Mr. Chairman, Senator Dorgan, and members of the Committee, I appreciate the opportunity to testify on the Treasury Department's fiscal year 2000 budget request.

Mr. Chairman, for FY 2000, Treasury is proposing a program level that totals $12.659 billion for all operations. This level is offset by $454 million from proposed fees as well as the use of Treasury Forfeiture Fund, resulting in a net appropriation request of $12.205 billion. Our request is critical to supporting Treasury's important and wide-ranging mission.

As you know, the Treasury plays a key role in the core functions of government, including tax administration, revenue collection, law enforcement, financial management, tax policy, banking policy, international economic policy and domestic economic policy. Our budget supports Treasury's core current service requirements, maintaining a balance of restrained staffing growth with enhanced technological investments and capital support to strengthen Treasury's ability to manage its programs efficiently and effectively.

We have provided the Committee detailed presentation materials on our fiscal year 2000 budget request. Let me now highlight five major priorities in the budget: reforming the Internal Revenue Service; exercising leadership in international economic affairs; strengthening our ability to fight drugs and crime; modernizing our financial systems; and Y2K conversion.

Let me begin by discussing the IRS.

Last year, Congress passed the IRS Restructuring and Reform Act, building on the process of reform the Administration began nearly four years ago. This legislation mandates changes to tax laws and procedures, and the modernization of IRS's organization and systems. In addition, in this spirit, IRS, Congress and the Administration have pledged to the American people to reform the IRS and give taxpayers the service they deserve and have come to expect from the private sector. To follow through on this commitment and to implement the Act, the IRS budget supports a major investment of $197M to meet the reform and restructuring goals.

IRS restructuring and reform is centered on four areas.

First, protecting the taxpayer: The Reform legislation includes more than 70 tax law changes to improve taxpayer protections. The Act also strengthens the Taxpayer Advocate's organization and has provisions to help ensure internal accountability and integrity.

Second, improving customer service: The Reform Act mandates efforts to increase electronic filing and improve assistance to taxpayers. This budget supports 24 hour-7 days a week phone access, expanded walk-in service, enhanced service to small business, and Spanish language telephone assistance.

Third, transforming the organization: The IRS has in place a new management team with a new mission and vision. In 1998, the IRS Commissioner unveiled a new IRS structure which focuses on service from the taxpayer's point of view. IRS will be organized around specific taxpayer groups, consistent with the mandates of the Reform Act. In addition, the Restructure and Reform legislation established the Treasury Inspector General for Tax Administration. The budget supports the independence of this organization through transfer of funding from the IRS, as directed by the legislation.

Fourth, modernizing information systems: In December 1998, IRS awarded its PRIME systems contract for systems modernization. IRS is currently working in partnership with the PRIME contractor to revamp the systems modernization blueprint to reflect organizational changes and business process re-engineering.

Concerning technological needs at the IRS, the IRS request funds the continuation of the Y2K program. Recognizing the difficult funding restraints present this fiscal year, we are also foregoing a deposit into the IRS Technology Account in FY 2000 because we believe we have sufficient funds in this account to fund system modernization through FY 2000. Instead, we are asking for an advance appropriation for FY 2001 of $325 million to continue funding for this multiple year program of systems modernization.

The second major priority in the budget is to continue exercising leadership in international economic matters. Treasury plays a critical role in domestic and world economic affairs by providing expertise and analysis vital to formulating sound economic policy. Never has this role been more important than during the last year and a half, when we at Treasury have been enormously focused on and involved in the effort to restore stability and growth in countries affected by the international financial crisis B which in turn very much affects our own economic well being. To strengthen these efforts, this budget expands the market analysis capability in the Office of International Affairs.

Our third major priority in the budget is to strengthen our ability to fight drugs and crime. As this committee well knows, Treasury has critical and extensive law enforcement responsibilities in a number of agencies including Customs, the Secret Service, the Bureau of Alcohol, Tobacco and Firearms, the IRS, FINCEN, and the Federal Law Enforcement Training Center.

To strengthen these critical efforts, our budget requests moderate increases to support the Administration's major law enforcement policy emphases. Specifically, our budget is focused on four key law enforcement areas.

The first key area is the reduction of trafficking, smuggling and use of illicit drugs. The Customs Service is committed to improving the efficiency and effectiveness of its drug interdiction at U.S. ports. This budget supports additional x-ray and telecommunications equipment to examine suspected drug couriers in a less intrusive and more effective fashion. In addition, the request of Customs, the IRS, and FINCEN all support efforts to combat money laundering, which often provides an effective means for prosecuting drug traffickers. Customs continues to improve its interdiction of the illicit proceeds of drug sales and the budget funds additional x-ray inspection equipment for use at border crossings to prevent the exit of drug proceeds.

Second is the integrity of law enforcement operations. As part of Treasury's ongoing effort to improve law enforcement effectiveness, this budget supports Customs' goal of strengthening its integrity awareness and operational oversight activities. The Customs request also supports the establishment of a comprehensive education, training, and workforce development program which covers the entire cadre of Customs personnel, with a special emphasis on law enforcement personnel. Furthermore, this budget also supports strengthening of Treasury's Inspector General's investigative unit.

Third is protection of high-level U.S. and foreign officials. The Secret Service continues efforts to ensure that protectees are safe from increasing threats of counter-terrorism. This budget supports protection for candidates and nominees in the 2000 campaign and additional security measures at the White House complex.

The fourth key area is the reduction of the criminal misuse of firearms. The budget continues to build on Departmental and ATF initiatives started during the past two years to prevent violent firearms crimes, including those committed by the nation's youth. This efforts include expansion of ATF's Youth Crime Gun Interdiction Initiative; full implementation of the Brady Law; and strengthened efforts to investigate and help prosecute persons who illegally attempt to purchase firearms at gun shows and similar venues.

Let me mention two other features of our budget related to law enforcement. For several years, Treasury has understood the need to provide a safe headquarters building for ATF employees and the budget supports funding in GSA for this effort. In addition, funding is also included in this budget to shore up Customs' current system for commercial processing, which is struggling to meet the needs of today's modern trade community. We support the need to replace Customs' aging system and intend to use FY 2000 to develop an integrated plan for a new system, and then launching implementation of that plan in 2001.

Our fourth major priority in the budget is modernizing government financial systems, including re-targeting and realigning existing resources to meet workload changes at the Financial Management Service, and upgrading financial technology and systems infrastructure at the Bureau of Public Debt.

The final major priority in the budget is completing system conversion to operate smoothly in the Year 2000.

As the agency responsible for the distribution of most government payments, the collection of most government revenue, and with operations that affect virtually every aspect of government and the private sector, we at Treasury are enormously focused on the Y2K problem. We have made a great deal of progress; February, for example, marked the fifth month in a row that distribution of Social Security payments were Y2K compliant.

However, there is still much to do. At Treasury, every mission critical system is being upgraded or replaced to ensure smooth operations in the year 2000. The IRS is the largest part of the date conversion effort. The bulk of its FY 2000 activities will involve the completion of its data center consolidation and the last three months of preparation before the end of the century, including end-to-end system testing, as well as any contingencies that must be implemented to deal with potential but unexpected failures.

I would like to bring to your attention to one final item that has been of great interest to the Department, and that is the North American Development Bank. We have been working hard to make the domestic window of the North American Development Bank fully productive, and I urge you to support this year's request.

Mr. Chairman, let me conclude on a personal note. Throughout my four years as Secretary of the Treasury, I have been continually impressed by the intelligence, professionalism and dedication of the Treasury people with whom I've had the opportunity to work. I think this should give you and the Committee confidence in the uses that are being made of taxpayer's funds. In that spirit, I ask that you approve our FY 2000 budget request to support the work of the Treasury Department in fulfilling its wide range of responsibilities in serving the American people. The Treasury Department has had a very productive relationship with this Committee and we look forward to working with you throughout this year. Thank you very much.