Budget Issues: Effective Oversight and Budget Discipline Are
Essential--Even in a Time of Surplus (Testimony, 02/01/2000,
GAO/T-AIMD-00-73).

The United States stands at a crossroads. After nearly 30 years of
federal deficits, a combination of hard policy choices and remarkable
economic growth has led to a budget surplus. The Congressional Budget
Office projects both unified and on-budget surpluses throughout the next
10 years. Continuing budget surpluses, however, will neither eliminate
the need for prudent stewardship of the national economy nor absolve the
government of its responsibility to make good use of taxpayer dollars.
The Comptroller General's testimony discusses selected performance
challenges within federal agencies and programs and possible changes to
congressional oversight to help address such problems. Drawing on the
breadth of GAO's work, the Comptroller General provides examples that
respond to the following five thematic questions: What federal services
could be better provided by the private sector? What federal subsidies
to individuals, businesses, or state and local governments are no longer
needed or poorly targeted? What overlapping or fragmented programs could
be consolidated or better coordinated? What federal facilities or
locations are outmoded, ineffective, or in excess to requirements? In
which areas could major federal capital investments be more cost
effective? In related correspondence, GAO provides a list of federal
programs, projects, activities, and facilities that Congress could
consider for possible termination, reduction, deferral, or reform. (See
GAO/OCG-00-3R, Nov. 1.)

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

 REPORTNUM:  T-AIMD-00-73
     TITLE:  Budget Issues: Effective Oversight and Budget Discipline
	     Are Essential--Even in a Time of Surplus
      DATE:  02/01/2000
   SUBJECT:  Budget surplus
	     Budget administration
	     Fiscal policies
	     Congressional oversight
	     Productivity in government
	     Cost effectiveness analysis
	     Performance measures
	     Redundancy
	     Federal aid programs
	     Federal downsizing
IDENTIFIER:  Social Security Program
	     Medicare Program
	     USDA Market Access Program
	     Medicare Incentive Payment Program
	     Community Development Block Grant
	     Medicaid Program
	     FEMA Public Assistance Program
	     FEMA National Flood Insurance Program
	     Medicare Choice Program
	     DOD Defense Reform Initiative
	     Army Comanche Helicopter Program
	     Army Crusader System
	     Paladin Howitzer
	     Pzh 2000 Self-Propelled Howitzer
	     F-22 Aircraft
	     F/A-18E/F Aircraft
	     Joint Strike Fighter
	     New Zealand
	     Norway

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GAO/T-AIMD-00-73

GAO/T-AIMD-00-73

budget issues

Effective Oversight and Budget Discipline Are Essential--Even in a Time of
Surplus

        Statement of David M. Walker

Comptroller General of the United States

Testimony

Before the Committee on the Budget, U.S. Senate

United States General Accounting Office

GAO

Mr. Chairman, Senator Lautenberg, and Members of the Committee:

I appreciate the opportunity to be here this morning to discuss the unique
budget and oversight challenges that face you and other Members of the
Congress at this time. Let me commend you for taking on this important but
not glamorous task of oversight. Seriously reviewing current laws and
programs is hard work, but it can yield important outcomes; thinking about
whether existing programs work or are still needed is critical to maximizing
the government's performance and accountability.

We stand at an important crossroads. After nearly 30 years of deficits, the
combination of hard choices and remarkable economic growth has led to a
budget surplus. We appear-at least for the near future-to have slain the
deficit dragon. In their most recent projections, the Congressional Budget
Office (CBO) shows both unified and on-budget surpluses throughout the next
10 years. While this is good news, it does not mean that hard choices are a
thing of the past. First, it is important to recognize that by their very
nature projections are uncertain. This is especially true today because, as
CBO notes, it is too soon to tell whether recent boosts in revenue reflect a
major structural change in the economy or a more temporary divergence from
historical trends. Indeed, CBO points out that assuming a return to
historical trends and slightly faster growth in Medicare would change the
on-budget surplus to a growing deficit. This means we should treat surplus
predictions with caution.

However, even if the budget surplus continues, it does not signal the end of
fiscal challenges. Nor does it eliminate the need for prudent stewardship of
our national economy. Projected surpluses do not absolve government of its
responsibility to make good use of taxpayer dollars. Rather, the surpluses
provide an opportunity to rise out of the 1-, 3-, or 5-year budget horizon
of recent deficit debates and to focus on longer-term challenges as we move
into the 21st century. We move into this new century relatively free of the
immediate security threats and fiscal constraints of the recent past, but we
must recognize the challenges that will shape the United States and its
place in the future: globalization, technology, demographic shifts, quality
of life issues, changing security threats, and rising expectations for
government performance and accountability.

I have testified before on the importance of preparing for the demographic
tidal wave facing both the United States and much of the industrialized
world. Without changes in Social Security and Medicare, these programs will
consume an ever-larger share of the economy-producing a serious squeeze on
the resources available for other national needs. Further, while Social
Security and Medicare are the obvious fiscal time bombs, they are not the
only long-term cost pressures we face. Bills will also come due for a
variety of other commitments and contingencies, such as federal insurance
programs and cleanup costs from federal operations known to result in
hazardous waste, including defense facilities and weapons systems. To help
prepare our nation for the burdens these commitments will impose on future
taxpayers, we should continue to devote a significant portion of our surplus
to pay down the federal debt. Reducing interest payments on the debt-now our
third largest "program"-is critical to providing the fiscal flexibility to
address future needs and commitments.

Today, however, I would like to focus beyond these compelling fiscal
pressures and talk about the need for serious debate about what the
government does, how it does it, and who benefits from these activities.
After a decade of focusing on deficit reduction, we know there are pent-up
demands for using the projected budget surpluses. However, if careful
scrutiny is given only to proposed new spending or new tax preferences,
policymakers will have missed a golden opportunity to shape the government
for the next century. A body of laws enacted during the last
decade-including the Government Performance and Results Act, the Chief
Financial Officers Act, and the Clinger-Cohen Act-has sought to provide more
complete and consistent information on the fiscal, program, and management
performance of federal agencies, programs, and activities. Now-freed from
the exclusive focus on deficit reduction but facing the demands of the
future-policymakers have an opportunity to use that information in new and
important ways.

As we enter a new century, we have been reminded about how much things
change. To get some perspective on change in the last 20 years, it is useful
to recall that students who started college this fall were 11 when the
Soviet Union broke apart and have no memory of the Cold War; their lifetimes
have always known microcomputers and AIDS. Yet many of our programs-their
goals, organizations, and processes-were designed long before those students
were born. It shouldn't be insulting or threatening to any federal program
or activity to question its relevance or "fit" in today's world. Examining
the legacy of existing activities and programs can yield several important
benefits. First, we can create much-needed flexibility to address emerging
needs by weeding out programs that have proven to be outdated and no longer
relevant to our changing society. Second, we can update and modernize those
activities that remain relevant by improving their targeting and efficiency
through such actions as redesigning formulas, enhancing cost sharing by
beneficiaries, consolidating facilities and programs, and streamlining and
reengineering operations and activities.

In my testimony today, I will talk about selected performance challenges
within federal agencies and programs and about possible changes to
congressional oversight models to help address such problems. In this
testimony, I draw on the breadth of our work at GAO and provide examples
based on the key findings and issues developed in our audits and
evaluations. These examples are organized within the following five thematic
questions on which you asked us to focus.

   * What federal services could be better provided by the private sector?
   * What federal subsidies to individuals, business, or states and local
     governments are no longer needed or are poorly targeted?
   * What overlapping or fragmented programs could be consolidated or better
     coordinated?
   * What federal facilities or locations are outmoded, ineffective, or
     excess to requirement?
   * In what areas could major federal capital investments be more
     cost-effective?

I will then conclude my statement by turning to some ideas that may be of
use to you in thinking about new congressional oversight models and
processes as we enter this new period in our nation's history. I will draw
on some of our work on how other countries have dealt with their budget
surpluses. I will also talk about how the Congress might use the new
statutory framework for results-based management and accountability to
provide for more systematic examination of current and proposed federal
programs.

Addressing Performance Problems in Existing Government Programs and
Operations

What Federal Services Could Be Better Provided by the Private Sector?

   * The federal government began to market electricity following the
     construction of dams and major water projects primarily from the 1930s
     to the 1960s. However, the restructured and increasingly competitive
     electricity industry, and the relatively small contribution made by
     federal power marketing administrations (PMAs), suggests that
     reassessment of roles and missions is needed. We reported in 1998 that
     divesting or corporatizing three PMAs-Southeastern, Southwestern, and
     Western-could produce significant budgetary savings. These PMAs provide
     a small percentage of the total power consumed in a state, and most
     customers would see little or no rate increase if commercial market
     rates were charged. 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 these PMAs. Divesting the PMAs
     and federal power assets would eliminate the government's presence in a
     commercial activity and, depending on a divestiture's terms and
     conditions and the price obtained, could produce both a net gain and a
     future stream of tax payments to the Treasury.
   * The Market Access Program, operated by the U.S. Department of
     Agriculture (USDA), subsidizes the promotion of U.S. agricultural
     products in overseas markets. Despite changes made to the program
     between 1993 and 1998, uncertainties continue regarding the results of
     the program. Our work has noted several questions-including whether the
     program generates a positive economic impact, results in increased
     exports that would not have occurred without the program, and
     supplements rather than supplants private sector spending-that the
     Congress could consider in determining whether to terminate or
     significantly reduce the program.
   * USDA's Rural Utilities Service (RUS) finances the construction,
     improvement, and repair of electrical, telecommunications, water, and
     waste disposal systems through direct loans and repayment guarantees on
     loans made by other lenders. Given demographic changes, the operating
     environment of today's utilities industry, and weaknesses in RUS loan
     management operations, the Congress could reconsider the role of RUS in
     the development of the utility infrastructure for the nation's rural
     areas. We have identified various steps RUS could take to increase the
     effectiveness and reduce the costs of its loan programs. From a
     financial standpoint, RUS has successfully operated the
     telecommunications loan program, but the agency has had, and continues
     to have, significant financial problems with the electricity loan
     program. For example, during fiscal years 1994 through July 31, 1997,
     RUS wrote off debt totaling more than $1.7 billion for five electricity
     loan borrowers. Since then, the agency has written off $0.3 billion and
     is in the process of writing off an additional $3.0 billion; it is
     probable that the agency will continue to incur losses in the future.
   * Cargo preference laws require that certain government-owned or
     -financed cargo shipped internationally be carried on U.S.-flagged
     vessels. The laws were intended to guarantee a minimum amount of
     business for the U.S.-flagged vessels that are crewed by U.S. mariners,
     generally built in U.S. shipyards, and are encouraged to be maintained
     and repaired in U.S. shipyards. The effect of cargo preference laws has
     been mixed. Although the laws appear to have had a substantial impact
     on the U.S. merchant marine industry by providing an incentive for
     vessels to remain in the U.S. fleet, cargo preference laws have
     increased the government's transportation costs because U.S.-flagged
     vessels often charge higher rates to transport cargo than
     foreign-flagged vessels. Cargo preference laws increased federal
     agencies' transportation costs by an estimated $578 million per year in
     fiscal years 1989 through 1993 over the cost of using foreign-flagged
     vessels.
   * The United States broadcasts over 2,000 hours of radio programming in
     over 60 languages and at least 200 hours of television in several
     languages weekly to support U.S. foreign policy objectives. Given
     changing world conditions-including the fall of the Soviet Union-and
     the development of commercial international broadcasting services, the
     Congress could reconsider the need for and benefits derived from these
     programs. In fiscal year 1999, $397.6 million of the U.S. Information
     Agency's budget supported the Voice of America (53 languages), Radio
     Free Europe/Radio Liberty (26 languages), Radio and TV Marti broadcasts
     to Cuba, Radio Free Asia (9 languages), Worldnet television broadcasts,
     and capital improvements. Although international broadcasting funding
     has declined considerably since 1994, very few services have been
     terminated.
   * The Medicare Incentive Payment program provides a bonus payment for
     Medicare services provided in areas identified as having a shortage of
     primary care physicians. The bonus payments, amounting to over $90
     million in 1997, do not appear to have a significant impact on
     physician recruitment and retention, and most of the program's payments
     are going to specialists in more urban areas rather than to primary
     care physicians in medically underserved areas. Moreover, recent
     beneficiary survey information indicates that access problems arise for
     reasons other than the unavailability of physicians.
   * The Government Printing Office (GPO), which receives over $100 million
     in annual appropriations, effectively has a statutory monopoly over
     printing for the federal government. GPO's monopoly-like role in
     providing printing services perpetuates inefficiency because it permits
     GPO to be insulated from market forces and does not provide incentives
     to improve operations and processes that will ensure quality services
     at competitive prices. Federal agencies could be given the authority to
     make their own printing policies, requiring GPO to compete with private
     sector printing service providers. If GPO is unable to provide quality
     service at competitive prices, the need for retaining a government
     printing office could then be re-examined.
   * The Uniformed Services University of the Health Sciences (USUHS) is a
     medical school operated by the Department of Defense (DOD). Those who
     propose closing the university assert that DOD's need for physicians
     could be met at a lower cost using physicians educated at civilian
     medical schools under the DOD scholarship program. 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 USUHS graduate is more than 2 times greater than
     the $1.5 million cost for a DOD scholarship program graduate.

What Federal Subsidies to Individuals, Businesses, or State and Local
Governments Are No Longer Needed or Are Poorly Targeted?

   * Many federal grant programs with formula-based distributions of funds
     to state and local governments are not well targeted to jurisdictions
     with high programmatic needs but comparatively low funding capacity. As
     a result, it is not uncommon that program recipients in areas with
     greater wealth and relatively lower needs enjoy a higher level of
     funding than that which is available in harder pressed areas. For
     example, under the Community Development Block Grant (CDBG), Greenwich,
     Connecticut received five times more funding per person in poverty in
     1995 than that provided to Camden, New Jersey, even though Greenwich,
     with per capita income six times greater than Camden, could more easily
     afford to fund its own community development needs. Better targeting of
     formula-based grant awards offers a strategy to bring down federal
     outlays by concentrating reductions in wealthier communities with
     comparatively fewer needs and greater capacity to absorb cuts, while
     holding harmless harder pressed areas that are most vulnerable. For
     programs such as Medicaid, Foster Care, and Adoption Assistance, which
     base reimbursements on the per capita income of the state, the minimum
     federal share could be reduced or the formula could be revised to
     better reflect relative need, geographic differences in the cost of
     services, and state tax bases. For other formula-based grant programs,
     such as Federal Aid Highways or the CDBG, the formula could be revised
     to reflect the differential fiscal capacities of states.
   * 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
     disasters. In a May 1996 report, we presented a number of options
     identified by FEMA's regional program officials that, if implemented,
     could reduce program costs. Among the options discussed was eliminating
     eligibility for private nonprofit organizations, many of which operate
     revenue-generating facilities such as utilities and hospitals, and
     publicly owned recreational facilities, which generate a portion of
     their operational revenue through user fees or admissions charges. Many
     of these types of facilities could have alternate sources of income
     sufficient to meet disaster-related costs.
   * Repetitive flood loss is one of the major factors contributing to the
     financial difficulties facing the National Flood Insurance Program. The
     Congress and FEMA could consider eliminating flood insurance and
     emphasizing mitigation for certain repeatedly flooded properties,
     removing what some argue is now an incentive to locate in harm's way.
     Approximately 43,000 buildings currently insured under the National
     Flood Insurance Program have been flooded on more than one occasion.
     These repetitive losses account for about 36 percent of all program
     claims historically (currently about $200 million annually) even though
     repetitive-loss structures make up a very small portion of the total
     number of insured properties-at any one time between 1 to 2 percent.
     The cost to the program of these multiple-loss properties over the
     years has been about $2 billion.
   * We have reported in the past on this nation's practice of compensating
     veterans for medical conditions, such as diabetes, chronic obstructive
     pulmonary disease, arteriosclerotic heart disease, and multiple
     sclerosis, that were probably neither caused nor aggravated by military
     service. In 1996, the Congressional Budget Office (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. Other foreign countries we reviewed
     require that a disability be closely related to the performance of
     military duty to qualify for disability benefits; no such link is
     required in the United States. The Congress may wish to reconsider
     whether diseases neither caused nor aggravated by military service
     should be compensated as service-connected disabilities.
   * The current tax treatment of health insurance-amounting to revenue
     losses of over $70 billion dollars in 1999-gives few incentives to
     workers to economize on consuming health insurance. Employer
     contributions for employee health protection are considered deductible,
     ordinary business expenses and are not included in an employee's
     taxable income. Some analysts have argued that the tax-preferred status
     of these benefits, which accrue disproportionately to those in high tax
     brackets who also have above average incomes, has contributed to the
     overuse of health care services and large increases in our nation's
     health care costs. The Congress may wish to reconsider the tax
     treatment of health insurance premiums to improve tax equity and
     provide incentives to control unneeded health care usage.
   * 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 fall well short of today's market value for such
     lands. Furthermore, miners do not pay royalties to the government on
     hardrock minerals they extract from federal lands. For example, 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 $65 billion. The Congress could consider revising the law to
     require the payment of fair market value for a patent and to impose
     royalty payments on hardrock minerals extracted from federal lands.
   * Currently, of the $1.6 billion spent annually to inspect, test, grade,
     and approve agricultural commodities and products, USDA recovers only
     about $400 million through user fees paid by the beneficiaries of
     food-related inspection and testing services. USDA's appropriations
     fund the remaining 75 percent of its expenses. USDA generally does not
     charge user fees for (1) compliance inspections of meat, poultry,
     domestic foods, and processing facilities to ensure adherence to safety
     regulations, (2) import inspections and export certifications to ensure
     that food products in international trade meet specified standards, and
     (3) standards-setting and other support services essential to these
     functions. Congress could consider requiring USDA to charge user fees
     to meat and poultry slaughter and processing plants that gain
     substantial benefit from USDA's food safety inspection and testing
     services.
   * In 1997, the Congress created Medicare+Choice to encourage wider
     availability of health maintenance organizations and to permit other
     types of health plans to participate in Medicare. This law used 1997
     payment rates as the foundation for rates in 1998 and future years.
     However, according to actuaries from the Health Care Financing
     Administration (HCFA), a forecast error caused the 1997 rates to be an
     estimated 4.2 percent too high. Consequently, aggregate plan payments
     in 1998 were $1.3 billion too high, and excess payments resulting from
     this forecast error will increase over time as managed care enrollment
     rises. Current law permits HCFA to correct forecasts in future years
     but does not include a provision to allow a correction of its 1997
     forecast. HCFA maintains that the agency needs statutory authority to
     correct the 1997 forecast error.

What Overlapping or Fragmented Programs Could Be Consolidated or Better
Coordinated?

   * The federal system to ensure the safety and quality of the nation's
     food is inefficient and outdated. Within USDA, the Food Safety and
     Inspection Service (FSIS) is responsible for the safety of meat,
     poultry, and some eggs and egg products, while the Food and Drug
     Administration (FDA) is responsible for the safety of most other foods.
     FSIS, FDA, and 10 other federal agencies administer over 35 different
     laws that oversee food safety. The current food safety system suffers
     from overlapping and duplicative inspections, poor coordination, and
     inefficient allocation of resources. The Congress may wish to consider
     consolidating federal food safety agencies and activities under a
     single, risk-based food safety inspection agency with a uniform set of
     food safety laws.
   * Duplication and overlap in federal land management could be reduced and
     operations streamlined through a collaborative federal land management
     strategy. The four major federal land management agencies-the National
     Park Service, the Bureau of Land Management (BLM), and the Fish and
     Wildlife Service within the Department of Interior, and the Forest
     Service within USDA-have grown increasingly similar over time, while
     federal land management missions have become more complex. Budgetary
     constraints and better understanding of natural ecosystems, whose
     boundaries are often not consistent with existing jurisdictional and
     administrative boundaries of the separate agencies, demand that the
     agencies find ways to refocus, combine, or eliminate certain functions,
     systems, programs, activities, and field locations. To improve the
     efficiency and effectiveness of federal land management, the Congress
     may wish to either reorganize the current organizational structures or
     streamline the existing structures by integrating and coordinating
     current functions and programs.
   * Federal water programs intended to promote the efficient use of finite
     water resources for the nation's agricultural and rural water systems
     have developed inconsistencies that may cause the programs to work at
     cross-purposes. In 1995, we reported that as many as eight different
     federal agencies administered 17 different programs just in the area of
     rural water and wastewater systems. In the area of irrigation, the
     multiplicity of programs and approaches has allowed for inconsistencies
     and potentially counterproductive outcomes. The Congress could consider
     several options to address these inconsistencies, including collecting
     the full costs of subsidized water for large farms and phasing out
     double subsidies for both water and crops.
   * Numerous federal assistance programs-grants, loans, loan guarantees,
     and other forms of assistance-are directed at local economic
     development. One option to address this fragmentation of agencies and
     programs, and to more tightly focus federal contributions on local
     economic development efforts, is to consolidate or eliminate similar
     programs, such as those managed by the Department of Housing and Urban
     Development, the Economic Development Administration within the
     Department of Commerce, and the Appalachian Regional Commission.
     Another option is to reassess the economic effects attributed to these
     programs and determine if the federal government should more closely
     target economic development assistance or even provide it at all.

What Federal Facilities or Locations Are Outmoded, Ineffective or Excess to
Requirements?

   * DOD's efforts at streamlining, consolidating, and possibly privatizing
     infrastructure activities should continue to be encouraged. For fiscal
     year 1998, DOD estimated that about $147 billion, or 58 percent of its
     budget, was spent for infrastructure requirements. Recognizing that it
     must make better use of its scarce resources, DOD announced the Defense
     Reform Initiative (DRI) in November 1997. Through this program, DOD
     hoped to create a revolution in business affairs that would streamline
     and substantially improve the economy and efficiency of its business
     operations. A major thrust of the DRI was to reduce unneeded
     infrastructure, primarily through a number of initiatives designed to
     reduce the cost of DOD's operations and support activities. Included in
     these initiatives were (1) demolishing and disposing 80 million square
     feet of excess space at military facilities,
     (2) reducing the number of Defense Information System Agency major data
     processing centers from 16 to 6, (3) reducing the number of Defense
     Finance and Accounting Service operating locations from 19 to 11, (4)
     closing unneeded research, development, and test facilities, and (5)
     avoiding hundreds of millions of dollars in future capital expenditures
     by privatizing utility systems (electric, natural gas, water, and
     sewer) at military bases. The results of DOD's efforts in reducing
     infrastructure are mixed, but continued progress on this initiative can
     help DOD save significant amounts of operations and support money.
   * The Department of Veterans Affairs (VA) owns 4,700 buildings and 18,000
     acres of land, which it uses to operate 181 major health care delivery
     locations. VA spends about $1 out of every $4 of its $18.4 billion
     budget to operate, maintain, and improve its delivery locations-in
     effect, the cost of its asset ownership. VA's delivery locations
     operate in 106 health care markets, and in 40 of these markets multiple
     VA facilities compete with each other to serve veterans-for example, 4
     major VA facilities are located in the Chicago market. However, all VA
     delivery locations project a declining veteran population base, and
     two-thirds expect declines greater than 33 percent in the next 20
     years. Without major restructuring over the next several years,
     billions of dollars will be used to operate hundreds of unneeded VA
     buildings. For example, a VA study projected annual savings ranging
     from $132 million to $189 million by consolidating medical and
     administrative services at its major delivery locations in the Chicago
     area. VA needs to develop and implement realignment plans for all of
     its health care markets, and the Congress could consider a variety of
     options, such as greater reliance on community-based, integrated
     networks of VA and non-VA providers, to meet the health care needs of
     veterans in the most cost-effective manner.
   * The Department of State maintains a physical presence-embassies,
     consulates, and other offices in the capital and other cities-in over
     160 countries. About 18,000 direct-hire employees-over 6,400 from State
     and the rest from at least 27 other federal agencies-and over 35,000
     locally hired and contract staff work overseas at a total of more than
     250 diplomatic posts. It costs over $200,000 annually to station an
     American overseas, which is about two times as much as for
     Washington-based staff. In November 1999, the Overseas Presence
     Advisory Panel, established by the Secretary of State to review how the
     United States carries out its overseas activities, concluded that there
     is no process in place to "rightsize" posts as missions change.
     Although the panel did not specify the amount of savings that could be
     achieved through streamlining posts, it expressed the belief that the
     savings would be substantial and recommended the formation of an
     interagency committee to review and restructure every overseas post.
     State has not said how it will respond to the panel's recommendations.
     Security and diplomacy requirements are directly linked to the size of
     the overseas workforce, and the Congress should be involved in any
     significant restructuring.
   * Since 1982, seven major panels, commissions, and task forces, and
     several GAO studies have addressed how the Department of Energy (DOE)
     could achieve operational efficiencies in its research and development
     facilities. Recommendations have included focusing unclear missions,
     aligning laboratory activities with DOE goals, consolidating
     facilities, and replacing cumbersome, inefficient management
     structures. In particular, with the end of the Cold War, DOE may no
     longer need to maintain three nuclear weapons laboratories. DOE
     officials estimate that transferring most of Lawrence Livermore's
     nuclear weapons functions to Los Alamos could eventually save about
     $200 million in annual operating costs. A DOE-chartered task force-the
     1995 Task Force on Alternative Futures for the Department of Energy
     National Laboratories-reported that DOE's entire laboratory system
     could be reduced productively by eliminating obsolete and redundant
     missions and support infrastructure. Because such consolidations have
     not occurred, science budgets are increasingly being spent on
     maintenance of obsolete and inappropriate infrastructure, rather than
     innovative research and development.
   * Closing, consolidating or privatizing Coast Guard training and
     operating facilities could provide significant budgetary savings. In
     fiscal year 1996, we reported that the Coast Guard could save $6
     million by closing or consolidating over 20 small boat stations. Also
     in 1996, we recommended that the Coast Guard consider other
     alternatives-such as privatization-to operate its vessel traffic
     service centers, which cost about $20 million in fiscal year 1999 to
     operate. In fiscal year 1995, we recommended that the Coast Guard close
     one of its large training centers in Petaluma, California, at a savings
     of $9 million annually. The Coast Guard has faced, however, significant
     opposition to closing facilities.

In What Areas Could Major Federal Capital Investments Be More
Cost-effective?

   * The National Aeronautics and Space Administration (NASA) has estimated
     that the annual cost to operate the International Space Station (ISS)
     will average $1.3 billion, or $13 billion over a 10-year mission life.
     However, this estimate does not include risks associated with
     international partner commitments or other funding requirements, such
     as (1) costs associated with necessary upgrades due to component
     obsolescence, (2) end-of-mission costs to either extend or decommission
     the ISS, and (3) a variety of support costs (space shuttle flights,
     personnel, space communications, etc.) that are currently shown in
     other portions of NASA's budget. Although assembly of the ISS is well
     under way, congressional oversight is vital to ensure that NASA's other
     priorities are not sacrificed in the agency's annual budget request to
     primarily fund ISS operations.
   * The Congress may wish to reassess the costs and benefits of continuing
     the Army's Comanche helicopter program, given real and probable
     development cost increases, questions about its role compared to other
     affordable and capable Army helicopters, deferral of the production
     decision, and current Army aviation budgets. In 1983, the Army began
     the Comanche helicopter program with the intent of replacing the
     Vietnam-era scout helicopter, but the Comanche has changed over time to
     a high-technology attack and reconnaissance helicopter. Since 1983, the
     program has been restructured five times and is still in development.
     The first four restructurings addressed concerns over affordability and
     changing requirements and led to reduced planned procurement
     quantities, delayed development and production decisions, and increased
     unit costs. As the Army's concept for the Comanche changed over time,
     program costs increased. Total program cost is now estimated at $48
     billion, with an estimated unit cost of about $37 million as of April
     1999. Other unresolved technical risks indicate that future cost growth
     is likely.
   * The Army plans to invest over $13 billion dollars to develop and
     procure the Crusader self-propelled howitzer and its resupply vehicle
     to be used by the Army's rapidly deployable and forward-deployed
     forces. The Crusader program has experienced a number of problems that
     have delayed its development by 12 to 18 months, and a number of
     technical uncertainties remain. The Army has recently proposed changes
     to the Crusader artillery system to make it more affordable and
     relevant to future war plans. The new program reduces the planned
     procurement quantity, changes the armor, and cuts the system's weight
     to about 90 tons. Such changes, however, will likely reduce some of the
     Crusader's originally planned capabilities. Given the Crusader
     program's high acquisition costs and uncertain capabilities and
     requirements, other less costly alternatives-such as upgrading the
     Army's current Paladin system or procuring the German PzH 2000
     self-propelled howitzer-could be investigated.
   * The Coast Guard needs to develop a realistic estimate of needs based on
     the capabilities of its current fleet of ships and aircraft for its
     Deepwater Project, the largest acquisition project in the agency's
     history. The initial justification did not accurately or fully depict
     the need to replace or modernize its fleet of deepwater ships and
     aircraft. The agency's initial estimate that the project may cost $9.8
     billion, or about $500 million annually over 20 years, would consume
     more than the agency now spends for all capital projects and leave
     little funding for other critical capital needs.
   * DOD plans to develop and procure several aircraft, including the
     F/A-18E/F, the F-22, and the multi-service Joint Strike Fighter, to
     replace various types of tactical fighter and ground attack aircraft.
     As the nation proceeds to the next century with the prospect of a flat
     defense budget, DOD's plan to modernize its tactical aircraft fleet
     will be a significant issue confronting the Congress. DOD's planned
     investment in these aircraft, estimated by the Congressional Budget
     Office to exceed $350 billion, is likely to be significantly greater
     than probable future budgets. Moreover, questions have been raised
     about the need for, and cost-benefit of, all these systems given likely
     threats. The traditional practices of approving all requested programs
     and then reducing procurement quantities within each program lowers
     acquisition costs but exacerbates the problem of aging equipment and
     associated operating and support costs. The Congress and DOD will need
     to carefully consider tactical aircraft investment options to ensure
     balance among bona fide national security needs based on realistic
     threat assessments, the desires of individual services, and what can be
     afforded given likely future budgets.

Developing a Congressional Oversight Model for the
21st Century

We in GAO are pleased to support the Congress in fulfilling its oversight
responsibilities. Typically, we assist this Committee and the other
Committees of the Congress by performing hundreds of specific reviews and
audits of individual agencies and programs. We also look for opportunities
to summarize or compile this large body of work to provide a more
comprehensive picture of federal government performance and management. Last
year, for example, we summarized much of our work in a series of reports
that discussed the governmentwide and agency-specific challenges that must
be addressed to improve performance, management, and accountability; we
intend to update this series at the beginning of each Congress. We also
issued last year to this Committee the fifth in a series of reports on the
budgetary implications of selected program reforms discussed in our work but
not yet implemented or enacted; we plan to publish the fiscal year 2000
update to this report next month. We completed last year our second annual
audit of the consolidated financial statements of the federal government,
which has helped to disclose significant financial management weaknesses and
deficiencies in internal controls; we will issue our report on the fiscal
year 1999 statements in March. And finally, we provided an update last year
to a special effort begun in the last decade to identify federal activities
and functions that were particularly vulnerable to waste, fraud, abuse, or
mismanagement. Since 1990, six of our high-risk designations have been
removed as a result of sustained, tangible improvements by the affected
agencies; at the end of the decade, however, 26 high-risk areas remain. In
these areas, more needs to be done to achieve real and sustained
improvements, and in a number of cases it will take time to fully resolve
these high-risk areas because they reflect deep-rooted, difficult problems
in very large programs and organizations.

In this context, it is appropriate to think about changes not only to
specific programs and activities within the broad oversight questions
discussed in this statement, but also to reconsider the fiscal and
performance models, structures, and processes that the Congress uses to
fulfill its oversight responsibilities. I would like to conclude my
statement by offering our observations on what those oversight mechanisms
might look like.

Developing a New Fiscal Paradigm

We have reported that under current policies the fiscal flexibility of
future generations will erode as the costs of paying for Social Security and
health care consume ever-greater shares of available budgetary resources.
These known commitments do not include likely substantial costs associated
with many other potential liabilities, such as environmental cleanup costs
and federal insurance commitments. We can use this current surplus period to
help future generations better afford these commitments and recapture their
fiscal flexibility to address new priorities and needs. Specifically,
continued debt reduction and entitlement reforms are both critical to
promoting a more sustainable budget and economy for the longer term. More
importantly, failure to do so will consign the nation to a long-term future
where, at current revenue levels, the federal government may be able to
afford little more than paying for retirement checks and health care for the
elderly.

Our recent work discussing how other countries are dealing with current
surpluses can be informative about the character of a new fiscal paradigm
for our nation. For example, some countries have recognized that using
fiscal targets such as debt-to-GDP ratios can be useful to guide
decision-making in a world where achieving a current year balance is no
longer sufficient as a fiscal compass. We reported that several foreign
countries, including New Zealand and Norway, have succeeded in saving at
least a portion of their surpluses for several years, partly by adopting a
broader framework for budgetary decision-making guided by explicit fiscal
and economic goals that provided a compelling rationale for continued
restraint.

In addition, other nations have discovered that greater transparency about
the future cost of commitments can be a useful method to prompt a timely
debate about current and future affordability. Some foreign governments are
attempting to achieve this transparency by incorporating accrual measures of
longer term consequences in budget documents and presentations. The federal
government also could consider where and to what extent greater disclosure
of the future costs of today's commitments-possibly including accrual
measures for appropriate areas of our budget such as pensions, federal
insurance, and federal retirees' health care costs-might enhance
congressional oversight.

Developing a New Performance Paradigm

As we enter the next century, the government is about to see the benefits of
a framework of recently enacted management reform legislation, including the
Government Performance and Results Act; financial management reforms, such
as the Chief Financial Officers Act; and information resources management
improvements, such as the Clinger-Cohen Act. Implemented together, these
laws provide a powerful framework for developing and fully integrating
information about
(1) agencies' missions and strategic priorities, (2) the results-oriented
performance goals that flow from those priorities, (3) the actual level of
goal achievement, (4) the relationship of technology and other investments
to the achievement of goals, and (5) the reliability of financial
information on the costs of achieving mission results. This framework should
support and promote more results-oriented management and decision-making
processes within the Congress and the executive branch.

Although this reform framework is in place, key elements of it are in the
early stages of implementation and how best to integrate implementation
remains a work in progress. For example, individual authorization and
oversight committees are well suited to address performance or financial
issues affecting individual agencies or programs, but many of the key
performance questions are not confined to, and cannot be addressed
effectively on, an agency-by-agency or committee-by-committee basis. Many
federal mission areas-from low-income housing assistance to food safety to
counterterrorism-are addressed by a wide range of mandatory and
discretionary spending programs, tax expenditures, and regulatory approaches
that cut across federal agencies and committee jurisdictions. Similarly,
while budgetary choices should be more clearly informed by performance
considerations and a full understanding of associated costs, the capacity to
align and relate this information to existing appropriations structures and
presentations is complicated and very much in the early stages of
development.

Given this environment, the Congress should also consider the need for
mechanisms that allow it to more systematically focus its oversight on
problems with the most serious and systemic weaknesses and risks. Today, the
President is required by the Government Performance and Results Act to
prepare and submit to the Congress as part of the annual budget submission a
governmentwide performance plan that provides a "single cohesive picture of
the annual performance goals for the fiscal year." First submitted with the
fiscal year 1999 budget, the governmentwide performance plan includes
fiscal, management, and program performance expectations; the plan provides
a means to present performance goals for the varied missions of government
and to identify the relative contributions of a wide range of agencies,
programs, and strategies to address those mission-based performance goals.
At present, the Congress has no direct mechanism to respond to and provide a
congressional perspective upon the President's governmentwide performance
plan. For example, the Congress has no established mechanism to articulate
performance goals for the broad missions of government, to assess
alternative strategies that offer the most promise for achieving these
goals, or to define an oversight agenda targeted on the most pressing
crosscutting performance and management issues.

In many respects, this current environment mirrors that of 30 years ago. At
that time, the Congress recognized that it had no effective mechanism to
respond to and provide a congressional perspective upon governmentwide
fiscal maters addressed in the President's annual budget submission. Federal
spending and taxing questions were dispersed among appropriations
subcommittees and various authorizing committees dealing with mandatory
spending and revenue matters. The response to that environment was the
Congressional Budget Act of 1974, which, among other things, created the
Budget Committees and the congressional budget resolution. The Budget
Committees were established to perform a role-coordinating the budgetary
activities of congressional committees-that is analogous to that of the
Office of Management and Budget in the executive branch. The budget
resolution, although not having the force of statute, was designed to
provide an overall statement of congressional intent regarding federal
fiscal policy-the receipts, budget authority, outlays and the resulting
surplus or deficit for the fiscal year-as a response to the President's
budget submission.

The Congress might consider whether a more structured oversight mechanism is
needed to permit a coordinated congressional perspective on governmentwide
performance matters. One possible approach would involve modifying the
current budget resolution prepared by this Committee. Already organized by
budget function, similar to the program performance section of the
President's governmentwide performance plan, the resolution could be adapted
to permit the Congress to respond to, and present a coordinated
congressional perspective on, the President's governmentwide performance
plan, as it currently responds to the President's proposed budget.
Initially, this may involve collecting the "views and estimates" of
authorization and appropriation committees on priority performance issues
for programs under their jurisdiction and working with the Governmental
Affairs Committee and others to identify crosscutting performance concerns
that will receive priority congressional attention. Obviously, a
"congressional performance resolution" linked to the budget resolution is
only one approach to achieve the objective of enhancing congressional
oversight, but the Congress should assess whether its current structures and
processes are adequate to take full advantage of the benefits arising from
the reform agenda under way in the executive branch. Ultimately, what is
important is not the specific approach or process, but rather the intended
result of helping the Congress better promote improved fiscal, management,
and program performance through broad and comprehensive oversight and
deliberation.

This is an opportune time for the Congress to carefully consider how this
Committee and all of the Committees of the Congress will take advantage of
and leverage the new information and perspectives coming from the reform
agenda underway in the executive branch. Prudent stewardship of our nation's
resources-whether in time of deficit or surplus-is essential not only to
meet today's needs but also tomorrow's commitments and demands.

This concludes my prepared statement. I would be pleased to answer any
questions you or the other members of the Committee may have at this time.

Contact and Acknowledgement

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