaled
about $36 billion. 

Our report on the efficiency and effectiveness of RUS' operations
identified a number of program practices that increased the cost of
the rural electricity and telecommunications programs and reduced
their effectiveness.  For example, even though the loan programs are
intended to assist in developing the nation's rural areas, current
lending practices sometimes result in loans to borrowers serving
areas that are heavily populated.  Also, the agency sometimes makes
its subsidized direct loans to borrowers capable of using their own
resources or of obtaining loans from the private sector to fund their
utility projects.  Finally, borrowers have been able to obtain
large-dollar loans and accumulate large amounts of debt because RUS
has few loan and indebtedness limits. 

To reduce the costs and increase the effectiveness of the agency's
loan programs, we identified the following options:  (1) target loans
to borrowers that provide services to areas with low populations, (2)
target subsidized direct loans to borrowers that have a financial
need for the agency's assistance, and (3) graduate the agency's
financially viable borrowers from direct loans to commercial credit. 
Also, to decrease the agency's vulnerability to losses, we identified
the following options:  (1) establish loan and indebtedness limits,
(2) set the repayment guarantee at a level below 100 percent, and (3)
prohibit loans to delinquent borrowers or to borrowers who have
caused the RUS to incur loan losses. 

CBO cannot develop an estimate for this option until specific
proposals to improve efficiency are identified. 


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

Rural Utilities Service:  Opportunities to Operate Electricity and
Telecommunications Loan Programs More Effectively (GAO/RCED-98-42,
Jan.  21, 1998). 

Rural Development:  Financial Condition of the Rural Utilities
Service's Loan Portfolio (GAO/RCED-97-82, Apr.  11, 1997). 


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

Lawrence J.  Dyckman, (202) 512-5138


   OPTION:
   CONSOLIDATION OF COMMON
   ADMINISTRATIVE FUNCTIONS AT
   USDA
------------------------------------------------------ Appendix III:50


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Accounts                            Multiple

Spending type                       Discretionary/Direct

Framework theme                     Improve efficiency
----------------------------------------------------------------------
In accordance with the Federal Crop Insurance Reform and Department
of Agriculture Reorganization Act of 1994, USDA recently reorganized
and streamlined its structure, consolidating 43 agencies and offices
into 29 and dividing most of the 29 agencies and offices into seven
mission areas.  Under its streamlining plans, USDA also required
mission areas with more than one agency to consolidate administrative
functions such as human resource management and procurement.  By
mid-1997, USDA reported that administrative consolidation had been
completed in four of the five mission areas with more than one
agency. 

However, we found that many of the mission areas still have multiple
offices performing functions such as legislative and legal affairs,
public information and community affairs, and financial and budget
management for each of the component agencies.  In total, more than
3,500 staff fill these positions.  In addition, USDA has only
recently developed a plan to streamline administrative functions at
the state office level.  The county-based service agencies--the Farm
Service Agency, the Natural Resources and Conservation Service, and
the agencies in the Rural Development mission--have each maintained
their own state office in almost every state.  These state offices
employ 4,782 USDA employees, some of whom provide administrative
services.  Given that these agencies are consolidating their
county-based offices into one-stop service centers, it is unclear why
they need to maintain separate offices at the state level. 

To further streamline its organization, increase efficiency, and
reduce overhead costs associated with running separate offices, USDA
could do more to combine agencies' support functions, such as
legislative and legal affairs and public information, into a single
office serving the needs of all mission component agencies.  In
addition, even though USDA has developed a plan to converge
administrative functions at the state level for county-based
agencies, a number of obstacles need to be overcome if the plan is to
be successfully implemented.  Perhaps most importantly in the near
term is the selection of a strong leadership team to implement the
convergence plan once it is approved by the Secretary.  CBO agrees
that this option could potentially yield savings.  However, it did
not develop a savings estimate due to the uncertainty of the extent
to which improved efficiencies actually lead to budgetary savings. 


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

U.S.  Department of Agriculture:  Administrative Streamlining Is
Expected to Continue Through 2002 (GAO/RCED-99-34, Dec.  11, 1998). 

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


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

Lawrence J.  Dyckman, (202) 512-5138


   OPTION:
   FARM SERVICE AGENCY COUNTY
   OFFICE RESTRUCTURING
------------------------------------------------------ Appendix III:51


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Accounts                            Farm Service Agency

Spending type                       Discretionary

Framework theme                     Improve efficiency
----------------------------------------------------------------------
USDA maintains a field office structure that dates back to the 1930s
when transportation and communication systems limited the geographic
boundaries covered by a single field office and there were a greater
number of small, widely disbursed, family-owned farms.  In 1933, the
United States had more than 6 million farmers; today the number of
farms in the United States is less than 2 million and a small
fraction of these produce more than 70 percent of the nation's
agricultural output.  At various times, the Congress has attempted to
reduce the number of county offices serving farmers and/or reduce
county office staffing.  Most recently, the Federal Crop Insurance
Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 
103-354, Oct.  13, 1994) directed the Secretary of Agriculture to
streamline departmental operations by consolidating county offices. 

Our review of county office workload found that regardless of its
size, each of the Farm Service Agency's (FSA) 2,440 county offices
requires a certain fixed amount of time and resources to carry out
basic office functions and train staff to administer FSA's programs. 
USDA's workload data indicate that about 2 staff years of effort per
office are needed to carry out the basic administrative duties to
keep the office open.  These duties include obtaining and managing
office space, paying utilities, and processing paperwork related to
payroll.  Additional time is needed to train staff on the specific
characteristics of program operations so that they can effectively
serve participating farmers.  In total, these fixed administrative
activities may represent almost 40 percent of FSA county offices'
total workload.  However, in larger offices, a lower percentage of
total staff time is devoted to performing basic administrative
functions, and a greater proportion of time is available to provide
service to farmers. 

To most effectively implement future staff reductions in FSA county
offices, the Congress may want to encourage USDA to focus attention
on closing offices that serve few farmers.  Each office closed would
save about 2 staff years of workload previously devoted to keeping
the office open and functioning.  Although CBO agrees that closing
offices that serve few farmers would produce savings, it cannot
develop a savings estimate until a specific proposal is identified. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:51.1

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

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

Farm Programs:  Administrative Requirements Reduced and Further
Program Delivery Changes Possible (GAO/RCED-98-98, Apr.  20, 1998). 

Farm Programs:  Impact of the 1996 Farm Act on County Office Workload
(GAO/RCED-97-214, Aug.  19, 1997). 

U.S.  Department of Agriculture:  Farm Agencies' Field Structure
Needs Major Overhaul (GAO/RCED-91-9, Jan.  29, 1991). 

U.S.  Department of Agriculture:  Interim Report on Ways to Enhance
Management (GAO/RCED-90-19, Oct.  26, 1989). 


      GAO CONTACT
---------------------------------------------------- Appendix III:51.2

Lawrence J.  Dyckman, (202) 512-5138


   OPTION:
   CHARGING BENEFICIARIES FOR
   FOOD-RELATED SERVICE COSTS
------------------------------------------------------ Appendix III:52


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Accounts                            Multiple

Spending type                       Discretionary

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
User fees--charges individuals or firms pay for services they receive
from the federal government--are not new but have begun to play an
increasingly important role in financing federal programs,
particularly since the Balanced Budget Act of 1985.  According to the
Office of Management and Budget Circular A-25, user fees should be
charged to cover the full cost of federal services when the service
recipient receives special benefits beyond those received by the
general public.  A special benefit will be considered to accrue, and
a user charge will be imposed, when the government service (1)
enables the beneficiary to obtain more immediate or substantial gains
than those that accrue to the general public, (2) provides business
stability or contributes to public confidence in the business
activity of the beneficiary, or (3) responds to the request of or is
provided for the convenience of the service recipient and is beyond
the service regularly received by other members of the same industry
or by the general public.  In some cases, the government supplies a
service that provides a special benefit to an identifiable recipient
and also provides a benefit to the general public.  When the public
benefit in such cases is not independent of, but merely incidental
to, the special benefit provided the service recipient, the
government should seek to recover the full cost of providing the
service by charging the service recipient a user fee. 

In March 1997, we reported that additional user fees could have been
charged to program beneficiaries in fiscal year 1995.  For example,
user fees could have been charged for meat and poultry plant
inspections, a service currently provided without charge.  CBO
estimates that if meat and poultry plant inspections were funded
through user fees instead of appropriations, the following savings
might result. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   273     545     545     545     545
Outlays                            269     532     545     545     545
----------------------------------------------------------------------
Note:  This estimate assumes that user fees will cover direct and
indirect costs of the meat and poultry inspection program, including
management and supervisory costs.  Costs of physical overhead,
administration, and laboratory services incidental to the inspection
program also will be included.  User fees will exclude grants and
special assistance to states.  This estimate also assumes that only
50 percent of fees will be collected in the first year because of
industry opposition and administrative delays. 

Source:  Congressional Budget Office. 


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

Food Safety:  Opportunities to Redirect Federal Resources and Funds
Can Enhance Effectiveness (GAO/RCED-98-224, Aug.  6, 1998). 

Food Safety:  Federal Efforts to Ensure the Safety of Imported Foods
Are Inconsistent and Unreliable (GAO/RCED-98-103, Apr.  30, 1998)

Food-Related Services:  Opportunities Exist to Recover Costs by
Charging Beneficiaries (GAO/RCED-97-57, Mar.  20, 1997). 


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

Lawrence J.  Dyckman, (202) 512-5138


   OPTION:
   AGRICULTURAL RESEARCH SERVICE
   FUNDING
------------------------------------------------------ Appendix III:53


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Account                             Agricultural Research Service,
                                    (12-1400), CSREES (12-1500)

Spending type                       Discretionary

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), whose program level was about $745 million
for its fiscal year 1998 research activities, conducts 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.  The Cooperative State
Research, Education, and Extension Service (CSREES) administers
funding for research at land grant universities and other research
institutions.  It also provides funding for state extension
activities and several modest higher education programs in
agriculture-related areas.  In fiscal year 1998, CSREES' program
level was about $430 million for research and higher education. 

USDA funds various types of agricultural research projects that the
Congress may consider to be of insufficiently high national public
interest, to have limited accountability, and/or should more
appropriately be funded by the private sector.  In particular: 

  -- In June 1996, we reported that as of January 29, 1996, ARS used
     about 91 percent of its fiscal year 1996 appropriations to fund
     1,198 projects at an estimated cost of $648 million--495 of
     these projects (valued at $257 million) involved mostly nonbasic
     research and 432 projects (valued at $220 million) were outside
     the high-priority research areas designated in ARS' 6-year
     implementation plan.  We identified 148 projects valued at $78
     million that fell into both of these categories. 

  -- In fiscal year 1996, USDA's CSREES funded about $50 million in
     Special Grant projects.  Special grants are often
     congressionally earmarked to be awarded to specific institutions
     for specific purposes and are not automatically subject to peer
     review.  Similarly, ARS funded about $32 million in projects
     that were to be conducted by an external organization and that
     are not likely to be peer reviewed.  While peer review is not
     perfect, it is nonetheless an important part of quality control
     in science.  Without peer review, accountability is limited. 

Should the Congress wish to reduce nonbasic federal agricultural
research, research that is not high-priority, and/or projects that
are not peer reviewed, we believe the ARS budget and the CSREES
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.  CBO
agrees that eliminating projects could result in savings but could
not develop an estimate of these savings at this time. 


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

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, Mar.  28, 1996). 


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

Lawrence J.  Dyckman, (202) 512-5138


   OPTION:
   USDA TELECOMMUNICATIONS AND
   INFORMATION SYSTEMS
------------------------------------------------------ Appendix III:54


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    House)

Primary agency                      Department of Agriculture

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Multiple

Framework theme                     Improve efficiency
----------------------------------------------------------------------
From telephone calls to video conference meetings to providing
nationwide customer access to information, USDA reports that it
spends over $200 million annually for a wide array of
telecommunications technology.  In 1995 and 1996, we reported that
USDA was not cost-effectively managing and planning its substantial
telecommunications investments and was wasting millions of dollars
each year as a result.  Specifically, we found that USDA (1) was
paying for unnecessary or unused telecommunications equipment and
services because of breakdowns in management controls; (2) was
wasting as much as $5 million to $10 million annually because the
department had not acted on opportunities to consolidate and optimize
its FTS 2000 telecommunications services; (3) was spending hundreds
of millions of dollars developing redundant networks that perpetuate
long-standing information sharing problems and (4) had hundreds of
cases of telephone abuse because the department lacked adequate
controls over the millions of dollars it spends each year on
commercial telephone services. 

In our 1998 followup review, we found that in response to our reports
and recommendations, USDA had taken positive steps to begin
correcting its telecommunications management weaknesses--improvements
that the department says could reduce its $200 million-plus reported
annual investment in telecommunications by as much as $70 million
each year.  However, we also found that USDA had not achieved
significant cost savings or management improvements because many of
the department's corrective actions were incomplete or inadequate. 
Further, it was unclear how and when these needed corrective actions
would be implemented because the department had not established an
effective action plan or strategy for addressing our recommendations
with time frames, milestones, and resources for making improvements. 

Although the full extent of USDA's telecommunications management
problem is unknown, USDA officials have indicated that millions could
be saved annually by eliminating redundant commercial
telecommunication 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:54.1

USDA Telecommunications:  Strong Leadership Needed to Resolve
Management Weaknesses, Achieve Savings (GAO/AIMD-98-131, June 30,
1998). 

Telecommunications Management:  More Effort Needed by Interior and
the Forest Service to Achieve Savings (GAO/AIMD-97-67, May 8, 1997). 

USDA Telecommunications:  More Effort Needed to Address Telephone
Abuse and Fraud (GAO/AIMD-96-59, Apr.  16, 1996). 

USDA Telecommunications:  Better Management and Network Planning
Could Save Millions (GAO/AIMD-95-203, Sept.  22, 1995). 

USDA Telecommunications (GAO/AIMD-95-219R, Sept.  5, 1995). 

USDA Telecommunications:  Missed Opportunities to Save Millions
(GAO/AIMD-95-97, Apr.  24, 1995). 


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

Joel C.  Willemssen, (202) 512-6408


   370 COMMERCE AND HOUSING CREDIT
------------------------------------------------------ Appendix III:55

Self-Financing of Mission Oversight by Fannie Mae and Freddie Mac
Rural Housing Loans Interest Recapture
Reducing FHA's Insurance Coverage


   OPTION:
   SELF-FINANCING OF MISSION
   OVERSIGHT BY FANNIE MAE AND
   FREDDIE MAC
------------------------------------------------------ Appendix III:56


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

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

Primary agency                      Department of Housing and Urban
                                    Development

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

Spending type                       Direct

Budget subfunction                  Mortgage Credit

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

Other federal organizations responsible for regulating
government-sponsored enterprises are financed by assessments on the
regulated entities.  However, HUD's mission oversight expenditures
are funded with taxpayer dollars from HUD's appropriations. 
Accordingly, HUD's capability to strengthen its enterprise housing
mission oversight may be limited because resources that could be used
for that purpose must compete with other priorities.  For example,
HUD's capacity to implement a program to verify housing goal data,
which would necessarily involve a commitment of additional resources,
may be limited. 

Requiring Fannie Mae and Freddie Mac to reimburse HUD for mission
oversight expenditures would not only result in the savings shown
below but would also enable HUD to strengthen its oversight
activities. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    10      10      10      10      10
Outlays                             10      10      10      10      10
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:56.1

Federal Housing Enterprises:  HUD's Mission Oversight Needs to Be
Strengthened (GAO/GGD-98-173, July 28, 1998). 

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

Government-Sponsored Enterprises:  A Framework for Limiting the
Government's Exposure to Risks (GAO/GGD-91-90, May 22, 1991). 


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

Thomas J.  McCool, (202) 512-8678


   OPTION:
   RURAL HOUSING LOANS INTEREST
   RECAPTURE
------------------------------------------------------ Appendix III:57


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

Appropriations subcommittees        Agriculture, Rural Development,
                                    Food and Drug Administration, and
                                    Related Agencies (Senate and
                                    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 USDA'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 1995 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    45       0       0       0       0
Outlays                             45       0       0       0       0
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:57.1

Rural Housing Programs:  Opportunities Exist for Cost Savings and
Management Improvement (GAO/RCED-96-11, Nov.  16, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:57.2

Judy A.  England-Joseph, (202) 512-7631


   OPTION:
   REDUCING FHA'S INSURANCE
   COVERAGE
------------------------------------------------------ Appendix III:58


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

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

Primary agency                      Department of Housing and Urban
                                    Development

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

Spending type                       Discretionary/Direct

Budget subfunction                  Mortgage Credit

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

In May 1997, we reported that reducing FHA's insurance coverage to
the level permitted for VA home loans would likely reduce the Fund's
exposure to financial losses, thereby improving its financial health. 
As a result, the Fund's ability to maintain financial
self-sufficiency in an uncertain future would be enhanced.  For
example, if insurance coverage on FHA's 1995 loans were reduced to
VA's levels and a 14 percent volume reduction in lending assumed, we
estimated that the economic value of the loans would increase by $52
million to $79 million.  Economic value provides an estimate of the
profitability of FHA loans, which is important because estimated
increases in economic value due to legislative changes allow
additional mandatory spending authorizations to be made, other
revenues to be reduced, or projected savings in the federal budget to
be realized.  Reducing FHA's insurance coverage would likely improve
the financial health of the fund because the reduction in claim
payments resulting from lowered insurance coverage would more than
offset the decrease in premium income resulting from reduced lending
volume. 

Legislative changes could be made to reduce FHA's insurance coverage. 
Savings under this option would depend on future economic conditions,
the volume of loans made, how higher risk and lower risk borrowers
would be identified for exclusion from the program, and whether some
losses may be shifted from FHA to the Government National Mortgage
Association.  In addition, reducing FHA's insurance coverage does
pose trade-offs affecting lenders, borrowers, and FHA's role, such as
diminishing the federal role in stabilizing markets.  Borrowers most
likely affected would be low-income, first-time, and minority home
buyers and those individuals purchasing older homes. 

CBO did not provide a savings estimate for this option because the
amount of potential savings would depend on the reaction of lenders
and the resulting demand for FHA's products. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:58.1

Homeownership:  Potential Effects of Reducing FHA's Insurance
Coverage for Home Mortgages (GAO/RCED-97-93, May 1, 1997). 


      GAO CONTACT
---------------------------------------------------- Appendix III:58.2

Judy A.  England-Joseph, (202) 512-7631


   400 TRANSPORTATION
------------------------------------------------------ Appendix III:59

Replacement of Airport Surveillance Radars
Cargo Preference Laws
Fees Paid by Foreign-Flagged Cruise Ships
Department of Transportation's Oversight of Its University Research
Fees for Registering Aircraft


   OPTION:
   REPLACEMENT OF AIRPORT
   SURVEILLANCE RADARS
------------------------------------------------------ Appendix III:60


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

Appropriations subcommittees        Transportation (Senate and House)

Primary agency                      Department of Transportation

Accounts                            69-8107

Spending type                       Discretionary

Budget subfunction                  Air Transportation

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

FAA plans to install technologically advanced ASR-11 radars to
replace its model ASR-7 and ASR-8 radars, currently located at 101
airports.  However, some of these airports may no longer qualify for
a radar based on FAA's benefit-cost criteria.  Seventy-five of these
airports have less air traffic than an airport whose radar request
FAA recently denied using its benefit-cost criteria.  Furthermore, at
some of these airports, the circumstances that originally justified a
radar no longer exist.  Nevertheless, FAA officials plan to proceed
with the replacements because they believe that it would be very
difficult to discontinue radar operations at an airport that no
longer qualifies because the public's perception would be that safety
was being reduced, even if safety is not compromised. 

Safety and confidence in the national airspace system are very
important and must be considered when making decisions regarding the
installation and replacement of surveillance radars.  However, FAA's
current plans to install replacement radars without conducting
benefit-cost studies and revalidating operational needs may result in
the agency spending millions of dollars to replace radars that are no
longer needed or where the costs outweigh the benefits.  FAA's
perceived difficulties in discontinuing radar operations at an
airport only elevate the need for conducting benefit-cost studies and
assessing the operational needs.  Therefore, we recommended that FAA
conduct benefit-cost studies to validate the cost effectiveness and
revalidate the need for the radars at airports scheduled to receive
replacement radars and to use the results of the studies in
prioritizing the replacement of the radars at qualifying airports. 
FAA has not yet responded to our recommendation. 

Any savings resulting from this proposal would depend on the findings
of an FAA benefit-cost study.  Accordingly, CBO has not prepared a
savings estimate for this option. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:60.1

Air Traffic Control:  Surveillance Radar Request for the Cherry
Capital Airport (GAO/RCED-98-118, May 28, 1998). 


      GAO CONTACT
---------------------------------------------------- Appendix III:60.2

John H.  Anderson, Jr., (202) 512-2834


   OPTION:
   CARGO PREFERENCE LAWS
------------------------------------------------------ Appendix III:61


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 times 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, Energy, and the Agency for International
Development--were responsible for more than 99 percent, by tonnage,
of government cargo subject to cargo preference laws.  Cargo
preference laws increased these federal agencies' transportation
costs by an estimated $578 million per year in fiscal years 1989
through 1993 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. 

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 laws were eliminated, the following savings could be
achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   166     179     192     205     218
Outlays                            123     170     185     199     212
----------------------------------------------------------------------
Note:  The termination of cargo preference requirements for all
government-sponsored cargoes would probably cause additional defaults
on outstanding loans guaranteed by the Maritime Administration. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:61.1

Management Reform:  Implementation of the National Performance
Review's Recommendations (GAO/OCG-95-1, Dec.  5, 1994). 

Maritime Industry:  Cargo Preference Laws--Their Estimated Costs and
Effects (GAO/RCED-95-34, Nov.  30, 1994). 

Cargo Preference:  Effects of U.S.  Export-Import Cargo Preference
Laws on Exporters (GAO/GGD-95-2BR, Oct.  31, 1994). 

Cargo Preference Requirements:  Objectives Not Significantly Advanced
When Used in U.S.  Food Aid Programs (GAO/GGD-94-215, Sept.  29,
1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:61.2

John H.  Anderson, Jr., (202) 512-2834


   OPTION:
   FEES PAID BY FOREIGN-FLAGGED
   CRUISE SHIPS
------------------------------------------------------ Appendix III:62


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 shore-side 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Added receipts                      20      25      30      35      40
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      GAO CONTACT
---------------------------------------------------- Appendix III:62.1

John H.  Anderson, Jr., (202) 512-2834


   OPTION:
   DEPARTMENT OF TRANSPORTATION'S
   OVERSIGHT OF ITS UNIVERSITY
   RESEARCH
------------------------------------------------------ Appendix III:63


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

Appropriations subcommittees        Transportation (Senate and 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 we recommended, DOT has completed the development of a
departmentwide database to track the purpose and costs associated
with each university research award.  We also recommended that DOT
evaluate the operating administrations' processes to ensure that they
have adequate policies and procedures to carry out their
responsibilities for monitoring awards.  However, the department has
no plans to evaluate the operating administrations' processes to
ensure that they have adequate policies and procedures to carry out
their responsibilities for monitoring awards. 

Our 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.  CBO does not disagree
that improved monitoring and oversight of DOT's university research
can reduce outlays.  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:63.1

Department of Transportation:  University Research Activities Need
Greater Oversight (GAO/RCED-94-175, May 13, 1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:63.2

John H.  Anderson, Jr., (202) 512-2834


   OPTION:  FEES FOR REGISTERING
   AIRCRAFT
------------------------------------------------------ Appendix III:64


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 December 1997, 349,528 aircraft were registered in the
United States.  In fiscal year 1997, 59,353 certificate registrations
were issued. 

In 1993, we reported that the Federal Aviation Administration (FAA)
was not fully recovering the cost of processing aircraft registration
applications and estimated that, by not increasing fees since 1968 to
recover costs, FAA had foregone about $6.5 million in additional
revenue.  In 1993, we recommended that FAA accelerate implementation
of rules it proposed in 1990 for increasing aircraft registration
fees.  Although the DOT Appropriations Act for fiscal year 1998
prohibited FAA from promulgating new aviation user fees not
specifically authorized by law, FAA plans on rewriting the draft
Notice of Proposed Rulemaking to increase registration fees based on
existing legislative authority. 

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



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Added receipts                       1       1       1       1       1
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:64.1

Aviation Safety:  Unresolved Issues Involving U.S.-Registered
Aircraft (GAO/RCED-93-135, June 18, 1993). 


      GAO CONTACT
---------------------------------------------------- Appendix III:64.2

John H.  Anderson, Jr., (202) 512-2834


   450 COMMUNITY AND REGIONAL
   DEVELOPMENT
------------------------------------------------------ Appendix III:65

Eligibility for Federal Emergency Management Agency Public Assistance


   OPTION:
   ELIGIBILITY FOR FEDERAL
   EMERGENCY MANAGEMENT AGENCY
   PUBLIC ASSISTANCE
------------------------------------------------------ Appendix III:66


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 1998 dollars,
FEMA obligated almost $12 billion in public assistance for 412
disasters and emergencies declared during fiscal years 1991 through
1998, as compared with about $3 billion for 215 disasters and
emergencies declared during the preceding 8 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, we 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
(e.g., upgrade only disaster-damage portions of structures, better
define who has the authority to adopt and approve codes and
standards, and limit the time period for adopting new codes).  In
1998, FEMA reduced the number of appeals for program decisions from
three to two and issued regulations stating that building codes and
specifications or standards required for the construction of
facilities must be found to be reasonable and must be limited to the
standards that are in writing and in effect at the time of the
disaster declaration.  CBO estimates that eliminating eligibility for
all private nonprofit organizations--many of which are
revenue-generating facilities such as utilities, hospitals, and
universitiesï¿½would yield the following savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    48      48      48      48      48
Outlays                             10      22      31      38      38
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:66.1

Disaster Assistance:  Information on Federal Costs and Approaches for
Reducing Them (GAO/T-RCED-98-139, Mar.  26, 1998). 

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, Apr.  30, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:66.2

Judy A.  England-Joseph, (202) 512-7631


   500 EDUCATION, TRAINING,
   EMPLOYMENT, AND SOCIAL SERVICES
------------------------------------------------------ Appendix III:67

Consolidation of Student Aid Programs


   OPTION:
   CONSOLIDATION OF STUDENT AID
   PROGRAMS
------------------------------------------------------ Appendix III:68


Authorizing committees              Labor and Human Resources (Senate)
                                    Education and the Workforce
                                    (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 Loan (FDL) programs compose the largest source of federal
student financial aid.  FFEL and FDL 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 16 smaller programs are targeted to specific
segments of the postsecondary school population.  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 16 programs, which were funded at $1.1 billion total in fiscal
year 1998, could be candidates for consolidation.  For example,
programs directed at 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 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 object of the enabling
legislation, the Higher Education Act of 1965, as amended. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   124     124     124     124     124
Outlays                             15      99     121     124     124
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:68.1

Department of Education:  Information on Consolidation Opportunities
and Student Aid (GAO/T-HEHS-95-130, Apr.  6, 1995). 

Department of Education:  Opportunities to Realize Savings
(GAO/T-HEHS-95-56, Jan.18, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:68.2

Cynthia M.  Fagnoni, (202) 512-7215


   550 HEALTH
------------------------------------------------------ Appendix III:69

Prescription Drug and Medicaid Fraud
Medicaid:  States Use Illusory Approaches to Shift Program Costs to
the  Federal Government
Medicaid Formula:  Fairness Could Be Improved
Public Health Service Commissioned Corps
Unified Risk-Based Food Safety System


   OPTION:
   PRESCRIPTION DRUG AND MEDICAID
   FRAUD
------------------------------------------------------ Appendix III:70


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
----------------------------------------------------------------------
While the Medicaid program is increasingly turning to managed care as
a solution for higher costs, about 60 percent of all 1996 recipients
still obtained medical items and services from vendors.  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 1997, Medicaid's drug benefit
cost about $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.  Based on
considerable previous work, we believe 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
our findings and recommendation, but believes it is not feasible
unless new staff resources can be identified and allocated. 

The Congress may wish to 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 of the savings 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:70.1

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, Mar.  22, 1995). 

Prescription Drugs:  Automated Prospective Review Systems Offer
Significant Potential Benefits for Medicaid (GAO/AIMD-94-130, Aug. 
5, 1994). 

Medicaid:  A Program Highly Vulnerable to Fraud (GAO/T-HEHS-94-106,
Feb.  25, 1994). 

Medicaid Drug Fraud:  Federal Leadership Needed to Reduce Program
Vulnerabilities (GAO/HRD-93-118, Aug.  2, 1993). 

Medicaid Prescription Drug Diversion:  A Major Problem, but State
Approaches Offer Some Promise (GAO/T-HRD-92-48, July 29, 1992). 

Prescription Drug Monitoring:  States Can Readily Identify Illegal
Sales and Use of Controlled Substances (GAO/HRD-92-115, July 21,
1992). 


      GAO CONTACT
---------------------------------------------------- Appendix III:70.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICAID:  STATES USE ILLUSORY
   APPROACHES TO SHIFT PROGRAM
   COSTS TO THE FEDERAL GOVERNMENT
------------------------------------------------------ Appendix III:71


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
----------------------------------------------------------------------
We 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.  Our analysis of Michigan's
transactions showed that even though legislation curtailed certain
creative financing practices, the state was able to reduce its share
of Medicaid costs at the expense of the federal government by $428
million through other mechanisms. 

The practices that involve payments to state-owned facilities have
been restricted by (1) the Omnibus Budget Reconciliation Act of 1993
provisions that limit such payments to unreimbursed Medicaid and
uninsured costs and (2) the Balanced Budget Act of 1997 provisions
that further limit Medicaid payments to state psychiatric hospitals. 
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. 

We believe that the Medicaid program should not allow states to
benefit from illusory arrangements and that Medicaid funds should
only be used to help cover the costs of medical care incurred by
those medical facilities that provide the care.  We believe 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:71.1

Medicaid:  Managed Care and Individual Hospital Limits for
Disproportionate Share Hospital Payments (GAO/HEHS-98-73R, Jan.  28,
1998). 

Medicaid:  Disproportionate Share Payments to State Psychiatric
Hospitals (GAO/HEHS-98-52, Jan.  23, 1998). 

Medicaid:  Disproportionate Share Hospital Payments to Institutions
for Mental Disease (GAO/HEHS-97-181R, July 15, 1997)

State Medicaid Financing Practices (GAO/HEHS-96-76R, Jan.  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, Aug.  1, 1994). 

Medicaid:  The Texas Disproportionate Share Program Favors Public
Hospitals (GAO/HRD-93-86, Mar.  30, 1993). 


      GAO CONTACT
---------------------------------------------------- Appendix III:71.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICAID FORMULA:  FAIRNESS
   COULD BE IMPROVED
------------------------------------------------------ Appendix III:72


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 low-income, aged,
blind, or disabled individuals.  The federal government and the
states share the financing of the program through an open-ended
matching grant whereby federal outlays rise with the cost and use of
Medicaid services.  The federal share of the program costs varies
inversely with state per capita income.  Consequently, high-income
states pay a larger share of the benefits than low-income states.  By
law, the federal share can be no less than 50 percent and no more
than 83 percent. 

Since 1986, we have issued numerous reports and testimonies that
identify ways in which the fairness of federal grant formulas could
be improved.  With respect to Medicaid, we believe that the fairness
of the matching formula in the open-ended program could be improved
by replacing the per capita income factor with four factors--the
number of people living below the official poverty line, the total
taxable resources of the state, cost differences associated with the
demographic composition of state caseloads and, differences in health
care costs across states--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, lower costs and greater 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                 6,400   6,900   7,400   8,000   8,700
Outlays                          6,400   6,900   7,400   8,000   8,700
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:72.1

Medicaid Formula:  Effects of Proposed Formula on Federal Shares of
State Spending (GAO/HEHS-99-29R, Feb.  19, 1999). 

Medicaid Matching Formula:  Effects of Need Indicators on New York's
Funding (GAO/HEHS-97-152R, June 9, 1997). 

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, Dec. 
7, 1990). 


      GAO CONTACT
---------------------------------------------------- Appendix III:72.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   PUBLIC HEALTH SERVICE
   COMMISSIONED CORPS
------------------------------------------------------ Appendix III:73


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

Account                             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. 

We 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. 

Our 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 changes are implemented, the accuracy
of the data PHS and DOD provided us, the applicability of 1994 costs
to future years, how closely our 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. 

Although CBO estimates that converting officers with fewer than 15
years of service to civilian status would result in a net cost to the
federal government during the initial 5-year estimation period, it
agrees that annual savings of millions of dollars would continue to
grow as new entrants continue to be hired at a lower cost than PHS
Corps recruits.\7


--------------------
\7 CBO's estimate assumed that the conversion would be effective
January 1, 2000.  The estimate further assumed that converted
officers would not incur any reduction in pay but that new entrants
would be hired at a lower cost than previously incurred for PHS Corps
recruits. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:73.1

Federal Personnel:  Public Health Service Commissioned Corps
Officers' Health Care for Native Americans (GAO/GGD-97-111BR, Aug. 
27, 1997). 

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:73.2

L.  Nye Stevens, (202) 512-8676


   OPTION:
   UNIFIED RISK-BASED FOOD SAFETY
   SYSTEM
------------------------------------------------------ Appendix III:74


Authorizing committees              Agriculture, Nutrition, and
                                    Forestry (Senate)
                                    Agriculture (House)

Appropriations subcommittees        Agriculture, Rural Development,
                                    and Related Agencies (Senate)
                                    Agriculture (House)

Primary agency                      Department of Agriculture

Accounts                            Multiple

Spending type                       Discretionary

Framework theme                     Improve efficiency
----------------------------------------------------------------------
We have issued numerous 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 is inefficient and
outdated and does not adequately protect the consumer against
food-borne illness.  We have 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, we have recommended the consolidation of federal food
safety agencies and activities.  Specifically, we have 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) that 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, 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, these activities have not been consolidated
into a single food safety agency that would further reduce costs.  In
1998, the National Academy of Sciences issued a report endorsing
action to consolidate food safety activities. 

A 5-year estimate of savings from consolidating food inspection
programsï¿½which as separate activities currently cost over $1 billion
dollars--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:74.1

Food Safety:  Weak and Inconsistently Applied Controls Allow Unsafe
Imported Food to Enter U.S.  Commerce (GAO/T-RCED-98-271, Sept.  10,
1998). 

Food Safety:  Opportunities to Redirect Federal Resources and Funds
Can Enhance Effectiveness (GAO/RCED-98-224, Aug.  6, 1998). 

Food Safety:  Federal Efforts to Ensure the Safety of Imported Foods
Are Inconsistent and Unreliable (GAO/RCED-98-103, Apr.  30, 1998). 

Food Safety:  Fundamental Changes Needed to Improve Food Safety
(GAO/RCED-97-249R, Sept.9, 1997). 

Food Safety:  Information on Foodborne Illnesses (GAO/RCED-96-96, May
8, 1996). 

Food Safety:  Changes Needed to Minimize Unsafe Chemicals in Food
(GAO/RCED-94-192, Sept.  26, 1994). 

Food Safety:  A Unified, Risk-Based Food Safety System Needed
(GAO/T-RCED-94-223, May 25, 1994). 

Food Safety:  Risk-Based Inspections and Microbial Monitoring Needed
for Meat and Poultry (GAO/RCED-94-110, May 19, 1994). 

Food Safety and Quality:  Uniform, Risk-based Inspection System
Needed to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992). 

Food Safety and Quality:  Who Does What in the Federal Government
(GAO/RCED-91-19A, Dec.  21, 1990). 

Food Safety and Quality:  Who Does What in the Federal Government
(GAO/RCED-91-19B, Dec.  21, 1990). 


      GAO CONTACT
---------------------------------------------------- Appendix III:74.2

Lawrence J.  Dyckman (202) 512-5138


   570 MEDICARE
------------------------------------------------------ Appendix III:75

Anticipated Savings at Risk with New Skilled Nursing Facility Payment
 Method
Using More Precise Coding to Facilitate Adjusting Medicare Fee
Schedule  Allowances to Reflect
Changing Technology, Costs, and Market Prices
Medicare Program Safeguards
Medicare Payments for High Technology Procedures
Medicare Rate-Setting Methods for HMOs
Medicare Incentive Payments in Health Care Shortage Areas


   OPTION:
   ANTICIPATED SAVINGS AT RISK
   WITH NEW SKILLED NURSING
   FACILITY PAYMENT METHOD
------------------------------------------------------ Appendix III:76


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)
                                    Commerce (House)

Primary agency                      Department of Health and Human
                                    Services

Account                             Federal Hospital Insurance Trust
                                    Fund (20-8005)

Spending type                       Direct

Budget subfunction                  Health and Medicare

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Balanced Budget Act mandated the implementation of a prospective
payment system (PPS) for skilled nursing facilities (SNF) to help
address concerns about dramatic growth in Medicare spending for these
services.  A PPS provides incentives to deliver services efficiently
by paying providersï¿½regardless of their costsï¿½fixed, predetermined
rates that vary according to expected patient service needs.  Health
Care Financing Administration (HCFA) began phasing in such a system
for SNFs in July 1998. 

Problems with the design of the PPS, inadequate data used to
establish rates, and inadequate planned oversight of claims for
payment, however, could compromise Medicare's ability to stem
spending growth while maintaining beneficiary access.  We are
concerned that the PPS preserves the opportunity for providers to
increase their compensation by supplying potentially unnecessary
services.  Furthermore, the payment rates were computed using data
that overstate the reasonable cost of providing care and may not
appropriately reflect the differences in costs for patients with
different care needs.  In addition, as a part of the system, Medicare
appears to have established new criteria for determining eligibility
for the Medicare SNF benefit, which could expand the number of
beneficiaries who will be covered and the length of covered stays. 
The planned oversight of claims to determine if a beneficiary is
entitled to Medicare coverage and how much payment a SNF should
receive is insufficient, increasing the potential to compromise
expected savings. 

We believe that HCFA should modify the SNF PPS regulations to address
these concerns.  Medicare needs to ensure that the payment rates
reflect only necessary services that the facilities actually provide. 
Medicare should also increase its vigilance over claims review and
provider oversight so that payments are appropriate and made only for
eligible beneficiaries. 

CBO agrees that improved payment methods and oversight could reduce
spending.  However, by convention, CBO only estimates the costs or
savings of proposals that change current law, not administrative
changes. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:76.1

Balanced Budget Act:  Implementation of Key Medicare Mandates Must
Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July
16, 1998). 

Long-Term Care:  Baby Boom Generation Presents Financing Challenges
(GAO/T-HEHS-98-107, Mar.  9, 1998). 

Medicare Post-Acute Care:  Home Health and Skilled Nursing Facility
Cost Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90,
Mar.  4, 1997). 


      GAO CONTACT
---------------------------------------------------- Appendix III:76.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   USING MORE PRECISE CODING TO
   FACILITATE ADJUSTING MEDICARE
   FEE SCHEDULE ALLOWANCES TO
   REFLECT CHANGING TECHNOLOGY,
   COSTS, AND MARKET PRICES
------------------------------------------------------ Appendix III:77


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
----------------------------------------------------------------------
Medicare's supplementary medical insurance program (Medicare Part B)
uses fee schedules to pay for most medical items such as durable
medical equipment, prosthetics, orthotics, and supplies--items that
accounted for $4.6 billion in allowed charges in 1996.  Fee schedule
allowances are primarily based on historical charges, indexed
forward, rather than current costs or market prices.  For example,
the fee schedules for durable medical equipment, prosthetic devices,
orthotics, prosthetics, and related supplies such as walkers,
catheters, and glucose test strips are based on supplier charges in
1986 and 1987. 

Over time, providers' costs for some procedures, equipment, and
supplies have declined as competition and efficiencies increased.  In
other cases, medical innovations and advances have increased the cost
of some procedures and products.  However, Medicare has not had a
process to routinely and systematically review these factors and make
timely adjustments to the Medicare allowances.  In fact, through the
years, the Congress has legislatively adjusted Medicare allowances
for some products and services, such as home oxygen, clinical
laboratory tests, intraocular lenses, computed tomography scans and
magnetic resonance imaging scans. 

The Balanced Budget Act of 1997 provided the Health Care Financing
Administration (HCFA) the authority to make more timely adjustments
to Medicare Part B allowances by up to 15 percent per year.  (This
authority does not extend to adjustment of Medicare payments for
physician services.) However, HCFA must overcome some obstacles to
effectively use this new authority.  One obstacle is that Medicare
frequently does not know specifically what it is paying for.  HCFA
does not require suppliers to identify on Medicare claims the
specific items billed.  Instead, suppliers are required to use HCFA
billing codes, most of which cover a broad range of products of
various types, qualities, and market prices.  For example, one
Medicare billing code is used for more than 200 different urological
catheters, even though some of these catheters sell at a fraction of
the price of others billed under the same code.  Unless Medicare
claims contain more product specific information, HCFA cannot track
what items are billed to ensure that each billing code is used for
comparable products.  Although the health care industry is
increasingly using more specific universal product numbers and bar
codes for inventory control, HCFA does not require suppliers to use
these identifiers on Medicare claims. 

There are a number of options that could also help bring Medicare
allowances more into line with costs and market prices.  For example,
the Congress has authorized HCFA to implement competitive bidding
demonstration projects for some Part B services and suppliers. 
Another approach is basing Medicare payments on the lower of the fee
schedule allowance or the lowest amount a provider has agreed to
accept from other payers.  Also, for some medical equipment and
supplies, HCFA could base Medicare allowances on the competitive
contracts awarded by other large payers, such as the Department of
Defense or the Department of Veterans' Affairs. 

CBO is currently collecting data on a Universal Product Code-based
payment system and is unable to provide saving estimates at this
time. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:77.1

Medicare:  Progress to Date in Implementing Certain Major Balanced
Budget Act Reforms (GAO/T-HEHS-99-87, Mar.  17, 1999). 

Medicare:  Need to Overhaul Costly Payment System for Medical
Equipment and Supplies (GAO/HEHS-98-102, May 12, 1998). 

Medicare:  Home Oxygen Program Warrants Continued HCFA Attention
(GAO/HEHS-98-17, Nov.  7, 1997). 

Medicare:  Problems Affecting HCFA's Ability to Set Appropriate
Reimbursement Rates for Medical Equipment and Supplies
(GAO/HEHS-97-157R, June 17, 1997). 

Medicare:  Comparison of Medicare and VA Payment Rates for Home
Oxygen (GAO/HEHS-97-120R, May 15, 1997). 

Medicare Spending:  Modern Management Strategies Needed to Curb
Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept.  19, 1995). 

Medicare High Spending Growth Calls for Aggressive Action
(GAO/HEHS-T-95-75, Feb.  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:77.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICARE PROGRAM SAFEGUARDS
------------------------------------------------------ Appendix III:78


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 subfunction                  Health and Medicare

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Recently we reported that the funding Medicare contractors receive to
review benefit claims has declined by over 20 percent since 1989.  In
response, contractors apply fewer or less stringent payment controls,
and claims are paid that otherwise would not be.  Historically,
payment safeguards such as pre- and postpayment medical review of
claims, or fraud unit investigations, have returned $10 in savings
for each dollar expended on them.  We believe 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 Investigation--to identify
and pursue individuals or entities that defraud federal health care
programs.  However, the recently enacted increase in Medicare program
safeguard funding alone--13.6 percent, or $60 million, for fiscal
year 1998--must be spread over a volume of claims rising in recent
years by 3 to 5 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 through
1996 average.  Consequently, we believe that the potential exists for
further funding increases to yield net savings. 

CBO did not prepare a savings estimate for this option because it
does not estimate changes in direct spending due to changes in
discretionary spending. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:78.1

Medicare:  Health Care Fraud and Abuse Control Program Financial
Report for Fiscal Year 1997 (GAO/AIMD-98-157, Jun.  1, 1998)

Medicare:  Fraud and Abuse Control Pose a Continuing Challenge
(GAO/HEHS-98-215R, July 15, 1998). 

Medicare:  HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities
(GAO/HEHS-98-160, June 1, 1998). 

Medicare:  Improper Activities by Mid-Delta Home Health
(GAO/OSI-98-5, Mar.  12, 1998). 

Medicare:  Recent Legislation to Minimize Fraud and Abuse Requires
Effective Implementation (GAO/T-HEHS-98-9, Oct.  9, 1997). 

Medicare Fraud and Abuse:  Summary and Analysis of Reform in the
Health Insurance Portability and Accountability Act of 1996 and the
Balanced Budget Act of 1997 (GAO/HEHS-98-18R, Oct.  9, 1997). 

Medicare:  Control Over Fraud and Abuse Remains Elusive
(GAO/T-HEHS-97-165, June 26, 1997). 

Medicare:  Inherent Program Risks and Management Challenges Require
Continued Federal Attention (GAO/T-HEHS-97-89, Mar.  4, 1997). 

Nursing Homes:  Too Early to Assess New Efforts to Control Fraud and
Abuse (GAO/T-HEHS-97-114, Apr.  16, 1997). 

Medicare:  Control Over Fraud and Abuse Remains Elusive
(GAO/T-HEHS-97-165, June 25, 1997). 

Medicare Home Health:  Success of Balanced Budget Act Cost Controls
Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41,
Oct.  29, 1997). 

Medicare (GAO/HR-97-10, Feb.  1997). 

Funding Anti-Fraud and Abuse Activities (GAO/HEHS-95-263R, Sept.  29,
1995). 

Medicare:  High Spending Growth Calls for Aggressive Action
(GAO/T-HEHS-95-75, Feb.  6, 1995). 

Medicare Claims (GAO/HR-95-8, Feb.  1995). 

Medicare:  Adequate Funding and Better Oversight Needed to Protect
Benefit Dollars (GAO/T-HRD-94-59, Nov.  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, Feb.  28, 1989). 

Medicare and Medicaid:  Budget Issues (GAO/T-HRD-87-1, Jan.  29,
1987). 


      GAO CONTACT
---------------------------------------------------- Appendix III:78.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICARE PAYMENTS FOR HIGH
   TECHNOLOGY PROCEDURES
------------------------------------------------------ Appendix III:79


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 less efficient rendering of a service
due to inexperience, large capital expenditures and low initial
utilization rates.  When Medicare sets its payment rates for these
new services, the rates typically are based on the high initial unit
costs.  Over time, providers' unit costs decline as equipment
improves, utilization increases, and experience in performing the
service 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 and magnetic resonance imaging scans. 

The Health Care Financing Administration (HCFA) has initiatives
underway which may help bring some Medicare payment rates more in
line with actual costs and market prices, including a HCFA
demonstration project, now mandated by the Balanced Budget Act of
1997, which will evaluate a competitive bidding process to set
Medicare payment levels for some medical equipment and services. 
Laboratory services are among those being considered for competitive
bidding. 

These projects may eventually bring some Medicare payment rates more
in line with actual costs and market rates, but none of these
projects specifically targets expensive, evolving technologies.  We
believe significant program savings would result from an ongoing,
systematic process for evaluating the reasonableness of Medicare
payment rates for new medical technologies as those technologies
mature. 

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:79.1

Medicare Spending:  Modern Management Strategies Needed to Curb
Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept.  19, 1995). 

Medicare:  High Spending Growth Calls for Aggressive Action
(GAO/T-HEHS-95-75, Feb.  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:79.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICARE RATE-SETTING METHODS
   FOR HMOS
------------------------------------------------------ Appendix III:80


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                       Direct\a

Budget subfunction                  Medicare

Framework theme                     Improve efficiency
----------------------------------------------------------------------
\a A small portion of this account includes administrative expenses
that are discretionary in nature. 

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.  Prior to passage of the Balanced Budget Act of 1997, basic
capitation rates for Medicare risk HMOs in each county were set at 95
percent of the estimated average cost of beneficiaries in that
county's Medicare fee-for-service program.  The county rates were
then adjusted, up or down, depending on HMO enrollees' demographic
traits.  These adjustments, known as "risk adjustments," were
designed to better match payment amounts with the expected health
care costs of HMO enrollees. 

The risk contract program has not achieved its goal of reducing
Medicare costs for two reasons.  First, the basic county capitation
rates tend to be too high in many areas.  Medicare HMOs tend to
attract relatively healthy individuals while less healthy, more
expensive, beneficiaries typically remain in fee-for-service. 
Because county rates are determined by actual fee-for-service
spending, this "favorable selection" of relatively healthy
beneficiaries into HMOs tends to increase county rates and generate
excess payments to HMOs.  Second, because the Health Care Financing
Administration's (HCFA) risk adjustment methodology is inadequate,
Medicare has paid HMOs more than it would have paid to treat HMO
enrollees in the fee-for-service program.  We have estimated that,
for counties containing 36 percent of risk contract HMO enrollment,
Medicare excess payments (payments above estimated fee-for-service
costs) to HMOs were about $1 billion in 1995. 

The Balanced Budget Act requires major changes in how capitation
rates are determined, but the basic link to fee-for-service
spending--and the payment inaccuracies that accompany that
link--remain in the new rate setting methodology.  These inaccuracies
will continue under the Balanced Budget Act because (1) rates
determined under the old system (increased by 2 percent) are used as
new minimum rates, (2) local fee-for-service spending will continue
to influence county rates, although not as strongly as in the past,
and (3) increases in fee-for-service spending will influence annual
updates in the capitation rates. 

We have 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:80.1

Medicare Managed Care:  Better Risk Adjustment Expected to Reduce
Excess Payments Overall While Making Them Fairer to Individual Plans
(GAO/T-HEHS-99-72, Feb.  25, 1999). 

Medicare HMO Institutional Payments:  Improved HCFA Oversight, More
Recent Cost Data Could Reduce Overpayments (GAO/HEHS-98-153, Sept. 
9, 1998). 

Medicare HMOs:  Setting Payment Rates Through Competitive Bidding
(GAO/HEHS-97-154R, June 12, 1997). 

Medicare HMOs:  HCFA Can Promptly Eliminate Hundreds of Millions of
Excess Payments (GAO/HEHS-97-16, Apr.  25, 1997). 

Medicare HMOs:  HCFA Could Promptly Reduce Excess Payments by
Improving Accuracy of County Payment Rates (GAO/T-HEHS-97-78, Feb. 
25, 1997). 

Medicare Managed Care:  Growing Enrollment Adds Urgency to Fixing HMO
Payment Problem (GAO/HEHS-96-21, Nov.  8, 1995). 

Medicare:  Changes to HMO Rate Setting Method Are Needed to Reduce
Program Costs (GAO/HEHS-94-119, Sept.  2, 1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:80.2

William J.  Scanlon, (202) 512-7114


   OPTION:
   MEDICARE INCENTIVE PAYMENTS IN
   HEALTH CARE SHORTAGE AREAS
------------------------------------------------------ Appendix III:81


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)

Primary agency                      Department of Health and Human
                                    Services

Account                             Federal Supplemental Insurance
                                    Trust Fund Account (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
1997, this program provided about $92 million in bonuses to
physicians in HPSAs, an amount 16 percent higher than the previous
year.  While we are currently reviewing the effectiveness of the
program, our previous work has led us to raise questions about its
merits for the following reasons: 

  -- The MIP program is not an effective mechanism for improving
     Medicare beneficiaries' ability to obtain health care.  Recent
     surveys of the Medicare population show that neither provider
     shortages nor low Medicare reimbursement rates were causing
     widespread access problems. 

  -- The MIP program is also not an effective mechanism for improving
     access to care for people not covered by Medicare in underserved
     areas.  The basis on which MIP funds are targeted is inadequate
     to assure that they are directed to improve access to care.  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 also 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 1996 was about $341--an amount too low to
     have a significant effect on physicians' practice location
     decisions. 

The savings estimate that follows assumes that the Congress
eliminates the additional 10 percent payment for services delivered
in urban and rural HPSAs beginning in fiscal year 2000. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    70      70      70      75      75
Outlays                             70      70      70      75      75
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:81.1

Physician Shortage Areas:  Mecicare Incentive Payments Not an
Effective Approach to Improve Access (GAO/HEHS-99-36, Feb.  26,
1999). 

Health Care Shortage Areas:  Designations Not a Useful Tool for
Directing Resources to the Underserved (GAO/HEHS-95-200, Sept.  8,
1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:81.2

William J.  Scanlon, (202) 512-7114


   600 INCOME SECURITY
------------------------------------------------------ Appendix III:82

Efficient Use of Debt Collection Tools to Recover Supplemental
Security  Income Overpayments
Determining SSI Recipient Living Arrangements
Resource Transfers to Qualify for SSI
Improving Social Security Benefit Payment Controls
Fees for Non-Temporary Assistance to Needy Families (TANF) Child
 Support Enforcement Services
Benefit Payments Under the Federal Employees' Compensation Act
Return-to-Work Strategies for People With Disabilities
Reporting of DOD Reserve Payroll Data to State Unemployment Insurance
 Programs
Automated Child Support Enforcement Systems


   OPTION:
   EFFICIENT USE OF DEBT
   COLLECTION TOOLS TO RECOVER
   SUPPLEMENTAL SECURITY INCOME
   OVERPAYMENTS
------------------------------------------------------ Appendix III:83


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)

Appropriations subcommittees        Labor, HHS, Education and Related
                                    Agencies (Senate and House)

Primary agency                      Social Security Administration

Accounts                            Supplemental Security Income
                                    Program (28-0406)

Spending type                       Direct/Discretionary

Budget subfunction                  Other Income Security

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Supplemental Security Income (SSI) program is the nation's
largest cash assistance program for the poor.  In 1996, the SSI
program paid about 6.6 million aged, blind and disabled recipients
more than $25 billion in benefits.  Over the years, Social Security
Administration (SSA) has been significantly challenged in its efforts
to serve the diverse needs of recipients while still protecting the
financial integrity of the program.  In prior reports, we have
documented instances of program abuse, mismanagement, and increasing
SSI overpayments and outstanding debt which totaled $2.6 billion in
fiscal year 1997.  We also noted SSA's historical reluctance to use
both overpayment recovery tools already available to it and
aggressively pursue additional tools when warranted, including tax
refund offsets, credit bureau reporting, collection agencies, and
interest levies on outstanding debt owed.  Following a number of GAO
briefings with SSA's Acting Principal Deputy Commissioner and our
recent testimony denoting SSA's reluctance to pursue more aggressive
debt collection tools, SSA is now seeking statutory authority to
recover overpayments from other retirement and disability benefits
paid to former SSI recipients, as well as use credit bureaus,
collection agencies, interest levies and other administrative offsets
to strengthen its collection efforts.  SSA has estimated that its
proposals, if enacted, will yield $40 million in additional annual
overpayment recoveries.  In light of the potential for increased
overpayment recoveries and improved program integrity, the Congress
may wish to consider expanding SSA's authority to use these more
aggressive debt collection tools.  CBO estimates that doing so would
produce the savings shown in the following table. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Offsetting receipts                  0       0       5      10      10
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:83.1

Supplemental Security Income:  Action Needed on Long-Standing
Problems Affecting Program Integrity (GAO/HEHS-98-158, Sept.  14,
1998). 


      GAO CONTACT
---------------------------------------------------- Appendix III:83.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   DETERMINING SUPPLEMENTAL
   SECURITY INCOME RECIPIENT
   LIVING ARRANGEMENTS
------------------------------------------------------ Appendix III:84


Authorizing committees              Finance (Senate) Ways and Means
                                    (House)

Appropriations subcommittees        Labor, HHS, Education and Related
                                    Agencies (Senate and House)

Primary agency                      Social Security Administration

Accounts                            Supplemental Security Income
                                    Program (28-0406)

Spending type                       Direct/Discretionary

Budget subfunction                  Other Income Security

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Social Security Administration (SSA) administers the Supplemental
Security Income (SSI) program, which is the nation's largest cash
assistance program for the poor.  Since its inception, the SSI
program has been difficult to administer because, similar to other
means tested programs, it relies on complicated criteria and policies
to determine initial and continuing eligibility and benefit levels. 
One of the factors considered is the living arrangements of the
beneficiary.  When determining SSI eligibility and benefit amounts,
SSA staff apply a complex set of policies to document an individual's
living arrangements and any additional support they may be receiving
from others.  This process depends heavily on self-reporting by
recipients of whether they live alone or with others; the
relationships involved; the extent to which rents, food, utilities,
and other household expenditures are shared; and exactly what portion
of those expenses the individual pays.  These numerous rules and
policies have made living arrangement determinations one of the most
complex and error prone aspects of the SSI program, and a major
source of overpayments. 

We recently reported that SSA has not addressed longstanding SSI
living arrangement verification problems, despite numerous internal
and external studies and many years of quality reviews denoting this
as an area prone to error and abuse.  Some of the studies we reviewed
recommended ways to simplify the process by eliminating many complex
calculations and thereby making it less susceptible to manipulation
by recipients.  Other studies we reviewed suggested ways to make this
aspect of the program less costly to taxpayers.  For example, in
1989, SSA's Office of Inspector General reported that a more
simplified process that applied a shared expenditures rationale to
all SSI recipients living with another person would result in fewer
errors and reduce annual overpayments by almost $80 million.  In
light of the potential cost savings associated with addressing this
issue, we recommended in September 1998 that SSA develop and advance
legislative options for simplifying SSI living arrangement policies
and ultimately reduce program overpayments. 

Although CBO agrees that some changes that would simplify living
arrangement policies have the potential to create savings, it cannot
develop a savings estimate until a specific legislative proposal is
identified. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:84.1

Supplemental Security Income:  Action Needed on Long-Standing
Problems Affecting Program Integrity (GAO/HEHS-98-158, Sept.  14,
1998). 


      GAO CONTACT
---------------------------------------------------- Appendix III:84.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   RESOURCE TRANSFERS TO QUALIFY
   FOR SUPPLEMENTAL SECURITY
   INCOME
------------------------------------------------------ Appendix III:85


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)

Appropriations committees           Labor, HHS, and Education (Senate
                                    and 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 1996, about 6.6 million SSI recipients
received more than $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 other individuals in order to qualify for SSI benefits. 
In a prior 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 response to our work, SSA has submitted a proposal to the Congress
aimed at preventing individuals from transferring assets in order to
qualify for SSI benefits. 

In light of the potential for reduced program expenditures and
increased program integrity, the Congress may wish to consider this
proposal.  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 estimates that follow are based on
this assumption.  This option produces increases

in discretionary spending that are more than offset by savings in
direct spending. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    -1      -1      -1      -1      -1
Outlays                             -1      -1      -1      -1      -1
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     1       3       5       7       9
Outlays                              1       3       5       7       9
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:85.1

Supplemental Security Income:  Action Needed on Long-Standing
Problems Affecting Program Integrity (GAO/HEHS-98-158, Sept.  14,
1998). 

Supplemental Security Income:  Some Recipients Transfer Valuable
Resources to Qualify for Benefits (GAO/HEHS-96-79, Apr.  30, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:85.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   IMPROVING SOCIAL SECURITY
   BENEFIT PAYMENT CONTROLS
------------------------------------------------------ Appendix III:86


Authorizing committees              Finance (Senate) Ways and Means
                                    (House)

Primary agency                      Social Security Administration

Accounts                            Federal Old Age and Survivor's
                                    Insurance Trust Fund (20-8006)

Spending type                       Direct

Budget subfunction                  Social Security

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Social Security Administration (SSA) is required by law to reduce
social security benefits to persons who also receive a pension from
noncovered employment (typically persons who work for the federal
government or state and local governmental agencies).  The Government
Pension Offset provision requires SSA to reduce benefits to persons
whose social security entitlement is based on another person's social
security coverage (usually their spouse's).  The Windfall Elimination
Provision requires SSA to use a modified formula to calculate a
person's earned social security benefit whenever a person also earned
a pension through a substantial career in noncovered employment.  The
modified formula reduces the social security benefit significantly. 

We found that SSA payment controls for these offsets were incomplete. 
For state and local retirees, SSA had no third party pension data to
verify whether persons were receiving a noncovered pension.  An
analysis of available data indicated that this lapse in payment
controls for state and local government retirees cost the trust funds
between $129 million to $323 million from 1978 to about 1995. 

We have recommended that SSA work with the Internal Revenue Service
(IRS) to revise the reporting of pension income on IRS tax form
1099R.  IRS has advised SSA that it needs a technical amendment to
the Tax Code to obtain the information SSA needs.  We believe that
millions of dollars in reduced overpayments could be achieved each
year with better payment controls.  However, it should be noted that
these savings would be offset somewhat by administrative costs
associated with conducting additional computer

matching at SSA.  CBO estimates that improved payment controls could
result in the savings shown in the table below. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     0      15      40      50      55
Outlays                              0      15      40      50      55
----------------------------------------------------------------------
>Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT: 
---------------------------------------------------- Appendix III:86.1

Social Security:  Better Payment Controls for Benefit Reduction
Provisions Could Save Millions (GAO/HEHS-98-76, Apr.  30, 1998). 


      GAO CONTACT
---------------------------------------------------- Appendix III:86.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   FEES FOR NON-TEMPORARY
   ASSISTANCE TO NEEDY FAMILIES
   (TANF) CHILD SUPPORT
   ENFORCEMENT SERVICES
------------------------------------------------------ Appendix III:87


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
1997, non-TANF caseloads and costs rose about 420 percent and 920
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 1997, for example, state fee practices
returned about $41 million of the $1.6 billion spent to provide
non-TANF services. 

Since 1992, we have reported on opportunities to defray some of the
costs of child support programs.  Based on this work, we believe that
mandatory application fees should be dropped and that states should
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 15 percent on collections for
non-TANF families.  The following savings assume states would be able
to implement this option beginning October 1, 1999. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   780     850     930    1000    1080
Outlays                            780     850     930    1000    1080
----------------------------------------------------------------------
Note:  Estimate assumes that all fees collected are split between the
federal and state government at the administrative cost match rate: 
66 percent federal and 34 percent state. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:87.1

Welfare Reform:  Child Support an Uncertain Income Supplement for
Families Leaving Welfare (GAO/HEHS-98-168, Aug.  3, 1998). 

Child Support Enforcement:  Early Results on Comparability of
Privatized and Public Offices (GAO/HEHS-97-4, Dec.  16, 1996). 

Child Support Enforcement:  Reorienting Management Toward Achieving
Better Program Results (GAO/HEHS/GGD-97-14, Oct.  25, 1996). 

Child Support Enforcement:  States' Experience with Private Agencies'
Collection of Support Payments (GAO/HEHS-97-11, Oct.  23, 1996). 

Child Support Enforcement:  States and Localities Move to Privatized
Services (GAO/HEHS-96-43FS, Nov.  20, 1995). 

Child Support Enforcement:  Opportunity to Reduce Federal and State
Costs (GAO/T-HEHS-95-181, June 13, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:87.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   BENEFIT PAYMENTS UNDER THE
   FEDERAL EMPLOYEES' COMPENSATION
   ACT
------------------------------------------------------ Appendix III:88


Authorizing committees              Labor and Human Resources (Senate)
                                    Education and the Workforce
                                    (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 are disabled as a result of a work-related injury
are entitled to tax-free workers' compensation benefits under the
Federal Employees' Compensation Act (FECA).  Several GAO reviews have
identified ways in which benefit payment policies can be revised to
better address eligibility and/or need or to bring FECA benefits more
in line with other federal and state workers' compensation laws. 


      BASING FECA COMPENSATION ON
      SPENDABLE EARNINGS
---------------------------------------------------- Appendix III:88.1

For almost all totally disabled individuals, FECA benefits are 66-2/3
percent of gross pay for beneficiaries without dependents and 75
percent of gross pay for beneficiaries with at least one dependent. 
We reported that nearly 30 percent of the more than 23,000
beneficiaries included in our analyses received FECA compensation
benefits that replaced more than 100 percent of their estimated
take-home pay.  Another 40 percent of these beneficiaries received
FECA benefits that were between 90 and 99 percent of their take-home
pay.  Benefit replacement rates tended to be higher for beneficiaries
who (1) received higher amounts of pay before they were injured, (2)
were injured before 1980, (3) received the FECA dependent benefit,
and (4) lived in states that had an income tax. 

Workers' compensation program analysts are reluctant to take a
position on what the "correct" level of workers' compensation
benefits should be, leaving that matter to the judgment of
legislators.  According to a 1985 Workers Compensation Research
Institute report, legislators in many states must walk a fine line
between benefits that are high enough to provide adequate income, but
not so high as to discourage an employee's return to work when he or
she is no longer disabled.  The 1972 Report of the National
Commission on State Workmen's Compensation Laws recommended that
workers' weekly benefits should replace at least 80 percent of their
spendable weekly earnings, subject to a state's maximum weekly
benefit.  Six states use a percentage of spendable weekly earnings
(ranging from 75 to 80 percent) rather than a percentage of gross
wages as the basis for computing compensation benefits.  Spendable
earnings (take-home pay) are computed by taking an employee's gross
pay at the time of injury and subtracting Social Security taxes and
federal and state income taxes.  Taxes are based on published tax
withholding tables, given an employee's actual exemptions and a
standard deduction. 

If the Congress judges that current FECA benefits are so high as to
discourage employee's return to work, it could consider changing the
current FECA benefit structure from one that bases compensation on
gross pay to one that bases compensation on spendable earnings.  The
following savings estimates assume that the new FECA benefit formula
would equal 80 percent of spendable earnings.  The CBO estimates
below assume that changes in benefits would be made prospectively. 
Additional savings could be achieved

if changes were made to affect individuals who were already receiving
FECA benefits.  Fewer savings would be achieved if a higher
percentage of spendable earnings were used as the basis for computing
FECA benefits. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     3       8      21      35      49
Outlays                              3       8      21      35      49
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    10      19      20      20      21
Outlays                             10      19      20      20      21
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      REVISING BENEFITS FOR
      RETIREMENT ELIGIBLE
      BENEFICIARIES
---------------------------------------------------- Appendix III:88.2

Retirement eligible federal workers who continue to be disabled as a
result of a work-related injury could receive tax-free workers'
compensation benefits under FECA for the remainder of their lives
that would generally be greater than amounts these workers would
receive as retirement benefits.  FECA benefits are 75 percent of
salary for a disabled employee with a dependent; Civil Service
Retirement System benefits for a 55-year old employee with 30 years
of service are 56 percent of salary.  We reported that 60 percent of
the approximately 44,000 long-term FECA beneficiaries were at least
age 55, the age at which some federal employees are eligible for
optional retirement with unreduced retirement benefits.  Proponents
for changing FECA benefits for older beneficiaries argue that an
inequity is created between federal workers who retire normally and
those who, in effect, "retire" on FECA benefits.  Opponents of such a
change argue that reducing benefits would break the implicit promise
that injured workers have exchanged their right to tort claims for a
given level of future benefits. 

We identified two prior proposals for reducing FECA benefits to those
who become eligible for retirement.  One would convert compensation
benefits received by retirement-eligible disabled workers to
retirement benefits.  However, this approach raises complex issues
related to the tax-free nature of workers' compensation benefits and
to the individual's entitlement to retirement benefits.  The second
proposal would convert FECA benefits to a newly established FECA
annuity, thus avoiding the complexity of shifting from one benefit
program to another. 

To reduce benefits for retirement-eligible FECA beneficiaries, the
Congress could consider converting from the current FECA benefit
structure to a FECA annuity.  The following savings estimate assumes
that such an annuity would equal two-thirds of the previously
provided FECA compensation benefit, and that the annuity would begin
following the disabled individual's eligibility for retirement
benefits.  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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     1       3       9      15      22
Outlays                              1       3       8      14      21
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     4       8       9       9       9
Outlays                              4       8       9       9       9
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      FECA CASES INVOLVING THIRD
      PARTIES
---------------------------------------------------- Appendix III:88.3

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 partiesï¿½in 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     0       0       1       1       1
Outlays                              0       0       1       1       1
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     1       1       0       0       0
Outlays                              1       1       0       0       0
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      COMPARABILITY OF FECA AND
      OTHER COMPENSATION LAWS
---------------------------------------------------- Appendix III:88.4

We identified three major ways in which FECA differs from other
federal and state workers' compensation laws, each of which results
in relatively greater benefits under FECA.  First, FECA authorizes
maximum weekly benefit amounts that are greater than those authorized
by other federal and state workers' compensation laws.  As of January
1, 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, eliminating augmented compensation benefits for
dependents and placing a 5-day waiting period immediately following
the injury, and before the continuation of pay period, would produce
the following savings, as estimated by CBO. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     7       7       7       7       7
Outlays                              6       7       7       7       7
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:88.5

Federal Employees' Compensation Act:  Percentages of Take-Home Pay
Replaced by Compensation Benefits (GAO/GGD-98-174, Aug.  17, 1998). 

Federal Employees' Compensation Act:  Issues Associated with Changing
Benefits for Older Beneficiaries (GAO/GGD-96-138BR, Aug.  14, 1996). 

Workers' Compensation:  Selected Comparisons of Federal and State
Laws (GAO/GGD-96-76, Apr.  3, 1996). 

Federal Employees' Compensation Act:  Redefining Continuation of Pay
Could Result in Additional Refunds to the Government (GAO/GGD-95-135,
June 8, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:88.6

L.  Nye Stevens, (202) 512-8676


   OPTION:
   RETURN-TO-WORK STRATEGIES FOR
   PEOPLE WITH DISABILITIES
------------------------------------------------------ Appendix III:89


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.  For fiscal year 2000, DI outlays are
estimated as over
$56 billion and SSI outlays as over $30 billion dollars.  SSA data
show that between 1986 and 1998, the number of working-age people in
these disability programs increased 81 percent, from 4.2 million to
7.6 million.  Such growth has raised concerns that are compounded by
the fact that less than 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, we
recommended that the Commissioner of SSA develop a comprehensive
return-to-work strategy that integrates, as appropriate, earlier
intervention, supports and services needed for work, and cash and
medical benefits that make work more financially advantageous.  SSA
has recently taken steps to expand the pool of vocational
rehabilitation (VR) providers and proposed to demonstrate the
effectiveness of giving providers greater incentives to employ
beneficiaries, among other return-to-work initiatives.  However,
these efforts would have greater impact if cash and medical benefits
were structured to give beneficiaries greater impetus to use VR
services and attempt work, and if return-to-work assistance was
provided earlier in the decision-making process.  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:89.1

Social Security Disability:  Multiple Factors Affect Return to Work
(GAO/T-HEHS-99-82, Mar.  11, 1999). 

Social Security Disability Insurance:  Multiple Factors Affect
Beneficiaries' Ability to Return to Work (GAO/HEHS-98-39, Jan.  12,
1998). 

Social Security:  Disability Programs Lag in Promoting Return to Work
(GAO/HEHS-97-46, Mar.  17, 1997). 

People With Disabilities:  Federal Programs Could Work Together More
Efficiently to Promote Employment (GAO/HEHS-96-126, Sept.  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, Apr.  24, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:89.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   REPORTING OF DOD RESERVE
   EMPLOYEE PAYROLL DATA TO STATE
   UNEMPLOYMENT INSURANCE PROGRAMS
------------------------------------------------------ Appendix III:90


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

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 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 Reserve failed to report over $7 million in Reserve income in
fiscal year 1994.  This led to UI benefit overpayments of
approximately $3.6 million, of which federal trust fund losses were
about $1.2 million.  We expect that the federal and state trust fund
losses from all UI programs are much greater because the seven states
we reviewed 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. 

The Defense Department and the Department of Transportation's Coast
Guard have recently acted to ensure that reservists are reminded of
their responsibility to report income from reserve activity to state
UI agencies.  All reservists now receive an annual notice with their
leave and earnings statements reminding them of their duty to
disclose their affiliation and any Reserve related earnings when
filing an UI claim.  In addition, the Labor Department has issued a
directive to all state employment security agencies to ensure that
they inform prospective and continuing UI benefit claimants of their
responsibility to report Reserve related income. 

These actions should improve general reservist compliance with state
UI program income reporting requirements.  However, to detect
unreported Reserve income, the most frequently suggested alternative
by federal and state officials would be to require the Department of
Defense (DOD) to report Reserve payroll and personnel data to states
on a quarterly basis, as private-sector employers are required to do,
to permit verification of claimant income on a regular basis.  DOD
has stated that it will develop an action plan to provide such data
to the state UI programs.  However, completion of this plan has been
delayed because of other competing agency priorities and a
recognition that the task was more complex than originally
envisioned. 

It is important to note that the nonreporting of claimant income
appears to be a broader problem involving all UI claimants who were
former federal civilian and military employees, rather than just
those participating in the Reserves.  Officials from many of the
state programs we analyzed reported general difficulties in
monitoring reported income from claimants who were former federal
employees. 

If DOD was required to report Reserve payroll and personnel data to
states on a quarterly basis, CBO estimates that the following savings
would result from the reduction in overpayments. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    12      12      12      13      13
Outlays                             12      12      12      13      13
Reduction in receipts                0      -1      -3      -5      -7
Net effect on deficit               12      11       9       8       6
----------------------------------------------------------------------
Note:  Unemployment Insurance trust fund receipts are dependent on
prior year benefit outlays.  CBO estimates that, in addition to
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:90.1

Unemployment Insurance:  Millions in Benefits Overpaid to Military
Reservists (GAO/HEHS-96-101, Aug.  5, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:90.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   AUTOMATED CHILD SUPPORT
   ENFORCEMENT SYSTEMS
------------------------------------------------------ Appendix III:91


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 nonwelfare clients with children,
this program is directed at locating parents not supporting their
children, establishing paternity, obtaining court orders for the
amounts of money to be provided, and collecting these amounts from
noncustodial parents.  Achievement of Child Support Enforcement
Program goals depends in part on the effective planning, design, and
operation of automated systems.  The federal government is providing
enhanced funding to develop these automated child support enforcement
systems by paying up to 90 percent of states' development costs. 
From fiscal year 1981 through fiscal year 1997, the states have spent
about $3.2 billion to develop these systems, including over $2.4
billion from the federal government. 

The 90 percent funding participation rate was initially discontinued
at the end of fiscal year 1995, the congressionally mandated date for
the systems to be certified and operational.  However, the Congress
subsequently extended the deadline for these systems to the end of
fiscal year 1997.  The federal government will continue to reimburse
states' costs to operate these systems at the 66 percent rate
established for administrative expenses.  Finally, the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 
104-193) provided additional funding for the states to meet new
systems requirements under this law.  An 80 percent federal funding
participation rate, with a total national funding cap of $400 million
was authorized.  The 66 percent federal funding participation rate
was continued for systems operation and administrative expenses. 

The Congress could choose to reduce the federal funding participation
rate for modification and operation of these systems from 66 percent
to the 50 percent rate now common for such costs in other programs,
such as Food Stamps and other welfare programs.  CBO estimates that a
reduced participation rate would produce the following savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   105     115     125     140     150
Outlays                            105     115     125     140     150
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:91.1

Child Support Enforcement:  Leadership Essential to Implementing
Effective Automated Systems (GAO/T-AIMD-97-162, Sept.  10, 1997). 

Child Support Enforcement:  Strong Leadership Required to Maximize
Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997). 

Child Support Enforcement:  Timely Action Needed to Correct System
Development Problems (GAO/IMTEC-92-46, Aug.  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:91.2

Joel C.  Willemssen, (202) 512-6408


   700 VETERANS BENEFITS AND
   SERVICES
------------------------------------------------------ Appendix III:92

Veterans' Disability Compensation for Nonservice Connected Diseases
Cost Sharing for Veterans' Long-Term Care
Closing Underused Veterans Affairs Hospitals
Limiting Enrollment in Veterans Affairs Health Care System
Outpatient Pharmacy Costs


   OPTION:
   VETERANS' DISABILITY
   COMPENSATION FOR NONSERVICE
   CONNECTED DISEASES
------------------------------------------------------ Appendix III:93


Authorizing committees              Veterans Affairs (Senate and
                                    House)

Primary agency                      Department of Veterans Affairs

Account                             Compensation and Pensions (36-
                                    0153)

Spending type                       Direct

Budget subfunction                  Income Security for Veterans

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
In 1996, CBO reported that about 230,000 veterans were receiving
about $1.1 billion in disability compensation payments annually for
diseases neither caused nor aggravated by military service.  Our
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, CBO estimates that the following
savings would apply. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     9      29      51      74      98
Outlays                              9      28      49      72      96
----------------------------------------------------------------------
Note:  These estimates take into account an increase in DOD
retirement pay. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:93.1

VA Disability Compensation:  Disability Ratings May Not Reflect
Veterans' Economic Losses (GAO/HEHS-97-9, Jan.  7, 1997). 

Disabled Veterans Programs:  U.S.  Eligibility and Benefit Types
Compared With Five Other Countries (GAO/HRD-94-6, Nov.  24, 1993). 

VA Benefits:  Law Allows Compensation for Disabilities Unrelated to
Military Service (GAO/HRD-89-60, July 31, 1989). 


      GAO CONTACT
---------------------------------------------------- Appendix III:93.2

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   COST SHARING FOR VETERANS'
   LONG-TERM CARE
------------------------------------------------------ Appendix III:94


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.  Many other states also conduct estate recoveries. 
In contrast, 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 veteran's 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, as estimated by
CBO. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Saving from the 1999 funding level
----------------------------------------------------------------------

Option: Recovery of 25 percent of costs
----------------------------------------------------------------------
Budget authority                   559     559     559     559     559
Outlays                            559     559     559     559     559
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------

Option: Recovery of 50 percent of costs
----------------------------------------------------------------------
Budget authority                 1,120   1,120   1,120   1,120   1,120
Outlays                          1,120   1,120   1,120   1,120   1,120
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:94.1

VA Aid and Attendance Benefits:  Effects of Revised HCFA Policy on
Veterans' Use of Benefits (GAO/HEHS-97-72R, Mar.  3, 1997). 

VA Health Care:  Better Data Needed to Effectively Use Limited
Nursing Home Resources (GAO/HEHS-97-27, Dec.  20, 1996). 

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, Aug.  12, 1992). 


      GAO CONTACT
---------------------------------------------------- Appendix III:94.2

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   CLOSING UNDERUSED VETERANS
   AFFAIRS HOSPITALS
------------------------------------------------------ Appendix III:95


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
----------------------------------------------------------------------
The Department of Veterans Affairs (VA) took over 50,000 hospital
beds out of service between 1970 and 1995, based on declining
utilization.  With the declining veteran population, new
technologies, and VA's plans to emphasize highly specialized care on
an outpatient basis, significant further declines in demand for VA
hospital care are likely.  At some point, closing a hospital and
providing care either through another VA hospital or through
contracts with community hospitals may become preferable to simply
taking beds out of service because of the high fixed costs of
operating facilities. 

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:95.1

VA Health Care:  Capital Asset Planning and Budgeting Needs
Improvement (GAO/T-HEHS-99-83, Mar.  10, 1999). 

Veterans' Health Care:  Challenges Facing VA's Evolving Role in
Serving Veterans (GAO/T-HEHS-98-194, June 17, 1998). 

VA Hospitals:  Issues and Challenges for the Future (GAO/HEHS-98-32,
Apr.  30, 1998). 

VA Health Care:  Closing a Chicago Hospital Would Save Millions and
Enhance Access to Services (GAO/HEHS-98-64, Apr.  16, 1998). 

VA Health Care:  Opportunities to Enhance Montgomery and Tuskegee
Service Integration (GAO/T-HEHS-97-191, July 28, 1997). 

VA Health Care:  Lessons Learned From Medical Facility Integrations
(GAO/T-HEHS-97-184, July 24, 1997). 

Department of Veterans Affairs:  Programmatic and Management
Challenges Facing the Department (GAO/T-HEHS-97-97, Mar.  18, 1997). 

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, Mar.  8, 1996). 

VA Health Care:  Challenges and Options for the Future
(GAO/T-HEHS-95-147, May 9, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:95.2

Stephen P.  Backhus (202) 512-7101


   OPTION:
   LIMITING ENROLLMENT IN VETERANS
   AFFAIRS HEALTH CARE SYSTEM
------------------------------------------------------ Appendix III:96


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.  The Congress could consider
funding 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 doing so
would produce the savings shown in the following table. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   463     463     463     463     463
Outlays                            417     455     459     461     461
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:96.1

VA Health Care:  Issues Affecting Eligibility Reform Efforts
(GAO/HEHS-96-160, Sept.  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, Mar.  20, 1996). 

VA Health Care:  Opportunities to Increase Efficiency and Reduce
Resource Needs (GAO/T-HEHS-96-99, Mar.  8, 1996). 

VA Health Care:  Issues Affecting Eligibility Reform
(GAO/T-HEHS-95-213, July 19, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:96.2

Stephen P.  Backhus, (202) 512-7101


   OPTION:
   OUTPATIENT PHARMACY COSTS
------------------------------------------------------ Appendix III:97


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 items
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 estimates that
these steps would save the following amounts. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    82      86      90      94      98
Outlays                             74      84      89      93      97
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:97.1

VA Health Care:  Opportunities to Significantly Reduce Outpatient
Pharmacy Costs (GAO/HEHS-97-15, Oct.  11, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:97.2

Stephen P.  Backhus, (202) 512-7101


   800 GENERAL GOVERNMENT, 900 NET
   INTEREST, AND 999 MULTIPLE
------------------------------------------------------ Appendix III:98

Expand the Use of Alternative Dispute Resolution
Eliminating Pay Increases After Separation in Calculating Lump-Sum
 Annual Leave Payments
The 1-Dollar Coin
Federal Reserve Operations
Davis-Bacon Act Reform
Formula-Based Grant Programs
Federal Grant Matching
Federal Travel Processing


   OPTION:
   EXPAND THE USE OF ALTERNATIVE
   DISPUTE RESOLUTION
------------------------------------------------------ Appendix III:99


Authorizing committees              Multiple

Appropriations subcommittees        Multiple

Primary agency                      Multiple

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Multiple

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Federal employees have long had substantial workplace protections
through an administrative redress system that was designed to
safeguard them against arbitrary agency actions and prohibited
personnel actions, such as discrimination or retaliation for
whistleblowing.  But the redress system--especially insofar as it
affects workplace disputes involving claims of discrimination--has
been criticized by federal managers, as well as employee
representatives, as adversarial, inefficient, time-consuming, and
costly.  A dramatic increase in the number of discrimination
complaints during the 1990s not only added to the costs and time of
the redress system but also to the number of unresolved cases. 

In recent years, a number of federal agencies have looked for some
means of alternative dispute resolution (ADR) to help lessen the
burdens associated with the redress system.  But as our review of the
literature, our interviews with experts and knowledgeable officials,
and our case illustrations showed, ADR availability or use was not
pervasive--or even necessarily widespread--within federal agencies
that reported having some ADR capability.  Federal agencies tended to
limit the application of ADR to discrimination complaints.  In
addition, agencies tended to make use of only one ADR
technique--mediation. 

No comprehensive data were available on ADR results.  However, as our
broad examination of ADR use in the private and federal sectors and
case illustrations showed, officials at organizations using ADR and
experts generally considered it to be successful in resolving
workplace disputes, thereby avoiding more formal dispute resolution
processes.  Comprehensive data were unavailable on the extent to
which ADR has saved organizations time and money, largely because
most ADR programs are relatively new, and because time and cost
savings have not been widely tracked or evaluated.  Experts and
officials at organizations using ADR generally believed, however,
that avoiding litigation or more formal redress processes produced
savings, and the administration has further endorsed the use of ADR
through the creation in 1998 of the Attorney General's Interagency
ADR Working Group.  In order to reduce the time and cost of dealing
with employment disputes through formal redress processes, the
Congress may wish to take steps to encourage the expanded use of ADR
by federal agencies. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:99.1

Alternative Dispute Resolution:  Employers' Experiences With ADR in
the Workplace (GAO/GGD-97-157, Aug.  12, 1997). 

Federal Employee Redress:  An Opportunity for Reform
(GAO/T-GGD-96-42, Nov.  29, 1995). 

Employment Discrimination:  Most Private-Sector Employers Use
Alternative Dispute Resolution (GAO/HEHS-95-150, July 5, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:99.2

L.  Nye Stevens, (202) 512-8676


   OPTION:
   ELIMINATING PAY INCREASES AFTER
   SEPARATION IN CALCULATING
   LUMP-SUM ANNUAL LEAVE PAYMENTS
----------------------------------------------------- Appendix III:100


Authorizing committees              Governmental Affairs (Senate)
                                    Government Reform (House)

Appropriations subcommittees        Multiple

Primary agency                      Office of Personnel Management

Account                             Multiple

Spending type                       Discretionary

Budget subfunction                  Multiple

Framework theme                     Reassess objectives
----------------------------------------------------------------------
Employee pay and benefits is one of many areas of the federal budget
receiving congressional attention because of scarce federal
resources.  One such benefit is an employee's entitlement under 5
U.S.C.  5551(a) to receive a lump-sum payment for any accumulated,
unused annual leave upon separation from federal service.  In
calendar year 1996, the cost of lump-sum leave payments to separating
civilian employees was about $562 million governmentwide.  We were
requested to identify any personnel cost savings that could be
achieved from limiting the lump-sum leave payment to the employee's
pay rate at the time of separation, instead of the current method of
assuming the employee had remained in service until the entire leave
balance had expired. 

Based in part on our information and analysis, CBO estimated that
agencies could realize personnel cost savings of $20 million over 5
years if lump-sum annual leave payments were limited to the rate of
pay at the time of separation.  If the Congress enacted such a
limitation, no General Schedule (GS) pay increases that go into
effect following an employee's separation would be added to the
payment calculation.  To illustrate how small the maximum reduction
in payments would be to individual separating employees, we
calculated what the maximum reduction in lump-sum leave payments
would have been to separating employees in January 1996 at various GS
pay levels if the net 2.54 percent pay increase had been eliminated
from their lump-sum leave payments.  For example, we reported that
the maximum reduction for an average GS-15 pay level would be from
$86 to $128, depending on the amount of accrued annual leave. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                     4       4       4       4       4
Outlays                              4       4       4       4       4
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:100.1

Federal Civilian Personnel:  Cost of Lump-Sum Annual Leave Payments
to Employees Separating From Government (GAO/GGD-97-157, May 29,
1997). 


      GAO CONTACT
--------------------------------------------------- Appendix III:100.2

L.  Nye Stevens, (202) 512-8676


   OPTION:
   THE 1-DOLLAR COIN
----------------------------------------------------- Appendix III:101


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/Governmental Receipts

Budget subfunction                  Central Fiscal Operations

Framework theme                     Improve efficiency
----------------------------------------------------------------------
In 1993 and 1995, we reported on cost savings associated with the
replacement of the 1-dollar note 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 seignorage\8 recognized
reduces the amount of borrowing needed to finance the deficit,
substituting a dollar coin for a dollar note would yield $456 million
of savings to the government per year, on average, over a 30-year
period.  Other countries have demonstrated that public resistance to
such a change can be managed and overcome. 

Even though the option would result in significant long-term savings,
it does not yield savings over the first 5 years, as scored by CBO. 
First, seignorage, which lowers interest costs to the government by
replacing the need to borrow from the public, is not included in the
estimate because it is not considered part of the budget.  Second,
while the 5-year window captures much of the additional costs for the
U.S.  Mint to produce and stockpile a sufficient number of 1-dollar
coins for circulation, it includes only a fraction of the savings to
the Federal Reserve System from lower production and processing
costs.  (Significant savings would accrue, however, beyond the 5-year
horizon.) As a result, we have not included a 5-year savings table
for this option. 


--------------------
\8 Seignorage 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. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:101.1

A Dollar Coin Could Save Millions (GAO/T-GGD-95-203, July 13, 1995). 

1-Dollar Coin:  Reintroduction Could Save Millions if Properly
Managed (GAO/GGD-93-56, Mar.  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:101.2

Bernard L.  Ungar, (202) 512-4232


   OPTION:
   FEDERAL RESERVE OPERATIONS
----------------------------------------------------- Appendix III:102


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. 

The Federal Reserve could do more to increase its cost consciousness
and ensure that it is operating as efficiently as possible.  We have
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--compared
generously 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. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Savings from the 1999 funding level
----------------------------------------------------------------------
Added receipts                      82      86      90      94      98
----------------------------------------------------------------------
Note:  Estimates are presented net of the tax effect. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:102.1

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, Sept.  30, 1996). 

Federal Reserve Banks:  Internal Control, Accounting, and Auditing
Issues (GAO/AIMD-96-5, Feb.  9, 1996). 


      GAO CONTACT
--------------------------------------------------- Appendix III:102.2

Thomas J.  McCool, (202) 512-8678


   OPTION:
   DAVIS-BACON ACT REFORM
----------------------------------------------------- Appendix III:103


Authorizing committees              Labor and Human Resources (Senate)
                                    Education and the Workforce
                                    (House)

Appropriations subcommittees        Multiple

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 from the use of less productive labor 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, though, on the accuracy of wage rates set. 

Without making any assumptions about the accuracy of prevailing wage
rates, but considering other factors such as recordkeeping duties
required under the act, CBO concluded that Davis-Bacon inflates
construction costs.  On that basis, 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.  If the Congress
were to repeal the act, CBO estimates that the following savings
could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Spending authority               1,151   1,151   1,151   1,151   1,151
Outlays                            247     659     900   1,020   1,098
----------------------------------------------------------------------
Note:  Spending authority includes budget authority, as well as
obligation limitations from certain trust funds. 

Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                    34      31      29      28      28
Outlays                             12      26      30      30      29
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:103.1

Information Regarding the Davis-Bacon Act (GAO/HEHS-97-30R, Oct.  30,
1996). 

Information Regarding Davis-Bacon Wage Determinations
(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 (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). 

Changes to the Davis-Bacon Act Regulations and Administration
(GAO/HEHS-94-95R, Feb.  7, 1994). 

The Davis-Bacon Act Should Be Repealed (GAO/HRD-79-18, Apr.  27,
1979). 


      GAO CONTACT
--------------------------------------------------- Appendix III:103.2

Cynthia M.  Fagnoni, (202) 512-7215


   OPTION:
   FORMULA-BASED GRANT PROGRAMS
----------------------------------------------------- Appendix III:104


Authorizing committees              Multiple

Appropriations subcommittees        Multiple

Primary agencies                    Multiple

Accounts                            Multiple

Spending type                       Discretionary/Direct

Budget subfunctions                 Multiple

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
We have 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, we 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 close-ended or
capped formula grant programs exceeding $1 billion.\9

The dollar value for programs exceeding this threshold would include
about 82 percent of the dollars for such programs.  The savings
achieved through this option, as estimated by CBO, 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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                 5,220   5,975   5,975   5,975   5,975
Outlays                          1,477   4,572   6,655   7,846   8,421
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                 5,283   5,222   5,115   5,127   5,134
Outlays                            479     641     702     886   1,004
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\9 In the transportation function, several very small, close-ended
grants could not be easily isolated in the baseline and these are
included in the estimate. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:104.1

Formula Grants:  Effects of Adjusted Population Counts on Federal
Funding to States (GAO/HEHS-99-69, Feb.  26, 1999). 

Medicaid Formula:  Effects of Proposed Formula on Federal Shares of
State Spending (GAO/HEHS-99-29R, Feb.  19, 1999). 

Welfare Reform:  Early Fiscal Effects of the TANF Block Grant
(GAO/AIMD-98-137, Aug.  22, 1998). 

School Finance:  State Efforts to Equalize Funding Between Wealthy
and Poor School Districts (GAO/HEHS-98-92, June 16, 1998). 

School Finance:  State Efforts to Reduce Funding Gaps Between Poor
and Wealthy Districts (GAO/HEHS-97-31, Feb.  5, 1997). 

Federal Grants:  Design Improvements Could Help Federal Resources Go
Further (GAO/AIMD-97-7, Dec.  18, 1996). 

Public Health:  A Health Status Indicator for Targeting Federal Aid
to States (GAO/HEHS-97-13, Nov.  13, 1996). 

Highway Funding:  Alternatives for Distributing Federal Funds
(GAO/RCED-96-6, Nov.  28, 1995). 

Ryan White Care Act of 1990:  Opportunities to Enhance Funding Equity
(GAO/HEHS-96-26, Nov.  13, 1995). 

Department of Labor:  Senior Community Service Employment Program
Delivery Could Be Improved Through Legislative and Administrative
Action (GAO/HEHS-96-4, Nov.  2, 1995). 

Rural Development:  USDA's Approach to Funding Water and Sewer
Projects (GAO/RCED-95-258, Sept.  22, 1995). 

Medicaid:  Matching Formula's Performance and Potential Modifications
(GAO/T-HEHS-95-226, July 27, 1995). 

Federal Aid:  Revising Poverty Statistics Affects Fairness of
Allocation Formulas (GAO/HEHS-94-165, May 20, 1994). 

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, Aug.  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, Apr.  2, 1992). 

Remedial Education:  Modifying Chapter 1 Formula Would Target More
Funds to Those Most in Need (GAO/HRD-92-16, Mar.  28, 1992). 

Drug Treatment:  Targeting Aid to States Using Urban Population as
Indicator of Drug Use (GAO/HRD-91-17, Nov.  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, Mar.  31, 1986). 

Changing Medicaid Formula Can Improve Distribution of Funds to States
(GAO/GGD-83-27, Mar.  9, 1983). 


      GAO CONTACT
--------------------------------------------------- Appendix III:104.2

Paul L.  Posner, (202) 512-9573


   OPTION:
   FEDERAL GRANT MATCHING
----------------------------------------------------- Appendix III:105


Authorizing committees              Multiple

Appropriations subcommittees        Multiple

Primary agency                      Multiple

Account                             Multiple

Spending type                       Discretionary/Direct

Budget subfunction                  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 1998
with outlays of $250 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' 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, for example 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 10 percent reduction from the authorized
grant levels, would result in the savings shown below.  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)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Discretionary spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                 2,947   3,702   3,702   3,702   3,702
Outlays                            659   2,336   3,221   3,519   3,624
----------------------------------------------------------------------
Source:  Congressional Budget Office. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Direct spending
----------------------------------------------------------------------

Savings from the 1999 funding level
----------------------------------------------------------------------
Budget authority                   238     170     170     170     170
Outlays                            214     177     170     170     170
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:105.1

Welfare Reform:  Early Fiscal Effects of the TANF Block Grant
(GAO/AIMD-98-137, Aug.  22, 1998). 

Federal Grants:  Design Improvements Could Help Federal Resources Go
Further (GAO/AIMD-97-7, Dec.  18, 1996). 

Block Grants:  Issues in Designing Accountability Provisions
(GAO/AIMD-95-226, Sept.  1, 1995). 


      GAO CONTACT
--------------------------------------------------- Appendix III:105.2

Paul L.  Posner, (202) 512-9573


   OPTION:
   FEDERAL TRAVEL PROCESSING
----------------------------------------------------- Appendix III:106


Authorizing committees              Governmental Affairs (Senate)
                                    Government Reform (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. 
GSA is currently in the process of identifying the indirect, or
administrative, costs of travel. 

We 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 our
recommendations, the Appropriations Conference Committee reduced
DOD's operations and maintenance 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:106.1

Federal Travel Reform:  Plans to Obtain Data to Assess Cost Savings
(GAO/AIMD-98-87R, Mar.  20, 1998). 

Governmentwide Travel Management:  Federal Agencies Have
Opportunities for Streamlining and Improving Their Travel Practices
(GAO/T-AIMD-96-60, Mar.  8, 1996). 

Business Process Reengineering:  DOD Has a Significant Opportunity to
Reduce Travel Costs by Using Industry Practices (GAO/T-AIMD-95-101,
Mar.  28, 1995). 


      GAO CONTACT
--------------------------------------------------- Appendix III:106.2

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


   RECEIPTS
----------------------------------------------------- Appendix III:107

Return Filing by U.S.  Citizens Living Abroad
Electronic Funds Transfer for Installment Tax Payments
Electronic Filing of Tax Returns
Tax Treatment of Health Insurance Premiums
Tax Treatment of Interest Earned on Life Insurance Policies and
Deferred  Annuities
Information Reporting on Forgiven Debts
Corporate Tax Document Matching
Independent Contractor Tax Compliance
Deductibility of Home Equity Loan Interest
Administration of the Tax Deduction for Real Estate Taxes
Collecting Gasoline Excise Taxes
Computing Excise Tax Bases
Highway User Fees on Heavy Trucks


   OPTION:
   RETURN FILING BY U.S.  CITIZENS
   LIVING ABROAD
----------------------------------------------------- Appendix III:108


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)

Primary agency                      Internal Revenue Service

Spending type                       Direct

Framework theme                     Improve efficiency
----------------------------------------------------------------------
U.S.  citizens residing abroad are generally subject to the same
filing requirements as citizens residing in the United States.  The
State Department estimated the total population of U.S.  citizens
living abroad at about 3.1 million in 1995, excluding active military
and current government personnel.  Some evidence suggests that the
failure to file tax returns may be relatively prevalent in some
segments of the U.S.  population abroad, and the revenue impact,
while unknown, could be significant. 

IRS' ability to identify and collect taxes from nonfilers residing
abroad is restricted by the limited reach of U.S.  laws in foreign
countries, particularly U.S.  laws on tax withholding, information
reporting, and enforced collection through liens, levies, and
seizures.  Another factor that could contribute to nonfiling abroad
is the ambiguity in IRS' filing instructions for its Form 1040 and
related guidance.  For example, it may not be clear that income
qualifying for the foreign earned income or housing

expense exclusions must be considered in determining whether one's
gross income exceeds the filing threshold. 

In pursuing nonfilers abroad, IRS has not fully explored the
usefulness of passport application data as a means of identifying
potential nonfilers.  While passport applications contain no income
information, they could be used to collect applicants' social
security number, age, occupation, and country of residence. 

IRS may want to take additional steps to enforce the current
information requirement that all passport applicants provide their
social security numbers and to assess the additional cost of
requiring country of residence and occupation as a means of
identifying potential nonfilers abroad.  IRS may also want to clarify
its instructions for determining what income must be considered in
determining whether gross income exceeds the filing threshold. 
Initial projects to increase the number of returns filed from

overseas suggests that the potential increase in tax revenues would
justify the costs to improve compliance. 

JCT agrees that the option has the potential for increased revenue
but has not developed estimates of revenue gain. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:108.1

Tax Administration:  Nonfiling Among U.S.  Citizens Abroad
(GAO/GGD-98-106, May 11, 1998). 

IRS Activities to Increase Compliance on Overseas Taxpayers
(GAO/GGD-93-93, May 18, 1993). 

United States Citizens Residing in Foreign Countries and Not Filing
Federal Income Tax Returns (Accession #126891, GAO/GGD, May 8, 1985
testimony). 


      GAO CONTACT
--------------------------------------------------- Appendix III:108.2

James R.  White, (202) 512-9110


   OPTION:
   ELECTRONIC FUNDS TRANSFER FOR
   INSTALLMENT TAX PAYMENTS
----------------------------------------------------- Appendix III:109


Authorizing committees              Finance (Senate)
                                    Ways and Means (House)

Primary agency                      Internal Revenue Service

Spending type                       Direct

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Internal Revenue Code authorizes IRS to allow taxpayers to pay
their taxes in installments, with interest, if this arrangement would
facilitate collection of the liability.  As of September 1997, IRS
had about 2.9 million installment agreements outstanding, worth about
$13.2 billion.  At the end of fiscal year 1997, approximately 43
percent of these installment agreements were in default. 

A number of states use electronic funds transfer (EFT) to make their
installment agreement program more efficient and effective.  One
state, Minnesota, requires taxpayers to pay by EFT, with some
exceptions.  As of late 1997, approximately 90 percent of Minnesota's
installment agreements were EFT agreements, and the default rate had
dropped from about 50 percent to between 3 percent and 5 percent in
the 2 years the EFT requirement has been in effect.  In California,
within 6 months of implementing its EFT procedures, its default rate
for new installment agreements dropped from around 40 percent to 5
percent. 

EFT payments also produce administrative savings through lower
processing costs involved in recording and posting remittances, lower
postage and handling costs associated with sending monthly payment
reminders, and lower collection enforcement costs needed to pursue
fewer taxpayers in default.  IRS' initial comparison of the cost of
EFT payments with the cost of having taxpayers send installment
payments to lockboxes in commercial banks showed that EFT payment
costs were about 37 percent less than the lockbox costs. 

The reported benefits for IRS of using EFT for installment agreement
payments include the potential to reduce the percentage of taxpayer
defaults, decrease administrative costs, and achieve faster
collections. 

JCT agrees that the option has the potential for increased revenue
but has not developed estimates of revenue gain. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:109.1

Tax Administration:  Increasing EFT Usage for Installment Agreements
Could Benefit IRS (GAO/GGD-98-112, June 10, 1998). 

Tax Administration:  Administrative Improvements Possible in IRS'
Installment Agreement Program (GAO/GGD-95-137, May 2, 1995). 


      GAO CONTACT
--------------------------------------------------- Appendix III:109.2

James R.  White, (202) 512-9110


   OPTION:
   ELECTRONIC FILING OF TAX
   RETURNS
----------------------------------------------------- Appendix III:110


Authorizing committeess             Finance (Senate)
                                    Ways and Means (House)

Primary agency                      Internal Revenue Service

Spending type                       Direct

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Electronic filing puts 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.  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.  IRS does not have
adequate data to determine the relative costs of processing and
handling electronic returns versus paper returns, including the costs
associated with processing, correcting errors, communicating with
taxpayers, and storage. 

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
123 million individual income tax returns filed in 1998, only 24.6
million (20 percent) were filed electronically.  Electronic filing of
information returns would enable IRS to match more of these documents
to tax returns sooner.  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, we 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 o

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 on
is limited by the number of available staff. 

To reduce 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. 

JCT agrees that the option has the potential for increased revenue
but has not developed estimates of revenue gain. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:110.1

Tax Administration:  Electronic Filing Falling Short of Expectations
(GAO/GGD-96-12, Oct.  31, 1995). 

Tax Administration:  IRS' Partnership Compliance Activities Could be
Improved (GAO/GGD-95-151, June 16, 1995). 


      GAO CONTACT
--------------------------------------------------- Appendix III:110.2

James R.  White, (202) 512-9110


   OPTION:
   TAX TREATMENT OF HEALTH
   INSURANCE PREMIUMS
----------------------------------------------------- Appendix III:111


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 insuranceï¿½amounting to revenue
losses of about $70 billion in 1998--gives few incentives to workers
to economize on purchasing health insurance.  Employer contributions
for employee health protection are considered deductible, ordinary
business expenses and employer contributions are not included in an
employee's taxable income.  The same is true for a portion of the
premiums paid by self-employed individuals.  Some analysts believe
that the tax-preferred status of these benefits has contributed to
the overuse of health care services and large increases in our
nation's health care costs.  In addition, the primary tax benefits
accrue to those in high tax brackets who also have above average
incomes. 

Placing a cap on the amount of health insurance premiums that could
be excluded--including in a worker's income the amount over the
cap--could improve incentives and, to a lesser extent, tax equity. 
Alternatively, including health insurance premiums in income but
allowing a tax credit for some percentage of the premium would
improve equity since tax savings per dollar of premium would be the
same for all taxpayers.  Incentives could be improved for purchasing
low-cost insurance if the amounts given credits were capped. 

One specific option the Congress may wish to consider would be to tax
all employer-paid health insurance, while providing individuals a
refundable tax credit of 20 percent of premiums that they or their
employers would pay, with eligible premiums capped at $425 and $175
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. 

JCT did not develop a revenue estimate for this option due to
uncertainty in determining the amount of health insurance that would
be purchased given a repeal of the employer exclusion. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:111.1

Tax Policy:  Effects of Changing Tax Treatment of Fringe Benefits
(GAO/GGD-92-43, Apr.  7, 1992). 


      GAO CONTACT
--------------------------------------------------- Appendix III:111.2

James R.  White, (202) 512-9110


   OPTION:
   TAX TREATMENT OF INTEREST
   EARNED ON LIFE INSURANCE
   POLICIES AND DEFERRED ANNUITIES
----------------------------------------------------- Appendix III:112


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, such as
certificates of deposit and original issue discount bonds. 

Not taxing inside buildup may have merit if it increases the amount
of insurance coverage purchased and the amount of income available to
retirees and beneficiaries.  However, the tax preference given life
insurance and annuities mainly benefits middle- and upper-income
people.  Coverage for low-income people is largely provided through
the Social Security System, which provides both insurance and annuity
protection. 

The Congress may wish to consider taxing the interest earned on life
insurance policies and deferred annuities.  The table below reflects
JCT's estimated savings from this option, effective for life
insurance policies and annuities purchased after December 31, 1999. 
Investment income from annuities purchased as part of a qualified
individual retirement account would be tax-deferred until benefits
were paid. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                      11.3    22.9    23.6    24.3    25.1
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:112.1

Tax Policy:  Tax Treatment of Life Insurance and Annuity Accrued
Interest (GAO/GGD-90-31, Jan.  29, 1990). 


      GAO CONTACT
--------------------------------------------------- Appendix III:112.2

James R.  White, (202) 512-9110


   OPTION:
   INFORMATION REPORTING ON
   FORGIVEN DEBTS
----------------------------------------------------- Appendix III:113


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.  We 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, 2000. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                        \a      \a      \a      \a      \a
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

\a Gains of less than $50 million

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:113.1

Tax Administration:  Information Returns Can Improve Reporting of
Forgiven Debts (GAO/GGD-93-42, Feb.  17, 1993). 


      GAO CONTACT
--------------------------------------------------- Appendix III:113.2

James R.  White (202) 512-9110


   OPTION:
   CORPORATE TAX DOCUMENT MATCHING
----------------------------------------------------- Appendix III:114


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, we estimated the benefits and costs
for a corporate document matching program that would cover interest,
dividends, rents, royalties, and capital gains.  Assuming that a
corporate document matching program began in 1993, we estimated that
for years 1995 through 1999, IRS' 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 increased corporate noncompliance, and declining
audit coverage, the Congress may wish to require a corporate document
matching program. 

JCT agrees that the option has the potential for increased revenue
but has not developed estimates of revenue gain. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:114.1

Tax Administration:  Benefits of a Corporate Document Matching
Program Exceed the Costs (GAO/GGD-91-118, Sept.  27, 1991). 


      GAO CONTACT
--------------------------------------------------- Appendix III:114.2

James R.  White, (202) 512-9110


   OPTION:
   INDEPENDENT CONTRACTOR TAX
   COMPLIANCE
----------------------------------------------------- Appendix III:115


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. 
Through fiscal year 1995, 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. 

We believe that revenues from this option could possibly increase by
billions of dollars.  JCT agrees that the option has the potential
for increased revenue but has not developed estimates of revenue
gain. 


      RELATED GAO PRODUCTS
--------------------------------------------------- Appendix III:115.1

Tax Administration:  Estimates of the Tax Gap for Service Providers
(GAO/GGD-95-59, Dec.  28, 1994). 

Tax Administration:  Approaches for Improving Independent Contractor
Compliance (GAO/GGD-92-108, July 23, 1992). 


      GAO CONTACT
--------------------------------------------------- Appendix III:115.2

James R.  White, (202) 512-9110


   OPTION:
   DEDUCTIBILITY OF HOME EQUITY
   LOAN INTEREST
----------------------------------------------------- Appendix III:116


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 is not
limited to home-related uses and can be used to finance additional
consumption by borrowers. 

Use of mortgage-related debt to finance nonhousing assets and
consumption purchases through home equity loans could expose
borrowers to increased risk of losing their homes should they
default.  Equity concerns may exist because middle- and upper-income
taxpayers who itemize primarily take advantage of this tax
preference, and such an option is not available to people who rent
their housing. 

One way to address the issues concerning the amounts or uses of home
equity financing would be to limit mortgage interest deductibility up
to $300,000 of indebtedness for the taxpayer's principal and second
residence.  Assuming an effective date of January 1, 2000, JCT
estimates that this option would generate the following revenues. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                      2 .2     3.1     3.2     3.4     3.7
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:116.1

Tax Policy:  Many Factors Contributed to the Growth in Home Equity
Financing in the 1980s (GAO/GGD-93-63, Mar.  25, 1993). 


      GAO CONTACT
--------------------------------------------------- Appendix III:116.2

James R.  White, (202) 512-9110


   OPTION:
   ADMINISTRATION OF THE TAX
   DEDUCTION FOR REAL ESTATE TAXES
----------------------------------------------------- Appendix III:117


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.  We estimate
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 our review also found that IRS
auditors detected only about 29 percent of $127 million in overstated
deductions in three locations we reviewed.  Revenues could be lost
not only for the federal government, but also for the 31 states 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, 1999, and for amounts reported on tax bills
after December 31, 2000.  JCT estimates that the proposals together,
would increase federal fiscal revenues as shown in the table below. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                         0      \a      \a     0.1     0.2
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

\a Gains of less than $50 million

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:117.1

Tax Administration:  Overstated Real Estate Tax Deductions Need To Be
Reduced (GAO/GGD-93-43, Jan.  19, 1993). 


      GAO CONTACT
--------------------------------------------------- Appendix III:117.2

James R.  White, (202) 512-9110


   OPTION:
   COLLECTING GASOLINE EXCISE
   TAXES
----------------------------------------------------- Appendix III:118


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, we suggested that the Congress explore the
level of gasoline excise tax evasion and, if it was found to be
sufficiently high, move tax collection to the point at which gasoline
leaves the refinery.  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 estimates that moving tax
collection to the point at which the gasoline leaves the refinery
would result in the following revenue gains. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                       0.7      \a      \a      \a      \a
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

\a Gains of less than $50 million. 

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:118.1

Tax Administration:  Status of Efforts to Curb Motor Fuel Tax Evasion
(GAO/GGD-92-67, May 12, 1992). 


      GAO CONTACT
--------------------------------------------------- Appendix III:118.2

James R.  White, (202) 512-9110


   OPTION:
   COMPUTING EXCISE TAX BASES
----------------------------------------------------- Appendix III:119


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.  The Congress may wish to consider
indexing excise tax rates for alcohol and tobacco.  The table
reflects JCT's estimated revenue gains from this option with an
effective date of January 1, 2000. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
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:119.1

Alcohol Excise Taxes:  Simplifying Rates Can Enhance Economic and
Administrative Efficiency (GAO/GGD-90-123, Sept.  27, 1990). 

Tax Policy:  Revenue Potential of Restoring Excise Taxes to Past
Levels (GAO/GGD-89-52, May 9, 1989). 


      GAO CONTACT
--------------------------------------------------- Appendix III:119.2

James R.  White, (202) 512-9110


   OPTION:
   HIGHWAY USER FEES ON HEAVY
   TRUCKS
----------------------------------------------------- Appendix III:120


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 conducted a cost allocation
study.  The study, released in August 1997, noted that the overall
equity of highway user fees could be incrementally improved by
implementing either a weight-distance tax or eliminating the existing
$550 cap on the Heavy Vehicle Use Tax.  However, the study made no
recommendations.  According to an FHWA official, FHWA plans to issue
an addendum to the report by April 1999 which will point out that the
June 1998 Transportation Equity Act for the 21st Century (TEA-21)
reduced the equity of highway user fees.  TEA-21 requires that
revenues from the federal fuel tax that had been used to help reduce
the federal budget deficit go instead to the Highway Trust Fund so
that they can be spent on highway and/or transit projects.  This
means that users that pay this tax (owners of cars, light trucks, and
vans) will move in the direction of paying more than their "fair"
share of highway maintenance costs.  The administration still does
not plan any action and will continue to monitor highway user fees. 

JCT estimates that removing the $550 cap on the Heavy Vehicle Use Tax
would result in the revenue gains shown in the table below. 



                           Five-Year Revenues

                         (Dollars in billions)

                                  FY00    FY01    FY02    FY03    FY04
------------------------------  ------  ------  ------  ------  ------
Revenue gain                       0.1     0.1     0.1     0.1     0.1
----------------------------------------------------------------------
Note:  JCT provided its revenue estimates in billions of dollars. 

Source:  Joint Committee on Taxation. 


      RELATED GAO PRODUCT
--------------------------------------------------- Appendix III:120.1

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:120.2

John H.  Anderson, Jr., (202) 512-2834


OPTIONS NOT UPDATED FOR THIS
REPORT
========================================================== Appendix IV

The following table provides information on options presented in
earlier versions of this series that are not included in this
product.  Over 60 options from our last report are not included in
this report because (1) the option was fully or substantially acted
upon by the Congress or the cognizant agency, (2) the option was no
longer valid due to environmental changes or the aging of our work,
or (3) the Congress or the cognizant agency chose a different
approach to address the issues discussed in the option.  We will
continue to monitor many of these options to assess whether
underlying issues are ultimately resolved based on the actions taken. 
It is possible that some of the issues discussed below may appear in
subsequent editions of this series. 

Option (budget
subfunction)               Comments
-------------------------  -----------------------------------------------------
F/A-18E/F Fighter (050)    Our work concluded that expected operational
                           improvements from the F/A-18E/F were marginal
                           compared to current versions of the aircraft and that
                           recurring flyaway costs were understated. In the
                           fiscal year 1997 appropriations act, the Congress
                           funded DOD's request to procure 12 low-rate initial
                           production aircraft under the first of three planned
                           low-rate production lots. In the fiscal year 1998 and
                           1999 appropriations acts, the Congress funded DOD's
                           requests to procure 50 additional E/F aircraft under
                           the second and third low-rate production lots.

C-17 Strategic Airlift     Our work indicated that a reduced procurement of 100
(050)                      C-17s would meet airlift needs if other actions
                           (e.g., increased prepositioning) were also taken. The
                           Congress subsequently authorized DOD to procure 80
                           additional C-17s to bring the C-17 fleet to 120
                           aircraft.

Nuclear Submarine Force    Our work indicated that there were less costly
Reductions (050)           alternatives to the Navy's attack submarine
                           shipbuilding plans, including building 6 fewer
                           submarines than planned, to maintain a force
                           structure of 45 to 55 submarines. The Navy had
                           planned to meet this requirement by acquiring 30 new
                           attack submarines, providing a force of about 55
                           submarines through 2020. The Quadrennial Defense
                           Review subsequently proposed a force of 50 attack
                           submarines. To satisfy this smaller requirement, the
                           Navy will continue with its plan to build 30 new
                           submarines while increasing the number of planned
                           submarine retirements.

Major Weapon System        The National Defense Authorization Act for Fiscal
Warranty Law (050)         Year 1998 repealed the requirement for contractor
                           guarantees on major weapon systems, as suggested in
                           the option. The Congress reduced DOD's fiscal year
                           1998 appropriations by $75 million based on the
                           repeal of the warranty law.

Base Alignment and         DOD has reduced unobligated balances in BRAC
Closure (BRAC) Accounts    accounts, as suggested in the option, and analysis of
(050)                      the fiscal year 2000 budget will assess the extent of
                           change.

Defense Transportation     DOD is in the process of, among other things,
Restructuring (050)        consolidating cargo clearance and booking functions,
                           outsourcing nontemporary storage functions, and
                           converting vehicle processing centers to contractor-
                           run operations. These changes and others are intended
                           to save at least $20 million and reduce personnel by
                           258 positions, consistent with this option.

Depot Maintenance Program  DOD adopted the recommended strategy and has
Excess Capacity (050)      completed three public-private competitions.

DOD's Acquisition          DOD had been on pace to meet the targeted reductions
Workforce (050)            required by the Defense Authorization Acts of 1996
                           and 1997, as discussed in this option. The 1998
                           Defense Authorization Act expanded the conditions
                           under which the Secretary of Defense may elect not to
                           make cuts in support of targeted reductions; the 1999
                           Act effectively ended further targeted reductions of
                           the acquisition workforce by limiting DOD to
                           percentage cuts that are not to exceed the rate of
                           overall cuts in the civilian workforce.

DOD's Materiel Management  Based on our recommendation, the military services
Migration Systems (050)    and the Defense Logistics Agency are now responsible
                           for modernizing their inventory control point
                           environments. The original plan for a standard suite
                           of systems has been abandoned in favor of a
                           combination of commercial, off-the-shelf systems, and
                           modernized legacy systems.

DOD's Bulk Fuel Budgeting  Our option pertained to the 1998 DOD budget request
(050)                      and was considered during that year's appropriations
                           process.

Uniformed Services         In 1997, DOD completed new sole-source contract
Treatment Facilities       negotiations with each Uniformed Services Treatment
(050)                      Facility (USTF), which, among other things, reduced
                           payments to USTFs, as discussed in this option.
                           Program costs are now comparable to alternative
                           programs such as military hospitals, TRICARE, and
                           Medicare.

Department of Energy's     DOE is implementing recommended changes to
Procurement of Laboratory  procurement of commonly used analyses of
Testing Services (050)     nonradioactive organic and inorganic chemicals.

Attrition of Enlisted      DOD implemented recommendations to move all drug
Personnel From the         testing of recruits to the pre-enlistment stage.
Military Services (050)

Defense Inventories        The Congress has required DOD to develop schedules to
Reform (050)               implement within the next 3 to 5 years commercial
                           practices for acquisition and distribution of
                           inventory items, as suggested in the option.

Fiscal Year 1998 Defense   Our option pertained to the 1998 DOD budget request
Operation and Maintenance  and was considered during that year's appropriations
Budget (050)               process.

Convert Some Support       Our option pertained to the 1998 DOD budget request
Officer Positions to       and was considered during that year's appropriations
Civilian Status (050)      process.

DOD's Training             Our option pertained to the 1998 DOD budget request
Infrastructure (050)       and was considered during that year's appropriations
                           process.

Excess Real Estate at      The State Department has established an independent
Overseas Posts (150)       advisory panel to review potential properties for
                           sale and has significantly increased the sale of
                           excess property, as suggested in this option.

USIA Exchanges Programs    The consolidation of foreign affairs agencies will
(150)                      result in the abolishment of USIA and the integration
                           of its functions into the State Department, including
                           the possible closure of exchange programs as
                           discussed in this option.

USIA Overseas Posts,       The consolidation of foreign affairs agencies will
Activities, and Cultural   result in the abolishment of USIA and the integration
Centers (150)              of its functions, including overseas structures and
                           activities discussed in this option, into the State
                           Department.

USAID's Housing Guaranty   The Congress has significantly reduced appropriations
Program (150)              for housing guarantees in foreign aid programs,
                           consistent with this option's intent.

State Department           The Congress has required the State Department to
Functions and Activities   engage in a reinvention effortï¿½including changes in
(150)                      its overall operational priorities, organizational
                           structure, and interagency relations, as discussed in
                           this optionï¿½as part of the consolidation of foreign
                           affairs agencies.

State Department Support   This option was consolidated with the State
Functions (150)            Department Business Processes option.

TV Marti (150)             This option was consolidated with the International
                           Broadcasting option.

Risk-Based Exposure Fees   The United States and other members of the
Export-Import Bank (150)   Organization for Economic Cooperation and Development
                           have agreed to set rules on fees for export finance
                           transactions and use similar rates in similar
                           markets, as discussed in this option. Eximbank
                           implemented the rules in 1998 by raising its fees in
                           a number of markets.

Space Station (250)        We have reported and testified that NASA has made
                           some progress on the International Space Station
                           (ISS), but stressed that the agency still had
                           considerable challenges to overcome, including
                           continued cost growth, lower financial reserves, and
                           significant risk related to NASA's and the Russian
                           Space Agency's ability to support the ISS launch and
                           assembly schedule. Initial ISS launches began in late
                           1998, and we will continue to monitor program
                           implementation.

NASA's Earth Observing     Despite developmental problems with flight operations
System Data and            software, NASA is currently restructuring the program
Information System (250)   to keep it on schedule and within budget, as
                           suggested in this option.

Clean Coal Technology      Congressional rescissions, as suggested in this
Funds (270)                option, have significantly reduced the reserve fund
                           balance for this account.

Use of Carryover Balances  Consistent with congressional direction and our
to Offset Future Budget    recommendations, DOE has made substantial progress in
Needs (270)                reducing the level of carryover balances.

Department of Energy's     DOE's Office of the Controller is closely monitoring
Overtime Costs (270)       overtime use and several initiativesï¿½such as not
                           allowing payment for compensatory time not used
                           within a yearï¿½have been factors in reducing overtime,
                           consistent with the intent of this option.

Department of Energy's     Our work showed that removal actions were the least
Cleanup Studies (270)      costly method to cleanup contaminated sites. DOE has
                           developed a 10-year plan (Accelerating Cleanup: Paths
                           to Closure, June 1998) that, among other things,
                           provides a site-by-site, project-by-project
                           projection of the technical scope, cost, and schedule
                           required to complete 353 cleanup projects at the 53
                           DOE sites.

Weather Service            The National Weather Service has begun to deploy the
Modernization Project      Advanced Weather Interactive Processing System. As
(300)                      discussed in this option, the deployment will involve
                           only capabilities that have been validated.

Federal Land Policies      The portion of this option dealing with hardrock
(300)                      mining claims is captured under the Hardrock Mining
                           option. Recent congressional initiatives addressed
                           the portion of this option dealing with increasing
                           concessionaires' fees in parks, forests, and other
                           recreation areas.

Federal Timber Sales       The Forest Service's commercial timber sales program
(300)                      discussed in this option has been significantly
                           reduced in recent years and the types of timber sales
                           have changed. Currently, about half of the sales are
                           related to forest stewardship (i.e., maintaining
                           forest health) or personal use sales (i.e., products
                           for individuals' consumption), which are not selected
                           for commercial value but for other particular
                           management objectives.

Recreation Fees at         Each of the major federal land management agencies is
Federal Sites (300)        now participating in a recreation fee demonstration
                           program that allows each agency to increase fees and
                           charge new fees where appropriate, as discussed in
                           the option. The additional fee revenue generated by
                           this program will remain with the respective agencies
                           without the need for annual appropriations.

Food Aid: Public Law 480   The Congress retained the Title I program under the
Title I Program (350)      Federal Agriculture Improvement and Reform Act of
                           1996, but (1) cut funding significantly as discussed
                           in this option, and (2) shifted emphasis under the
                           Food for Peace Program from market expansion and
                           economic development under Title I to emergency and
                           humanitarian assistance under Title II.

The Market Access Program  The Congress reduced authorized funding for this
(350)                      program, mandated that only small, new-to-market
                           export companies could participate in the branded
                           portion of the program, and incorporated a five-year
                           graduation requirement for private, for-profit
                           company participation, consistent with the intent of
                           this option.

Export Credit Guarantee    USDA has significantly improved its credit risk
Programs (350)             assessment process and taken other steps to lessen
                           the financial risk to the U.S. government, as
                           discussed in the option. The number of countries of
                           questionable creditworthiness that participate in the
                           program has decreased and the risk of default on U.S.
                           government-backed loans has decreased. The Congress
                           committed to fund the Export Credit Guarantee Program
                           at $5.5 billion a year under the Federal Agriculture
                           Improvement and Reform Act of 1996.

Use of Sampling for the    The Supreme Court ruled on January 25, 1999, that the
2000 Decennial Census      Census Act does not permit sampling for purposes of
(370)                      congressional apportionment.

Military Airport Program   Responding to our recommendations, FAA agreed to
Funds (400)                tighten its criteria for entry into the Military
                           Airport Program (MAP) and focus grants on conversion
                           and capacity projects for MAP airports.

Fees for Certification of  The fiscal year 1998 appropriations act prohibited
New Airlines (400)         FAA from promulgating new aviation user fees not
                           specifically authorized by law. Thus, the agency no
                           longer plans to issue a Notice of Proposed
                           Rulemaking, which could have updated fees to levels
                           sufficient to recover the costs of certification.

State Share of State-      While Amtrak's losses on state-supported routesï¿½the
Supported Intercity Rail   focus of this optionï¿½have not decreased consistently
Passenger Service (400)    in recent years, some states have begun to require
                           that Amtrak use fixed-price contracts for these rail
                           services. Fixed-price contracts provide an incentive
                           for Amtrak to reduce costs on these routes.

Amtrak Subsidies (400)     In the Amtrak Reform and Accountability Act of 1997,
                           the Congress established an independent Amtrak Reform
                           Council, as discussed in this option. If Amtrak does
                           not meet the financial goals included in the act, the
                           Council must recommend to the Congress a
                           "restructured and rationalized national intercity
                           rail passenger system." The provision supersedes the
                           option of a temporary commission to restructure
                           Amtrak's route network.

Consolidation of           The Congress passed the Workforce Investment Act of
Employment and Training    1998, which consolidated and coordinated employment
Programs (500)             and training programs, as discussed in this option.

Automated Drug             Most states have now implemented drug utilization
Utilization Reviews (550)  review programs, as discussed in this option.

Payments to Rural Health   The Congress enacted legislation that limited rural
Clinics (550)              health clinics to areas with a current shortage area
                           designation, consistent with our recommendations, and
                           established payment limits for hospital-based
                           clinics.

Teaching Hospitals'        The Balanced Budget Act of 1997 changed Medicare's
Medicare Payments (570)    graduate medical education payment methodology, as
                           discussed in this option. Changes included reducing
                           the percentages used to calculate the indirect
                           teaching adjustment factor; capping the number of
                           full-time equivalent residents and interns in certain
                           medical fields used in calculating the adjustment
                           factor, and providing incentive payments for
                           voluntary residency reduction plans.

Funding for State          Under recent welfare reform legislation, states have
Automated Welfare Systems  more responsibility for funding welfare programs as
(600)                      well as the automated systems needed to allow them to
                           function.

The PASS Work Incentive    In response to our recommendations, the Social
Program (650)              Security Administration revised its application
                           process. As a result, the number of participants in
                           the plan for achieving self-support (PASS) program is
                           much smaller and estimated program savings associated
                           with restricting Disability Insurance beneficiaries
                           would also likely be much smaller than previously
                           estimated.

Effective VA Hospital      VA directed its facilities to establish utilization
Preadmission               management programs to assess, monitor, and evaluate
Certification (700)        the appropriateness of the level of health care
                           provided by VA facilities. These programs, coupled
                           with VA's recently implemented capitation-based
                           resource allocation system, are resulting in
                           significant reductions in hospital admissions and
                           lengths of stay, consistent with the intent of this
                           option.

Construction of Veterans'  The President's Budget proposed $48 million in fiscal
Medical Facilities (700)   year 1998 for VA major construction funding, a 77
                           percent reduction from the prior year; $84 million
                           and
                           $47 million was requested for fiscal years 1999 and
                           2000, respectively.

VA's Medical Care Account  In recent appropriations requests, VA indicated that
Growth Rate (700)          it does not plan to request additional
                           appropriations, the focus of this option, but
                           proposes supplementing its appropriations with
                           increases in third-party reimbursements.

Sunset Date on VA's        In response to our recommendations, the Congress
Income Verification        extended the provision authorizing IRS and SSA
Program (700)              assistance to VA in verifying income to September 30,
                           2002.

Approving Education and    Our work indicated that VA was contracting with state
Training Programs for      approving agencies to conduct assessments that
Veterans (700)             overlapped with those performed by other federal
                           agencies. The Congress subsequently directed VA to
                           continue to contract with states to determine whether
                           postsecondary educational and training programs and
                           institutions meet federal requirements.

Border Patrol Resources    The Immigration and Naturalization Service has
(750)                      partially redeployed agents to better address the
                           threat of illegal entry, as discussed in this option.

General Services           GSA has reported that it is increasing use of direct
Administration Supply      delivery and has formed a task force to reassess the
Depot System (800, 900,    role of depots in its supply operations, as discussed
999)                       in this option.

Judiciary's Long-Range     The Administrative Office of the Courts has updated
Space Planning System      its space plans as recommended and is using
(800, 900, 999)            statistical tools to ensure consistent treatment
                           across districts, as discussed in this option.

Premium Payments to        Consistent with our recommendation, the Congress
Employees While on Leave   enacted in 1998 a permanent governmentwide
(800, 900, 999)            restriction on the payment of Sunday premium pay for
                           all employees who are paid from appropriated funds
                           and who do not actually perform work on Sunday.

Commemorative Coins (800,  The Congress has authorized a 10-year circulating
900, 999)                  commemorative coin programï¿½the quarter
                           dollarï¿½beginning in 1999, as discussed in this
                           option.

Internal Revenue Staff     Although allocation of collection staff may still be
Utilization (Receipts)     an issue, IRS has reassigned a significant number of
                           collections personnel since the revenue estimates
                           were made, as discussed in this option.

Taxation of Additives to   The Taxpayer Relief Act of 1997 requires that
Diesel Fuel (Receipts)     kerosene, which may be blended with diesel fuel, be
                           subject to the same requirements as those applied to
                           diesel fuel, as discussed in this option.

Industrial Development     Our work indicated that targeted reductions in the
Bonds Targeting            amount of bonds a state may issue (a ï¿½volume capï¿½)
(Receipts)                 based on the extent of fiscal distress among its
                           communities could reduce tax losses while not
                           significantly lessening the public benefits arising
                           from this type of bond. The Congress expanded this
                           program in 1998 by increasing the state volume cap.

Federal Agency Reporting   The Taxpayer Relief Act of 1997 requires federal
to the Internal Revenue    agencies to report payments of $600 or more to
Service (Receipts)         corporations for services, as discussed in this
                           option. However, IRS has not yet begun to match
                           corporation tax returns against the reported
                           information to identify underreporting.
--------------------------------------------------------------------------------

MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

Literally hundreds of GAO staff were responsible for the scores of
reports and testimonies that form the basis for the options included
in this product.  At the end of each option, a key contact name is
provided to address questions pertaining to the specific option. 

Michael J.  Curro, Assistant Director, Carol M.  Henn, Senior
Evaluator, and Adriel M.  Harvey, Evaluator, prepared this volume in
the GAO series.  Questions may be directed to these staff in the
Accounting and Information Management Division, Budget Issues Group,
at (202) 512-9573. 


*** End of document. ***