Indian Self-Determination Contracting: Shortfalls and Alternatives for
Funding Contract Support Costs (Testimony, 08/03/1999,
GAO/T-RCED-99-271).

Pursuant to a congressional request, GAO discussed Indian
self-determination contracting, focusing on the extent of, and reasons
for, increases in contract support costs over the last several years and
four alternatives for funding these costs.

GAO noted that: (1) tribes' allowable contract support costs tripled
from 1989 through 1998--increasing from about $125 million to about
+$375 million; (2) this increase occurred for two principal reasons; (3)
the total costs of tribally contracted programs--upon which contract
support costs are based--have increased; (4) the total cost to tribes of
administering their self-determination contracts has increased; (5)
although the amounts appropriated for contract support costs have
increased over the past decade, they have not increased at as great a
rate as the support costs, resulting in funding shortfalls; (6) for
fiscal year (FY) 1998, for example, the shortfall between appropriations
(almost +$280 million) and allowable contract support costs (about $375
million) was about $95 million; (7) projections of future contract
support costs are difficult to calculate because the number of programs
for which tribes will choose to contract in the future is uncertain, as
is the amount of funding they will receive; (8) however, the tribes'
allowable contract support costs could double in the future if tribes
were to contract for all the available programs from the Bureau of
Indian Affairs and the Indian health Service; (9) the impasse over
whether to provide full funding for contract support costs or limit
these costs continues in Congress; (10) the fallout has included
litigation relevant to the issue, as well as a 1-year moratorium for FY
1999 on new contracting; (11) because of a lack of progress in resolving
this issue during 1999, the Senate Committee on Appropriations has
proposed extending the moratorium for another year; (12) to assist
Congress in its deliberations over how to resolve the impasse over
contract support costs, GAO presents four alternative funding
approaches, each of which can be considered individually or combined
with the others; (13) these alternatives range from providing
appropriations sufficient to fund the tribes' allowable contract support
costs each year to amending the act to remove the provision for funding
contract support costs separately from and in addition to a program's
direct costs and instead provide a single, consolidated contract amount;
(14) each of the alternatives has advantages and disadvantages; (15)
three of the four alternatives have the advantage of controlling future
increases in contract support costs; and (16) a disadvantage of these
same three alternatives is that they would require legislative changes
to the funding provisions of the act.

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

 REPORTNUM:  T-RCED-99-271
     TITLE:  Indian Self-Determination Contracting: Shortfalls and
	     Alternatives for Funding Contract Support Costs
      DATE:  08/03/1999
   SUBJECT:  Native Americans
	     Contract administration
	     Indian affairs legislation
	     Appropriated funds
	     Funds management
	     Allowable costs

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

Before the Committee on Resources, House of Representatives

For Release
on Delivery
Expected at
11:00 a.m.  EDT
Tuesday
August 3, 1999

INDIAN SELF-DETERMINATION
CONTRACTING - SHORTFALLS AND
ALTERNATIVES FOR FUNDING CONTRACT
SUPPORT COSTS

Statement of Jim Wells, Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-271

GAO/RCED-99-271T

(141361)

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

  BIA -
  GAO -
  IHS -

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

Just a month ago, the President of the United States visited the
Oglala Sioux Tribe in South Dakota, stressing Native Americans' need
for economic empowerment.  This historic visit is another stepï¿½the
first of which was taken in 1975 with the passage of the Indian
Self-Determination and Education Assistance Act (the act)ï¿½toward
recognizing the potential for tribes' self-determination through
economic development.  The act, as amended, provides that tribes
shall have the opportunity to assume the management of federal Indian
programs, and that they shall receive contract support funds to cover
their costs of contract management and administration.\1 Yet during
our review of contract support costs for tribal self-determination
contracts, many tribal officials told us that they have diverted
funds from economic development opportunities to cover shortfalls in
federal funding.  For example, for fiscal year 1998, the Bureau of
Indian Affairs (BIA) and Indian Health Service (IHS) calculated that
they owed the Oglala Sioux an additional $1.5 million in contract
support funding that they were unable to provide because of limited
appropriations.  For all tribes with self-determination contracts,
the shortfall in funding for allowable contract support costs totaled
$95 million in fiscal year 1998.\2 Contract support costs are
intended to cover the expenses tribes incurï¿½for financial management
and accounting, some training, and program startup costsï¿½in managing
contracted programs such as social services, hospitals and clinics,
road maintenance, law enforcement, and forestry. 

Because of congressional concerns over ever-increasing contract
support costs and shortfalls in funding these costs, the Subcommittee
on Interior and Related Agencies, Senate Committee on Appropriations,
and the Senate Committee on Indian Affairs asked us to review various
aspects of these costs in our June 1999 report.\3 Our testimony today
will focus on the extent of, and reasons for, increases in contract
support costs over the last several years and four alternatives for
funding these costs.\4

In summary, tribes' allowable contract support costs tripled from
1989 through 1998ï¿½increasing from about $125 million to about $375
million.\5 This increase occurred for two principal reasons.  First,
the total costs of tribally contracted programsï¿½upon which contract
support costs are basedï¿½have increased.  Second, the total cost to
tribes of administering their self-determination contracts has
increased.  Although the amounts appropriated for contract support
costs have increased over the past decade, they have not increased at
as great a rate as the support costs, resulting in funding
shortfalls.  For fiscal year 1998, for example, the shortfall between
appropriations (almost $280 million) and allowable contract support
costs (about $375 million) was about $95 million.  Projections of
future contract support costs are difficult to calculate because the
number of programs for which tribes will choose to contract in the
future is uncertain, as is the amount of funding they will receive. 
However, the tribes' allowable contract support costs could double in
the future if tribes were to contract for all the available programs
from BIA and IHS. 

The impasse over whether to provide full funding for contract support
costs or limit these costs continues in the Congress.  The fallout
has included litigation relevant to the issue, as well as a 1-year
moratorium for fiscal year 1999 on new contracting.  Because of a
lack of progress in resolving this issue during 1999, the Senate
Committee on Appropriations has proposed extending the moratorium for
another year.  To assist the Congress in its deliberations over how
to resolve the impasse over contract support costs, GAO presents four
alternative funding approaches, each of which can be considered
individually or combined with the others.  These alternatives range
from providing appropriations sufficient to fund the tribes'
allowable contract support costs each year to amending the act to
remove the provision for funding contract support costs separately
from and in addition to a program's direct costs and instead provide
a single, consolidated contract amount.  Each of the alternatives has
advantages and disadvantages.  Three of the four alternatives have
the advantage of controlling future increases in contract support
costs.  A disadvantage of these same three alternatives is that they
would require legislative changes to the funding provisions of the
act. 

--------------------
\1 Throughout this testimony, the term ï¿½tribesï¿½ will refer to both
tribes and tribal organizations eligible to contract for programs
under the act.  Also, the term ï¿½contractsï¿½ will refer to contracts,
grants, self-governance agreements, cooperative agreements, or annual
funding agreements that are entered into under to the act, as
amended, that receive contract support funds. 

\2 Tribal contractors and IHS are currently engaged in litigation to
determine whether, for Indian self-determination contracts, the
funding for tribal contract support costs is limited to the amount
appropriated. 

\3 Indian Self-Determination Act:  Shortfalls in Indian Contract
Support Costs Need to Be Addressed (GAO/RCED-99-150, June 30, 1999). 

\4 The June 1999 report also addressed how the tribes have been
affected by funding shortfalls for contract support costs, and
whether the act's provisions for contract support costs have been
implemented consistently.  The report contained two recommendations
to make BIA's and IHS' payment of contract support costs more
consistent. 

\5 Dollar figures used throughout this testimony have been adjusted
to constant 1998 values. 

   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Before 1975, Native Americans and Alaska Natives depended on the
federal government to provide them with such services as law
enforcement, social services, natural resource management, hospital
care, and other health services like dental and mental health care. 
This began to change in 1975 when the government announced a policy
of self-determination for tribal governments.  The federal
government's self-determination policy allows tribes to take over the
management and administration of programs previously managed by the
government on their behalf.  As part of the government's policy,
tribes receive funding for the programs they contract to manage as
well as funding to cover the costs of their contract management and
administration.  These latter costs, referred to as contract support
costs, are the necessary and reasonable costs tribes incur in
establishing and maintaining the support systems needed to administer
their contracts. 

Tribes enter into self-determination contracts with two agencies (1)
BIA, which is the primary federal agency with responsibility for
administering Indian policy and discharging the federal government's
trust responsibility for American Indians and Native Alaskan
villages, and (2) IHS, which is responsible for delivering health
services to American Indians and Alaska Natives.  If a tribe chooses
not to contract for a BIA or IHS program, the agencies continue to
provide the service to the tribes.  In fiscal year 1997, tribes
contracted for programs worth about $546 million, excluding such
programs as education and construction; BIA's budget that year
totaled $1.7 billion.  Tribes contracted IHS programs worth $719
million in fiscal year 1998, and IHS' total budget for that same year
was over $2 billion. 

To identify allowable contract support costs, the agencies commonly
refer to three cost categories:  (1) indirect costs, (2) direct
contract support costs, and (3) startup costs.  Indirect costs are
costs for a tribe's common support services, such as accounting. 
Direct contract support costs are costs for activities that are
program-related but for which the tribe does not receive program
funds, such as workers' compensation, and startup costs are costs for
one-time expenses incurred in beginning a program, such as the costs
of computer hardware and software. 

Tribes' indirect cost rates are negotiated using guidance published
by the Office of Management and Budget.  This is the same guidance
used by other groups such as state and local governments and
nonprofit agencies.  The Department of the Interior's Office of
Inspector General negotiates the majority of these rates.  The
Department of Health and Human Services' Division of Cost Allocation
also negotiates some rates, predominately for tribal organizations. 
There have been a number of legal challenges dealing within the rate
setting process and the funding for contract support costs.  A 1997
court decisionï¿½Ramah Navajo Chapter v.  Lujanï¿½may require a change in
the Inspector General's method of calculating indirect cost rates; we
do not address this issue in our testimony because the settlement
discussion is ongoing.\6

--------------------
\6 112 F.  3d 1455 (10\th Cir.  1997). 

   INCREASES IN CONTRACT SUPPORT
   COSTS WILL LIKELY CONTINUE IN
   THE FUTURE
---------------------------------------------------------- Chapter 0:2

As the tribes' funding for contracted programs has increased over the
past decade, so has the funding for contract support costs.  In the
past decade, the total dollars that BIA and IHS have provided to
tribes for self-determination contracts has more than doubled, from
about $800 million in fiscal year 1989 to about $1.9 billion in
fiscal year 1998.\7 Tribes' contract support costs have also
increased for these programs; the amount of contract support funding
for tribes' administrative and other management costs has increased
from about $125 million to about $375 million.  Although
appropriations from the Congress and the payments from these two
agencies for contract support have increased, they have not been
sufficient to cover tribes' allowable costs identified by BIA and
IHS.  In fiscal year 1998, the Congress appropriated almost $280
million to fund almost $375 million in tribes' allowable contract
support costs, resulting in a shortfall of about $95 million. 

There are two views about whether contract support costs should rise
in proportion to overall contracting levels.  The first view is that
most contract support costs would be expected to increase as a tribe
contracts for additional programs.  With more contracted programs,
more money is needed for contract management and administration.  The
second view is that contract support costs should not automatically
increase when additional programs are contracted.  For example, if a
tribe has already developed an accounting system then it could, up to
a point, contract for additional programs without spending additional
resources on the accounting system. 

The exact amount of future contract support costs is difficult to
predict, but will likely increase beyond the $375 million for fiscal
year 1998.  The extent of future increases will depend on the (1)
amount of future appropriations BIA and IHS receive for contracted
programs, (2) extent to which tribes choose to contract for new
programs in the future, and (3) future changes in tribes' costs of
administering contracts.  Currently, tribes receive funding through
self-determination contracts equal to about half of BIA's and IHS'
total appropriations; the other half is being used by BIA and IHS
themselves to provide services to the tribes.  If the half now being
used by BIA and IHS were contracted by the tribes in the future and
if indirect cost rates were to stay about the same, then contract
support costs could doubleï¿½from the fiscal year 1998 amount of about
$375 million to about $750 million. 

--------------------
\7 Because BIA could not provide us with fiscal year 1998 contracting
data, this information is fiscal year 1997 contracting data expressed
in constant 1998 dollars. 

   ALTERNATIVES FOR FUNDING
   CONTRACT SUPPORT COSTS
---------------------------------------------------------- Chapter 0:3

Shortfalls in contract support funding have persisted for the past
decade, with the most dramatic shortfalls occurring in the last 5
years.  Figure 1 shows that funding shortfalls grew from about $22
million in fiscal year 1994 to about $95 million in fiscal year 1998,
peaking at about $120 million in fiscal year 1997. 

   Figure 1:  Shortfalls in
   Contract Support Funding for
   BIA and IHS, Fiscal Years
   1994-98

   (See figure in printed
   edition.)

In response to the need for a permanent solution to the current
funding impasse, we are presenting four alternatives for funding
contract support costs.  We discuss the advantages, the
disadvantages, and the cost implications of each.  We do not consider
all the possible alternatives for funding contract support costs.  In
discussing the costs of each alternative, we address costs starting
in fiscal year 1998.  However, we do not address the additional
funding that would be necessary for prior years' shortfalls or if BIA
and IHS change their methods for determining direct contract support
costs.\8 The cost estimates we provide are illustrative rather than
actual because they involve two major assumptions.  First, using the
agencies' estimated funding level for new contracts for fiscal year
2000, we assume that $17.5 million would be the annual cost of
supporting new contracts.  Second, using fiscal year 1998
appropriations of about $280 million, plus the agencies' fiscal year
1998 shortfall estimate of about $95 million for existing contracts,
we assume that $375 million would be the cost of fully funding the
existing contracts the first year under an alternative funding
method.  Finally, we are not able to estimate the costs of changes to
existing contract costs because of the ever-changing nature of
tribes' indirect cost rates and direct cost bases. 

--------------------
\8 In 1998, the Congress included language in the Omnibus
Consolidated and Emergency Supplemental Appropriations Act for fiscal
year 1999 (P.L.  105-277, section 314, 112 Stat.  2681-288, Oct.  21,
1998) that limited the obligation to fund contract support costs to
the amounts the Congress appropriated for that purpose in fiscal
years 1994 through 1998.  This provision is currently being
challenged by tribal contractors. 

   ALTERNATIVE 1:  FULLY FUND
   CONTRACT SUPPORT COSTS
---------------------------------------------------------- Chapter 0:4

The first alternative for congressional consideration is to make
appropriations sufficient to fully fund (i.e., at 100 percent of
allowable costs) tribes' allowable contract support costs (this
alternative assumes that BIA and IHS would request the full amount of
tribes' allowable costs).  With this alternative, BIA and IHS would
continue to identify tribes' allowable costs as they do now, by using
tribes' indirect cost rates, and would pay direct contract support
costs in a consistent way.  The agencies would identify and request
the funds necessary to support new contracts. 

      ADVANTAGES AND DISADVANTAGES
-------------------------------------------------------- Chapter 0:4.1

The first alternative has the advantage of fulfilling the provisions
of the act that allow tribes to receive funding for their allowable
contract support costs.  By fully funding these costs, the Congress
and the funding agencies would eliminate funding shortfalls as well
as the potential for lawsuits stemming from such shortfalls.  This
alternative would be advantageous to tribes because it would help
ensure that they receive the allowable support funds for the BIA and
IHS programs they contract.  As tribes contract for more programs,
they may need to build up their administrative systems to properly
administer and manage their contracts. 

The primary disadvantage of this alternative is that its
implementation would require the Congress to fully fund all allowable
contract support costs, which will likely continue to increase each
year.  It is difficult to predict future contract support costs for
several reasons, including the difficulty of determining how many
tribes will enter into new contracts during the year.  As BIA and IHS
transfer more and more programs to the tribes, the agencies'
administrative costs should decrease, and some of this funding could
become available to offset increases in contract support funding. 
Nevertheless, most of the funding for the increased allowable costs
would have to be provided through federal appropriations. 

Another disadvantage of this alternative, in terms of
cost-efficiency, is that it does not provide tribes with incentives
to limit the growth of contract support costs and, particularly, of
indirect costs.  Although tribes must justify their indirect cost
rates through the standard rate negotiation process and, under the
law, should not receive duplicate funding for the same task from
program funding and contract support funding, the current method of
funding indirect costs could encourage tribes to classify as many
costs as possible as ï¿½indirectï¿½ to receive more funding. 

      COST OF THE FIRST
      ALTERNATIVE
-------------------------------------------------------- Chapter 0:4.2

As the need for contract support funding will, in all probability,
continue to increase each year, the ï¿½full fundingï¿½ alternative will
involve ever-increasing amounts of funding.  The cost of this
alternative would be about $375 million the first year, including the
fiscal year 1998 funding shortfall, and would increase by the amount
paid for new and expanded contracts and an undetermined amount for
changes to existing contracts due to changes in indirect cost rates
or program funding.\9

--------------------
\9 In the second year of contracting under this alternative, we
assume that the funding for existing contracts would increase by
$17.5 million and another $17.5 million would fund additional new and
expanded contracts. 

   ALTERNATIVE 2:  AMEND THE ACT
   TO ELIMINATE THE PROVISION FOR
   FULL FUNDING OF CONTRACT
   SUPPORT COSTS
---------------------------------------------------------- Chapter 0:5

A second alternative is for the Congress to amend the act to
eliminate the provision for fully funding allowable contract support
costs and, instead, provide funding strictly on the basis of annual
appropriations.\10 With this alternative, BIA and IHS would continue
to identify tribes' allowable costs, using their indirect cost rates,
in the agencies' budget requests. 

--------------------
\10 This alternative may not be necessary if federal courts determine
that the requirement for contract support funding under the act is
limited to the amount actually appropriated.  Cases presently before
the Court of Appeals for the Federal Circuit are considering this
issue. 

      ADVANTAGES AND DISADVANTAGES
-------------------------------------------------------- Chapter 0:5.1

This alternative has the advantage of limiting the growth of contract
support funding; funding amounts would be established by the amount
the Congress appropriates each year.  At the same time, this
alternative would allow the Congress to fund contract support costs
at whatever level it deems appropriate.  The Congress has
appropriated increased amounts for contract support; in fiscal year
1989, it provided about $100 million; in fiscal year 1998, it
provided about $280 million.  If adopted, this alternative would
eliminate the expectation, created by the 1988 and 1994 amendments to
the law, that full contract support funding will be available, when,
in fact, appropriations and funding have been limited and have caused
shortfalls. 

A disadvantage of this alternative is that it may discourage tribes
from entering into new self-determination contracts.  The current
policy fosters self-determination by encouraging tribes to assume
managerial responsibility for federal programs that the government
previously managed on their behalf.  Yet, as the Senate authorizing
committee has explicitly stated, assuming responsibility for these
programs was not intended to diminish the tribes' program
resources.\11

Another disadvantage of this alternative for tribes is that funding
for their contract support costs would be subject to the
uncertainties of the appropriations cycle.  Unless the Congress
decides to appropriate amounts sufficient to fully fund tribes'
contract support costs every year, this alternative would produce
shortfalls between the amounts provided and those identified as
allowed for contract support.  Appropriations could fluctuate from
year to year, and this could negatively affect tribes' ability to
plan and budget for administering their programs. 

--------------------
\11 S.  Rep.  No.  103-374 at 9 (1994). 

      COST OF THE SECOND
      ALTERNATIVE
-------------------------------------------------------- Chapter 0:5.2

The cost of this alternative would depend on the annual
appropriations provided by the Congress for contract support, which
was $280 million in fiscal year 1998. 

   ALTERNATIVE 3:  AMEND THE ACT
   TO IMPOSE LIMITS ON INDIRECT
   COST RATES
---------------------------------------------------------- Chapter 0:6

A third alternative would be to amend the act to limit the amount of
funding tribes could receive for contract support by limiting the
amount of indirect costs they can receive.  For example, one way to
limit funding would be to establish one indirect cost rate--such as
the current aggregate rate of 25 percentï¿½as a flat rate that would
apply to all tribes. 

      ADVANTAGES AND DISADVANTAGES
-------------------------------------------------------- Chapter 0:6.1

Like the second alternative, this one has the advantage of imposing
limitations on the growth of contract support funding and of
eliminating the expectation created by the law's current language
that full contract support funding will be available.\12 An advantage
of this alternative for tribes is that their contract support costs
would be funded on a consistent basis and they could better
anticipate their annual contract support funding.  All tribes would
receive funding, and they would receive it at the same rate. 

However, the disadvantage of this alternative to tribes is that it
ignores differences among individual tribes' actual indirect costs,
which make up the majority of contract support costs and vary widely
among tribes.  By ignoring these differences, this alternative could
provide a windfall for tribes that have low indirect cost rates while
placing those with high rates at a disadvantage, depending on the
specific rate limitation that would be applied.  Currently, if the
Congress were to impose a flat 25-percent rate based on total direct
costs, more tribes would receive reduced funding than increased
funding for indirect costs.  For example, if a tribe had a 30-percent
rate before this fixed rate was set, it would receive 5 percent less
for indirect costs each year.  On the other hand, a tribe that had a
15-percent rate before the establishment of a fixed 25-percent rate
would receive 10 percent more each year than it would have done
otherwise.  While this alternative would provide an incentive for
tribes with high indirect cost rates to lower their indirect costs,
BIA and IHS would have to redistribute funding among tribes, which
could cause financial and administrative disruption for those that
would lose funding. 

--------------------
\12 The idea of imposing a cap on indirect cost rates is similar to
the approach used to limit the growth of indirect costs at colleges
and universities.  Beginning in fiscal year 1992, a 26-percent cap
was imposed on federal reimbursements to universities for certain
indirect costs associated with the performance of federally funded
research, as we reported in a previous review of such costs. 
University Research:  Effect of Indirect Cost Revisions and Options
for Future Changes (GAO/RCED-95-74, Mar.  6, 1995). 

      COST OF THE THIRD
      ALTERNATIVE
-------------------------------------------------------- Chapter 0:6.2

The cost of this alternative would depend on the type of rate limit
established.  If, for example, the Congress chose a flat rate of 25
percent, this alternative would cost about the same as the current
method costs, about $375 million, for the first year.  This amount
would be higher or lower depending on the rate chosen by the
Congress. 

   ALTERNATIVE 4:  AMEND THE ACT
   TO REPLACE THE CURRENT FUNDING
   MECHANISM WITH A CONSOLIDATED
   CONTRACT AMOUNT
---------------------------------------------------------- Chapter 0:7

A fourth alternative would be to amend the act to eliminate the
current funding mechanism, which provides contract support funding
over and above direct funding for the program, and replace it with
one that would combine the current categories of contract costs into
one contract amount from which both direct and indirect costs would
be recovered.  The revised contract amount would consist of the sum
of (1) a program's dollars; (2) the allowable indirect costs; and (3)
any allowable direct contract support costs.  Upon consolidation into
a single contract amount, these cost categories would lose their
individual identities and would thereafter simply make up the
contract total.  This method has been tried before, but failed
because of funding shortfalls.  BIA tried to create a single contract
amount in the mid-1980s. 

      ADVANTAGES AND DISADVANTAGES
-------------------------------------------------------- Chapter 0:7.1

The advantage of this alternative for both the government and tribes
is that it provides for the full recovery of indirect costs, although
the amount of funding provided may not increase.  At the same time,
this alternative removes any incentive for tribes to increase their
indirect costs to receive more funding each year.  Funding would no
longer be provided over and above a program's direct funding, so once
the consolidated contract amount has been set, any increases in
indirect costs would leave less money for a program's expenditures. 
This would create an incentive for tribes to reduce their indirect
costs as much as possible, to make more money available for direct
program expenditures.  In keeping with the purpose of the act, tribes
would make decisions about how much funding to spend on program costs
and how much to spend on administrative, or indirect, activities. 
With this alternative, the spotlight would no longer be on the
sufficiency of contract support funding, but on the sufficiency of
direct program funding.  That is, funding debates would center on
whether the funds provided for a particular program would be
sufficient to achieve its intended purpose. 

A disadvantage of this alternative for tribes is that if their
indirect cost rates increased over the years, the contract amounts
would not automatically increase.  Changes in indirect cost
ratesï¿½whether upward or downwardï¿½would no longer affect the amount of
funding a tribe would receive, because contract support would no
longer be funded separately from the program amounts.  Thus, tribes
would bear the responsibility for managing indirect costs prudently,
to retain as much funding as possible for program services. 

      COST OF THE FOURTH
      ALTERNATIVE
-------------------------------------------------------- Chapter 0:7.2

The Congress could fund this alternative in one of two ways.  First,
when the existing contract funding is consolidated, the funding could
be combined at the current funding level, which would perpetuate the
current funding shortfall.  This option would cost $280 million
annually for existing contracts, but would not differ from the
previous failed attempt by BIA.  Or, second, the contract funding
could be consolidated at the level identified by BIA and IHS as the
amount of tribes' allowable contract support costs.  Using fiscal
year 1998 funding, the consolidated amount would be about $375
million.  As with the other alternatives, contract support costs
would continue to be needed for new contracts.  But under this
alternative, future increases in contract support costs would be
slowed, because the funding mechanism would no longer provide
contract support funding over and above the direct program amounts
for existing contracts.  Thus, if the Congress decided to increase
funding for a particular program, this decision would not create a
corollary obligation for increased contract support funding. 

-------------------------------------------------------- Chapter 0:7.3

Mr.  Chairman, this concludes my statement.  I will be pleased to
respond to any questions that you or other members of the Committee
may have at this time. 

   CONTACT AND ACKNOWLEDGMENTS
---------------------------------------------------------- Chapter 0:8

For information about this testimony, please contact Chet Janik at
(202) 512-6508.  Individuals making key contributions to this
testimony included Susan Iott and Jeff Malcolm. 

*** End of document. ***